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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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EPS SOLUTIONS CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 33-0816510
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 SOUTH RIVERSIDE PLAZA, 22ND FLOOR 60606
CHICAGO, ILLINOIS (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (312) 782-1581
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
(Title of class)
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TABLE OF CONTENTS
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Item Page
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Risk Factors..................................................... 2
1 Business......................................................... 11
2 Financial Information............................................ 15
3 Properties....................................................... 24
4 Principal Stockholders........................................... 25
5 Management....................................................... 27
6 Executive and Director Compensation; Employment Agreements....... 29
7 Related Party Transactions....................................... 33
8 Legal Proceedings................................................ 40
9 Market Price of and Dividends on
Common Stock and Related Stockholder Matters..................... 41
10 Recent Sales of Unregistered Securities.......................... 43
11 Description of Capital Stock to be Registered.................... 49
12 Indemnification of Directors and Officers........................ 52
13 Financial Statements and Supplementary Data...................... 54
14 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................. 58
15 Exhibits and Financial Statement Schedules....................... 59
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RISK FACTORS
The risks described below are not the only risks we face. Additional risks
not presently known to us or which we currently consider immaterial may also
adversely affect our company. Any of these risks could have a significant
adverse effect on our business, financial condition and operating results.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED HISTORY OF MANAGING THE COMBINED OPERATIONS OF OUR BUSINESSES
AND THE TASK OF INTEGRATING THE BUSINESSES WE HAVE ACQUIRED IS ONGOING. OUR
FAILURE TO EFFECTIVELY INTEGRATE OUR BUSINESSES MAY HARM OUR ABILITY TO GROW.
Integrating our businesses and any businesses we may acquire in the future
requires us to combine different operations and systems, create a unified
corporate culture and develop a market for our diverse portfolio of products and
services. For example, building a common infrastructure to centralize our
accounting, finance and human resource functions has been time consuming,
difficult and expensive. Integration is ongoing and we will continue to
encounter financial, managerial or other difficulties as we continue our
integration efforts. If we do not effectively integrate our businesses our
ability to grow will be impaired.
IF WE ARE UNABLE TO MANAGE THE GROWTH OF OUR BUSINESS IT MAY HARM OUR
PROFITABILITY.
Internal growth and growth through acquisitions will require us to spend
significant time and effort in expanding our existing business and identifying,
completing and integrating acquisitions, which may not lead to corresponding
revenue growth. Our systems, procedures and controls may not be adequate to
support our operations as they expand. In addition, our executive officers and
senior management are relatively inexperienced in the management of a combined
enterprise as large and complex as we are. Any future growth will impose
significant added responsibilities on our management, including the need to
identify, recruit and integrate new senior level managers and executives. Our
inability to manage our growth or to recruit, retain and integrate additional
qualified management could harm our profitability.
THE ONGOING PROCESS OF DIVESTING OURSELVES OF SOME OF OUR BUSINESSES WHICH HAVE
NOT PERFORMED IN ACCORDANCE WITH OUR EXPECTATIONS AND WHICH NO LONGER FIT WITHIN
OUR STRATEGIC PLAN IS TIME CONSUMING AND EXPENSIVE AND MAY HARM OUR
PROFITABILITY.
We are currently in the process of divesting ourselves of our cost recovery
businesses, which have not performed in accordance with our expectations and
which we have determined no longer fit within our strategic plan. We have not
yet identified purchasers for several of these businesses and we may not be able
to find purchasers willing to purchase the businesses upon commercially
reasonable terms, if at all. In addition, while we are in the process of
identifying potential purchasers, we continue to operate the businesses, which
leads to continued costs and exposures to the risks commensurate with operating
a going concern. If we are unable to find purchasers willing to purchase
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each of the businesses on commercially reasonable terms, we will not receive the
full market value in exchange for the businesses, which may harm our
profitability.
WE ARE IN DEFAULT UNDER OUR SENIOR SECURED CREDIT FACILITY AND HAVE REACHED A
TENTATIVE AGREEMENT WITH OUR LENDERS TO AMEND IT. FAILURE TO SUCCESSFULLY
CONSUMMATE THE AMENDMENT OF OUR CURRENT SENIOR SECURED CREDIT FACILITY COULD
LEAD TO FORECLOSURE ON OUR ASSETS BY OUR LENDERS.
Since December 31, 1999 we have been in default under our senior secured
credit facility because of our failure to meet certain financial covenants. We
have not been in default of our principal or interest payment covenants. Our
lenders have thus far agreed to waive our outstanding defaults and we have been
negotiating with them to amend and replace our current credit facility. On April
28, 2000 we received unanimous written approval of the lenders to amended terms.
Accordingly, we expect to execute a definitive agreement evidencing the amended
terms by May 15, 2000. However, if we are unable to successfully consummate the
amendment of the credit facility, we may be forced to repay the credit facility
and the facility would terminate, which would have a negative effect on our
business. If we are unable to repay the senior secured credit facility when
asked to do so by the lenders, they may exercise any one or more of the remedies
available to them, including foreclosing on the assets pledged to support the
facility, which includes virtually all of our assets. They may also require our
subsidiaries to repay amounts outstanding under the senior secured credit
facility because each of our subsidiaries has guaranteed the facility.
OUR CLIENTS MAY BE UNWILLING TO PURCHASE MULTIPLE PRODUCTS AND SERVICES FROM US,
WHICH WILL PREVENT US FROM FULLY IMPLEMENTING OUR INTEGRATED GROWTH STRATEGY.
The majority of our clients use only one of the more than 20 distinct
products and services we offer and many of our clients have existing
relationships with other vendors for products and services similar to those that
we offer. There is no established model for a single-source integrated human
capital solutions provider and we are not certain that our clients will accept
our model. If we are unable to demonstrate the advantages of maintaining a
relationship with a single-source integrated human capital solutions provider,
we will not benefit from the competitive advantage we hope to achieve through
the sale of multiple products and services to our clients.
IF WE ARE UNABLE TO RETAIN OUR CURRENT PERSONNEL AND HIRE ADDITIONAL PERSONNEL,
OUR ABILITY TO DEVELOP AND SUCCESSFULLY MARKET OUR PRODUCTS AND SERVICES COULD
BE IMPAIRED.
Our business relies upon dedicated management and skilled employees who can
develop and maintain client relationships and provide business services to a
sophisticated clientele. These employees are in great demand and are likely to
remain a limited resource for the foreseeable future. We have several key
employees in senior management who are themselves brand names in their markets.
We rely heavily upon their expertise and client relationships. Many of these
individuals agreed to significant reductions in compensation when they joined us
and entered into non-competition agreements in connection with the sale of their
businesses to us. Many of these non-competition agreements will expire over the
next one to two years. If we do not recruit and retain these professionals,
there may be an adverse effect on our competitive position.
MANY OF OUR EMPLOYEES HAVE PURCHASED STOCK PURSUANT TO RESTRICTED STOCK
ARRANGEMENTS THAT CONTAIN VESTING REQUIREMENTS. WHEN THE SHARES VEST, WE MAY
NEED TO PROVIDE NEW BENEFITS OR TO INCREASE COMMISSION AND SALARIES TO MOTIVATE
OUR EMPLOYEES, THE COST OF WHICH MAY REDUCE OUR PROFITABILITY.
We have implemented a series of compensatory, employment-based restricted
stock purchase arrangements to motivate our employees to remain with us,
maximize their performance and enhance our earnings. The restricted shares are
sold to employees at a price we believe to be the fair market value at the date
of purchase and are subject to performance and/or time-based vesting
requirements, typically over a period of four or five years. This restricted
stock program presents risks. First, as restricted stock vests or is lost, we
will need to implement other incentive programs to motivate our employees.
Second, many of our employees sell insurance products or provide executive
search services for commission compensation. In order to earn restricted stock,
some of these employees have entered into four or five-year agreements to reduce
their annual commissions below historical rates until they have foregone
specified levels of annual compensation to which they would otherwise be
entitled. We may enter into additional arrangements of this kind in the future.
At the end of the vesting period for the restricted stock associated with
reduced commissions, we may need to increase the compensation we pay to these
employees or risk losing them to competitors. Loss of these employees to
competitors would impair our ability to secure and complete engagements and
could have an adverse effect on our business.
WE DEPEND ON THE INTRODUCTION OF NEW PRODUCTS AND SERVICES TO ATTRACT AND RETAIN
OUR CLIENTS. FAILURE TO DEVELOP NEW PRODUCTS AND SERVICES WILL HARM OUR
PROFITABILITY AND GROWTH STRATEGY.
We expect to devote significant resources to developing and implementing new
products and services that we believe are complementary to those we currently
provide in order to attract new clients and to make the purchase of multiple
products more attractive to existing clients. We may not be able to develop
additional products and services that will be attractive to our clients, they
may not be receptive to purchasing additional products and services from us and
they may become dissatisfied with our lack of product innovation. If our
products and services are not viewed favorably in the marketplace we will be
unable to retain existing clients or to attract new clients, which will harm our
profitability and growth strategy.
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WE PLAN TO INVEST IN INTERNET SYSTEMS WITHOUT ANY ASSURANCE OF INCREASED FUTURE
EARNINGS OR PROFITABILITY. OUR FAILURE TO DEVELOP WEB-BASED PRODUCTS AND
SERVICES COULD SUBSTANTIALLY LIMIT OUR GROWTH STRATEGIES AND HARM OUR
PROFITABILITY.
We plan to invest considerable resources to develop and implement Web-based
products and services. We do not currently recognize any meaningful revenues
from Web-based business and we cannot assure you that we will be able to derive
meaningful revenues from this portion of our business in the future. Our
investment in a Web-based business plan presents the following risks:
o use of the Internet as a means of transacting business is relatively new
and may not be accepted by all clients in the markets we have targeted;
o we may be unable to transform our traditional products and services into
Web-based products and services in a timely manner or at all;
o rapid technological change could render our Web-based products and
services obsolete;
o the functionality of products and services we are able to develop for
the Web could be constrained if the infrastructure of the Internet is
not expanded and improved;
o concerns over the security of the Internet and other on-line
transactions and the privacy of users may deter clients from using the
Internet to conduct activities that involve transmitting confidential
information;
o development and implementation of our Web-based products and services
may require significant attention from key management personnel with
extremely limited experience with Web-based business who may therefore
be distracted from managing our traditional product and service
offerings;
o the early stage of development of the Web-based market for our products
and services makes it difficult for us to predict client demand
accurately;
o we may be unable to recover research, development and start-up costs
associated with our Web-based product and service development; and
o future governmental regulation of Internet commerce may impede the
success of our Web-based products and services.
CONTINUED GROWTH THROUGH STRATEGIC ACQUISITIONS COULD DISRUPT OUR BUSINESS AND
HARM OUR OPERATING RESULTS.
We expect to continue to make strategic acquisitions as part of our growth
strategy. We may not be able to identify and acquire additional businesses or
integrate and manage any acquired businesses without substantial costs, delays
or other operational or financial problems. Risks inherent in an acquisition
strategy, such as potentially increasing leverage and debt service requirements,
difficulties associated with combining different business systems and cultures,
and the failure to retain key personnel, could disrupt our business and
adversely affect our operating results. The process of integrating acquired
companies may involve unforeseen difficulties and require a disproportionate
amount of management's attention and financial and other resources. Our
acquisition strategy involves the following risks:
o we often finance acquisitions by issuing shares of stock as part of the
purchase price. If acquisition targets do not perceive our stock as
valuable, we will need to use more cash or issue more debt to implement
our acquisition strategy;
o we may incur debt;
o we may incur amortization expense related to goodwill and other
intangible assets;
o acquisition efforts may divert management's attention from our existing
business and the implementation of our business strategy;
o as a result of acquiring the equity interests (and in some cases, the
assets and certain liabilities) of some acquisition targets we could
expose our business to unforeseen liabilities that would increase our
expenses;
o prospective changes in the generally accepted accounting standards that
apply to amortization of charges associated with goodwill in
acquisitions could have an adverse effect on our financial results;
o uncertainties regarding the size, timing and integration of acquisitions
may cause our operating results to be difficult to predict and compare
from quarter to quarter; and
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o if we make an unsuitable acquisition we could incur losses, substantial
transaction costs and the diversion of management's attention in an
effort to improve the operations of the acquired company or to scale
back, terminate or sell the acquired company.
Businesses that we acquire in the future may not achieve anticipated
revenues and earnings. Additionally, our inability to acquire, integrate and
manage complementary product and service providers could have a material adverse
effect on our business, financial condition and results of operations.
OUR ACQUISITIONS OF COMPLEMENTARY INTERNATIONAL BUSINESSES WILL EXPOSE US TO
RISKS WE HAVE NOT FACED IN THE PAST, WHICH MAY HARM OUR PROFITABILITY.
If we are successful in acquiring complementary international businesses we
will have to confront and manage a number of risks that we have not had to
address in our U.S. operations. We may not be successful in managing these
risks. These risks include:
o expenses associated with customizing products for foreign countries;
o challenges and costs inherent in managing geographically dispersed
operations;
o laws and business practices that favor local competitors;
o multiple, conflicting and changing governmental laws and regulations;
o longer sales and payment cycles and greater difficulties in collecting
accounts receivables;
o little or no protection of our intellectual property rights in some
foreign countries;
o increases in tariffs, duties, price controls, or other restrictions on
foreign currencies;
o economic or political instability in some international markets;
o potentially adverse tax consequences; and
o foreign currency exchange rate fluctuations.
Revenue from international operations may not offset the expense of
establishing and maintaining these foreign operations. If we are unable to
successfully enter or compete in international markets, our growth strategy may
be impeded.
WE MAY BE UNSUCCESSFUL IN PROMOTING BRAND AWARENESS, WHICH MAY HARM OUR ABILITY
TO ATTRACT NEW CUSTOMERS.
In April of 2000 we determined, subject to shareholder approval, to change
our name to 3-D-H-R Corp. We currently promote our products and services under a
wide variety of names. If we are to develop our brand within our target markets,
which we believe is critical to achieving widespread acceptance and market
penetration, we must migrate to using the name "3-D-H-R Corp." in association
with all of our products and services. We have in the past dedicated limited
resources to marketing, public relations and other brand development activities,
and have only recently dedicated personnel and additional resources to this
task. As a result, our efforts in developing this brand awareness may not be
successful. If we fail to successfully promote and maintain our brand, our
operating margins and our growth may decline.
OUR REVENUES AND OPERATING RESULTS MAY VARY CONSIDERABLY FROM QUARTER TO QUARTER
AND FROM YEAR TO YEAR.
Our revenues and operating results may vary from quarter to quarter and from
year to year. We typically realize our lowest percentage of annual revenue in
our first quarter. In addition, our periodic results may vary due to events and
circumstances in our business. The variations result from a number of factors,
including:
o the number of active client engagements;
o the consummation of acquisitions and the integration of acquired
entities;
o the length of the sales cycle on new business;
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o the historical seasonability of the implementation of benefits programs;
and
o the year-end focus of annual incentive compensation systems.
A portion of our revenues result from transaction-based services. Therefore,
our revenues may vary considerably based on our success in obtaining such
engagements, their size and scope, and the timing of when we perform our
services, which determines when we earn and recognize such revenues. Also, we
believe our revenues for the first quarter of a calendar year are adversely
affected by clients' purchasing cycles, which generally start anew with each
calendar year, and the year-end focus of certain services we provide to our
clients. Because a significant portion of our expenses are relatively fixed,
revenue fluctuations can cause significant variations in operating results from
quarter to quarter or from year to year. Given all of the foregoing factors, we
believe that period-to-period comparisons of our operating results are not
necessarily meaningful, and the results for one period should not be relied upon
as an indication of future performance.
OUR OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED IF WE ARE UNABLE TO
PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a combination of copyright, trademark and trade secret laws,
nondisclosure agreements and other contractual arrangements to protect our
proprietary rights. None of our technology is patented. Although many of our
material brand names are the subject of registrations in the U.S. Patent and
Trademark Office, a number are not, including 3-D-H-R Corp. Also, we have not
yet determined whether 3-D-H-R Corp. is eligible for registration. Only a few of
our trademarks are registered outside the United States. Our training manuals,
client databases, and the source codes of our proprietary software are protected
under U.S. copyright law. However, U.S. copyright law protection does not extend
to the ideas contained within the materials or programs, nor will it prevent
others from independently developing materials or software that perform the same
functions or prevent individual items of data from being copied. Thus, our
competitors may also independently develop technologies that are equivalent or
superior to ours. While we generally enter into confidentiality agreements with
our employees, consultants, clients and potential clients and limit access to,
and distribution of, our proprietary information, we may be unable to deter
misappropriation of our proprietary information, detect unauthorized use or take
appropriate steps to enforce our intellectual property rights.
OUR PRODUCTS MAY BE SUSCEPTIBLE TO CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS
INFRINGE UPON THEIR COPYRIGHTS OR PATENTS, WHICH COULD LIMIT OUR ABILITY TO
OFFER THOSE PRODUCTS OR SUBJECT US TO INCREASED EXPENDITURES.
Although we believe that our services, products and trade names do not
infringe on the intellectual property rights of others, we have had infringement
claims filed against us in the past and we cannot prevent others from asserting
a claim against us in the future for violating their proprietary rights. If any
of our products violate the proprietary rights of third parties, we may be
required to change our products or to obtain licenses to continue offering our
products without substantial change. Any efforts to change our products or
obtain licenses from third parties may not be successful and, in any case, could
have a material adverse effect on our business and financial performance by
substantially increasing our costs. It is possible that we could become subject
to legal actions based upon claims that our products and services infringe the
rights of others. Any such claims, with or without merit, could subject us to
costly litigation and the diversion of our financial resources and management
personnel.
WE ARE INVOLVED IN LITIGATION WITH ANTHEM INSURANCE COMPANY, INC., WHICH
ALLEGES, AMONG OTHER THINGS, MISAPPROPRIATION OF RIGHTS TO THEIR HEALTHCARE
PAYABLES AUDITING SOFTWARE. THIS LITIGATION WILL CONTINUE TO BE COSTLY AND
DIVERT THE EFFORTS OF OUR MANAGEMENT, WHICH WILL HARM OUR PROFITABILITY.
We are involved in litigation with Anthem Insurance Company, Inc. in state
court in Indiana. Settlement attempts in this matter have thus far been
unsuccessful. We are not yet able to assess our potential liability or that of
the other named defendants. Our failure to prevail in this litigation could
result in an adverse judgment against us for monetary damages or a settlement on
unfavorable terms. In addition we may be required to indemnify certain of our
employees and former employees that are named in the litigation against
liabilities and expenses which arise in connection with the lawsuit, which could
prove costly. This litigation, regardless of its outcome, will
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continue to result in significant expenses in defending the lawsuit and may
divert the efforts and attention of our management team from normal business
operations.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESSES FACE SIGNIFICANT COMPETITION IN A MARKETPLACE THAT IS HIGHLY
COMPETITIVE AND HAS LOW BARRIERS TO ENTRY.
The market for our services is competitive, subject to rapid change and
affected by new service introductions, technological change and other activities
of industry participants.
The global executive search industry is extremely competitive and highly
fragmented. We compete primarily with other large global executive search firms,
such as Korn/Ferry International, Heidrick & Struggles International, Inc.,
SpencerStuart & Associates and Russell Reynolds Associates as well as smaller
boutique or specialty firms that focus on regional or functional markets or on
particular industries. Some of these competitors possess greater resources,
greater name recognition and longer operating histories than we do in particular
markets, which may afford these firms significant advantages in obtaining future
clients and attracting qualified professionals in those markets. Many executive
search firms have a smaller client base than we do and therefore may be subject
to fewer blocking arrangements than us. We may not be able to continue to
compete effectively with existing or potential competitors, or our significant
clients or prospective clients may decide to perform executive search services
using in-house personnel.
Our performance improvement products and services business faces significant
competition from in-house employee development programs, providers of
traditional classroom instruction, providers of CD-ROM performance learning
products and services, suppliers of online information technology performance
learning products and services that are attempting to take advantage of their
current technology and client base and expand into a Web-based market, and
established performance improvement providers such as Provant Inc.
Our corporate and employee benefit programs business faces significant
competition from independent insurance agents and national accounting and
consulting firms.
Historically, there have been few barriers to entry into the executive
search, performance improvement and benefit programs markets. New executive
search firms, performance improvement firms and benefit programs consultants
continue to enter the market. In addition, with the continued development and
increased use of the Internet, technology oriented companies will likely be
attracted to our markets. Many of our current and potential competitors have
longer operating histories, greater name recognition and greater financial,
technical, sales, marketing, support and other resources than we do. We may not
be able to continue to compete effectively against existing or potential
competitors and increased competition may have a material adverse effect on our
business, financial condition and results of operations.
WE MAY HAVE DIFFICULTY KEEPING PACE WITH THE FREQUENT CHANGES IN TECHNOLOGY AND
INDUSTRY STANDARDS IN THE DYNAMIC AND EVOLVING MARKETPLACE IN WHICH WE OPERATE,
WHICH COULD HARM OUR PROFITABILITY.
We operate in a dynamic and continually evolving marketplace characterized
by rapidly changing technologies, frequent new product and service introductions
and evolving industry standards. The growth in the use of the Internet and
intense competition in our industry exacerbate these market characteristics. Our
future success will depend on our ability to adapt to rapidly changing
technologies and client demands by continually improving the features and
performance of our products.
THE SIGNIFICANT CORPORATE RESTRUCTURING OCCURRING IN MANY OF THE INDUSTRIES WE
SERVE COULD HARM SALES OF OUR PRODUCTS AND SERVICES.
Our business and financial performance may be damaged, more so than most
companies, by the corporate restructuring and consolidation occurring in many of
the industries that we serve. During the time period when a client is undergoing
a change in management, employee hiring, education, and development is
temporarily
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suspended, often for a significant length of time. Any such decrease in employee
hiring, education, and development expenditures, even if temporary, would have a
material adverse effect on our sales.
THE CURRENT ACCEPTANCE OF OUTSOURCING BUSINESS SERVICES MAY DECREASE
SIGNIFICANTLY, WHICH COULD HARM OUR OPERATING RESULTS.
Our business and growth depend in large part on the acceptance of outsourced
business services among Fortune 1000 companies and other large organizations.
Our current and potential customers could elect to perform such services with
their own employees. In addition, adverse financial conditions affecting our
target clients or a general weakening of the economy could lead to a decrease in
demand for our services. Some companies may not view outsourced employee search,
performance learning and relocation products as critical to the success of their
business. If these companies experience disappointing operating results, whether
as a result of adverse economic conditions, competitive issues or other factors,
they may decrease or forego education and employee development expenditures
before limiting their other expenditures. A significant decline in the use of
outsourced services in general, or decreased expenditures for education and
employee development, would have a material adverse effect on our business,
financial condition and operating results.
OFF-LIMITS AGREEMENTS WITH OUR CLIENTS MAY RESTRICT THE CLIENTS TO WHOM WE CAN
MARKET OUR EXECUTIVE SEARCH SERVICES, WHICH WILL ADVERSELY AFFECT OUR GROWTH.
Through the execution of off-limits or blocking agreements with clients, or
potential clients, we frequently agree to refrain, for a specified period of
time, from recruiting employees of a client, and possibly other entities
affiliated with that client. Off-limits agreements generally remain in effect
for one or two years following completion of an assignment. The duration and
scope of the off-limits agreement, including whether it covers all operations of
the client and its affiliates or only certain divisions of a client, generally
are subject to negotiation or internal policies and may depend on such factors
as the length of the client relationship, the frequency with which we have been
engaged to perform executive searches for the client and the amount of revenue
we have generated or that we expect to generate from the client. Some of our
clients are recognized as industry leaders and employ a significant number of
qualified executives who are potential recruitment candidates for other
companies. Our inability to recruit employees of such a client and any potential
new clients' awareness of such an arrangement may make it difficult for us to
obtain search assignments from, or to fulfill search assignments for, other
companies in that client's industry. As our client base grows, particularly in
targeted business sectors, blocking arrangements increasingly may impede our
growth, and our ability to attract and serve new clients, which could have a
material adverse effect on our business, results of operations and financial
condition.
IF A SEARCH CONSULTANT DECIDES TO LEAVE US TO JOIN A COMPETING FIRM, CLIENTS MAY
MOVE THEIR BUSINESS TO THE CONSULTANT'S NEW EMPLOYER.
The success of our search business depends upon the ability of our executive
and mid-level search consultants to develop and maintain one-to-one
relationships with our clients. When one of our consultants leaves us to join
another search firm, clients that have established relationships with the
departing consultant may move their business to the consultant's new employer.
The loss of one or more clients is more likely to occur if the departing
consultant enjoys widespread name recognition or has developed a reputation as a
specialist in executing searches in a particular industry. Our failure to retain
our most productive consultants or maintain the quality of service to which our
clients are accustomed, and the ability of a departing consultant to move
business to his or her new employer, could have a material adverse effect on our
business.
OUR EXECUTIVE SEARCH BUSINESS MAY SUBJECT US TO SUBSTANTIAL LIABILITY, WHICH
COULD HARM OUR PROFITABILITY.
The executive search business exposes us to potential claims from a variety
of sources, including:
o clients who could potentially assert a claim alleging we breached an
off-limits agreement or alleging we recommended a candidate who
subsequently proves to be unsuitable for the position filled;
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o current employers of a candidate placed by us, who could assert a claim
alleging we interfered with its employment contract with the candidate;
and
o candidates who could assert claims alleging we failed to maintain the
confidentiality of their employment search or alleging discrimination or
other violations of employment law by one of our clients.
We generally provide a two year guarantee to our retained executive search
clients pursuant to which we are obligated to conduct a free search if an
employee we place with a client leaves within two years after the date of
placement. We maintain professional liability insurance in such amounts and with
such coverages and deductibles as we believe are adequate to cover such claims.
However, our insurance may not cover all such claims and our insurance coverage
may not continue to be available at economically feasible rates.
INCREASING INTEREST RATES AND DECREASING STOCK PRICES MAY HARM THE SALE OF OUR
INDIVIDUAL AND CORPORATE BENEFITS PROGRAMS.
Our commission income is affected by general economic conditions and market
factors, such as changes in interest rates and stock prices. Interest rate
fluctuations may have a significant effect on the sale and profitability of
insurance-financed employee benefits programs we market. For example, if
interest rates rise, competing products may become more attractive to potential
purchasers of our programs. Further, a prolonged decrease in stock prices may
have a significant effect on the sale and profitability of our programs that are
linked to stock market indices. Thus, economic conditions and other factors may
negatively affect the popularity or economic attractiveness of the programs we
market. We may not be able to compete with alternative programs if economic
conditions and inflationary increases make our programs financially
unattractive.
REGULATION OF SOME OF OUR BUSINESSES LIMITS OUR ACTIVITIES AND MAY SUBJECT US TO
ADDITIONAL COSTS OF COMPLIANCE AND PENALTIES IF WE DO NOT COMPLY.
Our individual and corporate benefits programs are subject to regulation by
governmental and self-regulatory organizations in the United States and in other
jurisdictions in which they operate around the world. The regulations are
designed to ensure the integrity of the insurance industry and financial markets
and to protect customers and other third parties who deal with us and are not
designed to protect our stockholders. Consequently, these regulations often
serve to limit our activities, including through net capital, customer
protection and market conduct requirements. We face the risk that regulatory
authorities may:
o conduct extended investigation and surveillance of our operations, which
could be costly and divert management's attention;
o adopt regulations that are costly or restrictive to us; and
o subject us to judicial or administrative proceedings.
Any of these actions by regulatory authorities may result in substantial
penalties or restrict our business activities.
CHANGES TO FEDERAL TAX LAWS MAY HARM THE SALE OF OUR INDIVIDUAL AND CORPORATE
BENEFITS PROGRAMS.
Federal tax laws create certain advantages for the purchase of life
insurance products by individuals and corporations, and therefore the life
insurance products underlying the benefits programs marketed by us are
vulnerable to adverse changes in tax legislation. If any tax law is enacted and
is made retroactive, banks and other of our clients may lose the economic
advantages of maintaining the policies underlying their benefits plans. This
could result in significant surrenders of policies from which we currently
derive commission and fee revenue. We are unable to predict the extent to which
new tax laws or amendments to existing laws will be adopted or the effect that
any such amendments will have on our business. Adverse tax proposals may be
enacted or adverse interpretations of existing laws may occur in the future. If
Congress amends the Internal Revenue Code to eliminate or reduce the
tax-deferred status of the insurance programs marketed by us, or if adverse
interpretations of existing laws occur in the future, the market demand for such
programs would be materially diminished.
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WE DO NOT INTEND TO PAY DIVIDENDS.
We have never paid dividends on our common stock and we do not anticipate
paying any dividends in the foreseeable future. Declarations of dividends on our
common stock will depend upon, among other things, future earnings, if any, our
operating results and our financial condition, capital requirements and general
business conditions. Our current credit facility prohibits dividend payments. We
are a holding company and derive all of our operating income from our
subsidiaries. The ability of our subsidiaries to make payments to us may be
restricted by applicable state laws or terms of agreements to which they are or
may become party, which would limit our ability to pay dividends.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND APPLICABLE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL, WHICH MAY HARM OUR STOCK PRICE.
Provisions of our certificate of incorporation and by-laws may discourage,
delay or prevent a merger or acquisition that our stockholders may consider
favorable, including transactions in which stockholders might otherwise receive
a premium for their shares. Some provisions of Delaware law may also discourage,
delay or prevent someone from acquiring us or merging with us. For example, our
certificate of incorporation and bylaws:
o require advance notice for stockholder proposals and director
nominations to be considered at a meeting of stockholders;
o establish a classified board of directors;
o prohibit stockholders from calling special meetings;
o limit stockholder actions by written consent instead of at a meeting;
o limit stockholders' ability to amend, alter or repeal the bylaws; and
o authorize the board of directors to issue preferred stock and to
determine the terms of the preferred stock without stockholder approval.
These factors may inhibit a transaction in which the holders of common stock
might otherwise receive a premium for their shares over then-current market
prices.
FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of
the federal securities laws. Forward-looking statements typically include words
like "may," "will," "could," "plan," "estimate," "continue," "believe,"
"expect," "predict," "project" or "anticipate" or the negative thereof or other
comparable expressions, including references to assumptions, although some
forward looking statement are expressed differently. The forward-looking
statements contained in this document are generally located in the material set
forth under the headings "Risk Factors," "Business," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Financial
Statements and Supplementary Data" but may be found in other locations as well.
These forward-looking statements generally relate to our plans and objectives
for future operations and are based upon our management's expectations of future
results or trends. Although we believe that our expectations are reasonable, our
actual results could differ materially from those contained in the
forward-looking statements due to various risks, both foreseen and unforeseen,
including the following:
o limited combined operating experience and potential for ineffective
integration of our companies;
o restrictions imposed by substantial debt and restrictive covenants;
o potential ineffectiveness of our cross-selling strategy;
o potential inability to acquire new companies that will contribute to our
growth on cost-effective terms;
o potential failure to achieve our anticipated growth and growth
strategies;
o changes in general economic and business conditions; and
o competition.
Our risks are more specifically described in "Risk Factors" and elsewhere in
this document. Given these uncertainties, you should not place undue reliance on
forward-looking statements. We will not update forward-looking statements even
though our situation will change in the future.
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ITEM 1.
BUSINESS
COMPANY FORMATION
In December 1998 we acquired 33 businesses, which we refer to collectively
as the 1998 Business Acquisitions and in March and April 1999 we acquired five
additional companies, which we refer to collectively as the 1999 Business
Acquisitions. The combination of these companies was designed to enable us to
act as a single-source provider of executive search and relocation, performance
improvement and employee retention solutions, as well as cost recovery services,
for the Fortune 1000 and other companies with substantial outsourcing needs.
Effective November 1999 we sold all of the assets of our health care cost
recovery businesses to a company controlled by our founders, Christopher Massey
and Erik Watts, and we rescinded our purchase of National HealthCare Recovery
Services, LLC. Also, in December 1999 we decided to discontinue our cost
recovery operations altogether and the board of directors approved a plan to
divest ourselves of our remaining cost recovery businesses. In addition, we
decided to investigate possible additional acquisitions to complement our
remaining businesses. We are currently in the process of divesting ourselves of
our cost recovery subsidiaries and divisions and plan to acquire additional
businesses that are complementary to our executive search and relocation,
performance improvement and employee retention businesses.
COMPANY OVERVIEW
We provide products and services that assist organizations in finding,
developing and retaining the human capital necessary to compete in today's
rapidly changing business environment. Our human capital solutions consist of
executive and mid-level management recruiting, employee relocation services,
performance improvement solutions, and executive and employee benefits program
design and implementation. Our products and services are designed to meet the
following needs:
Finding Critical Personnel. We provide retainer-based executive and mid-level
management recruiting services that focus on the search and placement of senior
and mid-level management, including board members and executive officers. We
also support an organization's mobility requirements by designing, developing
and implementing customized relocation programs for employees and organizations'
facilities worldwide.
Developing Organizational Effectiveness. We provide a portfolio of performance
improvement products and services designed to increase overall personal and
organizational effectiveness. These products and services are focused on three
core performance content domains of many organizations and include the
following:
o Sales and Service Effectiveness. Our sales and service effectiveness
products and services focus primarily on value-based solutions that
enhance performance at the customer interface level. This offering
includes sales and marketing, customer service and client communication
effectiveness solutions.
o Personal and Organizational Effectiveness. Our personal and
organizational effectiveness products and services are designed to
provide measurable improvement in performance and productivity for
employees and to enable our clients to better improve the overall
performance of their organization. This offering includes personal
skills development lessons, decision-focused communications solutions,
individual, team and organizational assessment services and change
management consultation and training.
o Organizational Processes Improvement. Our organizational processes
improvement services are designed to improve overall corporate
performance through process redesign and modification. These services
consist of merger and acquisition integration services, project success
training and organizational and process redesign solutions.
Retaining Key Employees. We provide a variety of individual and corporate
benefits programs designed to attract and retain key employees for our clients.
These products and services include:
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<PAGE> 13
o Benefit Plan Products and Services. We provide access to an array of
customized investment products and services for our clients, including
qualified and non-qualified deferred compensation plans, 401(k) plans,
bonus plans and insurance plans. In addition, we review existing
benefits plans and analyze various providers' benefits plans in order to
assist a client in selecting the most suitable plan for its
organization.
o Wealth Enhancement Financial Services. We provide wealth enhancement
services to high net worth individuals as well as corporations seeking
to retain executive management through financial incentives other than
traditional forms of compensation. Our services include structuring tax
effective estate plans, developing funding options for business owners,
and delivering other financial products and services.
COMPETITION
Several entities compete in the highly fragmented and competitive executive
search, performance improvement, and employee and corporate benefits markets.
Traditionally we compete with retainer-based and contingency search firms,
specialized training providers, insurance companies, independent insurance
providers, organizations' internal departments and resources, and national and
boutique consulting companies. Competitors in the executive search business
include Heidrick & Struggles International, Inc., Korn/Ferry International,
Inc., SpencerStuart & Associates and Russell Reynolds Associates. In addition to
smaller, specialized training companies, our performance improvement solutions
business competes with a number of larger companies, including Provant Inc. and
AchieveGlobal, Inc. Our employee and corporate benefits programs service
offerings may face competition from Clarke/Bardis, Inc. and others.
OPERATIONAL PLAN FOR REMAINDER OF FISCAL YEAR
In addition to the dispositions and planned acquisitions discussed below,
our business plan for 2000 is to focus on our continuing businesses. We plan to
further integrate our operations, execute our cross-selling opportunities,
and continue developing our integrated product offerings. Through business
alliances and other partnering arrangements we are dedicated to executing our
e-commerce plan for many areas of our business. We are currently working
internally, and in conjunction with partners, on digitizing our existing
performance learning content for the Web, as well as creating new content
specifically for the Internet. Delivering our services through an integrated
offering both traditionally and on the Web is a major focus. We also plan to
further strengthen our operational and financial controls through continued roll
out of our ERP systems.
DISPOSITIONS
Effective November 1999, we rescinded our purchase of National HealthCare
Recovery Services, LLC and sold all of the assets related to our healthcare cost
recovery businesses to a company controlled by our founders, Christopher Massey
and Erik Watts, in conjunction with their resignations from the Company. The
assets sold to Mr. Massey and Mr. Watts' company included all of those assets
that were acquired pursuant to the following agreements:
o Asset Purchase Agreement, dated November 23, 1998, by and among the
Company, Med-co Review, Inc., International Cost Containment Network,
Inc., Tammy SeRine-Richardson, Lance A. SeRine and Dennis W. Reineke
o Securities Purchase Agreement, dated December 7, 1998, by and among
National Recovery Services, LLC, its members and the Company and the
related option acquisition agreements;
o Asset Purchase Agreement, dated November 18, 1998, by and among the
Company, The Oxxford Group, Inc., and Moses K. Cheung (healthcare claims
payment audit and recovery portion of the business only);
o Asset Purchase Agreement, dated March 8, 1999, by and among the Company
and Gerard Smith d/b/a The T&E Group.
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<PAGE> 14
In addition, we rescinded the Securities Purchase Agreement that we entered into
with National HealthCare Recovery Services, LLC and the Members of National
HealthCare Recovery Services, LLC, dated March 1, 1999.
In December 1999, we decided to divest all of our remaining cost recovery
subsidiaries and divisions and adopted a plan to sell two businesses in our
Human Capital Solutions business segment. These businesses include: TSL
Services, Inc., Lease Audit & Analysis Services, Inc., CyberLease, LLC,
CyberStract, LLC, Benefit Funding Services Group LLC, FDSI Logistics, Inc.,
Dimension Funding, Inc., The Oxxford Group, Inc., The Oxxford Consulting
Services Group, Inc., Partners Consulting Services, Inc., Training Grant
Funding, a division of the Company, D'Accord Holdings, Inc. and affiliates,
Hindert & Associates, Inc. and affiliates, Kenneth H. Wells & Associates, Inc.
and affiliates, The Structured Settlements Company, Inc. and D.L.D. Insurance
Brokers, Inc. We have executed letters of intent for the sale of TSL Services,
Inc., Benefit Funding Services Group LLC and the Training Grant Funding
businesses and Bay Group International and plan to divest ourselves of our
remaining cost recovery businesses no later than December 31, 2000. As a result,
these businesses are treated as discontinued operations in our financial
statements, as described more particularly in Item 2 to this document under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
The planned sale of Benefit Funding Services Group LLC and our Training
Grant Funding division, is to a company controlled by our founders, Christopher
Massey and Erik Watts.
PROBABLE ACQUISITIONS
We are currently evaluating two probable acquisition candidates that
offer products and services complementary to ours. These candidates are:
o eFox, L.L.C., an Internet-based performance learning company that is
80.1% beneficially owned by James Holden, Chief Executive Officer of one
of our subsidiaries, Holden Corporation, and 19.9% owned by us; and
o PowerBased Selling Limited, PBS, a performance learning company that is
owned by three individuals in the United Kingdom. PBS is the exclusive
distributor of Holden Corporation intellectual property and materials in
the UK and in other selected countries in Europe.
OTHER POTENTIAL ACQUISITIONS
An international consulting firm is in the process of preparing for us a
financial and technological analysis of JobPlex, Inc., an Internet-based
mid-level search firm that is majority owned by our Chief Executive Officer,
David Hoffmann. The results of their report will assist our board of directors
in evaluating the financial terms of any potential acquisition of JobPlex, Inc.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success is, in part, attributable to copyrighted materials, corporate
information databases, instructional materials, evaluation methodologies and
research protocols. We depend upon a combination of trade secrets, copyright
law, and non-disclosure and other contractual provisions to protect our
proprietary rights. If disclosure of proprietary information to third parties is
necessary, we typically obtain confidentiality assurances. We also generally
require our clients to sign license agreements for use of our copyrighted
training materials which limit the use and dissemination of the materials.
We claim copyright protection for our proprietary software, instructional
materials, and client databases. Copyrights, however, do not protect the ideas
contained within the programs or materials, nor will they prevent others from
independently developing materials and databases which perform the same
functions.
Our business strategy includes establishing a strong brand identity for the
3-D-H-R Corp. name (assuming our stockholders approve of its use), while
preserving the goodwill in the names of our established products and services.
We have registrations in the U.S. Patent and Trademark Office for a number of
material product and service marks. We also have trademark registrations in
foreign countries. We plan to apply to register the 3-D-H-R Corp. name in the
United States Patent and Trademark Office if our stockholders approve its use,
but we cannot assure that a registration will be issued.
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<PAGE> 15
EMPLOYEES
As of February 1, 2000, we had approximately 660 employees. We are not a
party to any collective bargaining agreement with our employees. We believe our
employee relations are good. In addition, as of February 1, 2000, we were
providing some of our products and services through approximately 95 independent
contractors.
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<PAGE> 16
ITEM 2.
SELECTED FINANCIAL DATA
(Dollars in thousands, except share data)
Set forth below are selected historical financial data for EPS Solutions
Corporation (EPS) for the period from May 29, 1998 (the date of its formation)
to December 31, 1998 and for the year ended December 31, 1999, and National
Benefits Consultants, L.L.C. and National Revmax Consultants, L.L.C.,
(collectively referred to as NBC) whose combined historical financial data for
the three years ended December 31, 1997 and the period from January 1, 1998 to
May 28, 1998 are presented as the Predecessor entity. This data should be read
in conjunction with the consolidated financial statements, related notes and
other financial information included herein.
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<PAGE> 17
EPS SOLUTIONS CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
EPS SOLUTIONS
PREDECESSOR CORPORATION
----------------------------------------------------- ------------------------
YEAR ENDED DECEMBER 31
--------------------------------- PERIOD FROM
MAY 29, 1998
PERIOD FROM (INCEPTION(2))
JANUARY 1 TO YEAR ENDED
TO MAY 28, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998(2) 1998 1999
----------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data (unaudited):
CONTINUING OPERATIONS(1):
Ongoing businesses:
Revenues $ 1,170 $ 141,527
Cost of revenues 70,671
Selling, general and administrative 6,109 59,278
Restructuring charges(3) 5,762
Abandoned bond offering costs(4) 2,418
-------- ---------
Income (loss) from operations (4,939) 3,398
Non-operating expenses (principally
interest) 809 19,013
Businesses closed or to be
disposed of(1):
Revenues 16,588
Costs and expenses (15,840)
Loss on businesses closed or to be
disposed of (5,620)
-------- ---------
Loss from continuing operations before
income taxes (5,748) (20,487)
Income tax benefit 1,639
-------- ---------
Loss from continuing operations (5,748) (18,848)
DISCONTINUED OPERATIONS(1):
Income (loss) from discontinued
operations, net of income taxes (296) 232 819 554 2,463 (2,583)
Loss on disposal of discontinued
operations (no income tax benefit) (62,291)
----- ------- ----- ---- -------- ---------
Net income (loss) $(296) $ 232 $ 819 $554 $ (3,285) $ (83,722)
===== ======= ===== ==== ======== =========
Loss per share (unaudited):
Basic (.78) (3.80)
Diluted (.78) (3.80)
OTHER DATA (unaudited):
EBITDA(5) (4,353) 5,387
BALANCE SHEET DATA (AS OF END OF PERIOD)
(unaudited):
Cash and cash equivalents $ 4 $ 86 $ 76 $16,610 $ 10,025
Current assets held for sale -- -- -- -- 26,478
Working capital (deficit) (13) (1,351) (932) 5,093 (19,760)
Other assets held for sale(1) -- 39,442
Total assets 11 235 269 212,157 195,942
Total long-term debt, including current
maturities 167,802 224,765
Minority interest in a subsidiary company 4,930 5,240
</TABLE>
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<PAGE> 18
NOTES TO SELECTED FINANCIAL DATA
(1) In the fourth quarter of 1999, our Board of Directors adopted a plan to
discontinue certain product and service offerings in our Human Capital
Solutions segment and dispose of our Cost Recovery Services segment.
Accordingly, selected financial data is provided for continuing
operations, including businesses closed or to be disposed of, and
discontinued operations of our Cost Recovery Services segment.
(2) The Company was formed May 28, 1998 although the 1998 Business
Acquisitions were not acquired until December 1998. We accounted for
our acquisition of NBC as a combination of entities under common
control, effective as of the incorporation of the Company.
(3) In December 1999, we adopted a plan to relocate our Corporate
headquarters. Accordingly, we recorded a charge of $5,762 for headcount
reduction, lease exit costs and certain asset writedowns.
(4) We incurred $2,418 in transaction costs, including legal and accounting
fees and other costs associated with a contemplated high-yield bond
offering in the second quarter of 1999. In October 1999, we charged the
abandoned bond offering costs to continuing operations after the
Company had determined earlier that market conditions were unfavorable
for such a financing.
(5) EBITDA represents operating income from continuing operations before
depreciation and amortization and non-cash compensation expense. While
we do not intend for EBITDA to represent cash flow from operations as
defined by generally accepted accounting principles (GAAP) and we do
not suggest that you consider it as an indicator of operating
performance or an alternative to cash flow or operating income (as
measured by GAAP), or as a measure of liquidity, we include it herein
to provide additional information with respect to our ability to meet
our future debt service, capital expenditures and working capital
requirements. EBITDA as presented in this offering memorandum may not
be comparable to similarly titled measures of other companies.
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<PAGE> 19
ITEM 2. (CONTINUED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands)
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this document.
OVERVIEW
Our revenues are generated from the delivery of products and services that
assist organizations in finding, developing and retaining the human capital
necessary to compete in today's rapidly changing business environment. Our Human
Capital Solutions products and services are designed to meet the following needs
of our clients -- finding critical personnel, developing organizational
effectiveness, and retaining key employees. We recruit executive and mid-level
managers on a retainer basis and provide complementary global relocation
services for both individuals and entire organizations. We provide a broad
portfolio of performance improvement products and services designed to increase
overall personal and organizational effectiveness. We also provide a variety of
individual and corporate benefits programs designed to attract and retain the
most talented employees for our clients.
FORMATION
In May 1998, we were formed to become a leading provider of a broad range of
professional business services designed to increase our clients' profitability,
efficiency, and competitiveness. In December 1998, we acquired 33 businesses
that provided such services as executive search and relocation, performance
learning, cost recovery, and benefits consulting. In March and April 1999, we
acquired five additional businesses offering similar services.
These businesses were acquired for cash, unsecured subordinated promissory
notes, and our common stock. Thirty-seven of these acquisitions were accounted
for as purchases and one was accounted for as a combination of entities under
common control. The results of operations of the acquired companies are included
in our consolidated results of operations for the period from the date of
acquisition. Thirty-two of the 33 businesses purchased in December 1998 were
accounted for as if the acquisition occurred on December 31, the other 1998
acquisition was accounted for as if the acquisition occurred on November 30. The
operations of the acquired business accounted for as a combination of entities
under common control are included in the consolidated results of operations from
the date of our formation, May 28, 1998. The four businesses acquired in March
1999 were accounted for as if the acquisitions occurred on March 1, while the
April acquisition was accounted for effective May 1, 1999.
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<PAGE> 20
DISCONTINUED OPERATIONS
Effective November 1, 1999, we sold certain assets comprising our healthcare
recovery, travel procurement and telecom procurement businesses, which as a
group had been unprofitable in 1999, to the founding shareholders of the Company
for cash, promissory notes, and surrender of a portion of their EPS shares. In
connection with their purchase of these businesses, the founding shareholders
resigned as officers and directors of the Company. In December 1999, our Board
of Directors adopted a plan to strategically position the Company to be a
leading provider of Human Capital Solutions, discontinue certain product and
service offerings and dispose of the remaining Cost Recovery businesses.
Cost Recovery businesses not sold in 1999 were either closed in 1999 or are
currently marketed for sale. The net proceeds from divestiture of our remaining
Cost Recovery businesses will be used principally to reduce our senior bank
debt. All Cost Recovery businesses have been classified as discontinued
operations in our 1999 consolidated financial statements. In connection with the
discontinuance of our Cost Recovery segment, the Company charged $62,291 to
discontinued operations, including an impairment loss in 1999 primarily as a
result of unrecoverable goodwill and intangibles.
CONTINUING OPERATIONS
The financial information presented in the remainder of this section pertains
only to our continuing operations. The continuing product and service offerings
include executive and mid-level retainer-based recruiting and employee
relocation services, performance improvement solutions, and executive and
employee benefits program design and implementation.
Our clients consist primarily of Fortune 1000 companies and other large and
mid-sized organizations. Substantially all of our facilities are located in the
United States although we may deliver products and services to clients both
within or outside of the United States. In 1999, our revenues were generated
substantially from domestic sales. We market our products and services primarily
through personal contact and direct marketing efforts. We have over 300
employees involved in sales and client management, and through our direct
marketing efforts we have established a growing proprietary client database
containing over 150,000 executive and mid-level contacts in U.S. based and
international organizations. Also, we are currently developing, both internally
and through certain partnering arrangements, Web-based distribution capabilities
for many of our products and services.
Our executive and mid-level management recruiting services are delivered on a
retainer basis. Typically one-third of the contract revenue is billed and
deferred upon execution of the service contract. All revenue from a contract is
recognized and the remaining two-thirds is billed upon delivery of a market
analysis report. In some cases, the final installment will not be billed and a
portion of the revenue will not be recognized until a candidate is successfully
placed. Relocation revenues and fees are recognized as billed upon completion of
the relocation or other service.
In our performance improvement solutions business, we recognize consulting,
training and publishing revenues as billed upon shipment of products or when
services are provided. Revenues on some seminar contracts are recognized upon
the percentage of completion method based on the number of attendees actually
completing the seminars to the total number of attendees in the contract.
Software support services billed in advance of their delivery are deferred and
recognized over the life of the contract.
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<PAGE> 21
Executive and employee benefits program and implementation revenue consists
primarily of commissions earned from the delivery of financial products. This
revenue is recognized when the product provider has approved the client.
Other than our executive and mid-level management recruiting business, most of
our costs are fixed. Accordingly, revenue fluctuations could have an adverse
effect on our gross margins.
RESULTS OF OPERATIONS
As previously discussed, during the fourth quarter of 1999 we adopted a plan to
discontinue certain product and service offerings and dispose of our Cost
Recovery Services segment. In addition, while the Company was formed during May
1998, its activities through December 31, 1998 consisted primarily of acquiring
33 businesses. The operations of substantially all these 33 businesses are
included in the consolidated statements of operations beginning January 1, 1999.
Accordingly, the Company's operating results for 1998 are not comparable to
those for calendar 1999.
In view of the rapidly evolving nature of our business and our limited operating
history, we believe that period-to-period comparisons of our operating results,
revenues, gross margin and expenses as a percentage of revenue, should not be
relied upon as an indication of our future performance. The following table sets
forth statement of operations data related to our continuing businesses
expressed as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
Period from
May 28, 1998
(inception) to Year Ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Net revenue 100.0% 100.0%
Cost of revenue -- 49.9%
------ -----
Gross margin 100.0% 50.1%
Operating expenses:
Selling, general & administrative 522.1% 41.9%
Abandoned bond offering costs -- 1.7%
Restructuring charges -- 4.1%
------ -----
Total operating expenses 522.1% 47.7%
------ -----
Income (loss) from continuing operations (422.1)% 2.4%
====== =====
</TABLE>
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<PAGE> 22
Revenues
Revenues from executive search and relocation services, performance improvement
products and services, and benefits consulting were $87,007, $59,945, and
$11,163 respectively, for the year ended December 31, 1999, or 55%, 38% and 7%
of our revenues from continuing operations, respectively.
During 1999, executive search and relocation services gained market share due
to the hiring of additional search consultants and opening new offices in
regions we did not previously operate in.
Also during 1999, we introduced several new performance improvement products in
the areas of change management and organization behavior management.
Additionally, we are developing web-based methods of delivering several of our
product offerings in this area, which is expected to begin generating revenue in
2000.
Revenues from our benefits consulting practice increased primarily due to the
addition of significant new product distribution channels.
Gross Margins
For the year ended December 31, 1999, gross margin from continuing operations
was $70,856 or 50.1% of revenues. The growth in our executive search business,
which has the highest gross margin percentage of the three offering groups,
contributed to our achieving these margin levels. We also abandoned certain
unprofitable operations allowing us to concentrate our efforts on higher margin
services.
Our gross margins for continuing operations are also affected by our employee
relocation services, which records revenues for the entire contract for
relocation. Accordingly, our margins for employee relocation services are lower
than most of our other product offerings. For the year ended December 31, 1999
the gross margin percentage for these services was 20.8% on revenues of $44,748.
Operating Expenses
Total operating expenses of continuing operations were $67,458 for the year
ended December 31, 1999. These expenses included merger integration related
expenses, restructuring charges and abandoned bond offering costs. General and
administrative expenses were $59,278 during 1999, including $1,973 of non-cash
stock-related compensation expense. General and administrative expenses include
the development of a corporate support infrastructure and technology programs,
initially designed to support anticipated growth in our Cost Recovery Services
segment, more anticipated acquisitions than were actually completed during the
year, and an anticipated but uncompleted capital market transactions offering of
the Company's equity securities. In June 1999, we enacted a plan to curtail
these expenditures.
In October, we announced the relocation of our corporate headquarters to
Chicago, Illinois from Costa Mesa, California and recorded a related charge of
$5,762. The relocation commenced in the fourth quarter of 1999 and is expected
to be complete by the end of 2000. During this transition to Chicago, there will
be some duplication of costs while we install the necessary corporate
organization.
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<PAGE> 23
Interest and Other
Interest expense was $19,192 in 1999 and is comprised of interest on senior debt
and subordinated debt borrowings for acquisitions, software development costs,
and other corporate purposes. Interest expense also includes the amortization of
deferred financing costs over the term of the related borrowings.
Income Taxes
We had a net loss of $(3,285) and $(83,722) for the period from May 29, 1998 to
December 31, 1998 and for the year ended December 31, 1999, respectively. We
recorded income tax expense of $0 and $750 for these periods, respectively. The
difference between the U.S. federal statutory rate and our income tax expense is
primarily a result of valuation allowances with respect to our net deferred tax
assets, amortization of nondeductible goodwill and nondeductible stock
compensation expense. Additionally, for the year ended December 31, 1999, we
were unable to use a pretax loss of $(5,767) resulting from the recession of one
of our follow-on acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in May 1998, we have financed our operations primarily with
senior secured bank loans of $89,041 in 1998 and $37,459, net of retirements, in
1999. Net cash provided by operating activities of our continuing businesses in
1998 was $6,298. Operating activities of our continuing businesses used cash of
approximately $840 in 1999. Operating cash was used primarily for the payment of
the cash portion of the purchase price of the acquisitions in 1998 and
acquisition-related interest and other corporate expenses in 1999. We anticipate
that we will generate positive cash flow from operations in the foreseeable
future, including the operations of discontinued businesses up to the dates of
their divestiture.
Cash used in investing activities was $65,166 in 1998 including $59,984 used for
acquisitions, $2,400 advanced to a shareholder, and $2,249 used for the
development of information systems. Cash used in investing activities of
continuing operations in 1999 was $37,911 including $10,360 used for
acquisitions and $7,726 for capital expenditures. We have used and may continue
to use cash from operations to pay for e-commerce development, additional sales
offices, mergers and acquisitions, and other general corporate purposes. In
1998, we purchased equity interests or certain assets, net of certain assumed
liabilities, of 33 businesses for approximately 9,751,000 shares of our common
stock, subordinated promissory notes of $77,896 and cash of $59,984. In 1999, we
purchased equity interests or certain assets, net of certain assumed
liabilities, of five additional companies for approximately 1,866,000 shares of
our common stock, subordinated promissory notes of $11,325 and cash of $7,695.
At December 31, 1999, cash, cash equivalents and short-term investments totaled
$10,025, down $6,585 from $16,610 at December 31, 1998. We have a $126,500
senior credit facility with a commercial bank syndicate although it does not
provide any additional funding capabilities. Its terms as amended require
principal reductions to $120,000 by July 31, 2000, to $85,000 by September 30,
2000, and to $83,500 by December 31, 2000. The terms of this amended credit
Facility require it to be fully retired by January 31, 2001.
We expect that substantially all of the funds needed to pay down the Facility in
the year 2000 will come from sales of our assets held for sale or from an
offering of equity securities. Similarly, we expect that we will need to raise
funds through sales of equity securities or from new debt financing to pay the
remainder of the Facility that is due January 31, 2001. We are presently seeking
buyers for the assets held for sale, but we do not have sales commitments that
provide assurance of obtaining sufficient cash proceeds from assets held for
sale to meet the payment terms contained in the amended Facility. Additionally,
we presently have no commitments for equity placements or alternative debt
financing. If we are unable to meet the payment terms required by the amended
Facility from expected sources, we may be required to sell additional assets,
which may impair our efforts to achieve profitable operations.
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<PAGE> 24
At December 31, 1999, we had no material commitments for capital expenditures.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statement," or SAB 101. SAB
101 summarizes certain of the SEC Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company is currently evaluating the impact of SAB 101. However, it does not
believe that this evaluation will result in any material change to current
revenue recognition policies.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our cash in money market instruments. These investments are
denominated in U.S. dollars. Due to the conservative nature of these
instruments, we do not believe that we have a material exposure to interest
rate or market risk. None of our investments are held for trading purposes. We
do not own derivative financial instruments.
We are exposed to interest rate risk in the ordinary course of business. For
fixed rate debt, interest rate changes affect the fair value but do not affect
earnings or cash flow. Conversely, for floating rate debt, interest rate
changes generally do not affect the fair market value, but do affect future
earnings or cash flow.
Our primary debt instruments include the senior debt Facilities, for which we
expect to execute an amended agreement no later than May 15, 2000. At April 28,
2000, the Facilities have a balance of $125,000, bear interest at LIBOR plus
3.50% or the lenders' base rate plus 2.25%, and mature January 31, 2001, as
amended. Accordingly, this debt instrument is sensitive to changes in interest
rates. We also have $96,200 of subordinated notes payable at December 31, 1999,
which bear a fixed rate of interest at 10% per annum and are due in the fourth
quarter of 2001 or the first quarter of 2002.
In connection with restricted stock purchase agreements with certain employees,
the employees delivered to us ten-year recourse notes receivable, which total
$34,300 at December 31, 1999 and bear interest at a fixed rate of 5.5% per
annum.
23
<PAGE> 25
ITEM 3.
PROPERTIES
We lease all of our physical properties which include approximately 304,000
square feet of general office space in eighty-one (81) locations throughout the
United States. The 1999 annualized cost of all of the leased premises is
approximately $8,600,000. Our largest location is our Costa Mesa, California
office, which houses our administrative offices as well as some of the EPS
operating entities. We have subleased 52% of this space due to reduced capacity
requirements.
In December 1999 the Company recorded an accrual of approximately $2,769 to
provide for estimated losses on these leases related to the Company's decision
to relocate its headquarters to Chicago, Illinois.
Our executive office is located in Chicago, Illinois and occupies
approximately 9,700 square feet at an annual cost of $383,000.
We believe that our existing facilities are adequate to meet our current
requirements and that comparable space is readily available at each of our
operating locations.
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<PAGE> 26
ITEM 4.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 15, 2000 of:
o each person or group of affiliated persons who we know owns beneficially
5% or more of our common stock;
o each of our directors;
o each of our current and certain former executive officers listed in the
summary compensation table; and
o all of our directors and executive officers as a group.
Percentage of ownership is calculated as required by Rule 13d-3(d)(1), which
provides, among other things, that a person is deemed to beneficially own shares
if they share with others the right to vote shares or hold investment power over
shares. Therefore, for purposes of this table, if two or more individuals listed
in the table jointly own an entity which holds our shares, the shares held by
the entity are included in the total number and percentage of shares listed next
to each such individual's name. The footnotes to this table describe any such
shares over which two or more individuals listed in the table have beneficial
ownership. For example, footnote five (5) to the table explains Mr. Massey's and
Mr. Watts' beneficial ownership of shares held by I.M. Comet, LLC.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER(1) OWNERSHIP(2) CLASS
- ------------------- ----------------- ----------
<S> <C> <C>
David H. Hoffmann 4,620,945(3) 11.2%
Erik R. Watts(4) 4,263,386(5) 10.4%
Christopher P. Massey(4) 4,132,693(5,6) 10.0%
James F. Holden 1,968,014(7,8) 4.8%
Early Price Pritchett III(9) 1,296,647(10) 3.2%
Mark C. Coleman 687,714(11) 1.7%
David M. Ehlen 467,204(12) 1.1%
Walter L. Schindler(13) 500,000 1.2%
Michael G. Goldstein 280,000(14) *
Gary C. Grom 10,000(15) *
John Aylsworth 10,000(15) *
All directors and current
executive officers as a group
(11 persons) 14,781,603 35.9%
</TABLE>
- -----------------
* Less than 1%
(1) Unless otherwise indicated, the address of each person in this table is
c/o EPS Solutions Corporation, 10 S. Riverside Plaza, 22nd Floor,
Chicago, Illinois 60606.
(2) Unless otherwise noted, all shares listed as beneficially owned by a
stockholder are actually outstanding and such stockholder has sole
voting and investment power with respect to such shares, subject to
community property laws.
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<PAGE> 27
(3) Includes 1,246,665 shares held by Hoffmann Investment Company, Inc., an
entity owned by Mr. Hoffmann. Also includes 3,374,280 shares of
employment-based restricted stock that are eligible to vest over time
provided that certain vesting conditions are met.
(4) Mr. Watts' and Mr. Massey's address is 20371 Irvine Avenue, Suite 200,
Newport Beach, CA 92707.
(5) Includes 3,455,000 shares held by I.M. Comet, LLC, an entity owned 50%
by Mr. Watts and 50% by Mr. Massey, over which both Mr. Watts and Mr.
Massey have beneficial ownership. Mr. Watts and Mr. Massey have
indicated their desire to distribute the shares held by I.M. Comet,
LLC, 50% to entities over which Mr. Watts has sole voting control and
50% to entities over which Mr. Massey has sole voting control. The
result of this transaction would be that Mr. Watts would beneficially
own 2,535,886 shares and Mr. Massey would beneficially own 2,405,193
shares.
(6) Includes 600,000 shares held in trust for the benefit of Mr. Massey's
daughters; 300,000 shares are held by the Kaitlin Massey Trust and
300,000 shares are held by the Jennifer Massey trust. Mr. Massey's
wife, Pamela Massey, is the trustee of both trusts.
(7) Includes 617,200 shares held in the Christine E. Holden Revocable Trust
and 617,201 shares held in the James F. Holden Revocable Trust, over
which Mr. Holden has control. Mr. Holden's address is 2800 W. Higgins
Road, Suite 715, Hoffman Estates, Illinois 60195. Includes an
additional 51,000 shares to be issued to Mr. Holden within the next
sixty days.
(8) Includes 682,613 shares of employment-based restricted stock that are
eligible to vest over time provided that certain vesting conditions are
met.
(9) Dr. Pritchett's address is 5800 Granite Parkway, Suite 450, Plano,
Texas 75024.
(10) Includes 179,147 shares of employment-based restricted stock that are
eligible to vest over time provided that certain vesting conditions are
met. Includes 500,000 shares to be issued to Dr. Pritchett within the
next sixty days as an adjustment to the purchase price we paid for
Pritchett Publishing Company (dba Pritchett & Associates). In addition,
we are issuing 500,000 shares of employment-based restricted stock to
Dr. Pritchett within the next sixty days that are eligible to vest over
time provided that certain vesting conditions are met.
(11) Includes 54,265 shares held by The Ringco Group LLC over which Mr.
Coleman has sole voting power. Also includes 584,804 shares of
employment-based restricted stock that are eligible to vest over time.
(12) Includes 6,145 shares owned by the Lille Woods Haecher Trust, of which
Mr. Ehlen is co-trustee and over which Mr. Ehlen has shared voting
power. Includes 461,059 shares of employment-based restricted stock
that are eligible to vest over time provided that certain vesting
conditions are met.
(13) Mr. Schindler's address is Odyssey Internet Group, Inc., 450 Newport
Center Drive, Suite 500, Newport Beach, California 92660.
(14) Includes 280,000 shares of employment-based restricted stock that are
eligible to vest over time provided that certain vesting conditions are
met.
(15) Includes 10,000 shares of restricted stock which will be issued within
the next sixty days and which will vest 2,000 shares per meeting based
upon attendance at meetings of our board of directors.
26
<PAGE> 28
ITEM 5.
MANAGEMENT
EXECUTIVE AND OTHER KEY OFFICERS AND DIRECTORS
The executive officers, directors and key employees of the Company and its
subsidiaries and their ages and positions with the Company are as follows:
<TABLE>
<CAPTION>
Director
Name Age Position Class
---- --- -------- ---------
<S> <C> <C> <C>
David H. Hoffmann.........................47 Chairman, Chief Executive Officer, President, 2
Director
Mark C. Coleman...........................54 Executive Vice President and Chief Financial
Officer N/A
David M. Ehlen............................59 Executive Vice President, Corporate Development N/A
Michael G. Goldstein......................53 Senior Vice President, Director 2
Gary C. Grom(1, 2)........................53 Director 1
James F. Holden...........................51 President, Holden Corporation N/A
Early Price Pritchett III.................58 Chairman, Pritchett & Associates, Director 1
John Aylsworth(1, 2)......................49 Director 3
</TABLE>
- ----------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Set forth below is information regarding the business experience during the
past five years for each of the persons named above.
David H. Hoffmann joined EPS in December 1998 concurrently with the
acquisition of the assets of DHR International, Inc. by EPS. In May 1999, Mr.
Hoffmann became a director and Chief Operating Officer of EPS and in October
1999 became Chairman of the Board, Chief Executive Officer and President. Prior
to December 1998, Mr. Hoffmann was President of Hoffmann Investments, Inc.
(f/k/a DHR International, Inc.), which he founded in 1989.
Mark C. Coleman joined EPS as Senior Vice President and Chief Financial
Officer at its inception. In December 1999 Mr. Coleman became an Executive Vice
President of EPS. Prior to joining EPS, Mr. Coleman served as National Director
of the HealthCare Services Group of Integrated Cost Recovery Services, a
Division of Deloitte & Touche LLP, since 1997. Prior to this, Mr. Coleman was a
partner at Deloitte & Touche LLP from 1988 to 1997. Prior to joining Deloitte &
Touche, Mr. Coleman was the co-founder of Coleman & Grant, a large independent
accounting firm which merged with Deloitte in 1988. Mr. Coleman has more than 27
years of experience in public accounting.
David M. Ehlen joined EPS as a Vice President in December 1998, and in
September 1999 became Executive Vice President, Corporate Development. Prior to
joining EPS, Mr. Ehlen was a National Director at Deloitte & Touche LLP from
June 1998 to December 1998. Prior to that, Mr. Ehlen was the Chief Executive
Officer of Wilson Learning Worldwide, a leading corporate training company that
is focused in the human resources area. Mr. Ehlen has more than 30 years of line
management, marketing, strategic planning and corporate development experience.
Michael G. Goldstein joined EPS in August 1999 and became Senior Vice
President as well as a member of the board of directors in November 1999. Mr.
Goldstein also has served in a full-time capacity as President of FFR Holding
Co., Inc. and its direct subsidiary, First Financial Resources, since August
1999. Prior to joining First Financial Resources Mr. Goldstein practiced law for
27 years, the last eight years as a partner and Chairman of the Tax & Estate
Planning Department at Husch & Eppenberger, LLC, a law firm in St. Louis,
Missouri.
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<PAGE> 29
Gary C. Grom joined EPS as a member of our board of directors in March 2000.
Mr. Grom has served as Senior Vice President, Human Resources of the Sara Lee
Corporation since 1992.
James F. Holden joined EPS in March 1999 as President of a wholly-owned
subsidiary, Holden Corporation, concurrently with the acquisition of the Holden
Corporation by EPS. Mr. Holden has served as the Chief Executive Officer of
Holden Corporation since it was founded in 1979. Mr. Holden has also served as
the Chief Executive Officer of eFox, L.L.C. since 1998.
Early Price Pritchett III joined EPS in December 1998 concurrently with the
acquisition of Pritchett Publishing Company by EPS. In November 1999, Dr.
Pritchett became a director of EPS. Dr. Pritchett has served as Chairman of
Pritchett Publishing Company, one of our indirect wholly owned subsidiaries,
since its founding in 1974.
John S. Aylsworth joined EPS as a member of our board of directors in April
2000. Mr. Aylsworth has been the President and Chief Operating Officer of
President Casinos, Inc. since July 1997. Prior to that, Mr. Aylsworth served as
Executive Vice President and Chief Operating Officer of President Casinos, Inc.
since March 1995. Mr. Aylsworth has been a member of the board of directors of
President Casinos, Inc. since July 1995.
28
<PAGE> 30
ITEM 6.
EXECUTIVE AND DIRECTOR COMPENSATION; EMPLOYMENT AGREEMENTS
The following table sets forth for the year ended December 31, 1999, all
compensation received for services rendered to EPS in all capacities by all
persons serving as chief executive officer, each of the other four most highly
compensated executive officers of EPS or its subsidiaries whose salary and bonus
exceeded $100,000 in 1999 and two individuals who would otherwise have been
listed as one of the four most highly compensated executive officers except they
resigned or otherwise terminated their employment during 1999. Mr. Massey
resigned from his positions as Chairman and as Chief Executive Officer in
November 1999. Mr. Hoffmann was appointed Chairman, Chief Executive Officer, and
President in November 1999. Mr. Schindler resigned from his position in August
1999 and Mr. Watts resigned from his position in November 1999. The compensation
table includes severance pay for Messrs. Massey, Watts and Schindler. The amount
of compensation reflected in the table below does not include the aggregate
value of personal benefits, securities, property or other non-cash compensation
paid or distributed to any officer to the extent such compensation has a cash
value in the aggregate of no more than the lesser of $50,000 or ten percent
(10%) of the aggregate of the total annual salary plus bonus received by such
officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1999 COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- ------ ----- ------------
<S> <C> <C> <C>
David H. Hoffmann, $498,399 -- $727,663(1)
Chairman of the Board, Chief Executive Officer, and
President
Christopher P. Massey,
Former Chairman and Chief Executive Officer $374,000 -- $ 42,024(2)
David M. Ehlen,
Executive Vice President, Corporate Development $306,461 -- --
Mark C. Coleman,
Executive Vice President and Chief Financial Officer $282,848 -- --
Early Price Pritchett III,
Chairman, Pritchett & Associates $148,809 -- --
James F. Holden,
President, Holden Corporation $244,294 -- --
Erik R. Watts,
Former Vice Chairman $335,486 -- $ 38,154(3)
Walter L. Schindler,
Former Vice Chairman $317,000 -- $173,000(3)
</TABLE>
- -------------
(1) This amount consists of the private equity of various of our search clients
valued at an aggregate of approximately $577,000 which was paid to us in
lieu of our typical search fees. Pursuant to the terms of his employment
29
<PAGE> 31
agreement with us, Mr. Hoffmann was entitled to retain such fees. This
amount also includes $150,583 in relocation and temporary living
expenses related to Mr. Hoffmann's relocation from St. Louis, Missouri
to Chicago, Illinois.
(2) This amount consists of severance payments equal to $38,154 and country
club dues equal to $3,870.
(3) The total amount consists of severance payments.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to those executive officers listed in the
Summary Compensation Table for the year ended December 31, 1999. We have never
granted any stock appreciation rights.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
We entered into employment agreements with each of the executive officers
listed above. These employment agreements provide for employment at will and
require the executive officers to devote their entire time and attention to our
business. The agreements maintain that those individuals' responsibilities and
authority will not be materially diminished as long as they own employment-based
restricted stock of EPS which is subject to vesting. Each of the agreements
provides for cash severance compensation, if employment is terminated by EPS
without cause or by the officer with good reason, including 90 days for Dr.
Pritchett and Mr. Holden, one year for Mr. Coleman, Mr. Goldstein and Mr. Ehlen,
and two years for Mr. Hoffmann. In addition, each of the executive officers have
entered into various restricted stock purchase agreements with the Company.
These agreements provide that if the executive officer's employment with us is
terminated without cause or by the executive officer for good reason, within
specified time frames following a change in control, unvested shares of
restricted stock owned by the executive will vest.
Mr. Hoffmann's employment agreement provides that in addition to his duties
as Chairman, Chief Executive Officer and President of the Company, he will
continue to serve as Chairman and CEO of our DHR International search business.
In that capacity Mr. Hoffmann remains eligible for performance based
compensation based on the success of our search business and has the right to
determine to accept private company equity in lieu of the normal fee to be
charged for an executive search. If Mr. Hoffmann chooses, he may take any
private company equity accepted in lieu of search fees as a bonus at any time
until the Company completes an initial public offering or undergoes a change of
control. Mr. Hoffmann also has a guaranteed minimum bonus equal to the amount of
any cash interest payment Mr. Hoffmann would otherwise be required to pay with
respect to the promissory notes he issued to the Company in exchange for his
restricted stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Mr. Grom and Mr. Aylsworth.
Prior to March 2000 compensation decisions were made by the board of directors
acting as a whole. Mr. Hoffmann, Dr. Pritchett, and Mr. Goldstein participated
in the November 24, 1999, December 8, 1999 and the December 14, 1999 board of
directors meetings at which compensation matters were discussed. In addition,
Mr. Hoffmann has participated in meetings of the board of directors at which
compensation has been discussed since March 1999. Mr. Hoffmann, Dr. Pritchett
and Mr. Goldstein do not participate in deliberations pertaining to their own
respective compensation.
None of our directors or executive officers who participated in compensation
deliberations during 1999 serve on the compensation or similar committee of any
other entity.
30
<PAGE> 32
DIRECTOR COMPENSATION
NON-EMPLOYEE DIRECTOR COMPENSATION
We do not pay our non-employee directors fees. However, we reimburse all
directors for expenses incurred to attend meetings of the board of directors or
committees. In addition, we anticipate that each non-employee director will
receive a grant of 10,000 shares of restricted stock on the day such director
becomes a member of our board of directors. We have not yet granted Mr. Grom or
Mr. Aylsworth restricted stock but anticipate granting each of them 10,000
shares. The terms and conditions of these restricted stock grants will be
governed by a non-employee director equity compensation plan. We also anticipate
that each non-employee director will subsequently receive an additional grant of
10,000 shares of restricted stock on an annual basis and an additional grant of
restricted stock for serving as a member of one of our board committees.
COMPENSATION PLANS
EPS Solutions Corporation 2000 Stock Performance Plan
The EPS Solutions Corporation 2000 Stock Performance Plan (the "2000 Plan")
provides incentives to employees, directors, officers and consultants to achieve
both short-term and long-term objectives, including increasing return to
Stockholders.
The Company believes that the potential reward offered by grants of stock
options (including nonqualified stock options ("NSOs") and incentive stock
options ("ISOs")), stock purchase rights, stock appreciation rights, performance
shares or unit awards, dividend or equivalent rights, restricted share or unit
awards and other stock-based awards will enable it to attract and retain
employees. The Board of Directors adopted the 2000 Plan on April 13, 2000.
A summary of the key features of the 2000 Plan is set forth below.
DESCRIPTION OF THE PLAN
Purpose and Eligibility
The 2000 Plan is designed to attract, retain and motivate executives and key
personnel by offering them an opportunity to become Company stockholders,
thereby giving them a stake in the growth and prosperity of the Company and
encouraging the continuity of their services with the Company or its
subsidiaries.
The 2000 Plan permits the grant of stock options (including NSOs and ISOs),
stock purchase rights, stock appreciation rights, performance shares or unit
awards, dividend or equivalent rights, restricted share or unit awards and other
stock-based awards to employees, directors, officers and consultants to EPS.
However, ISOs may be granted to employees only.
Shares Available
The Board of Directors has authorized a total of 3,500,000 shares of common
stock for issuance under the 2000 Plan. Shares subject to awards may be made
available from unissued or reacquired shares of the common stock. No individual
may be granted awards under the 2000 Plan in any calendar year with respect to
more than 875,000 shares of common stock. The number of shares of common stock
subject to awards may be adjusted for corporate events affecting EPS common
stock.
Administration
The 2000 Plan will be administered by the Board of Directors, or a committee
appointed by the Board comprised solely of non-employee directors (the
"Administrator"). In general, the Administrator has full discretion to select
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<PAGE> 33
participants, determine the number of shares subject to each award, the award
price of the shares subject to each award (which price shall not be less than
the fair market value of the shares at the date of grant), the time or times
when each award becomes exercisable, and the duration of the grant, and adopt
rules, regulations and guidelines for the proper administration of the 2000
Plan.
Awards
The Administrator will determine vesting, exercisability, payment and other
restrictions applicable to an award. The 2000 Plan Administrator has broad
discretion to determine terms of awards. The exercise price of ISOs and NSOs
shall not be less than 100% of the fair market value of EPS common stock at the
date of grant provided, however, the exercise price of ISOs granted to 10%
shareholders must be at least 110% of the fair market value of EPS common stock
at the date of grant. The stock options will vest at such time or times and
subject to such terms and conditions as shall be determined by the
Administrator.
The 2000 Plan Administrator, at its discretion, may accelerate the
exercisability of any option at any time before the expiration or termination of
an option previously granted or waive its exercise provisions.
In the absence of a specified time in the award agreement, upon the
termination of a participant, all options will be terminated. Options will
become automatically vested upon the participant's death or disability and can
be exercised for twelve months. Upon a participant's retirement, options shall
continue to vest and will be exercisable for thirty-six months. Under the 2000
Plan, EPS may buy out option holders by offering to pay them cash for their
options. In addition, if a participant ceases to be an employee, director or
consultant of EPS prior to EPS's closing of a registered public offering, EPS
may repurchase the options or shares of EPS common stock acquired with an
option. An option may not be exercised for less than the lesser of (i) 100
shares of EPS common Stock or (ii) if the option recipient is fully vested, the
total number of shares of EPS common stock subject to such option.
Upon a change in control of EPS, the Administrator may, in its sole
discretion, vest unvested awards. Further, in addition or alternatively, the
Administrator may pay the participant in exchange for the cancellation of the
existing awards or substitute new awards covering stock of the successor
corporation.
The 2000 Plan Administrator may permit the exercise price to be paid, all or
in part (i) in cash, (ii) by check, (iii) by delivery to the Company of other
shares of common stock of the Company, (iv) by surrender of options in exchange
for such number of shares equal to the award less such number of shares that
have a fair market value equal to the aggregate exercise price (a "net
exercise"), (v) by a reduction in liability to participant relating to any
company-sponsored deferred compensation plan, (vi) by any combination of these
methods of payment or, (vii) by any other consideration to the extent permitted
by applicable laws.
Amendment
The Company may suspend, amend, or discontinue the 2000 Plan at any time.
However, the Company may not suspend, amend or discontinue the 2000 Plan, nor
can the Administrator amend any outstanding award, without a participant's
consent if it would adversely affect the participant's rights under such award.
Term
The 2000 Plan will remain in effect until the tenth anniversary of the date
on which it is originally approved.
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<PAGE> 34
ITEM 7.
RELATED PARTY TRANSACTIONS
Set forth below is a description of significant transactions and
relationships between us and our current executive officers, certain former
executive officers, directors, and principal stockholders beneficially owning 5%
or greater of our outstanding capital stock.
MARK C. COLEMAN
Mark C. Coleman is our Executive Vice President and Chief Financial Officer.
THE RINGCO GROUP LLC
On December 14, 1998, we paid $100,000 in cash and issued 193,804 shares of
our common stock to The Ringco Group LLC for the assignment of all of Ringco's
interest in a Participating Consultant Agreement between Ringco and National
Benefits Consultants, L.L.C. At the time of the transaction Mark Coleman owned
28% of the outstanding equity interests of Ringco.
INDEBTEDNESS
Mr. Coleman purchased an aggregate of 584,804 shares of employment-based
restricted common stock. Mr. Coleman purchased this stock by paying the par
value ($.001) in cash and issuing us promissory notes in the aggregate amount of
$1,116,251.79, secured by a pledge of the restricted stock. The notes accrue
interest at 5.5% and are due ten years from their issuance date.
DAVID M. EHLEN
David M. Ehlen is our Executive Vice President, Corporate Development.
INDEBTEDNESS
Mr. Ehlen purchased an aggregate of 461,059 shares of employment-based
restricted common stock. Mr. Ehlen purchased this stock by paying the par value
($.001) in cash and issuing us promissory notes in the aggregate amount of
$552,617.10, secured by a pledge of the restricted stock. The notes accrue
interest at 5.5% and are due ten years from their issuance date.
MICHAEL G. GOLDSTEIN
Mr. Goldstein is a Senior Vice President and a member of our board of
directors.
INDEBTEDNESS
Mr. Goldstein purchased an aggregate of 300,000 shares of employment-based
restricted common stock. Mr. Goldstein purchased this stock by paying the par
value ($.001) in cash and issuing us promissory notes in the aggregate amount of
$619,800, secured by a pledge of the restricted stock. The notes accrue interest
at 5.5% and are due ten years from their issuance date.
ASSOCIATION WITH OUTSIDE COUNSEL
Mr. Goldstein was a partner with Husch & Eppenberger LLC, until August,
1999, at which time he joined First Financial Resources, Inc., one of our
subsidiaries. We have retained Husch & Eppenberger as outside legal counsel on
various legal matters.
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<PAGE> 35
DAVID H. HOFFMANN
David H. Hoffmann is our Chairman, Chief Executive Officer and President,
and a beneficial owner of approximately 11.5% of our outstanding capital stock.
ACQUISITION OF DHR INTERNATIONAL, INC.
On December 14, 1998, we paid $5,445,240 in cash, delivered a subordinated
note for $1,482,000 and issued 1,336,085 shares of our common stock to DHR
International, Inc. for the purchase of substantially all of its operating
assets. In connection with the sale, DHR International, Inc. assigned to us its
rights in the name DHR International, Inc. and changed its name to Hoffmann
Investment Company, Inc. Mr. Hoffmann is the beneficial owner of the outstanding
capital stock of Hoffmann Investment Company, Inc. The cash paid to DHR
International, Inc. was used to retire existing indebtedness, to repay notes
held by shareholders other than Mr. Hoffmann and for working capital. We did not
acquire certain assets that were unrelated to the business of DHR International,
Inc. We also did not acquire its affiliated Internet search business, JobPlex,
Inc., or certain shares of capital stock that DHR International, Inc. received
in lieu of fees for the placement of executives in certain companies.
FIRST ADDITIONAL PURCHASE PRICE PAYMENT TO HOFFMANN INVESTMENT
COMPANY, INC. (F/K/A DHR INTERNATIONAL, INC.)
Because we did not complete an initial public offering of our stock by June
1999, our board of directors deemed it in the best interests of the Company to
amend the purchase transactions of those businesses we acquired whose
performance exceeded plan to increase the purchase prices we paid for those
businesses. All businesses whose performance exceeded plan were eligible for
this amendment. A total of five businesses qualified. Our DHR division was one
of those five businesses. Consequently, we paid an additional $1,612,000 in
purchase price to Hoffmann Investment Company, Inc. in the last four months of
1999.
SECOND ADDITIONAL PURCHASE PRICE PAYMENT TO HOFFMANN INVESTMENT
COMPANY, INC. (F/K/A DHR INTERNATIONAL, INC.)
During March 2000, our board of directors determined it was in the best
interests of the Company to increase the purchase price we paid for the
operating assets and business of DHR International, Inc. A payment in the amount
of $1.2 million was made to Hoffmann Investment Company, Inc. on March 13, 2000.
This additional payment of purchase price for the operating assets and business
of DHR International, Inc. was made in recognition of the substantial over-plan
earnings of this business unit during 1999, and Mr. Hoffmann's relinquishment of
his right to receive certain private equity fees earned by our DHR division (see
below).
NON-CASH COMPENSATION
In addition to receiving cash compensation for his services, Mr. Hoffmann,
pursuant to his employment agreement in his capacity as Chairman and CEO of our
executive recruiting business, may direct us to accept equity fees in lieu of
cash fees for executive search services performed through our executive search
business. Mr. Hoffmann must take reasonable steps to ensure that these equity
fees have a fair market value at least equal to the amount of the standard cash
fees generally collected. Mr. Hoffmann originally had a right to receive from
the Company any or all of these equity fees as a bonus prior to the closing of
an initial public offering of our stock. Pursuant to an amendment to Mr.
Hoffmann's employment agreement dated as of April 25, 2000, Mr. Hoffmann has
elected to receive as a bonus certain private equity fees valued at $577,000
through December 31, 1999. Mr. Hoffmann has relinquished all of his rights to
receive other equity fees through December 31, 1999, but will continue to have
rights to receive as a bonus any future equity fees received by us beginning
January 1, 2000 up to and through the closing of an initial public offering of
our stock.
ADVANCEMENT OF FUNDS TO AFFILIATE
Through December 31, 1999, we advanced to JobPlex, Inc., a Company
majority-owned by David H. Hoffmann, approximately $103,000 for working capital
purposes, and $245,000 as advances against amounts payable pursuant to a five
year professional services agreement whereby JobPlex, Inc. provides us with
professional employment recruiting services through its Internet capabilities.
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INDEBTEDNESS
Mr. Hoffmann purchased an aggregate of 3,374,280 shares of employment-based
restricted common stock. Mr. Hoffmann has purchased this stock by paying the par
value ($.001) in cash and issuing us promissory notes in the amount of
$6,013,905.58, secured by a pledge of the restricted stock. The notes accrue
interest at 5.5% and are due ten years from their issuance date. Mr. Hoffmann is
entitled to receive a guaranteed bonus in the aggregate amount of the yearly
interest payable on the notes.
OTHER RELATED TRANSACTIONS
Prior to our acquisition of the assets of DHR International, Inc., Hoffmann
Investment Company, Inc. had contracted with Hoffmann Holdings, LLC, a company
100% owned by Mr. Hoffmann, to provide airplane transportation services for
Hoffmann Investment Company, Inc. business purposes. Hoffmann Holdings is the
owner of an interest in the airplane. In 1999, the airplane was used extensively
by senior EPS executives for the purpose of conducting our domestic and
international business including acquisition and divestiture activity. In
addition, the airplane received extensive use in connection with our 1999
contemplated high-yield bond offering. During 1999, we paid $1,414,026 for our
prorata use of the airplane. Our usage of the airplane is expected to decrease
in the year 2000.
JAMES E. HOLDEN
Mr. James E. Holden owns approximately 5% of our outstanding common stock.
He also is the President of Holden Corporation, our indirect wholly-owned
subsidiary.
ACQUISITION OF HOLDEN CORPORATION
On March 19, 1999, we purchased all of the outstanding capital stock of
Holden Corporation from James Holden and Christine E. Holden. We purchased the
stock for cash in the amount of $4,000,000, a subordinated promissory note in
the amount of $4,000,000 and 1,320,114 shares of our common stock.
PROBABLE ACQUISITION OF eFox, L.L.C.
On March 19, 1999, we purchased 19.9% of the outstanding membership
interests of eFox, L.L.C. from James F. Holden and Christine E. Holden. In
addition, we acquired an option, expiring March 31, 2004, to purchase the
remaining 80.1% of the outstanding eFox, L.L.C. membership interests for an
exercise price of $800,000.
In March 2000, recognizing additional capital contributions made by the
Holdens, we entered into an agreement to acquire the remaining 80.1% of the
membership interests of eFox, L.L.C. for an aggregate purchase price of
$1,800,000. The purchase price will be paid to Mr. and Mrs. Holden in the form
of an unsecured, 10% promissory note which will be due at the earlier of three
years from the closing date of the transaction or an initial public offering of
our stock.
INDEBTEDNESS
We entered into compensatory, employment-based restricted stock purchase
agreements with Mr. Holden. Pursuant to these agreements, Mr. Holden purchased
682,613 shares of restricted common stock. Mr. Holden purchased this stock by
paying the par value ($.001) in cash and issuing to us promissory notes in the
aggregate amount of $818,452.98, secured by a pledge of the restricted stock.
The notes accrue interest at 5.5% and are due ten years from their issuance
date.
CHRISTOPHER P. MASSEY AND ERIK R. WATTS
Mr. Christopher P. Massey is our former Chairman and CEO. Mr. Erik R. Watts
is our former Vice Chairman. Each of Mr. Massey and Mr. Watts directly or
indirectly holds a 50% ownership interest in I.M. Comet, LLC, an entity that
holds 3,455,000 shares, or 8.6%, of our outstanding capital stock. Excluding Mr.
Massey's beneficial ownership of the 3,455,000 shares held in I.M. Comet, LLC,
Mr. Massey beneficially owns 677,693 shares, or approximately 1.7%, of our
outstanding capital stock. Excluding Mr. Watts' beneficial ownership of the
3,455,000 shares held in I.M. Comet, LLC, Mr. Watts beneficially owns 808,386
shares, or approximately 2.0%, of our outstanding capital stock.
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<PAGE> 37
STOCK ISSUED UPON OUR FORMATION
In August 1998, we issued shares of our common stock to Mr. Massey and Mr.
Watts as well as others who assisted us in our formation. Some of these shares
were unrestricted and others were associated with specified potential target
companies and were subject to repurchase by us if the target companies with
which they were associated were not acquired by December 31, 1999. Of the
6,880,209 shares of this type currently outstanding, Mr. Massey and Mr. Watts
beneficially own 2,322,171 shares and 2,254,478 shares, respectively.
ACQUISITION OF BENEFIT FUNDING SERVICES GROUP, LLC
On December 14, 1998, we paid $250,000 in cash and issued 223,590 shares of
common stock as consideration for the purchase of all of the outstanding
membership interests and any rights to Benefit Funding Services Group, LLC.
These payments included $81,220 in cash and 72,640 shares of common stock to
entities controlled by Mr. Erik R. Watts and Mr. Christopher P. Massey.
ACQUISITION OF DISBURSEMENT RECOVERY SERVICES, LLC
On December 14, 1998, we paid $350,000 in cash, delivered a subordinated
note for $1,733,000 and issued 333,888 shares of common stock as consideration
for the purchase of all of the outstanding membership interests and rights to
Disbursement Recovery Services, LLC. These payments included $225,000 in cash
and 267,110 shares of common stock to IM Comet LLC.
ACQUISITION OF FFR HOLDING CO., INC.
On December 14, 1998, we paid $123,851 in cash and issued 279,696 shares of
common stock to the stockholders of FFR Holding Co., Inc. as consideration for
the purchase of all of its outstanding common stock, including payments of
$40,138 in cash and 93,570 shares of common stock to Mr. Watts and affiliates of
Mr. Watts. Mr. Watts also continues to own, directly or indirectly, an aggregate
of 226,204 shares of preferred stock of FFR Holding Co., Inc.
ACQUISITION OF NATIONAL BENEFITS CONSULTANTS, L.L.C.
On December 14, 1998, we paid $1,500,000 in cash, delivered a subordinated
note for $18,267,000 and issued 1,387,914 shares of common stock to I.M. Comet,
LLC as consideration for the purchase of all outstanding equity interests and
rights to National Benefits Consultants, L.L.C.
ACQUISITION OF NATIONAL RECOVERY SERVICES, LLC
On December 14, 1998, we paid $200,000 in cash and issued 374,932 shares of
common stock as consideration for the purchase of all of the outstanding
membership interests and rights to National Recovery Services, LLC, including
payments of $120,000 in cash and 224,960 shares of common stock to I.M. Comet,
LLC.
ACQUISITION OF NATIONAL REVMAX CONSULTANTS, LLC
On December 14, 1998, we paid $500,000 in cash and issued 507,714 shares of
common stock to I.M. Comet, LLC as consideration for the purchase of all of the
outstanding membership interests and rights to National RevMax Consultants, LLC.
ACQUISITION OF NATIONAL HEALTHCARE RECOVERY SERVICES, LLC
On March 1, 1999, we paid $1,600,000 in cash, and delivered a $6,400,000
contingent subordinated note as consideration for the purchase of all of the
outstanding membership interests and rights to National HealthCare Recovery
Services, LLC (NHCRS). The note was issued to I.M. Comet, LLC in consideration
of its interests in the company.
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<PAGE> 38
Our obligation to pay on the subordinated note was contingent upon NHCRS meeting
prescribed pretax income targets. In addition we paid off certain indebtedness
of NHCRS in the amount of $1,350,000.
FOUNDERS SEPARATION TRANSACTION
Mr. Massey and Mr. Watts resigned from all of their positions as EPS
officers and directors effective as of November 24, 1999. In connection with the
resignations:
- on December 23, 1999, we rescinded the National HealthCare Recovery
Services, LLC transaction. A rescission of a transaction involves the
return by each party of the consideration paid or given to the other
party, with the goal of putting the parties back in the position they
would have been in if the transaction had not occurred;
- I.M. Comet, LLC agreed to indemnify us against liabilities arising out
of our ownership of NHCRS and we agreed to indemnify NHCRS against
liabilities arising from our other businesses;
- on December 23, 1999, we sold the following healthcare division assets
and other non-core business assets to I.M. Comet, LLC for aggregate
consideration of $2,693,000 and the assumption by I.M. Comet LLC of
existing liabilities related to discontinued operations:
- the assets of National Recovery Services, LLC, a healthcare cost
recovery business;
- the assets of our Medco Division, a healthcare cost recovery
related business which we acquired in December 1998 for
$5,000,000;
- certain assets of The Oxxford Group, Inc., a healthcare claims
payment audit and recovery business, which we acquired in
December 1998 pursuant to a subordinated promissory note in the
principal amount of $400,000; and
- the assets of EPS Travel Solutions, a travel procurement business
that we acquired in March 1999 for $175,000 in cash and a
$125,000 subordinated note.
- we agreed to mutual general releases with Mr. Massey and Mr. Watts;
- the aggregate common stock shareholdings of the entities controlled by
Messrs. Massey and Watts and their donees was reduced from 12,972,250
to 5,701,552. In connection with the repurchase of the shares, we made
an aggregate payment of $133,564.04 to I.M. Comet, LLC, reflecting the
original purchase price of the shares. We also granted Mr. Massey and
Mr. Watts the right to transfer a portion of their shareholdings so
long as entities controlled by them continued to own an aggregate of
at least 3,400,000 shares of common stock;
- I.M. Comet, LLC subleased through March 31, 2000 a portion of our
leased premises in Costa Mesa, California, together with the right to
utilize our phone and computer systems, for aggregate consideration of
$66,000;
- we agreed to allow I.M. Comet, LLC to utilize its shares of common
stock as collateral to secure loans provided to fund its operations
and to acquire new businesses. The requirement that entities
controlled by Mr. Massey and Mr. Watts retain at least 3,400,000
shares is inapplicable to a foreclosure of any such pledge; and
- in connection with the sales to I.M. Comet, LLC of the assets
described above, I.M. Comet, LLC issued to us a promissory note in the
amount of $3,130,000, which included operating expenses related to the
assets sold, incurred by us between November 1, 1999 and the closing
date of December 23, 1999. National HealthCare Recovery Services, LLC
issued to us promissory notes in the amounts of $2,950,000 and
$7,695,000, in each case to repay us for amounts expended in the
acquisition of, and in the operation of, National HealthCare Recovery
Services, LLC. Effective as of January 5, 2000, we offset the total
amounts of all of the promissory notes against our $18,276,000 note
issued to I.M. Comet, LLC in connection with our acquisition of
National Benefits Consultants, L.L.C., resulting in a net balance
under that note of $6,317,636 before increases due to the addition of
unpaid accrued interest on such note, and before the offset of other
amounts due from these noteholders.
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LOANS TO COMPANY
On August 1, 1999, Mr. Massey and Mr. Watts each loaned us $100,000. These
loans were used to pay a certain accrued interest payment obligation we incurred
under one of our subordinated promissory notes even though such payment was not
due and payable under the terms of the note at the time it was paid. We must
repay these loans plus interest at 10% per annum on the date that other accrued
interest under the promissory interest payment note is paid.
EARLY PRICE PRITCHETT III
Dr. Early Price Pritchett III is a member of our board of directors.
ACQUISITION OF PRITCHETT PUBLISHING COMPANY
On December 14, 1998, we purchased all of the outstanding capital stock of
Pritchett Publishing Company (dba Pritchett & Associates) from Dr. Early Price
Pritchett, a director of our company. We purchased the stock from Dr. Pritchett
for cash in the amount of $2,000,000, a subordinated promissory note in the
amount of $6,000,000, and 117,500 shares of our common stock. Dr. Pritchett
continues to serve as the Chairman of Pritchett Publishing Company.
FIRST ADDITIONAL PURCHASE PRICE PAYMENT TO DR. PRITCHETT
On September 17, 1999, our board of directors determined it was in the best
interests of the Company to amend our Stock Purchase Agreement with Dr.
Pritchett to increase the purchase price paid to Dr. Pritchett for the shares of
Pritchett Publishing Company through the issuance of 500,000 unrestricted shares
of EPS. Additionally, Dr. Pritchett is purchasing 500,000 shares of employment-
based restricted stock that are eligible to vest over time provided that certain
conditions are met.
SECOND ADDITIONAL PURCHASE PRICE PAYMENT TO DR. PRITCHETT
Because we did not complete an initial public offering of our stock by June
1999, our board of directors deemed it in the best interests of the Company to
amend the purchase transactions of those businesses we acquired whose
performance exceeded plan to increase the purchase prices we paid for those
businesses. All businesses whose performance exceeded plan were eligible for
this amendment. A total of five businesses qualified. Our Pritchett & Associates
division was one of those five businesses. Consequently, we paid an additional
$300,278 in purchase price to Dr. Pritchett in 1999.
INDEBTEDNESS
Dr. Pritchett purchased an aggregate of 179,147 shares of employment-based
restricted common stock. Dr. Pritchett has purchased this stock by paying the
par value ($.001) in cash and issuing us promissory notes in the amount of
$214,976.40, secured by a pledge of the restricted stock. The Note accrues
interest at 5.5% and is due ten years from the issuance date.
WALTER L. SCHINDLER
Walter Schindler is the former Vice Chairman of our Company.
INDEBTEDNESS
We entered into compensatory, time-based restricted stock purchase
agreements with Mr. Schindler. Pursuant to those agreements, Mr. Schindler
purchased an aggregate of 500,000 shares of our employment-based common stock,
all of which are vested in accordance with the term of Mr. Schindler's
separation agreement. Mr. Schindler purchased this stock by paying the par value
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<PAGE> 40
($.001) in cash and issuing us promissory notes in the amount of $288,000,
secured by a pledge of the restricted stock. The Note accrues interest at 5.5%
and is due ten years from the issuance date.
ASSOCIATION WITH OUTSIDE COUNSEL
Mr. Schindler was a partner with Gibson, Dunn & Crutcher, LLC, until
January 1999, at which time he joined our company. We have retained Gibson, Dunn
& Crutcher, LLC as our counsel on various legal matters.
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ITEM 8.
LEGAL PROCEEDINGS
In October 1998, Anthem Insurance Companies, Inc. filed complaints naming
National Benefits Consultants, L.L.C. (one of our former subsidiaries), EPS, and
other defendants in Indiana and California state courts. The California action
sought declaratory relief and alleged that conduct by us excuses Anthem of its
remaining obligations, including payment of money, under a separate settlement
agreement of previous litigation entered into in 1995. The California action was
settled in our favor, with National Benefits Consultants receiving $1,898,535.82
as part of the settlement.
The initial complaint in the Indiana action accused us of violating the
Indiana Uniform Trade Secrets Act, unjust enrichment, and inducement of breach
of duty. It also named as defendants two individuals who left Anthem to manage
our former subsidiary National HealthCare Recovery Services, LLC, and accused
them of breaching their employment agreements with Anthem, breaching their
fiduciary duties to Anthem, stealing Anthem's trade secrets, conversion, and
unjust enrichment. Anthem filed a First Amended Complaint on March 20, 2000, and
added as defendants our former chairman, Christopher Massey, our former Vice
Chairman, Erik Watts, I.M. Comet, LLC, National HealthCare Corp, and our
operating entity, Enterprise Profit Solutions Corporation. In addition, the
amended complaint added claims for (1) breach of implied contract against the
two individuals who left Anthem to manage our former subsidiary National
HealthCare Recovery Services, LLC, (2) intentional interference with employment
relationship against all defendants, and (3) intentional interference with
contractual relations. The First Amended Complaint seeks preliminary and
permanent injunctive relief and unspecified compensatory and punitive damages.
Settlement attempts to date have been unsuccessful and discovery is
proceeding. We believe Anthem's claims are without merit and we are defending
them vigorously. A trial date in this matter has been set for September 12,
2000.
We and our subsidiaries are also parties to other litigation which arises
in the ordinary course of business from time to time. We believe that none of
the pending legal proceedings will have a material adverse effect on our
business, financial condition, liquidity or operating results.
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ITEM 9.
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of April 15, 2000 we had 915 stockholders. As of April 28, 2000 our
board of directors had authorized the issuance of options to purchase up to
660,000 shares of our common stock pursuant to the EPS Solutions Corporation
2000 Stock Performance Plan. There are no other options, warrants or securities
convertible into our common stock outstanding and there is no established public
trading market for our common stock. We have never declared or paid any cash
dividends on our capital stock. We currently intend to retain future earnings
for use in our business and do not anticipate declaring or paying any dividends
on shares of common stock in the foreseeable future. Further, our board of
directors will make any determination to declare and pay dividends in light of
our earnings, financial position, capital requirements, agreements for our
outstanding debt and such other factors as the board of directors deems
relevant. The payment of cash dividends by us is restricted by our current bank
credit facilities, which contain restrictions prohibiting us from paying cash
dividends without the bank's prior approval.
Furthermore, our sole source of cash from which to make dividend payments
will be dividends paid to us or payments made to us by our subsidiaries. The
ability of our subsidiaries to make these payments may be restricted by
applicable state laws or terms of agreements to which they are or may become
party.
We are not currently offering, or proposing to offer, shares of our common
stock to the public.
We have not granted any demand registration rights to our stockholders. We
have granted "piggyback" registration rights to most of our stockholders which
allow them to sell a portion of the shares held by them in an initial public
offering of our common stock or any subsequent underwritten public offering of
our common stock within twenty-four months of an initial public offering (not
including a registration statement filed in connection with an acquisition or
employee benefit plan). The number of shares that any stockholder may sell in
any initial or subsequent underwritten public offering is generally limited as
follows: (i) each stockholder has an individual contractual limitation with
respect to the number of shares that such stockholder is allowed to sell in an
IPO; (ii) the managing underwriter for any offering may limit or eliminate
stockholder participation in any offering altogether; (iii) if the managing
underwriter has limited the total number of shares all stockholder's may sell in
any offering, each stockholder will be limited to pro-rata participation in the
offering; and (iv) most stockholder's piggyback rights are contractually limited
to allow for the sale of a maximum of one-half of such stockholder's shares in
an initial public offering and all subsequent underwritten public offerings
combined.
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<PAGE> 43
In general, under Rule 144 as currently in effect, any affiliate of ours or
a person, or persons whose shares are aggregated, who has beneficially owned
restricted shares for at least one year, including the holding period of any
prior owner other than a person who may be deemed an affiliate of ours, is
entitled to sell within any three-month period a number of shares of common
stock that does not exceed the greater of:
- one percent of the then-outstanding shares of common stock; and
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 notice with respect
to this sale.
Sales under Rule 144 of the Securities Act are subject to certain
restrictions relating to manner of sale, notice and the availability of current
public information about us. Under Rule 144(k), a person who is not an affiliate
of ours at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, including the holding period
of any prior owner other than a person who may be deemed an affiliate of ours,
would be entitled to sell these shares immediately following the effective date
of this registration statement without regard to the volume limitations, manner
of sale provisions or notice or other requirements of Rule 144 of the Securities
Act. However, we may require an opinion of counsel that a proposed sale of
shares comes within the terms of Rule 144 of the Securities Act prior to
effecting a transfer of these shares.
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ITEM 10.
RECENT SALES OF UNREGISTERED SECURITIES
Since August 28, 1998, we have issued an aggregate of 58,073,642 shares of
common stock, consisting of 32,721,024 shares of Series A Common Stock,
24,212,099 shares of Series B Common Stock and 1,140,519 shares of No Series
Common Stock. An aggregate of 18,006,513 shares of common stock have been
repurchased. All sales of unregistered securities were made in reliance on
either Rule 506 of Regulation D or Rule 701 promulgated under Sections 4(2) and
3(b) of the Securities Act, respectively. All of the transactions were effected
without the use of an underwriter. Appropriate legends were affixed to the share
certificates issued in the transactions.
Sales made in reliance on Rule 506 were made in compliance with all the
terms of Rule 501 and 502 of Regulation D. The sales were made without general
solicitation or advertising. Each purchaser to whom sales were made in reliance
on Rule 506 was an accredited investor as defined in Rule 501(a) with access to
all relevant information necessary to evaluate the investment and represented to
us that the shares were being purchased for investment and not for resale.
When issuing shares in reliance on Rule 701, we met the conditions imposed
under Rule 701(b). In addition, each person to whom we issued shares in reliance
on Rule 701 met the conditions imposed by Rule 701(c). All sales were made
pursuant to a written compensatory benefit plan or a written compensation
contract, a copy of which was provided to the investor. Offers and sales of
shares were made only to our employees, directors, officers, consultants or
advisors who were employed by us or providing services to us at the time the
shares were offered. The aggregate amount of shares sold did not exceed the
limitations set forth by Rule 701(d).
Since August 28, 1998, we have issued unregistered securities as described
below.
SUBSCRIPTION SHARES
Since August 28, 1999 we have sold an aggregate of 16,741,567 shares of
common stock consisting of an aggregate of 64,584 shares of Series A Common
Stock, 16,656,983 shares of Series B Common Stock and 20,000 shares of No Series
Common Stock as described below.
In connection with the founding of the company and their efforts toward
completing successful acquisitions on August 28, 1998, we sold in the aggregate
11,036,564 shares of Series B Common Stock at a price of $0.02 per share, to 21
accredited investors for an aggregate cash consideration of $220,731.28.
In connection with their efforts toward completing successful acquisitions
on December 14, 1998, we sold in the aggregate 2,863,715 shares of Series B
Common Stock at a price of $1.20 per share, to 20 accredited investors for an
aggregate consideration of $3,436,458, of which $3,433,594.28 was originally
subject to promissory notes.
As part of a private placement, in the fourth quarter of 1998 we sold an
aggregate of 58,643 shares of Series B Common Stock valued at $1.20 per share to
an aggregate of two investors for an aggregate consideration of $70,311.60, of
which $70,253.00 was originally subject to a promissory note.
As part of a private placement, in the first quarter of 1999 we sold an
aggregate 2,698,061 shares of Series B Common Stock valued at $1.20 per share to
an aggregate of 23 investors for an aggregate consideration of $3,237,673.20, of
which $3,082,702.13 was originally subject to promissory notes.
As part of a private placement, in the fourth quarter of 1999 we sold
20,000 shares of No Series Common Stock valued at $2.50 per share to one
investor for an aggregate consideration of $50,000.00, of which $49,980.00 was
originally subject to a promissory note.
In exchange for completed consulting services, on March 18, 1999 we issued
64,584 shares of Series A Common Stock valued at $1.20 per share to one
accredited investor.
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All of the subscriptions shares were issued in reliance on Rule 506.
ACQUISITION SHARES
In December 1998 and January 1999, in connection with the simultaneous
acquisition of the stock or assets of acquired companies, we issued in the
aggregate 10,021,590 shares of Series A Common Stock valued at $1.20 per share,
to an aggregate of 147 former shareholders or members of some of the acquired
companies and to some of the companies whose assets were acquired. The table
below sets forth data on a company-by-company basis.
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<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF PERSONS
COMPANY NAME TYPE OF ACQUISITION ISSUED RECEIVING SHARES
- ------------ ------------------ ---------------- -----------------
<S> <C> <C> <C>
BayGroup Stock 286,725 10
International, Inc.
Benefit Funding Membership Interests 223,590 6
Services Group, LLC
Better Communications, Stock 56,373 2
Inc.
CyberLease, LLC and Asset 87,579 2
Cyberstract, LLC
D'Accord Group, Inc. Stock 969,839 13
and D'Accord Holdings,
Inc.
DHR International, Inc. Asset 1,336,085 1
Dimension Funding, Inc. Stock 155,029 1
Disbursement Recovery Membership Interests 333,887 2
Services, LLC
The Dublin Group, Inc. Stock 125,111 4
Equitax Asset 64,286 1
FDSI Logistics, Inc. Asset 505,586 1
FFR Holding Co., Inc. Stock 279,648 70
Lease Audit & Analysis Stock 94,703 2
Services, Inc.
Mobility Services Asset 275,500 4
International, Inc.
National Recovery Membership Interests 374,932 4
Services, LLC
National Benefits Membership Interests 1,387,914 1
Consultants, LLC
National Revmax Membership Interests 507,714 1
Consultants, LLC
The Oxxford Consulting Stock 607,543 1
Group, Inc.
The Oxxford Group, Inc. Asset 562,171 1
Partners Consulting Stock 77,857 1
Services, Inc.
The Praxis Group, Inc. Stock 829,945 5
Pritchett Publishing Stock 117,500 1
Company
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF PERSONS
COMPANY NAME TYPE OF ACQUISITION ISSUED RECEIVING SHARES
- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
The Ringco Group LLC Contract Rights 193,804 1
The Rummler-Brache Asset 168,929 1
Group, Ltd.
Sigma International, Stock 62,657 1
Inc.
The Structured Stock 64,286 1
Settlements Company,
Inc.
The Wadley-Donovan Stock 79,357 5
Group, Inc.
Young, Clark & Stock 193,040 4
Associates, Inc.
</TABLE>
In March 1999, in connection with the simultaneous acquisition of the stock
or assets of four companies, we issued in the aggregate 1,572,057 shares of
Series A Common Stock valued at $1.20 per share, to an aggregate of four former
shareholders or members of two of the acquired companies and to the company
whose assets were acquired. The table below sets forth data on a
company-by-company basis.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF PERSONS
COMPANY NAME TYPE OF ACQUISITION ISSUED RECEIVING SHARES
- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
D.L.D. Insurance Stock 238,148 1
Brokers, Inc.
Holden Corporation Stock 1,320,114 2
The T&E Group Asset 13,795 1
</TABLE>
In April 1999, in connection with the acquisition of the assets of First
Choice Brokerage Corporation we issued 20,908 shares of Series A Common Stock
valued at $2.50 per share to the company.
COMPENSATORY SHARES SOLD IN RELIANCE ON RULE 701
In connection with written compensatory benefit plans or written
compensation contracts, we sold an aggregate of shares of Common Stock
consisting of an aggregate of 2,233,788 shares of Series A Common Stock, an
aggregate of 228,931 shares of Series B Common Stock and an aggregate of 253,599
shares of No Series Common Stock to employees, directors, officers, consultants
and advisors. The shares were sold in reliance on Rule 701. The table below sets
forth data on a quarterly basis.
46
<PAGE> 48
<TABLE>
<CAPTION>
AGGREGATE AMOUNT
ORIGINALLY
AGGREGATE NUMBER AGGREGATE CASH SUBJECT TO
PERIOD SERIES PRICE PER SHARE OF SHARES CONSIDERATION PROMISSORY NOTES
- ------ ------ --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Fourth Quarter, 1998 A $1.20 855,673 $1,026,807.60 $1,025,951.92
Fourth Quarter, 1998 B $1.20 204,145 $244,974.00 $244,769.85
First Quarter, 1999 A $1.20 1,216,640 $1,459,968.00 $1,458,751.36
First Quarter, 1999 B $1.20 17,286 $20,743.20 $20,725.91
Second Quarter, 1999 A $2.50 54,642 $136,605.00 $136,550.35
Third Quarter, 1999 A $2.50 58,107 $145,267.50 $145,209.39
Third Quarter, 1999 B $2.50 7,500 $18,750 $18,742.50
Fourth Quarter, 1999 A $2.50 48,726 $121,815.00 $121,766.27
Fourth Quarter, 1999 No Series $2.50 216,099 $540,247.50 $540,031.40
First Quarter, 2000 No Series $2.50 37,500 $93,750.00 $93,712.50
TOTAL 2,716,318 $3,808,927.80 $3,806,211.45
</TABLE>
In connection with written compensation contracts, in the second quarter of
1999, we awarded an aggregate of 13,000 shares of Series A Common Stock to 16
employees. The shares were awarded in reliance on Rule 701.
In connection with written compensation contracts, in the fourth quarter of
1999, we awarded an aggregate of 15,286 shares of No Series Common Stock to 13
employees. The shares were awarded in reliance on Rule 701.
COMPENSATORY SHARES SOLD IN RELIANCE ON RULE 506
In connection with written compensatory benefit plans or written
compensation contracts, we sold an aggregate of shares common stock consisting
of 18,795,097 shares of Series A Common Stock, an aggregate of 7,326,185 shares
of Series B Common Stock and an aggregate of 851,634 shares of No Series Common
Stock to employees, directors, officers, consultants and advisors. The shares
were sold in reliance on Rule 506. The table below sets forth data on a
quarterly basis.
47
<PAGE> 49
<TABLE>
<CAPTION>
AGGREGATE AMOUNT
ORIGINALLY
AGGREGATE NUMBER AGGREGATE CASH SUBJECT TO
PERIOD SERIES PRICE PER SHARE OF SHARES CONSIDERATION PROMISSORY NOTES
- ------ ------ --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Fourth Quarter, A $1.20 9,087,483 $10,904,979.60 $10,895,892.11
1998
Fourth Quarter, B $1.20 763,522 $916,226.40 $915,462.87
1998
First Quarter, 1999 A $1.20 6,938,959 $8,326,750.80 $8,319811.84
First Quarter, 1999 B $1.20 6,462,663 $7,755,195.60 $7,748,732.93
Second Quarter, A $2.50 86,635 $216,587.50 $216,500.86
1999
Second Quarter, B $2.50 100,000 $250,000.00 $249,900.00
1999
Third Quarter, 1999 A $2.50 1,181,214 $2,953,035.00 $2,951,853.78
Fourth Quarter, A $2.50 1,500,806 $3,752,015.00 $3,750,514.19
1999
Fourth Quarter, No Series $2.50 734,134 $1,835,335.00 $1,834,600.86
1999
First Quarter, 2000 No Series $2.50 117,500 $293,750.00 $293,632.50
TOTAL 26,972,916 $37,203,874.90 $37,176,901.94
</TABLE>
REPURCHASED
Since August 28, 1998, an aggregate of 18,006,513 shares consisting of an
aggregate of 4,086,765 shares of Series A Common Stock, an aggregate of
13,882,604 shares of Series B Common Stock and an aggregate of 37,144 shares of
No Series Common Stock were repurchased from shareholders due to either a
failure to reach specified performance targets or a termination of employment.
48
<PAGE> 50
ITEM 11.
DESCRIPTION OF CAPITAL STOCK TO BE REGISTERED
GENERAL
In November of 1999 we amended and restated our Certificate of
Incorporation to eliminate the distinction between our various series of common
stock. As a result all shares of Series A Common Stock and Series B Common Stock
are now denoted simply as common stock.
We are authorized to issue up to 240,000,000 shares of common stock, par
value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share.
The following description summarizes the material terms of our stock, but
does not purport to be complete and is subject in all respects to provisions of
applicable Delaware law and to the provisions of our certificate of
incorporation and bylaws.
COMMON STOCK
All outstanding shares of common stock are, and the common stock are fully
paid and nonassessable.
The following summarizes the rights of our holders of common stock:
- each holder is entitled to one vote per share held on all matters
submitted to a vote at a meeting of stockholders;
- each holder may exercise his or her vote either in person or by proxy;
- holders are not entitled to cumulate their votes for the election of
directors, which means that, subject to any rights granted to the
holders of any shares of preferred stock, the holders of more than 50%
of the outstanding shares of common stock are able to elect all of the
directors to be elected by holders and the holders of the remaining
shares of common stock will not be able to elect any director;
- subject to the preferences of the holders of any shares of preferred
stock, the holders of are entitled to receive ratably any dividends
declared from time to time by the board of directors out of funds
legally available for that purpose;
- in the event of our liquidation, dissolution or winding up, the
holders are entitled to share ratably in all of our assets which are
legally available for distribution to holders, subject to the prior
rights on liquidation of creditors and to any preferences to which
holders of any shares of preferred stock may be entitled; and
- the holders do not have any preemptive, subscription, redemption or
sinking fund rights.
PREFERRED STOCK
Pursuant to our certificate of incorporation, the board of directors has
authority, without further action by the stockholders, to issue up to 10,000,000
shares of preferred stock, in one or more series and containing rights,
privileges and limitations, including dividend rights, voting rights, conversion
privileges, redemption rights, liquidation rights or sinking fund rights, as
determined by the board of directors. The effect of having preferred stock
authorized is that the board of directors alone, within the bounds and subject
to the federal securities laws and the Delaware General Corporation Law, may be
able to authorize the issuance of preferred stock, which may adversely affect
the voting and other rights of holders of common stock. The issuance of
preferred stock may also have the effect of delaying or preventing a change in
control.
Although we have no present plans to issue any shares of preferred stock,
preferred stock may be issued in the future in connection with acquisitions,
financings or any other matters which the board of directors deems to be
appropriate. If any shares of preferred stock are issued, a Certificate of
Designation, setting forth the series of the preferred stock and the relative
rights, privileges and limitations of such preferred stock, is required to be
filed with the Secretary of State of the State of Delaware.
49
<PAGE> 51
ANTITAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
The following brief description of provisions of our certificate of
incorporation and bylaws does not purport to be complete and is subject in all
respects to the provisions of the certificate of incorporation and bylaws,
copies of which have been filed as exhibits to the Registration Statement of
which this prospectus forms a part.
CLASSIFIED BOARD OF DIRECTORS
Our bylaws provide for the board of directors to be divided into three
classes serving staggered terms. The number of directors in each class is as
nearly equal as is possible based upon the number of directors forming the
entire board of directors. The term of office of the second class of directors
will expire at the first annual meeting of stockholders following the date of
this registration statement, the term of office of the third class will expire
at the second annual meeting of stockholders following this registration
statement, and the term of office of the first class will expire at the third
annual meeting of stockholders following the date of this registration
statement. At each annual meeting of stockholders, successors to directors of
the class whose term expires at that meeting will be elected to serve for a
three-year term and until their successors are elected and qualified.
The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the board of directors. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the board of directors. Such a delay may
help ensure that our directors, if confronted by a third party attempting to
force a proxy contest, a tender or exchange offer or other extraordinary
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what they believe to
be the best interests of the stockholders. However, the classification
provisions could also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
obtain control of us, even though such an attempt might benefit us and our
stockholders. The classification of the board of directors could thus increase
the likelihood that incumbent directors will retain their positions.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES; QUALIFICATION
Our bylaws provide that the number of directors comprising the entire board
of directors will be between three and nine, with the actual number of directors
fixed from time to time by action of the board of directors. In addition, the
bylaws provide that newly created director positions resulting from an increase
in the authorized number of directors or vacancies on the board of directors
resulting from resignation, death, or any other cause may be filled only by the
board of directors (and not by the stockholders unless there are no directors in
office). Also, under Delaware law, unless otherwise provided in the certificate
of incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. Our certificate of incorporation does not provide
that our directors may be removed for any reason other than cause. Accordingly,
the board of directors could prevent any stockholder from enlarging the board
and filling the new directorships with that stockholder's own nominees.
Our bylaws provide that no person shall be qualified to be elected or
appointed to the board of directors while there is a proposed transaction
pending and within the two years preceding such election or appointment, the
person to be elected or appointed had a specified business or financial
relationship with the other parties to the transaction.
The provisions of our certificate of incorporation and bylaws governing the
number of directors, their removal, the filling of vacancies and director
qualification requirement may have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
gain control of us, or of attempting to change the composition or policies of
the board of directors, even though such attempts might be to our benefit and
that of our stockholders. These provisions could thus increase the likelihood
that incumbent directors retain their positions.
LIMITATION ON SPECIAL MEETINGS AND STOCKHOLDER ACTION BY WRITTEN CONSENT
Our certificate of incorporation and bylaws provide that only a majority of
the board of directors or the Chairman can call a special meeting of
stockholders; and stockholder action by written consent requires the consent
50
<PAGE> 52
of 75% of stockholders entitled to vote on such action. These provisions, taken
together, limit stockholders from taking any action over the opposition of the
board of directors.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
Our bylaws provide that stockholders seeking to bring business before a
meeting of stockholders, or to nominate candidates for election as directors,
must provide timely notice of this intention in writing. Otherwise, only persons
who are nominated by or at the direction of the board of directors, any
committee appointed by the board of directors will be eligible for election as
our directors. To be timely, notice of stockholder nominations or proposals to
be made at an annual or special meeting must be received by us not less than 90
days nor more than 120 days prior to the scheduled date of the meeting , or, if
less than 95 days' notice or prior public disclosure of the date of the meeting
is given, then the 7th day following the earlier of (i) the day such notice was
mailed or (ii) the day such public disclosure was made.
Under our bylaws a stockholder's notice to us proposing to nominate a
person for election as director must contain specified information about the
nominating stockholder and the proposed nominee, and a stockholder's notice
relating to the conduct of business other than the nomination of directors must
contain specified information about such business and about the proposing
stockholder. If the Chairman or other officer presiding at a meeting determines
that a person was not nominated, or other business was not brought before the
meeting, in accordance with the procedure set forth in our bylaws, the person
will not be eligible for election as a director, or such business will not be
conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the board of
directors has an opportunity to consider the qualifications of the proposed
nominees and, to the extent deemed necessary or desirable by the board of
directors, to inform stockholders about the nominees qualifications. Advance
notice of other proposed business, provides a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the board of directors, provides the board of directors with an
opportunity to inform stockholders, prior to the meetings, of any business
proposed to be conducted at such meetings, together with any recommendations as
to the board of director's position regarding action to be taken with respect to
such business, so that stockholders can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
However, the advance notice provisions may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, if the proper advance notice procedures are not followed, without
regard to whether consideration of such nominees or proposals might be harmful
or beneficial to us or our stockholders.
AMENDMENT OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation and bylaws contain provisions requiring
the affirmative vote of the holders of (i) at least 75% of the voting power of
our common stock or more to amend the provisions of the certificate of
incorporation discussing votes required to amend our certificate of
incorporation or bylaws, and limiting stockholder written consent; and (ii) at
least 75% of the voting power of our common stock to repeal or amend our bylaws
(including the provisions discussed above relating to the size and
classification of the board of directors, replacement or removal of directors,
action by written consent, special stockholder meetings, and limitation of the
liability of directors). These provisions make it more difficult for
stockholders to make changes in our certificate of incorporation or bylaws,
including changes designed to facilitate the exercise of control over us.
51
<PAGE> 53
ITEM 12.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are a Delaware corporation. Our certificate of incorporation provides
that to the fullest extent permitted by Delaware law, no director will be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as a director, except for liability (i) for any breach of the
Directors' duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived an improper
benefit.. Our certificate of incorporation and our bylaws also provide that to
the fullest extent permitted by Delaware law, we will fully indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that such person is or
was our employee, director or officer or is or was serving at our request as an
employee, director or officer of another corporation, partnership joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") provides that a Delaware corporation has the power to indemnify its
officers and directors in certain circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding provided that such director or officer acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
that such director or officer had no cause to believe his or her conduct was
unlawful.
Subsection (b) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit provided that such director or
officer acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue or matter as to which such director
or officer shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
was brought shall determine that despite the adjudication of liability such
director or officer is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith; that indemnification provided for in Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the corporation shall have power to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or her or incurred by him or her in any such
capacity or arising out of his or her status as such whether or not the
corporation would have the power to indemnify him or her against such
liabilities under Section 145.
The Company also carries directors' and officers' liability insurance
covering its directors and officers. In addition, we have entered into
agreements to indemnify our directors and officers. We believe that these
agreements are necessary to attract and retain qualified directors and officers.
These agreements generally provide that the Company will indemnify the director
or officer against expenses actually and reasonably incurred
52
<PAGE> 54
(including without limitation attorneys' and experts' fees and costs), and all
liabilities, losses, judgments, fines, penalties, and taxes actually incurred by
the director or officer, and amounts paid in settlement (if such settlement is
approved in advance by the Company) arising from, or related to civil, criminal,
or administrative claims brought against such directors and officers (or which
otherwise require such directors or officers participation) by reason of the
fact that the director or officer was a director or officer of the Company or
one of its affiliates; provided that the director or officer acted in good faith
and in a manner the director or officer reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that the director or
officer's conduct was unlawful. The Company is also obligated to advance
expenses to any director or officer entitled to indemnification pursuant to our
charter or bylaws, the indemnification agreement or applicable law.
53
<PAGE> 55
ITEM 13.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(dollars in thousands)
The following unaudited pro forma condensed consolidated financial data, which
we refer to as the Pro Forma Financial Data, of EPS Solutions Corporation (EPS)
are based on historical consolidated financial statements of EPS as adjusted to
give effect to the acquisitions of companies in the year ending December 31,
2000 which are deemed probable (which we refer to as the 2000 Acquisitions) at
April 30, 2000: PowerBase Selling Limited, and eFox, L.L.C.
The unaudited pro forma condensed consolidated balance sheet reflects
adjustments related to the 2000 Acquisitions. Regarding the 2000 Acquisitions,
the Company expects to issue $3,550 in 10% unsecured subordinated notes to the
sellers of these companies. Separately, certain of the key employees of these
companies are expected to purchase approximately 902,000 shares of the Company's
common stock, such shares to vest over periods ranging up to five years, subject
to and depending upon the actual pretax earnings of these companies.
The unaudited pro forma condensed consolidated statements of operations
include adjustments to reflect a full year's amortization of goodwill and other
intangible assets, as well as incremental interest expense and vesting of
stock-based compensation. The adjustments are more fully explained in the notes
to the unaudited pro forma condensed consolidated financial statements. The
unaudited pro forma condensed consolidated financial data should be read in
conjunction with the respective unaudited consolidated financial statements of
the Company appearing elsewhere herein.
The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The Pro Forma Financial Data and the accompanying notes should be
read in conjunction with the historical consolidated statements of EPS,
including the notes thereto, and the financial statements of certain of the EPS
Companies, and other financial information pertaining to EPS which are included
elsewhere herein. The Pro Forma Financial Data do not purport to represent what
our actual results of operations or actual financial position would have been if
the acquisitions of the 2000 Acquisition Companies in fact occurred on such
dates or to project our results of operations or financial position for any such
future period or date.
54
<PAGE> 56
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------
2000
COMPANY ACQUISITIONS(1) ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 10,025 $219 $ 10,244
Accounts receivable 29,928 269 30,197
Other current assets 13,040 2 13,042
Current assets held for sale 26,478 26,478
----------- ---- ------ --------
Total current assets 79,471 490 79,961
Property and equipment, net 11,425 151 11,576
Goodwill and other intangibles 37,948 3,244 (2) 41,392
200 (3)
Deferred financing costs 9,414 9,414
Other assets 18,242 (200)(3) 18,042
Other assets held for sale 39,442 39,442
----------- ---- ------ --------
Total assets $ 195,942 $641 $3,244 $199,827
=========== ==== ====== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 25,050 $107 $ 25,157
Accrued payroll and related expenses 14,154 82 14,236
Deferred revenue 1,984 102 2,086
Current liabilities of discontinued operations 14,550 14,550
Current portion of long-term debt 43,493 43 43,536
----------- ---- ------ --------
Total current liabilities 99,231 334 0 99,565
Long-term debt, less current portion 83,573 1 83,574
Subordinated notes payable 96,233 3,550 (2) 99,783
Deferred income taxes 2,349 2,349
Other 4,007 4,007
----------- ---- ------ --------
Total liabilities 285,393 335 3,550 289,278
Minority interest in a subsidiary company 5,240 5,240
Stockholders' deficit:
Common stock 56 5 (5)(2) 58
1 (4)
Treasury stock (10,404) (10,404)
Additional paid-in capital 37,068 2,254 (4) 39,321
Notes receivable from stockholders (34,314) (2,255)(4) (36,569)
Accumulated deficit and other comprehensive loss (87,097) 301 (301)(2) (87,097)
----------- ---- ------ --------
Total stockholders' deficit (94,691) 306 (306) (94,691)
----------- ---- ------ --------
Total liabilities and stockholders' deficit $ 195,942 $641 $3,244 $199,827
=========== ==== ====== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
55
<PAGE> 57
EPS SOLUTIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
1999 AND 2000 PRO FORMA PRO FORMA AS
COMPANY ACQUISITIONS(1)(5) ADJUSTMENTS ADJUSTED
-------- ------------------ ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Continuing Operations
Ongoing businesses:
Revenues $141,527 $3,130 $ (438)(6) $144,219
Cost of revenues 70,671 1,257 (438)(6) 71,490
Selling, general and administrative 59,278 2,037 227 (7) 61,665
123 (8)
Restructuring charges 5,762 5,762
Abandoned bond offering costs 2,418 2,418
-------- ------ ------ --------
Income (loss) from operations 3,398 (164) (350) 2,884
Non-operating expenses (principally interest) (19,013) (36) (488)(9) (19,537)
Businesses closed or to be disposed of:
Revenues 16,588 16,588
Costs and expenses (15,840) (15,840)
Loss on businesses closed or to be disposed of (5,620) (5,620)
-------- ----- ----- --------
Loss from continuing operations before income taxes (20,487) (200) (838) (21,525)
Income taxes 1,639 (32) -- 1,607
-------- ----- ----- --------
Loss from continuing operations $(18,848) $(232) $(838) $(19,918)
======== ===== ===== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
56
<PAGE> 58
EPS SOLUTIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(dollars in thousands)
(1) The accompanying unaudited pro forma condensed consolidated financial
statements include the accounts as of and for the year ended December 31,
1999 for two companies we believe are probable acquisitions as of April 30,
2000 (the "2000 Acquisitions"). These companies are PowerBase Selling
Limited (formed in 1999) and eFox, L.L.C. (formed in 1998).
(2) The amount expected to be paid in connection with the 2000 Acquisitions,
and the estimated allocation of purchase price, is as follows:
Fair value of identifiable net assets acquired $ 306
Goodwill and other intangible assets 3,244
Subordinated notes payable issued (3,550)
-------
Cash paid for acquisitions --
Cash acquired in acquisitions 219
-------
Net cash from acquisitions $ 219
=======
(3) To eliminate investment in eFox, L.L.C.
(4) To record notes receivable for 902,000 shares of common stock issued under
the restricted stock program for employees of the 2000 Acquisitions.
(5) Revenues, costs and expenses include amounts for 1999 Acquisitions prior to
the dates of their acquisition, and calendar 1999 amounts for the probable
2000 Acquisitions.
(6) To eliminate all significant intercompany transactions.
(7) To reflect pro forma amortization of goodwill and other intangible assets
for the full year 1999 for the 1999 and 2000 Acquisitions. Pro forma
amortization of goodwill is based upon annual amortization over a period of
20 years and amortization periods of four to seven years for other
intangible assets.
(8) To adjust non-cash compensation expense in connection with performance and
employment-based restricted shares, effective for the 2000 Acquisitions,
assuming all shares eligible for annual vesting were vested.
(9) To adjust interest expense for pro forma interest expense on indebtedness
incurred in connection with the 1999 and 2000 Acquisitions.
57
<PAGE> 59
ITEM 14.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
58
<PAGE> 60
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Set forth below is a list of the exhibits included as part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Form of Stockholder Agreement
10.1 2000 Stock Performance Plan
10.2 Form of Indemnification Agreement
10.3 David H. Hoffmann Employment Agreement (11/24/99)
10.4 David H. Hoffmann Restricted Stock Purchase Agreement (12/14/98)
10.5 David H. Hoffmann Restricted Stock Purchase Agreement (9/1/99)
10.6 David H. Hoffmann Amendment to Restricted Stock Purchase Agreement (11/24/99)
10.7 David H. Hoffmann Restricted Stock Purchase Agreement (11/24/99)
10.8 David H. Hoffmann Amendment to Employment Agreement
10.9 James F. Holden Employment Agreement/Holden (3/19/99)
10.10 James F. Holden Employment Agreement/EMD (3/19/99)
10.11 James F. Holden Restricted Stock Purchase Agreement/Holden (3/19/99)
10.12 James F. Holden Restricted Stock Purchase Agreement/EMD (3/19/99)
10.13 James F. Holden Amendment to Restricted Stock Purchase Agreement (9/1/99)
10.14 Early Price Pritchett III Employment Agreement (12/14/98)
10.15 Early Price Pritchett III Restricted Stock Purchase Agreement (12/14/98)
10.16 First Amendment to DHR International, Inc. Asset Purchase Agreement
10.17 [reserved]
10.18 Mark C. Coleman Employment Agreement (12/10/99)
10.19 Mark C. Coleman Amendment Agreement (12/10/99)
10.20 Mark C. Coleman Restricted Stock Purchase Agreement (8/13/99)
10.21 Mark C. Coleman Restricted Stock Purchase Agreement (12/14/98)
10.22 Mark C. Coleman Restricted Stock Purchase Agreement (8/28/98)
10.23 David M. Ehlen Confidential Agreement
10.24 David M. Ehlen Restricted Stock Purchase Agreement
10.25 Michael G. Goldstein Employment Agreement (12/10/99)
10.26 Michael G. Goldstein Restricted Stock Purchase Agreement (3/18/99)
10.27 Michael G. Goldstein Restricted Stock Purchase Agreement Amendment (12/10/99)
10.28 Michael G. Goldstein Restricted Stock Purchase Agreement (12/10/99)
10.29 The Ringco Group LLC Participating Consultant Assignment Agreement
10.30 DHR International, Inc. Asset Purchase Agreement
10.31 Holden Corporation Stock Purchase Agreement
10.32 eFox, L.L.C. Stock Purchase and Option Agreement
10.33 Agreement
</TABLE>
59
<PAGE> 61
<TABLE>
<S> <C>
10.34 Benefit Funding Services Group, LLC Securities Purchase Agreement
10.35 National RevMax Consulting, LLC Securities Purchase Agreement
10.36 National HealthCare Recovery Services, LLC Rescission Agreement
10.37 CENV Option Purchase Agreement
10.38 Disbursement Recovery Services LLC Securities Purchase Agreement
10.39 FFR Holding Co., Inc. Stock Purchase Agreement
10.40 National Benefits Consultants, L.L.C. Securities Purchase Agreement
10.41 National Recovery Services, LLC Securities Purchase Agreement
10.42 Eric R. Watts and Christopher P. Massey Settlement Agreement
10.43 NRS/OGI/Medco/EPS Travel Solutions Asset Purchase Agreement
10.44 National HealthCare Recovery Services, LLC Securities Purchase Agreement
10.45 Pritchett Publishing Company Stock Purchase Agreement
10.46 Deloitte & Touche LLP Asset Purchase Agreement
10.47 Deloitte & Touche LLP Contract Rights Purchase Agreement
10.48 TSL Services, Inc. Stock Purchase Agreement
10.49 D.L.D. Insurance Brokers, Inc. Stock Purchase Agreement
10.50 Credit Agreement (12/7/98)
10.51 First Amendment to Credit Agreement and Waiver (3/17/99)
10.52 Amended and Restated Credit Agreement (4/1/99)
10.53 First Amendment to Amended and Restated Credit Agreement (9/30/99)
10.54 First Amendment to Pritchett Publishing Company Stock Purchase Agreement
22.1 Subsidiaries of the Registrant
</TABLE>
(b) Financial Statement Schedule
The applicable financial statement schedules are located on pages F-110 to
F-114 of this document.
60
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
EPS SOLUTIONS CORPORATION
By: /s/ David H. Hoffmann
------------------------------------
Name: David H. Hoffmann
Title: Chairman, CEO and President
Date: May 1, 2000
61
<PAGE> 63
EPS SOLUTIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS OF REGISTRANT:
EPS SOLUTIONS CORPORATION AND PREDECESSOR
Consolidated Balance Sheets of EPS Solutions Corporation as of December 31,
1998 and December 31, 1999 (unaudited).............................................. F-4
Consolidated Statements of Operations of EPS Solutions Corporation from May 29,
1998 (inception) to December 31, 1998 and for the year ended December 31, 1999
and of Predecessor for year ended December 31, 1997 and the period from January
1, 1998 to May 28, 1998 (unaudited)................................................. F-5
Consolidated Statements of Stockholders' Deficit of EPS Solutions Corporation
from May 29, 1998 (inception) to December 31, 1998 and for the year ended
December 31, 1999 and of Predecessor for year ended December 31, 1997 and the
period from January 1, 1998 to May 28, 1998 (unaudited)............................. F-6
Consolidated Statements of Cash Flows of EPS Solutions Corporation from May 29,
1998 (inception) to December 31, 1998 and for the year ended December 31, 1999
and of Predecessor for year ended December 31, 1997 and the period from January
1, 1998 to May 28, 1998 (unaudited)................................................. F-7
Notes to Consolidated Financial Statements (unaudited).............................. F-8
FINANCIAL STATEMENTS OF ACQUIRED COMPANIES:
DHR INTERNATIONAL, INC.
Report of Independent Auditors...................................................... F-42
Consolidated Statements of Operations for the years ended December 31, 1996,
1997 and 1998....................................................................... F-43
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1996, 1997 and 1998............................................................. F-44
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1997 and 1998....................................................................... F-45
Notes to Consolidated Financial Statements.......................................... F-46
FFR HOLDING CO., INC. AND SUBSIDIARIES
Report of Independent Auditors...................................................... F-49
Consolidated Statements of Operations for the year ended December 31, 1997 and
eleven months ended November 30, 1998............................................... F-50
Consolidated Statements of Stockholders' Equity for the year ended December 31,
1997 and eleven months ended November 30, 1998...................................... F-51
</TABLE>
F-1
<PAGE> 64
<TABLE>
<S> <C>
Consolidated Statements of Cash Flows for the year ended December 31, 1997 and
eleven months ended November 30, 1998............................................... F-52
Notes to Consolidated Financial Statements.......................................... F-53
HOLDEN CORPORATION
Statements of Income for the years ended December 31, 1997 and 1998 and the
period from January 1, 1999 to February 28, 1999 (unaudited)........................ F-57
Statements of Shareholders' Equity for the years ended December 31, 1997 and
1998 and the period from January 1, 1999 to February 28, 1999 (unaudited)........... F-58
Statements of Cash Flows for the years ended December 31, 1997 and 1998
(unaudited)......................................................................... F-59
Notes to Financial Statements (unaudited)........................................... F-60
MOBILITY SERVICES INTERNATIONAL, INC.
Report of Independent Auditors...................................................... F-62
Consolidated Statement of Income and Retained Earnings for the year ended
December 31, 1998................................................................... F-63
Consolidated Statement of Cash Flows for the year ended December 31, 1998........... F-64
Notes to Consolidated Financial Statements.......................................... F-65
PRAXIS COMPANIES
Report of Independent Auditors...................................................... F-67
Combined Statements of Operations and Owners' Equity (Deficit) for the years
ended December 31, 1997 and 1998.................................................... F-68
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1998.... F-69
Notes to Combined Financial Statements.............................................. F-70
PRITCHETT PUBLISHING COMPANY
Report of Independent Auditors...................................................... F-73
Statements of Operations for the years ended December 31, 1997 and 1998............. F-74
Statements of Stockholder's Equity for the years ended December 31, 1997 and
1998................................................................................ F-75
Statements of Cash Flows for the years ended December 31, 1997 and 1998............. F-76
Notes to Financial Statements....................................................... F-77
RBG GROUP, LTD.
Report of Independent Auditors...................................................... F-79
Statements of Operations for the period from January 29, 1997 (inception) to
December 31, 1997 and for the year ended December 31, 1998.......................... F-80
Statements of Members' Capital for the period from January 29, 1997 (inception)
to December 31, 1997 and for the year ended December 31, 1998....................... F-81
Statements of Cash Flows for the period from January 29, 1997 (inception) to
December 31, 1997 and for the year ended December 31, 1998.......................... F-82
</TABLE>
F-2
<PAGE> 65
<TABLE>
<S> <C>
Notes to Financial Statements....................................................... F-83
WADLEY-DONOVAN GROUP LTD.
Report of Independent Auditors...................................................... F-85
Statement of Operations for the year ended December 31, 1998........................ F-86
Statement of Shareholders' Equity for the year ended December 31, 1998.............. F-87
Statement of Cash Flows for the year ended December 31, 1998........................ F-88
Notes to Financial Statements....................................................... F-89
FINANCIAL STATEMENTS OF COMPANIES TO BE ACQUIRED:
eFox, L.L.C.
Balance Sheets as of December 31, 1998 and 1999 (unaudited)......................... F-91
Statements of Operations for the period from May 29, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999 (unaudited).................. F-92
Statements of Members' Capital (Deficit) for the period from May 29, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999
(unaudited)......................................................................... F-93
Statements of Cash Flows for the period from May 29, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999 (unaudited).................. F-94
Notes to Financial Statements (unaudited)........................................... F-95
POWERBASE SELLING LIMITED
Profit and Loss Account for the 8 months ended 31 December 1999 (unaudited)......... F-100
Balance Sheet at 31 December 1999 (unaudited)....................................... F-101
Statement of Cash Flows for the 8 months ended 31 December 1999 (unaudited)......... F-102
Notes to the Accounts at 31 December 1999 (unaudited)............................... F-103
FINANCIAL STATEMENT SCHEDULES:
EPS Solutions Corporation - period from May 29, 1998 (inception) to December 31,
1998 and for the year ended December 31, 1999:
Schedule I -- Condensed Financial Information
EPS Solutions Corporation (Parent Company)........................................ F-110
Schedule II -- Valuation and Qualifying Accounts.................................... F-114
</TABLE>
F-3
<PAGE> 66
EPS Solutions Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1999
------------------------
<S> <C> <C>
(Dollars and share amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 16,610 $ 10,025
Accounts receivable, net of allowance for doubtful accounts of
$4,705 and $3,109 in 1998 and 1999, respectively 37,572 29,928
Notes and other receivables 4,721 6,001
Prepaid expenses and other assets 4,408 3,571
Refundable income taxes -- 928
Deferred income taxes 1,312 2,540
Current assets held for sale -- 26,478
------------------------
Total current assets 64,623 79,471
Property and equipment, net 9,705 11,425
Goodwill and other intangibles, net 119,609 37,948
Deferred financing costs 14,671 9,414
Other assets 3,549 18,242
Other assets held for sale -- 39,442
------------------------
Total assets $ 212,157 $ 195,942
========================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 36,438 $ 25,050
Accrued payroll and related expenses 14,806 14,154
Deferred revenue 1,845 1,984
Current liabilities of discontinued operations -- 14,550
Current portion of long-term debt 6,441 43,493
------------------------
Total current liabilities 59,530 99,231
Long-term debt, less current portion 83,465 83,573
Subordinated notes payable to stockholders 60,896 78,212
Other subordinated notes payable 17,000 18,021
Other liabilities of discontinued operations -- 2,094
Deferred income taxes 2,052 2,349
Other -- 1,913
------------------------
Total liabilities 222,943 285,393
Commitments and contingencies
Minority interest in a subsidiary company 4,930 5,240
Stockholders' deficit:
Preferred stock, $.001 par value
Authorized - 10,000 shares
Issued and outstanding - none -- --
Common stock, $.001 par value;
Authorized - 240,000 shares at December 31, 1998 and 1999
Issued and outstanding - 35,085 shares at
December 31, 1998 and 40,769 at December 31, 1999 35 56
Common stock subscribed 336 --
Treasury stock at cost - 15,344 shares -- (10,404)
Additional paid-in capital 4,326 37,068
Notes receivable from stockholders (17,128) (34,314)
Accumulated deficit (3,285) (87,007)
Accumulated other comprehensive loss -- (90)
------------------------
Total stockholders' deficit (15,716) (94,691)
------------------------
Total liabilities and stockholders' deficit $ 212,157 $ 195,942
========================
</TABLE>
See accompanying notes.
F-4
<PAGE> 67
EPS Solutions Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR EPS SOLUTIONS CORPORATION
----------------------------------- -------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1998 MAY 29, 1998
YEAR ENDED TO (INCEPTION) TO YEAR ENDED
(Dollars in thousands, except per share data) DECEMBER 31, 1997 MAY 28, 1998 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Ongoing businesses
Revenues:
Services and fees $ 1,170 $ 131,124
Product sales -- 10,403
----------------------------------- -------------------------------------
1,170 141,527
Cost of revenues:
Services and fees -- 69,089
Product sales -- 1,582
----------------------------------- -------------------------------------
-- 70,671
----------------------------------- -------------------------------------
Gross margin 1,170 70,856
Operating expenses:
Selling, general and administrative 6,109 59,278
Restructuring charges -- 5,762
Abandoned bond offering costs -- 2,418
----------------------------------- -------------------------------------
Total operating expenses 6,109 67,458
----------------------------------- -------------------------------------
Income (loss) from operations (4,939) 3,398
----------------------------------- -------------------------------------
Non-operating expense:
Other income -- 179
Interest expense (809) (19,192)
Businesses closed or to be disposed of
Revenues -- 16,588
Costs and expenses -- (15,840)
----------------------------------- -------------------------------------
Gross margin -- 748
Loss on businesses closed or to be disposed of -- (5,620)
----------------------------------- -------------------------------------
-- (4,872)
----------------------------------- -------------------------------------
Loss from continuing operations before (5,748) (20,487)
income taxes
Income tax benefit -- 1,639
----------------------------------- -------------------------------------
Loss from continuing operations (5,748) (18,848)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued
operations, net of income tax expense of
$2,389 in 1999 (none in 1997 or 1998) 819 554 2,463 (2,583)
Loss on disposal of discontinued
operations (no income tax benefit) -- -- -- (62,291)
----------------------------------- -------------------------------------
Net loss $ 819 $ 554 $ (3,285) $ (83,722)
=================================== =====================================
Basic and diluted loss per share of common stock:
Loss from continuing operations $ (1.36) $ (0.85)
Income (loss) from discontinued operations 0.58 (2.95)
-------------------------------------
Net loss $ (0.78) $ (3.80)
=====================================
Weighted average number of shares outstanding 4,219,000 22,046,000
=====================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 68
EPS Solutions Corporation
Consolidated Statements of Stockholders' Deficit
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR EPS SOLUTIONS CORPORATION
----------- -------------------------------------------
MEMBERS'
CAPITAL COMMON STOCK TREASURY
(In thousands) DEFICIENCY SHARES AMOUNT SUBSCRIBED STOCK
----------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
Deficiency at January 1, 1997 $ (1,351) -- $ -- $ -- $ --
Member distributions (400)
Net income 819
--------
Deficiency at December 31, 1997 (932)
Member distributions (164)
Net income to May 28, 1998 554
--------
Balance at May 28, 1998 (542)
EPS SOLUTIONS CORPORATION:
Acquisition of National Benefits
Consultants, L.L.C 542 1,388 1 -- --
Issuances of unrestricted stock to
initial stockholders 6,261 -- -- --
Issuances of restricted stock to
employees 19,082 25 -- --
Issuances and subscriptions of stock
for acquisitions 8,354 9 336 --
Non-cash compensation expense -- -- -- --
Net loss -- -- --
----------- -------------------------------------------
Balance at December 31, 1998 35,085 35 336 --
Net loss -- -- -- --
Unrealized loss on investments, net
of income taxes
Comprehensive loss -- -- -- -- --
Issuances of stock for acquisitions 1,886 2 (336) --
Issuances of stock to employees 19,077 19 -- --
Issuances of stock for services 65 -- -- --
Repurchases of stock (15,344) -- -- (10,404)
Collections on subscription notes -- -- -- --
Non-cash compensation expense -- -- -- --
Tax benefit from acquisition -- -- -- --
----------- -------------------------------------------
Balance at December 31, 1999 $ -- 40,769 $ 56 $ -- $(10,404)
=========== ===========================================
</TABLE>
<TABLE>
<CAPTION>
EPS SOLUTIONS CORPORATION
---------------------------------------------------------------------
NOTES ACCUMULATED
ADDITIONAL RECEIVABLE OTHER TOTAL
PAID-IN FROM ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
(In thousands) CAPITAL STOCKHOLDERS DEFICIT LOSS DEFICIT
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
Deficiency at January 1, 1997 $ -- $ -- $ -- $ -- $ --
Member distributions
Net income
Deficiency at December 31, 1997
Member distributions
Net income to May 28, 1998
EPS SOLUTIONS CORPORATION:
Acquisition of National Benefits
Consultants, L.L.C (23,543) -- -- (23,542)
Issuances of unrestricted stock to
initial stockholders 172 (5) -- 157
Issuances of restricted stock to
employees 17,192 (17,123) -- 104
Issuances and subscriptions of stock
for acquisitions 10,017 -- -- 10,362
Non-cash compensation expense 488 -- -- 488
Net loss -- -- (3,285) (3,285)
---------------------------------------------------------------------
Balance at December 31, 1998 4,326 (17,128) (3,285) -- (15,716)
Net loss -- -- (83,722) (83,722)
Unrealized loss on investments, net
of income taxes (90) (90)
-----------
Comprehensive loss (83,812)
Issuances of stock for acquisitions 2,261 -- -- 1,927
Issuances of stock to employees 27,750 (27,747) -- 22
Issuances of stock for services 78 -- -- 78
Repurchases of stock -- 10,089 -- (315)
Collections on subscription notes -- 472 -- 472
Non-cash compensation expense 2,202 -- -- 2,202
Tax benefit from acquisition 451 -- -- 451
---------------------------------------------------------------------
Balance at December 31, 1999 $ 37,068 $(34,314) $(87,007) $ (90) $(94,691)
=====================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 69
EPS Solutions Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR EPS SOLUTIONS CORPORATION
------------------------------- -------------------------------
PERIOD FROM
PERIOD FROM MAY 29, 1998
YEAR ENDED JANUARY 1, 1998 (INCEPTION) TO YEAR ENDED
DECEMBER 31, TO MAY 28, DECEMBER 31, DECEMBER 31,
(Dollars in thousands) 1997 1998 1998 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss -- -- $ (3,285) $(83,722)
Loss from discontinued operations -- -- 2,463 64,874
Adjustments to reconcile net loss to net cash provided by
(used in) continuing operations:
Depreciation and amortization -- -- 17 4,709
Amortization of deferred financing costs -- -- -- 5,440
Provision for doubtful accounts -- -- 50 1,698
Non-cash compensation -- -- 488 1,973
Non-cash restructuring charges -- -- -- 2,913
Minority interest in subsidiary -- -- -- 310
Benefit for deferred income taxes -- -- -- (931)
Interest charges paid in kind -- -- -- 6,212
Loss on disposal of businesses -- -- -- 5,620
Issuance of common stock for services -- -- -- 78
Net changes in assets and liabilities, net of effects from
companies purchased:
Accounts receivable -- -- (2,324) 8,029
Notes and other receivables -- -- (1,280)
Other current assets -- -- (732) 77
Accounts payable and accrued expenses -- -- 12,084 (14,207)
Accrued payroll and related expenses -- -- -- (2,285)
Deferred revenue -- -- -- (348)
------------------------------- -------------------------------
Net cash used in continuing operations -- -- 8,761 (840)
Net cash provided by (used in) discontinued operations $ 390 $ 88 (2,463) (2,803)
------------------------------- -------------------------------
Net cash provided by (used in) operating activities 390 88 6,298 (3,643)
INVESTING ACTIVITIES
Purchase of equipment and improvements -- -- (2,249) (7,726)
Collections from (advances to) related parties -- -- (2,933) 533
Net purchase price adjustments to prior year acquisitions -- -- -- (2,665)
Acquisitions, net of cash acquired -- -- (59,984) (7,695)
Increase in other assets -- -- -- (1,104)
Net non current assets held for sale -- -- -- (19,254)
------------------------------- -------------------------------
Net cash used in investing activities -- -- (65,166) (37,911)
FINANCING ACTIVITIES
Proceeds from bank term loan (450) -- 50,000 21,500
Payments on bank term loan -- -- -- (6,000)
Proceeds from (payments on) bank revolving loan -- -- 39,041 21,959
Proceeds from subordinated debt -- -- 500 1,800
Proceeds on notes receivable from stockholders -- -- -- 472
Deferred financing costs -- -- (14,671) (4,168)
Proceeds from issuance of common stock -- -- 261 20
Repurchases of common stock -- -- -- (315)
Other notes -- -- 347 (299)
Advance from affiliate 450 -- -- --
Member distributions (400) (164) -- --
------------------------------- -------------------------------
Net cash provided by (used in) financing activities (400) (164) 75,478 34,969
Net increase (decrease) in cash and cash equivalents (10) (76) 16,610 (6,585)
Cash and cash equivalents at beginning of period 86 76 -- 16,610
------------------------------- -------------------------------
Cash and cash equivalents at end of period $ 76 $ -- $ 16,610 $ 10,025
=============================== ===============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ -- $ -- $ 417 $ 9,714
=============================== ===============================
Income taxes paid $ -- $ -- $ -- $ 2,009
=============================== ===============================
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Common stock issued for notes receivable $ -- $ -- $ 17,128 $ 27,746
=============================== ===============================
Sale of healthcare cost recovery businesses for
notes receivable $ -- $ -- $ -- $ 14,009
=============================== ===============================
Repurchase of stock in exchange for notes receivable $ -- $ -- $ -- $ 10,089
=============================== ===============================
Liability incurred for common stock to be issued $ -- $ -- $ -- $ 1,250
=============================== ===============================
Purchase of minority interest in exchange for notes payable $ -- $ -- $ -- $ 200
=============================== ===============================
</TABLE>
See accompanying notes
F-7
<PAGE> 70
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
December 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
EPS Solutions Corporation (the "Company") was formed on May 29, 1998 to acquire
a number of complementary companies and to thereby become a leading integrated
one-source provider of business services throughout the United States. The
Company is the successor entity to National Benefits Consultants, L.L.C. and
National RevMax Consultants, L.L.C., (collectively referred to as "NBC") whose
combined financial statements for the period to May 28, 1998 are presented as
the Predecessor entity.
From the date of formation until December 1999, the Company's business segments
were:
- - Human Capital Solutions, which provides executive search and relocation
services, performance improvement products and services to develop
organizational effectiveness, and benefits consulting services.
- - Cost Recovery Services, which provides audit recovery services in
operational areas such as healthcare, telecommunications, logistics,
utilities and real estate, and other services in the areas of lease
finance consulting, insurance brokerage, telecommunications and other
services.
In December 1999, the Company sold its healthcare-related Cost Recovery
businesses and the Company's Board of Directors approved a plan to restructure
its operations and sell the remaining businesses in the Cost Recovery Services
segment, including NBC (see Notes 3 and 4).
Two individuals who established the Company in May 1998 and, through November
19, 1999 were Company executive officers and directors, also owned NBC. The
Company has accounted for this acquisition as a combination of entities under
common control, effective as of the establishment of the Company, in the
accompanying consolidated financial statements due to the commonality of control
and ownership between the Company and NBC. Accordingly, the net assets acquired
from NBC have been recorded at their historical carrying value at May 28, 1998.
The Company has included the results of NBC's operations in its consolidated
statement of operations commencing on such date, and the amount paid by the
Company to acquire NBC plus the negative balance of this entity's equity at May
28, 1998 ($23,542) has been recorded as a charge to additional paid-in capital
in the accompanying 1998 financial statements. The benefit to be derived in the
future from the tax deductible goodwill arising from this transaction will be
recognized as a credit to additional paid-in capital as it is realized.
NBC was a Delaware limited liability company formed in October 1994. It was in
the business of marketing and selling employee benefits insurance products,
healthcare claims recovery products, training services and workers' compensation
products. In general, all income, gain, loss, deductions, and other items, such
as cash available for distribution and additional funds, were allocated to the
members of NBC on a pro rata basis.
F-8
<PAGE> 71
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its direct and indirect subsidiaries, including its wholly-owned subsidiary,
Enterprise Profit Solutions Corporation (the "Operating Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. Two businesses use a November 30 fiscal year end to accommodate
their annual business cycle.
REVENUE RECOGNITION
Fees and commissions are recognized when earned, generally when the Company's
services are completed. Consulting service revenues are recognized as the
services are provided. Revenue from the sale of consulting materials and
products is recognized upon shipment. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," or SAB 101. SAB 101 summarizes certain of
the SEC Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is currently evaluating
the impact of SAB 101. However, The Company does not believe that its evaluation
will result in any material change to its revenue recognition policies.
CASH AND CASH EQUIVALENTS
Highly liquid investments with original maturities of three months or less are
considered to be cash equivalents. At December 31, 1999, restricted cash of
$2,357 is included in current assets held for sale. The Company had no
restricted cash at December 31, 1998.
F-9
<PAGE> 72
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Estimated useful lives for purposes
of determining depreciation and amortization, principally on the straight-line
basis, are as follows:
<TABLE>
<S> <C>
Furniture and fixtures 5 years
Computer equipment 3-5 years
Capitalized internal use software 5 years
Leasehold improvements Lesser of lease life or 10 years
</TABLE>
Depreciation and amortization on property and equipment charged to continuing
and discontinued operations was $17 and none, respectively, for the period from
May 29, 1998 (inception) to December 31, 1998 and $2,308 and $1,365,
respectively, for the year ended December 31, 1999.
The Company is implementing an enterprise-wide information system. External
direct costs of materials and services and payroll-related costs of employees
working solely on the development of the software system portion of the project
are capitalized.
INVESTMENTS AND OTHER COMPREHENSIVE INCOME
As consideration for rendering executive search services to certain clients, the
Company may elect to receive shares of the client's common stock in lieu of
cash. Revenues and the related investments are recorded based on the fair value
of the services rendered or shares received, whichever is more readily
determinable. Because the Company owns less than a 20% interest in these
businesses and does not have the ability to exercise significant influence over
them, the Company's investment in common stock is accounted for using the cost
method and are held as available for sale. Any impairment of the carrying value
of an investment is recognized in the period during which it occurs. These
investments, totaling $299 at December 31, 1999, are included in Other Assets on
the accompanying balance sheets.
The Company reports all components of comprehensive income (loss), including
net income (loss), in the period in which it is recognized. The Company's only
component of other comprehensive income (loss) is the unrealized gains and
losses on investments.
F-10
<PAGE> 73
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of net identifiable
assets of purchased businesses. Cost of businesses purchased includes
consideration paid to former owners and related transaction costs. Goodwill is
amortized on the straight-line basis. Other acquired intangibles consist of
assembled workforce, covenants-not-to-compete, and contract rights, and are
amortized on the straight-line method over 4-7 years. The Company's annual
amortization expense for its recorded goodwill with respect to ongoing entities
as of December 31, 1999 is expected to approximate $2,000 before any charges due
to future acquisitions accounted for under the purchase method, or reduction due
to dispositions and divestitures, other than those classified as discontinued
operations and businesses to be disposed of, if any.
LONG-LIVED ASSETS
The carrying amount of long-lived assets, including goodwill and other
intangible assets, is reviewed if facts and circumstances suggest that it may
not be recoverable. The Company makes such evaluation at the business unit
level. For purposes of evaluating the recoverability of long-lived assets, the
Company estimates the future undiscounted cash flows of the businesses to which
goodwill and other long-lived assets relate. When such estimates of the future
undiscounted cash flows are less than the carrying amount of goodwill and other
long-lived assets, the difference is charged to operations. The carrying amount
of the goodwill related to those assets is first reduced to zero before the
carrying amounts of the long-lived assets and identifiable intangibles are
reduced. The Company estimates the future undiscounted cash flows using
historical results and current projections. If current projections of future
cash flows are not achieved, the Company may be required to record reduction of
the carrying values of long-lived assets in future periods.
F-11
<PAGE> 74
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs consist of transaction costs incurred to raise both
senior and subordinated debt financing and are amortized over the term of the
related financing. Amortization of deferred financing costs are charged to
interest expense from continuing and discontinued operations based on relative
borrowings to acquire each Acquisition Entity and was $5,440 and $2,201,
respectively, for the year ended December 31, 1999. There was no amortization of
deferred financing costs for the period from May 29, 1998 (inception) to
December 31, 1998.
STOCK-BASED COMPENSATION
The Company uses the fair value method of accounting for stock-based
compensation as set forth in Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Under the fair value method,
expense is recognized for stock-based awards over their vesting period based on
their fair value on the date of grant. Compensation expense is estimated in each
period assuming all shares subject to performance requirements will vest.
Subsequent revisions to reflect actual forfeitures or accelerated vesting are
made in the period the forfeitures or acceleration occur.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Accordingly, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period of the enactment
F-12
<PAGE> 75
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
date. A valuation allowance is established against deferred tax assets when
management concludes that a "more likely than not" realization that has not been
met.
NBC was a limited liability company classified as a partnership for federal and
state tax purposes and was, therefore, not subject to federal or state income
taxes. Accordingly, no separate provision for income taxes is required in the
accompanying statements of operations up to May 28, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The fair value of long-term debt and notes receivable from stockholders is
determined using current applicable interest rates as of the balance sheet date
and approximates the carrying value of such debt.
Concentrations of credit risk with respect to accounts receivable are limited
due to the diversity of customers who are in a variety of industries and are
primarily located throughout the United States. No one customer accounts for a
significant portion of the Company's accounts receivable portfolio or revenues.
As a result, the Company does not consider itself to have any significant
concentrations of credit risk.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Credit losses have been
within management's expectations and within amounts provided through the
allowance for doubtful accounts.
NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with SFAS No.
128, "Earnings per Share," and Staff Accounting Bulletin 98.
Under the provisions of SAB 98, common stock that has been issued or granted
for nominal consideration prior to the anticipated effective date of an initial
registration of securities must be included in the calculation of basic and
diluted net loss per common share as if these shares had been outstanding for
all periods presented. To date, the Company has not issued or granted shares
for nominal consideration.
In accordance with SFAS No. 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less outstanding nonvested shares subject to
repurchase. The Company also has excluded the equivalent share effect of
outstanding nonvested shares subject to repurchase from the calculation of
diluted net loss per common share because they are antidilutive for the periods
presented.
The number of shares excluded from the calculation of diluted net loss per
share, prior to the application of the treasury stock method, was 16,491,000 and
15,158,000 for the period from May 28, 1998 (inception) to December 31, 1998 and
the year ended December 31, 1999, respectively. At December 31, 1998 and 1999
the Company's repurchase right for 11,890,000 and 10,638,000, respectively, of
the outstanding nonvested shares subject to repurchase will lapse only on
attainment of specified performance requirements that must be met in future
periods. Accordingly, the equivalent share effect of these nonvested shares will
only be included in the treasury stock calculation commencing with the period in
which the specified performance requirements are met.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. On an ongoing basis,
management reviews those estimates, including those related to allowances for
doubtful accounts, loss contingencies for litigation, accruals for acquisition
and restructuring, income taxes and discontinued operations, and projection of
future cash flows used to assess the recoverability of long-lived assets.
F-13
<PAGE> 76
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 financial statements to
conform to the 1999 presentation.
2. ACQUISITIONS
In December 1998, the Company acquired 33 businesses, of which 22 were completed
by purchasing all of their outstanding equity interests. The remaining
businesses were acquired by purchasing specified net assets from their former
owners.
In March and April 1999, the Company acquired five additional businesses
completed by purchasing all of the outstanding equity interests for three of the
businesses and by purchasing specified net assets from their former owners for
two businesses.
F-14
<PAGE> 77
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
2. ACQUISITIONS (CONTINUED)
The businesses comprising the Company's two business segments consist of the
following:
<TABLE>
<CAPTION>
Human Capital Solutions Cost Recovery Services
----------------------- ----------------------
<S> <C>
BayGroup International, Inc. Benefit Funding Services Group, LLC
Better Communications, Inc. CyberLease, LLC and affiliate
DHR International, Inc. Deloitte & Touche LLP - Integrated Cost
FFR Holding Co., Inc. and affiliates Reduction Strategies Group
First Choice Brokerage, Inc.* D'Accord Holdings, Inc. and affiliates
Holden Corporation* Dimension Funding, Inc.
Mobility Services International, Inc. Disbursement Recovery Services LLC
Pritchett Publishing Company and affiliates D.L.D. Insurance Brokers, Inc.*
RBG Group, Ltd. Equitax
Sigma International, Inc. FDSI Logistics, Inc.
The Conrad Lee Company Hindert & Associates, Inc.
The Dublin Group, Inc. Kenneth H. Wells & Associates, Inc. and
The Praxis Group, Inc. and affiliates affiliates
Wadley-Donovan Group, Ltd. Lease Audit & Analysis Services, Inc.
Young, Clark & Associates, Inc. Med-co Review, Inc./International Cost
Containment Network, Inc.
National Benefits Consultants, L.L.C.
National HealthCare Recovery Services, L.L.C.*
National Recovery Services, LLC
National RevMax Consulting, LLC
Partners Consulting Services, Inc.
TSL Services, Inc.
The Oxxford Consulting Group, Inc.
The Oxxford Group, Inc.
The Structured Settlements Company, Inc.
The T & E Group*
</TABLE>
* Follow-on Acquisitions
F-15
<PAGE> 78
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
2. ACQUISITIONS (CONTINUED)
The amount paid in connection with the Acquisition Entities is as follows:
<TABLE>
<CAPTION>
1998 1999
--------------------------
<S> <C> <C>
Fair value of identifiable assets acquired $ 74,922 $ 10,083
Goodwill 116,977 24,095
Excess purchase price over carrying value
of net assets for NBC 25,207 --
Liabilities assumed and incurred (50,768) (7,806)
Subordinated notes payable issued (77,396) (11,325)
Common stock issued or subscribed (12,027) (1,927)
--------------------------
Cash paid for acquisitions 76,915 13,120
Cash acquired in acquisitions (16,931) (5,425)
--------------------------
Net cash paid for acquisitions $ 59,984 $ 7,695
==========================
</TABLE>
During the second half of 1999, because the Company did not complete an initial
public offering of its stock by June 30, 1999, the Board of Directors approved
the payment of approximately $2,000 of additional purchase price to a total of
five business units whose performance exceeded plan and amended the purchase
transactions of four of the businesses we acquired to increase the purchase
prices for those businesses by their respective payments. Substantially all of
the payments were made to individuals who are officers and shareholders of the
Company.
During September 1999, the Board of Directors approved the issuance of 500,000
unrestricted shares of its common stock to one of its officers and shareholders
as additional consideration for the purchase of his business. Additionally, this
stockholder is purchasing 500,000 shares of employment-based restricted stock
that are eligible to vest over time provided that certain conditions are met.
During March 2000, the Company's Board approved the payment of $1,200 to a
selling entity controlled by an officer and shareholder of the Company and
former Acquisition Entity owner as additional consideration for the purchase of
his business.
In its acquisition of FFR Holding Co., Inc. (FFR), the Company purchased all the
common stock of FFR. Additionally, at the date of acquisition, FFR had
outstanding 1,470,894 shares of non-voting Series A preferred stock bearing
cumulative dividends at the annual rate of $0.11 per share, which is presented
in the consolidated balance sheet as minority interest in a subsidiary company.
The Series A preferred stock is redeemable upon the earlier of the third
anniversary of the sale of the common stock of FFR to the Company (December 14,
2001) or five days after the closing of an underwritten initial public offering
of equity securities of the Company having gross proceeds of at least $200,000.
The Series A preferred stock may be redeemed by FFR in whole or part at any
time. The redemption price is $3.66 per share plus cumulative dividends, which
has been discounted to yield an imputed dividend rate of 6%. At December 31,
1998 and 1999, cumulative preferred dividends in arrears were approximately $122
and $162, respectively.
F-16
<PAGE> 79
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
2. ACQUISITIONS (CONTINUED)
Except for the acquisition of NBC (see Note 1), the Acquisitions have been
accounted for as purchases and, accordingly, the acquired tangible and
identifiable intangible assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition with any excess purchase price
reflected as goodwill and other intangible assets in the accompanying
consolidated financial statements.
For financial accounting purposes, except for NBC, and TSL Services, Inc. (TSL)
(a business acquired effective November 30, 1998), the 1998 Acquisitions have
been reported as if they occurred immediately prior to the close of business on
December 31, 1998. Accordingly, the cost of these acquired businesses has been
adjusted for the results of operations between December 14, 1998 and December
31, 1998. The accompanying 1998 consolidated statement of operations therefore
includes the results of operations for the Company and the Operating Company for
the periods May 29, 1998 (inception) and October 6, 1998 (inception),
respectively, to December 31, 1998, the results of operations of NBC for the
period May 29, 1998 to December 31, 1998, and one month's results of operations
for TSL. The accompanying 1998 consolidated statement of operations does not
include any revenues or expenses related to the other 31 businesses. The
accompanying 1999 consolidated statement of operations also includes the results
of operations for four of the five 1999 acquisitions from March 1, 1999, the
effective date of their acquisition, to December 31, 1999 or the date of their
disposal if earlier. The operations of the other 1999 acquisition is included in
the accompanying 1999 Consolidated Statement of Operations from the effective
date of its acquisition, May 1, 1999 to December 31, 1999.
F-17
<PAGE> 80
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
2. ACQUISITIONS (CONTINUED)
The following table sets forth the pro forma results of continuing operations
for the years ended December 31, 1998 and 1999 as if all of the acquisitions
were consummated at the beginning of each year (in thousands, except for share
amounts):
<TABLE>
<CAPTION>
1998 1999
--------------------------
<S> <C> <C>
Total revenues $ 140,626 $ 160,232
Income (loss) (1,034) (18,702)
Earnings (loss) per share (.06) (.88)
</TABLE>
Subsequent to December 31, 1999 the Company issued letters of intent ("LOI") to
an existing shareholder to purchase the remaining 80.1% interest in eFox, L.L.C.
("eFox") that the Company does not own, and 100% of the outstanding shares of
PowerBase Selling Limited ("PBS"), (a United Kingdom limited liability company).
Both eFox and PBS provide performance learning products and services and will
become part of the Human Capital Solutions business segment. The total expected
consideration for eFox and PBS consists of a $1,800 and $1,750 Seller
Subordinated Note, respectively.
3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE
In December, 1999, the Company's Board of Directors adopted a plan to
discontinue certain product and service offerings in the Human Capital Solutions
segment and dispose of the Company's Cost Recovery Services segment. With the
disposal of the Cost Recovery Services segment, management of the Company
believes it is strategically positioned to be a leading provider of Human
Capital Solutions.
Continuing Segment (Human Capital Solutions)
During 1999, the Company closed The Dublin Group, Inc. and a division of
Mobility Services International, Inc. and adopted a plan to sell BayGroup
International, Inc. and Better Communications, Inc. to their former owners.
These businesses are included in the Company's Human Capital Solutions business
segment. Accordingly, their operating results and the estimated losses on
closure or sale are classified in "Businesses closed or to be disposed of" in
the accompanying Statements of Operations.
Subsequent to December 31, 1999, the Company entered into agreements in
principle with the former owners of the two companies discussed above. Estimated
aggregate consideration for these two separate transactions total approximately
$1,160 cash at the closings, the return of approximately 514,000 common shares,
and cancellation of subordinated notes payable to these stockholders totaling
approximately $1,275. There can be no assurances that these transactions will be
consummated on the terms indicated or at all.
A summary of the loss on the disposal of businesses closed or to be disposed of
in Continuing Segment in 1999 is as follows:
<TABLE>
<S> <C>
Loss on closed or to be disposed of businesses $3,329
Impairment losses on goodwill and other intangibles 1,861
Reserve for future obligations 430
------
$5,620
======
</TABLE>
F-18
<PAGE> 81
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE (CONTINUED)
Discontinued Segment (Cost Recovery Services)
In November 1999, the Company sold certain assets comprising its healthcare
recovery, travel procurement, and telecom procurement businesses to two
shareholders of the Company pursuant to an Asset Purchase Agreement dated
November 24, 1999 (Sale Agreement) in exchange for a promissory note of $3,130
and the assumption of certain liabilities. Pursuant to the Sale Agreement, the
shareholders assumed responsibility for the operations of the acquired
businesses as of November 1, 1999. The businesses sold as part of the Sale
Agreement were as follows:
<TABLE>
<S> <C>
National Recovery Services, LLC The T&E Group
The Oxxford Group, Inc. (healthcare Telecom Services division of the
component) Deloitte & Touche, LLP - Integrated
Med-Co Review, Inc./International Cost Cost Reduction Strategies Group
Containment Network, Inc.
</TABLE>
Concurrent with the Sale Agreement, the Company entered into an agreement
(Rescission Agreement) to rescind its acquisition of National HealthCare
Recovery Services, L.L.C. (NHCRS). Pursuant to the Rescission Agreement, the
Company assigned its interest in NHCRS to the same two company shareholders who
purchased assets pursuant to the Sale Agreement in exchange for promissory notes
of $10,645.
The promissory notes received as consideration from both transactions are
included in other assets in the accompanying balance sheet at December 31, 1999.
In accordance with the Sale Agreement and Rescission Agreement, on January 5,
2000, the promissory notes and related accrued interest totaling $14,009 were
offset against subordinated notes payable totaling $20,172 due to these
shareholders, leaving a balance of $6,163. In connection with the Sale and
Rescission Agreements, the Company recorded a loss on disposal of $1,264 during
the year ended December 31, 1999.
F-19
<PAGE> 82
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE (CONTINUED)
In December 1999, the Company's Board of Directors announced its decision to
discontinue the following businesses comprising the remainder of its Cost
Recovery Services segment:
<TABLE>
<S> <C>
Benefit Funding Services Group, LLC Hindert & Associates, Inc.
CyberLease, LLC and affiliate Kenneth H. Wells & Associates, Inc. and
Deloitte & Touche LLP - Integrated Cost Reduction affiliates
Strategies Group Lease Audit & Analysis Services, Inc.
D'Accord Holdings, Inc. and affiliates National Benefits Consultants, L.L.C.
Dimension Funding, Inc. National RevMax Consulting, LLC
Disbursement Recovery Services, LLC Partners Consulting Services, Inc.
D.L.D. Insurance Brokers, Inc. TSL Services, Inc.
Equitax The Oxxford Consulting Group, Inc.
FDSI Logistics, Inc. The Oxxford Group, Inc.
The Structured Settlements Company, Inc.
Training Grant Funding, a division of EPS
</TABLE>
Equitax Services was closed in December 1999. The Company is marketing the
remaining Cost Recovery Services businesses for sale. Disposal of these
businesses is expected to be completed no later than December 2000. In
connection with discontinuance of its Cost Recovery Services segment, the
Company charged $62,291 to discontinued operations, including an impairment loss
in 1999 primarily as a result of unrecoverable goodwill and intangibles. This
charge and the results of operations of these businesses are classified in the
discontinued operations portion in the accompanying Statements of Operations.
F-20
<PAGE> 83
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE (CONTINUED)
The summarized results of operations of the Cost Recovery Services segment is as
follows:
<TABLE>
<CAPTION>
1998 1999
-------------------------
<S> <C> <C>
Revenues:
Services and fees $ 3,760 $ 111,834
Product sales -- 469
-------------------------
3,760 112,303
Cost and expenses:
Costs of services and fees revenues 1,857 50,010
Cost of product sales -- 306
Selling, general and administrative 490 54,957
-------------------------
2,347 105,273
-------------------------
Operating income 1,413 7,030
Other income (expense) 1,050 (100)
Interest expense -- (7,124)
Income taxes -- (2,389)
-------------------------
Income (loss) from discontinued operations $ 2,463 $ (2,583)
=========================
</TABLE>
Interest expense has been allocated between continuing and discontinued
operations based on relative borrowings to acquire each Acquisition Entity.
A summary of the loss on the disposal of discontinued operations in 1999 is as
follows:
<TABLE>
<S> <C>
Impairment losses on goodwill and other intangibles $42,247
Reserve for future obligations 13,986
Loss on disposal of discontinued businesses 6,058
-------
$62,291
=======
</TABLE>
F-21
<PAGE> 84
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
3. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE (CONTINUED)
Assets Held For Sale and Liabilities of Discontinued Operations
Assets held for sale approximate their estimated net realizable value. The
amounts the Company will ultimately realize from the sale of the net assets
could differ materially from management's best estimates of their net realizable
value. A summary of the assets and liabilities held for sale at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Human Cost
Capital Recovery
Solutions Services Totals
------------------------------------
<S> <C> <C> <C>
Current assets
Cash and restricted cash $ -- $ 3,386 $ 3,386
Accounts receivable, net 2,011 18,016 20,027
Notes receivable 65 1,926 1,991
Other assets 326 748 1,074
------------------------------------
$ 2,402 $24,076 $26,478
====================================
Current liabilities
Accounts payable and accrued expenses $ 138 $11,686 $11,824
Accrued payroll and related expenses 309 1,976 2,285
Deferred revenue 130 294 424
Current portion of long-term debt -- 17 17
------------------------------------
$ 577 $13,973 $14,550
====================================
Other assets
Property and equipment, net $ 648 $ 3,678 $ 4,326
Goodwill and other intangible assets 1,740 30,465 32,205
Other assets 27 2,884 2,911
------------------------------------
$ 2,415 $37,027 $39,442
====================================
Other liabilities
Long-term debt, less current portion $ 1,318 $ 131 $ 1,449
Other -- 645 645
------------------------------------
$ 1,318 $ 776 $ 2,094
====================================
</TABLE>
During April 2000, the Company entered into agreements in principle to sell
Benefit Funding Services Group, LLC, its Training Grant Funding division, and
the Company's interest in certain cost recovery contracts, all businesses within
its Cost Recovery segment, to a company controlled by two shareholders of the
Company for $3,250 in cash and the redemption of 100,000 shares of the Company's
common stock.
The Company also entered into an agreement in principle in April 2000 with a
third party to sell the assets and operations, including the assumption of
substantially all liabilities, of the Company's wholly owned subsidiary TSL
Services, Inc. for approximately $19,100 in cash, adjusted for working capital.
There can be no assurances that the above transactions will be consummated, or
that the terms will be as indicated.
Available cash proceeds from the sale or disposal of businesses will be used to
reduce amounts due under the Facilities (see note 5). The Company is not
required, and does not anticipate repaying; the unsecured subordinated notes
payable arising from the acquisition of these entities until their scheduled
maturities in December 2001.
F-22
<PAGE> 85
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
4. RESTRUCTURING AND OTHER NONRECURRING CHARGES
Restructuring
Beginning in early 1999, the Company developed a corporate cost structure that
included substantial marketing and technology programs to support anticipated
growth in its Cost Recovery Services businesses, significant acquisition
activity, and a public offering of its equity securities. In June 1999, in
reaction to prevailing market conditions management enacted a plan to, among
other things, significantly reduce the corporate overhead structure of the
Company and defer implementation of certain scheduled technology programs.
In December 1999, the Company adopted a plan to relocate its Corporate
headquarters from Costa Mesa, California to Chicago, Illinois. Accordingly, the
Company recorded a charge of $5,762 for headcount reduction, lease exit costs
and other asset writedowns. In connection with these restructurings, the Company
initiated involuntary separation plans that included headcount reductions of
approximately 36 employees at a cost of $1,994 for severance and related costs,
including $656 in non-cash charges resulting from accelerated vesting of
restricted stock. Additional costs of $3,768 were recorded to include losses on
asset writedowns and corporate office leases, net of anticipated sublease income
over the lease term. As of December 31, 1999, there remained approximately 22
employees subject to separation.
The major components of the 1999 charges and the remaining accrual balance as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Accrued
Amounts restructuring
Charge used costs
--------------------------------
<S> <C> <C> <C>
Employee termination and severance costs $1,994 $1,361 $ 633
Lease exit costs 2,769 -- 2,769
Asset writedowns 999 999 --
--------------------------------
$5,762 $2,360 $3,402
================================
</TABLE>
F-23
<PAGE> 86
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
4. RESTRUCTURING AND OTHER NONRECURRING CHARGES (CONTINUED)
Abandoned Bond Offering Costs
The Company incurred $2,418 in transaction costs, including legal and accounting
fees and other costs associated with a contemplated high-yield bond offering in
the first and second quarter of 1999. In the third quarter of 1999, management
of the Company determined that market conditions were unfavorable for such a
financing. Accordingly, the bond offering was terminated and the Company decided
to pursue an initial public offering. In October 1999, the Company charged the
abandoned bond offering costs to continuing operations upon a determination that
the proposed initial public offering would not occur in 1999.
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Revolving loan maturing June 2001; bearing interest at 9.61% $ 39,041 $ --
Term loan maturing June 2001; $1,500,000 payable
quarterly; bearing interest at 9.69% 50,000 --
Senior secured credit facility, as amended -- 126,500
Other 865 566
----------------------
89,906 127,066
Less current portion 6,441 43,566
----------------------
$ 83,465 $ 83,500
======================
</TABLE>
F-24
<PAGE> 87
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
5. LONG-TERM DEBT (CONTINUED)
In connection with the 1998 Business Acquisitions, the Operating Company
obtained $100,000 in financing comprised of a $50,000 revolving loan and a
$50,000 term loan (the "Facilities") from a group of lenders. The Facilities are
secured by substantially all the existing and future assets of the Operating
Company including the capital stock of the Operating Company's subsidiaries. The
Facilities are guaranteed by the Company. At the Operating Company's option,
loans under the Facilities bear interest through December 13, 1999 at a rate
equal to one of the following (i) LIBOR plus 3.50% or (ii) the Base Rate plus
2.25% (Base Rate defined as the higher of (a) one of the lender's reference rate
and (b) the Federal Funds rate plus .50%). Beginning December 14, 1998 the
interest rate fluctuates based on the Operating Company's ratio of total debt to
earnings before interest, taxes, depreciation and amortization. The Operating
Company is required to pay a quarterly commitment fee of .50% per annum on the
unused portion of the revolving loan.
The Facilities contain customary covenants and restrictions on the Company's
ability to engage in certain activities, including, but not limited to (i)
incurring additional debt, (ii) limitations on mergers and acquisitions and
capital expenditures, and (iii) transactions with affiliates and other similar
distributions. The Facilities were further amended and restated in September
1999 to adjust certain financial covenants.
During March 1999, the Operating Company obtained an increase in the total
amounts available under the Facilities to $145,000 by increasing the revolving
loan to $75,000 and the term loan to $70,000. The terms of the increase in the
Facilities are substantially the same terms as described in the preceding
paragraph. The proceeds were used to finance the 1999 Business Acquisitions, to
pay certain acquisition transaction costs and for working capital purposes.
F-25
<PAGE> 88
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
5. LONG-TERM DEBT (CONTINUED)
As of December 31, 1999, the Company was in violation of certain of its
covenants under the Facilities. The Company has not been in default of its
principal or interest payment covenants. On April 28, 2000, the Company received
unanimous written approval of the lenders to amended Facilities terms (the "2000
Amendment"). The Company and its lenders expect to execute a definitive
agreement evidencing the amended terms by May 15, 2000. This amendment will
restructure the Facilities to become non-revolving and will require the
Operating Company to reduce the Facilities by the net proceeds of asset
disposals greater than $250 in the aggregate, including sales of the Company's
Cost Recovery Services businesses. The 2000 Amendment will also amend the
maturity date requiring the outstanding balance of the Facilities to be $120,000
by July 31, 2000 and $85,000 by September 30, 2000, with a new final maturity of
January 31, 2001. Net proceeds from any underwritten initial public offering of
the Company's equity securities or other capital event (as defined) are required
to be used to pay down the Facilities. This amendment also waives certain
financial covenants and further restricts the Company's ability to incur
additional indebtedness, make additional investments, pay dividends, pay
interest on subordinated notes payable and merge with another entity. The
Company believes it will be able to maintain compliance with the amended
Facilities terms. Accordingly, amounts outstanding under the Facilities at
December 31, 1999 are classified to reflect the terms of the 2000 Amendment.
Aggregate scheduled maturities of long-term debt at December 31, 1999 based upon
the amended Facilities are as follows:
<TABLE>
<S> <C>
2000 $ 43,493
2001 83,573
--------
Total $127,066
========
</TABLE>
The Company expects that substantially all of the funds needed to pay down the
Facilities in the year 2000 pursuant to the terms set forth in the 2000
Amendment will come from sales of its assets held for sale or from an offering
of its equity securities. Similarly, the Company expects that it will need to
raise funds through sales of its equity securities or from new debt financing to
pay the remainder of the Facilities that is due January 31, 2001. As discussed
in Note 2, the Company is presently seeking buyers for the assets held for sale,
but the Company does not have sales commitments that provide assurance of
obtaining sufficient cash proceeds from its assets held for sale to meet the
payment terms contained in the 2000 Amendment. Additionally, the Company
presently has no commitments for equity placements or alternative debt
financing. If the Company is unable to meet the payment terms required by the
2000 Amendment from expected sources, the Company may be required to sell
additional assets, which may impair its efforts to achieve profitable
operations.
F-26
<PAGE> 89
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
6. SUBORDINATED NOTES PAYABLE
Subordinated notes payable to stockholders consist of the following at December
31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------------------
<S> <C> <C>
Subordinated notes payable issued to sellers of the
1998 Business Acquisitions; bearing interest at
10%, payable quarterly in cash except that to the
extent necessary to comply with subordination or
other covenants in favor of the Company's senior
lenders, accrued interest may be paid in kind.
These notes mature the earlier of December 2001 or
the consummation of an underwritten initial public
offering of the Company's equity securities having
gross proceeds to the Company of at least $200,000. $60,896 $65,887
Subordinated notes payable issued to sellers of the
1999 Business Acquisitions bearing interest at
10% payable quarterly; maturing the earlier of
March 2002; or the consummation of an underwritten
initial public offering of the Company's equity
securities having gross proceeds to the Company of
at least $200,000. -- 12,014
Other subordinated notes due to former officers of
the Company, maturing December 2001. -- 311
-------------------
Total subordinated notes payable to stockholders $60,896 $78,212
===================
</TABLE>
F-27
<PAGE> 90
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
6. SUBORDINATED NOTES PAYABLE (CONTINUED)
Other subordinated notes payable consist of the following at December 31, 1998
and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------------------
<S> <C> <C>
Subordinated notes payable issued to seller of a
1998 Business Acquisition; bearing interest at 10%
payable quarterly; maturing the earlier of
December 2001 or the consummation of an
underwritten initial public offering of the
Company's equity securities or a debt offering
having gross proceeds to the Company of at least
$50,000. $12,000 $12,613
Subordinated notes payable issued to seller of a
1998 Business Acquisition; bearing interest at 10%
payable quarterly; maturing the earlier of
December 2001 or the consummation of an
underwritten initial public offering of the
Company's equity securities or a debt offering
having gross proceeds to the Company of at least
$200,000. 5,000 5,408
-------------------
Total other subordinated notes payable $17,000 $18,021
===================
</TABLE>
In connection with one of the Follow-on Acquisitions, the Company issued a
$6,400 subordinated note payable that was payable in March 2002 provided the
acquired entity met certain defined profitability levels, completed an initial
public offering of its equity securities or merged or consolidated with a
publicly traded company. This subordinated note was cancelled in connection with
the Rescission Agreement of NHCRS.
F-28
<PAGE> 91
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
7. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases facilities and computer equipment under various noncancelable
operating lease agreements that expire through June 2009. The facility leases
generally require the Company to pay operating costs, such as property taxes,
insurance and maintenance. In addition the facility leases generally provide for
renewal options and provisions adjusting the lease payments based upon changes
in the consumer price index. Rent expense for continuing operations for the
period from May 29, 1998 (inception) to December 31, 1998 and the year ended
December 31, 1999 totaled approximately $33 and $6,245, respectively. Rent
expense for discontinued operations for the period from May 29, 1998 (inception)
to December 31, 1998 and the year ended December 31, 1999 totaled approximately
$48 and $4,987, respectively.
On March 30, 1999, the Operating Company received a commitment from a national
leasing company to provide an operating lease line of credit for up to $5,000.
The line is secured by the equipment subject to the lease guaranteed by
the Company, and has no availability at December 31, 1999.
Future minimum payments under noncancelable operating leases with initial terms
of one year or more are as follows:
<TABLE>
<CAPTION>
Continuing Discontinued
Operations Operations
-------------------------
<S> <C> <C>
2000 $ 6,478 $ 3,625
2001 5,852 3,396
2002 5,097 3,213
2003 3,992 2,504
2004 3,106 2,125
Thereafter 9,531 3,526
-------------------------
$34,056 $18,389
=========================
</TABLE>
F-29
<PAGE> 92
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has subleased portions of its facilities to third parties. Future
minimum receipts under noncancelable operating subleases with initial terms of
one year or more are as follows (in thousands):
<TABLE>
<S> <C>
2000 $1,383
2001 1,495
2002 770
2003 770
2004 770
Thereafter 602
------
$5,790
======
</TABLE>
Litigation
The Company is subject to lawsuits and claims in the ordinary course of
business, many of which are covered in whole or part by insurance. Management
believes that the ultimate resolution of such lawsuits and claims will not have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
F-30
<PAGE> 93
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
8. STOCKHOLDERS' DEFICIT
Preferred Stock
The Company's Board of Directors has the authority to issue shares of preferred
stock, in one or more series, and containing certain rights and limitations,
including dividend rights, voting rights, conversion privileges, redemption
rights, and liquidation or sinking fund rights. No preferred stock is
outstanding at December 31, 1999 and the Company has no present plans to issue
any shares of preferred stock.
Common Stock
Upon its formation, the Company's Board of Directors was staggered into three
classes and common stock was classified into two series, Series A and Series B.
Holders of Series A were entitled to elect Directors in Classes 2 and 3 and
holders of Series B were entitled to elect Directors in Class 1. On December 1,
1999, the Company's Certificate of Incorporation was amended such that all
authorized Series A and Series B common stock became 240,000,000
undifferentiated shares of authorized common stock. Concurrently, all
outstanding shares of Series A common stock and Series B common stock
automatically converted into shares of undifferentiated common stock on a
share-for-share basis.
In August and December 1998, the Company was capitalized through the purchase by
employees of 15,020,874 shares of unrestricted and restricted common stock at
prices ranging from $.02 to $1.20 per share (aggregate consideration of
approximately $5,002).
As partial consideration for the 1998 business acquisitions, the Company issued
9,741,943 shares of common stock and committed to an additional 279,696 shares
pursuant to subscription agreements for common stock. The shares committed
pursuant to subscription agreements were issued in January 1999. As partial
consideration for the 1999 business acquisitions, the Company issued 1,605,965
shares of common stock.
F-31
<PAGE> 94
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
8. STOCKHOLDERS' DEFICIT (CONTINUED)
Stock-Based Compensation
In connection with the 1998 and 1999 business acquisitions, the Company entered
into employment-based restricted stock purchase agreements with certain
employees of the Company and the acquired businesses, whom Company management
expects will contribute significantly to the Company's ability to integrate,
manage and grow the company's business. Under the terms of the restricted stock
purchase program, eligible employees purchased specific amounts of common stock
that are subject to restrictions and generally vest in equal installments over a
three to five year period if employment continues and, in most cases, if
pre-specified performance targets are attained. The Company has a right to
repurchase, at the original issuance price, any restricted shares that do not
vest. Management believes that by providing performance incentives, the
Company's compensation structure achieves the dual objectives of retaining key
employees over the term of the restricted stock awards and aligning each key
employee's goals with those of maximizing Company stockholder value.
Employees paid for their common stock by paying the aggregate par value in cash
and by delivery to the Company a ten-year recourse notes payable, bearing
interest at 5.5% per annum. For the year ended December 31, 1999, the Company
accrued interest income of $333, representing the amount due on those shares
which vested as of December 31, 1999.
In accordance with the fair value method, compensation expense is calculated
based on the fair value of the right to purchase and vest in the restricted
shares on the date of issuance and is recognized as an expense as the restricted
shares vest. Using the minimum value method, the Company determined a fair value
of $.18 per share for purchases made in December 1998 at $1.20 per share, and
$.34 per share, on a weighted average basis, for purchases made from January
through December 1999 at prices ranging from $1.20 to $2.50 per share. For the
year ended December 31, 1999, the Company charged $1,973 (including a
restructuring charge of $656 related to acceleration of vesting pursuant to
certain severance agreements) and $229 to compensation expense of continuing and
discontinued operations, respectively. For the period from May 29, 1998
(inception) through December 31, 1998, the Company charged $299 and $189 to
compensation expense of continuing and discontinued operations, respectively.
F-32
<PAGE> 95
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
8. STOCKHOLDERS' DEFICIT (CONTINUED)
The fair value of each restricted stock grant is estimated on the date of grant
using the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1999
-----------------
<S> <C> <C>
Interest rate 4.4% 5.0%
Dividend yield 0 0
Expected volatility 0% 0%
Expected life in years 3.8 4.4
</TABLE>
The following table summarizes the share activity and the weighted average
purchase price per share of the restricted stock purchase agreements during the
respective period:
<TABLE>
<CAPTION>
1998 1999
-----------------------------------------------------
Number of Purchase Number of Purchase
(In thousands) shares price shares price
-----------------------------------------------------
<S> <C> <C> <C> <C>
Unvested shares outstanding, beginning of period -- $ -- 16,491 $ .86
Shares issued 19,082 .90 16,298 1.49
Shares repurchased -- -- (14,471) .86
Shares vested (2,591) 1.16 (3,160) 1.42
-----------------------------------------------------
Unvested shares outstanding, end of period 16,491 $ .86 15,158 $ 1.42
=====================================================
</TABLE>
Voting Agreement
Through November 24, 1999, all holders of the restricted and unrestricted Series
A and Series B common stock had entered into a voting agreement granting the
power to vote their shares to two of the Company's officers. The voting
agreement terminated upon the resignation of the two officers on November 24,
1999.
F-33
<PAGE> 96
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
8. STOCKHOLDERS' DEFICIT (CONTINUED)
Warrants
In connection with the acquisition of TSL, the Company issued warrants to
purchase 5,000 shares of common stock of TSL. The warrants have an exercise
price of $.01 per warrant share (as defined), may be exercised beginning
December 14, 2000 and expire May 15, 2005. Upon the earlier of the consummation
of an initial public offering of the Company's equity securities, or a change in
control of TSL (as defined), the warrants become exercisable for such number of
shares of common stock of the Company as will result in the holder of the
warrants realizing an aggregate 40% annual return (including interest) on the
$5,000 portion of the purchase price for TSL that the Company paid with a
promissory note.
During April 2000, the Company reached agreement in principle with a third party
to purchase all of the assets and business of TSL. Included in the accompanying
financial statements is the accrual of approximately $2,500 in recognition of
the Company's obligation pursuant to the above warrant agreement, which also has
been included in estimating net realizable value of assets held for sale.
9. INCOME TAXES
The provision (benefit) for income taxes on income from continuing operations
for the period from May 29, 1998 (inception) through December 31, 1998 and the
year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------
<S> <C> <C>
Current:
Federal $ -- $ (372)
State and local -- (121)
------------------------
Total current expense (benefit) -- (493)
Deferred:
Federal -- (1,066)
State and local -- (80)
------------------------
Total deferred expense (benefit) -- (1,146)
------------------------
Total income tax expense (benefit) $ -- $(1,639)
========================
</TABLE>
F-34
<PAGE> 97
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
9. INCOME TAXES (CONTINUED)
A reconciliation of differences between the statutory U.S. federal income tax
rate and the Company's effective tax rate on continuing operations for the
period from May 29, 1998 (inception) to December 31, 1998 and the year ended
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
------------------
<S> <C> <C>
U.S. federal statutory rate (34.0)% (34.0)%
Change in valuation allowance 23.8 19.0
Nondeductible acquisition-related costs 10.2 1.1
Nondeductible stock compensation expense -- 2.2
Amortization of goodwill -- 2.7
State taxes, net of federal benefit -- (0.7)
Other -- 1.7
------------------
Total income tax expense -- (8.0)%
==================
</TABLE>
In connection with its discontinued operations, the Company recorded a current
tax provision of $2,648 and a deferred tax benefit of $(259). Since the Company
rescinded the acquisition of one of its 1999 business acquisitions, a pretax
loss of $(5,767) cannot be used by the Company in its consolidated tax returns.
Significant components of the Company's deferred taxes at December 31, 1998 and
1999 are as follows:
F-35
<PAGE> 98
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Deferred tax liabilities:
Lease basis differences $ 1,483 $ 1,399
Depreciation 61 1,182
Cash to accrual conversion 892 583
Basis difference in acquired intangibles 575 555
Other 807 75
---------------------
Total deferred tax liabilities 3,818 3,794
Deferred tax assets:
Discontinued operations reserves -- 14,335
Amortization of intangibles -- 13,564
Allowance for doubtful accounts 13 2,023
Expenses not currently deductible 705 1,653
Employee benefits -- 612
Net operating loss carryforwards 915 603
Acquired asset basis differences 1,427 --
Other 953 2,011
---------------------
Total deferred tax assets 4,013 34,801
Less valuation allowance for deferred tax assets 935 30,816
---------------------
Total deferred tax assets 3,078 3,985
---------------------
Net deferred tax asset (liability) $ (740) $ 191
=====================
</TABLE>
The Company has evaluated the available evidence supporting the realization of
its gross deferred tax assets of $4,013 and $34,801 at December 31, 1998 and
1999, respectively. Due to the Company's operating losses and accumulated
deficit since inception, the Company has established valuation reserves of $935
and $30,816 at December 31, 1998 and 1999, respectively. These tax benefits
could be recorded as a reduction of income tax expense in the future as realized
or as it becomes more likely than not that such tax benefits or portions
thereof will be realized.
The Company has approximately $1,700 of net operating loss carryforwards from
two acquired businesses that begin to expire in 2007. These net operating loss
carryforwards are subject to loss limitation rules under IRC Section 382.
F-36
<PAGE> 99
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
10. RELATED PARTY TRANSACTIONS
Officer Resignations
In connection with the resignation of two officers of the Company on November
24, 1999, the Company repurchased certain shares of common stock held by them.
The aggregate common stock shareholdings of the officers or entities controlled
by them was reduced from 12,972,250 to 5,701,552. In connection with the
repurchase of the shares, the Company made an aggregate payment of approximately
$133, reflecting the original purchase price of the shares. The Company also
granted the former officers the right to transfer a portion of their
shareholdings so long as entities controlled by them continued to own an
aggregate of at least 3,400,000 shares of common stock.
Officer Non-cash Compensation
The Chairman and Chief Executive Officer of the Company (the CEO), pursuant to
his employment agreement in his capacity as Chairman and Chief Executive Officer
of the Company's executive search business, may direct the Company to accept
equity fees in lieu of cash fees for executive search services rendered. The CEO
must take reasonable steps to ensure that these equity fees have a fair market
value at least equal to the amount of the standard cash fees generally
collected. The CEO's original employment agreement granted him a right to
receive from the Company any or all of these equity fees as a bonus prior to an
initial public offering of the Company's equity securities. The CEO has elected
to receive as a bonus certain private equity fees valued at $577 in 1999.
F-37
<PAGE> 100
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
Services rendered
In March 1999, the Company acquired a 19.9% interest in eFox, L.L.C. The balance
of this entity is owned by an employee/shareholder. During the course of 1999,
eFox, L.L.C. rendered various e-commerce related services for the Holden
Corporation, an acquired business. Fees for services performed were $56 in 1999.
JobPlex, Inc., an entity majority-owned by the CEO of the Company, performed
services in 1999 for DHR International (DHR), an Acquisition Entity. Using its
Internet database capability, JobPlex, Inc. provides properly matched job
candidates to assist DHR in performing certain of their services. In 1999, DHR
also advanced funds to JobPlex, Inc. for services to be rendered in 2000. Fees
and retainers paid by DHR to JobPlex, Inc. for these services were $348.
Travel
An entity owned by the CEO is the owner of an interest in an airplane. In 1999,
the airplane was used extensively by certain of the Company's senior executives
for the purpose of conducting the Company's domestic and international business,
including acquisition and divestiture projects, debt and/or equity financing
activities, and other business purposes. During 1999, the Company paid $1,415
for its prorata use of the airplane.
Notes Receivable
The Company has a note receivable due from an employee/stockholder totaling
$2,400 at December 31, 1998 and 1999, which is included in other assets in the
accompanying consolidated balance sheets. The note bears interest at 5.5% per
annum and matures on December 14, 2003 or upon the consummation of an initial
public offering of the Company's equity securities. The note receivable is
secured by common shares of the Company owned by the individual. During 1999,
the Company accrued interest income of approximately $120 on this note.
F-38
<PAGE> 101
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
Other Advances
The Company has made various loans and advances to employees in the ordinary
course of business. Such amounts totaled $1,597 and $442 at December 31, 1998
and 1999, respectively, and are included in notes and other receivables in the
accompanying consolidated balance sheets.
11. EMPLOYEE BENEFIT PLAN
Effective February 1, 1999, the Company adopted the EPS Solutions Corporation
401(k) Plan covering substantially all of the Company's employees. Employees may
contribute up to 15% of their compensation to the plan. Contributions to the
plan by the Company are discretionary. 401(k) expenses for the plan for
continuing and discontinued operations were $814 and $857, respectively, for the
year ended December 31, 1999.
12. STOCK PERFORMANCE PLAN
The Company's Board of Directors adopted the EPS Solutions Corporation 2000
Stock Performance Plan (the "2000 Plan") on April 13, 2000 to provide incentives
to employees, directors, officers and consultants to achieve both short-term and
long-term objectives, including increasing return to stockholders.
The Company believes that the potential reward offered by grants of stock
options (including nonqualified stock options ("NSOs") and incentive stock
options ("ISOs")), stock purchase rights, stock appreciation rights, performance
shares or unit awards, dividend or equivalent rights, restricted share or unit
awards and other stock-based awards will enable it to attract and retain
employees.
F-39
<PAGE> 102
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
13. COMPONENTS OF CERTAIN BALANCE SHEET AMOUNTS
The components of certain balance sheet amounts at December 31, 1998 and 1999
were as follows (in thousands):
Property and Equipment
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Furniture, fixtures and equipment $ 3,447 $ 6,620
Computer software and equipment 5,193 6,260
Leasehold improvements 1,082 1,075
----------------------
9,722 13,955
Less accumulated depreciation and amortization (17) (2,530)
----------------------
$ 9,705 $ 11,425
======================
</TABLE>
Expenditures on property and equipment for each business segment for the period
from May 29, 1998 (inception) to December 31, 1998 and the year ended December
31, 1999 were as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Human Capital Solutions $ 2,249 $ 7,726
Cost Recovery Services -- 932
----------------------
$ 2,249 $ 8,658
======================
</TABLE>
Goodwill and Other Intangibles
<TABLE>
<CAPTION>
1998 1999
------------------------
<S> <C> <C>
Goodwill $116,977 $ 37,686
Assembled workforce 2,100 2,100
Covenants-not-to-compete 200 200
Contract rights 332 332
------------------------
119,609 40,318
Less accumulated amortization -- (2,370)
------------------------
$119,609 $ 37,948
========================
</TABLE>
F-40
<PAGE> 103
EPS Solutions Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands)
13. COMPONENTS OF CERTAIN BALANCE SHEET AMOUNTS (CONTINUED)
Accounts Payable and Accrued Expenses
<TABLE>
<CAPTION>
1998 1999
-----------------------
<S> <C> <C>
Accounts payable $15,726 $ 7,515
Other accrued expenses 9,069 15,112
Accrued acquisition costs 6,143 2,423
Accrued transaction fees 5,500 --
-----------------------
$36,438 $25,050
=======================
</TABLE>
In connection with the 1998 business acquisitions, the Company initiated a plan
to exit certain activities of these entities and eliminate redundant
administrative functions. The estimated cost of the plan totaled approximately
$1,514 and was included in accrued expenses in the accompanying financial
statements at December 31, 1998. As of December 31, 1999 there was $397
remaining to be paid under the plan.
F-41
<PAGE> 104
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EPS Solutions Corporation
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of DHR International, Inc. for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of DHR International, Inc. for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 8, 1999
F-42
<PAGE> 105
DHR INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues........................................ $13,295,314 $17,723,805 $23,601,025
Expenses:
Payroll expense................................... 2,026,022 2,930,310 4,284,493
Commission expense................................ 7,360,264 9,389,052 12,072,952
General and administrative........................ 3,962,018 4,577,822 6,072,833
Interest expense.................................. 198,348 355,862 385,849
Other income...................................... (148,616) (99,226) (83,925)
----------- ----------- -----------
Income (loss) before income taxes and extraordinary
item.............................................. (102,722) 569,985 868,823
Income taxes on income (loss) before extraordinary
item.............................................. (80,150) (263,458) (364,249)
----------- ----------- -----------
Income (loss) before extraordinary item............. (182,872) 306,527 504,574
Extraordinary item, net of income tax benefit of
$169,794.......................................... -- -- (235,206)
----------- ----------- -----------
Net income (loss)................................... $ (182,872) $ 306,527 $ 269,368
=========== =========== ===========
</TABLE>
See accompanying notes.
F-43
<PAGE> 106
DHR INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES ACCUMULATED
ADDITIONAL RECEIVABLE OTHER
COMMON PAID-IN RETAINED FROM COMPREHENSIVE
STOCK CAPITAL EARNINGS SHAREHOLDERS INCOME(LOSS) TOTAL
------ ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996......... $ -- $ 506,591 $ 903,929 $ (91,000) $ -- $1,319,520
Issuance of common stock......... -- 306,533 -- -- -- 306,533
Loans to shareholders............ -- -- -- (133,550) -- (133,550)
Unrealized loss on marketable
securities..................... -- -- -- -- (629) (629)
Net loss......................... -- -- (182,872) -- -- (182,872)
----------
Comprehensive loss............... (183,501)
-- ---------- ---------- --------- -------- ----------
Balance at January 1, 1997......... -- 813,124 721,057 (224,550) (629) 1,309,002
Issuance of common stock......... -- 629,933 -- -- -- 629,933
Loans to shareholders............ -- -- -- (170,113) -- (170,113)
Unrealized gain on marketable
securities..................... -- -- -- -- 65,518 65,518
Net income....................... -- -- 306,527 -- -- 306,527
----------
Comprehensive income............. 372,045
-- ---------- ---------- --------- -------- ----------
Balance at January 1, 1998......... -- 1,443,057 1,027,584 (394,663) 64,889 2,140,867
Repurchase of common stock,
net............................ -- (110,600) -- -- -- (110,600)
Repayment of loans from
shareholders................... -- -- -- 394,663 -- 394,663
Unrealized loss on marketable
securities..................... -- -- -- -- (79,767) (79,767)
Net income....................... -- -- 269,368 -- -- 269,368
----------
Comprehensive income............. 189,601
---- ---------- ---------- --------- -------- ----------
Balance at December 31, 1998....... $ -- $1,332,457 $1,296,952 $ -- $(14,878) $2,614,531
==== ========== ========== ========= ======== ==========
</TABLE>
See accompanying notes.
F-44
<PAGE> 107
DHR INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................... $(182,872) $ 306,527 $ 269,368
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 210,410 160,882 176,570
Provision for uncollectible receivables......... -- 365,183 889,000
Recoveries of bad debts and cancellations,
net........................................... (685,616) -- --
Deferred income taxes........................... (39,484) 59,172 (552,534)
Change in operating assets and liabilities:
Accounts receivable........................... 644,577 (598,140) (2,147,586)
Other receivables............................. (245,135) (691,526) 220,073
Prepaid expenses and other current assets..... (44,359) (110,589) 166,369
Accounts payable.............................. 321,225 99,525 175,130
Accrued expenses.............................. 285,813 132,815 56,892
Accrued commissions........................... -- -- 970,601
Income taxes payable.......................... -- -- 263,397
Other......................................... -- -- (20,270)
--------- ----------- -----------
Net cash provided by (used in) operating
activities......................................... 264,559 (276,151) 467,010
INVESTING ACTIVITIES
Purchases of fixed assets............................ (418,354) (343,660) (453,123)
Loans to shareholder................................. (234,176) (1,975,738) --
Payments made by shareholder......................... -- -- (422,382)
Purchases of marketable securities................... (120,875) (155,898) (193,904)
--------- ----------- -----------
Net cash used in investing activities................ (773,405) (2,475,296) (1,069,409)
FINANCING ACTIVITIES
Proceeds from lines of credit and long-term debt..... 630,000 5,382,822 5,167,978
Repayment of lines of credit and long-term debt...... -- (3,533,944) (4,055,545)
Net proceeds (payments) from issuance (purchase) of
common stock....................................... 172,983 459,820 (486,012)
--------- ----------- -----------
Net cash provided by financing activities............ 802,983 2,308,698 626,421
--------- ----------- -----------
Net increase (decrease) in cash...................... 294,137 (442,749) 24,022
Cash and cash equivalents at beginning of year....... 159,878 454,015 11,266
--------- ----------- -----------
Cash and cash equivalents at end of year............. $ 454,015 $ 11,266 $ 35,288
========= =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes........................... $ 231,000 $ 332,000 $ --
Cash paid for interest............................... $ 189,000 $ 357,293 $ 375,294
</TABLE>
See accompanying notes.
F-45
<PAGE> 108
DHR INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Headquartered in Chicago, Illinois, DHR International, Inc. (the Company)
provides retained executive search services worldwide with 32 domestic offices
and 15 international offices. The Company primarily identifies candidates for
senior management positions with compensation levels exceeding $100,000.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term, highly liquid investments with maturities generally less than three
months to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenues from services and all associated costs for
retained searches upon delivery of a market analysis report. Under certain
circumstances, the Company contracts searches from which a portion of the fee
will not be collected until the successful placement of a candidate. In those
instances, the Company recognizes this portion of the revenue from services and
associated costs upon the successful placement. At December 31, 1997 and 1998,
accounts receivable includes $414,000 and $227,000, respectively, in uninvoiced
amounts relating to completed services.
MARKETABLE SECURITIES
Marketable equity securities are classified as available-for-sale and are
carried at fair value, with unrealized gains and losses, net of tax, recorded in
shareholders' equity. Realized gains and losses, declines in value judged to be
other-than-temporary, and interest and dividends are included in income. There
was no impact on net income in 1998 for these items.
FIXED ASSETS
Fixed assets are stated on the basis of cost. Provisions for depreciation
and amortization are computed using straight-line methods over estimated useful
lives of 30 years for the building, five to seven years for furniture, fixtures,
equipment, and vehicles, and over the shorter of the useful life or the term of
the lease for leasehold improvements.
INCOME TAXES
Income taxes are accounted for using the asset and liability approach.
Such approach results in the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
book carrying amounts and the tax basis of assets and liabilities.
COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
130). This standard was effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of
F-46
<PAGE> 109
DHR INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
comprehensive income (loss), including net income (loss), be reported in the
financial statements in the period in which they are recognized. Operating
results of prior periods have been reclassified. The Company's only component of
other comprehensive income (loss) is the unrealized gains and losses on
investments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. SALE OF CERTAIN ASSETS AND LIABILITIES TO EPS SOLUTIONS CORPORATION
On December 14, 1998, the Company's stockholders entered into an agreement
to sell the Company to EPS Solutions Corporation. For financial accounting
purposes, the effective date of the transaction was December 31, 1998.
Accordingly, the consolidated financial statements have been prepared on a
historical basis and, as such, do not reflect any purchase price adjustments
related to the sale. Expenses related to the sale of the business are presented
as an extraordinary item in the consolidated statement of operations.
4. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Current provision:
Federal........................................ $ 96,046 $ 299,070 $ 645,434
State.......................................... 23,588 69,270 101,555
-------- --------- ---------
119,634 368,340 746,989
Deferred tax benefit............................. (39,484) (104,882) (552,534)
-------- --------- ---------
Provision for income taxes....................... $ 80,150 $ 263,458 $ 194,455
======== ========= =========
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Federal income tax at statutory rate............. $(34,925) $ 193,795 $ 157,700
State income taxes, net of federal tax benefit... (6,163) 34,199 27,829
Other, net....................................... 121,238 35,464 8,926
-------- --------- ---------
Income tax expense............................... $ 80,150 $ 263,458 $ 194,455
======== ========= =========
</TABLE>
The income tax provision for 1998 includes an income tax benefit of
$169,794 related to the extraordinary item.
F-47
<PAGE> 110
DHR INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASES
The Company leases certain facilities under various operating leases
resulting in rent expense of approximately $641,000, $1,059,000 and $1,418,000,
for the years ended December 31, 1996, 1997 and 1998, respectively. Aggregate
annual minimum future rental payments at December 31, 1998, under noncancelable
building leases are as follows:
<TABLE>
<S> <C>
1999..................................... $1,702,000
2000..................................... 1,451,000
2001..................................... 1,335,000
2002..................................... 1,236,000
2003..................................... 1,008,000
Thereafter............................... 3,236,000
----------
$9,968,000
==========
</TABLE>
Certain of the lease agreements contain options to renew and require
payments of taxes, insurance, and maintenance costs. In addition, certain leases
also include escalation clauses based on various economic indicators.
6. EMPLOYEE BENEFIT PLANS
The Company sponsored a defined-contribution benefit plan covering a
majority of employees which consists of a 401(k) plan. Employees can contribute
a percentage of their compensation to the 401(k) plan in the form of payroll
deductions, subject to certain limits established by the Internal Revenue Code.
The Company does not match employee contributions.
7. RELATED PARTY TRANSACTIONS
The principal shareholder of the Company regularly transacts business with
the Company and other companies which he controls. These transactions are
appropriately disclosed on the face of the financial statements.
F-48
<PAGE> 111
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EPS Solutions Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of FFR Holding Co., Inc. and subsidiaries
for the year ended December 31, 1997 and the eleven months ended November 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of FFR Holding Co., Inc. and subsidiaries for the year ended December 31, 1997
and the eleven months ended November 30, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
March 12, 1999
F-49
<PAGE> 112
FFR HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 30,
1997 1998
------------ ------------
<S> <C> <C>
Revenues
Marketing fees and commissions............................ $3,387,617 $5,055,027
Membership and subscription fees.......................... 306,909 337,309
Interest income........................................... 58,344 77,629
---------- ----------
Total revenues.............................................. 3,752,870 5,469,965
Operating expenses:
Commissions and bonuses................................... 1,437,349 577,796
General and administrative................................ 1,157,198 2,113,608
Payroll and benefits...................................... 883,188 546,771
Sales and promotions...................................... 699,191 367,934
Depreciation and amortization............................. 121,931 119,324
---------- ----------
Total operating expenses.................................... 4,298,857 3,725,433
---------- ----------
Income (loss) before income taxes and extraordinary item.... (545,987) 1,744,532
Income taxes................................................ -- 434,692
---------- ----------
Income (loss) before extraordinary item..................... (545,987) 1,309,840
Extraordinary item.......................................... -- (40,000)
---------- ----------
Net income (loss)........................................... $ (545,987) $1,269,840
========== ==========
</TABLE>
See accompanying notes.
F-50
<PAGE> 113
FFR HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A PREFERRED
COMMON STOCK CLASS A COMMON STOCK STOCK ADDITIONAL
-------------------- ---------------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ------- ----------- -------- --------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997.......... -- $ -- 12,480,196 $ 12,481 -- $ -- $2,833,014 $(1,780,684)
Class A common stock issued.... -- -- 745,945 746 -- -- 312,551 --
Compensation and bonuses
earned, shares not issued
(1,729,943 shares)........... -- -- -- -- -- -- -- --
Net loss....................... -- -- -- -- -- -- -- (545,987)
---------- ------- ----------- -------- --------- ------ ---------- -----------
Balance, December 31, 1997....... -- -- 13,226,141 13,227 -- -- 3,145,565 (2,326,671)
Class A common stock issued.... -- -- 1,742,987 1,743 -- -- 800,031 --
Conversion of Class A common
stock to common stock and
Series A preferred stock..... 14,711 15 (14,969,128) (14,970) 1,471,065 1,471 (133,451) --
Issuance of common stock....... 47,636,014 47,636 -- -- -- -- 93,575 --
Net income..................... -- -- -- -- -- -- -- 1,269,840
---------- ------- ----------- -------- --------- ------ ---------- -----------
Balance at November 30, 1998..... 47,650,725 $47,651 -- $ -- 1,471,065 $1,471 $3,905,720 $(1,056,831)
========== ======= =========== ======== ========= ====== ========== ===========
<CAPTION>
COMPENSATION
AND BONUS
TREASURY SHARES EARNED
STOCK BUT NOT ISSUED TOTAL
--------- -------------- ----------
<S> <C> <C> <C>
Balance January 1, 1997.......... $(146,935) $ 313,297 $1,231,173
Class A common stock issued.... -- (313,297) --
Compensation and bonuses
earned, shares not issued
(1,729,943 shares)........... -- 795,774 795,774
Net loss....................... -- -- (545,987)
--------- --------- ----------
Balance, December 31, 1997....... (146,935) 795,774 1,480,960
Class A common stock issued.... -- (795,774) 6,000
Conversion of Class A common
stock to common stock and
Series A preferred stock..... 146,935 -- --
Issuance of common stock....... -- -- 141,211
Net income..................... -- -- 1,269,840
--------- --------- ----------
Balance at November 30, 1998..... $ -- $ -- $2,898,011
========= ========= ==========
</TABLE>
See accompanying notes.
F-51
<PAGE> 114
FFR HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1997 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (545,987) $ 1,269,840
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 27,243 24,636
Amortization........................................... 94,688 94,688
Provision for deferred taxes........................... -- 198,864
Loss on disposal of property and equipment............. -- 7,992
Compensation and bonus expenses paid or due in common
shares net of forfeitures............................. 795,774 --
Changes in operating assets and liabilities:
Accounts receivable and related-party receivables.... (230,164) (1,297,485)
Prepaid expenses and other current assets............ (37,168) (8,568)
Decrease (increase) in other assets.................. (23,109) 27,110
Accounts payable and accrued liabilities............. (8,819) 856,326
Income taxes payable................................. -- 235,828
Payable to affiliate................................. -- 227,500
----------- -----------
Net cash provided by operating activities................... 72,458 1,636,731
INVESTING ACTIVITIES
Purchases of property and equipment......................... (12,751) (4,589)
FINANCING ACTIVITIES
Payments on notes payable to stockholders................... (56,200) (157,253)
Net sales (purchases) of investments........................ (1,032,253) 679,818
Issuance of common stock.................................... -- 147,211
----------- -----------
Net cash provided by (used in) financing activities......... (1,088,453) 669,776
----------- -----------
Net increase (decrease) in cash and cash equivalents........ (1,028,746) 2,301,918
Cash and cash equivalents, beginning of period.............. 1,125,811 97,065
----------- -----------
Cash and cash equivalents, end of period.................... $ 97,065 $ 2,398,983
=========== ===========
</TABLE>
See accompanying notes.
F-52
<PAGE> 115
FFR HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
FFR Holding Co., Inc. and subsidiaries (the Company) is a marketing
organization that primarily distributes products of various insurance carriers
through Principals or agents located throughout the United States who contract
to use the Company's products and services. The Company derives revenues from
(i) overrides, bonuses and other compensation on products sold by or through
Principals, and (ii) Principal membership fees and annual dues.
The agreements between the insurance carriers and the Company are
terminable at will, subject to certain conditions defined in the agreements, and
there can be no assurance that any such agreements or arrangements will
continue, or that any such agreements or arrangements will continue on present
terms.
On December 14, 1998, the Company's stockholders entered into an agreement
to sell the Company's common stock to EPS Solutions Corporation. For financial
accounting purposes the effective date of the transaction was December 31, 1998.
Accordingly, the Company's financial statements have been prepared on a
historical basis and, as such, do not reflect any purchase price adjustments
related to the sale. Expenses related to the sale of the business are presented
as an extraordinary item in the statement of operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FFR Holding
Co., Inc. and its wholly-owned subsidiaries, First Financial Resources, Inc.;
First Financial Resources, Inc. -- Nevada; First Financial Resources Management
Co., Inc. (a Pennsylvania corporation); FFP Insurance Services, Inc. (FFPIS);
and Benefit Funding Services, LLC. All intercompany accounts and transactions
have been eliminated in consolidation.
FISCAL YEAR END
In 1998, the Company changed its fiscal year end from December to
November. Accordingly, the 1998 financial statements are for the eleven-month
period ended November 30, 1998.
CASH EQUIVALENTS
Cash equivalents are deemed to be any short-term, nonequity investment
that is readily convertible to cash and is not subject to market fluctuations,
with an original maturity of three months or less.
PROPERTY AND EQUIPMENT
The cost of property and equipment was depreciated using the straight-line
method over the estimated useful lives of the related assets, ranging from five
to seven years.
GOODWILL
The excess of the aggregate purchase price over the fair value of net
assets acquired was included in the accompanying consolidated balance sheets as
goodwill. Goodwill was being amortized over a period of seven years.
F-53
<PAGE> 116
FFR HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method as
required by Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue upon the sale of memberships to Principals,
who act as independent agents, or notification of referral commissions from
insurance carriers. Conversions fees from employer benefit plans is earned upon
the signing of the contract by the employer indicating the assets to be
transferred.
2. STOCKHOLDERS' EQUITY
Pursuant to a private placement memorandum dated November 21, 1989,
4,000,000 shares of the Company's Class A common stock were offered to
Principals in 20,000 share units at $1,500 per unit. Only Principals who were
not currently stockholders, officers or directors of the Company could subscribe
for units.
Pursuant to a private placement memorandum dated March 31, 1993, 2,800,000
shares of Class A common stock were offered to Principals in 14,000 share units
at $3,500 per share unit. Unsold units were purchased by the Company's three
largest stockholders in exchange for amounts owed to the stockholders for
services and notes payable totaling $454,500. Concurrent with the issuance of
shares, two of the stockholders assumed debt of the Company in the amount of
$200,000 in exchange for 800,000 shares.
In 1994, the Company's Board of Directors established a Producer-Owner
Bonus Plan which provides fully vested stock for achievement of certain
production goals. Recipients could elect to receive up to one-half of the bonus
in cash.
In 1997, the Company authorized, under the Producer-Owner Bonus Plan, the
issuance of 1,583,201 fully vested shares of Class A common stock to certain
Principals, based on the achievement of certain revenue goals. The Company
recorded bonus expense of $728,272 in 1997, based on an estimate of the fair
value of the shares as of December 31, 1997 as determined by the Company's Board
of Directors.
For 1997, the Company authorized the issuance of 146,742 shares of fully
vested Class A common stock to certain directors, officers and employees of the
Company for services rendered in 1997. This resulted in expense of $67,502 based
on an estimate of the fair value of the shares as determined by the Company's
Board of Directors for the year ended December 31, 1997.
During 1998, the Company issued an additional 13,044 shares of Class A
common stock to certain directors of the Company for an aggregate purchase price
of $6,000.
F-54
<PAGE> 117
FFR HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. STOCKHOLDERS' EQUITY (CONTINUED)
During 1998, the Company approved a plan of recapitalization. Under the
plan, the Company is authorized to issue up to 50,000,000 shares of a new series
of common stock and 2,000,000 shares of Series A preferred stock. In addition,
each outstanding share of Class A common stock was converted into 1/1000 share
of common stock and 1/10 share of preferred stock. Subsequent to the plan of
recapitalization, the Company issued 47,636,014 additional shares of common
stock for an aggregate price of $141,211.
The Series A preferred stock is non-voting. Dividends are cumulative at
the annual rate of $0.11 per share. The Series A preferred stock shall be
redeemable out of funds legally available upon the earlier of the third
anniversary of the sale of the common stock of the Company to EPS Solutions
Corporation or five days after the closing of an underwritten initial public
offering of EPS Solutions Corporation of the equity securities of EPS Solutions
Corporation having gross proceeds of at least $200 million. The Series A
preferred stock may be redeemed by the Company in whole or part at any time. The
redemption price is $3.66 per share plus cumulative dividends. At November 30,
1998, cumulative preferred dividends in arrears were approximately $121,000.
3. INCOME TAXES
The components of the provision for income taxes for the eleven months
ended November 30, 1998 consist of the following:
<TABLE>
<S> <C>
Current:
Federal................................. $100,396
State................................... 135,432
--------
235,828
Deferred.................................. 198,864
--------
$434,692
========
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $2,102,675 for federal and $865,925 for state income tax purposes.
The federal and state loss carryforwards were fully utilized in 1998. At
December 31, 1997, a valuation allowance of $760,608 was provided to fully
reserve the net deferred tax assets.
Income taxes of approximately $5,000 and $3,000 were paid during 1997 and
1998, respectively.
4. COMMITMENTS AND CONSULTING AGREEMENTS
LEASE COMMITMENTS
The Company leases its offices and certain office equipment under various
operating leases. Rental expense was $71,076 and $57,550 for the year ended
December 31, 1997 and for the eleven months ended November 30, 1998,
respectively.
CONSULTING AGREEMENTS
On October 15, 1994, the Company entered into a profit sharing consulting
agreement with the former FFPIS stockholders. Under the terms of the agreement,
the Company will pay the stockholders, as compensation for services to be
performed, one-half of the cumulative net commission revenues earned by FFPIS in
excess of $533,334. Total compensation will not exceed $133,333. During 1997 and
1998, no payments were made on these agreements.
F-55
<PAGE> 118
FFR HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS AND CONSULTING AGREEMENTS (CONTINUED)
During 1997 and 1998, the Company paid $49,000 and $39,000, respectively,
to certain directors of the Company for consulting services rendered during the
year.
5. RELATED PARTY TRANSACTIONS
During 1998, the Company paid consulting fees to Benefit Funding Services
Group LLC, a related party, and National Benefits Consultants, a related party,
in the amounts of $650,000 and $250,000, respectively.
F-56
<PAGE> 119
Holden Corporation
Statements of Income
(unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 PERIOD FROM
-------------------------- JANUARY 1, 1999
1997 1998 TO FEBRUARY 28, 1999
----------- ----------- --------------------
<S> <C> <C> <C>
Net revenues $14,338,669 $15,749,004 $1,985,278
Cost of revenues 5,986,458 6,338,940 812,376
----------- ----------- ----------
Gross profit 8,352,211 9,410,064 1,172,902
Selling, general, and administrative expenses 4,849,524 6,122,235 836,201
----------- ----------- ----------
Operating income 3,502,687 3,287,829 336,701
Other income:
Interest income 176,999 142,886 18,893
Miscellaneous income 12,075 1,602 --
Realized gain on sale of investment 14,796 -- --
Gain on disposal of property and equipment 2,576 -- --
----------- ----------- ----------
Total other income 206,446 144,488 355,594
----------- ----------- ----------
Income before income taxes 3,709,133 3,432,317 355,594
Provision for foreign and state income taxes 34,852 191,069 9,858
----------- ----------- ----------
Net income $ 3,674,281 $ 3,241,248 $ 345,736
=========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 120
Holden Corporation
Statements of Shareholders' Equity
(unaudited)
Years ended December 31, 1997 and 1998 and the period from
January 1, 1999 to February 28, 1999
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
---------------- ----------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,000 $2,000 50 $(40,000) $ 2,462,590 $ 2,424,590
Distributions -- -- -- -- (3,570,648) (3,570,648)
Net income -- -- -- -- 3,674,281 3,674,281
----- ------ --- -------- ----------- -----------
Balance at December 31, 1997 2,000 2,000 50 (40,000) 2,566,223 2,528,223
Distributions -- -- -- -- (3,174,000) (3,174,000)
Net income -- -- -- -- 3,241,248 3,241,248
----- ------ --- -------- ----------- -----------
Balance at December 31, 1998 2,000 2,000 50 (40,000) 2,633,471 2,595,471
Net income -- -- -- -- 345,736 345,736
----- ------ --- -------- ----------- -----------
Balance at February 28, 1999 2,000 $2,000 50 $(40,000) $ 2,979,207 $ 2,941,207
===== ====== === ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 121
Holden Corporation
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31 JANUARY 1, 1999
---------------------------- TO
1997 1998 FEBRUARY 28, 1999
----------- ----------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,674,281 $ 3,241,248 $345,736
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 215,630 182,473 28,297
Gain on disposal of property and
equipment (2,576) -- --
Gain on sale of investments (14,796) -- --
Changes in operating assets
and liabilities:
Accounts receivable (298,738) (135,897) (95,957)
Inventory (21,242) (27,210) 41,414
Prepaid expenses (42,863) (3,673) (94,567)
Interest receivable 3,907 -- --
Accounts payable 96,036 (84,715) (9,103)
Accrued income taxes (13,937) 14,946 5,079
Deferred revenue 15,149 (225,283) 6,860
Accrued salaries and bonuses 112,521 272,365 175,940
Accrued commissions (22,930) 127,139 (88,976)
Accrued expenses 75,475 176,176 (4,152)
Other assets -- (9,529) 4,927
Deferred bonus and interest 105,186 129,689 1,720
---------- ----------- ----------
Net cash provided by operating activities 3,881,103 3,657,729 317,218
INVESTING ACTIVITIES
Sale of investments 697,167 --
Purchases of property and equipment (59,592) (189,337) (15,603)
Disposal of property and equipment 4,791 --
---------- ----------- ----------
Net cash (used in) provided by investing
activities 642,366 (189,337) (15,603)
FINANCING ACTIVITIES
Distributions of income to shareholders (3,570,648) (3,174,000) --
---------- ----------- ----------
Net cash used in financing activities (3,570,648) (3,174,000) --
---------- ----------- ----------
Increase in cash and cash equivalents 952,821 294,392 301,615
Cash and cash equivalents at
beginning of year 1,487,541 2,440,362 2,734,754
---------- ----------- ----------
Cash and cash equivalents at
end of year $2,440,362 $ 2,734,754 $3,036,369
========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes $ 48,789 $ 194,720 $ --
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 122
Holden Corporation
Notes to Financial Statements
(unaudited)
February 28, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Holden Corporation (the Company) is a sales and marketing effectiveness
consulting and training firm. The Company provides services to top international
information technology and communications companies.
In March 1999, the Company's stock was acquired by EPS Solutions Corporation.
For financial accounting purposes the effective date of the transaction was
March 1, 1999. Accordingly, the Company's financial statements have been
prepared on a historical basis and, as such, do not reflect any purchase price
adjustments related to the sale.
As a result of the transaction, the Company no longer qualifies for treatment as
an S corporation under the Code. As such, after the acquisition, the Company
will need to provide for federal income taxes and account for income taxes using
the liability approach as described by Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes."
CASH AND CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when purchased
are considered by the Company to be cash equivalents.
USE OF ESTIMATES
The presentation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues on seminar contracts are recognized based on the percentage of
completion of each individual contract. This percentage is determined based on
the number of attendees actually completing the seminars versus the number in
total on the contracts.
Revenues from consulting fees are recognized as the service is performed.
S CORPORATION - INCOME TAX STATUS
Effective January 1, 1986, the Company, with the consent of its shareholders,
elected under the Internal Revenue Code (Code) to be an S corporation. In lieu
of corporation income taxes, the shareholders of an S Corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements for the years ended December 31, 1997 and 1998 or the
period from January 1, 1999 to February 28, 1999. However, certain states and
foreign countries in which the Company conducts business require income taxes to
be paid on S corporation earnings. As such, provisions for state and foreign
F-60
<PAGE> 123
Holden Corporation
Notes to Financial Statements
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income taxes in the amounts of $34,852, net of a foreign income tax refund of
$28,687, for the year ended December 31, 1997, and $191,069, including foreign
income taxes of approximately $115,000, for the year ended December 31, 1998,
are included in these financial statements. For the period from January 1, 1999
to February 28, 1999 a provision for state and foreign income taxes in the
amount of $9,858 has been provided, of which $4,780 was foreign income taxes.
2. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) pension plan covering substantially all of its
employees. Effective July 1, 1998, the Company matches 50% of a participant's
salary reductions up to 6% of a participant's contribution with an annual
maximum of $5,000. Prior to July 1, 1998, the Company did not contribute funds
on behalf of the participants. The total cost of contributions made in 1998 was
$26,468 and for the two month period ended February 28, 1999 was $12,396.
The Company also has a profit-sharing plan (the Plan) covering substantially
all of its employees. Contributions under the Plan are discretionary and are
determined annually by the Company's Board of Directors. The Company
contributed $50,000 to the Plan for the year ended December 31, 1997, and no
contributions were made in 1998 and the two-month period ended February 28,
1999.
3. COMMITMENTS
Holden Corporation occupies its premises under a lease which expires in May
2003. The lease requires base monthly rentals of $26,845 plus a proration of
taxes and operating expenses.
Rent expense for the years ended December 31, 1997 and 1998, was $321,183 and
$323,987, respectively. Rent expense for the two-month period ended February
28, 1999 was $56,353.
Minimum rental payments under this lease at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE
YEAR ENDING DECEMBER 31 PAYMENT
----------------------- ----------
<S> <C>
1999 $ 324,833
2000 329,490
2001 334,243
2002 339,114
To May 2003 142,152
----------
$1,469,832
==========
</TABLE>
F-61
<PAGE> 124
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EPS Solutions Corporation
We have audited the accompanying consolidated statements of income and
retained earnings and cash flows of Mobility Services International, Inc. for
the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Mobility Services International, Inc. for the year ended December 31, 1998,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 19, 1999
F-62
<PAGE> 125
MOBILITY SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenue, net................................................ $37,561,795
Cost of services............................................ 29,495,171
Selling, general and administrative expenses................ 7,097,280
-----------
Income from operations...................................... 969,344
Interest expense............................................ 31,803
===========
Income before provision for income taxes and extraordinary
item...................................................... 937,541
Provision for income taxes.................................. 29,000
-----------
Income before extraordinary item............................ 908,541
Extraordinary item.......................................... (161,000)
-----------
Net income.................................................. 747,541
Retained earnings at beginning of year...................... 724,154
Distributions to shareholder................................ (1,157,622)
-----------
Retained earnings at end of year............................ $ 314,073
===========
</TABLE>
See accompanying notes.
F-63
<PAGE> 126
MOBILITY SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 747,541
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation........................................... 125,169
Changes in operating assets and liabilities:
Fees, commissions and move charges receivable........ (929,108)
Deposits and other assets............................ 4,008
Accounts payable..................................... (360,814)
Accrued expenses..................................... 145,793
Payable to related party............................. 754,416
-----------
Net cash provided by operating activities................... 487,005
INVESTING ACTIVITIES
Purchase of property and equipment.......................... (35,859)
Net assets acquired from acquisition, excluding cash
acquired.................................................. (18,520)
Proceeds from repayments of loans to related parties........ 380,123
-----------
Net cash provided by investing activities................... 325,744
FINANCING ACTIVITIES
Net repayments on lines of credit........................... (300,000)
Bank overdrafts............................................. 651,111
Repayments on capital lease obligations..................... (69,509)
Shareholder distributions................................... (1,157,622)
Net cash used in financing activities....................... (876,020)
Net decrease in cash and cash equivalents................... (63,271)
Cash and cash equivalents at beginning of year.............. 63,271
-----------
Cash and cash equivalents at end of year.................... $ --
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 31,803
Income taxes........................................... $ 28,871
Non-cash investing activities:
Equipment acquired under capital leases................ $ 123,433
Acquisition of Protocol, Inc........................... $ 250,000
</TABLE>
See accompanying notes.
F-64
<PAGE> 127
MOBILITY SERVICES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Mobility Services International, Inc. (the Company) provides
administration and arrangements for the relocation of employees of U.S.
companies throughout the world.
On December 14, 1998, the Company's stockholder entered into an agreement
to sell the Company's net assets to EPS Solutions Corporation at a gain. For
financial accounting purposes the effective date of the transaction was December
31, 1998. Accordingly, the Company's financial statements have been prepared on
a historical basis and, as such, do not reflect any purchase price adjustments
related to the sale. Expenses related to the sale of the business are presented
as an extraordinary item in the statement of income.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary, Protocol International, Inc. (as discussed in Note 2). All
significant intercompany transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure for contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from the estimates that were used.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
include all highly liquid investments with maturities of three months or less
when purchased.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
a combination of accelerated and straight-line methods over the estimated useful
lives of the assets. Furniture and fixtures are depreciated over five to seven
years. Computer hardware and software are depreciated over three to five years.
Amortization of assets under capital leases is included in depreciation.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value
of net assets at the date of the acquisition of Protocol International, Inc. (as
discussed in Note 2). Goodwill is amortized using the straight-line method over
ten years.
INCOME TAXES
The Company has elected to be treated as an S Corporation, whereby all
income and losses are reported by the shareholder on his individual income tax
return. Accordingly, no provision for federal taxes on income is recorded in the
accompanying financial statements. The provision for taxes represents state
income taxes in those states which do not fully recognize Subchapter S status.
F-65
<PAGE> 128
MOBILITY SERVICES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
It is management's intention to make distributions to the shareholder
which are sufficient to fund required tax payments.
RECOGNITION OF REVENUES
Revenues are recognized upon completion of each relocation.
CONCENTRATION OF CREDIT RISK
During 1998, the Company's ten largest customers contributed 70% of
revenues. The Company does not require trade receivable to be collateralized;
however, management believes that credit risk is minimal as most customers are
Fortune 500 companies.
2. ACQUISITION
On November 30, 1998, the Company acquired certain assets and assumed
certain liabilities of Protocol International, Inc., a Chicago, Illinois based
company for $250,000. Protocol International, Inc. provides events arrangement
services to companies throughout the United States. The acquisition of Protocol
International, Inc. was accounted for under the purchase method of accounting
for business combinations. Revenues for Protocol International, Inc. for the one
month ended December 31, 1998 totaled $176,570.
The Company's balance sheet includes a payable to a related party of
$250,000, which represents the subordinated note issued by EPS Solutions
Corporation to fund the acquisition of Protocol International, Inc.
3. COMMITMENTS
At December 31, 1998, the Company was obligated under four operating
leases for various periods through March 2009. Some of the leases provide for
additional payments, including real estate taxes and various operating costs.
One of the leases, which was entered into in November 1998, also contains
scheduled rent increases. The term of this lease is from April 1999 to March
2009. Total rental expense charged to operations was $155,000 in 1998.
The Company leases its primary office space as tenant-at-will from a
realty trust whose trustee and beneficiary is the shareholder of the Company.
Rent expense related to the lease amounted to $84,000 in 1998.
The Company also maintains various capital leases for office equipment.
Lease terms are two to four years and the Company has the option to purchase the
equipment at a nominal cost at the termination of the lease.
4. RETIREMENT PLAN
The Company has a 401(k) plan for all employees over the age of
twenty-one. Under the plan, employees may elect to defer a portion of their
salary, subject to Internal Revenue Service limits. The plan allows
discretionary employer contributions. The Company did not make any discretionary
contributions in 1998.
F-66
<PAGE> 129
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EPS Solutions Corporation
We have audited the accompanying combined statements of operations and
owners' equity (deficit) and cash flows of Praxis Group, Inc., Vitality
Alliance, Inc., Praxis Development, LC. and Praxis Group Limited Partnership
(the Praxis Companies) for the years ended December 31, 1997 and 1998. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined results of operations and
cash flows of the Praxis Companies for the years ended December 31, 1997 and
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Salt Lake City, Utah
February 26, 1999
F-67
<PAGE> 130
PRAXIS COMPANIES
COMBINED STATEMENTS OF OPERATIONS AND OWNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues:
Consulting services....................................... $1,704,886 $2,513,633
Product sales............................................. 1,502,815 3,268,232
Training and other revenues............................... 751,022 740,213
---------- ----------
Total revenues.............................................. 3,958,723 6,522,078
Operating expenses:
Direct costs of revenues, excluding salaries and wages.... 614,854 287,634
Salaries and wages........................................ 3,437,781 3,602,467
Other operating expenses.................................. 689,931 601,277
---------- ----------
Total operating expenses.................................... 4,742,566 4,491,378
---------- ----------
Income (loss) from operations............................... (783,843) 2,030,700
Other income (expense):
Interest income........................................... 9,581 23,209
Interest expense.......................................... (4,155) (30)
Gain (loss) on disposal of property and equipment......... (47,175) 6,652
---------- ----------
Other income (expenses) -- net.............................. (41,749) 29,831
Income (loss) before extraordinary item..................... (825,592) 2,060,531
Extraordinary item.......................................... -- (106,000)
Net income (loss)........................................... (825,592) 1,954,531
---------- ----------
Owners' equity (deficit) at the beginning of the year....... 357,057 (518,535)
Distributions to owners..................................... (50,000) (835,834)
---------- ----------
Owners' equity (deficit) at the end of the year............. $ (518,535) $ 600,162
========== ==========
</TABLE>
See accompanying notes.
F-68
<PAGE> 131
PRAXIS COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $(825,592) $1,954,531
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 94,073 95,660
Net gain (loss) on disposal of property and equipment..... 47,175 (6,651)
Changes in operating assets and liabilities:
Accounts receivable.................................... 265,618 (75,849)
Inventories............................................ -- (24,293)
Prepaid expenses and other assets...................... 543 (7,178)
Accounts payable and accrued liabilities............... (4,961) 106,189
Accrued compensation and benefits...................... (29,668) (39,508)
Deferred revenue....................................... 565,724 (818,373)
--------- ----------
Net cash provided by operating activities................... 112,912 1,184,528
INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (82,266) (9,354)
Proceeds from sale of property and equipment................ -- 20,000
--------- ----------
Net cash (used in) provided by investing activities......... (82,266) 10,646
FINANCING ACTIVITIES:
Proceeds from short-term borrowings (related party)......... 94,000 --
Payments of short-term borrowings (related party)........... (94,000) --
Distributions to owners..................................... (50,000) (835,834)
--------- ----------
Net cash used in financing activities....................... (50,000) (835,834)
--------- ----------
Net (decrease) increase in cash and cash equivalents........ (19,354) 359,340
Cash and cash equivalents at beginning of year.............. 27,660 8,306
--------- ----------
Cash and cash equivalents at end of year.................... $ 8,306 $ 367,646
========= ==========
</TABLE>
See accompanying notes.
F-69
<PAGE> 132
PRAXIS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Praxis Group, Inc., Vitality Alliance, Inc., Praxis Development, LC. and Praxis
Group Limited Partnership (the Praxis Companies). All four Companies had common
management and ownership through December 14, 1998. The operations of the Praxis
Companies are summarized below:
Praxis Group, Inc. -- A Utah corporation which provides management
consulting and employee training.
Vitality Alliance, Inc. -- A Utah corporation which primarily sells
software, manuals, videos and provides software support and training.
Praxis Development, LC. -- A Utah limited liability company which sells a
book developed by owners of the original Companies. The period of duration
for this entity is from July 1, 1994 to July 1, 2124.
Praxis Group Limited Partnership -- A Utah limited partnership which owns
and leases assets to the other entities.
On December 14, 1998, the owners of the Praxis Companies entered into an
agreement to sell the Praxis Companies to EPS Solutions Corporation (EPS). For
financial accounting purposes the effective date of the transaction was December
31, 1998. Accordingly, the combined financial statements have been prepared on a
historical basis and, as such, do not reflect any purchase price adjustments
related to the sale. Expenses related to the sale of the business are presented
as an extraordinary item in the combined statement of operations and owners'
equity (deficit).
PRINCIPLES OF COMBINATION
The combined financial statements include accounts of the above companies.
All significant intercompany accounts and transactions among these entities have
been eliminated.
REVENUE AND COST RECOGNITION
Consulting and training services are recognized when services are
provided. Performance based fees are recognized upon acceptance from the
customer and receipt of cash.
Product sales include sales of software, manuals, and videos which are
recognized upon shipment.
Software support billed in advance of services is deferred and recognized
over the term of the support contract.
Direct costs of revenues include all direct material, delivery and other
costs directly related to the services performed or products shipped. Other
operating expenses are charged to expense as incurred. Research and development
expenses are expensed as incurred. There were approximately $241,000 in research
and development expenses for the year ended December 31, 1997 which were
included in salaries and wages and other operating expenses, and none for the
year ended December 31, 1998.
MAJOR CUSTOMER
During the years ended December 31, 1997 and 1998, sales to one customer
accounted for approximately $600,000 and $1,500,000 or 15% and 23% of total
revenues, respectively.
F-70
<PAGE> 133
PRAXIS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, all highly liquid investments
with a maturity of three months or less when purchased are considered to be cash
equivalents.
The Praxis Companies maintain cash and cash equivalents in federally
insured banks.
INVENTORIES
Inventories are stated at the lower of cost or market applying the
first-in, first-out cost method. Inventories primarily consist of printed
material and videos.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method over the useful lives of
the related assets or, for leasehold improvements, over the shorter of the
remaining lease period. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures.................................. 7 years
Computer and office equipment........................... 3 - 5 years
Video................................................... 7 years
Leasehold improvements.................................. 7 years
</TABLE>
INCOME TAXES
Praxis Group, Inc. and Vitality Alliance, Inc. file federal and state
income tax returns under the provisions of Subchapter S for Federal and Utah
Revenue Codes while Praxis Development, LC. and Praxis Group Limited Partnership
file federal and state income tax returns as partnerships. Accordingly, no
provision has been made for federal or state income taxes in the accompanying
combined financial statements. Subsequent to the date of acquisition, Praxis
Group, Inc. and Vitality Alliance, Inc. no longer qualified for Subchapter S
status and became subject to federal and state corporation taxes. The effect of
this change in tax status and the establishment of deferred income taxes under
the liability method for cumulative temporary differences between income for tax
and financial reporting purposes aggregated approximately $40,000, which has
been accounted for by EPS Solutions Corporation as an adjustment to the purchase
price.
ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to use certain estimates and
assumptions. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses during the reporting period. Although
management believes its estimates are appropriate, changes in assumptions used
in preparing such estimates could cause these estimates to change sometime in
the future.
CONCENTRATION OF CREDIT RISK
The Praxis Companies grant credit to substantially all of its customers
without requiring collateral. This credit risk is mitigated by the financial
stability of its major customers.
F-71
<PAGE> 134
PRAXIS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
2. COMMITMENTS
The Praxis Companies lease office facilities under a non-cancelable
operating lease. Total rent expense for each of the years ended December 31,
1997 and 1998 was approximately $70,000. The Praxis Companies also lease
equipment under non-cancelable operating leases. Total equipment lease expense
for the years ended December 31, 1997 and 1998 was approximately $10,800 and
$7,400, respectively.
The Praxis Companies have other commitments for phone services of
approximately $30,000, and $15,000 for the years ended December 31, 1999 and
2000 respectively.
3. EMPLOYEE BENEFITS
Management has established a qualified 401(k) profit sharing plan,
effective January 1, 1995. The plan allows all employees to contribute an
elected percentage of earnings in the form of a salary reduction up to the
maximum allowable percentage, not to exceed established limits by the Internal
Revenue Service. Employees are eligible to participate in the plan after one
year of service and attainment of age 21. Management may make discretionary
contributions. For the years ended December 31, 1997 and 1998, the Praxis
Companies did not contribute funds to the 401(k) plan.
4. RELATED PARTY TRANSACTIONS
The Praxis Companies had short-term borrowings totaling $94,000 from a
director during the year ended December 31, 1997 which were repaid in full.
Interest on this borrowing was approximately $4,000.
5. INCOME TAXES
Through the date of acquisition, the Company elected to be treated as a
Subchapter S-Corporation for federal income tax purposes. As such, it did not
incur any taxes at the corporate level. All federal taxable income was passed
through to its owners. Subsequent to the date of acquisition, the Company is
included in the consolidated income tax returns filed by EPS.
F-72
<PAGE> 135
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EPS Solutions Corporation
We have audited the accompanying statements of operations, stockholder's
equity, and cash flows of Pritchett Publishing Company for the years ended
December 31, 1997 and 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Pritchett
Publishing Company for the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 5, 1999
F-73
<PAGE> 136
PRITCHETT PUBLISHING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenues:
Publishing................................................ $ 7,232,470 $ 5,753,331
Training.................................................. 6,678,438 5,464,978
Consulting................................................ 3,892,313 2,141,488
Other operating revenue................................... 139,578 280,809
----------- -----------
Total revenues.............................................. 17,942,799 13,640,606
Costs and Expenses:
Cost of sales............................................. 4,714,602 4,246,774
Selling, general and administrative....................... 12,045,635 10,017,673
----------- -----------
Income (loss) from operations............................... 1,182,562 (623,841)
Interest income............................................. 124,094 109,447
Other nonoperating income................................... 38,869 2,443
----------- -----------
Income (loss) before extraordinary item..................... 1,345,525 (511,951)
Extraordinary item.......................................... -- (148,000)
----------- -----------
Net income (loss)........................................... $ 1,345,525 $ (659,951)
=========== ===========
</TABLE>
See accompanying notes.
F-74
<PAGE> 137
PRITCHETT PUBLISHING COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997................ 125 $1 $12,511 $6,398,321 $6,410,833
Net income.............................. -- -- -- 1,345,525 1,345,525
Capital distribution.................... -- -- -- (134,027) (134,027)
--- -- ------- ---------- ----------
Balance at December 31, 1997.............. 125 1 12,511 7,609,819 7,622,331
Net loss................................ -- -- -- (659,951) (659,951)
Capital distribution.................... -- -- -- (134,027) (134,027)
--- -- ------- ---------- ----------
Balance at December 31, 1998.............. 125 $1 $12,511 $6,815,841 $6,828,353
=== == ======= ========== ==========
</TABLE>
See accompanying notes.
F-75
<PAGE> 138
PRITCHETT PUBLISHING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,345,525 $ (659,951)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 853,628 674,434
Provision for doubtful accounts........................... 99,806 5,787
Loss on sale of fixed assets.............................. -- 818,518
Changes in operating assets and liabilities:
Accounts receivable, net............................... (1,143,378) 1,549,780
Accounts receivable -- EPS............................. -- (812,097)
Inventory.............................................. 209,996 28,259
Prepaid expenses and other current assets.............. (12,630) (23,037)
Other assets........................................... -- (47,293)
Accounts payable....................................... (791,068) (233,490)
Accrued liabilities and other.......................... 100,293 77,858
----------- ----------
Net cash provided by operating activities................... 662,172 1,378,768
INVESTING ACTIVITIES
Purchase of furniture, fixtures, and equipment.............. (822,434) (140,112)
Proceeds from the sale of furniture, fixtures, and
equipment................................................. -- 79,800
Purchases of other assets................................... (25,817) --
----------- ----------
Net cash used in investing activities....................... (848,251) (60,312)
FINANCING ACTIVITIES
Capital distributions....................................... (134,027) (134,027)
----------- ----------
Net cash used in financing activities....................... (134,027) (134,027)
Net (decrease) increase in cash............................. (320,106) 1,184,429
Cash and cash equivalents at beginning of year.............. 1,701,071 1,380,965
----------- ----------
Cash and cash equivalents balance at end of year............ $ 1,380,965 $2,565,394
=========== ==========
</TABLE>
See accompanying notes.
F-76
<PAGE> 139
PRITCHETT PUBLISHING COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Pritchett Publishing Company (dba Pritchett & Associates) (the Company),
is a publishing, training, and consulting company that specializes in improving
employee and organizational productivity. The Company, based in Dallas, Texas,
has both domestic and international sales. The Company was incorporated in 1991.
On December 14, 1998, the Company's stockholder entered into an agreement
with EPS Solutions Corporation (EPS) to sell the Company's common stock. For
financial accounting purposes the effective date of the transaction was December
31, 1998. Accordingly, the Company's financial statements have been prepared on
a historical basis and, as such, do not reflect any purchase price adjustments
related to the sale. Expenses related to the sale of the business are presented
as an extraordinary item in the statement of operations.
REVENUE RECOGNITION
Consulting, training and publishing revenues are recognized when the
services are provided. Fees and commission revenues are recognized during the
period such services are earned.
CONCENTRATION OF CREDIT RISK
Concentration of credit risk with respect to accounts receivable are
limited due to the diversity of customers who are dispersed across many
geographic regions. No one customer accounts for a significant portion of the
Company's accounts receivable portfolio. As a result, the Company does not
consider itself to have any significant concentrations of credit risk.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Credit losses
have been within management's expectations and within amounts provided through
the allowances for doubtful accounts.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers
investment securities with original maturities of three months or less to be
cash equivalents.
FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment are carried at amortized cost.
Depreciation and amortization have been provided using a method that
approximates the straight-line method over the assets' estimated useful lives
ranging from 5 to 7 years.
MARKETING EXPENSES
The Company expenses marketing costs as incurred. Marketing expenses
totaled approximately $2,787,000 and $1,765,000 in the years ended December 31,
1997 and 1998, respectively.
LOSS ON SALE OF ASSETS
During 1998, the Company sold certain furniture, fixtures, and equipment
to a third party. The Company incurred a loss on the sale of approximately
$819,000.
F-77
<PAGE> 140
PRITCHETT PUBLISHING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the financial statements include the
allowance for doubtful accounts.
2. COMMITMENTS
The Company has entered into operating leases for its computer equipment
and office facilities with varying terms and escalation clauses. Rent expense
for the years ended December 31, 1997 and 1998, was approximately $916,000 and
$947,000, respectively.
3. EMPLOYEE BENEFIT PLAN
The Company sponsored a 401(k) benefit program which was available to all
employees. The Company matches 100% of employee contributions up to 5% of
employee compensation for participating employees. Participants are vested 100%
in employer contributions to the Plan after five years. The Company contributed
approximately $163,000 and $150,000 to the plans during 1997 and 1998,
respectively.
4. INCOME TAXES
Through the date of acquisition, the Company's stockholder elected for the
Company to be treated as a Subchapter S-Corporation for federal income tax
purposes. As such, it did not incur any taxes at the corporate level. All
federal taxable income was passed through to its stockholder. Subsequent to the
date of acquisition, the Company is included in the consolidated income tax
returns filed by EPS.
F-78
<PAGE> 141
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EPS Solutions Corporation
We have audited the accompanying statements of operations, members'
capital, and cash flows of RBG Group, Ltd., for the period from January 29, 1997
(inception) to December 31, 1997 and the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of RBG Group,
Ltd. for the period from January 29, 1997 (inception) to December 31, 1997 and
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Columbus, Ohio
March 24, 1999
F-79
<PAGE> 142
RBG GROUP, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
JANUARY 29, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
---------------- ------------
<S> <C> <C>
Revenues:
Fees...................................................... $6,907,305 $7,240,814
Royalty income............................................ 157,983 232,398
Other operating revenue................................... 11,451 4,449
---------- ----------
Total revenue............................................... 7,076,739 7,477,661
Costs and expenses:
Cost of sales............................................. 2,264,248 2,130,062
Selling, general and administrative....................... 5,341,168 4,863,103
---------- ----------
Total costs and expenses.................................... 7,605,416 6,993,165
---------- ----------
Income (loss) from operations............................... (528,677) 484,496
Interest expense............................................ (230,585) (191,004)
Interest income............................................. 10,173 6,091
---------- ----------
Income (loss) before extraordinary item..................... (749,089) 299,583
Extraordinary item.......................................... -- (76,000)
---------- ----------
Net (loss) income........................................... $ (749,089) $ 223,583
========== ==========
</TABLE>
See accompanying notes.
F-80
<PAGE> 143
RBG GROUP, LTD.
STATEMENTS OF MEMBERS' CAPITAL
<TABLE>
<CAPTION>
TOTAL
MEMBERS'
PAID-IN RETAINED CAPITAL
CAPITAL EARNINGS (DEFICIT)
------- --------- ---------
<S> <C> <C> <C>
Balance at January 29, 1997 (inception)................... $ -- $ -- $ --
Capital contributions..................................... 63,000 -- 63,000
Net loss.................................................. -- (749,089) (749,089)
------- --------- ---------
Balance at December 31, 1997.............................. 63,000 (749,089) (686,089)
Net income................................................ -- 223,583 223,583
------- --------- ---------
Balance at December 31, 1998.............................. $63,000 $(525,506) $(462,506)
======= ========= =========
</TABLE>
See accompanying notes.
F-81
<PAGE> 144
RBG GROUP, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 29, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
---------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income........................................... $(749,089) $ 223,583
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization.......................... 376,364 410,175
Changes in operating assets and liabilities:
Accounts receivable.................................. (321,509) 400,812
Deposits and other assets............................ 10,000 (5,258)
Inventory............................................ 16,701 (5,589)
Deferred revenue..................................... 946,189 (406,822)
Accounts payable..................................... 384,804 (283,240)
Accrued expenses..................................... (201,529) 370,745
--------- ---------
Net cash provided by operating activities................... 461,931 704,406
INVESTING ACTIVITIES
Purchase of predecessor company............................. (623,290) --
Purchase of furniture, fixtures and equipment............... (16,284) (5,164)
Other intangibles........................................... (18,871) --
--------- ---------
Net cash used in investing activities....................... (658,445) (5,164)
FINANCING ACTIVITIES
Proceeds from short-term borrowings......................... 250,000 --
Payments of long-term borrowings............................ (820,774) (697,179)
Members' contributions...................................... 63,000 --
Proceeds from acquisition financing -- bank................. 705,175 --
--------- ---------
Net cash provided by (used in) financing activities......... 197,401 (697,179)
--------- ---------
Net increase in cash........................................ 887 2,063
Cash and cash equivalents at beginning of period............ -- 887
--------- ---------
Cash and cash equivalents at end of period.................. $ 887 $ 2,950
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................... $ 230,585 $ 156,404
</TABLE>
See accompanying notes.
F-82
<PAGE> 145
RBG GROUP, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
RBG Group, Ltd., an Ohio limited liability company, commenced operations
on January 29, 1997 when the Company entered into an Asset Purchase Agreement to
acquire Rummler-Brache of Texas, Inc. (the predecessor company) for
approximately $3.2 million. The purchase was financed with a term loan from a
financial institution and seller provided financing. Acquisition costs exceeded
the fair value of the net assets acquired and the resulting goodwill was
amortized over 15 years.
The Company derives its revenues primarily from consulting and training
services in the area of process improvement.
On December 14, 1998, the Company's stockholders entered into an agreement
to sell certain assets of the Company to EPS Solutions Corporation for a gain.
For financial accounting purposes the effective date of the transaction was
December 31, 1998. Accordingly, the Company's financial statements have been
prepared on a historical basis and, as such, do not reflect any purchase price
adjustments related to the sale. Expenses related to the sale of the business
are presented as an extraordinary item in the statements of operations. As a
result of the sale, RBG Group, Ltd. ceased operations subsequent to the close of
business on December 31, 1998.
REVENUE RECOGNITION
The Company recognizes consulting revenues as the services are provided.
Training revenues are recognized at the time the courses or seminars are held.
CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to accounts receivable are
limited due to the diversity of customers who are dispersed across many
geographic regions and industries. In addition, all of the company's largest
customers are Fortune 500 companies with good credit ratings. As a result, the
Company does not consider itself to have any significant credit risks. No
customer represented more than 10% of the Company's annual sales for the periods
ended December 31, 1997 and 1998.
The company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Credit losses
have been within management's expectations and within amounts provided through
the allowances for doubtful accounts.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the company considers
investment securities with original maturities of three months or less to be
cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation and
amortization have been provided on the straight-line method over the assets'
estimated useful lives ranging from 4 to 7 years.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess cost of certain assets acquired over the
fair value of the net assets at the date of the acquisition and is being
amortized on the straight-line method over 15 years. Other
F-83
<PAGE> 146
RBG GROUP, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
intangibles include non-compete agreements. These intangibles have been
amortized over the lives of the agreements, ranging from 2 to 4 years.
INCOME TAXES
As a limited liability company, income taxes are liabilities of the
individual holders of the company's membership units.
ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. Advertising expenses
totaled approximately $120,000 and $178,000 for the periods ended December 31,
1997 and 1998, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Estimates
made in preparing the financial statements include the allowance for doubtful
accounts.
RECLASSIFICATION
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation period.
2. RELATED PARTY TRANSACTIONS
The Company has entered into the following contracts with McLernon &
Associates, Ltd. (M&A) (Four of the five members of RBG Group, Ltd. are also
members of M&A):
- Management Services Contract, whereby M&A provided certain accounting,
finance, legal and administrative services for the Company. Management
services fees paid to M&A aggregated approximately $443,000 and $480,000
for the periods ended December 31, 1997 and 1998, respectively.
- Real Estate Lease, whereby the Company leases a portion offices located
in Columbus, Ohio from M&A.
- Office Equipment and Furniture Lease, whereby the Company leases various
office equipment and furniture located at its Columbus, Ohio offices
from M&A.
The Company is also charged for work performed on behalf of the Company by
M&A employees. Fees charged by M&A for the real estate lease, lease of office
equipment, and work performed by M&A employees aggregated approximately $26,000
and $45,000 for the periods ended December 31, 1997 and 1998, respectively.
3. EMPLOYEE BENEFIT PLANS
The Company has no direct employees or benefit plans. All employees are
leased through a contracted relationship with Team America Corporation, which
provides all benefit plans.
F-84
<PAGE> 147
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EPS Solutions Corporation
We have audited the accompanying statements of operations, shareholders'
equity, and cash flows of the Wadley-Donovan Group Ltd. for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Wadley-Donovan Group Ltd. for the year ended December 31, 1998, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Metropark, New Jersey
June 23, 1999
F-85
<PAGE> 148
THE WADLEY-DONOVAN GROUP LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenues:
Consulting fees........................................... $2,884,085
Operating expenses:
Payroll and benefits...................................... 2,041,759
Outside services.......................................... 451,428
General and administrative................................ 478,507
----------
Total operating expenses.................................... 2,971,694
Interest and other income................................... 23,142
----------
Loss before income taxes and extraordinary item............. (64,467)
Provision for income taxes.................................. 25,000
----------
Income before extraordinary item............................ (89,467)
Extraordinary item.......................................... (53,968)
----------
Net loss.................................................... $ (143,435)
==========
</TABLE>
See accompanying notes.
F-86
<PAGE> 149
THE WADLEY-DONOVAN GROUP LTD.
STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ --------- ---------
<S> <C> <C> <C>
Balance at December 31, 1997................................ $6,117 $ 487,463 $ 493,580
Net loss.................................................. -- (143,435) (143,435)
Issuance of common shares................................. 2,000 -- 2,000
------ --------- ---------
Balance at December 31, 1998................................ $8,117 $ 344,028 $ 352,145
====== ========= =========
</TABLE>
See accompanying notes.
F-87
<PAGE> 150
THE WADLEY-DONOVAN GROUP LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(143,435)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense...................................... 16,346
Gain on sales of assets................................... (11,457)
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (439,289)
Increase in accounts payable and accrued liabilities... 593,662
Increase in income taxes payable....................... 13,122
---------
Net cash provided by operating activities................... 28,949
INVESTING ACTIVITIES
Purchase of property and equipment.......................... (11,708)
Proceeds from sales of assets............................... 27,500
---------
Net cash provided by investing activities................... 15,792
FINANCING ACTIVITIES
Issuance of common shares................................... 2,000
Receipt of shareholders' advances........................... 35,040
Net cash provided by financing activities................... 37,040
Net increase in cash and cash equivalents................... 81,781
Cash and cash equivalents at beginning of period............ 244,158
---------
Cash and cash equivalents at end of period.................. $ 325,939
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes................ $ 13,221
</TABLE>
See accompanying notes.
F-88
<PAGE> 151
THE WADLEY-DONOVAN GROUP LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Wadley-Donovan Group Ltd. (the Company) is a New Jersey professional
services corporation (PSC) that provides location consulting services and
economic data to major clients throughout the country. Also, the Company
provides consulting services to local, state, and regional development agencies.
The Company was incorporated March 27, 1992.
On September 30, 1998 the Company was merged with the following affiliated
entities:
James P. Wadley & Co., Inc.
Location Data Resources, Inc.
Economic Development Services, Inc.
During the year prior to the merger the affiliated corporations were
inactive.
On December 14, 1998, the shareholders of the Company entered into an
agreement to sell the Company's common stock to EPS Solutions Corporation (EPS).
For financial accounting purposes the effective date of the transaction was
December 31, 1998. Accordingly, the Company's financial statements have been
prepared on a historical basis and, as such, do not reflect any purchase price
adjustments related to the sale. Expenses related to the sale of the business
are presented as an extraordinary item in the statement of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents are deemed to be any short-term, nonequity investment
that is readily convertible to cash and is not subject to market fluctuations,
with an original maturity of three months or less.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Income tax expense is the current tax payable
for the period and the change during the period in deferred tax assets and
liabilities.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets, ranging from five
to seven years.
F-89
<PAGE> 152
THE WADLEY-DONOVAN GROUP LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Consulting fees are recognized upon completion of services provided by the
Company.
3. DEFINED CONTRIBUTION PLAN
The Company adopted an age weighted defined contribution plan effective as
of January 1, 1995. For the year ended December 31, 1998 the Company contributed
$125,000 to the plan.
4. LEASES
The Company leases their New Jersey office facility on a month-to-month
basis. Rent expense amounted to $75,894 for the year ended December 31, 1998.
5. INCOME TAXES
The provision for income taxes for the year ended December 31, 1998
consisted of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $20,000
State and city............................................ 5,000
-------
Provision for income taxes................................ $25,000
=======
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable statutory federal income tax rate to
pre-tax income, principally as a result of state income taxes and certain book
expenses that are not deductible for income tax purposes.
F-90
<PAGE> 153
eFox, L.L.C.
Balance Sheets
(unaudited)
<TABLE>
DECEMBER 31
-----------------------
1998 1999
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 683,308 $ 143,894
Accounts receivable due from affiliates -- 10,557
Prepaid expenses and other 2,191 1,690
-----------------------------
Total current assets 685,499 156,141
Property and equipment, net 210,303 140,525
Other assets 1,690 -
-----------------------------
Total assets $ 897,492 $ 296,666
=============================
LIABILITIES AND MEMBERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable $ 85,277 $ 22,797
Deferred revenue -- affiliates -- 55,457
Due to members 1,000,000 --
-----------------------------
Total current liabilities 1,085,277 78,254
Members' capital (deficit) (187,785) 218,412
------------------------------
Total liabilities and members' capital (deficit) $ 897,492 $ 296,666
==============================
</TABLE>
See accompanying notes.
F-91
<PAGE> 154
eFox, L.L.C.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 29, 1998
(INCEPTION)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------------------------
<S> <C> <C>
Net revenues:
Web site services $ -- $ 59,678
Licenses -- 82,089
Other -- 10,699
------------------------------
Total net revenues -- 152,466
Operating expenses:
Selling, general and administrative expenses 179,701 741,584
Royalty expense - affiliate -- 18,856
------------------------------
Total operating expenses 179,701 760,440
------------------------------
Operating loss (179,701) (607,974)
Other income (expense):
Interest income 4,583 14,171
Interest expense - members (12,667) --
------------------------------
(8,084) 14,171
------------------------------
Net loss $(187,785) $(593,803)
==============================
</TABLE>
See accompanying notes.
F-92
<PAGE> 155
eFox, L.L.C.
Statements of Members' Capital (Deficit)
(unaudited)
Period from May 29, 1998 (inception) to December 31, 1999
<TABLE>
<CAPTION>
MEMBERS' ACCUMULATED
CONTRIBUTIONS DEFICIT TOTAL
-------------------------------------------
<S> <C> <C> <C>
Net loss $ -- $(187,785) $ (187,785)
-------------------------------------------
Balance at December 31, 1998 -- (187,785) (187,785)
Conversion of due to members into
members' capital 1,000,000 -- 1,000,000
Net loss -- (593,803) (593,803)
-------------------------------------------
Balance at December 31, 1999 $1,000,000 $(781,588) $ 218,412
===========================================
</TABLE>
See accompanying notes.
F-93
<PAGE> 156
eFox, L.L.C.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 29, 1998
(INCEPTION)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (187,785) $ (593,803)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 7,157 86,320
Changes in operating assets and liabilities:
Accounts receivable due from affiliates -- (10,557)
Prepaid expenses and other (2,191) 501
Other assets (1,690) 1,690
Accounts payable 85,277 (62,480)
Deferred revenue - affiliates -- 55,457
------------------------------
Net cash used in operating activities (99,232) (522,872)
INVESTING ACTIVITIES
Purchases of property and equipment (217,460) (16,542)
------------------------------
Net cash used in investing activities (217,460) (16,542)
FINANCING ACTIVITIES
Proceeds from due to members 1,000,000 --
------------------------------
Net (decrease) increase in cash 683,308 (539,414)
Cash at beginning of year -- 683,308
------------------------------
Cash at end of year $ 683,308 $ 143,894
==============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest to members $ 12,667 $ --
==============================
Conversion of due to members into members' capital $ -- $1,000,000
==============================
</TABLE>
See accompanying notes.
F-94
<PAGE> 157
eFox, L.L.C.
Notes to Financial Statements
(unaudited)
December 31, 1998 and 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTIONS OF BUSINESS
eFox, L.L.C. (the Company) was formed as a limited liability company (L.L.C.)
in Delaware on May 29, 1998. The Members of the Company include: EPS
Corporation (EPS), the parent company of Holden Corporation (Holden); the chief
executive officer and former owner of Holden; and his spouse. The Members of the
Company are not personally liable for any expense, liability or obligation of
the Company except to the extent of the member's interest in the Company and the
member's obligation to return distributions made under certain circumstances.
The Company is a software development company that designs, develops, markets
and distributes sales personnel training, assessment, marketing, recruiting and
similar sales personnel materials and products through the Internet or
corporate intranet systems in the United States.
The Company was classified as a development stage company until June 1999. In
June 1999, the Company completed its planned principal operations by releasing
its signature product, Foxview, the Company's premiere Web-based sales
performance enhancement system.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash accounts with one bank in Illinois. The total
cash balances are insured by the FDIC up to $100,000 per bank. The Company has
cash balances of $683,304 and $143,894 at December 31, 1998 and 1999,
respectively, that exceed the balance insured by the FDIC.
F-95
<PAGE> 158
eFox, L.L.C.
Notes to Financial Statements (continued)
(unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
double declining method over the estimated useful lives which are as follows:
<TABLE>
<CAPTION>
Asset Description Life
- -------------------------------- --------
<S> <C>
Furniture and fixtures 7 years
Computer software and hardware 3-5 years
</TABLE>
DEFERRED REVENUE
Deferred revenue represents the unearned portion of agreements that have been
invoiced and will be recognized in revenue when the service is performed.
REVENUE RECOGNITION
The Company generates revenues from the creation of Web sites and licensing the
right to use its proprietary software product, Foxview, to its customers.
Revenue is recognized upon completion and delivery of the Web site to the
customer and revenue from software license agreements is recognized ratably
over the term of the license agreement, which is typically twelve months, if:
- - persuasive evidence of an arrangement exists;
- - the fee is fixed or determinable; and
- - collection is probable.
The Company's policy is to not allow returns of any products. The Company
issues product upgrades on a when and if available basis.
F-96
<PAGE> 159
eFox, L.L.C.
Notes to Financial Statements (continued)
(unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
The Company is treated substantially as if it were a partnership. The Company
is not subject to U.S. federal income taxes as this amount is transferred to
its Members and reported directly by the Members on their income tax returns.
The Company is subject to state replacement taxes; however, a provision has not
been made in the accompanying financial statements since the Company had a
taxable net loss in 1998 and 1999.
USE OF ESTIMATES
The preparation of financial statements on the accrual method of accounting
used for federal income tax purposes requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Furniture and fixtures $ 30,190 $ 31,937
Computer software and hardware 187,270 202,065
-------- --------
217,460 234,002
Less: Accumulated depreciation (7,157) (93,477)
-------- --------
$210,303 $140,525
======== ========
</TABLE>
F-97
<PAGE> 160
eFox, L.L.C.
Notes to Financial Statements (continued)
(unaudited)
3. LEASE COMMITMENTS
In December 1998 the Company entered into an operating lease for its facility.
In March 2000, the Company entered into an operating lease for certain computer
hardware. Future minimum lease payments under the leases with a term of one
year or more at December 31, 1999 is as follows:
<TABLE>
<S> <C>
2000 $21,085
2001 2,432
2002 2,432
2003 608
-------
$26,557
=======
</TABLE>
Rent expense totaled $1,690 and $20,493 for period from June 22, 1998 through
December 31, 1998 and for the year ended December 31, 1999, respectively.
4. RELATED PARTY TRANSACTIONS
Accounts receivable due from affiliates totaling $10,557 at December 31, 1999
consists of $8,977 due from Holden and $1,580 due from EPS.
Deferred revenue totaling $55,457 at December 31, 1999 consists of $45,057 for
Holden and $10,400 for EPS.
Due to members totaling $1,000,000 at December 31, 1998 consists of an amount
due to the chief executive officer of Holden and his spouse and bears interest
at 8% per annum. Interest expense and interest paid related to this amount
totaled $12,667 for period from June 22, 1998 through December 31, 1998. This
amount was converted into members' capital on January 1, 1999.
Revenues from affiliates consist of the following at December 31, 1999:
<TABLE>
<S> <C>
EPS $138,378
Holden 14,088
--------
$152,466
========
</TABLE>
F-98
<PAGE> 161
eFox, L.L.C.
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
On July 1998, the Company entered into a license agreement with Holden whereby
the Company obtained a non-exclusive, non-transferable and non-assignable
worldwide license to use the Holden intellectual property into the Company's
products which are to be used, marketed, distributed, transmitted, sublicensed
and licensed in electronic form by the Company. The Company agreed to pay Holden
a 15% royalty for products sold based on cash receipts which incorporate a
portion of the Holden intellectual property. There was no royalty expense for
period from June 22, 1998 through December 31, 1998. Royalty expense totaled
$18,856 for the year ended December 31, 1999.
On January 29, 2000, the Company entered into a professional services agreement
with Holden whereby the Company agreed to provide Holden with certain
professional services in the form of software development and software
consulting. Holden agreed to pay the Company's operating expenses including
appropriate out-of-pocket expenses approved by Holden that are directly related
to the project. The total of these costs is expected to range between $60,000
and $70,000 per month, as stated in the agreement. The agreement can be
terminated by either party at any time.
F-99
<PAGE> 162
PowerBase Selling Limited
PROFIT AND LOSS ACCOUNT
for the 8 months ended 31 December 1999
(unaudited)
<TABLE>
<CAPTION>
Notes (pound sterling)
----- -----------------
<S> <C> <C>
TURNOVER 2 535,544
Cost of sales 275,723
-------
Gross profit 259,821
Administrative expenses 189,898
-------
OPERATING PROFIT 3 69,923
Interest receivable 1,798
Interest payable 6 (85)
-------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 71,636
Taxation 7 20,000
-------
PROFIT FOR THE FINANCIAL PERIOD 51,636
=======
</TABLE>
There were no recognised gains or losses other than those recorded above.
The notes to the financial statements are an integral part of the financial
statements.
F-100
<PAGE> 163
PowerBase Selling Limited
BALANCE SHEET
at 31 December 1999
(unaudited)
<TABLE>
<CAPTION>
Notes (pound sterling)
---------- ----------------
<S> <C> <C>
FIXED ASSETS
Tangible assets 8 5,955
-----------
CURRENT ASSETS
Debtors 9 160,364
Cash at bank and in hand 46,734
-----------
207,098
CREDITORS: amounts falling due within one year 10 (157,659)
-----------
NET CURRENT ASSETS 49,439
-----------
TOTAL ASSETS LESS CURRENT LIABILITIES 55,394
CREDITORS: amounts falling due after more than one year 11 758
-----------
54,636
===========
CAPITAL AND RESERVES
Called up share capital 15 3,000
Profit and loss account 16 51,636
-----------
SHAREHOLDERS' FUNDS-EQUITY 54,636
===========
</TABLE>
The notes to the financial statements are an integral part of the financial
statements.
F-101
<PAGE> 164
PowerBase Selling Limited
STATEMENT OF CASH FLOWS
for the 8 months ended 31 December 1999
(unaudited)
<TABLE>
<CAPTION>
Notes (pound sterling)
-------- ----------------
<S> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 3 (b) 47,196
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE ------
Bank interest paid (48)
Interest element of finance lease rental payments (37)
Interest received 1,798
------
NET CASH INFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE 1,713
------
TAXATION
Corporation tax paid --
------
TAX PAID --
------
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets (6,842)
Proceeds from sale of tangible fixed assets --
------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (6,842)
------
NET CASH INFLOW BEFORE FINANCING 42,067
------
FINANCING
Issue of share capital 3,000
Net movement in short term borrowings --
Net movement in long term borrowings --
Repayments of capital element of finance lease rentals 1,667
------
NET CASH INFLOW FROM FINANCING 4,667
------
INCREASE IN CASH 14 46,734
======
</TABLE>
The notes to the financial statements are an integral part of the financial
statements.
F-102
<PAGE> 165
PowerBase Selling Limited
NOTES TO THE ACCOUNTS
at 31 December 1999
(unaudited)
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention, and in
accordance with applicable United Kingdom accounting standards.
COMPANIES ACT 1985
These financial statements do not comprise statutory accounts within the
meaning of section 240 of the Companies Act 1985 of Great Britain. No
statutory accounts for PowerBase Selling Limited have been delivered to the
Registrar of Companies for England and Wales.
DEPRECIATION
Depreciation is provided on all tangible fixed assets at rates calculated
to write off the cost or valuation, less estimated residual value, of each
asset evenly over its expected useful life, as follows:
Office furniture and fittings - 25% reducing balance
Computer equipment - 33% on cost
The carrying values of tangible fixed assets are reviewed for impairment in
periods if events or changes in circumstances indicate the carrying value
may not be recoverable.
LEASING AND HIRE PURCHASE AGREEMENTS
Assets held under finance leases and hire purchase contracts are
capitalised in the balance sheet and are depreciated over their estimated
useful lives.
The interest element of the rental obligations is charged to the profit and
loss account over the period of the lease and represents a constant
proportion of the balance of capital repayments outstanding.
Rentals paid under operating leases are charged to income on a straight
line basis over the lease term.
FOREIGN CURRENCY
Assets and liabilities in foreign currencies are translated into Sterling
at the rates of exchange ruling at the balance sheet date. Transactions in
foreign currencies are translated into Sterling at the rate of exchange at
the date of the transaction. Exchange differences are taken to the profit
and loss account.
DEFERRED TAXATION
Deferred taxation is provided on the liability method on all timing
differences which are expected to reverse in the future without being
replaced, calculated at the rate at which it is estimated that taxation
will be payable.
Deferred tax assets are only recognised if recovery without replacement by
equivalent debit balances is reasonably certain.
F-103
<PAGE> 166
PowerBase Selling Limited
NOTES TO THE ACCOUNTS
at 31 December 1999
2. TURNOVER
Turnover, which is stated net of value added tax, represents amounts
invoiced to third parties in respect of the group's continuing activity,
the provision of sales training and consultancy services.
Turnover arises from the following geographic markets:
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
(Pound sterling)
<S> <C>
United Kingdom 455,212
Europe 80,332
-------
535,544
=======
</TABLE>
3. OPERATING PROFIT
(a) This is stated after charging/(crediting):
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
(Pound sterling)
<S> <C>
Depreciation of owned fixed assets 735
Depreciation of assets held under finance leases
and hire purchase contracts 152
Operating lease rentals - land and buildings 10,625
=======
</TABLE>
(b) Reconciliation of operating profit to net cash outflow from operating
activities:
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
(Pound sterling)
<S> <C>
Operating profit 69,923
Depreciation 887
Increase in operating debtors and prepayments (160,364)
Increase in operating creditors and accruals 136,750
--------
47,196
========
</TABLE>
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
(Pound sterling)
<S> <C>
Emoluments 75,000
=======
</TABLE>
F-104
<PAGE> 167
PowerBase Selling Limited
NOTES TO THE ACCOUNTS
at 31 December 1999
4. DIRECTORS' REMUNERATION (continued)
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
No.
<S> <C>
Members of defined contribution pension schemes --
=======
</TABLE>
5. STAFF COSTS
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
(pound sterling)
<S> <C>
Wages and salaries 127,512
Social security costs 12,692
Other pension costs --
-------
140,204
=======
</TABLE>
The average weekly number of employees during the
period was
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
No.
<S> <C>
Consultancy 4
Administration 1
-------
5
=======
</TABLE>
6. INTEREST PAYABLE
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
(pound sterling)
<S> <C>
Interest on bank and overdraft loans 48
Interest on finance leases 37
-------
85
=======
</TABLE>
F-105
<PAGE> 168
PowerBase Selling Limited
NOTES TO THE ACCOUNTS
at 31 December 1999
7. TAXATION
<TABLE>
<CAPTION>
8 months
ended
31 December
1999
(pound sterling)
<S> <C>
Based on the profit for the period:
Corporation tax - 20% 20,000
==========
</TABLE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Office
furniture and Computer
fittings equipment Total
(pound sterling) (pound sterling) (pound sterling)
---------------- ---------------- ----------------
<S> <C> <C>
Cost:
Additions in the period 875 5,967 6,842
--- ----- -----
At 31 December 1999 875 5,967 6,842
=== ===== =====
Depreciation:
Charge for the period 96 791 887
--- ----- -----
At 31 December 1999 96 791 887
=== ===== =====
Net book value:
At 31 December 1999 779 5,176 5,955
=== ===== =====
</TABLE>
The net book amount of computer equipment above includes (pound
sterling) 1,667 in respect of assets held under finance leases and hire
purchase contracts.
F-106
<PAGE> 169
PowerBase Selling Limited
NOTES TO THE ACCOUNTS
at 31 December 1999
9. DEBTORS
<TABLE> 31 December
<CAPTION> 1999
(pound sterling)
<S> <C>
Trade debtors 151,769
Other debtors 6,000
Prepayments 2,595
-------
160,364
=======
</TABLE>
Other debtors includes (pound sterling) 6,000 in respect of a rent
deposit which is repayable upon expiry of the lease under which it was
paid. This is due to expire within one year.
10. CREDITORS: amounts falling due within one year
<TABLE> 31 December
<CAPTION> 1999
(pound sterling)
<S> <C>
Sales invoiced in advance 28,667
Bank loans and overdrafts 25,617
Obligations under finance leases and hire purchase 909
contracts (note 12)
Trade creditors 31,807
Corporation tax 20,000
Other taxes and social security costs 32,539
Accruals and deferred income 18,120
-------
157,659
=======
</TABLE>
11. CREDITORS: amounts falling due after more than one year
<TABLE> 31 December
<CAPTION> 1999
(pound sterling)
<S> <C>
Obligations under finance leases and hire purchase
contracts (note 12) 758
=======
</TABLE>
F-107
<PAGE> 170
PowerBase Selling Limited
NOTES TO THE ACCOUNTS
at 31 December 1999
12. OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE CONTRACTS
<TABLE>
<CAPTION>
31 December
1999
(pound sterling)
<S> <C>
Obligations under finance leases 2,075
Less: finance charges allocated to future periods (408)
------
1,667
======
Amounts payable:
within one year 909
due within two to five years 758
------
1,667
======
</TABLE>
13. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
<TABLE>
<CAPTION>
31 December
1999
(pound sterling)
<S> <C>
INCREASE IN CASH 46,734
Cash outflow from decrease in lease financing (1,667)
------
Change in net debt resulting from cash flows 45,067
------
MOVEMENT IN NET FUNDS IN THE PERIOD 45,067
NET FUNDS AT 4 MAY --
------
NET FUNDS AT 31 DECEMBER 45,067
======
</TABLE>
14. ANALYSIS OF NET FUNDS
<TABLE>
<CAPTION>
At At
4 May Cash 31 December
1999 flow 1999
(pound sterling) (pound sterling) (pound sterling)
<S> <C> <C> <C>
Cash at bank and in hand -- 46,734 46,734
Finance leases -- (1,667) (1,667)
------ ------ ------
-- 45,067 45,067
====== ====== ======
</TABLE>
F-108
<PAGE> 171
PowerBase Selling Limited
NOTES TO THE ACCOUNTS
at 31 December 1999
15. SHARE CAPITAL
<TABLE>
<CAPTION> Allotted,
called up
Authorised and fully paid
31 December 31 December
1999 1999
No. (pound sterling)
<S> <C> <C>
Ordinary shares of (pound sterling) 1 each 1,000,000 3,000
========= =======
</TABLE>
During the period the company issued 3,000 ordinary shares of (pound sterling) 1
each for cash consideration of (pound sterling) 3,000.
16. RECONCILIATION OF SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Share Profit and
capital loss account Total
(pound sterling) (pound sterling) (pound sterling)
<S> <C> <C> <C>
Share issue 3,000 3,000
Profit for the period 51,636 51,636
----- ------ ------
At 31 December 1999 3,000 51,636 54,636
===== ====== ======
</TABLE>
17. OTHER FINANCIAL COMMITMENTS
<TABLE>
<CAPTION>
Annual commitments under non-cancellable operating leases are as follows:
<S> <C>
Land and
buildings
31 December
1999
(pound sterling)
Operating leases which expire:
within one year 31,150
======
</TABLE>
F-109
<PAGE> 172
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
EPS SOLUTIONS CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ---------
<S> <C> <C>
Current assets
Cash...................................................... $ 29 $ 232
Income taxes receivable................................... -- 6,379
-------- ---------
Total current assets........................................ 29 6,611
Deferred tax asset.......................................... -- 376
Investment in Subsidiary.................................... 132,096 90,569
Deferred financing costs.................................... 6,044 4,466
Other....................................................... 2,400 2,853
-------- ---------
Total assets................................................ $140,569 $ 104,875
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities....................................... $ 352 $ 2,334
Note payable to subsidiary................................ 78,039 99,681
Subordinated notes payable................................ 77,896 96,251
Other liabilities held for sale........................... -- 1,300
-------- ---------
Total liabilities........................................... 156,285 199,566
Stockholders' deficit:
Common stock.............................................. 35 56
Accumulated deficit....................................... (15,751) (94,747)
-------- ---------
Total stockholders' deficit................................. (16,245) (100,214)
-------- ---------
Total liabilities and stockholders' equity.................. $140,569 $ 104,875
======== =========
</TABLE>
F-110
<PAGE> 173
EPS SOLUTIONS CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
PERIOD FROM MAY 29,
1998 (INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
Revenues.................................................. $ 2,080 $ --
Expenses (primarily interest)............................. (276) (15,740)
------- --------
Income (loss) before income taxes and equity
in net loss of subsidiary............................... 1,804 (15,741)
Income tax benefit........................................ -- 6,213
------- --------
1,804 (9,527)
Equity in net loss of subsidiaries........................ (5,089) (74,195)
------- --------
Net loss.................................................. $(3,285) $(83,722)
======= ========
</TABLE>
F-111
<PAGE> 174
EPS SOLUTIONS CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 29, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Net cash provided by (used in) operating activities........ $ 2,155 $ (6,752)
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchase price adjustments to prior year
acquisitions.............................................. -- (2,665)
Acquisitions of subsidiaries............................... (59,984) (7,695)
Increase in notes receivable............................... (2,400) (453)
-------- --------
Net cash used in investing activities...................... (62,384) (10,813)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of subordinated notes payable....... 500 1,800
Cash of acquisition entities contributed to
Operating Company......................................... (16,931) (5,426)
Advances from Operating Company............................ 78,037 21,644
Increase in deferred financing cost........................ (6,044) (600)
Decrease in stockholders' equity........................... 4,696 350
-------- --------
Net cash provided by financing activities.................. 60,258 17,768
-------- --------
Net change in cash......................................... 29 203
Cash at beginning of period................................ -- 29
-------- --------
Cash at end of period...................................... $ 29 $ 232
======== ========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued for notes receivable................... $ 17,128 $ 27,746
Sale of subsidiaries for notes receivable.................. -- 14,009
Repurchase of common stock in exchange for notes
receivable................................................ -- 10,089
Liability incurred for common stock to be issued........... -- 1,250
Purchase of minority interest in exchange for notes
payable................................................... -- 200
</TABLE>
F-112
<PAGE> 175
EPS SOLUTIONS CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands)
NOTE A -- BASIS OF PRESENTATION
In these parent company-only financial statements, EPS Solutions
Corporation's (the Parent Company) investment in its wholly owned subsidiary,
Enterprise Profit Solutions Corporation (the Subsidiary) is stated at cost less
equity in undistributed losses of the Subsidiary since its date of inception.
These financial statements should be read in conjunction with the Company's
consolidated financial statements included elsewhere herein.
NOTE B -- ACQUISITIONS
In December 1999, the Parent Company acquired 33 businesses. Twenty-two
acquisitions were completed by purchasing all of the outstanding equity
interests of the acquired businesses, while eleven acquired businesses were
acquired by purchasing specified net assets from their former owners.
Concurrently, the Parent Company contributed the net assets or equity interest
of the acquired businesses to the Subsidiary in exchange for 999 shares of the
Subsidiary.
In March and April 2000, the Parent Company acquired five additional
businesses. Three of these acquisitions were completed by purchasing all of the
outstanding equity interests of the business and two acquisitions were acquired
by purchasing specified net assets from its former owner. Concurrently, the
Parent Company contributed the net assets or equity interests of these entities
to the Subsidiary in the form of additional capital contribution.
NOTE C -- LONG-TERM DEBT
The Subsidiary advanced approximately $72,000 and $28,000 of the proceeds
from borrowings under its credit facility to the Parent Company during 1998 and
1999, respectively. The Parent Company used these advances as partial
consideration for the purchase of the acquired businesses. The advances are
evidenced by an unsecured note payable to the Subsidiary that bears interest at
5.5%, payable in cash or in-kind, and has no stated maturity date. Interest
paid-in-kind of none and $5,030 is included in note payable to the Subsidiary at
December 31, 1998 and 1999, respectively.
The Parent Company issued subordinated notes payable as partial
consideration for the acquisitions. The subordinated notes payable, including
amounts classified as Other Liabilities Held for Sale, bear interest, payable
in-kind. Interest paid-in-kind of $0 and $9,109 is included in subordinated
notes payable at December 31, 1998 and 1999, respectively.
NOTE D -- GUARANTEE
The Subsidiary has $126,500 of long-term debt outstanding at December 31,
1999. Under the terms of its credit agreement (the Agreement), the Company has
guaranteed to the lenders the payment of all principal and interest. The
Agreement also restricts the transfer of funds to the Parent Company from its
subsidiary.
NOTE E -- TAX SHARING ARRANGEMENT
The Company files a consolidated tax return, which includes the operating
results of its Subsidiary. The Company and its Subsidiary have entered into a
tax sharing arrangement whereby federal and state income taxes are computed on a
separate return basis.
The Company uses the liability method of accounting for income taxes.
Under this method, deferred taxes are determined based on the differences
between the financial statements and the tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Deferred tax assets are recognized and measured based on
the likelihood of realization of the related tax benefit in the future.
F-113
<PAGE> 176
EPS SOLUTIONS CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS - DEDUCTIONS - END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
Period from May 29, 1998
to December 31, 1998 $ -- $ 50(A) $ 4,655 (B) $ -- $4,705
Year ended December 31, 1999 $4,705 $2,585(A) $(2,380)(C) $(1,868)(D)
$ 634(E) $ (567)(F) -- $3,109
</TABLE>
NOTES
(A) Bad debt expense
(B) Allowance for doubtful accounts assumed in acquisitions
(C) Amounts reclassified to current assets held for sale
(D) Accounts written off
(E) Amounts charged against revenues
(F) Amounts reclassified to other assets
F-114
<PAGE> 177
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Form of Stockholder Agreement
10.1 2000 Stock Performance Plan
10.2 Form of Indemnification Agreement
10.3 David H. Hoffmann Employment Agreement (11/24/99)
10.4 David H. Hoffmann Restricted Stock Purchase Agreement (12/14/98)
10.5 David H. Hoffmann Restricted Stock Purchase Agreement (9/1/99)
10.6 David H. Hoffmann Amendment to Restricted Stock Purchase Agreement (11/24/99)
10.7 David H. Hoffmann Restricted Stock Purchase Agreement (11/24/99)
10.8 David H. Hoffmann Amendment to Employment Agreement
10.9 James F. Holden Employment Agreement/Holden (3/19/99)
10.10 James F. Holden Employment Agreement/EMD (3/19/99)
10.11 James F. Holden Restricted Stock Purchase Agreement/Holden (3/19/99)
10.12 James F. Holden Restricted Stock Purchase Agreement/EMD (3/19/99)
10.13 James F. Holden Amendment to Restricted Stock Purchase Agreement (9/1/99)
10.14 Early Price Pritchett III Employment Agreement (12/14/98)
10.15 Early Price Pritchett III Restricted Stock Purchase Agreement (12/14/98)
10.16 First Amendment to DHR International, Inc. Asset Purchase Agreement
10.17 [reserved]
10.18 Mark C. Coleman Employment Agreement (12/10/99)
10.19 Mark C. Coleman Amendment Agreement (12/10/99)
10.20 Mark C. Coleman Restricted Stock Purchase Agreement (8/13/99)
10.21 Mark C. Coleman Restricted Stock Purchase Agreement (12/14/98)
10.22 Mark C. Coleman Restricted Stock Purchase Agreement (8/28/98)
10.23 David M. Ehlen Confidential Agreement
10.24 David M. Ehlen Restricted Stock Purchase Agreement
10.25 Michael G. Goldstein Employment Agreement (12/10/99)
10.26 Michael G. Goldstein Restricted Stock Purchase Agreement (3/18/99)
10.27 Michael G. Goldstein Restricted Stock Purchase Agreement Amendment (12/10/99)
10.28 Michael G. Goldstein Restricted Stock Purchase Agreement (12/10/99)
10.29 The Ringco Group LLC Participating Consultant Assignment Agreement
10.30 DHR International, Inc. Asset Purchase Agreement
10.31 Holden Corporation Stock Purchase Agreement
10.32 eFox, L.L.C. Stock Purchase and Option Agreement
10.33 Agreement
</TABLE>
<PAGE> 178
<TABLE>
<S> <C>
10.34 Benefit Funding Services Group, LLC Securities Purchase Agreement
10.35 National RevMax Consulting, LLC Securities Purchase Agreement
10.36 National HealthCare Recovery Services, LLC Rescission Agreement
10.37 CENV Option Purchase Agreement
10.38 Disbursement Recovery Services LLC Securities Purchase Agreement
10.39 FFR Holding Co., Inc. Stock Purchase Agreement
10.40 National Benefits Consultants, L.L.C. Securities Purchase Agreement
10.41 National Recovery Services, LLC Securities Purchase Agreement
10.42 Eric R. Watts and Christopher P. Massey Settlement Agreement
10.43 NRS/OGI/Medco/EPS Travel Solutions Asset Purchase Agreement
10.44 National HealthCare Recovery Services, LLC Securities Purchase Agreement
10.45 Pritchett Publishing Company Stock Purchase Agreement
10.46 Deloitte & Touche LLP Asset Purchase Agreement
10.47 Deloitte & Touche LLP Contract Rights Purchase Agreement
10.48 TSL Services, Inc. Stock Purchase Agreement
10.49 D.L.D. Insurance Brokers, Inc. Stock Purchase Agreement
10.50 Credit Agreement (12/7/98)
10.51 First Amendment to Credit Agreement and Waiver (3/17/99)
10.52 Amended and Restated Credit Agreement (4/1/99)
10.53 First Amendment to Amended and Restated Credit Agreement (9/30/99)
10.54 First Amendment to Pritchett Publishing Company Stock Purchase Agreement
22.1 Subsidiaries of the Registrant
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EPS SOLUTIONS CORPORATION
(Originally Incorporated May 29, 1998)
EPS SOLUTIONS CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (hereinafter called the "CORPORATION"), hereby
certifies pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware (the "GCL") as follows:
FIRST: The Corporation was incorporated on May 29, 1998.
SECOND: A Certificate of Amendment of the Corporation was filed with the
Secretary of State on July 10, 1998, changing the name of the Corporation to
ProfitSource Corporation.
THIRD: An Amended and Restated Certificate of Incorporation was filed
with the Secretary of State on August 25, 1998 under the name of ProfitSource
Corporation.
FOURTH: A Certificate of Amendment of the Corporation was filed with the
Secretary of State on December 15, 1998, changing the name of the Corporation to
EPS Solutions Corporation.
FIFTH: This Amended and Restated Certificate of Incorporation amends and
restates the Amended and Restated Certificate of Incorporation of the
Corporation, as previously amended and now in effect. This Amended and Restated
Certificate of Incorporation was adopted in accordance with the applicable
provisions of Sections 242 and 245 of the GCL to read as follows:
1. Name. The name of the Corporation is EPS Solutions Corporation.
2. Registered Office. The address of the registered office of the
Corporation in the State of Delaware is 9 East Loockerman Street, in the City of
Dover 19901, County of Kent, and the name of its registered agent at that
address is National Registered Agents, Inc.
3. Purpose. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the GCL.
4. Authorized Capital Stock.
4.1 Number of Authorized Shares. The Corporation shall be
authorized to issue two classes of stock to be designated, respectively, "Common
Stock" and "Preferred Stock." The total number of shares which the Corporation
shall have authority to issue is two-
<PAGE> 2
hundred fifty million (250,000,000), of which two-hundred forty million
(240,000,000) shares shall be Common Stock having a par value of $0.001 per
share (the "COMMON STOCK"), and ten million (10,000,000) shares shall be
Preferred stock having a par value of $0.001 per share (the "PREFERRED STOCK").
All shares of Series A Common Stock and Series B Common Stock outstanding before
the effective date of this Amended and Restated Certificate of Incorporation
shall, as of the effectiveness of this Amended and Restated Certificate of
Incorporation, constitute a single class of Common Stock.
4.2 Common Stock. The Board of Directors of the Corporation (the
"BOARD") may authorize the issuance of shares of Common Stock from time to time.
Shares of Common Stock that are redeemed, purchased or otherwise acquired by the
Corporation may be reissued except as otherwise provided by law.
4.3 Preferred Stock. The Board may authorize the issuance of
shares of Preferred Stock from time to time in one or more series. Shares of
Preferred Stock that are redeemed, purchased or otherwise acquired by the
Corporation may be reissued except as otherwise provided by law. The Board is
hereby authorized to fix or alter the designations, powers and preferences, and
relative, participating, optional or other rights, if any, and qualifications,
limitations or restrictions thereof, including without limitation, dividend
rights, (and whether dividends are cumulative), conversion rights, if any,
voting rights (including the number of votes, if any, per share, as well as the
number of members, if any, of the Board or the percentage of members, if any, of
the Board each class or series of Preferred Stock may be entitled to elect),
rights and terms of redemption (including sinking fund provisions, if any),
redemption price and liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, and to increase or decrease the number of shares of any
such series subsequent to the issuance of shares of such series, but not below
the number of shares of such series then outstanding.
5. Election of Directors. Members of the Board may be elected either by
written ballot or voice vote.
6. Amendment of Corporate Documents.
6.1 Certificate of Incorporation. The Corporation reserves the
right to alter, amend, repeal or rescind any provision contained in this
Certificate of Incorporation in any manner now or hereafter prescribed by law,
and all rights conferred on stockholders herein are granted subject to this
reservation; provided, however, that any amendment of this Article 6 or Article
9 will require an affirmative vote of the holders of seventy-five percent (75%)
or more of the total voting power of all outstanding shares of voting stock of
the Corporation.
6.2 Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the Board is expressly authorized to make, repeal, alter,
amend, and rescind the bylaws of the Corporation. Bylaws shall not be made,
repealed, altered, amended or rescinded by the stockholders of the Corporation,
except by a vote of the holders of seventy-five percent (75%) or more of the
total voting power of all outstanding shares of voting stock of the Corporation.
2
<PAGE> 3
7. Limitation of Director Liability and Indemnification. To the fullest
extent permitted by the GCL, as the same exists or may hereafter be amended
(provided that the effect of any such amendment shall be prospective only) and
as interpreted by the courts of the State of Delaware ("Delaware Law"), a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director. The Corporation shall indemnify, in the manner and to the fullest
extent permitted by Delaware Law (but in the case of any amendment of Delaware
Law, only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than permitted prior thereto), any person (or the
estate of any person) who is or was a party to, or is threatened to be made a
party to, any threatened, pending or completed action, suit or proceeding,
whether or not by or in the right of the Corporation, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise.
8. California Law. This Article shall apply at any time and from time to
time only to the extent that the laws of California govern certain affairs of
the Corporation by virtue of the lawful application of Section 2115 of the
California General Corporation law.
8.1 Limitation of Director Liability. The liability of the
directors of the Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
8.2 Indemnification of Agents.
(a) The Corporation is authorized to provide indemnification of
agents, as that term is defined in Section 317 of the California General
Corporation Law, for breach of duty to the Corporation and its stockholders, to
the fullest extent permissible under California law, under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise. In the event that
any indemnification obligation provided for in any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, whether currently in
effect or hereafter adopted, exceeds the limits on indemnification of agents
allowed under California law, such indemnification obligation shall be
construed, and shall be deemed to be limited and modified, to the extent, but
only to the extent, necessary to prevent such indemnification obligation from
exceeding such limits on excess indemnification.
(b) Any repeal or modification of the foregoing provisions of this
Section 8.2 by the stockholders of the Corporation shall not adversely affect
any right or protection of an agent of the Corporation existing at the time of
such repeal or modification.
9. Stockholder Action by Written Consent. Any action required to be
taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may, if such action has been earlier approved by the Board, be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than seventy-five percent (75%) of the votes
entitled to vote thereon and delivered to the Corporation at its principal place
of business. Prompt notice of the taking of the
3
<PAGE> 4
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
10. Creditor Compromise or Arrangement. Whenever a compromise or
arrangement is proposed between the Corporation and its creditors or any class
of them and/or between the Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for the Corporation under the provisions of Section 291 of the GCL or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of the GCL order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
WITNESS the execution of this Amended and Restated Certificate of
Incorporation this 19th day of November, 1999.
------------------------------------
David H. Hoffmann, President
4
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
EPS SOLUTIONS CORPORATION
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES .......................................................................... 1
SECTION 1.1 Registered Office......................................................... 1
SECTION 1.2 Principal Office.......................................................... 1
SECTION 1.3 Other Offices............................................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS.......................................................... 1
SECTION 2.1 Place of Meetings......................................................... 1
SECTION 2.2 Annual Meetings........................................................... 1
SECTION 2.3 Special Meeting........................................................... 1
SECTION 2.4 Advance Notice of Stockholder Proposals and Stockholder Nominations....... 1
ARTICLE III BOARD OF DIRECTORS............................................................... 4
SECTION 3.1 Number and Term of Office................................................. 4
SECTION 3.2 Vacancies................................................................. 4
SECTION 3.3 Place of Meeting.......................................................... 4
SECTION 3.4 First Meeting............................................................. 5
SECTION 3.5 Regular Meetings.......................................................... 5
SECTION 3.6 Special Meetings.......................................................... 5
SECTION 3.7 Chairman of the Board..................................................... 5
SECTION 3.8 Quorum and Manner of Acting............................................... 5
SECTION 3.9 Committees................................................................ 5
SECTION 3.10 Affiliated Transactions................................................... 6
SECTION 3.11 Qualification Requirement................................................. 6
ARTICLE IV OFFICERS.......................................................................... 7
SECTION 4.1 Officers.................................................................. 7
SECTION 4.2 Election.................................................................. 7
SECTION 4.3 Other Officers............................................................ 7
SECTION 4.4 Removal and Resignation.................................................. 8
SECTION 4.5 Vacancies................................................................ 8
SECTION 4.6 Chief Executive Officer.................................................. 8
SECTION 4.7 Chairman................................................................. 8
SECTION 4.8 Vice Chairman............................................................ 8
SECTION 4.9 President................................................................ 8
SECTION 4.10 Secretary................................................................ 9
SECTION 4.11 Chief Financial Officer.................................................. 9
ARTICLE V VOTING SECURITIES HELD BY THE CORPORATION......................................... 9
SECTION 5.1 Corporate Actions........................................................ 9
ARTICLE VI SHARES AND THEIR TRANSFER........................................................ 10
SECTION 6.1 Transfers of Stock....................................................... 10
SECTION 6.2 Regulations.............................................................. 10
ARTICLE VII INDEMNIFICATION................................................................. 10
SECTION 7.1 Indemnification of Directors and Officers................................ 10
SECTION 7.2 Indemnification of Employees and Agents.................................. 11
SECTION 7.3 Enforcement of Indemnification........................................... 11
ARTICLE VIII CALIFORNIA LAW................................................................. 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 8.1 Indemnification of Directors and Officers................................ 12
SECTION 8.2 Indemnification of Agents................................................ 13
SECTION 8.3 Scope of Indemnification................................................. 14
ARTICLE IX MISCELLANEOUS.................................................................... 14
SECTION 9.1 Seal..................................................................... 14
SECTION 9.2 Amendments............................................................... 14
</TABLE>
ii
<PAGE> 4
EPS SOLUTIONS CORPORATION
A DELAWARE CORPORATION
AMENDED AND RESTATED
BYLAWS
ARTICLE I
OFFICES
SECTION 1.1 Registered Office. The registered office of EPS Solutions
Corporation, Inc. (the "CORPORATION") shall be at National Registered Agents,
Inc., 9 East Loockerman Street, in the City of Dover 19901, County of Kent, and
the name of its registered agent at that address is National Registered Agents,
Inc.
SECTION 1.2 Principal Office. The principal office for the transaction
of the business of the Corporation shall be as set forth in a resolution adopted
by the Board of Directors of the Corporation (the "Board").
SECTION 1.3 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All annual meetings of stockholders and
all other meetings of stockholders shall be held either at the principal office
of the Corporation or at such other place within or without the State of
Delaware that may be designated by the Board pursuant to authority hereinafter
granted to the Board.
SECTION 2.2 Annual Meetings. Annual meetings of stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other business as may properly come before such meetings may be held at
such time and place and on such date as the Board shall determine by resolution.
SECTION 2.3 Special Meetings. A special meeting of the stockholders for
the transaction of any proper business may be called at any time only by the
Board or the Chairman and may be held at such time and place and on such date as
the Board or Chairman, as applicable, shall determine.
SECTION 2.4 Advance Notice of Stockholder Proposals and Stockholder
Nominations.
1
<PAGE> 5
(A) At any meeting of the stockholders, only such business shall
be conducted, and only such proposals shall be acted upon, as shall have been
brought before the meeting (i) by or at the direction of the Board, or (ii) by
any stockholder of the Corporation entitled to vote on such business who
complies with the notice procedures set forth in this Section 2.4(A). For
business to be properly brought before any meeting of the stockholders by a
stockholder, the stockholder must have given notice thereof in writing which is
received by the Secretary of the Corporation not less than ninety (90) days nor
more than one hundred twenty (120) days in advance of such meeting, regardless
of any postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than ninety-five (95) days' notice or prior
public disclosure of the date of the scheduled meeting is given or made, notice
by the stockholder, to be timely, must be so delivered or received not later
than the close of business on the seventh day following the earlier of the date
of the first public announcement of the date of such meeting and the date on
which such notice of the scheduled meeting was mailed. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business and any stockholders known by such
stockholder to be supporting such proposal, (iii) the class and number of shares
of the Corporation that are beneficially owned by the stockholder and by any
other stockholder known by such stockholder to be supporting such matter on the
date of such stockholder notice, and (iv) any material interest of the
stockholder in such business. In addition, the stockholder making such proposal
shall promptly provide any other information reasonably requested by the
Corporation. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any meeting of the stockholders except in
accordance with the procedures set forth in this Section 2.4(A). The presiding
officer of the meeting shall determine and declare at the meeting whether the
stockholder proposal was made in accordance with the terms of this Section
2.4(A). If the presiding officer determines that a stockholder proposal was not
made in accordance with the terms of this Section 2.4(A), he or she shall so
declare at the meeting and any such proposal shall not be acted upon at the
meeting. This provision shall not prevent the consideration and approval or
disapproval at the meeting of reports of officers, directors and committees of
the board of directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless stated, filed and received as herein
provided.
(B) Nominations for the election of directors may be made by the
Board, any nominating committee or person appointed by the Board, or by any
stockholder entitled to vote in the election of directors; provided, however,
that, subject to the rights, if any, of the holders of shares of Preferred Stock
then outstanding, a stockholder may nominate a person for election as a director
at a meeting only if written notice of such stockholder's intent to make such
nomination has been received by the Secretary of the Corporation not less than
ninety (90) days nor more than one hundred twenty (120) days in advance of such
meeting regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if less than ninety-five (95)
days' notice or prior public disclosure of the date of the scheduled meeting is
given or made, notice by the stockholder, to be timely, must be so delivered or
received not later than the close of business on the seventh day following the
earlier of the date of the first public announcement of the date of such meeting
and the date on which such notice of the scheduled meeting was mailed. Each such
notice shall set forth: (i) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be
2
<PAGE> 6
nominated; (ii) the class and number of shares of the Corporation's stock which
are beneficially owned by the stockholder and a representation that such
stockholder intends to appear in person or by proxy at the meeting and nominate
the person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, by the Board; and (v) the consent of each nominee to
serve as a director of the Corporation if so elected. In addition, the
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 2.4(B). The presiding officer of the
meeting shall determine and declare at the meeting whether the nomination was
made in accordance with the terms of this Section 2.4(B). If the presiding
officer determines that a nomination was not made in accordance with the terms
of this Section 2.4(B), he or she shall so declare at the meeting and any such
defective nomination shall be disregarded. No stockholder may nominate any
person for election as a director to any Class for which such stockholder is not
entitled to vote.
(C) Nothing herein is intended or shall be construed to limit
requirements imposed by applicable laws or regulations upon stockholder
proposals, opposition thereto by the Corporation, or inclusion thereof in the
Corporation's proxy materials.
SECTION 2.5 Conduct of Meetings. The Board may adopt by resolution such
rules and regulations for the conduct of the meeting of stockholders as it shall
deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board, the chairman of any meeting of stockholders
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
appropriate for the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the Board or prescribed by the chairman of the
meeting, may include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
3
<PAGE> 7
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 Number and Term of Office.
(A) Number of Directors. The total number of directors shall be
between three and nine, with the actual total number of directors set from time
to time exclusively by resolution of the Board. The Board shall consist of five
members until changed by such a resolution.
(B) Classes of Directors. There shall be three classes of
directors (each, a "CLASS"), known as Class 1, Class 2 and Class 3. The initial
Class 1, Class 2 and Class 3 directors shall serve in office as follows. Class 1
shall retire at the first annual meeting of stockholders following the filing of
the Corporation's Amended and Restated Certificate of Incorporation (the
"EFFECTIVE DATE"). Class 2 shall retire at the second annual meeting of
stockholders following the Effective Date, and Class 3 shall retire at the third
annual meeting of stockholders following the Effective Date. This annual
sequence shall be repeated thereafter. Each director in a Class shall be
eligible for re-election if nominated, and such director's seat shall be open
for election of a director, at the annual meeting of stockholders of the
Corporation at which such Class shall retire, to hold office for three years or
until his successor is elected or appointed.
(C) Additional Directors. Any additional directors elected or
appointed shall be elected or appointed to such Class as will ensure that the
number of directors in each Class remains as nearly equal as possible, and if
all Classes have an equal number of directors or if one Class has one director
more than the other two Classes, then to the Class that does not have more
directors than any other Class and is subject to election at an ensuing annual
meeting before any other such Class.
SECTION 3.2 Vacancies. Vacancies due to resignation, death, increases in
the number of directors, or any other cause shall be filled only by the Board
(unless there are no directors, in which case vacancies will be filled by the
stockholders) in accordance with the rule that each Class of directors shall be
as nearly equal in number of directors as possible. Notwithstanding such rule,
in the event of any change in the authorized number of directors each director
then continuing to serve as such will nevertheless continue as a director of the
Class of which he or she is a member, until the expiration of his or her current
term or his earlier death, resignation or removal. If any newly created
directorship or vacancy on the Board, consistent with the rule that the three
Classes shall be as nearly equal in number of directors as possible, may be
allocated to one or two or more Classes, the Board shall allocate it to that of
the available Classes whose term of office is due to expire at the earliest date
following such allocation. When the Board fills a vacancy, the director chosen
to fill that vacancy shall be of the same Class as the director or she he
succeeds and shall hold office until such director's successor shall have been
elected and qualified or until such director shall resign or shall have been
removed. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
SECTION 3.3 Place of Meeting. The Board or any committee thereof may
hold any of its meetings at such place or places within or without the State of
Delaware as the Board
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or such committee may from time to time by resolution designate or as shall be
designated by the person or persons calling the meeting or in the notice or a
waiver of notice of any such meeting.
SECTION 3.4 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
SECTION 3.5 Regular Meetings. Regular meetings of the Board may be held
at such times as the Board shall from time to time by resolution determine.
SECTION 3.6 Special Meetings. Special meetings of the Board for any
purpose or purposes shall be called at any time by the Chairman of the Board or,
if the Chairman of the Board is absent or unable or refuses to act, by the Vice
Chairman, and may also be called by any two (2) members of the Board. Except as
otherwise provided by law or by these Bylaws, written notice of the time and
place of special meetings shall be delivered personally or by facsimile to each
director, or sent to each director by mail or by other form of written
communication, charges prepaid, addressed to such director at such director's
address as it is shown upon the records of the Corporation, or, if it is not so
shown on such records and is not readily ascertainable, at the place in which
the meetings of the directors are regularly held. In case such notice is mailed,
it shall be deposited in the United States mail in the county in which the
principal office for the transaction of the business of the Corporation is
located at least three (3) business days prior to the time of the holding of the
meeting. In case such notice is delivered personally or by facsimile as above
provided, it shall be delivered at least one (1) business day prior to the time
of the holding of the meeting. Such mailing, delivery or facsimile transmission
as above provided shall be due, legal and personal notice to such director.
Except where otherwise required by law or by these Bylaws, notice of the purpose
of a special meeting need not be given. Notice of any meeting of the Board shall
not be required to be given to any director who is present at such meeting,
except a director who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 3.7 Chairman of the Board. The Chairman of the Board, when
present, shall preside at all meetings of the Board and all meetings of
stockholders. The Chairman of the Board shall perform other duties commonly
incident to his or her office and shall also perform such other duties and have
such other powers as the Board shall designate from time to time.
SECTION 3.8 Quorum and Manner of Acting. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, provided any action taken is approved by at least a
majority of the required quorum for such meeting. In the absence of a quorum, a
majority of directors present at any meeting may adjourn the same from time to
time until a quorum shall be present. Notice of any adjourned meeting need not
be given. The directors shall act only as a Board, and the individual directors
shall have no power as such.
SECTION 3.9 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees. Any such
committee shall keep written minutes of its meetings and report the same to the
Board at the next regular meeting of the Board. Unless the Board otherwise
provides, each committee designated by the Board may
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make, alter and repeal rules for the conduct of its business. In the absence of
such rules each committee shall conduct its business in the same manner as the
Board conducts its business pursuant to Article III of these Bylaws.
SECTION 3.10 Affiliated Transactions. Notwithstanding any other
provision of these Bylaws, at any time that the Corporation has securities
registered pursuant to the Securities Exchange Act of 1934, as amended, and
securities of the Corporation are listed for trading on any national securities
exchange or trade on the Nasdaq Stock Market, each transaction, or, if an
individual transaction constitutes a part of a series of transactions, each
series of transactions, proposed to be entered into between the Corporation, on
the one hand, and any Affiliate of the Corporation, on the other hand (an
"Affiliated Transaction"), must be approved by a majority of the Independent
Directors. Notwithstanding the foregoing, such approval is not required for any
transaction or series of transactions between the Corporation and any Affiliate
of the Corporation where such Affiliate of the Corporation is at least
ninety-five percent (95%) beneficially owned, directly or indirectly, by the
Corporation. Non-Independent Directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee thereof which
authorizes an Affiliated Transaction. Notwithstanding any other provision of
these Bylaws, this Section 3.10 may only be amended by the vote of the majority
of the Independent Directors. For the purposes of this Section 3.10, (a)
"Affiliate" of the Corporation shall mean (i) any person that, directly or
indirectly, controls or is controlled by or is under common control with the
Corporation, (ii) any other person that owns, beneficially, directly or
indirectly, ten percent (10%) or more of the outstanding capital shares, or
equity interests of the Corporation, or (iii) any officer, director, employee,
partner or trustee of the Corporation or any person controlling, controlled by
or under common control with the Corporation; (b) "person" shall mean and
include individuals, corporations, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts or other entities and
governments and agencies and political subdivisions thereof; (c) "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, through the ownership
of voting securities, partnership interests or other equity interests; and (d)
"Independent Director" shall mean a director who is not an Affiliate of the
Corporation or any of its subsidiaries.
SECTION 3.11 Qualification Requirement. At any time that the
Corporation has securities registered pursuant to the Securities Exchange Act of
1934, as amended, and securities of the Corporation are listed for trading on
any national securities exchange or trade on the Nasdaq Stock Market, no person
shall be qualified to be elected to, or appointed to fill a vacancy on, the
Board of the Corporation during the pendency of a Business Combination
transaction, as defined herein, if such person is, or (in the case of a person
described in clause (i), (ii) or (iii) below) was within the two years preceding
the date of such election or appointment: (i) an officer, director, employee or
affiliate (as defined in Rule 144 under the Securities Act of 1933, as amended)
of a party to such transaction (an "Interested Party") or of any affiliate of an
Interested Party; (ii) an agent subject to the direction of an Interested Party;
(iii) a consultant or advisor to an Interested Party; (iv) a person having a
material financial interest in the transaction (other than through the ownership
of stock or securities of the Corporation); or (v) a person having any business,
financial, or familial relationship with any person referred to in clauses (i)-
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(iv) above that would reasonably be expected to affect such person's judgment in
a manner adverse to this Corporation. A person shall not be disqualified from
election or appointment to the Board by reason of this Section 3.11 solely
because such person is a director or officer of this Corporation who receives
normal and customary compensation as such and/or is a stockholder or affiliate
of this Corporation.
For the purpose of this Section 3.11, a Business Combination shall mean
any of the following: (i) a merger or consolidation of this Corporation with
another corporation, or a sale of all or substantially all of the business and
assets of this Corporation; or (ii) an acquisition (including by tender offer or
any other means) by any person (including any two or more persons comprising a
group, within the meaning of Rule 13d-5 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), of beneficial ownership, within the
meaning of Rule 13d-3 under the Exchange Act, of 15% or more of the outstanding
common stock of this Corporation.
A Business Combination shall be deemed pending for purposes of this
Section 3.11 commencing on the date any offer or proposal for such transaction
shall be made and until such time as the proposed transaction is abandoned or
until such time as: (i) the party proposing such transaction shall have acquired
beneficial ownership, as defined above, of 50% or more of this Corporation's
outstanding voting stock; and (ii) 10 business days shall have elapsed
thereafter. A business day shall mean any day other than a Saturday, a Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
ARTICLE IV
OFFICERS
SECTION 4.1 Officers. The executive officers of the Corporation shall be
a Chief Executive Officer or President or both, a Chairman, a Secretary, a Chief
Financial Officer, and such other officers as may be appointed at the discretion
of the Board or the Chief Executive Officer in accordance with the provisions of
Section 4.3 hereof.
SECTION 4.2 Election. The officers of the Corporation, except such
officers as may be appointed or elected in accordance with the provisions of
Section 4.3 hereof, shall be chosen annually by the Board at the first meeting
thereof after the annual meeting of stockholders, and each officer shall hold
office until such officer shall resign or shall be removed or otherwise
disqualified to serve, or until such officer's successor shall be elected and
qualified.
SECTION 4.3 Other Officers. In addition to the officers chosen annually
by the Board at its first meeting, the Board or the Chief Executive Officer also
may appoint or elect such other officers as the business of the Corporation may
require, each of whom shall have such authority and perform such duties as are
provided in these Bylaws or as the Board or the Chief Executive Officer may from
time to time specify, and shall hold office until such officer shall resign or
shall be removed or otherwise disqualified to serve, or until such officer's
successor shall be elected and qualified.
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SECTION 4.4 Removal and Resignation. Any officer may be removed, either
with or without cause, by resolution of the Board, at any regular or special
meeting of the Board, or except in case of an officer chosen by the Board, by
any officer upon whom such power of appointment or removal may be conferred by
the Board. Any officer may resign at any time by giving written notice of his or
her resignation to the Board or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein, or, if the time is
not specified, upon receipt thereof by the Board or the Secretary, as the case
may be; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
SECTION 4.6 Chief Executive Officer. The Chief Executive Officer shall
preside at all meetings of the stockholders and at all meetings of the Board,
unless the Chairman of the Board has been appointed and is present. The Chief
Executive Officer shall be the chief executive officer of the Corporation and
shall, subject to the control of the Board, have general supervision, direction
and control of the business and affairs of the Corporation. The Chief Executive
Officer shall have the power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision and direction of all the other officers, employees and agents of the
Corporation. The Chief Executive Officer shall also perform such other duties
and have such other powers as the Board may designate from time to time.
SECTION 4.7 Chairman. The Chairman shall have such powers and perform
such duties with respect to the administration of the business and affairs of
the Corporation as are commonly incident to his or her office or as may from
time to time be assigned to such Chairman by the Board, or as may be prescribed
by these Bylaws.
SECTION 4.8 Vice Chairman. The Vice Chairman shall have such powers and
perform such duties with respect to the administration of the business and
affairs of the Corporation as are commonly incident to his or her office or as
may from time to time be assigned or delegated to such Vice Chairman by the
Chairman, or as may be prescribed by these Bylaws.
SECTION 4.9 President. The President shall preside at all meetings of
the stockholders and at all meetings of the Board, unless the Chairman of the
Board has been appointed and is present or, in the absence of the Chairman of
the Board, the Chief Executive Officer has been appointed and is present.
Subject to the provisions of these Bylaws and to the direction of the Board and
Chief Executive Officer, the President shall have the responsibility for the
general management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President or which are delegated to him or her by the Board or the
Chief Executive Officer.
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SECTION 4.10 Secretary.
(A) The Secretary shall attend all meetings of the stockholders
and of the Board and shall record all acts and proceedings thereof in the minute
book of the Corporation. The Secretary shall give notice in conformity with
these Bylaws of all meetings of the stockholders and of all meetings of the
Board and any committee thereof requiring notice. The Secretary shall perform
all other duties given him or her in these Bylaws and other duties commonly
incident to his or her office and shall also perform such other duties and have
such other powers as the Board shall designate from time to time.
(B) The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation or such other place as the Board may order,
a book of minutes of all meetings of directors and stockholders, with the time
and place of holding, whether regular or special, and if special, how authorized
and the notice thereof given, the names of those present at meetings of
directors, the number of shares present or represented at meetings of
stockholders, and the proceedings thereof.
(C) The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation's transfer agent, a share register, or a
duplicate share register, showing the name of each stockholder, the number of
shares of each class held by such stockholder, the number and date of
certificates issued for such shares, and the number and date of cancellation of
every certificate surrendered for cancellation.
SECTION 4.11 Chief Financial Officer. The Chief Financial Officer shall
keep or cause to be kept the books of account of the Corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
Corporation in such form and as often as required by the Board or the Chief
Executive Officer. The Chief Financial Officer, subject to the order of the
Board, shall have the custody of all funds and securities of the Corporation.
The Chief Financial Officer shall perform other duties commonly incident to his
or her office and shall also perform such other duties and have such other
powers as the Board or the Chief Executive Officer shall designate from time to
time.
ARTICLE V
VOTING SECURITIES HELD BY THE CORPORATION
SECTION 5.1 Corporate Actions. Unless otherwise ordered by the Board,
the Chief Executive Officer, or in the absence of the Chief Executive Officer,
the President shall have full power and authority on behalf of the Corporation
to attend, act, and vote at any meeting of security holders, or to consent to
corporate action in writing without a meeting, of other corporations in which
the Corporation may hold securities. In taking such actions, the Chief Executive
Officer, or in the absence of the Chief Executive Officer, the President shall
possess and may exercise any and all rights and powers incident to the ownership
of those securities which the Corporation might have possessed and exercised.
The Board may, from time to time, confer like powers upon any other person or
persons.
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ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.1 Transfers of Stock. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 6.2 Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
ARTICLE VII
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 7.1 Indemnification of Directors and Officers. The Corporation
shall indemnify, in the manner and to the fullest extent permitted by Delaware
Law (but in the case of any amendment in the DGCL, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), any person (or the estate of any person) who is or was
a party to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise. Any director or officer of the Corporation
serving as director or officer for (i) another corporation of which a majority
of the shares entitled to vote in the election of its directors is held,
directly or indirectly, by the Corporation, or (ii) any employee benefit plan of
the Corporation or any corporation referred to in clause (i), shall be deemed to
be doing so at the request of the Corporation. The Corporation may, to the
fullest extent permitted by Delaware Law, purchase and maintain insurance on
behalf of any such person against any liability which may be asserted against
such person. The Corporation may create a trust fund, grant a security interest
or use other means (including without limitation a letter of credit) to ensure
the payment of such sums as may become necessary or desirable to effect the
indemnification as provided herein. To the fullest extent permitted by Delaware
Law, the indemnification provided herein shall include expenses as incurred
(including attorneys' fees), judgments, fines and amounts paid in settlement and
any such expenses shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the person seeking indemnification to repay such amounts if it
is ultimately determined that he or she is not entitled to be indemnified.
Notwithstanding the foregoing or any other provision of this Section 7.1, no
advance shall be made by the Corporation if a determination is reasonably and
promptly made by the Board by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel to
the Corporation, that, based upon the facts known to the Board or such counsel
at the time such
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determination is made, (a) the party seeking an advance acted in bad faith or
deliberately breached his or her duty to the Corporation or its stockholders,
and (b) as a result of such actions by the party seeking an advance, it is more
likely than not that it will ultimately be determined that such party is not
entitled to indemnification pursuant to the provisions of this Section 7.1. The
indemnification provided herein shall not be deemed to limit the right of the
Corporation to indemnify any other person for any such expenses to the fullest
extent permitted by Delaware Law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement, these Bylaws, any vote of stockholders or
disinterested directors, or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
SECTION 7.2 Indemnification of Employees and Agents. Subject to Section
7.1, the Corporation may, but only to the extent that the Board may (but shall
not be obligated to) authorize from time to time, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article VII as
they apply to the indemnification and advancement of expenses of directors and
officers of the Corporation.
SECTION 7.3 Enforcement of Indemnification. The rights to
indemnification and the advancement of expenses conferred above shall be
contract rights. No repeal or modification of this Section 7.3 shall affect any
rights or obligations with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. If a claim
under this Article VII is not paid in full by the Corporation within sixty (60)
days after written claim has been received by the Corporation, except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of such claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expenses of
prosecuting or defending such suit. In any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the DGCL.
Neither the failure of the Corporation (including its Board, independent legal
counsel or stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth in the DGCL, nor an actual determination by the Corporation (including
its Board, independent legal counsel or stockholders) that the indemnitee has
not met such applicable standard of conduct, shall either create a presumption
that the indemnitee has not met the applicable standard of conduct or, in the
case of such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article VII or otherwise shall be on the
Corporation.
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ARTICLE VIII
CALIFORNIA LAW
This Article shall apply only during such time and to the extent that
the laws of California govern certain affairs of the Corporation by virtue of
the lawful application of Section 2115 of the California General Corporation
Law.
SECTION 8.1 Indemnification of Directors and Officers.
(A) The Corporation shall indemnify each of its directors and
officers, acting in any capacity as an agent, as that term is defined in Section
317 of the California General Corporation Law, of the Corporation, to the
fullest extent permissible under California law, as now in effect or as
hereafter amended, including those circumstances in which indemnification would
otherwise be discretionary, against any and all costs, charges, expenses,
liabilities and losses (including, without limitation, attorneys' fees,
judgments, fines, amounts paid in settlement and ERISA excise taxes or
penalties, and including attorneys' fees and any expenses of establishing a
right to indemnification under this Section 8.1) reasonably incurred or suffered
by such person in connection with any proceedings, as that term is defined in
Section 317 of the California General Corporation Law, whether brought by or in
the right of the Corporation or otherwise, in which such person may be involved,
as a party or otherwise, by reason of such person being or having been an agent
of the Corporation, and such right of indemnification shall inure to the benefit
of such person's heirs, executors, personal representatives and estate. Expenses
incurred in defending any proceeding shall be advanced by the Corporation before
the final disposition of the proceeding upon receipt of a written undertaking by
or on behalf of an agent covered by this Section 8.1 to repay the amount of the
advance if it shall be determined ultimately that the agent is not entitled to
be indemnified as authorized by these Bylaws, law, the Certificate of
Incorporation of the Corporation or agreement. The termination of any proceeding
by judgment, order, settlement, conviction or upon a plea of nolo contendere
shall not, of itself, create a presumption that a person is not entitled to
indemnification hereunder. The Corporation shall determine whether a person is
entitled to indemnification under this Section 8.1 by any of the following: (i)
a majority vote of a quorum consisting of directors who are not parties to the
involved proceeding, (ii) if such quorum of directors is not obtainable, by
independent legal counsel, selected by the mutual agreement of the Corporation
and the person seeking indemnification, in a written opinion, (iii) approval by
the affirmative vote of the holders of shares representing a majority of the
voting power of the Corporation represented at a duly held meeting at which a
quorum is present, or (iv) the court in which such proceeding is or was pending,
upon application made by the Corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
Corporation; provided, that, for purposes of determining the required quorum of
any meeting of stockholders called to approve indemnification of such person and
the vote, the shares owned by the person to be indemnified shall not be
considered outstanding and shall not be entitled to vote thereon.
(B) The rights of a person covered by this Section 8.1 to bring
suit against the Corporation shall include the following:
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(i) In the case of a director, if there has been no
determination by the Corporation, or if the Corporation determines, that
the director substantively would not be permitted to be indemnified in
whole or in part under the California General Corporation Law, such
director shall have the right to bring suit seeking an initial
determination by the court or challenging any such determination by the
Corporation or any aspect thereof, and the Corporation, by this Section
8.1, consents to service of process and to appear in any such
proceeding. Any determination by the Corporation otherwise shall be
conclusive and binding on the Corporation and such director.
(ii) If a claim for advances under this is not paid in
full by the Corporation within twenty (20) days after a written claim
and appropriate undertaking have been received by the Corporation, such
person may at any time thereafter bring suit against the Corporation to
recover the unpaid amount. If successful, in whole or in part, such
person shall be entitled to be paid also the expenses of prosecuting
such claim.
(C) In any action brought by a person to enforce a right of
indemnification hereunder, or by the Corporation to recover payments by the
Corporation of expenses incurred by such person in connection with a proceeding
in advance of its final disposition, the burden of proving that such person is
not entitled to be indemnified under this or otherwise shall be on the
Corporation. Neither the failure of the Corporation to have made a determination
prior to the commencement of a proceeding that indemnification of a person
covered by this Section 8.1 is proper in the circumstances because such person
has met the applicable standard of conduct under the California General
Corporation Law, nor an actual determination by the Corporation that such person
has not met such applicable standard of conduct, shall create a presumption that
such person has not met the applicable standard of conduct or, in the case of an
action brought by such person, be a defense to the action.
SECTION 8.2 Indemnification of Agents. The Corporation shall have the
power, but except as provided in Section 8.1 above shall not be obligated, to
indemnify each of its agents to the fullest extent permissible under the
California General Corporation Law, as now in effect or as hereafter amended,
including those circumstances in which indemnification would otherwise be
discretionary, against any and all costs, charges, expenses, liabilities and
losses (including, without limitation, attorneys' fees, judgments, fines and
ERISA excise taxes or penalties) reasonably incurred or suffered by such person
in connection with any proceedings, whether brought by or in the right of the
Corporation or otherwise, in which such person may be involved, as a party or
otherwise, by reason of such person being or having been an agent of the
Corporation, and any such indemnification shall inure to the benefit of such
person's heirs, executors, personal representatives and estate. Expenses
incurred in defending any proceeding may, in the discretion of the Corporation,
be advanced by the Corporation before the final disposition of the proceeding
upon receipt of a written undertaking by or on behalf of an agent covered by
this Section 8.2 to repay the amount of the advance if it shall be determined
ultimately that the agent is not entitled to be indemnified as authorized by
these Bylaws, law, the Certificate of Incorporation of the Corporation or
agreement. The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, shall not, of itself, create a
presumption that a person is not eligible to be indemnified hereunder. The
Corporation shall determine whether a person seeking indemnification under this
Section 8.2 is eligible to be so indemnified and whether the Corporation shall
indemnify such person or shall provide
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advances to such person by any of the following, at the Corporation's sole
option: (i) a majority vote of a quorum consisting of directors who are not
parties to the involved proceeding, (ii) if such a quorum is not obtainable, by
independent legal counsel selected by the Corporation in a written opinion, or
(iii) approval by the affirmative vote of the holders of shares representing a
majority of the voting power of the Corporation represented at a duly held
meeting at which a quorum is present; provided, that, for purposes of
determining the required quorum of any meeting of stockholders called to approve
indemnification of such person and the vote, the shares owned by the person to
be indemnified shall not be considered outstanding and shall not be entitled to
vote thereon. Any such determination by the Corporation shall be conclusive and
binding on the Corporation and such person.
SECTION 8.3 Scope of Indemnification. The indemnification provided for
in this Article VIII shall not be deemed exclusive of any other rights to
indemnification which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation of the Corporation or
these Bylaws, agreement, vote of stockholders or disinterested directors,
contract, insurance policy or otherwise. The right of indemnification under
Section 8.1 shall be deemed to create contractual rights in favor of persons
entitled to indemnification thereunder. The provisions of this Article VIII
shall be applicable to claims commenced after the adoption hereof, whether
arising from acts or omissions occurring before or after the adoption hereof.
The rights to indemnity under this Article VIII shall continue as to a person
who has ceased to be an agent and shall inure to the benefit of the heirs,
executors and administrators of such person. Neither the amendment nor repeal of
this Article VIII, nor the adoption of any provision of the Certificate of
Incorporation of the Corporation or these Bylaws or of any statute inconsistent
with this Article VIII, shall adversely affect any right or protection of a
director, officer or agent of the Corporation existing at the time of such
amendment, repeal or adoption of such a provision.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Seal. The Board shall adopt a corporate seal, which shall be
in the form of two concentric circles with the name of the Corporation between
the two circles and the date and state of incorporation appearing in the inner
circle.
SECTION 9.2 Amendments. Except as otherwise provided herein or in the
Certificate of Incorporation of the Corporation, these Bylaws or any of them may
be altered, amended, repealed or rescinded and new Bylaws may be adopted by the
Board or by the affirmative vote of the holders of seventy-five percent (75%) or
more of the total voting power of all outstanding shares of voting stock of the
Corporation.
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<PAGE> 18
CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of EPS Solutions
Corporation, a Delaware corporation, hereby certifies that the Amended and
Restated Bylaws to which this Certificate is attached were duly adopted by the
Board of Directors of said Corporation as of October __, 1999.
/s/ MARK C. COLEMAN
----------------------------------------
Mark C. Coleman
<PAGE> 1
EXHIBIT 4.1
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (this "AGREEMENT") is made and entered into
as of ________________, 2000 by and among EPS Solutions Corporation, a Delaware
corporation (the "COMPANY") and each of the Company's stockholders party hereto
as evidenced by such stockholder's execution of the signature pages hereof or
receipt in transfer of stock of the Company from another party hereto.
The Company and its Stockholders (as defined below) desire to impose
certain restrictions and obligations on themselves and the stock of the Company
owned by each of the Stockholders.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises and agreements of the parties hereto and other good and valuable
consideration, the parties hereto hereby agree as follows:
1. DEFINITIONS
Capitalized terms used herein and not otherwise defined have the
respective meanings ascribed to them below.
"AFFILIATE" of the Company means any entity controlling, controlled by,
or under common control with the Company.
"MAJORITY CONSENT" to an action means consent to such action by
Stockholders possessing more than fifty percent (50%) of the total voting
interest represented by all outstanding voting securities of the Company.
"PERMITTED TRANSFEREES" means a Stockholder's spouse or direct lineal
descendants or the direct lineal descendants of the Stockholder's parents or
grandparents, or a trust for the benefit of the Stockholder or any of such
transferees; provided, however, that as a condition to any Transfer to any such
transferees, before such Transfer is consummated the transferee shall have first
entered into this Agreement or otherwise agreed in writing to be bound by and
hold Shares or interests therein pursuant to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means all equity securities of the Company now owned or
hereafter acquired.
"SPECIAL CONSENT" to an action means consent to such action by
Stockholders possessing more than sixty-six and two-thirds percent (66 2/3%) of
the total voting interest represented by all outstanding voting securities of
the Company.
"STOCKHOLDER" at any time means each person or entity who at that time
owns Shares and is party to this Agreement. No person will be a "Stockholder"
entitled to the benefits of
<PAGE> 2
ownership of Shares at any time prior to termination of this Agreement that such
person is not party to this Agreement.
"TRANSFER" means any transfer, sale, assignment, pledge, mortgage,
hypothecation, encumbrance, gift, grant, bequest, or other disposition of any
kind, of any Shares or any direct or indirect, contingent or non-contingent,
beneficial interest in any Shares. Without limitation, any transfer or
allocation of any rights in Shares upon death, pursuant to a marital dissolution
(whether by agreement or court decree), a voluntary or involuntary bankruptcy or
insolvency petition or proceeding, or any other court order or process shall be
a Transfer for purposes of this Agreement. Notwithstanding the foregoing,
however, any Transfer approved by Majority Consent or to a Permitted Transferee
shall not be considered to be a Transfer for purposes of this Agreement.
2. RESTRICTIONS ON TRANSFER
2.1 INVALIDITY OF TRANSFER NOT COMPLYING WITH THIS AGREEMENT. No
Transfer or attempted Transfer in contravention of this Agreement will be
effective for any purpose or confer on any transferee or attempted transferee
any rights whatsoever.
2.2 LEGEND ON SHARE CERTIFICATES. Certificates representing Shares shall
be stamped in a prominent manner with a legend substantially in the form set
forth below:
"THE TRANSFER, SALE, ASSIGNMENT, PLEDGE, MORTGAGE, HYPOTHECATION,
ENCUMBRANCE, GIFT OR OTHER DISPOSITION OF SHARES REPRESENTED HEREBY IS
RESTRICTED BY A STOCKHOLDER AGREEMENT, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY."
2.3 STOP TRANSFER. The Company shall not recognize, and shall issue
appropriate instructions to its transfer agent (if any) to stop, any Transfer or
attempted Transfer in contravention of this Agreement.
3. CONDITIONS OF TRANSFER
3.1 RIGHTS ON TRANSFER. If any Stockholder desires or is required to
make any Transfer, before such Transfer may be made, the Company shall have the
right (but not the obligation) to purchase, at the Purchase Price (as defined in
Section 4) and under the terms and conditions specified herein, any and all of
the Shares potentially subject to such Transfer.
3.2 EXERCISE OF RIGHTS.
(a) Written Notice. The transferring Stockholder shall give written
notice (for purposes of this Section 3, the "REQUEST TO TRANSFER") to the
Company of the number of Shares subject to the proposed Transfer (the "TRANSFER
SHARES") and the proposed terms of such Transfer, including the identity of the
proposed transferee and the price and other material terms, if any, of the
proposed Transfer.
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<PAGE> 3
(b) The Company's Right. The Company shall have fifteen (15) days after
its receipt of a Request to Transfer under this Section 3 (for purposes of this
Section 3, the "COMPANY'S PURCHASE PERIOD") during which to exercise its right
to purchase, on the terms described in Section 4, the Transfer Shares or any
portion thereof by giving written notice to the transferring Stockholder of the
number of Transfer Shares, if any, as to which the Company is exercising its
right. The Company's failure to give written notice within the Company's
Purchase Period shall be deemed an election by the Company not to purchase any
Transfer Shares.
(c) Shares Not Purchased. The Stockholder proposing to make a Transfer
may Transfer any Transfer Shares not being purchased by the Company at any time
within one hundred twenty (120) days after the expiration of the Company's
Purchase Period; provided, however, that (i) such Transfer shall be on terms no
more favorable to the transferee than the terms specified in the applicable
Request to Transfer, (ii) the transferring Stockholder has obtained the
Company's consent to the person or entity to which the Transfer will be made and
the terms of the Transfer, which consent will not be unreasonably withheld,
provided that the Company may withhold consent, in its sole discretion, to any
lien or encumbrance upon Shares, and (iii) the transferee shall first enter into
this Agreement or otherwise agree in writing to be bound by and hold the
transferred Shares or interest therein pursuant to this Agreement.
(d) No Written Notice by Transferring Stockholder. If a Stockholder
purports to make a Transfer without providing a Request to Transfer, or a
purported Transfer is made or required to be made pursuant to a court order, the
Company's Purchase Period shall be deemed to start on the date on which the
Company's President or Chief Executive Officer obtains actual and complete
knowledge of the purported Transfer or order. Any such purported Transfer or
order shall be subject to the rights of the Company hereunder.
(e) Death. In case of a Transfer caused by the death of a Stockholder,
the provisions set forth above shall apply except that the deceased
Stockholder's heirs or administrators or legal representatives will be
substituted for the transferring Stockholder for such purposes.
4. PURCHASE PRICE AND PAYMENT
4.1 INITIAL PURCHASE PRICE. The "PURCHASE PRICE" applicable to the
purchase by the Company of any Shares pursuant to this Agreement shall be the
lesser of (a) the proposed sale price specified in the Request to Transfer, if
applicable, and (b) $_________ per Share (which is agreed to be a fair estimate
of the fair market value of the Company's stock as of the date hereof), subject
to adjustment as provided in Section 4.2 (the "AGREED PRICE", but in no event
will the Purchase Price be less than the minimum price, if any, required under
applicable law. Notwithstanding the foregoing, however, the Company may in its
discretion (but shall have no obligation to) pay any such higher price for any
Shares pursuant to this Agreement as the Company may determine, provided that
such a discretionary higher price paid by the Company for certain Shares shall
not create any obligation upon the Company to pay any discretionary higher price
for any other Shares.
4.2 ADJUSTED PURCHASE PRICE. During the ninety (90) day period
immediately preceding the commencement of each calendar year commencing with the
ninety (90) day period
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<PAGE> 4
prior to calendar year 1999 (the "PRICING PERIOD" for the ensuing year) the
Company and the Stockholders acting by Special Consent shall agree in writing
upon the Agreed Price (which shall be a good faith estimate of the fair market
value of the Company's stock) relevant to any Transfer that might occur during
such immediately following calendar year. If for any reason the Company and the
Stockholders do not fix the Agreed Price as aforesaid or cannot agree on the
Agreed Price for any calendar year, the Agreed Price for such calendar year
shall be the then fair market value of the Shares as of the last day of the
Pricing Period for that calendar year, to be determined by an independent
appraiser of national standing selected by the Company. The Company, or the
Stockholders acting by Special Consent, may cause the Agreed Price applicable at
any time to be adjusted at any time and from time to time to a price (which
shall be a good faith estimate of the fair market value of the Company's stock)
agreed upon in writing by the Company and the Stockholders acting by Special
Consent, and if the Company and the Stockholders cannot reach such agreement,
then a price representing the fair market value of the Shares at such time as
determined by an independent appraiser of national standing selected by the
Company.
4.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by
delivering to the transferring Stockholder, or the legal representative of such
Stockholder, in the Company's discretion, a bank certified or cashier's check or
checks, or a promissory note bearing interest at seven percent (7%) and payable
in up to twelve (12) equal monthly amortizing installments of principal and
accrued interest, at a "CLOSING" to be held within ten (10) days of final
determination of the number of Shares that will be purchased by the Company
pursuant to its purchase rights under this Agreement and the price payable
therefor. At the Closing, the transferring Stockholder, or the Stockholder's
legal representative, shall deliver to the Company the certificate or
certificates representing the Shares to be purchased, duly endorsed or
accompanied by duly executed stock powers for transfer to the Company, if the
Shares are not already in the Company's custody. Delivery of the Shares to the
Company shall constitute the representation and warranty of the transferring
Stockholder to the Company that the Shares being purchased are delivered free
and clear of all claims, encumbrances, or other rights or interests of third
parties, including without limitation community property rights of spouses or
former spouses (other than liens created in compliance with this Agreement and
fully disclosed), and that the Company shall obtain good title to the Shares
(subject to this Agreement). All parties to a purchase of Shares under this
Agreement shall promptly execute and file all agreements, documents,
applications, and instruments and shall take such additional actions required by
applicable securities and other laws, rules, or regulations to effect the sales
of the Shares pursuant hereto.
4.4 FAILURE TO DELIVER SHARES. If any Stockholder obligated to transfer
Shares hereunder fails or refuses to deliver on a timely basis duly endorsed
certificates representing the Shares to be sold to the Company, the Company will
have the right to deposit the Purchase Price for such Shares in a special
account with any bank or trust company in the State of California, giving notice
of such deposit to the Stockholder obligated to sell, whereupon such Shares will
be deemed to have been purchased by the Company. All such monies, less any fees
and expenses charged by the bank or trust company, will be held by the bank or
trust company for the benefit of the selling Stockholder. All monies deposited
with the bank or trust company remaining
4
<PAGE> 5
unclaimed for six (6) years after the date of deposit must be repaid by the bank
or trust company to the Company on demand, and the selling Stockholder may
thereafter look only to the Company for payment.
5. GENERAL PROVISIONS
5.1 EQUITY SECURITIES. If the Company issues equity securities other
than common stock, or securities exercisable or convertible for common stock or
other equity securities, this Agreement shall be deemed to apply to such
securities in the same manner as to Shares hereunder, with such equity
securities weighted as equitable and appropriate hereunder, according to their
relative voting rights and/or liquidation or other preferential rights vis-a-vis
common stock or the number of shares of common stock ultimately issuable upon
their exercise or conversion.
5.2 SPOUSAL CONSENT; PERMITTED TRANSFEREES. Stockholders who are natural
persons shall cause their respective current and future spouses to execute and
deliver to the Company a Spousal Consent in the form of Exhibit A. Any Permitted
Transferee acquiring Shares or any interest therein shall take the same subject
to the terms of this Agreement, shall be a Stockholder for purposes of this
Agreement and may not make any Transfer except as provided in this Agreement.
Transfer of Shares to any Permitted Transferee shall be contingent upon
execution and delivery by the Permitted Transferee of this Agreement.
5.3 ADOPTEES. Adopted children shall be treated the same as biological
children for purposes of determining direct lineal descendancy hereunder.
5.4 EQUITABLE REMEDIES. The parties to this Agreement recognize and
agree that the Shares subject to this Agreement are of a peculiar and unique
character, that irreparable harm would occur if any of the obligations under
this Agreement were not performed in accordance with their specific terms or
otherwise breached, and that this Agreement may be enforced by an injunction or
injunctions to prevent Transfers or other dispositions of the Shares not in
accordance with the terms of this Agreement or by a decree for specific
performance of the provisions of this Agreement. The Company shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
specifically enforce its terms and provisions in addition to any other remedy at
law or in equity to which the Company is entitled.
5.5 AUTHORIZATION OF DIRECTORS. Subject to the provisions of this
Agreement, the Board of Directors of the Company shall have full authority to
prescribe regulations and conditions for the exercise of rights to purchase
Shares hereunder, the consummation of purchases and sales thereunder, and any
and all other matters necessary and convenient for the performance of this
Agreement.
5.6 COPY FOR INSPECTION. A copy of this Agreement shall be filed in the
principal office of the Company and shall be made available to Stockholders upon
request.
5.7 NOTICES. All written notices referred to in this Agreement shall be
communicated by means of registered or certified mail (return receipt
requested), facsimile (with confirmation
5
<PAGE> 6
of receipt) or personal delivery and shall be effective for purposes of
determining compliance with the time requirements herein (unless otherwise
specifically provided herein) at the time of personal delivery or facsimile
transmission, or upon deposit in the United States mail, postage fully prepaid,
addressed, if to the Company, at its then principal place of business, if to a
Stockholder, at the latest address of such Stockholder shown on the books of the
Company, or if to the legal representative of a deceased Stockholder or to such
deceased Stockholder's heirs at law, at the latest address of such deceased
Stockholder shown on the books of the Company. Any such notice shall be
conclusively deemed to have been received by the addressee for purposes hereof
when tendered at the address to which it is so addressed.
5.8 LEGAL HOLIDAYS. If any period of time specified in this Agreement
ends on a Saturday or Sunday or a legal holiday, as defined under the present or
any future laws of the State of California, then such period shall be construed
to include the next succeeding business day.
5.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors, heirs, executors, administrators and assigns of the parties hereto.
If any security subject to this Agreement or any right hereunder shall be
determined to be community property under the laws of California or any other
state or country, this Agreement shall bind the community interest of the
spouse, and such spouse's heirs, executors, administrators and assigns, as well
as the interest of the party in whose name the security is registered.
5.10 AMENDMENT. This Agreement may be amended only with the consent of
the Company and Majority Consent of the Stockholders.
5.11 TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
earlier of: (a) the vote of the Stockholders acting by Special Consent, (b) the
dissolution of the Company, (c) the merger or other acquisition of the Company
in a transaction in which the Company is not the survivor and the Stockholders
do not own more than 50% of the voting securities or securities convertible or
exercisable for voting securities of the survivor of the merger, or (d) the
consummation of an underwritten public offering of the Company's equity
securities.
5.12 ARBITRATION.
(a) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder. The arbitration shall be conducted by
one independent and impartial arbitrator, appointed by the AAA; provided
however, if the claim and any counterclaim, in the aggregate, together with
other arbitrations that are consolidated pursuant to Section 5.12(f), exceed
Five Hundred Thousand Dollars ($500,000) (the "Threshold"), exclusive of
interest and attorneys' fees, the dispute shall be heard and determined by three
(3) arbitrators as provided herein (such arbitrator or arbitrators are
hereinafter referred to as the "ARBITRATOR"). The
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<PAGE> 7
judgment of the award rendered by the Arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 5.12, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 5.12(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Threshold, the Notice of Counterclaim shall so state. If pursuant
to Section 5.12(a) three (3) Arbitrators are to be appointed, within fifteen
(15) days after receipt of the Arbitration Notice or the Notice of Counterclaim
as applicable, each party shall select one person to act as Arbitrator and the
two (2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
7
<PAGE> 8
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
5.13 ATTORNEYS' FEES AND COSTS. If any party to this Agreement brings
any action or proceeding, at law or equity, to enforce this Agreement or on
account of any breach of this Agreement, the prevailing party or parties shall
be entitled to recover from the non-prevailing party or parties the reasonable
attorneys' fees and costs of the prevailing party or parties incurred in such
action. If there is more than one non-prevailing party in such action, the
non-prevailing parties shall each be liable only for the portion of the
attorneys' fees and costs of the prevailing party or parties as the court or
arbitration determines are fairly allocable to such non-prevailing party in
light of all of the facts and circumstances, including relative fault among all
non-prevailing parties, provided that all attorneys' fees and costs of the
prevailing party or parties will be allocated.
5.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
5.15 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflicts-of-law principles.
5.16 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice
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<PAGE> 9
of venue is intended by the parties to be mandatory and not permissive in
nature, thereby precluding the possibility of litigation between the parties
with respect to or arising out of this Agreement or any other Transaction
Document in any jurisdiction other than that specified in this paragraph. Each
party hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates and
acknowledges that it has had sufficient minimum contacts with California such
that the State and Federal courts located in the County of Orange, State of
California shall have in personam jurisdiction over each of them for the purpose
of litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address on the
records of the Company. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PROFITSOURCE CORPORATION STOCKHOLDER
By: By:
------------------------------ ------------------------------------
Name: (Signature of Stockholder)
-----------------------------
Title:
---------------------------- ------------------------------------
(Printed Name of Stockholder)
9
<PAGE> 10
EXHIBIT A
TO
STOCKHOLDER AGREEMENT
EPS SOLUTIONS CORPORATION
SPOUSAL CONSENT
The undersigned is the spouse of ___________ and acknowledges that he or
she has read the Purchase Agreement pursuant to which shares of common stock of
ProfitSource Corporation, a v Delaware corporation (the "COMPANY") were acquired
by the spouse of the undersigned (the "PURCHASE AGREEMENT"), the Stockholder
Agreement among the Company and its Stockholders, including the spouse of the
undersigned (the "STOCKHOLDER AGREEMENT"), and the Voting Agreement pursuant to
which the spouse of the undersigned surrenders certain voting rights associated
with the common stock of the Company acquired by the spouse of the undersigned
(the "VOTING AGREEMENT"). The undersigned clearly understands the provisions of
the Purchase Agreement, the Stockholder Agreement, and the Voting Agreement
(collectively, the "AGREEMENTS"), and is aware that, by the provisions of the
Agreements, the undersigned and his or her spouse have agreed to subject all
their interest in the Company, including any community property, joint tenancy,
or tenancy in common interest, to the terms of the Agreements, including
provisions of the Agreements that restrict their ability to sell or transfer or
vote their interest in the Company. The undersigned hereby expressly approves of
and agrees to be bound by the provisions of the Agreements in their entirety.
The undersigned acknowledges having had the opportunity to consult the
undersigned's own separate counsel with respect to this consent.
Date:
------------------------------
- -----------------------------------
(Signature of spouse)
- -----------------------------------
(Printed name of spouse)
<PAGE> 1
EXHIBIT 10.1
EPS SOLUTIONS CORPORATION 2000 STOCK PERFORMANCE PLAN
1. Purposes of the Plan. The purposes of this Plan are to promote the
interests of the Company and its stockholders by using equity interests in the
Company to attract, retain and motivate its management and other persons and to
encourage and reward their contributions to the performance of the Company.
2. Definitions. The following capitalized terms shall have the following
respective meanings when used in this Plan:
(a) "Administrator" means the entire Board or any committee
comprised solely of Non-employee Directors as shall be administering the
Plan, in accordance with Section 4 of the Plan.
(b) "Affiliate" means the Company and any Subsidiary of the
Company.
(c) "Applicable Laws" means the legal requirements relating to the
administration of plans providing one or more of the types of Awards
described in this Plan and the issuance of Shares thereunder pursuant to
U.S. state corporate laws, U.S. federal and state securities laws, the
Code and the applicable laws of any foreign country or jurisdiction
where Options, Stock Purchase Rights or other Awards are, or will be,
granted under the Plan.
(d) "Award" includes, without limitation, Incentive Stock Options,
Nonstatutory Stock Options, Stock Purchase Rights, stock appreciation
rights, performance share or unit awards, dividend or equivalent rights,
stock awards, restricted share or unit awards, or other awards that are
valued in whole or in part by reference to, or are otherwise based on,
the Common Stock ("other Common Stock-based Awards"), all on a stand
alone, combination or tandem basis, as described in or granted under the
Plan.
(e) "Award Agreement" means a written agreement between the
Company and a Recipient evidencing the terms and conditions of an
individual Award grant. Each Award Agreement is subject to the terms and
conditions of the Plan.
(f) "Awarded Stock" means the Common Stock subject to an Award.
(g) "Board" means the Board of Directors of the Company.
(h) "Code" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
<PAGE> 2
(i) "Common Stock" means the common stock of the Company.
(j) "Company" means EPS Solutions Corporation, a Delaware
corporation.
(k) "Consultant" means any person, including an advisor, engaged
by an Affiliate to render services and who is compensated for such
services. The term "Consultant" shall not include Directors who are paid
only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(l) "Director" means a member of the Board.
(m) "Disability" means permanent and total disability as that term
is described in Section 22(e)(3) of the Code.
(n) "Employee" means any person, including Officers and Directors,
employed by an Affiliate. Neither service as a Director nor payment of a
director's fee by the Company, without more, shall constitute
"employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation
The Nasdaq Stock Market or The Nasdaq SmallCap Market, its Fair
Market Value shall be the mean of the highest and lowest sale
prices of the stock (or the average of the closing bid and asked
price, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between
the high bid and low asked prices for the Common Stock on the last
market trading day prior to the day of determination, as reported
in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by
the Administrator.
(q) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
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(r) "Non-employee Director" means a non-employee director as
defined under Section 16b-3(b)(3)(i) of the Exchange Act or any
successor provision.
(s) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(t) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an Award. The Notice of Grant is part of the
Award Agreement.
(u) "Officer" unless otherwise noted herein, means a person who is
an officer of the Company or a Subsidiary within the meaning of Section
16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise
price.
(x) "Plan" means this Stock Performance Plan.
(y) "Recipient" means an Employee, Director or a Consultant who
holds an outstanding Award.
(z) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(aa) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Recipient evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right.
The Restricted Stock Purchase Agreement is subject to the terms and
conditions of the Plan and the Notice of Grant.
(bb) "Retirement" means the termination of a Recipient's
relationship with an Affiliate on or after the Recipient's attainment of
age (i) 59-1/2, provided that the Recipient has completed ten (10) years
of service with an Affiliate or a predecessor to an Affiliate, or (ii)
age 62.
(cc) "Service Provider" means an Employee, Director, Officer or a
Consultant. A Service Provider who is an Employee or Consultant shall
not cease to be a Service Provider (i) during any leave of absence
approved by the Affiliate which employs the Service Provider; provided
that, for purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract; or (ii) as a result of transfers
between locations of the Company or between the Company or any other
Affiliate. If reemployment upon expiration of a leave of absence
approved by the Affiliate which employs the Service Provider is not
guaranteed by statute or contract, on the 181st day of such leave any
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Incentive Stock Option held by the Recipient shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 15 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of
Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 15 of
the Plan, the maximum aggregate number of Shares available for grants of Awards
under the Plan is 3,500,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock. Except as otherwise provided in Section 15, no
Service Provider may be granted Awards in any calendar year in respect of more
than 875,000 Shares. In determining the number of Shares with respect to which a
Service Provider may be granted an Award in any calendar year, any Award which
is cancelled shall count against the maximum number of Shares for which an Award
may be granted to the Service Provider who previously held such cancelled Award.
If an Award expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option, Stock Purchase Right or other Award, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, and the original Recipient of such
Shares did not receive any benefits of ownership of such Shares, such Shares
shall become available for future grant under the Plan. For purposes of the
preceding sentence, voting rights shall not be considered a benefit of Share
ownership.
4. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Board or
a Committee appointed by the Board, which Committee shall be constituted
to comply with Applicable Laws. Committee members shall serve for such
term as the Board may determine, subject to removal by the Board at any
time. Any such Committee shall act by a majority of its members, or if
there are only two members of such Committee, by unanimous consent of
both members.
(b) Powers of the Administrator. Except for the terms and
conditions explicitly set forth in the Plan, the Administrator shall
have exclusive authority, in its discretion, to determine the Fair
Market Value of the Common Stock, in accordance with Section 2(p) of the
Plan and to determine all matters relating to Awards under the Plan,
including the selection of individuals to be granted an Award, the type
of Award, the
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number of shares of Common Stock subject to an Award, all terms,
conditions, restrictions and limitations, if any, of an Award and the
terms of any instrument that evidences the Award. The Plan Administrator
shall also have authority, in its discretion, to reduce the exercise
price of any Option, Stock Purchase Right or other Award to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option, Stock Purchase Right or other Award shall have
declined since the date the Option, the Stock Purchase Right or other
Award was granted; to modify or amend each Option, Stock Purchase Right
or other Award, subject to Section 17(c) of the Plan; and to institute
an Option Exchange Program. The Administrator shall also have exclusive
authority to interpret the Plan and its rules and regulations, and to
make all other determinations deemed necessary or advisable under or for
administering the Plan. All actions taken and determinations made by the
Administrator pursuant to the Plan shall be conclusive and binding on
all parties involved or affected. The Administrator may delegate
administrative duties to such of the Company's officers as it so
determines.
5. Eligibility for Awards. Nonstatutory Stock Options, Stock Purchase
Rights, and other Awards may be granted to Employees, Directors, Officers and
Consultants. Incentive Stock Options may be granted only to Employees. In
addition, an Award may also be granted to a person who is offered employment by
an Affiliate, provided that such Award shall be immediately forfeited if such
person does not accept such offer of employment within such time period as such
Affiliate may establish.
6. Limitations on Options. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Awarded Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Recipient during any
calendar year (under all plans of the Company and any Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6, Incentive Stock Options shall be taken into account
in the order in which they were granted. The Fair Market Value of the Awarded
Stock shall be determined as of the time the Option with respect to such Awarded
Stock is granted. If an Option is granted hereunder that is part Incentive Stock
Option and part Nonstatutory Stock Option because the Option exceeds the
$100,000 per year limitation under Section 422 of the Code, the Incentive Stock
Option portion of such Option shall become exercisable first in such calendar
year, and the Nonstatutory Stock Option portion shall commence becoming
exercisable once the $100,000 limit has been reached.
7. Term of Plan. The Plan shall become effective upon the adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 17 of the Plan. Unless otherwise provided
herein or in the Award Agreement, at the discretion of the Administrator,
Options outstanding at the time the Plan is terminated will remain in effect
until such Options are terminated or become unexercisable under the then current
terms of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice
of Grant but shall be no longer than ten (10) years from the date of grant or
such shorter term as may be provided in the Notice of Grant. Moreover, in the
case of an Incentive Stock Option granted to a
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Recipient who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Subsidiary, the term of the Incentive Stock Option
shall be five (5) years from the date of grant or such shorter term as may be
provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option that is granted
to a Recipient who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant; or
(ii) In the case of all other Options that are granted to
any Service Provider, the per Share exercise price shall be no
less than the Fair Market Value per Share on the date of grant.
(b) Waiting Period and Exercise Dates. Stock Options shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Administrator. If the
Administrator provides that any Option is exercisable in installments or
is exercisable only if certain financial or other performance goals are
attained, the Administrator may at any time waive such exercise
provisions, in whole or in part. In addition, the Administrator may
accelerate the exercisability of any Option.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at
the time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) other Shares which (A) in the case of Shares acquired
upon exercise of an Option, have been owned by the Recipient for
more than six months on the date of surrender, and (B) have a Fair
Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be
exercised;
(iv) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of
the Option, sale of the
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<PAGE> 7
issued Shares, and delivery to the Company of the sale or loan
proceeds required to pay the exercise price;
(v) a reduction in the amount of any Affiliate liability to
the Recipient including any liability attributable to the
Recipient's participation in any Affiliate-sponsored deferred
compensation program or arrangement;
(vi) surrender of the Option to the Company in exchange for
such number of Shares equal to the Awarded Stock subject to such
Option less such number of Shares that have a Fair Market Value
equal to the aggregate exercise price;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the
Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Award Agreement.
An Option may not be exercised for less than the lesser
of (i) 100 Shares or (ii) if the Recipient is fully vested, the total
number of Shares subject to such Option.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the Award
Agreement) from the person entitled to exercise the Option, and (ii)
full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Award
Agreement and the Plan. Shares issued upon exercise of an Option shall
be issued in the name of the Recipient or, if requested by the
Recipient, in the name of the Recipient and his or her spouse. Until the
stock certificate evidencing such Shares is issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 15 of the Plan.
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<PAGE> 8
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Relationship as Employee, Director or
Consultant. If a Recipient ceases to be a Service Provider, other than
upon the Recipient's Retirement, death or disability, the Recipient
shall forfeit his Options (whether vested or not vested) on the date he
ceases to be a Service Provider, and the Shares covered by the Option
shall revert to the Plan unless determined otherwise by the
Administrator. In addition, the Administrator may require that the
Recipient pay the Company certain financial gains realized from
exercising all or any portion of an Option during a specified period.
Notwithstanding the above, in the event of a Recipient's
change in status from such Recipient's current status to a different
status as a Service Provider, the Recipient shall not be deemed to have
terminated his relationship as a Service Provider solely as a result of
such change in status. In the event a Recipient's status changes from
Employee to Officer, Director or Consultant, an Incentive Stock Option
held by the Recipient shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock
Option three months and one day following such change of status.
(c) Disability of Recipient. If a Recipient ceases to be a Service
Provider as a result of the Recipient's Disability, the Recipient may
exercise his or her Option subject to the restrictions of Section 10(b)
and within such period of time as is specified in the Award Agreement
whether the Option is vested or unvested on the date of Disability (but
in no event later than the expiration of the term of such Option as set
forth in the Award Agreement). In the absence of a specified time in the
Award Agreement, the Option shall remain exercisable for twelve (12)
months following the Recipient's Disability. If, after Disability, the
Recipient does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Retirement of Recipient. If a Recipient ceases to be a Service
Provider as a result of the Recipient's Retirement, the Recipient may
exercise his or her Option subject to the restrictions of Section 10(b)
and within such period of time as is specified in the Award Agreement
(but in no event later than the expiration of the term of such Option as
set forth in the Award Agreement). In the absence of a specified time in
the Award Agreement, the Option shall remain exercisable for thirty-six
(36) months following the Recipient's Retirement. Options which are
unvested on the date of the Recipient's Retirement will continue to vest
as if the Recipient continued to be a Service Provider during such
period. If, after Retirement, the Recipient does not exercise his or her
Option within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(e) Death of Recipient. If a Recipient dies while a Service
Provider, the Option may be exercised subject to the restrictions of
Section 10(b) and within such
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period of time as is specified in the Award Agreement (but in no event
later than the expiration of the term of such Option as set forth in the
Notice of Grant), by the Recipient's estate or by a person who acquires
the right to exercise the Option by bequest or inheritance, whether the
Option is vested or unvested on the date of death. In the absence of a
specified time in the Award Agreement, the Option shall remain
exercisable for twelve (12) months following the Recipient's death. The
Option may be exercised by the executor or administrator of the
Recipient's estate or, if none, by the person(s) entitled to exercise
the Option under the Recipient's will or the laws of descent or
distribution. If the Option is not so exercised within the time
specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted
based on such terms and conditions as the Administrator shall establish
and communicate to the Recipient at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other Awards granted under the
Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under
the Plan, it shall advise the offeree in writing, by means of a Notice
of Grant, of the terms, conditions and restrictions related to the
offer, including the number of Shares that the offeree shall be entitled
to purchase, the price to be paid, and the time within which the offeree
must accept such offer, which shall in no event exceed six (6) months
from the date upon which the Administrator made the determination to
grant the Stock Purchase Right. The offer shall be accepted by execution
of a Restricted Stock Purchase Agreement in the form determined by the
Administrator. The terms of the offer of Stock Purchase Rights under the
Plan shall comply in all respects with Applicable Law.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company
for any reason (including death, Retirement or Disability). The purchase
price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the Recipient and may be
paid by cancellation of any indebtedness of the purchaser to the
Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in
its sole discretion. In addition, the provisions of Restricted Stock
Purchase Agreements need not be the same with respect to each purchaser.
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(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is
entered upon the records of the duly authorized transfer agent of the
Company. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Stock Purchase Right is
exercised, except as provided in Section 15 of the Plan.
12. Other Awards. The Administrator, in its sole discretion, but subject
to the terms of the Plan, may grant the following types of Awards (in addition
to the Award of Options and Stock Purchase Rights described above) under this
Plan on a stand alone, combination or tandem basis:
(a) Stock Appreciation Right. A right to receive the excess of the
Fair Market Value of a share of Common Stock on the date the stock
appreciation right is exercised over the Fair Market Value of a share of
Common Stock on the date the stock appreciation right was granted.
(b) Restricted and Performance Shares. A transfer of Common Stock
to a Recipient, subject to such restrictions on transfer or other
incidents of ownership, or subject to specified performance standards,
for such periods of time as the Administrator may determine.
(c) Restricted and Performance Share Unit. A fixed or variable
share or dollar denominated unit subject to such conditions of vesting,
performance and time of payment as the Administrator may determine.
(d) Other Stock-Based Awards. Other Common Stock-based Awards
which are related to or serve a similar function to those Awards set
forth in this Section 12.
13. Non-Transferability of Awards. Unless otherwise specified by the
Administrator in the Notice of Grant (provided, however, that such determination
shall occur only on or after the date the Common Stock is listed on any
established stock exchange or a national market system), an Award may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Recipient, only by the Recipient. If the
Administrator makes an Award transferable, such Award shall contain such
additional terms and conditions as the Administrator deems appropriate. Any
attempt to assign, pledge or otherwise transfer any Award or of any right or
privileges conferred thereby, contrary to this Plan, or the sale or levy or
similar process upon the rights and privileges conferred hereby, shall be void.
14. Effect of Change in Control.
(a) Notwithstanding any other provision of this Agreement, in the
event of a Change in Control (as defined below), at the sole discretion
of the Administrator, a Recipient may become 100% vested in all of his
or her Award. In addition or alternatively, in the event of a Change in
Control, the Administrator, in its sole discretion,
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shall provide for one of the following actions to be taken with respect
to any outstanding Award: (i) for a purchase of the Awards theretofore
granted under the Plan effected by means of a payment to each Recipient
(by the Company or any other person or entity involved in the Change in
Control), in exchange for the cancellation of the Awards held by such
Recipient, of the Value (as hereinafter defined) of such Award or (ii)
for substitution of appropriate new Awards covering (or based upon)
stock of a successor corporation to the Company or stock of an affiliate
of such successor corporation. The Administrator shall give notice to
each Recipient of whether the unvested Option will become vested, the
provisions of any purchase or substitution, and any adjustments made (A)
to the number and kind of shares subject to the outstanding Award (or to
the awards in substitution therefor), (B) to the exercise prices, and/or
(C) to the terms and conditions of the awards, which shall be binding on
the Recipients. The Value of an Option shall be an amount equal to the
difference between the then Fair Market Value of the aggregate number of
Awarded Stock then subject to such Options and the aggregate exercise
price that would have to be paid to exercise such Options, and in the
case of an Award which is not an Option, the value which such Recipient
would have received if the Recipient had exercised his or her Award
immediately prior to the Change in Control. Any action taken by the
Administrator shall be final, binding and conclusive.
(b) For purposes of this Plan, a "Change in Control" shall be
deemed to have occurred upon the completion of any of the following
events:
(i) any acquisition or series of related acquisitions
resulting in any person, entity or "group," within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act beneficially
owning (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than fifty percent (50%) of either the then
outstanding shares of Common Stock or the combined voting power of
then outstanding voting securities entitled to vote generally in
the election of directors of the Company, provided that a Change
in Control shall not be deemed to have occurred if the "person"
described in the preceding provisions is an underwriter or
underwriting syndicate that has acquired the ownership of voting
securities of the Company solely in connection with a public
offering of those securities; or
(ii) any reorganization, merger or consolidation of the
Company with any other person, entity or corporation, other than a
transaction which would result in the owners of voting securities
of the Company immediately prior thereto continuing to own
directly or indirectly more than fifty percent (50%) of the
combined voting power of the voting securities of the entity or
entities surviving such reorganization, merger or consolidation
that own and conduct the business owned and conducted by the
Company prior thereto; or
(iii) the sale or other disposition by the Company, in one
transaction or a series of related transactions, of all or
substantially all of the assets of the Company; or
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(iv) individuals who, as of the date this Plan becomes
effective pursuant to Section 7 ("Effective Date"), constitute the
Board (the "Incumbent Board of Directors") cease for any reason to
constitute at least a majority of the Board, provided that any
individual who becomes a director after the Effective Date whose
election, or nomination for election by stockholders, is approved
by a vote of at least a majority of the directors then comprising
the Incumbent Board of Directors shall be considered to be a
member of the Incumbent Board of Directors unless that individual
was nominated or elected by any person, entity or group (as
defined above) having the power to exercise, through beneficial
ownership, voting agreement and/or proxy, fifty percent (50%) or
more of either the outstanding shares of common stock of the
Company or the combined voting power of the outstanding securities
of the Company entitled to vote generally in the election of
directors, in which case that individual shall not be considered
to be a member of the Incumbent Board of Directors unless such
individual's election or nomination for election by the Company's
shareholders is approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board of Directors.
For purposes of this definition, references to
the Company shall also refer to its successors and assigns such
that successive reorganizations or other corporate transactions do
not impair the substantive intent of these provisions.
15. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Award, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or which have been returned to the Plan upon cancellation
or expiration of an Award, as well as the price per share of Common Stock
covered by each such outstanding Award, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board in
its sole discretion, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Award.
16. Date of Grant. The date of grant of an Award shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Award, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Recipient within a
reasonable time after the date of such grant.
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17. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary or desirable to
comply with Section 422 of the Code (or any successor rule or statute)
or other Applicable Law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed
or quoted. Such stockholder approval, if required, shall be obtained in
such a manner and to such a degree as is required by the applicable law,
rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Recipient, unless mutually agreed otherwise between the Recipient and
the Administrator, which agreement must be in writing and signed by the
Recipient and the Company.
18. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Award unless the exercise of such Award and the issuance
and delivery of such Shares shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated
thereunder, Applicable Laws, and the requirements of any stock exchange
or quotation system upon which the Shares may then be listed or quoted
and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Award, the Company may require the person exercising such Award to
represent and warrant at the time of any such exercise, among other
things, that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in
the opinion of counsel for the Company, such a representation is
required.
(c) Withholding Obligations. No later than the date as of which an
amount first becomes includible in the gross income of the Recipient for
Federal income tax purposes with respect to any Award under the Plan,
the Recipient shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, any Federal,
state, local or foreign taxes of any kind required by law to be withheld
with respect to such amount. Unless otherwise determined by the
Administrator, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Award that gives rise to the
withholding requirement. The obligations of the Company under the Plan
shall be conditioned on such payment or arrangements, and the Company
and its Affiliates shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment otherwise due to the
Recipient. The Administrator may
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establish such procedures as it deems appropriate, including the making
of irrevocable elections, for the settlement of withholding obligations
with Common Stock.
19. Requirements of Law and Excessive Grants.
(a) Requirements of Law. The shares of Common Stock acquirable
under the Plan may not be registered under the Act, or state securities
law. The Company is under no obligation to effect any such registration.
The Company shall not be required to sell or issue any shares under the
Plan if the issuance of such shares shall constitute a violation of any
provision of any law or regulation of any governmental authority. A
Recipient (or the person permitted to exercise an Award in the event of
the Recipient's death or incapacity), if requested by the Company to do
so, will execute and deliver to the Company in writing an agreement
containing such provisions as the Company may require to assure
compliance with applicable securities laws.
(b) Grants Exceeding Allotted Shares. If the Awarded Stock covered
by an Award exceeds, as of the date of grant, the number of Shares which
may be issued under the Plan without additional stockholder approval,
such Award shall be void with respect to such excess Awarded Stock,
unless stockholder approval of an amendment sufficiently increasing the
number of Shares subject to the Plan is timely obtained in accordance
with Section 17(b) of the Plan.
20. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
21. Information to Recipients and Purchasers. Prior to the date the
Common Stock is listed on any established stock exchange or a national market
system, the Company shall provide to each Recipient and to each individual who
acquires Shares pursuant to the Plan, not less frequently than annually during
the period such Recipient has one or more Awards outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
22. Company's Repurchase Option. If a Recipient ceases to be a Service
Provider prior to the date of closing of a registered public offering of the
Company's Common Stock pursuant to the Securities Act of 1933, as amended, and
upon such other events as may be set forth in the Award Agreement, the Company
shall have the right to repurchase any Shares acquired by a Recipient pursuant
to the exercise of an Award under such terms and conditions as are set forth in
the Award Agreement.
23. No Contract of Employment. Neither the Plan nor any Award hereunder
shall confer upon any individual any right with respect to continuing such
individual's employment, directorship or consulting relationship with the
Company or any Affiliate, nor shall they interfere
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in any way with such individual's right or the Company's or any Affiliate's
right to terminate such employment, directorship or consulting relationship at
any time, with or without cause.
24. No Rights as Stockholder. Subject to the provisions of the
applicable Award, no individual shall have any rights as a stockholder with
respect to any shares of Common Stock to be issued under the Plan until he or
she becomes the holder thereof. Notwithstanding the foregoing, in connection
with each grant of Restricted Stock hereunder, the applicable Award shall
specify if and to what extent the individual shall not be entitled to the rights
of a stockholder in respect of such Restricted Stock Award.
25. Severability. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
26. Governing Law. The Plan and all Awards made and actions thereon
thereunder shall be governed by and construed in accordance with the laws of the
State of Delaware.
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EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made as of ____________, 2000, by and
among EPS Solutions Corporation, a Delaware corporation (the "COMPANY"), and
_____________ ("INDEMNITEE"), a director and/or an officer of the Company.
A. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify them so as to provide them with the maximum
protection permitted by law.
B. The protection available from any insurance that the Company may
carry may not be adequate and Indemnitee may not be willing to serve as a
director and/or an officer without adequate protection.
The Company and Indemnitee hereby agree as follows:
1. DEFINITIONS. The following terms, as used herein, have the following
meaning:
1.1 "AFFILIATE" means, with respect to any Person, any other Person
which, directly or indirectly, controls, is controlled by, or is under common
control with such Person or any Affiliate of such Person. Without limiting the
foregoing, (i) an Affiliate of any corporation includes any officer, director or
owner of 10% or more of the voting power or equity interests of such
corporation, or (ii) an Affiliate of any individual includes any partner or
immediate family member of such individual or the estate of such individual, and
(iii) an Affiliate of any partnership, limited liability company, trust or joint
venture includes any partner, member, trustee or co-venturer of such
partnership, limited liability company, trust or joint venture, or any
beneficiary or owner having 10% or more interest in the equity, property or
profits or 10% or more of the voting power of such partnership, trust or joint
venture.
1.2 "AGREEMENT" means this Indemnification Agreement, as the same may
be amended from time to time hereafter.
1.3 "CHANGE IN CONTROL" means, and will be deemed to have occurred
if:
(A) Any person, entity or group within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty percent (50%) or more of either the
then outstanding shares of common stock of the Company or the combined voting
power or economic rights of the outstanding equity securities of the Company
entitled to vote generally in the election of directors, provided that, for
these purposes, any shares owned beneficially by Excluded Persons will not be
counted toward such 50% threshold. "EXCLUDED PERSONS" means any employee benefit
plan of the Company or its subsidiaries that acquires beneficial ownership of
voting securities of the Company, or any
<PAGE> 2
underwriter or underwriting syndicate acquiring shares of the Company's stock in
connection with a public offering thereof; or
(B) Individuals who, as of the effective date hereof, constitute
the Board of the Company (the "INCUMBENT BOARD OF DIRECTORS") cease for any
reason to constitute at least a majority of the Board of the Company, provided
that any individual who becomes a director after the Effective Date whose
election, or nomination for election by stockholders, is approved by a vote of
at least a majority of the directors then comprising the Incumbent Board of
Directors shall be considered to be a member of the Incumbent Board of Directors
unless that individual was nominated or elected by any person, entity or group
(as defined above) (other than any Excluded Person or Excluded Persons) having
the power to exercise, through beneficial ownership, voting agreement and/or
proxy, thirty percent (30%) or more of either the outstanding shares of common
stock of the Company or the combined voting power of the outstanding securities
of the Company entitled to vote generally in the election of directors, in which
case that individual shall not be considered to be a member of the Incumbent
Board of Directors unless such individual's election or nomination for election
by the Company's shareholders is approved by a vote of at least two-thirds of
the directors then comprising the Incumbent Board of Directors.
1.4 "PERSON" means any individual, partnership, limited liability
company, corporation, joint venture, trust, estate, or other entity.
1.5 "REVIEWING PARTY" means any person or persons appointed by the
Company or its board to review the appropriateness of any provision of indemnity
to Indemnitee.
1.6 "SUBSIDIARY" of an entity means any other entity of which more
than 50% of the voting power and/or equity interest is owned, directly or
indirectly, by such first entity.
2. INDEMNIFICATION.
2.1 Third Party Proceedings. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or witness or other participant in, or is
threatened to be made a party or witness or other participant in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than action by or in the right
of the Company or any Subsidiary of the Company) by reason of the fact that
Indemnitee is or was a director, officer, employee or agent of the Company or
any Subsidiary of the Company, or by reason of the fact that Indemnitee is or
was serving at the request of the Company or any Subsidiary of the Company as a
director, officer, employee or agent of another Person, and/or by reason of any
action or inaction on the part of Indemnitee while acting in Indemnitee's
capacity as a director, officer, employee or agent of the Company or any
Subsidiary of the Company or any other Person at the request of the Company or
any Subsidiary of the Company, against expenses actually and reasonably incurred
by Indemnitee (including without limitation attorneys' and experts' fees and
costs), and all liabilities, losses, judgments, fines, penalties, and taxes
actually incurred by Indemnitee, and amounts paid in settlement (if such
settlement is approved in advance by the Company, which approval shall not be
unreasonably withheld) by Indemnitee, in connection with such action, suit,
proceeding, settlement, or adjudication or appeal thereof, if
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Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company (or, in the case of
actions or omissions involving an employee benefit plan of the Company or any of
its Subsidiaries, in the best interests of the participants and beneficiaries of
such plan), and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful.
2.2 Proceedings by or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee is or was a party or witness or other
participant in, or is threatened to be made a party or witness or other
participant in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative, by or in the right of
the Company or any Subsidiary to procure a judgment in its favor by reason of
the fact that Indemnitee is or was a director, officer, employee or agent of the
Company or any Subsidiary of the Company, or by reason of the fact that
Indemnitee is or was serving at the request of the Company or any Subsidiary of
the Company as a director, officer, employee or agent of another Person, and/or
by reason of any action or inaction on the part of Indemnitee while acting in
Indemnitee's capacity as a director or an officer, employee or agent of the
Company or a Subsidiary of the Company or any other Person at the request of the
Company or any Subsidiary of the Company, against all expenses (including
without limitation attorneys' and experts' fees and costs), actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action, suit, proceeding, if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders.
2.3 Advancement of Expenses. The Company shall, at Indemnitee's
discretion, pay directly or advance to Indemnitee all expenses incurred by
Indemnitee in connection with (a) the investigation, defense, settlement or
appeal of any action, suit or proceeding referenced in Section 2.1 or 2.2 hereof
or for which Indemnitee is entitled to indemnity under the Company's Certificate
of Incorporation or bylaws or applicable law; (b) any action brought by
Indemnitee for indemnification or payment of expenses by the Company under this
Agreement or the Company's Certificate of Incorporation or bylaws or applicable
law; or (c) recovery under any directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee is
ultimately determined to be entitled to such indemnification, advance expense
payment, or insurance recovery, as the case may be. Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby or that such indemnification is not otherwise
permitted by applicable law. The advances to be made hereunder shall be paid by
the Company to Indemnitee within ten (10) days following delivery of a written
request therefor by Indemnitee to the Company.
2.4 Mandatory Payment of Expenses. Notwithstanding anything in this
Agreement to the contrary, to the extent that Indemnitee has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 2.1 or 2.2 or the defense of any claim, issue or matter therein,
including without limitation dismissal without prejudice, Indemnitee shall be
indemnified against expenses (including without limitation
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<PAGE> 4
attorneys' and experts' fees and costs) actually and reasonably incurred by
Indemnitee in connection therewith.
2.5 Enforcing the Agreement. If Indemnitee properly makes a claim for
indemnification or an advance of expenses which is payable pursuant to the terms
of this Agreement, and that claim is not paid by the Company, or on its behalf,
within ten days after a written claim has been received by the Company, the
Indemnitee may at any time thereafter bring an action against the Company to
recover the unpaid amount of the claim and if successful in whole or in part,
the Indemnitee shall be entitled to be paid also all expenses actually and
reasonably incurred in connection with prosecuting such claim.
2.6 Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
3.1 Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in the manner set forth in Section 7.2 as
soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. In addition,
Indemnitee shall give the Company such information and cooperation (not
involving direct expenditures or payments by Indemnitee) as it may reasonably
require and as shall be within Indemnitee's power.
3.2 Notice to Insurers. At the time of the receipt of a notice of a
claim pursuant to Section 3.1 hereof, the Company shall give prompt notice of
such action, suit or proceeding to any insurers under applicable policies of
insurance in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable actions
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such proceeding in accordance with the terms of such policies.
3.3 Selection of Counsel. If the Company is obligated hereunder to
pay the expenses of any proceeding against Indemnitee, the Company shall be
entitled to assume the defense of such proceeding, with counsel approved by
Indemnitee in Indemnitee's discretion, upon the delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any fees
of any separate counsel subsequently incurred by Indemnitee with respect to the
same proceeding, except that if (i) the employment of separate counsel by
Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the
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<PAGE> 5
Company (subject to the provisions of this Agreement). Nothing herein will
prohibit Indemnitee from engaging separate counsel at Indemnitee's expense.
3.4 Burden of Proof. In connection with any determination, by a
Reviewing Party or otherwise, as to whether Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
3.5 No Presumptions. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in the best interests of the Company or that Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by a Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief.
4. ADDITIONAL INDEMNIFICATION RIGHTS; SCOPE; NON-EXCLUSIVITY.
4.1 Application. This Agreement shall be deemed applicable to all
actual or alleged actions or omissions by Indemnitee during any and all periods
of time (whether before or after the date hereof) that Indemnitee was, is, or
shall be serving as a director or officer of the Company or a Subsidiary of the
Company or, at the request of the Company or a Subsidiary of the Company as a
director, officer, employee or agent of another Person.
4.2 Scope. The Company shall indemnify Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any changes, after the date of this Agreement, in any applicable law,
statute, or rule which expand the right of a Delaware corporation to indemnify a
director or officer, such changes shall be within the purview of Indemnitee's
rights and the Company's obligations under this Agreement. In the event of any
change in any applicable law, statute, or rule which narrows the right of a
Delaware corporation to indemnify a director or officer, such changes, except to
the extent otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.
4.3 Non-Exclusivity. The indemnification provided by this Agreement
shall be in addition to any other rights Indemnitee may have under the Company's
Certificate of Incorporation, its bylaws, any agreement, any vote of
stockholders or disinterested directors, the applicable law, or otherwise. The
indemnification provided under this Agreement shall continue as to Indemnitee
for actions or omissions occurring while serving in an indemnified capacity
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<PAGE> 6
even though Indemnitee may have ceased to serve in such capacity, or may have
ceased to be employed, at the time of any action, suit or other covered
proceeding.
4.4 Legal Limits. Notwithstanding anything herein to the contrary,
Indemnitee is not entitled pursuant to this Agreement to any indemnity or
payment of expenses not permitted under applicable law, and the Company shall
comply with all procedures required under applicable law to determine the
permissibility under applicable law of payments to Indemnitee hereunder.
4.5 Partial Indemnification. If Indemnitee is entitled under this
Agreement only to partial indemnification, but not to the total amount of
expenses, liabilities, losses, judgments, fines, and amounts paid in settlement,
the Company shall nevertheless indemnify Indemnitee for that portion to which
Indemnitee is entitled.
4.6 Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
4.7 Change in Control. If there is a Change in Control of the Company
(other than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such Change
in Control) then with respect to all matters thereafter arising concerning the
rights of Indemnitee to payments under this Agreement or the Company's
Certificate of Incorporation or bylaws or applicable law, the Company shall seek
legal advice and any determination whether indemnification is proper in the
circumstances only from, and any Reviewing Party shall only be, legal counsel
that has not provided services to Indemnitee or the Company or any Affiliate of
either of them within the previous two years, selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay the
reasonable fees of the legal counsel referred to above and to indemnify fully
such counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
4.8 Operating Company Indemnification. If Enterprise Profit Solutions
Corporation (the "OPERATING COMPANY") is obligated to indemnify Indemnitee
pursuant to an Indemnification Agreement, or the Operating Company's Certificate
of Incorporation or bylaws, or applicable law, the Company will be jointly and
severally liable with the Operating Company to perform all such indemnity
obligations of the Operating Company.
5. LIABILITY INSURANCE. The Company shall, from time to time, make a
good faith determination whether or not it is practicable for the Company to
obtain and maintain
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<PAGE> 7
a policy or policies of insurance providing directors and officers with coverage
for losses from errors or omissions, and to insure the Company's performance of
its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all such policies
of liability insurance, Indemnitee shall be named as an insured and covered in
such a manner as to provide Indemnitee the same rights and benefits as are
accorded to the most favorably insured of the Company's directors and officers.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain such insurance if the Company determines in good faith that such
insurance is not reasonably available, if the premium costs for such insurance
are disproportionate to the amount of coverage provided, if the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a parent or Subsidiary of the Company.
6. EXCEPTIONS. Notwithstanding anything to the contrary in this
Agreement, the Company shall not be obligated pursuant to the terms of this
Agreement for the following:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim
unless said proceedings or claims were authorized by the board of directors of
the Company.
(b) Improper Personal Benefit. To indemnify Indemnitee against
liability for any transactions from which Indemnitee, or any Affiliate of
Indemnitee, derived an improper personal benefit, including, but not limited to,
self-dealing or usurpation of a corporate opportunity.
(c) Dishonesty. To indemnify Indemnitee if a judgment or other final
adjudication adverse to Indemnitee establishes that Indemnitee committed acts of
deliberate dishonesty, fraud, or illegality, which acts were material to the
cause of action so adjudicated.
(d) Insured Claims; Paid Claims. To indemnify Indemnitee for expenses
or liabilities of any type whatsoever (including but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee (i) by an insurance carrier under a policy
of liability insurance maintained by the Company, or (ii) otherwise by any other
means.
(e) Claims Under Section 16(b). To indemnify Indemnitee for an
accounting of profits in fact realized from the purchase and sale of securities
within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any similar successor statute.
7. MISCELLANEOUS.
7.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, including without limitation any direct or
indirect successor by purchase, merger,
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consolidation, or otherwise to all or substantially all of the business and/or
assets the Company, spouses, heirs, executors, legal representatives and
assigns. Notwithstanding the foregoing, the Indemnitee shall have no right or
power to voluntarily assign or transfer any rights granted to Indemnitee, or
obligations imposed upon the Company, by or pursuant to this Agreement. Further,
the rights of the Indemnitee hereunder shall in no event accrue to the benefit
of, or be enforceable by, any judgment creditor or other involuntary transferee
of the Indemnitee.
7.2 Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (a) if
mailed by domestic certified or registered mail with postage prepaid, properly
addressed to the parties at the addresses set forth below, or to such other
address as may be furnished in writing to Indemnitee by the Company or to the
Company by Indemnitee, as the case may be, on the third business day after the
date postmarked, or (b) otherwise notice shall be deemed received when such
notice is actually received by the party to whom it is directed.
If to Indemnitee: To the address set forth below the
signature line of Indemnitee on the
signature page hereof.
If to Company: EPS Solutions Corporation
695 Town Center Drive, Suite 700
Costa Mesa, CA 92626
Attention: General Counsel
7.3 Choice of Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, as applied to
contracts made and to be performed in Delaware without giving effect to
conflicts of laws principles.
7.4 Severability. The provisions of this Agreement shall be
severable. If this Agreement or any portion hereof shall be invalidated or held
unenforceable in any respect on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify Indemnitee to the full
extent permitted by any applicable portion of this Agreement that shall not have
been invalidated or held unenforceable, and the balance of this Agreement not so
invalidated in that jurisdiction, and this entire Agreement in other
jurisdictions in which no part of this Agreement has been invalidated or held
unenforceable, shall be enforceable in accordance with its terms.
7.5 Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
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7.6 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration in Orange County,
California administered by the American Arbitration Association (the "AAA") in
accordance with its Commercial Arbitration Rules as then in effect (the
"RULES"), except to the extent such Rules vary from the following provisions.
Notwithstanding the previous sentence, the parties hereto may seek provisional
remedies in courts of appropriate jurisdiction and such request shall not be
deemed a waiver of the right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to
this Agreement also arises out of or relates to the employment of Indemnitee by
the Company or any of its Subsidiaries, the provisions of this Agreement
governing dispute resolution shall govern resolution of such controversy or
claim, but if such controversy or claim also involves material issues arising
under any stock purchase agreement between Indemnitee and EPS Solutions
Corporation, the arbitration provisions of that stock purchase agreement will
govern resolution of such controversy or claim.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to subpart (c) below, exceed Five Hundred Thousand Dollars
($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees, the
dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). If three (3) Arbitrators are to be appointed, each party shall
select one person to act as Arbitrator (with all parties adverse to the Company
in a consolidated arbitration proceeding constituting a single party for this
purpose) and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(b) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues. Unless the Arbitrator determines at the pre-hearing
conference or within five days thereafter that the interests of equity require
other discovery rules, (i) each party may serve a maximum of one set of no more
than twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and depose a maximum
of three (3) witnesses; (ii) all objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information; (iii) the responses to the document demand, the
documents to be produced thereunder, and the responses to the interrogatories
shall be delivered to the propounding party twenty (20) days after receipt by
the responding party of such document demand or interrogatory; (iv) each
deposition shall be taken on reasonable notice to the
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<PAGE> 10
deponent, and must be concluded within four (4) hours; and (v) all depositions
must be taken within forty-five (45) days following the pre-hearing conference.
Any party deposing an opponent's expert must pay the expert's fee for attending
the deposition. All discovery disputes shall be decided by the Arbitrator.
(c) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding. The Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(d) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim. The judgment of the award rendered by the Arbitrator
may be entered in any court having jurisdiction thereof.
(e) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.7 Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the date first above written.
EPS SOLUTIONS CORPORATION INDEMNITEE
By: By:
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
------------------------- -------------------------
10
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of November 24, 1999 (the "EFFECTIVE DATE") by and between Enterprise Profit
Solutions Corporation, a Delaware corporation (the "COMPANY") and wholly owned
subsidiary of EPS Solutions Corporation, a Delaware corporation ("EPS"), and
David H. Hoffmann ("EMPLOYEE").
The Company desires to retain the services of Employee, and Employee
desires to render such services, on the terms set forth herein.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employee's employment with the Company will be at-will,
which means that either Employee or the Company may terminate Employee's
employment at any time for any reason or no reason without payment, penalty or
further obligation except as set forth in Section 8 or in the Restricted Stock
Purchase Agreements entered into between Employee and EPS or another written
agreement between Employee and the Company or EPS.
2. DUTIES. Employee shall serve as President and Chief Executive Officer
of the Company and EPS. In that capacity, Employee shall report directly to the
board of directors of the Company and EPS (the "BOARD") and be responsible for
the duties and functions listed on Schedule 2 and shall perform such related
duties and services as the Board may from time to time assign, either directly
or by delegated authority, provided however, that Employee's responsibility and
authority within the Company and EPS will not be materially diminished without
Cause (as defined below) as long as shares of restricted stock purchased by
Employee pursuant to a Restricted Stock Purchase Agreement between Employee and
EPS are subject to Restrictions (as defined in the Restricted Stock Purchase
Agreement) (the "RESTRICTED PERIOD"). Except as set forth herein, Employee's
position and duties may be changed at any time and from time to time by the
Board of EPS.
3. TIME AND EFFORTS. While employed by the Company (the "EMPLOYMENT
PERIOD"), Employee shall use his best efforts and devote his time and attention
to the business of the Company and EPS on a full-time basis and shall at all
times faithfully and industriously and to the best of his ability, experience
and talent, perform all of the duties that may be required of him pursuant to
the terms hereof. During the Employment Period, Employee shall not engage in any
other paid employment or consulting activities without the express written
consent of the Company, but the foregoing shall not preclude Employee from
managing the business of the Company's DHR International business unit ("DHR")
and engaging in civic, charitable and/or religious activities, directing his own
passive investments, setting up, owning interests in and/or managing investment
entities with assets of Employee or third-parties, and/or serving on boards of
directors of other entities so long as such activities do not interfere or
conflict with Employee's duties hereunder as reasonably determined by the Board.
<PAGE> 2
4. COMPENSATION.
(a) Salary, Bonus. During the Employment Period, the Company shall pay
Employee at the annual rate of Five Hundred Thousand Dollars ($500,000) (as such
pay may be increased by the Company from time to time in its discretion, the
"ANNUAL SALARY") for all services rendered to EPS, the Company, and its business
units by Employee, payable in accordance with the Company's regular payroll
policies, subject, however, to withholding deductions, including without
limitation social security taxes and applicable federal, state and local income
and other employment taxes. Bonuses will be payable in the Company's discretion,
but (i) the foregoing provisions will not preclude Employee from receiving
performance compensation consistent with the Company's policies for his role as
President of the Company's DHR business unit; (ii) Employee will be entitled to
participate in any bonus program on terms at least as favorable as those made
available to other executive employees of the Company or EPS, and (iii)
Employee's bonus (after tax) for any year shall be not less than the annual
interest that Employee is required to pay to EPS in cash (as opposed to payment
in kind or deferral) in that year on any notes issued by Employee to EPS for the
purchase by Employee of stock of EPS, provided that Employee will not be
entitled to receive any bonus in connection with (A) payment of interest in
connection with sale of shares that were acquired for notes that generated the
interest or (B) payment of interest in connection with repayment of the
principal amount of the notes upon which the interest accrued.
(b) Equity. In addition, in connection with employment by the Company
and services to be performed by Employee pursuant to this Agreement, Employee is
acquiring concurrently herewith, in addition to EPS shares previously acquired
by Employee, 1,000,000 shares of restricted stock of EPS pursuant to the
Restricted Stock Purchase Agreement entered into between Employee and EPS as of
the Effective Date in the form attached hereto as Exhibit A (the "RESTRICTED
STOCK PURCHASE AGREEMENT").
(c) Notes and Liquidity. During and after the Employment Period, and
regardless of the reason for or circumstances of any termination of Employee's
employment, Employee will be entitled to receive (i) the most favorable
treatment of interest on promissory notes incurred to purchase stock of EPS that
is received at any time by any other officer or former officer of the Company or
EPS as a purchaser of EPS Stock, and (ii) the most favorable registration rights
or other access to liquidity, on a ratable basis based upon relative holdings,
that is received at any time by any other officer or former officer of the
Company or EPS.
(d) Private Company Equity. In his capacity as President of DHR,
Employee may in his discretion from time to time during the Window Period cause
the Company to accept Equity Fees in lieu of cash fees for executive search
services performed by the Company through DHR. Employee shall take reasonable
steps in an effort to ensure that any Equity Fees have a fair market value at
least equal to the amount of DHR's standard cash fees replaced thereby. At
Employee's option, at any time before the Termination Date, Employee may receive
from the Company any or all Equity Fees as a bonus. Any Equity Fees not received
by Employee by the Termination Date will no longer be subject to receipt by
Employee. The amount of any Equity Fees booked as income in accordance with GAAP
will count toward satisfaction of, and the booked amount of any Equity Fees
received by Employee pursuant to this Section 4(d) will be charged as an expense
against, the Income target associated with restricted stock of EPS
2
<PAGE> 3
purchased by Employee and other persons employed by the Company in connection
with the DHR business, and any losses on investments in Equity Fees recognized
by the Company under GAAP will be applied in the period in which the loss is
recognized to reduce Income in determining satisfaction of such Income target.
For these purposes, (i) "EQUITY FEES" means Private Company Equity accepted by
the Company in lieu of cash fees for executive search services performed by the
Company through DHR; (ii) "PRIVATE COMPANY EQUITY" means equity interests in a
corporation, LLC, or other entity that retains the Company to perform executive
search services through DHR; (iii) "WINDOW PERIOD" means the period of time
beginning December 15, 1998 and ending on the Termination Date; and (iv)
"TERMINATION DATE" means the earlier of the closing of a public offering of
securities of EPS or any of its Affiliates (as defined in Schedule 1) or the
date of a Change in Control of the type described in paragraph (ii) or (iii) of
the definition of "Change in Control" in Schedule 1.
5. PERSONAL TIME OFF POLICY. Employee shall be entitled to such number
of days of paid personal time off ("PTO") each year as is consistent with the
number of days set forth on Exhibit B and the Company's Personal Time Off
Policy, as such policy may be amended from time to time at the discretion of the
Company. Employee may not accrue more PTO days than the number of days set forth
on Exhibit B under the item "Maximum Accrued PTO." If Employee at any time has
more than such number of days, no further PTO days shall accrue until Employee
again has fewer than such number of days of unused PTO. PTO days may be used,
subject to approval by the Company consistent with business needs, as they are
earned. The Company shall pay Employee for accrued unused PTO days only in
connection with termination of employment. Such payment shall be made on the
basis of Employee's Annual Salary at the time of payment, pro-rated for the
number of accrued unused PTO days at the time of termination.
6. BENEFITS. In addition to the compensation described in Section 4, the
Company shall provide Employee with benefits consistent with the Company's
employment policies as in effect from time to time, but in any case Employee's
benefits will be not less favorable than benefits provided to other executive
officers of the Company. Until the Company has a benefit plan in place, Employee
shall be reimbursed for all medical premiums incurred by Employee in connection
with medical insurance for Employee and his family equivalent to the coverage
provided to Employee by Employee's employer immediately prior to the date
hereof.
7. CERTAIN DEFINITIONS.
(a) Cause. For purposes hereof, the term "CAUSE" has the meaning set
forth in Schedule 1 hereto. Any termination by the Company of Employee's
employment within 90 days after the Company's becoming aware of the occurrence
of an event or circumstance constituting "Cause" will constitute termination for
Cause.
(b) Good Reason. If the Company breaches this Agreement or any other
agreement with Employee in any material respect and does not cure such breach
within 15 days of receipt from Employee of notice of such breach and demand for
cure, or a Change in Control (as defined in Schedule 1) occurs, and Employee
terminates Employee's employment with the Company for any reason within 90 days
of such breach or Change in Control, such termination by Employee will be
termination with "GOOD REASON."
3
<PAGE> 4
8. CERTAIN PAYMENTS.
(a) Notice of Termination. Any termination of Employee's employment
by the Company or by Employee shall be communicated by a Notice of Termination.
For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a written
notice of termination of Employee's employment setting forth the effective date
of such termination and, if the termination is for cause, the specific
termination provisions in this Agreement relied upon and, in reasonable detail,
the facts and circumstances claimed to provide a basis for termination of
Employee's employment under the provision so indicated.
(b) Termination by Employee with Good Reason or the Company Without
Cause. If Employee's employment under this Agreement is terminated by Employee
with Good Reason or by the Company without Cause, then contingent upon execution
and delivery by Employee to the Company of an unconditional release, in form
consistent with the form of release attached as an exhibit to the Restricted
Stock Purchase Agreement, of all claims against the Company, EPS or any of their
officers, directors or affiliates arising from or in connection with this
Agreement or Employee's employment with the Company or the termination of that
employment, Employee shall be entitled to receive within five days of
termination of employment a lump sum payment equal to two times his Annual
Salary (the "SEVERANCE PAYMENT").
(c) No Other Benefits. Except as set forth in Sections 5 or 8(b), or
as may be required by applicable law or separate written agreement between the
Company or EPS and Employee, the Company shall have no obligations to pay any
salary, bonus, accrued vacation or other amounts in connection with any
termination of Employee's employment or attributable to the period after
termination of Employee's employment. Without limiting the foregoing, and
subject to any separate written agreement to the contrary, Employee will not be
entitled to any severance payment or benefit if Employee's employment under this
Agreement is terminated as a result of death or Disability, or by Employee
without Good Reason, or by the Company for Cause.
9. CONFIDENTIALITY. In connection with a previous employment agreement,
Employee has entered into a Confidential Information and Employee Invention
Agreement, which will remain in effect and survive termination or expiration of
this Agreement.
10. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to
the Company that (a) he is under no contractual restriction or other
restrictions or obligations that are inconsistent with the execution of this
Agreement, the performance of his duties and the covenants hereunder, and (b) he
is under no physical or mental disability that would interfere with his keeping
and performing all of the agreements, covenants and conditions to be kept or
performed hereunder.
11. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of California, excluding its rules on
conflicts of law.
4
<PAGE> 5
(b) Arbitration. Any dispute regarding the application,
interpretation or breach of this Agreement shall be resolved by final and
binding arbitration before the American Arbitration Association ("AAA") in
accordance with AAA's National Rules for the Resolution of Employment Disputes.
Attorney's fees, costs and damages (where appropriate) shall be awarded to the
prevailing party in any dispute, and any resolution, opinion or order of AAA may
be entered as a judgment in a court of competent jurisdiction.
(c) Modification and Waiver. No waiver or modification of this
Agreement or any term hereof shall be binding unless it is in writing signed by
the parties hereto. No failure to insist upon compliance with any term,
provision or condition to this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes and replaces all prior employment agreements, if any, between the
parties and will constitute Employee's Employment Agreement for all purposes. No
oral statements or prior written agreements with respect to the subject matter
hereof which are not specifically incorporated herein or in the Confidentiality
Agreement shall be of any force or effect.
(e) Severability. If any provisions hereof shall be held or
construed to be illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining provisions of this Agreement, but the same shall
be construed and enforced just as though the illegal or invalid provisions had
not been included herein.
(f) Notices. Any notice, demand or other communication required,
permitted or desired to be given hereunder shall be in writing and shall be
deemed effectively given upon personal delivery, facsimile transmission (with
confirmation of receipt), delivery by reputable overnight delivery service or
five (5) days following deposit in the United States mail (if sent by certified
or registered mail, postage prepaid, return receipt requested), in each case
duly addressed to the Company at its headquarters or to Employee at his or her
address of record listed with the Company.
(g) Assignment. Employee's rights, duties and obligations under this
Agreement may not be assigned by Employee. The Company may assign its rights,
duties and obligations under this Agreement to any affiliate of the Company.
This Agreement shall be binding upon the successors and assignees of the Company
and EPS.
(h) Headings. The section headings herein are intended for reference
and shall not affect in any way the construction or interpretation of this
Agreement.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
/s/ DAVID H. HOFFMANN
- ---------------------------------------
David H. Hoffmann
Enterprise Profit Solutions Corporation
EPS Solutions Corporation
By: /s/ MARK C. COLEMAN
------------------------------------
Name: Mark C. Coleman
----------------------------------
Title: EVP/CFO
---------------------------------
6
<PAGE> 7
SCHEDULE 1 TO
EMPLOYMENT AGREEMENT
"CAUSE" means the occurrence at any time of any one or more of the
following events or circumstances, provided however, that if any such event or
circumstance is susceptible to cure by Employee without damage to the Company,
such event or circumstance will not constitute Cause unless Employee has failed
to cure such event or circumstance within 15 days after receipt by Employee of
written notice thereof: (i) Employee engages in any wrongful conduct or
knowingly violates any reasonable rule or regulation of the Board that results
in material damage or risk of legal liability to the Company or any parent
corporation of the Company, any subsidiary corporation of the Company or any
entity controlling, controlled by, or under common control with the Company (an
"AFFILIATE"); (ii) any willful misconduct or gross negligence by Employee in the
responsibilities assigned to Employee; (iii) any willful and material failure to
perform Employee's job as required to meet the lawful objectives of the Company
or any Affiliate or any repeated failure to achieve reasonable performance
standards that have been described by the Company in writing and communicated to
Employee in reasonable detail; (iv) Employee fails to comply with all material
applicable laws and regulations in performing Employee's duties and
responsibilities to the Company; (v) any criminal conduct by Employee (other
than misdemeanors that do not meet the criteria set forth in subsection (vi));
(vi) any actions by Employee involving moral turpitude or injurious to the
business or reputation of the Company or its Affiliates; (vii) any legal action
against Employee or the Company or any of its Affiliates occurs as a result of
Employee's service to the Company or any Affiliate and results in a judgment or
arbitral award that is based upon gross negligence or intentional misconduct by
Employee and that requires the Company or any Affiliate to pay substantial
damages; (viii) any legal action by Employee or Employee's representatives or
successors against the Company or any of its Affiliates or any person or entity
that the Company or any of its Affiliates would be obligated to indemnify or
defend in connection with such action; or (ix) Employee does any of the things
described in (A)-(C) below.
(A) Employee renders services for any organization or engages directly
or indirectly in any business that, in the reasonable judgment of the Board,
during Employee's employment with the Company or any Affiliated Entity, is or
becomes competitive with the Company or any Affiliated Entity, or which
organization or business, or the rendering of services to such organization or
business, is or becomes otherwise prejudicial to or in conflict with the
business or interests of the Company or any Affiliated Entity.
(B) Employee fails to comply with the Confidentiality Agreement or with
the lawful policies of the Company or any Affiliated Entity regarding
nondisclosure of confidential information, or without prior written
authorization from the Company or any Affiliated Entity discloses to anyone
outside the Company or any Affiliated Entity or uses for any purpose or in any
context other than in performance of Employee's duties to the Company or any
Affiliated Entity any confidential or trade secret information of the Company or
any Affiliated Entity.
(C) Employee breaches in any material respect any agreement with or
legal duty to the Company or any Affiliated Entity.
7
<PAGE> 8
"CHANGE IN CONTROL" means the completion of:
(i) any acquisition or series of related acquisitions resulting in any
person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (not
including Employee) beneficially owning (within the meaning of Rule 13d-3
promulgated under the Exchange Act) more than thirty percent (30%) of either the
then outstanding shares of Common Stock or the combined voting power of then
outstanding voting securities entitled to vote generally in the election of
directors of EPS or the Company, provided that a Change in Control shall not be
deemed to have occurred if the "person" described in the preceding provisions is
an underwriter or underwriting syndicate that has acquired the ownership of
voting securities of EPS or the Company solely in connection with a public
offering of those securities; or
(ii) any reorganization, merger or consolidation of EPS or the Company
with any other person, entity or corporation, other than a transaction which
would result in the owners of voting securities of EPS outstanding immediately
prior thereto continuing to own directly or indirectly more than fifty percent
(50%) of the combined voting power of the voting securities of the entity or
entities surviving such reorganization, merger or consolidation that own and
conduct the business owned and conducted by EPS and the Company prior thereto;
or
(iii) the sale or other disposition by EPS or the Company, in one
transaction or a series of related transactions, of all or substantially all of
the assets of EPS or the Company; or
(iv) Individuals who, as of the Effective Date, constitute the board of
directors of the Company or EPS (in each case, the "INCUMBENT BOARD OF
DIRECTORS") cease for any reason to constitute at least a majority of the board
of directors of the Company or EPS, respectively, provided that any individual
who becomes a director after the Effective Date whose election, or nomination
for election by stockholders, is approved by a vote of at least a majority of
the directors then comprising the relevant Incumbent Board of Directors shall be
considered to be a member of the relevant Incumbent Board of Directors unless
that individual was nominated or elected by any person, entity or group (as
defined above) having the power to exercise, through beneficial ownership,
voting agreement and/or proxy, thirty percent (30%) or more of either the
outstanding shares of common stock of EPS or the Company or the combined voting
power of the outstanding securities of EPS or the Company entitled to vote
generally in the election of directors, in which case that individual shall not
be considered to be a member of the Incumbent Board of Directors unless such
individual's election or nomination for election by EPS' shareholders is
approved by a vote of at least two-thirds of the directors then comprising the
Incumbent Board of Directors.
For purposes of this definition, references to EPS and the Company shall
also refer to their successors and assigns such that reorganizations or other
corporate transactions do not impair the substantive intent of these provisions.
8
<PAGE> 9
"DISABILITY" means Employee suffers an ongoing physical or psychological
impairment that has rendered Employee unable, as determined in good faith by the
Board, to perform Employee's duties to the Company and EPS, (the Company and
EPS, at their option and expense, being entitled to retain a physician to
confirm the existence of such disability), for a period of thirty (30)
consecutive days or 45 days in any 90-day period.
9
<PAGE> 10
SCHEDULE 2
Management of and responsibility for all operations of EPS, the Company and its
subsidiaries.
10
<PAGE> 11
EXHIBIT B
PERSONAL TIME OFF
<TABLE>
<CAPTION>
Aggregate Amount of time off: 28 days (in addition to holidays
observed by the Company)
<S> <C>
Maximum Accrued PTO: 28 days
</TABLE>
<PAGE> 1
EXHIBIT 10.4
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of December 14, 1998 (the "EFFECTIVE DATE") by and between
ProfitSource Corporation, a Delaware corporation (the "COMPANY") and David H.
Hoffmann (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and is acquiring, in a
series of transactions by means of mergers into the Company, or acquisitions by
the Company of all or substantially all of the assets or stock or other equity
interests, various companies providing such services (the "CONSOLIDATION
TRANSACTIONS").
B. The Purchaser has entered into that certain Employment Agreement with
the Company or its affiliate of even date herewith (the "EMPLOYMENT AGREEMENT").
C. The Purchaser and certain other persons affiliated with certain
companies being acquired by the Company in the Consolidation Transactions and
who are to serve as employees of the Company pursuant to employment agreements
executed concurrently with the acquisition of such companies (collectively, the
"FOUNDERS") and certain persons responsible for effecting the Consolidation
Transactions (the "SPONSORS") are being offered an opportunity to purchase
shares of the common stock of the Company, par value $0.O01 per share (the
"COMMON STOCK") (in the case of Founders, Series A Common Stock and in the case
of Sponsors, Series B Common Stock) at a price of $1.20 per share.
D. The Shares (as hereinafter defined) shall be subject to repurchase by
the Company, in the Company's discretion, if certain performance related
milestones described herein are not met.
E. The Shares shall be subject to certain additional restrictions as set
forth herein.
F. The Purchaser desires to purchase and the Company desires to sell the
Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company, the aggregate number of shares of Series A
Common Stock set forth on Schedule 1.1 (the "SHARES") for the consideration of
$1.20 per Share, resulting in an aggregate purchase price as set forth on
Schedule 1.1 (the "PURCHASE PRICE"). Concurrently herewith the Purchaser is
paying to the Company in cash $0.001 per Share, resulting in an aggregate
payment of the amount set forth on Schedule 1.1 under the item "Cash Payment"
(the "CASH PAYMENT"). The obligation of the Purchaser to pay the remainder of
the Purchase Price in the amount set forth on
<PAGE> 2
Schedule 1.1 under the item "Note" is evidenced by the Purchaser's delivery to
the Company concurrently herewith of a secured promissory note of the Purchaser
in the form attached hereto as Exhibit A (the "NOTE"). The Note is secured by a
pledge of the Shares made pursuant to Section 5 of the Note. The Shares are sold
pursuant to and governed by this Agreement and not any other contract or plan of
the Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
2
<PAGE> 3
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current needs and personal contingencies, and has no need for
liquidity and can sustain a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has documented his or her accredited status by
delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or general
advertising concerning the Shares, nor is the Purchaser aware of any such
solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that the Consolidation Transactions
will occur, that the Company will be successful in accomplishing the purpose for
which it was formed or that it will ever be profitable. No assurances can be
given regarding what companies will ultimately participate in the Consolidation
Transactions. No company is obligated to participate in the Consolidation
Transactions unless a written agreement to such effect is entered into by the
Company and such Consolidation Transaction company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IPO, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any IPO,
and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the business of the Company will have the right to
vote the Shares pursuant to the voting agreement referenced in Section 4.l(i).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to
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the Purchaser by the Company or any of its employees, representatives or agents
concerning the Shares, their potential value or the prospects of the Company,
except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Founders are
intended to be used by the Company for general and administrative expenses and
working capital. The proceeds from such sales may be exhausted notwithstanding
failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
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3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, federal, state or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.00 1 per share. Holders of Series B Common Stock are entitled to elect all
the directors in one of the Company's three classes of directors, with the
holders of the Series A Common Stock entitled to elect the remaining directors.
In all other respects, the Series A Common Stock and the Series B Common Stock
is identical. The Shares, when issued, sold, and delivered in accordance with
the terms of this Agreement for the consideration expressed herein will be duly
and validly issued, fully paid, and nonassessable, except that the Purchaser may
be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF IN FORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional requirements or restrictions
contained herein have been satisfied, terminated or expressly waived by the
Company in writing. Any attempted transfer in violation of such Restrictions
will be void.
(b) The Restrictions will lapse and the Shares will vest in accordance
with Schedule 4 (the "VESTING SCHEDULE"), provided, however, that the Company,
in its discretion, may from time
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to time accelerate the vesting of any Shares at any time or forgive Restrictions
and allow Shares or restricted shares owned by any other Founder or other third
party to vest notwithstanding that the conditions to vesting thereof may not
have been satisfied.
(c) In addition to any repurchase rights of the Company set forth in
Schedule 4, the Company, or its assignee, may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the end of
each Measurement Period, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares that were eligible to vest but did not vest in
accordance with the Vesting Schedule for such Measurement Period. Shares
originally corresponding to any Measurement period that cannot vest because of
failure prior to the end of that Measurement Period of conditions to vesting
thereof may be repurchased at any time and from time to time from the failure of
such conditions to the end of the applicable repurchase period specified herein.
Any Shares that do not vest in accordance with the Vesting Schedule shall be
subject to repurchase by the Company regardless of the services performed, or
other consideration given, by the Purchaser to the Company. Shares not vested in
accordance with the Vesting Schedule but not repurchased by the Company during
the applicable repurchase period as described herein shall vest.
(d) (i) Termination of the Purchaser's employment by the Company or its
affiliate under the circumstances described in Schedule 4 under the heading
"Vesting Upon Certain Termination of Employment" will cause vesting as described
therein, provided that the vesting of any Shares upon termination of the
Purchaser's employment or subsequent to such termination shall be contingent
upon execution and delivery by the Purchaser to the Company of an unconditional
release in form satisfactory to the Company of all claims against the Company or
any of its officers, directors or affiliates arising from or in connection with
this Agreement or the Purchaser's employment or the termination of that
employment. Any Shares that do not vest as described therein shall be subject to
repurchase in the manner described in Section 4(d)(ii).
(ii) In case of termination of the Purchaser's employment by the
Company or its affiliate for any reason other than a reason that causes vesting
as described in Schedule 4, the Company or its assignee may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following the termination of employment, repurchase from the Purchaser at the
price per Share that the Purchaser paid to the Company, and the Purchaser will
sell to the Company, any or all of the Shares designated by the Company that
have not vested as of the date of termination of employment.
(iii) In addition to the Company's rights set forth above, if any of
the events or circumstances constituting "Cause" listed in item A or B of
Schedule 1 of the Purchaser's Employment Agreement or the definition of "Cause"
set forth in Schedule 4 occurs at any time before the end of the final
Measurement Period, then notwithstanding any vesting provided for herein, the
Company or its assignee may, in the Company's discretion, at any time and from
time to time for a period of one (1) year following such occurrence, repurchase
from the Purchaser at the price per Share that the Purchaser paid to the
Company, and the Purchaser will sell to the Company, any or all Shares
designated by the Company that had not vested at the time of such occurrence, or
that vested effective as of a date within 365 days before such occurrence,
provided however, that if the Purchaser's employment with the Company or its
affiliate was
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terminated by the Company or its affiliate without Cause or by the Purchaser for
Good Reason (each as defined in the Employment Agreement), then the Company will
not be entitled to repurchase Shares pursuant to this subparagraph (iii) solely
because of the occurrence after termination of employment of any of the events
or circumstances constituting Cause listed in item A of Schedule 1 of the
Purchaser's Employment Agreement.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase any
Shares under this Agreement but the Purchaser cannot deliver such Shares to the
Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other Founders, the Sponsors or
other third parties that are subject to restrictions, or to accelerate vesting
or forgive Restrictions applicable to such Common Stock, shall be within the
discretion of the Company. The Company may (but will not be required to)
exercise its right to repurchase, accelerate, or forgive Restrictions with
respect to any or all shares of restricted Common Stock owned by the Purchaser
or any Founder, Sponsor or other third party without incurring any obligation to
repurchase, accelerate, or forgive Restrictions with respect to any other Common
Stock owned by the Purchaser or any Founder, Sponsor or other third party.
(g) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as described in Section 5.2(b). Shares that have
vested shall nevertheless be governed by the Stockholder Agreement. The
Company's repurchase rights hereunder will supersede the purchase provisions of
the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the Purchaser has paid to the Company the full Purchase Price
for such Shares, and an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld and paid over to such
Governmental Entity for the Purchaser's account, or otherwise made arrangements
satisfactory to the Company for payment of such amounts through withholding or
otherwise, and (b) the Purchaser has, if requested by the Company, made
appropriate representations in a form satisfactory to the Company that such
Shares will not be
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transferred other than (i) pursuant to an effective registration statement under
the Securities Act, or an applicable exemption from the registration
requirements of the Securities Act; (ii) in compliance with all applicable state
securities laws and regulations; and (iii) in compliance with all terms and
conditions of the Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
this Agreement and the Stockholder Agreement, the Shares (or interests therein)
cannot be offered, sold or transferred unless the Shares are registered and
qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder Agreement and
the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW ANT)
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS ANT) UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
(d) In connection with any underwritten public offering of securities of
the Company or any of its affiliates within three (3) years of the date hereof,
if the managing underwriter believes that it is appropriate in connection with
the offering to limit public sales of such securities by Company's stockholders,
the Purchaser will agree to the managing underwriter's standard form of "lock
up" agreement prohibiting transfers of any Common Stock owned by the
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Purchaser, including without limitation shares acquired other than pursuant
hereto (other than shares included in the offering) for such period as may be
required by the managing underwriter not to exceed twenty (20) days prior to,
and one hundred and eighty (180) days after, the effective date of the
registration statement for such offering, provided however, that (i) such lock
up provision may not be invoked more than once in any 365 day period, (ii) such
lock up provision will be contingent upon the officers and directors of the
registrant entering into similar lock up agreements, and (iii) the Purchaser
will not be required to comply with this lock up provision if any other
stockholder owning more shares of Common Stock than the Purchaser and who is
subject to a contractual lock up provision similar to this one has been released
from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement, the Purchaser will have all of the rights of a stockholder of
the Company with respect to all of the Shares, including without limitation the
right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, forgives the Restrictions.
4.5 SECTION 83(B) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Company, or limits in any way the right of the Company to
terminate the Purchaser's services to the Company at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
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4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any of
the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission for an underwritten IPO of
its equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Purchaser shall have
the right, subject to the limitations set forth in this Section 4.7(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by the Purchaser. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in the
formation, or work on behalf of, the Company) will have rights to include shares
of Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing no Selling Stockholder will be
permitted to include in any such registration and offering (i) any Shares
subject to performance-related restrictions at the time of filing of the
registration statement for such offering, or (ii) more than, in the aggregate
for all such registrations and offerings, half of the Shares and other Common
Stock owned by the Purchaser as of the date hereof. Furthermore, in no case will
the Purchaser be permitted to include in the IPO registration and offering more
than the number of Shares listed on Schedule 1.1 under the item "Maximum IPO
Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes any
securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering pursuant
to this Section 4.7 pursuant to the underwriting agreement negotiated between
the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be
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selected by the two (2) stockholders (or affiliated stockholder groups) selling
the most shares in the offering, and (iii) the fees and costs of any separate
counsel retained by the Purchaser alone.
(d) At all times that equity securities of the Company are registered
pursuant to the Securities Exchange Act of 1934, as amended, the Company shall
use its best efforts to fulfill all conditions applicable to a registrant as are
necessary to enable selling security holders of the Company to make sales
pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the parties under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
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5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall deliver
to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
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6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement also arises out of or relates to the employment of the Purchaser by
the Company or any affiliate of the Company, the provisions of this Agreement
governing dispute resolution shall govern resolution
13
<PAGE> 14
of such controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between the Purchaser and the Company or any affiliate of the Company.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand Dollars
($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees, the
dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof The arbitration proceedings
shall be held in Orange County, California unless the parties agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 6.11(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Threshold, the Notice of Counterclaim shall so state. If pursuant
to Section 6.11(a) three (3) Arbitrators are to be appointed, within fifteen
(15) days after receipt of the Arbitration Notice or the Notice of Counterclaim
as applicable, each party shall select one person to act as Arbitrator and the
two (2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses
14
<PAGE> 15
to the interrogatories shall be delivered to the propounding party thirty (30)
days after receipt by the responding party of such document demand or
interrogatory. Each deposition shall be taken on reasonable notice to the
deponent, and must be concluded within four (4) hours and all depositions must
be taken within forty-five (45) days following the pre-hearing conference. Any
party deposing an opponent's expert must pay the expert's fee for attending the
deposition. All discovery disputes shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding. The Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
15
<PAGE> 16
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
6.14 FORM OF AGREEMENT. The original text of this Agreement contained
certain errors and ambiguities, which are corrected by this version of the
Agreement. This version of the Agreement is made effective as of the Effective
Date, without any representations or inducements not set forth herein, solely to
set forth the parties' agreement with respect to the subject matter hereof, and
supersedes all previous versions.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION PURCHASER
By: /s/ MARK C. COLEMAN By: /s/ DAVID H. HOFFMANN
------------------------------ ------------------------------
David H. Hoffmann
Name: Mark C. Coleman
---------------------------- ------------------------------
Title: SVP
---------------------------
Address: Address:
695 Town Center Drive, Suite 400 ----------------------------------
Costa Mesa, California 92626 ----------------------------------
Telephone No.: (714) 429-5500 Telephone No.:
Facsimile No.: (714) 429-5559 ------------------
Facsimile No.:
------------------
17
<PAGE> 18
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
18
<PAGE> 19
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
<TABLE>
<S> <C> <C>
Aggregate Number of Shares: 1,374,282
Aggregate Purchase Price: $1,649,138.40
Cash Payment: $1,374.28
Note Payment: $1,647,764.12
Maximum IPO Shares: 274,856
Types of Shares:
Five-Year Company Performance Shares 1,276,303
Search Shares 81,886
Sponsor Shares 16,093
</TABLE>
19
<PAGE> 20
SCHEDULE 4
VESTING SCHEDULE
BASIC TERMS.
VESTING. The shares consist of the Types of Shares identified on
Schedule 1.1. Subject to the terms and conditions set forth in this Agreement,
the Restrictions applicable to each Type of Shares will lapse, and Shares of
that Type will vest, if and when the conditions to vesting of that Type of
Shares, as set forth in this Schedule 4, are met. However, except as set forth
in this Schedule 4, in order for any Shares eligible for vesting for any
Measurement Period to vest, the Purchaser must have remained an employee of the
Company, or an affiliate of the Company, from the date hereof through the last
day of that Measurement Period.
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until it is finally determined
through year-end closing of the books, audits and any other necessary
procedures, whether the performance requirements associated with particular
Shares for that Measurement Period have been met. In no case will the total
number of any particular Type of Shares that the Purchaser has the right to have
vested for any Measurement Period exceed the product of the total number of that
Type of Shares and the applicable Vesting Percentage corresponding to that
Measurement Period. Fractional vested Shares will be carried forward and
combined to constitute whole vested Shares that can be issued, or cashed out by
the Company at fair market value following determination of whether performance
requirements associated with the last Measurement Period have been met.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
If employment of the Purchaser with the Company or an affiliate of the
Company is terminated by death or by the Company without "Cause" or by
"Disability" (as defined below), and if the performance requirements associated
with any particular group of Shares for the applicable Measurement Period in
which the employment of the Purchaser is terminated are met, the Restrictions
will lapse with respect to such number of those Shares as is equal to the
product of the number of those Shares times a fraction, the numerator of which
is the number of days in such Measurement Period with which those Shares are
associated through the date of termination of the employment of the Purchaser,
and the denominator of which is 365. There shall be no proportional partial
vesting for such Measurement Period in respect of partial satisfaction of
performance requirements.
DEFINITIONS. For purposes hereof the term "DISABILITY" means the
Purchaser suffers an ongoing physical or psychological impairment that has
rendered Purchaser unable, as determined in good faith by the Company's Chief
Executive Officer, to perform the Purchaser's duties to the Company,
notwithstanding reasonable accommodation by the Company (the Company, at its
option and expense, being entitled to retain a physician to confirm the
existence of such disability), for a period of three (3) consecutive months or
six (6) months in any 12-month period.
20
<PAGE> 21
"CAUSE" means the occurrence of any one or more of the following events
or circumstances, provided however, that if any such event or circumstance is
susceptible to cure by Purchaser, such event or circumstance will not constitute
Cause unless. Purchaser has failed to cure such event or circumstance within 15
days after receipt by Purchaser of written notice thereof: (i) Purchaser engages
in any wrongful conduct or knowingly violates any reasonable rule or regulation
of the Board, the Company's President or Chief Executive Officer or the
Purchaser's superiors that results in material damage to the Company or any
parent corporation of the Company, any subsidiary corporation of the Company or
any entity controlling, controlled by, or under common control with the Company
(an "Affiliated Entity"); (ii) any willful misconduct or gross negligence by
Purchaser in the responsibilities assigned to Purchaser; (iii) any willful and
material failure to perform Purchaser's job as required to meet the lawful
objectives of the Company or any Affiliated Entity; (iv) Purchaser fails to
comply with all material applicable laws and regulations in performing
Purchaser's duties and responsibilities to the Company; or (v) Purchaser does
any of the things described in (A)-(C) below.
(A) Purchaser renders services for any organization or engages directly
or indirectly in any business that, in the reasonable judgment of the Chief
Executive Officer of the Company or other senior officer designated by the Chief
Executive Officer, (x) during Purchaser's employment with the Company or any
Affiliated Entity, is or becomes competitive with the Company or any Affiliated
Entity, or which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict
with the business or interests of the Company or any Affiliated Entity, or (y)
after termination of Purchaser's employment with the Company or any Affiliated
Entity, is or becomes competitive with the business units of the Company or any
Affiliated Entity to which Purchaser devoted significant time and attention
within the scope of Purchaser's employment hereunder (the "Business Units"), or
which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict
with the business or interests of the Business Units In the event the
Purchaser's employment is terminated, the judgment of the Chief Executive
Officer or such other senior officer shall be based upon the Purchaser's
position and responsibilities while employed by the Company or any Affiliated
Entity, the Purchaser's post-employment responsibilities and position with the
other organization or business, the extent of past, current and potential
competition or conflict between the Business Units and the other organization or
business, the effect on the customers, suppliers and competitors of the Business
Units of Purchaser's assuming the post-employment position, the guidelines
established in any employee handbook, any employment agreement with the
Purchaser, and such other considerations as are deemed by the Company to be
relevant given applicable facts and circumstances.
(B) Purchaser fails to comply with the Confidentiality Agreement or with
the lawful policies of the Company or any Affiliated Entity regarding
nondisclosure of confidential information, or without prior written
authorization from the Company or any Affiliated Entity discloses to anyone
outside the Company or any Affiliated Entity or uses for any purpose or in any
context other than in performance of Purchaser's duties to the Company or any
Affiliated Entity any confidential or trade secret information of the Company or
any Affiliated Entity.
(C) Purchaser breaches in any material respect any agreement with or
legal duty to the Company or any Affiliated Entity.
21
<PAGE> 22
SCHEDULE 4, CONTINUED
FIVE-YEAR COMPANY PERFORMANCE SHARES
(i) If the actual Income earned in any Measurement Period equals
or exceeds the Target Income corresponding to that Measurement Period,
the Restrictions will lapse with respect to such number of Five-Year
Company Performance Shares as is equal to the product of the Vesting
Percentage corresponding to that Measurement Period and the total number
of Five-Year Company Performance Shares.
(ii) If the actual Income earned in any Measurement Period is
less than the Target Income for that Measurement Period, but is more
than the sum of the Target Income for the immediately preceding
Measurement Period plus half of the Annual Target Delta, the
Restrictions will lapse with respect to such number of Five-Year Company
Performance Shares as is equal to the product obtained by multiplying
the Vesting Percentage corresponding to that Measurement Period, times
the ratio of the Annual Actual Delta to the Annual Target Delta, times
the total number of Five-Year Company Performance Shares.
For purposes hereof:
"ANNUAL ACTUAL DELTA" means the difference between the actual
Income earned in any Measurement Period and the Target Income for the
immediately preceding Measurement Period.
"ANNUAL TARGET DELTA" means the difference between the Target
Income for any Measurement Period and the Target Income for the
immediately preceding Measurement Period.
If the actual Income earned in any Measurement Period exceeds the Target
Income corresponding to that Measurement Period, the amount by which the actual
Income exceeds the Target Income ("Excess Income") may, in the Purchaser's
discretion, be carried forward to the following Measurement Period and added to
the actual Income for such Measurement Period, and may also be applied, in the
Purchaser's discretion, to assist DHR producers participating in the
compensation adjustment program in vesting their stock. If Excess Income is
applied in this fashion, (i) it will be added to the compensation retained by
the Company that would have been paid to the participant but for the
compensation adjustment program up to the amount of such compensation that would
be retained by the Company if the participant achieved his or her revenue
targets and (ii) each dollar of Excess Income applied to assist a participant in
this way may not be used for other participants applied to actual Income in
future years. Excess Incomes may not be carried backward to preceding periods
and Five-Year Company Performance Shares that are eligible to vest but do not
vest in any Measurement Period will not vest unless the Company forgives the
Restrictions applicable thereto in its discretion or fails to repurchase them
within one (1) year of the end of that Measurement Period (i.e., Five-Year
Company Performance Shares that fail to vest cannot be "recovered" based upon
subsequent performance).
22
<PAGE> 23
<TABLE>
<CAPTION>
TARGET VESTING
MEASUREMENT PERIOD INCOME PERCENTAGE
<S> <C> <C>
January 1, 1999 - December 31, 1999 $ 7,320,000 25%
January 1, 2000 - December 31, 2000 $ 8,784,000 25%
January 1, 2001 - December 31, 2001 $10,540,000 25%
January 1, 2002 - December 31, 2002 $12,648,000 25%
January 1, 2003 - December 31, 2003 25%
</TABLE>
For purposes hereof:
"BUSINESS" means the DHR business division of the Company.
"INCOME" for any Measurement Period means pre-tax income of the Business
for that Measurement Period calculated according to GAAP and consistent with the
1998 pre-tax projected pro forma net income for DHR International, Inc.
calculated in connection with its acquisition by the Company. In calculating
Income, except as set forth herein, all costs attributable directly to the
Business, whether paid by the Business, the Company or any of its affiliates,
shall be charged to the Business, including, without limitation costs, bonuses
and other distributions to persons who are engaged principally in the Business.
However, Income will not include any Commission Revenue (as defined in
employment agreements of Producers) or foregone salary that is received by the
Business as a result of Producers electing to receive commissions less than the
standard Producer commissions payable by the Business, or by employees accepting
salary reductions, in connection with purchase and attempted vesting by such
Producers or employees of restricted stock of the Company. The calculation of
Income will not be affected by any allocation to the Business of (i) any
overhead charges of the Company not attributable directly to the Business, or
(ii) any costs incurred to comply with initiatives that are required by the
Company's management, without the consent of management of the Business, that
are in excess of the costs of the Business replaced by any such initiatives.
"PRODUCER" means an employee of BPS or any of its Affiliates who is
assigned to the Business and compensated by commissions based upon production of
revenue for the Business.
23
<PAGE> 24
SCHEDULE 4, CONTINUED
SPONSOR SHARES
On December 31 of each of the following years, subject to continued
employment as described under "Basic Terms-Vesting" on this Schedule 4, the
Restrictions will lapse with respect to one fifth of the Sponsor Shares.
1998
1999
2000
2001
2002
SEARCH SHARES
At the end of each of the Measurement Periods listed below, subject to
continued employment as described under "Basic Terms-Vesting" in this Schedule
4, the Restrictions will lapse with respect to one-fifth of the Search Shares
if, during that Measurement Period, the DHR business has provided search
services to the Company and its subsidiaries valued at $500,000 or greater based
upon DHR's then-prevailing rates. If the DHR business provides more than
$500,000 in search services to the Company and its subsidiaries in any
Measurement Period, the amount in excess of $500,000 may be carried forward and
applied toward satisfaction of the $500,000 requirement applicable to any other
Measurement Periods].
Measurement Period
January 1 - December 31, 1998
January 1 - December 31, 1999
January 1 - December 31, 2000
January 1 - December 31, 2001
January 1 - December 31, 2002
24
<PAGE> 1
EXHIBIT 10.5
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of September 1, 1999 (the "EFFECTIVE DATE") by and
between EPS Solutions Corporation, a Delaware corporation (the "COMPANY") and
David H. Hoffmann (the "PURCHASER").
A. The Purchaser is employed by the Company's wholly owned
subsidiary Enterprise Profit Solutions Corporation, a Delaware corporation
("EPS") or any of its affiliates (the "EMPLOYER") and has entered into that
certain Employment Agreement with the Employer dated as of August 6, 1999 (the
"EMPLOYMENT AGREEMENT").
B. In connection with that employment, the Purchaser is being
offered an opportunity to purchase shares of the common stock of the Company,
par value $0.001 per share (the "COMMON STOCK") at a price of $2.50 per share.
C. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain performance
related milestones described herein are not met.
D. The Shares shall be subject to certain additional restrictions
as set forth herein.
E. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Series A Common Stock
set forth on Schedule 1.1 (the "SHARES") for the consideration of $2.50 per
Share, resulting in an aggregate purchase price as set forth on Schedule 1.1
(the "PURCHASE PRICE"). Concurrently herewith the Purchaser is paying to the
Company in cash $0.001 per Share, resulting in an aggregate payment of the
amount set forth on Schedule 1.1 under the item "Cash Payment" (the "CASH
PAYMENT"). The obligation of the Purchaser to pay the remainder of the Purchase
Price in the amount set forth on Schedule 1.1 under the item "Note" is evidenced
by the Purchaser's delivery to the Company concurrently herewith of a secured
promissory note of the Purchaser in the form attached hereto as Exhibit A (the
"NOTE"). The Note is secured by a pledge of the Shares made pursuant to Section
5 of the Note. The Shares are sold pursuant to and governed by this Agreement
and not any other contract or plan of the Company.
<PAGE> 2
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current
2
<PAGE> 3
needs and personal contingencies, and has no need for liquidity and can sustain
a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund
except as specifically set forth in a written agreement between the Purchaser
and the Company.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has
limited financial and operating history.
(ii) There can be no assurance that the Company will
acquire any more businesses, that the Company will be successful in
accomplishing the purpose for which it was formed or that it will ever be
profitable. No assurance can be given regarding (A) whether the companies
acquired by the Company in the Consolidation Transactions can be successfully
integrated and operated, or (B) what companies will ultimately be acquired by
the Company. No company is obligated to participate in the Additional
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company and such Additional Consolidation Transaction company.
(iii) No assurances can be given that an initial public
offering ("IPO") of the Company's securities will occur. If an IPO does occur,
no assurances can be given as to timing of the IPO, whether the Purchaser will
be able to participate, or the price at which any shares of Common Stock would
be sold.
(iv) No assurances can be given as to the ultimate value
of the Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation
Transactions, any IPO, and the Company's management and operations will be made
by the Company's management, and certain individuals involved in planning the
Consolidation Transactions and managing the business of the Company will have
the right to vote the Shares pursuant to the voting agreement referenced in
Section 4.1(i).
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(b) The Purchaser acknowledges that no assurances have been made
to the Purchaser with respect to any of the foregoing and no representations,
oral or written, have been made to the Purchaser by the Company or any of its
employees, representatives or agents concerning the Shares, their potential
value or the prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the
Sponsors and the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
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authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, federal, state or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.001 per share. Holders of Series B Common Stock are entitled to elect all
the directors in one of the Company's three classes of directors, with the
holders of the Series A Common Stock entitled to elect the remaining directors.
In all other respects, the Series A Common Stock and the Series B Common Stock
is identical. The Shares, when issued, sold, and delivered in accordance with
the terms of this Agreement for the consideration expressed herein will be duly
and validly issued, fully paid, and nonassessable, except that the Purchaser may
be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the
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Shares "vest" by the lapse of the Restrictions as set forth in Section 4.1(b)
and any additional requirements or restrictions contained herein have been
satisfied, terminated or expressly waived by the Company in writing. Any
attempted transfer in violation of such Restrictions will be void.
(b) The Restrictions will lapse and the Shares will vest in
accordance with the provisions in Schedule 4 (the "VESTING SCHEDULE"), provided,
however, that the Company, in its discretion, may from time to time accelerate
the vesting of any Shares at any time or forgive Restrictions and allow Shares
or restricted shares owned by any other party to vest notwithstanding that the
conditions to vesting thereof may not have been satisfied.
(c) In addition to any repurchase rights of the Company set forth
in Schedule 4, the Company, or its assignee, may, in the Company's discretion,
at any time and from time to time for a period of one (1) year following the end
of each Measurement Period (as described in Schedule 4), repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all of the Shares that were eligible
to vest but did not vest in accordance with the Vesting Schedule for such
Measurement Period. Shares originally corresponding to any Measurement Period
that cannot vest because of failure prior to the end of that Measurement Period
of conditions to vesting thereof may be repurchased at any time and from time to
time from the failure of such conditions to the end of the applicable repurchase
period specified herein. Any Shares that do not vest in accordance with the
Vesting Schedule shall be subject to repurchase by the Company regardless of the
services performed, or other consideration given, by the Purchaser to the
Company. Shares not vested in accordance with the Vesting Schedule but not
repurchased by the Company during the applicable repurchase periods described
herein (including in Schedule 4) shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer
under the circumstances described in Schedule 4 under the heading "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in substantially the form attached hereto as Exhibit D.
Upon such a termination of employment, any Shares that do not vest as described
therein will be subject to repurchase in the manner described in Section
4(d)(ii).
(ii) In case of termination of the Purchaser's employment
by the Employer for any reason other than a reason that causes vesting as
described in Schedule 4, the Company or its assignee may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following the termination of employment, repurchase from the Purchaser at the
price per Share that the Purchaser paid to the Company, and the Purchaser will
sell to the Company, any or all of the Shares designated by the Company that
have not vested as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set
forth above, if any of the events or circumstances constituting "Cause" listed
in Schedule 1 of the Purchaser's
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Employment Agreement occurs at any time before the end of the final Measurement
Period, then notwithstanding any vesting provided for herein the Company or its
assignee may, in the Company's discretion, at any time and from time to time for
a period of one (1) year following such occurrence, repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all Shares designated by the Company
that had not vested at the time of such occurrence, or that vested effective as
of a date within 365 days before such occurrence, provided however, that (i) if
the Purchaser's employment with the Employer was terminated by the Employer
without Cause or by the Purchaser for Good Reason (each as defined in the
Employment Agreement), or (ii) the Purchaser's employment with the Employer is
terminated by the Purchaser or the Employer (or its successor) within one
hundred twenty (120) days after a Change in Control (as defined in the
Employment Agreement) of the Company, then the Company will not be entitled to
repurchase vested Shares pursuant to this subparagraph (iii) solely because of
the occurrence after termination of employment of any of the events or
circumstances constituting Cause listed in item A of Schedule 1 of the
Purchaser's Employment Agreement.
(e) (i) The purchase price for any repurchase pursuant to this
Section 4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to
repurchase any Shares under this Agreement but the Purchaser cannot deliver such
Shares to the Company because such Shares have previously been sold by the
Purchaser, the Company may, in its discretion, upon payment to the Purchaser of
the price per Share that the Purchaser paid to the Company, recover from the
Purchaser, and the Purchaser shall deliver to the Company, all proceeds to the
Purchaser of the sale of such Shares (or the cash value thereof), such that the
Purchaser retains no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or
to accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and
its right to repurchase Common Stock purchased by other parties that are subject
to restrictions, or to accelerate vesting or forgive Restrictions applicable to
such Common Stock, shall be within the discretion of the Company. The Company
may (but will not be required to) exercise its right to repurchase, accelerate,
or forgive Restrictions with respect to any or all shares of restricted Common
Stock owned by the Purchaser or any third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Common Stock owned by the Purchaser or any third party.
(g) The Shares shall be subject to a Stockholder Agreement in the
form attached hereto as Exhibit E (the "STOCKHOLDER AGREEMENT") restricting
transfers and imposing certain obligations upon the Purchaser, which must be
executed and delivered by the Purchaser as described in Section 5.2(b). Shares
that have vested shall nevertheless be governed by the
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Stockholder Agreement. The Company's repurchase rights hereunder will supersede
the purchase provisions of the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares
as such Shares become free of both the Restrictions and the Stockholder
Agreement, provided that (a) the Purchaser has paid to the Company the full
Purchase Price for such Shares, and an amount sufficient to satisfy any taxes or
other amounts required by any Governmental Entity to be withheld and paid over
to such Governmental Entity for the Purchaser's account, or otherwise made
arrangements satisfactory to the Company for payment of such amounts through
withholding or otherwise, and (b) the Purchaser has, if requested by the
Company, made appropriate representations in a form satisfactory to the Company
that such Shares will not be transferred other than (i) pursuant to an effective
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act; (ii) in compliance with all
applicable state securities laws and regulations; and (iii) in compliance with
all terms and conditions of the Stockholder Agreement.
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set
forth in this Agreement and the Stockholder Agreement, the Shares (or interests
therein) cannot be offered, sold or transferred unless the Shares are registered
and qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder
Agreement and the Voting Agreement, the Certificates will bear a legend to the
effect set forth below, and appropriate stop transfer instructions against the
Shares will be placed with any transfer agent of the Company to ensure
compliance with the restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE
SHARES OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
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(c) Each recipient of Shares or interests therein shall, as a
condition to transfer of any Shares or interest therein, cause the transferee to
enter into the Stockholder Agreement and the Voting Agreement, provided that,
with respect to each such agreement, this requirement will not apply to
transfers made after the agreement has terminated.
(d) In connection with any underwritten public offering of
securities of the Company or any of its affiliates within three (3) years of the
date hereof, if the managing underwriter believes that it is appropriate in
connection with the offering to limit public sales of such securities by
Company's stockholders, the Purchaser will agree to the managing underwriter's
standard form of "lock up" agreement prohibiting transfers of any Common Stock
owned by the Purchaser, including without limitation shares acquired other than
pursuant hereto (other than shares included in the offering) for such period as
may be required by the managing underwriter not to exceed twenty (20) days prior
to, and one hundred and eighty (180) days after, the effective date of the
registration statement for such offering, provided however, that (i) such lock
up provision may not be invoked more than once in any 365 day period, (ii) such
lock up provision will be contingent upon the officers and directors of the
registrant entering into similar lock up agreements, and (iii) the Purchaser
will not be required to comply with this lock up provision if any other
stockholder owning more shares of Common Stock than the Purchaser and who is
subject to a contractual lock up provision similar to this one has been released
from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement, the Purchaser will have all of the rights of a stockholder of
the Company with respect to all of the Shares, including without limitation the
right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 CHANGE IN CONTROL. Notwithstanding anything in this Agreement or
other agreements to the contrary, any unvested Shares shall vest and the
Restrictions shall lapse as of immediately before the closing of a transaction
that constitutes a Change in Control (as defined in the Employment Agreement),
or upon a Change in Control other than a transaction, in any case that occurs
during Employee's employment by the Company or any of its affiliates or within
90 days thereafter. Accordingly, the Company will defer its repurchase rights
hereunder for at least such 90 day period.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or
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other amounts required by any Governmental Entity to be withheld or paid over to
such Governmental Entity for the Purchaser's account, or otherwise makes
arrangements satisfactory to the Company for the payment of such amounts through
withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of
any of the Shares, or to participate in any registration undertaken by the
Company except as set forth in this Section 4.7. If the Company files a
registration statement with the Securities and Exchange Commission for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then the
Purchaser shall have the right, subject to the limitations set forth in this
Section 4.7(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by the Purchaser.
Other stockholders (including but not limited to stockholders who acquired
Common Stock in the Consolidation Transactions and stockholders who acquired
Common Stock in the formation, or work on behalf of, the Company) will have
rights to include shares of Common Stock in such offering, and if the aggregate
amount of shares that all stockholders with such rights (collectively, the
"SELLING STOCKHOLDERS") desire to include exceeds the number of shares of Common
Stock that can be sold by all Selling Stockholders, then all Selling
Stockholders desiring to sell in any such offering will participate pro-rata on
the basis of the relative numbers of shares of Common Stock eligible for
inclusion that they originally sought to include. However, notwithstanding the
foregoing no Selling Stockholder will be permitted to include in any such
registration and offering (i) any Shares subject to performance-related
restrictions at the time of filing of the registration statement for such
offering, or (ii) more than, in the aggregate for all such registrations and
offerings, half of the Shares and other Common Stock owned by the Purchaser as
of the date hereof. Furthermore, in no case will the Purchaser be permitted to
include in the IPO registration and offering more than the number of Shares
listed on Schedule 1.1 under the item "Maximum IPO Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes
any securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein
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a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such claims, costs or
liabilities are caused by any untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information furnished in
writing to the Company by the Purchaser expressly for use therein, for which the
Purchaser will be responsible.
(c) Shares may only be included in a registration and offering
pursuant to this Section 4.7, pursuant to the underwriting agreement negotiated
between the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are
registered pursuant to the Securities Exchange Act of 1934, as amended, the
Company shall use its best efforts to fulfill all conditions applicable to a
registrant as are necessary to enable selling security holders of the Company to
make sales pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable
damage would occur if any of the obligations of the parties under this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock
power executed by the Purchaser and the Purchaser's spouse, if applicable (the
"STOCK POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the
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Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall
deliver to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other
duly executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with
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this Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement. This Agreement will be binding upon the successors and
assignees of the Company.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
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6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to
this Agreement shall be solely and finally settled by arbitration administered
by the American Arbitration Association (the "AAA") in accordance with its
Commercial Arbitration Rules as then in effect (the "RULES"), except to the
extent such Rules vary from the following provisions. Notwithstanding the
previous sentence, the parties hereto may seek provisional remedies in courts of
appropriate jurisdiction and such request shall not be deemed a waiver of the
right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or
relating to this Agreement also arises out of or relates to the employment of
the Purchaser by the Employer, the provisions of this Agreement governing
dispute resolution shall govern resolution of such controversy or claim. The
provisions of this Agreement governing dispute resolution supersede any
provisions relating to such matters in any employment agreement between the
Purchaser and the Employer.
(iii) The arbitration shall be conducted by one
independent and impartial arbitrator, appointed by the AAA; provided however, if
the claim and any counterclaim, in the aggregate, together with other
arbitrations that are consolidated pursuant to Section 6.11(f), exceed Five
Hundred Thousand Dollars ($500,000) (the "THRESHOLD"), exclusive of interest and
attorneys' fees, the dispute shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrator or arbitrators are hereinafter
referred to as the "ARBITRATOR"). The judgment of the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof. The
arbitration proceedings shall be held in Orange County, California unless the
parties agree to another location.
(b) If a party hereto determines to submit a dispute for
arbitration pursuant to this Section 6.11, such party shall furnish the other
party with whom it has the dispute with a notice of arbitration as provided in
the Rules (an "ARBITRATION NOTICE") which, in addition to the items required by
the Rules, shall include a statement of the nature, with reasonable detail, of
the dispute. A copy of the Arbitration Notice shall be concurrently provided to
the AAA, along with a copy of this Agreement, and if pursuant to Section 6.11(a)
one (1) Arbitrator is to be appointed, a request to appoint the Arbitrator. If a
party has a counterclaim against the other party, such party shall furnish the
party with whom it has the dispute a notice of such claim as provided in the
Rules (a "NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the
Arbitration Notice, which, in addition to the items required by the Rules, shall
include a statement of the nature, with reasonable detail, of the dispute. A
copy of the Notice of Counterclaim shall be concurrently provided to the AAA. If
the claim set forth in the Notice of Counterclaim causes the aggregate amount in
dispute to exceed the Threshold, the Notice of Counterclaim shall so state. If
pursuant to Section 6.11(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one
14
<PAGE> 15
person to act as Arbitrator and the two (2) selected shall select a third
arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third arbitrator
within such time, the third arbitrator shall be selected by the AAA. Each
arbitrator shall be a practicing attorney or a retired or former judge with at
least twenty (20) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall
schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least
three (3) days before the arbitration hearing, specifying the facts each intends
to prove and analyzing the applicable law. The parties have the right to
representation by legal counsel throughout the arbitration proceedings. The
presentation of evidence at the arbitration hearing shall be governed by the
Federal Rules of Evidence. Oral evidence given at the arbitration hearing shall
be given under oath. Any party desiring a stenographic record may secure a court
reporter to attend the arbitration proceedings. The party requesting the court
reporter must notify the other parties and the Arbitrator of the arrangement in
advance of the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more
arbitrations involving other parties, which arise under agreement(s) between the
Company and such other parties, if more than one such arbitration is commenced
and any party thereto contends that two or more arbitrations are substantially
related and that the issues should be heard in one proceeding. The Arbitrator
selected in the first-filed of such proceedings shall determine whether, in the
interests of justice and efficiency, the proceedings should be consolidated
before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
15
<PAGE> 16
(h) To the extent permissible under applicable law, the award of
the Arbitrator shall be final. It is the intent of the parties that the
arbitration provisions hereof be enforced to the fullest extent permitted by
applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each
16
<PAGE> 17
claim separately. The Prevailing Party shall be the party who has obtained the
greater relief in connection with any particular claim, although, with respect
to any claim, it may be determined that there is no Prevailing Party.
6.14 UNIQUE AGREEMENT; ADVICE OF COUNSEL. This Agreement includes
provisions unique to the Purchaser and is independent of the employment terms of
any other employee or purchaser of the Company's stock. The Company acknowledges
the Purchaser's advice that the Company seek independent legal counsel with
respect to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ CHRIS MASSEY By: /s/ DAVID H. HOFFMANN
------------------------------- ---------------------------------
Name: Chris Massey Name: David H. Hoffmann
----------------------------- -------------------------------
Title: CEO
----------------------------
Address: Address:
44 Locust Road
695 Town Center Drive, Suite 400 ------------------------------------
Costa Mesa, California 92626 Winnetka, Ill.
------------------------------------
Telephone No.: 847-446-1367
Telephone No.: (714) 429-5500 ----------------------
Facsimile No.: (714) 429-5559
17
<PAGE> 18
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of Release
E. Form of the Stockholder Agreement
F. Section 83(b) Election Form
<PAGE> 19
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
Aggregate Number of Shares: 857,142
Aggregate Purchase Price: $2,142,855
Cash Payment: $857.14
Note: $2,141,997.86
Maximum IPO Shares: 171,428
<PAGE> 20
SCHEDULE 4
VESTING SCHEDULE
The Shares consist of 857,142 "EMPLOYMENT SHARES."
EMPLOYMENT SHARES
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the Employment Shares will lapse and the Employment
Shares will vest in installments as described below, provided, however, that
except as set forth in this Schedule 4, in order for Employment Shares eligible
to vest for any Measurement Period to vest, the Purchaser must have remained an
employee of the Employer from the date hereof through the last day of that
Measurement Period.
On the last day of each of the Measurement Periods set forth in
the table below, if the Purchaser has remained an employee of the Employer from
the date hereof through the last day of such Measurement Period, the
Restrictions will lapse with respect to such number of Employment Shares as is
equal to the product of the Vesting Percentage corresponding to that Measurement
Period and the total number of Employment Shares.
<TABLE>
<CAPTION>
VESTING
MEASUREMENT PERIOD PERCENTAGE
<S> <C>
September 1, 1999 - December 31, 1999 8.4%
January 1, 2000 - December 31, 2000 25%
January 1, 2001 - December 31, 2001 25%
January 1, 2002 - December 31, 2002 25%
January 1, 2003 - September 1, 2003 16.6%
</TABLE>
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by the
Employer without "Cause" or by the Purchaser with "Good Reason" (each as defined
in the Employment Agreement), the Restrictions will immediately lapse and
vesting will immediately occur with respect to all of the Shares not already
vested. If employment of the Purchaser with the Employee terminates as a result
of the Purchaser's death or Disability (as defined in the Employment Agreement),
the Restrictions will immediately lapse with respect to half of the Shares not
then already vested.
FRACTIONAL SHARES
Fractional vested Shares will be carried forward and combined to
constitute whole vested Shares that can be issued, or repurchased by the Company
or its assignee at fair market value on the date of repurchase.
<PAGE> 1
EXHIBIT 10.6
AMENDMENT TO RESTRICTED STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO RESTRICTED STOCK PURCHASE AGREEMENT (this "STOCK
AMENDMENT") is entered into as of November 24, 1999 (the "EFFECTIVE DATE") by
and between David H. Hoffmann ("PURCHASER") and EPS Solutions Corporation, a
Delaware corporation (the "COMPANY").
A. Purchaser and the Company entered into that certain Restricted Stock
Purchase Agreement dated as of September 1, 1999 (the "STOCK AGREEMENT")
pursuant to which Purchaser acquired 857,142 shares of Series A Common Stock of
the Company (the "SHARES") that are subject to restrictions and vest based upon
continued employment of Purchaser with the Company or its subsidiaries.
B. In connection with Purchaser's assumption of the duties of Chief
Executive Officer and in order to reward Purchaser for his leadership in
transitioning management of the Company from its founders, Purchaser and the
Company desire to amend certain provisions of the Stock Agreement as set forth
herein.
THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser and the Company hereby agree as follows:
1. Schedule 4 to the Stock Agreement is hereby amended to read in
its entirety as set forth on Schedule 4 attached hereto.
2. Purchaser hereby makes to the Company with respect to the
Shares and the Stock Agreement the same acknowledgement as is set forth in the
last sentence of Section 4.5 of the Restricted Stock Purchase Agreement entered
into by Purchaser and the Company as of November 24, 1999.
3. This Stock Amendment, and the Stock Agreement as amended
hereby, supersede all prior agreements related to the subject matter hereof and
thereof.
4. This Stock Amendment may be executed in counterparts, each of
which shall be an original but all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment to Employment Agreement as of the date set forth above.
PURCHASER EPS SOLUTIONS CORPORATION
/s/ DAVID H. HOFFMANN By: /s/ MARK C. COLEMAN
- -------------------------------- -----------------------------------
David H. Hoffmann Name: Mark C. Coleman
---------------------------------
Title: EVP/CFO
--------------------------------
<PAGE> 2
SCHEDULE 4 TO
AMENDMENT TO RESTRICTED STOCK PURCHASE AGREEMENT
VESTING SCHEDULE
The Shares consist of 857,142 "EMPLOYMENT SHARES."
EMPLOYMENT SHARES
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the Employment Shares will lapse and the Employment
Shares will vest in installments as described below, provided, however, that
except as set forth in this Schedule 4, in order for Employment Shares eligible
to vest for any Measurement Period to vest, the Purchaser must have remained an
employee of the Employer from the date hereof through the last day of that
Measurement Period.
On the last day of each of the Measurement Periods set forth in the
table below, if the Purchaser has remained an employee of the Employer from the
date hereof through the last day of such Measurement Period, the Restrictions
will lapse with respect to such number of Employment Shares as is equal to the
product of the Vesting Percentage corresponding to that Measurement Period and
the total number of Employment Shares.
<TABLE>
<CAPTION>
VESTING
MEASUREMENT PERIOD PERCENTAGE
- ------------------ ----------
<S> <C>
September 1, 1999 - December 31, 1999 50%
January 1, 2000 - December 31, 2000 25%
January 1, 2001 - December 31, 2001 25%
</TABLE>
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by the
Employer without "Cause" or by the Purchaser with "Good Reason" (each as defined
in the Employment Agreement), the Restrictions will immediately lapse and
vesting will immediately occur with respect to all of the Shares not already
vested. If the employment of the Purchaser is terminated as a result of the
Purchaser's "Disability" (as defined in the Employment Agreement) or as a result
of the Purchaser's death, the Restrictions will immediately lapse with respect
to half of the Shares not then already vested.
FRACTIONAL SHARES
Fractional vested Shares will be carried forward and combined to
constitute whole vested Shares that can be issued, or repurchased by the Company
or its assignee at fair market value on the date of repurchase.
<PAGE> 1
EXHIBIT 10.7
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of November 24, 1999 (the "EFFECTIVE DATE") by and
between EPS Solutions Corporation, a Delaware corporation (the "COMPANY") and
David H. Hoffmann (the "PURCHASER").
A. The Purchaser is employed by the Company's wholly owned
subsidiary Enterprise Profit Solutions Corporation, a Delaware corporation
("EPS") or any of its affiliates (the "EMPLOYER") and has entered into that
certain Employment Agreement with the Employer dated as of November 1, 1999 (the
"EMPLOYMENT AGREEMENT").
B. In connection with that employment, the Purchaser is being
offered an opportunity to purchase shares of the common stock of the Company,
par value $0.001 per share (the "COMMON STOCK") at a price of $2.50 per share.
C. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain performance
related milestones described herein are not met.
D. The Shares shall be subject to certain additional restrictions
as set forth herein.
E. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Common Stock set forth
on Schedule 1.1 (the "SHARES") for the consideration of $2.50 per Share,
resulting in an aggregate purchase price as set forth on Schedule 1.1 (the
"PURCHASE PRICE"). Concurrently herewith the Purchaser is paying to the Company
in cash $0.001 per Share, resulting in an aggregate payment of the amount set
forth on Schedule 1.1 under the item "Cash Payment" (the "CASH PAYMENT"). The
obligation of the Purchaser to pay the remainder of the Purchase Price in the
amount set forth on Schedule 1.1 under the item "Note" is evidenced by the
Purchaser's delivery to the Company concurrently herewith of a secured
promissory note of the Purchaser in the form attached hereto as Exhibit A (the
"NOTE"). The Note is secured by a pledge of the Shares made pursuant to Section
5 of the Note. The Shares are sold pursuant to and governed by this Agreement
and not any other contract or plan of the Company.
<PAGE> 2
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current
2
<PAGE> 3
needs and personal contingencies, and has no need for liquidity and can sustain
a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and hereby represents his accredited status by
confirming to the Company the information provided in connection with his
previous purchases of restricted stock of the Company pursuant to a
questionnaire in the form of Exhibit B hereto (the "ACCREDITED INVESTOR
QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund
except as specifically set forth in a written agreement between the Purchaser
and the Company.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has limited
financial and operating history.
(ii) There can be no assurance that the Company will
acquire any more businesses, that the Company will be successful in
accomplishing the purpose for which it was formed or that it will ever be
profitable. No assurance can be given regarding (A) whether the companies
acquired by the Company in the Consolidation Transactions can be successfully
integrated and operated, or (B) what companies will ultimately be acquired by
the Company. No company is obligated to participate in the Additional
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company and such Additional Consolidation Transaction company.
(iii) No assurances can be given that an initial public
offering ("IPO") of the Company's securities will occur. If an IPO does occur,
no assurances can be given as to timing of the IPO, whether the Purchaser will
be able to participate, or the price at which any shares of Common Stock would
be sold.
(iv) No assurances can be given as to the ultimate value of
the Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions,
any IPO, and the Company's management and operations will be made by the
Company's management.
3
<PAGE> 4
(b) The Purchaser acknowledges that no assurances have been made
to the Purchaser with respect to any of the foregoing and no representations,
oral or written, have been made to the Purchaser by the Company or any of its
employees, representatives or agents concerning the Shares, their potential
value or the prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Sponsors
and the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
4
<PAGE> 5
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, federal, state or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock and 10,000,000 shares of undesignated
preferred stock. All capital stock of the Company has a par value of $0.001 per
share. The Shares, when issued, sold, and delivered in accordance with the terms
of this Agreement for the consideration expressed herein will be duly and
validly issued, fully paid, and nonassessable, except that the Purchaser may be
required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS AND STOCKHOLDER AGREEMENT.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional requirements or restrictions
contained herein have been satisfied, terminated or expressly waived by the
Company in writing. Any attempted transfer in violation of such Restrictions
will be void.
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(b) The Restrictions will lapse and the Shares will vest in
accordance with the provisions in Schedule 4 (the "VESTING SCHEDULE"), provided,
however, that the Company, in its discretion, may from time to time accelerate
the vesting of any Shares at any time or forgive Restrictions and allow Shares
or restricted shares owned by any other party to vest notwithstanding that the
conditions to vesting thereof may not have been satisfied.
(c) In addition to any repurchase rights of the Company set forth
in Schedule 4, the Company, or its assignee, may, in the Company's discretion,
at any time and from time to time for a period of one (1) year following the end
of each Measurement Period (as described in Schedule 4), repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all of the Shares that were eligible
to vest but did not vest in accordance with the Vesting Schedule for such
Measurement Period. Shares originally corresponding to any Measurement Period
that cannot vest because of failure prior to the end of that Measurement Period
of conditions to vesting thereof may be repurchased at any time and from time to
time from the failure of such conditions to the end of the applicable repurchase
period specified herein. Any Shares that do not vest in accordance with the
Vesting Schedule shall be subject to repurchase by the Company regardless of the
services performed, or other consideration given, by the Purchaser to the
Company. Shares not vested in accordance with the Vesting Schedule but not
repurchased by the Company during the applicable repurchase periods described
herein (including in Schedule 4) shall vest.
(d) (i) Termination of the Purchaser's employment by the
Employer under the circumstances described in Schedule 4 under the heading
"Vesting Upon Certain Termination of Employment" will cause vesting as described
therein, provided that the vesting of any Shares upon termination of the
Purchaser's employment with the Employer, or subsequent to such termination
shall be contingent upon execution and delivery by the Purchaser to the Company
of an unconditional release in substantially the form attached hereto as Exhibit
D. Upon such a termination of employment, any Shares that do not vest as
described therein will be subject to repurchase in the manner described in
Section 4(d)(ii).
(ii) In case of termination of the Purchaser's employment
by the Employer for any reason other than a reason that causes vesting as
described in Schedule 4, the Company or its assignee may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following the termination of employment, repurchase from the Purchaser at the
price per Share that the Purchaser paid to the Company, and the Purchaser will
sell to the Company, any or all of the Shares designated by the Company that
have not vested as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set
forth above, if any of the events or circumstances constituting "Cause" listed
in Schedule 1 of the Purchaser's Employment Agreement occurs at any time before
the end of the final Measurement Period, then notwithstanding any vesting
provided for herein the Company or its assignee may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following such occurrence, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all Shares designated by the
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Company that had not vested at the time of such occurrence, or that vested
effective as of a date within 365 days before such occurrence, provided however,
that (i) if the Purchaser's employment with the Employer was terminated by the
Employer without Cause or by the Purchaser for Good Reason (each as defined in
the Employment Agreement), or (ii) the Purchaser's employment with the Employer
is terminated by the Purchaser or the Employer (or its successor) within one
hundred twenty (120) days after a Change in Control (as defined in the
Employment Agreement) of the Company, then the Company will not be entitled to
repurchase vested Shares pursuant to this subparagraph (iii) solely because of
the occurrence after termination of employment of any of the events or
circumstances constituting Cause listed in item A of Schedule 1 of the
Purchaser's Employment Agreement.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase any
Shares under this Agreement but the Purchaser cannot deliver such Shares to the
Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other parties that are subject to
restrictions, or to accelerate vesting or forgive Restrictions applicable to
such Common Stock, shall be within the discretion of the Company. The Company
may (but will not be required to) exercise its right to repurchase, accelerate,
or forgive Restrictions with respect to any or all shares of restricted Common
Stock owned by the Purchaser or any third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Common Stock owned by the Purchaser or any third party.
(g) The Shares shall be subject to the Stockholder Agreement previously
entered into by the Purchaser (the "STOCKHOLDER AGREEMENT") restricting
transfers and imposing certain obligations upon the Purchaser, which must be
executed and delivered by the Purchaser as described in Section 5.2(b). Shares
that have vested shall nevertheless be governed by the Stockholder Agreement.
The Company's repurchase rights hereunder will supersede the purchase provisions
of the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the
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Purchaser has paid to the Company the full Purchase Price for such Shares, and
an amount sufficient to satisfy any taxes or other amounts required by any
Governmental Entity to be withheld and paid over to such Governmental Entity for
the Purchaser's account, or otherwise made arrangements satisfactory to the
Company for payment of such amounts through withholding or otherwise, and (b)
the Purchaser has, if requested by the Company, made appropriate representations
in a form satisfactory to the Company that such Shares will not be transferred
other than (i) pursuant to an effective registration statement under the
Securities Act, or an applicable exemption from the registration requirements of
the Securities Act; (ii) in compliance with all applicable state securities laws
and regulations; and (iii) in compliance with all terms and conditions of the
Stockholder Agreement.
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set
forth in this Agreement and the Stockholder Agreement, the Shares (or interests
therein) cannot be offered, sold or transferred unless the Shares are registered
and qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder
Agreement, the Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE
SHARES OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a
condition to transfer of any Shares or interest therein, cause the transferee to
enter into the Stockholder Agreement, provided that, with respect to each such
agreement, this requirement will not apply to transfers made after the agreement
has terminated.
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(d) In connection with any underwritten public offering of
securities of the Company or any of its affiliates within three (3) years of the
date hereof, if the managing underwriter believes that it is appropriate in
connection with the offering to limit public sales of such securities by
Company's stockholders, the Purchaser will agree to the managing underwriter's
standard form of "lock up" agreement prohibiting transfers of any Common Stock
owned by the Purchaser, including without limitation shares acquired other than
pursuant hereto (other than shares included in the offering) for such period as
may be required by the managing underwriter not to exceed twenty (20) days prior
to, and one hundred and eighty (180) days after, the effective date of the
registration statement for such offering, provided however, that (i) such lock
up provision may not be invoked more than once in any 365 day period, (ii) such
lock up provision will be contingent upon the officers and directors of the
registrant entering into similar lock up agreements, and (iii) the Purchaser
will not be required to comply with this lock up provision if any other
stockholder owning more shares of Common Stock than the Purchaser and who is
subject to a contractual lock up provision similar to this one has been released
from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, the Purchaser will
have all of the rights of a stockholder of the Company with respect to all of
the Shares, including without limitation the right to receive all dividends or
other distributions with respect to such Shares. In connection with the payment
of such dividends or other distributions, the Company will be entitled to deduct
any taxes or other amounts required by any Governmental Entity to be withheld
and paid over to such Governmental Entity for the Purchaser's account.
4.4 CHANGE IN CONTROL. Notwithstanding anything in this Agreement or
other agreements to the contrary, any unvested Shares shall vest and the
Restrictions shall lapse as of immediately before the closing of a transaction
that constitutes a Change in Control (as defined in the Employment Agreement),
or upon a Change in Control other than a transaction, in any case that occurs
during Employee's employment by the Company or any of its affiliates or within
90 days thereafter. Accordingly, the Company will defer its repurchase rights
hereunder for at least such 90 day period.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit E, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise. Purchaser
hereby acknowledges that (a) any information provided to the Purchaser by the
Company in connection with making an election pursuant to Section 83(b) has been
provided as a courtesy, (b) the Purchaser is fully responsible for making
elections pursuant to Section 83(b), (c) the
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Company has not rendered any tax advice to the Purchaser in connection with
making such an election, and (d) the Purchaser should consult with the
Purchaser's independent tax advisers on such matters.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of
any of the Shares, or to participate in any registration undertaken by the
Company except as set forth in this Section 4.7. If the Company files a
registration statement with the Securities and Exchange Commission for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then the
Purchaser shall have the right, subject to the limitations set forth in this
Section 4.7(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by the Purchaser.
Other stockholders (including but not limited to stockholders who acquired
Common Stock in the Consolidation Transactions and stockholders who acquired
Common Stock in the formation, or work on behalf of, the Company) will have
rights to include shares of Common Stock in such offering, and if the aggregate
amount of shares that all stockholders with such rights (collectively, the
"SELLING STOCKHOLDERS") desire to include exceeds the number of shares of Common
Stock that can be sold by all Selling Stockholders, then all Selling
Stockholders desiring to sell in any such offering will participate pro-rata on
the basis of the relative numbers of shares of Common Stock eligible for
inclusion that they originally sought to include. However, notwithstanding the
foregoing no Selling Stockholder will be permitted to include in any such
registration and offering (i) any Shares subject to performance-related
restrictions at the time of filing of the registration statement for such
offering, or (ii) more than, in the aggregate for all such registrations and
offerings, half of the Shares and other Common Stock owned by the Purchaser as
of the date hereof. Furthermore, in no case will the Purchaser be permitted to
include in the IPO registration and offering more than the number of Shares
listed on Schedule 1.1 under the item "Maximum IPO Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes
any securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein
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not misleading, except insofar as such claims, costs or liabilities are caused
by any untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished in writing to the
Company by the Purchaser expressly for use therein, for which the Purchaser will
be responsible.
(c) Shares may only be included in a registration and offering
pursuant to this Section 4.7, pursuant to the underwriting agreement negotiated
between the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are
registered pursuant to the Securities Exchange Act of 1934, as amended, the
Company shall use its best efforts to fulfill all conditions applicable to a
registrant as are necessary to enable selling security holders of the Company to
make sales pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable
damage would occur if any of the obligations of the parties under this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the
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Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
4.11 CERTAIN ADDITIONAL RIGHTS. Reference is made to that certain
Amendment Agreement made as of October 7, 1999 between the Company and the
Purchaser (the "AMENDMENT AGREEMENT"). The provisions of the Amendment Agreement
will apply to (i) the Shares issued pursuant to this Agreement in the same
manner as to the Corporation Employment Shares described in the Amendment
Agreement, and (ii) the Note made by the Purchaser pursuant to this Agreement in
the same manner as to the Note described in the Amendment Agreement.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company
shall deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser
shall deliver to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and
the Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section
4.1(g); and
(ii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such
other duly executed certificates, instruments and documents in furtherance of
the transactions contemplated by this Agreement and the other Transaction
Documents as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being
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mailed by certified or registered mail, postage prepaid, return receipt
requested, or one (1) business day after being sent via a nationally recognized
overnight courier service if overnight courier service is requested from such
service or upon receipt of electronic or other confirmation of transmission if
sent via facsimile, to the parties, their successors in interest or their
assignees at the addresses and telephone numbers set forth on the signature page
hereof or at such other addresses or telephone numbers as the parties may
designate by written notice in accordance with this Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement. This Agreement will be binding upon the successors and
assignees of the Company.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that
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jurisdiction, be ineffective to the extent of such invalidity, illegality, or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
or any other Transaction Document invalid, illegal, or unenforceable in any
other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to
this Agreement shall be solely and finally settled by arbitration administered
by the American Arbitration Association (the "AAA") in accordance with its
Commercial Arbitration Rules as then in effect (the "RULES"), except to the
extent such Rules vary from the following provisions. Notwithstanding the
previous sentence, the parties hereto may seek provisional remedies in courts of
appropriate jurisdiction and such request shall not be deemed a waiver of the
right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating
to this Agreement also arises out of or relates to the employment of the
Purchaser by the Employer, the provisions of this Agreement governing dispute
resolution shall govern resolution of such controversy or claim. The provisions
of this Agreement governing dispute resolution supersede any provisions relating
to such matters in any employment agreement between the Purchaser and the
Employer.
(iii) The arbitration shall be conducted by one independent
and impartial arbitrator, appointed by the AAA; provided however, if the claim
and any counterclaim, in the aggregate, together with other arbitrations that
are consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand
Dollars ($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees,
the dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties agree to another
location.
(b) If a party hereto determines to submit a dispute for
arbitration pursuant to this Section 6.11, such party shall furnish the other
party with whom it has the dispute with a notice of arbitration as provided in
the Rules (an "ARBITRATION NOTICE") which, in addition to the items required by
the Rules, shall include a statement of the nature, with reasonable detail, of
the dispute. A copy of the Arbitration Notice shall be concurrently provided to
the AAA, along with a copy of this Agreement, and if pursuant to Section 6.11(a)
one (1) Arbitrator is to be appointed, a request to appoint the Arbitrator. If a
party has a counterclaim against the other party, such party shall furnish the
party with whom it has the dispute a notice of such claim as provided in the
Rules (a "NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the
Arbitration Notice, which, in addition to the items required by the Rules, shall
include a statement of the nature, with reasonable detail, of the dispute. A
copy of the Notice of Counterclaim shall be concurrently
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provided to the AAA. If the claim set forth in the Notice of Counterclaim causes
the aggregate amount in dispute to exceed the Threshold, the Notice of
Counterclaim shall so state. If pursuant to Section 6.11(a) three (3)
Arbitrators are to be appointed, within fifteen (15) days after receipt of the
Arbitration Notice or the Notice of Counterclaim as applicable, each party shall
select one person to act as Arbitrator and the two (2) selected shall select a
third arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third arbitrator
within such time, the third arbitrator shall be selected by the AAA. Each
arbitrator shall be a practicing attorney or a retired or former judge with at
least twenty (20) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule
a pre-hearing conference to reach agreement on procedural and scheduling
matters, arrange for the exchange of information, obtain stipulations and
attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least
three (3) days before the arbitration hearing, specifying the facts each intends
to prove and analyzing the applicable law. The parties have the right to
representation by legal counsel throughout the arbitration proceedings. The
presentation of evidence at the arbitration hearing shall be governed by the
Federal Rules of Evidence. Oral evidence given at the arbitration hearing shall
be given under oath. Any party desiring a stenographic record may secure a court
reporter to attend the arbitration proceedings. The party requesting the court
reporter must notify the other parties and the Arbitrator of the arrangement in
advance of the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more
arbitrations involving other parties, which arise under agreement(s) between the
Company and such other parties, if more than one such arbitration is commenced
and any party thereto contends that two or more arbitrations are substantially
related and that the issues should be heard in one proceeding. The Arbitrator
selected in the first-filed of such proceedings shall determine whether, in the
interests of justice and efficiency, the proceedings should be consolidated
before that Arbitrator.
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(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of
the Arbitrator shall be final. It is the intent of the parties that the
arbitration provisions hereof be enforced to the fullest extent permitted by
applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
16
<PAGE> 17
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ MARK C. COLEMAN By: /s/ DAVID H. HOFFMANN
-------------------------------- -----------------------------------
Name: Mark C. Coleman Name: David H. Hoffmann
------------------------------
Title: EVP/CFO
-----------------------------
Address: Address:
695 Town Center Drive, Suite 400 --------------------------------------
Costa Mesa, California 92626
--------------------------------------
Telephone No.: (714) 429-5500 Telephone No.:
Facsimile No.: (714) 429-5559 ------------------------
17
<PAGE> 18
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of Release
E. Section 83(b) Election Form
<PAGE> 19
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
Aggregate Number of Shares: 1,000,000
Aggregate Purchase Price: $2,500,000
Cash Payment: $ 1,000.00
Note: $2,499,000
Maximum IPO Shares: 200,000
<PAGE> 20
SCHEDULE 4
VESTING SCHEDULE
The Shares consist of 1,000,000 "EMPLOYMENT SHARES." The Employment
Shares consist of three installments: the "First Installment," consisting of
333,334 shares, the "Second Installment," consisting of 333,333 shares, and the
"Third Installment," consisting of 333,333 shares.
EMPLOYMENT SHARES
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to each installment of the Employment Shares will lapse
and the Employment Shares will vest as described below, provided, however, that
except as set forth in this Schedule 4, in order for any Employment Shares to
vest, the Purchaser must have remained an employee of the Employer from the date
hereof through the date that conditions to vesting of those Shares are met in
full.
The First Installment will vest if, not later than December 31, 2000,
the Purchaser has recruited, and the Company's board of directors (the "BOARD")
has appointed, at least three new directors who (i) before their appointment had
never been stockholders or employees of the Company or any of its Affiliates,
and (ii) through their experience and expertise, name recognition and
credibility have the ability to add materially to the value of the Company.
The Second Installment will vest if, not later than June 30, 2001, the
Purchaser has, in the reasonable discretion of the Board, caused the Company and
its Affiliates to complete a repositioning of the Company to enhance the
Company's prospects for profitability, growth, and an IPO or other liquidity
event with significant stockholder value, based upon the Company's assets,
market, and advice of the Company's investment bankers.
The Third Installment will vest if, not later than June 30, 2002, the
Purchaser has caused the Company to close the initial public offering of its
equity securities or another transaction that, in the reasonable discretion of
the Board, provides significant improvement in stockholder value and liquidity.
The "MEASUREMENT PERIOD" for each installment of Employment Shares is
the period from the date of this Agreement through the deadline set forth above
for the satisfaction of the performance criteria associated with that
installment.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by the
Employer without "Cause" or by the Purchaser with "Good Reason" or as a result
of the Purchaser's "Disability" (each as defined in the Employment Agreement) or
as a result of the Purchaser's death, the Restrictions will immediately lapse
and vesting will immediately occur with respect to all of the Shares not already
vested.
<PAGE> 21
FRACTIONAL SHARES
Fractional vested Shares will be carried forward and combined to
constitute whole vested Shares that can be issued, or repurchased by the Company
or its assignee at fair market value on the date of repurchase.
2
<PAGE> 1
EXHIBIT 10.8
FIRST EMPLOYMENT AGREEMENT AMENDMENT
(PRIVATE EQUITY FEES)
THIS FIRST EMPLOYMENT AGREEMENT AMENDMENT (this "AGREEMENT") is entered
into effective as of December 31, 1999 (the "EFFECTIVE DATE") by and between
Enterprise Profit Solutions Corporation, a Delaware corporation (the "COMPANY")
and wholly owned subsidiary of EPS Solutions Corporation, a Delaware corporation
("EPS"), and David H. Hoffmann ("EMPLOYEE").
A. The Company, EPS and Employee entered into an Employment Agreement
(the "EMPLOYMENT AGREEMENT") on November 24, 1999.
B. In March 2000, the board of directors of EPS authorized the payment
of $1.2 million to Hoffmann Investment Company, Inc., an entity controlled by
Employee, in exchange for, among other things, Employee forfeiting his right to
receive as a bonus certain private equity fees received by the Company through
executive search services performed by the Company through its DHR division, all
as more particularly described below.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereto acknowledge and agree as follows:
1. DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Employment Agreement.
2. FORFEITURE. Notwithstanding any provision of the Employment Agreement
to the contrary, Employee acknowledges and agrees that Employee is hereby
forfeiting all of Employee's rights to the Equity Fees reflected in the
Company's 1999 accounting records as "FORFEITED EQUITY." The Forfeited Equity
shall remain the sole property of the Company and Employee shall have no further
rights whatsoever to the Forfeited Equity.
3. RETAINED EQUITY. The Company acknowledges and agrees that the Equity
Fees designated in the Company's 1999 accounting records as "RETAINED EQUITY"
have not been forfeited by Employee and that Employee has received the Retained
Equity as a bonus in accordance with Section 4(d) of the Employment Agreement.
4. FUTURE EQUITY. The company acknowledges and agrees that this
Agreement shall in no way effect Employee's rights pursuant to Section 4(d) of
the Employment Agreement to receive as a bonus Equity Fees received by the
Company after January 1, 2000 and prior to the Termination Date.
5. INCORPORATION BY REFERENCE. Section 11 (Miscellaneous) of the
Employment Agreement, except Section 11(d), is hereby incorporated by reference.
Whenever the term "Agreement" is used in Section 11 as incorporated herein, the
term "Agreement" shall refer to this Agreement.
<PAGE> 2
6. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes and
replaces all prior agreements, if any, with respect to the subject matter
hereof, except the Employment Agreement which shall be read in conjunction with
this Agreement. To the extent that any provision of the Employment Agreement
conflicts with a provision of this Agreement, this Agreement shall control. No
oral statements or prior written agreements with respect to the subject matter
hereof which are not specifically incorporated herein or in the Employment
Agreement shall be of any force or effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
EMPLOYEE THE COMPANY
Enterprise Profit Solutions Corporation
EPS Solutions Corporation
Signature: /s/ David H. Hoffmann By: /s/ Michael Goldstein
------------------------- ------------------------------------
Printed Name: David H. Hoffmann Name: Michael Goldstein
Title: Director
By: /s/ Early Price Pritchett III
---------------------------------
Name: Early Price Pritchett III
Title: Director
2
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of March 19, 1999 (the "EFFECTIVE DATE") by and between Holden Corporation,
an Illinois corporation (the "COMPANY") and an indirect wholly owned subsidiary
of EPS Solutions Corporation, a Delaware corporation ("EPS SOLUTIONS"), and
James F. Holden ("EMPLOYEE").
The Company desires to retain the services of Employee, and Employee
desires to render such services, on the terms set forth herein.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employee's employment with the Company will be at-will,
which means that either Employee or the Company may terminate Employee's
employment at any time for any reason or no reason without payment, penalty or
further obligation except as set forth in Section 8, provided, however, that
Employee's employment with the Company shall not be terminated without Cause
without Required Approval. For these purposes, "REQUIRED APPROVAL" means
approval by at least three members, including the member representing the
President's Council, of an executive management committee of EPS Solutions,
which committee shall consist of four (4) members of the senior management of
EPS Solutions and one (1) representative of the President's Council of EPS
Solutions.
2. DUTIES. Employee shall initially serve as Chief Executive Officer of
the Company. In that capacity, Employee shall have authority and be responsible
to manage the operations of the Company consistent with the Company's annual
business plan. The Company's annual business plan will be formulated by Employee
and approved by the appropriate Service Line Leader of Enterprise Profit
Solutions Corporation, a Delaware corporation, parent of the Company, and
subsidiary of EPS Solutions ("EPS"), and will, among other things, set forth
guidelines related to budgeting, capital expenditures, hiring and strategic
initiatives. Employee will formulate the business plan and manage the Company
with the primary goal of enhancing stockholder value by maximizing revenues and
profitability of the Company. Employee will have authority to bind the Company
to contracts that are consistent with Employee's duties and responsibilities
hereunder, subject to limitations consistent with EPS policies. Employee shall
perform such related duties and services as EPS's board of directors (the
"BOARD") and/or its Chief Executive Officer may from time to time assign,
provided however, that if Employee remains employed by the Company, Employee's
responsibility and authority within the Company will not be materially
diminished without Employee's written consent as long as shares of restricted
stock purchased by Employee pursuant to the Restricted Stock Purchase Agreement
described in Section 4 are subject to Restrictions (as defined in such
Restricted Stock Purchase Agreement) (the "RESTRICTED PERIOD"). Except as set
forth herein, Employee's position and duties may be changed at any time and from
time to time by the Board or Chief Executive Officer of EPS. Such duties shall
be rendered at such place or places as the Company shall require based upon the
interest, need, business and/or opportunities of the Company, provided however,
that for the Restricted Period, the principal place at which Employee renders
such
<PAGE> 2
duties shall not be relocated more than twenty-five (25) miles from the location
of such place on the date hereof without Employee's written consent.
3. TIME AND EFFORTS. (a) General. While employed by the Company (the
"EMPLOYMENT PERIOD"), Employee shall use his best efforts and devote his time
and attention to the business of the Company and any other subsidiaries or
divisions of EPS to which Employee may also be assigned on a full-time basis and
shall at all times faithfully and industriously and to the best of his or her
ability, experience and talent, perform all of the duties that may be required
of him or her pursuant to the terms hereof. During the Employment Period,
Employee shall not engage in any other employment or consulting activities other
than for the benefit of other subsidiaries or divisions of EPS to which Employee
may also be assigned without the express written consent of EPS. The foregoing
shall not preclude Employee from engaging in civic, charitable and/or religious
activities, directing his own investments, serving on boards of directors of
other entities, or writing books and articles, in each case consistent with past
practices, including fiction books, so long as such activities do not materially
interfere or conflict with Employee's duties hereunder.
(b) Writing. Employee shall own the copyright associated with, and
all royalties and other income derived from, all of Employee's writings (whether
completed before or after the date of this Agreement), provided however, that
(i) the Company shall have an exclusive, perpetual, fully paid license to copy
and use for the Company's own business purposes any of Employee's writings that
relate to the business of the Company, provided that the Company may not sell
Employee's writings other than as course materials sold as part of training
services or curricula provided by the Company and provided further that the
Company's license shall not violate that certain agreement dated as of December
16, 1988 by and among Jim Holden, the Company and John Wiley & Sons, Inc. or
that certain agreement dated as of May 28, 1998 by and between FoxPaw, Inc. and
John Wiley & Sons, Inc., and (ii) during the Employment Period, writings of
Employee related to the business of the Company will not be inconsistent with
the Business Plan or the best interests of the Company. Employee will not enter
into any publishing or other agreement after the date hereof that is
inconsistent with this Agreement. This Section 3(b) applies to FoxPaw, Inc. and
any other entity through which Employee may engage in writing or publishing.
This Section 3(b) will continue in effect notwithstanding any termination of
Employee's employment with the Company for any reason.
(c) Other Subsidiaries and Divisions. While concurrently assigned
to or employed by any subsidiary or division of EPS other than the Company,
Employee may divide his time between the Company and such other subsidiary or
division in such manner as Employee, in the reasonable exercise of his
discretion, sees fit, provided that Employee's allocation of his time and
efforts between the Company and such other subsidiary or division will be
consistent with the business plans of both the Company and such other subsidiary
or division and with efforts to maximize the profitability of both the Company
and such other subsidiary or division.
4. COMPENSATION. During the Employment Period, the Company shall pay
Employee at the annual rate of Two Hundred Fifty Thousand ($250,000) (as such
pay may be increased by the Company from time to time in its discretion, the
"ANNUAL SALARY") for all services rendered to the Company (but not other
subsidiaries or divisions of EPS) by Employee,
2
<PAGE> 3
payable in accordance with the Company's regular payroll policies, subject,
however, to withholding deductions, including without limitation social security
taxes and applicable federal, state and local income and other employment taxes.
Employee's Annual Salary will be reviewed no less frequently than annually, and
shall not be decreased at any time. In addition, in connection with employment
by the Company and services performed by Employee for the Company, Employee is
acquiring concurrently herewith restricted stock of EPS Solutions pursuant to a
Restricted Stock Purchase Agreements imposing restrictions based on the
performance of the Company. Subject to Section 4.14 of the stock purchase
agreement by and among the Company, its stockholders and EPS Solutions dated
March 19, 1999, the Company may, but shall not be obligated to, pay bonuses from
time to time to Employee in accordance with such plans or standards as the
Company may develop. Employee has no right to any specific compensation or
benefits other than as set forth herein or required pursuant to applicable law.
5. VACATION. Employee shall be entitled to 28 days of personal time off
("PTO") per year, consistent with the Company's policies as in effect from time
to time. PTO may be used, subject to approval by the Company consistent with
business needs, as it is earned. Employee may not accrue more than 28 days of
unused PTO. If Employee at any time has 28 days of accrued unused PTO, no
further PTO shall accrue until Employee again has fewer than 28 days of unused
PTO. The Company shall pay Employee for accrued unused PTO only in connection
with termination of employment. Such payment shall be made on the basis of
Employee's Annual Salary at the time of payment, pro-rated for the number of
accrued unused PTO days at the time of termination. In addition to the PTO
described above, Employee will have up to ten days of paid leave annually that
may be taken for vacation if Employee's absence during that time will not, in
the reasonable judgment of the Chief Executive Officer of EPS, adversely affect
the Company, provided that this paid leave (i) may be taken only if Employee has
no available PTO and (ii) will not accrue or entitle Employee to cash payment in
respect thereof, upon termination of employment or otherwise. PTO and paid leave
under this Agreement will not be duplicative of PTO and paid leave under any
other agreement between Employee and EPS or any of its affiliates, and Employee
will not be entitled to be paid for accrued unused PTO under this Agreement if,
at the time of termination of employment with the Company, Employee remains
employed by EPS or any of its affiliates pursuant to any arrangement under
which, upon termination of that employment, Employee will be entitled to be paid
for accrued unused PTO.
6. BENEFITS. In addition to the compensation described in Section 4, the
Company shall provide Employee with benefits consistent with the Company's
employment policies as in effect from time to time, provided that benefits under
this Agreement or in connection with employment by the Company will not be
duplicative of benefits under any other agreement between Employee and EPS or
any of its affiliates.
3
<PAGE> 4
7. CERTAIN DEFINITIONS.
(a) Cause. For purposes hereof, the term "CAUSE" has the meaning
set forth in Schedule 1 hereto. Any termination by the Company of Employee's
employment within 90 days after the Company's becoming aware of the occurrence
of an event or circumstance constituting "Cause" will constitute termination for
Cause.
(b) Good Reason. If the Company (1) breaches this Agreement in any
material respect and does not cure such breach within 15 days of receipt from
Employee of notice of such breach and demand for cure; (2) assigns Employee
duties materially inconsistent with Employee's status or adversely alters
Employee's responsibilities; (3) notifies Employee that Employee's principal
place of employment will be relocated in a manner inconsistent with the last
sentence of Section 2; (4) fails to pay any compensation due Employee within
fifteen (15) days of Employee's notice to the company that payment is overdue;
or (5) materially deviates from the Company's annual business plan unless
Employee causes or agrees to such deviation, and if Employee terminates
Employee's employment with the Company within 90 days of any of the foregoing,
such termination by Employee will be termination with "GOOD REASON" for purposes
hereof.
8. CERTAIN PAYMENTS.
(a) Termination by Employee with Good Reason or the Company
Without Cause. Subject to Section 8(c), if Employee's employment under this
Agreement is terminated by Employee with Good Reason or by the Company without
Cause, then contingent upon execution and delivery by Employee to the Company of
an unconditional release in form satisfactory to the Company of all claims
against EPS Solutions, EPS, the Company or any of their officers, directors or
affiliates arising from or in connection with this Agreement or Employee's
employment with the Company or the termination of that employment, Employee
shall be entitled to continue to receive regular monthly installments of his
Annual Salary in accordance with the Company's normal payroll schedule (the
"SEVERANCE PAYMENT") for the duration of the Severance Period. For purposes
hereof, the "SEVERANCE PERIOD" means 90 days following termination of
employment. Notwithstanding the foregoing, however, Employee will not be
entitled to receive any severance benefits of any kind from the Company in
connection with or following termination of Employee's employment with the
Company for any reason if at the time of such termination, Employee is employed
by EPS or any of its affiliates pursuant to a written employment agreement
providing for payment to Employee upon termination of employment that is at
least as favorable to Employee as the severance provisions of this Agreement,
including without limitation in terms of the actual amount of severance payable.
(b) No Other Benefits. Except as set forth in Section 8(a) or
Section 5 or as may be required by applicable law or separate written agreement
entered into after the date hereof between EPS Solutions, EPS or the Company and
Employee, the Company shall have no obligation to pay any salary, bonus, accrued
vacation, severance payment, benefits, or other amounts in connection with any
termination of Employee's employment (including without limitation by death, or
by Employee without Good Reason, or by the Company for Cause or disability), or
attributable to the period after termination of Employee's employment.
4
<PAGE> 5
(c) Post-Termination Cause. If any of the events or circumstances
constituting Cause listed in items A or B of Schedule 1 occurs during the
Severance Period, then (i) the Company will have no further obligation to
provide to Employee the Severance Payment, and (ii) the Company will be entitled
to recover from Employee any Severance Payment amounts paid to Employee or
Employee's successors and assigns, together with the costs of effecting such
recovery.
9. CONFIDENTIALITY. Employee shall execute the Confidential Information
and Employee Invention Agreement attached hereto as Exhibit A (the
"CONFIDENTIALITY AGREEMENT"), which will survive termination or expiration of
this Agreement.
10. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to
the Company that (a) he or she is under no contractual restriction or other
restrictions or obligations that are inconsistent with the execution of this
Agreement, the performance of his or her duties and the covenants hereunder, and
(b) he or she is under no physical or mental disability that would interfere
with his or her keeping and performing all of the agreements, covenants and
conditions to be kept or performed hereunder.
11. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of California, excluding its rules on
conflicts of law.
(b) Arbitration. Any dispute regarding the application,
interpretation or breach of this Agreement shall be resolved by final and
binding arbitration before the American Arbitration Association ("AAA") in
accordance with AAA's National Rules for the Resolution of Employment Disputes.
Reasonable attorney's fees, costs and damages (where appropriate) shall be
awarded to the prevailing party in any dispute, and any resolution, opinion or
order of AAA may be entered as a judgment in a court of competent jurisdiction.
(c) Modification and Waiver. No waiver or modification of this
Agreement or any term hereof shall be binding unless it is in writing signed by
the parties hereto. No failure to insist upon compliance with any term,
provision or condition to this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
(d) Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede and replace all prior employment
agreements, if any, between the parties. No oral statements or prior written
agreements with respect to the subject matter hereof which are not specifically
incorporated herein or in the Confidentiality Agreement shall be of any force or
effect.
(e) Severability. If any provisions hereof shall be held or
construed to be illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining provisions of this Agreement, but the same shall
be construed and enforced just as though the illegal or invalid provisions had
not been included herein.
5
<PAGE> 6
(f) Notices. Any notice, demand or other communication required,
permitted or desired to be given hereunder shall be in writing and shall be
deemed effectively given upon personal delivery, facsimile transmission (with
confirmation of receipt), delivery by reputable overnight delivery service or
five (5) days following deposit in the United States mail (if sent by certified
or registered mail, postage prepaid, return receipt requested), in each case
duly addressed to the Company at its headquarters or to Employee at his or her
address of record listed with the Company.
(g) Assignment. Employee's rights, duties and obligations under
this Agreement may not be assigned by Employee. The Company may assign its
rights, duties and obligations under this Agreement to any affiliate of the
Company.
(h) Headings. The section headings herein are intended for
reference and shall not affect in any way the construction or interpretation of
this Agreement.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
EMPLOYEE HOLDEN CORPORATION
Signature: /s/ JAMES F. HOLDEN BY: /s/ MARK C. COLEMAN
------------------------- ---------------------------------
James F. Holden
NAME: Mark C. Coleman
-------------------------------
TITLE: SVP
------------------------------
7
<PAGE> 8
SCHEDULE 1 TO
EMPLOYMENT AGREEMENT
"CAUSE" means the occurrence of any one or more of the following events
or circumstances, provided however, that if any such event or circumstance is
susceptible to cure by Employee, such event or circumstance will not constitute
Cause unless Employee has failed to cure such event or circumstance within 15
days after receipt by Employee of written notice thereof: (i) Employee engages
in any wrongful conduct that results in material damage to the Company or any
parent corporation of the Company, any subsidiary corporation of the Company or
any entity controlling, controlled by, or under common control with the Company
(an "AFFILIATED ENTITY"); (ii) any willful misconduct or gross negligence by
Employee in the responsibilities assigned to Employee hereunder or any willful
and material failure to perform Employee's duties hereunder or to follow
instructions from the Board or Chief Executive Officer of EPS that are not
inconsistent with this Agreement; (iii) Employee engages in any criminal conduct
(other than misdemeanors that do not meet the criteria described in item (i)
above) or actions involving moral turpitude; or (iv) Employee does any of the
things described in paragraphs (A) and (B) below. No act or failure to act on
Employee's part shall be deemed "willful" unless it is done, or omitted to be
done, by Employee not in good faith, and a reasonable person would not have
believed that the act, or failure to act, was in the best interests of the
Company.
(A) Employee renders services for any organization or engages directly
or indirectly in any business that (x) during Employee's employment with the
Company or any Affiliated Entity, is or becomes competitive with the Company or
any Affiliated Entity, or which organization or business, or the rendering of
services to such organization or business, is or becomes otherwise prejudicial
to or in conflict with the business or interests of the Company or any
Affiliated Entity, or (y) after termination of Employee's employment with the
Company or any Affiliated Entity, is or becomes competitive with the business
units of the Company or any Affiliated Entity to which Employee devoted
significant time and attention within the scope of Employee's employment
hereunder (the "BUSINESS UNITS"), or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the business or interests of the Business
Units.
(B) Employee fails to comply with the Confidentiality Agreement.
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of March 19, 1999 (the "EFFECTIVE DATE") by and between Enterprise Profit
Solutions Corporation, a Delaware corporation (the "COMPANY") and James F.
Holden ("EMPLOYEE").
The Company desires to retain the services of Employee, and Employee
desires to render such services, on the terms set forth herein.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employee's employment with the Company will be at-will,
which means that either Employee or the Company may terminate Employee's
employment at any time for any reason or no reason without payment, penalty or
further obligation except as set forth in Section 8, provided, however, that
Employee's employment with the Company shall not be terminated without Cause
without Required Approval. For these purposes, "REQUIRED APPROVAL" means
approval by at least three members, including the member representing the
President's Council, of an executive management committee of EPS Solutions
Corporation, the parent corporation of the Company ("EPS SOLUTIONS"), which
committee shall consist of four (4) members of the senior management of EPS
Solutions and one (1) representative of the President's Council of EPS
Solutions.
2. DUTIES. (a) Electronic Media Division. Employee shall initially serve
as Chief Executive Officer of the Company's Electronic Media Division (the
"EMD"), which will be formed by the Company to develop, produce, market, sell
and deliver training service through electronic media. In that capacity,
Employee shall have authority and be responsible to manage the operations of the
EMD consistent with the EMD's annual business plan. The EMD's annual business
plan will be formulated by Employee and approved by the appropriate Service Line
Leader of the Company, and will, among other things, set forth guidelines
related to budgeting, capital expenditures, hiring and strategic initiatives.
During the Option Period, as defined in that certain Agreement re eFox by and
among the Company, EPS Solutions, eFox, LLC, a Delaware limited liability
company ("eFOX"), and the members of eFox dated March 19, 1999 (the "eFOX
AGREEMENT"), and as long as the eFox Agreement has not been knowingly or
willfully or recklessly breached in a material respect by eFox or the members of
eFox (or any such breach has been cured and any material adverse effects of such
breach have been ameliorated in all material respects within 15 days of notice
of such breach), the Company will commit the Leased Employees (as defined in the
eFox Agreement) to work in the EMD under the day-to-day supervision of James F.
Holden or his successor as the Chief Executive Officer of the EMD, provided
however, that the Company and its affiliates will only be obligated to provide
to the EMD employees, assets, or other resources or support, the full cost of
which is paid or promptly recovered through profit generated by the EMD,
including without limitation leasing to eFox or any other third party of the
employees assigned to the EMD. Employee will formulate the business plan and
manage the EMD with the primary goal of enhancing stockholder value for the
Company by maximizing revenues and profitability of the EMD. Employee will have
authority to bind the Company to contracts that are consistent with Employee's
duties and responsibilities
<PAGE> 2
hereunder and the business plan. Employee shall perform such related duties and
services as the Company's board of directors (the "BOARD") and/or its Chief
Executive Officer may from time to time assign, provided however, that if
Employee remains employed by the Company, Employee's responsibility and
authority within the Company will not be materially diminished without
Employee's written consent as long as shares of restricted stock purchased by
Employee pursuant to the Restricted Stock Purchase Agreement described in
Section 4 are subject to Restrictions (as defined in such Restricted Stock
Purchase Agreement) (the "RESTRICTED PERIOD"). Except as set forth herein,
Employee's position and duties may be changed at any time and from time to time
by the Board or Chief Executive Officer of the Company. Such duties shall be
rendered at such place or places as the Company shall require based upon the
interest, need, business and/or opportunities of the EMD, provided however, that
for the Restricted Period, the principal place at which Employee renders such
duties shall not be relocated more than twenty-five (25) miles from the location
of such place on the date hereof without Employee's written consent.
(b) eFox Corporation. As long as Employee remains employed by the
Company in connection with the EMD and the Company provides employees and/or
management services to eFox, and subject to the discretion of the members of
eFox, Employee shall have authority and be responsible to manage the operations
of eFox in his capacity as an employee of the Company assigned to eFox.
Employee's authority and responsibility in managing eFox shall be exercised in
the same manner as described in Section 2(a) for the EMD. Further, Employee
shall cause eFox to perform its obligations under the eFox Agreement, and shall
use his best efforts to cause eFox to achieve the goals set forth from time to
time in the Business Plan described in the eFox Agreement.
3. TIME AND EFFORTS.
(a) General. While employed by the Company (the "EMPLOYMENT
PERIOD"), Employee shall use his best efforts and devote his time and attention
to the business of the EMD and any other subsidiaries or divisions of EPS to
which Employee may also be assigned on a full-time basis and shall at all times
faithfully and industriously and to the best of his or her ability, experience
and talent, perform all of the duties that may be required of him or her
pursuant to the terms hereof. During the Employment Period, Employee shall not
engage in any other employment or consulting activities other than for the
benefit of other subsidiaries or divisions of EPS to which Employee may also be
assigned without the express written consent of the Company. The foregoing shall
not preclude Employee from engaging in civic, charitable and/or religious
activities, directing his own investments, serving on boards of directors of
other entities, or writing books and articles in each case consistent with past
practices, including fiction books, so long as such activities do not materially
interfere or conflict with Employee's duties hereunder.
(b) Writing. Employee shall own the copyright associated with, and
all royalties and other income derived from, all of Employee's writings (whether
completed before or after the date of this Agreement), provided however, that
(i) the Company shall have an exclusive, perpetual, fully paid license to copy
and use for the Company's own business purposes any of Employee's writings that
relate to the business of the EMD and that are not the subject of a license to
the Company or any of its affiliates pursuant to some other agreement, provided
that the Company may not sell Employee's writings other than as course materials
sold as part of
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<PAGE> 3
training services or curricula provided by the Company and provided further that
the Company's license shall not violate that certain agreement dated as of
December 16, 1988 by and among Jim Holden, the Company and John Wiley & Sons,
Inc. or that certain agreement dated as of May 28, 1998 by and between FoxPaw,
Inc. and John Wiley & Sons, Inc., and (ii) during the Employment Period,
writings of Employee related to the business of the EMD will not be inconsistent
with the Business Plan or the best interests of the EMD. Employee will not enter
into any publishing or other agreement after the date hereof that is
inconsistent with this Agreement. This Section 3(b) applies to FoxPaw, Inc. and
any other entity through which Employee may engage in writing or publishing.
This Section 3(b) will continue in effect notwithstanding any termination of
Employee's employment with the Company for any reason.
(c) Other Subsidiaries and Divisions. While concurrently assigned
to or employed by any subsidiary or division of EPS other than the Company,
Employee may divide his time between the EMD and such other subsidiary or
division in such manner as Employee, in the reasonable exercise of his
discretion, sees fit, provided that Employee's allocation of his time and
efforts between the EMD and such other subsidiary or division will be consistent
with the business plans of both the EMD and such other subsidiary or division
and with efforts to maximize the profitability of both the EMD and such other
subsidiary or division.
4. COMPENSATION. During the Employment Period, the Company shall pay
Employee at the annual rate of Eighty-Five Thousand ($85,000) (as such pay may
be increased by the Company from time to time in its discretion, the "ANNUAL
SALARY") for all services rendered to the EMD (but not other subsidiaries or
divisions of the Company) by Employee, payable in accordance with the Company's
regular payroll policies, subject, however, to withholding deductions, including
without limitation social security taxes and applicable federal, state and local
income and other employment taxes. Employee's Annual Salary will be reviewed no
less frequently than annually, and shall not be decreased at any time. In
addition, in connection with employment by the Company and services performed by
Employee for the Company, Employee is acquiring concurrently herewith restricted
stock of EPS Solutions pursuant to a Restricted Stock Purchase Agreements
imposing restrictions based on the performance of the EMD. The Company may, but
shall not be obligated to, pay bonuses from time to time to Employee in
accordance with such plans or standards as the Company may develop. Employee has
no right to any specific compensation or benefits other than as set forth herein
or required pursuant to applicable law.
5. VACATION. Employee shall be entitled to 28 days of personal time off
("PTO") per year, consistent with the Company's policies as in effect from time
to time. PTO may be used, subject to approval by the Company consistent with
business needs, as it is earned. Employee may not accrue more than 28 days of
unused PTO. If Employee at any time has 28 days of accrued unused PTO, no
further PTO shall accrue until Employee again has fewer than 28 days of unused
PTO. The Company shall pay Employee for accrued unused PTO only in connection
with termination of employment. Such payment shall be made on the basis of
Employee's Annual Salary at the time of payment, pro-rated for the number of
accrued unused PTO days at the time of termination. In addition to the PTO
described above, Employee will have up to ten days of paid leave annually that
may be taken for vacation if Employee's absence during that time will not, in
the reasonable judgment of the Chief Executive Officer of EPS, adversely affect
the Company, provided that this paid leave (i) may be taken only if Employee
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<PAGE> 4
has no available PTO and (ii) will not accrue or entitle Employee to cash
payment in respect thereof, upon termination of employment or otherwise. PTO and
paid leave under this Agreement will not be duplicative of PTO and paid leave
under any other agreement between Employee and the Company or any of its
affiliates, and Employee will not be entitled to be paid for accrued unused PTO
under this Agreement if, at the time of termination of employment with the
Company, Employee remains employed by any of its affiliates pursuant to any
arrangement under which, upon termination of that employment, Employee will be
entitled to be paid for accrued unused PTO.
6. BENEFITS. In addition to the compensation described in Section 4, the
Company shall provide Employee with benefits consistent with the Company's
employment policies as in effect from time to time, provided that benefits under
this Agreement or in connection with employment by the Company will not be
duplicative of benefits under any other agreement between Employee and the
Company or any of its affiliates.
7. CERTAIN DEFINITIONS.
(a) Cause. For purposes hereof, the term "CAUSE" has the meaning
set forth in Schedule 1 hereto. Any termination by the Company of Employee's
employment within 90 days after the Company's becoming aware of the occurrence
of an event or circumstance constituting "Cause" will constitute termination for
Cause.
(b) Good Reason. If the Company (1) breaches this Agreement in any
material respect and does not cure such breach within 15 days of receipt from
Employee of notice of such breach and demand for cure; (2) assigns Employee
duties materially inconsistent with Employee's status or adversely alters
Employee's responsibilities; (3) notifies Employee that Employee's principal
place of employment will be relocated in a manner inconsistent with the last
sentence of Section 2(a); (4) fails to pay any compensation due Employee within
fifteen (15) days of Employee's notice to the company that payment is overdue;
or (5) materially deviates from the EMD's annual business plan unless Employee
causes or agrees to such deviation, and if Employee terminates Employee's
employment with the Company within 90 days of any of the foregoing, such
termination by Employee will be termination with "GOOD REASON" for purposes
hereof.
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<PAGE> 5
8. CERTAIN PAYMENTS.
(a) Termination by Employee with Good Reason or the Company
Without Cause. Subject to Section 8(c), if Employee's employment under this
Agreement is terminated by Employee with Good Reason or by the Company without
Cause, then contingent upon execution and delivery by Employee to the Company of
an unconditional release in form satisfactory to the Company of all claims
against EPS Solutions, the Company or any of their officers, directors or
affiliates arising from or in connection with this Agreement or Employee's
employment with the Company or the termination of that employment, Employee
shall be entitled to continue to receive regular monthly installments of his
Annual Salary in accordance with the Company's normal payroll schedule (the
"SEVERANCE PAYMENT") for the duration of the Severance Period. For purposes
hereof, the "SEVERANCE PERIOD" means 90 days following termination of
employment. Notwithstanding the foregoing, however, Employee will not be
entitled to receive any severance benefits of any kind from the Company in
connection with or following termination of Employee's employment with the
Company for any reason if at the time of such termination, Employee is employed
by any affiliate of the Company pursuant to a written employment agreement
providing for payment to Employee upon termination of employment with such
affiliate that is at least as favorable to Employee as the severance provisions
of this Agreement, including without limitation in terms of the actual amount of
severance payable.
(b) No Other Benefits. Except as set forth in Section 8(a) or
Section 5 or as may be required by applicable law or separate written agreement
entered into after the date hereof between EPS Solutions, or the Company and
Employee, the Company shall have no obligation to pay any salary, bonus, accrued
vacation, severance payment, benefits, or other amounts in connection with any
termination of Employee's employment (including without limitation by death, or
by Employee without Good Reason, or by the Company for Cause or disability), or
attributable to the period after termination of Employee's employment.
(c) Post-Termination Cause. If any of the events or circumstances
constituting Cause listed in items A or B of Schedule 1 occurs during the
Severance Period, then (i) the Company will have no further obligation to
provide to Employee the Severance Payment, and (ii) the Company will be entitled
to recover from Employee any Severance Payment amounts paid to Employee or
Employee's successors and assigns, together with the costs of effecting such
recovery.
9. CONFIDENTIALITY. Employee shall execute the Confidential Information
and Employee Invention Agreement attached hereto as Exhibit A (the
"CONFIDENTIALITY AGREEMENT"), which will survive termination or expiration of
this Agreement.
10. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to
the Company that (a) he or she is under no contractual restriction or other
restrictions or obligations that are inconsistent with the execution of this
Agreement, the performance of his or her duties and the covenants hereunder, and
(b) he or she is under no physical or mental disability that would interfere
with his or her keeping and performing all of the agreements, covenants and
conditions to be kept or performed hereunder.
11. MISCELLANEOUS.
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<PAGE> 6
(a) Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of California, excluding its rules on
conflicts of law.
(b) Arbitration. Any dispute regarding the application,
interpretation or breach of this Agreement shall be resolved by final and
binding arbitration before the American Arbitration Association ("AAA") in
accordance with AAA's National Rules for the Resolution of Employment Disputes.
Reasonable attorney's fees, costs and damages (where appropriate) shall be
awarded to the prevailing party in any dispute, and any resolution, opinion or
order of AAA may be entered as a judgment in a court of competent jurisdiction.
(c) Modification and Waiver. No waiver or modification of this
Agreement or any term hereof shall be binding unless it is in writing signed by
the parties hereto. No failure to insist upon compliance with any term,
provision or condition to this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
(d) Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede and replace all prior employment
agreements, if any, between the parties. No oral statements or prior written
agreements with respect to the subject matter hereof which are not specifically
incorporated herein or in the Confidentiality Agreement shall be of any force or
effect.
(e) Severability. If any provisions hereof shall be held or
construed to be illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining provisions of this Agreement, but the same shall
be construed and enforced just as though the illegal or invalid provisions had
not been included herein.
(f) Notices. Any notice, demand or other communication required,
permitted or desired to be given hereunder shall be in writing and shall be
deemed effectively given upon personal delivery, facsimile transmission (with
confirmation of receipt), delivery by reputable overnight delivery service or
five (5) days following deposit in the United States mail (if sent by certified
or registered mail, postage prepaid, return receipt requested), in each case
duly addressed to the Company at its headquarters or to Employee at his or her
address of record listed with the Company.
(g) Assignment. Employee's rights, duties and obligations under
this Agreement may not be assigned by Employee. The Company may assign its
rights, duties and obligations under this Agreement to any affiliate of the
Company.
(h) Headings. The section headings herein are intended for
reference and shall not affect in any way the construction or interpretation of
this Agreement.
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<PAGE> 7
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
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7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
EMPLOYEE ENTERPRISE PROFIT SOLUTIONS CORPORATION
Signature: /s/ JAMES F. HOLDEN BY: /s/ MARK C. COLEMAN
------------------------- ---------------------------------
James F. Holden
NAME: Mark C. Coleman
-------------------------------
TITLE: SVP
------------------------------
8
<PAGE> 9
SCHEDULE 1 TO
EMPLOYMENT AGREEMENT
"CAUSE" means the occurrence of any one or more of the following events
or circumstances, provided however, that if any such event or circumstance is
susceptible to cure by Employee, such event or circumstance will not constitute
Cause unless Employee has failed to cure such event or circumstance within 15
days after receipt by Employee of written notice thereof: (i) Employee engages
in any wrongful conduct that results in material damage to the Company or any
parent corporation of the Company, any subsidiary corporation of the Company or
any entity controlling, controlled by, or under common control with the Company
(an "AFFILIATED ENTITY"); (ii) any willful misconduct or gross negligence by
Employee in the responsibilities assigned to Employee hereunder or any willful
and material failure to perform Employee's duties hereunder or to follow
instructions from the Board or Chief Executive Officer of EPS that are not
inconsistent with this Agreement; (iii) Employee engages in any criminal conduct
(other than misdemeanors that do not meet the criteria described in item (i)
above) or actions involving moral turpitude; or (iv) Employee does any of the
things described in paragraphs (A) and (B) below. No act or failure to act on
Employee's part shall be deemed "willful" unless it is done, or omitted to be
done, by Employee not in good faith, and a reasonable person would not have
believed that the act, or failure to act, was in the best interests of the
Company.
(A) Employee renders services for any organization or engages directly
or indirectly in any business that (x) during Employee's employment with the
Company or any Affiliated Entity, is or becomes competitive with the Company or
any Affiliated Entity, or which organization or business, or the rendering of
services to such organization or business, is or becomes otherwise prejudicial
to or in conflict with the business or interests of the Company or any
Affiliated Entity, or (y) after termination of Employee's employment with the
Company or any Affiliated Entity, is or becomes competitive with the business
units of the Company or any Affiliated Entity to which Employee devoted
significant time and attention within the scope of Employee's employment
hereunder (the "BUSINESS UNITS"), or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the business or interests of the Business
Units.
(B) Employee fails to comply with the Confidentiality Agreement.
<PAGE> 1
EXHIBIT 10.11
FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT
THIS FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT (this
"AGREEMENT") is made and entered into as of March 19, 1999 (the "EFFECTIVE
DATE") by and between EPS Solutions Corporation, a Delaware corporation (the
"COMPANY") and James F. Holden (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and effective
as of December 14, 1998, the Company acquired approximately 38 companies
engaged in such business by means of acquisitions by the Company of all
or substantially all of the assets or stock or other equity interests of
such companies (collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
B. The Company intends to acquire various other companies (the
"ADDITIONAL CONSOLIDATION TRANSACTIONS," and with the Initial
Consolidation Transactions, the "CONSOLIDATION TRANSACTIONS").
C. The Purchaser is employed by the Company's wholly owned subsidiary
Enterprise Profit Solutions Corporation, a Delaware corporation ("EPS")
or any of its affiliates (the "EMPLOYER") to manage the Business (as
defined in Schedule 4) and has entered into that certain Employment
Agreement with the Employer of even date herewith (the "EMPLOYMENT
AGREEMENT").
D. The Purchaser and certain other persons affiliated with certain
companies acquired, being acquired or to be acquired by the Company in the
Consolidation Transactions and who are to serve as employees of the Employer
pursuant to employment agreements executed concurrently with the acquisition of
such companies (collectively, the "FOUNDERS") and certain persons responsible
for effecting the Consolidation Transactions and/or who are to serve as
employees of the Employer (the "SPONSORS") are being offered an opportunity to
purchase shares of the common stock of the Company, par value $0.001 per share
(the "COMMON STOCK") (in the case of Founders, generally Series A Common Stock
and in the case of Sponsors, generally Series B Common Stock) at a price of
$1.20 per share.
E. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain performance
related milestones described herein are not met.
F. The Shares shall be subject to certain additional restrictions
as set forth herein.
G. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
<PAGE> 2
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Series A Common Stock
set forth on Schedule 1.1 (the "SHARES") for the consideration of $1.20 per
Share, resulting in an aggregate purchase price as set forth on Schedule 1.1
(the "PURCHASE PRICE"). Concurrently herewith the Purchaser is paying to the
Company in cash $0.001 per Share, resulting in an aggregate payment of the
amount set forth on Schedule 1.1 under the item "Cash Payment" (the "CASH
PAYMENT"). The obligation of the Purchaser to pay the remainder of the Purchase
Price in the amount set forth on Schedule 1.1 under the item "Note" is evidenced
by the Purchaser's delivery to the Company concurrently herewith of a secured
promissory note of the Purchaser in the form attached hereto as Exhibit A (the
"NOTE"). The Note is secured by a pledge of the Shares made pursuant to Section
5 of the Note. The Shares are sold pursuant to and governed by this Agreement
and not any other contract or plan of the Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(d) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(e) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of
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<PAGE> 3
development to the Company and has sufficient knowledge and experience in
financial and business matters to assess the relative merits and risks of an
investment in the Shares. In connection with the purchase of the Shares, the
Purchaser has relied solely upon independent investigations made by the
Purchaser, and has consulted the Purchaser's own investment advisors, counsel
and accountants. The Purchaser has adequate means of providing for current needs
and personal contingencies, and has no need for liquidity and can sustain a
complete loss of the investment in the Shares.
(f) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(g) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has limited
financial and operating history.
(ii) There can be no assurance that any particular Additional
Consolidation Transactions will occur, that the Company will be successful in
accomplishing the purpose for which it was formed or that it will ever be
profitable. No assurance can be given regarding (A) whether the companies
acquired by the Company in the Consolidation Transactions can be successfully
integrated and operated, or (B) what companies will ultimately be acquired by
the Company. No company is obligated to participate in the Additional
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company and such Additional Consolidation Transaction company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IPO, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the
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<PAGE> 4
business of the Company will have the right to vote the Shares pursuant to the
voting agreement referenced in Section 4.1(i).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Sponsors and
the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "ENFORCEABILITY EXCEPTIONS").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Enforceability Exceptions.
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3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; (ii) violate any provision or requirement of any domestic
or foreign, federal, state or local law, statute, judgment, order, writ,
injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company; (iii) violate,
result in a breach of, constitute (with due notice or lapse of time or both) a
material default or cause any obligation, penalty, premium or right of
termination to arise or accrue under, any contracts, agreements, instrument,
licenses, commitments or other arrangements to which the Company is a party;
(iv) result in the creation or imposition of any material lien, charge or
encumbrance of any kind whatsoever upon any of the properties or assets of the
Company; or (v) result in the cancellation, modification, revocation or
suspension of any material license, permit, certificate, franchise,
authorization or approval issued or granted by any Governmental Entity, except
where any occurrence or result referred to in (iii), (iv) and (v) above would
not result in a material adverse effect on or material adverse change in the
financial condition or results of operations of the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.001 per share. As of February 28, 1999, 22,051,468 shares of Series A
Common Stock, 21,231,191 shares of Series B Common Stock and no shares of
preferred stock were issued and outstanding. Approximately 1,500,000 of the
issued and outstanding shares of Series B Common Stock are restricted and will
be forfeited if the transactions contemplated hereby and certain additional
acquisitions expected to be completed substantially concurrently with the
transactions contemplated hereby are not completed, and approximately 12,600,000
of the issued and outstanding shares of Series B Common Stock are restricted and
will be forfeited if certain future acquisitions are not completed. Additional
shares will be issued in connection with future acquisitions, as well as under
compensatory employment arrangements. Holders of Series B Common Stock are
entitled to elect all the directors in one of the Company's three classes of
directors, with the holders of the Series A Common Stock entitled to elect the
remaining directors. In all other respects, the Series A Common Stock and the
Series B Common Stock is identical. The Shares, when issued, sold, and delivered
in accordance with the terms of this Agreement for the consideration expressed
herein will be duly and validly issued, fully paid, and nonassessable, except
that the Purchaser may be required to pay amounts owed under the Note.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional
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requirements or restrictions contained herein have been satisfied, terminated or
expressly waived by the Company in writing. Any attempted transfer in violation
of such Restrictions will be void.
(b) The Restrictions will lapse and the Shares will vest in accordance
with the provisions in Schedule 4 (the "VESTING SCHEDULE"), provided, however,
that the Company, in its discretion, may from time to time accelerate the
vesting of any Shares at any time or forgive Restrictions and allow Shares or
restricted shares owned by any other Sponsor, any Founder or other third party
to vest notwithstanding that the conditions to vesting thereof may not have been
satisfied.
(c) In addition to any repurchase rights of the Company set forth in
Schedule 4, the Company, or its assignee, may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the end of
each Measurement Period (as described in Schedule 4), repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all of the Shares that were eligible
to vest but did not vest in accordance with the Vesting Schedule for such
Measurement Period. Shares originally corresponding to any Measurement Period
that cannot vest because of failure prior to the end of that Measurement Period
of conditions to vesting thereof may be repurchased at any time and from time to
time from the failure of such conditions to the end of the applicable repurchase
period specified herein. Any Shares that do not vest in accordance with the
Vesting Schedule shall be subject to repurchase by the Company regardless of the
services performed, or other consideration given, by the Purchaser to the
Company. Shares not vested in accordance with the Vesting Schedule but not
repurchased by the Company during the applicable repurchase periods described
herein (including in Schedule 4) shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer
under the circumstances described in Schedule 4 under the heading "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in form satisfactory to the Company of all claims against
the Company or any of its officers, directors or affiliates arising from or in
connection with this Agreement or the Purchaser's employment with the Employer
or the termination of that employment. Upon such a termination of employment,
any Shares that do not vest as described therein will be subject to repurchase
in the manner described in Section 4(d)(ii).
(ii) In case of termination of the Purchaser's employment by the
Employer for any reason other than a reason that causes vesting as described in
Schedule 4, the Company or its assignee may, in the Company's discretion, at any
time and from time to time for a period of one (1) year following the
termination of employment, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares designated by the Company that have not vested
as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set forth
above, if any of the events or circumstances constituting "Cause" listed in
paragraphs (A) or (B) of Schedule 1 of the
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Purchaser's Employment Agreement occurs at any time before the end of the final
Measurement Period, then notwithstanding any vesting provided for herein the
Company or its assignee may, in the Company's discretion, at any time and from
time to time for a period of one (1) year following such occurrence, repurchase
from the Purchaser at the price per Share that the Purchaser paid to the
Company, and the Purchaser will sell to the Company, any or all Shares
designated by the Company that had not vested at the time of such occurrence, or
that vested effective as of a date within 365 days before such occurrence,
provided however, that if the Purchaser's employment with the Employer was
terminated by the Employer without Cause or by the Purchaser for Good Reason
(each as defined in the Employment Agreement), then the Company will not be
entitled to repurchase vested Shares pursuant to this subparagraph (iii) solely
because of the occurrence after termination of employment of any of the events
or circumstances constituting Cause listed in item A of Schedule 1 of the
Purchaser's Employment Agreement.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase any
Shares under this Agreement but the Purchaser cannot deliver such Shares to the
Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other Founders, the Sponsors or
other third parties that are subject to restrictions, or to accelerate vesting
or forgive Restrictions applicable to such Common Stock, shall be within the
discretion of the Company. The Company may (but will not be required to)
exercise its right to repurchase, accelerate, or forgive Restrictions with
respect to any or all shares of restricted Common Stock owned by the Purchaser
or any Founder, Sponsor, or other third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Common Stock owned by the Purchaser or any Founder, Sponsor, or other third
party. The Company will exercise its power to repurchase, accelerate and forgive
restrictions, if at all, only by action of its Board of Directors or Chief
Executive Officer in good faith, for legitimate business purposes, and without
discrimination among similarly situated holders of restricted stock unless such
discrimination is in the best interests of the Company.
(g) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as
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described in Section 5.2(b). Shares that have vested shall nevertheless be
governed by the Stockholder Agreement. The Company's repurchase rights hereunder
will supersede the purchase provisions of the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the Purchaser has paid to the Company the full Purchase Price
for such Shares, and an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld and paid over to such
Governmental Entity for the Purchaser's account, or otherwise made arrangements
satisfactory to the Company for payment of such amounts through withholding or
otherwise, and (b) the Purchaser has, if requested by the Company, made
appropriate representations in a form satisfactory to the Company that such
Shares will not be transferred other than (i) pursuant to an effective
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act; (ii) in compliance with all
applicable state securities laws and regulations; and (iii) in compliance with
all terms and conditions of the Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
this Agreement and the Stockholder Agreement, the Shares (or interests therein)
cannot be offered, sold or transferred unless the Shares are registered and
qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company.
(b) In addition to any legends required by the Stockholder Agreement and
the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
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(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
(d) In connection with any underwritten public offering of securities of
the Company or any of its affiliates within three (3) years of the date hereof,
if the managing underwriter believes that it is appropriate in connection with
the offering to limit public sales of such securities by Company's stockholders,
the Purchaser will agree to the managing underwriter's standard form of "lock
up" agreement prohibiting transfers of any Common Stock owned by the Purchaser,
including without limitation shares acquired other than pursuant hereto (other
than shares included in the offering) for such period as may be required by the
managing underwriter not to exceed twenty (20) days prior to, and one hundred
and eighty (180) days after, the effective date of the registration statement
for such offering, provided however, that (i) such lock up provision may not be
invoked more than once in any 365 day period, (ii) such lock up provision will
be contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) the Purchaser will not be required to
comply with this lock up provision if any other stockholder owning more shares
of Common Stock than the Purchaser and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
(e) As a material inducement to the Purchaser to enter into this
Agreement, the Company hereby represents and warrants that it is not a party to
any stock purchase agreement, asset purchase agreement, or similar agreement
which contains provisions governing securities restrictions that are different
in any material respect from the terms contained in this Section 4.2.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement, the Purchaser will have all of the rights of a stockholder of
the Company with respect to all of the Shares, including without limitation the
right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, accelerates the vesting and forgives the Restrictions.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the
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Purchaser acquires exceeds the price paid therefor only if, prior to making any
such election, the Purchaser (a) notifies the Company of the Purchaser's
intention to make such election, by delivering to the Company a copy of the
fully-executed Section 83(b) Election Form attached hereto as Exhibit F, and (b)
pays to the Company an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld or paid over to such
Governmental Entity for the Purchaser's account, or otherwise makes arrangements
satisfactory to the Company for the payment of such amounts through withholding
or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any of
the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission (the "SEC") for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then the
Purchaser shall have the right, subject to the limitations set forth in this
Section 4.7(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by the Purchaser.
Other stockholders (including but not limited to stockholders who acquired
Common Stock in the Consolidation Transactions and stockholders who acquired
Common Stock in the formation, or work on behalf of, the Company) will have
rights to include shares of Common Stock in such offering, and if the aggregate
amount of shares that all stockholders with such rights (collectively, the
"SELLING STOCKHOLDERS") desire to include exceeds the number of shares of Common
Stock that can be sold by all Selling Stockholders, then all Selling
Stockholders desiring to sell in any such offering will participate pro-rata on
the basis of the relative numbers of shares of Common Stock eligible for
inclusion that they originally sought to include. However, notwithstanding the
foregoing no Selling Stockholder will be permitted to include in any such
registration and offering (i) any Shares subject to performance-related
restrictions at the time of filing of the registration statement for such
offering, or (ii) more than, in the aggregate for all such registrations and
offerings, half of the Shares and other Common Stock owned by the Purchaser as
of the date hereof. Furthermore, in no case will the Purchaser be permitted to
include in the IPO registration and offering more than the number of Shares
acquired by Purchaser pursuant to this Agreement listed on Schedule 1.1 under
the item "Maximum IPO Shares," which number of shares does not limit the number
of shares permitted to be included by the Purchaser in the IPO pursuant to any
other agreement.
(b) If at any time before the fourth anniversary of the IPO, the Company
files a shelf registration statement with the SEC covering an offering of the
common stock of the Company by selling stockholders, other than a registration
statement of the type described in Section
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4.7(a), the Purchaser shall have the right to include in such registration
statement that percentage of the total number of shares of common stock of the
Company registered pursuant to that registration statement for sale by selling
stockholders as is equal to the quotient, expressed as a percentage, obtained by
dividing the total number of shares of common stock eligible for inclusion owned
by the Purchaser by the total number of shares of common stock eligible for
inclusion owned by all selling stockholders participating in such registration.
If the Purchaser participates in any such registration, he or she must do so on
the same terms as the other stockholders participating therein. As long as such
registration statement remains effective and sales of common stock by the
Purchaser would not violate applicable laws or regulations, the Company shall
furnish to the Purchaser such number of copies of the final prospectus included
in any such registration statement and any amendment or supplement thereto as
the Purchaser may reasonably request in order to effect the sale of the shares
of common stock included by the Purchaser in such registration statement.
(c) If the Purchaser acting pursuant to this Section 4.7 includes any
securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(d) Shares may only be included in a registration and offering pursuant
to this Section 4.7, pursuant to the underwriting agreement negotiated between
the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(e) At all times that equity securities of the Company are registered
pursuant to the Securities Exchange Act of 1934, as amended, the Company shall
use its best efforts to fulfill all conditions applicable to a registrant as are
necessary to enable selling security holders of the Company to make sales
pursuant to Rule 144 under the Securities Act.
(f) As a material inducement to the Purchaser to enter into this
Agreement, the Company hereby represents and warrants that it is not a party to
any stock purchase agreement, asset purchase agreement, or similar agreement
which contains provisions governing registration rights that are different in
any material respect from the terms contained in this Section 4.7. Upon the
request of the Purchaser and without further action on the part of the Company,
this
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Section 4.7 shall automatically be amended to incorporate any provision
governing registration rights contained in any stock purchase agreement, asset
purchase agreement or other similar agreement to which the Company is a party as
of the date of this Agreement, or in any modification or amendment to such
agreement, that is more beneficial in any material respect to the party thereto
having registration rights than the provisions of this Agreement are to the
Purchaser. The Company hereby consents to be bound by any such amendments to
this Section 4.7. If the Purchaser has any reasonable basis to believe that the
Company is party to any such agreement that has a provision governing
registration rights that is more beneficial in any material respect to the party
thereto having registration rights than the provisions of this Agreement are to
the Purchaser, the Company shall provide copies of the relevant provisions of
such agreement to the Purchaser upon the Purchaser's request.
4.8 INDEMNIFICATION. Each party hereto shall indemnify, defend and hold
harmless the other party hereto, its affiliates, their successors and assigns,
and the officers, directors, employees and agents of any of them, from and
against any and all losses, liabilities, claims, damages, obligations,
assessments, penalties, interests, demands, actions and expenses (including,
without limitation, settlement costs and any and all expenses reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim) arising out of or in connection with or
based upon any inaccuracy of any representation or warranty, or breach or
failure by such party hereto obligated to indemnify (the "Indemnitor") to comply
with any covenant or agreement, made by the Indemnitor herein or in any other
Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the parties under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right to
exercise the Stock Power if it is determined that the Company is entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
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5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall deliver
to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto without the prior written consent of the other parties hereto
except that the Company may assign this Agreement or any of its rights hereunder
to its affiliates or to successors to all or substantially all of its business.
Nothing in this Agreement will confer upon any person or entity not a party to
this Agreement, or the legal representatives of such person or entity, any
rights or remedies of any nature or kind whatsoever under or by reason of this
Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
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6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder, provided however, that the parties
shall seek any permanent injunctive relief, and any such proceeding shall be
resolved, pursuant to this section.
(ii) If any controversy or claim arising out of or relating to
this Agreement also arises out of or relates to the employment of Purchaser by
the Employer or any affiliate of the Employer,
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the provisions of this Agreement governing dispute resolution shall govern
resolution of such controversy or claim. The provisions of this Agreement
governing dispute resolution supersede any provisions relating to such matters
in any employment agreement between Purchaser and the Employer or any affiliate
of the Employer.
(iii) The arbitration shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrators are hereinafter referred to as
the "ARBITRATORS"). The judgment of the award rendered by the Arbitrators may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement. If a party has a counterclaim against the
other party, such party shall furnish the party with whom it has the dispute a
notice of such claim as provided in the Rules (a "NOTICE OF COUNTERCLAIM")
within ten (10) days of receipt of the Arbitration Notice, which, in addition to
the items required by the Rules, shall include a statement of the nature, with
reasonable detail, of the dispute. A copy of the Notice of Counterclaim shall be
concurrently provided to the AAA. Within fifteen (15) days after receipt of the
Arbitration Notice or the Notice of Counterclaim as applicable, each party shall
select one person to act as Arbitrator and the two (2) selected shall select a
third Arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third Arbitrator
within such time, the third Arbitrator shall be selected by the AAA. Each
Arbitrator shall be a practicing attorney or a retired or former judge with at
least fifteen (15) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrators are assigned to hear the matter, the
Arbitrators shall schedule a pre-hearing conference to reach agreement on
procedural and scheduling matters, arrange for the exchange of information,
obtain stipulations and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrators shall have the
discretion to order, to the extent the Arbitrators deem relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrators.
15
<PAGE> 16
(e) The parties must file briefs with the Arbitrators at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrators of the arrangement in advance of
the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrators selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before those
Arbitrators.
(g) The Arbitrators' award shall be in writing, signed by the
Arbitrators and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrators shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-
16
<PAGE> 17
Prevailing Party shall pay to the Prevailing Party a reasonable sum for
attorneys' fees and costs (at the Prevailing Party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting or defending such Action and/or
enforcing any judgment, order, ruling, or award (collectively, a "DECISION")
granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any Decision entered in such Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
[remainder of page intentionally left blank]
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ MARK C. COLEMAN By: /s/ JAMES F. HOLDEN
-------------------------------- ---------------------------------
Name: Mark C. Coleman Name: James F. Holden
------------------------------ -------------------------------
Title: SVP
-----------------------------
Address: Address:
695 Town Center Drive, Suite 400 211 Otis Road
Costa Mesa, California 92626 Barrington Hills, Illinois 60010
Telephone No.: (714) 429-5500 Telephone No.: (847) 382-1782
Facsimile No.: (714) 429-5559 Facsimile No.: (847) 382-1783
18
<PAGE> 19
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
<PAGE> 20
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
Aggregate Number of Shares: 257,706
Aggregate Purchase Price: $309,274.20
Cash Payment: $257.71
Note: $308,989.49
Maximum IPO Shares: 0
<PAGE> 21
SCHEDULE 4
VESTING SCHEDULE
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the Shares will lapse, and the Shares will vest if
and when the performance targets of the Purchaser set forth below are met,
provided, however, that except as set forth in this Schedule 4, in order for
Shares eligible to vest for any Measurement Period to vest the Purchaser must
have remained an employee of the Employer (or, pursuant to Section 4.4, in the
case of certain transactions involving an acquisition of the Company or the
Employer, the successor of the Employer), from the date hereof through the last
day of that Measurement Period. The table below lists four Measurement Periods,
with each having corresponding Target Income and a corresponding Vesting
Percentage. Actual Income as of each Measurement Period will be determined
within ninety (90) days of the end of that Measurement Period.
VESTING DURING EMPLOYMENT.
Shares will vest as follows:
(a) If the actual Income earned in any Measurement Period equals or
exceeds the Target Income corresponding to that Measurement Period, the
Restrictions will lapse with respect to such number of Shares as is equal to the
product of the Vesting Percentage corresponding to that Measurement Period and
the total number of Shares.
(b) If the actual Income earned in any Measurement Period is less
than the Target Income for that Measurement Period, but is more than the sum of
the Target Income for the immediately preceding Measurement Period plus half of
the Annual Target Delta, the Restrictions will lapse with respect to such number
of Shares as is equal to the product obtained by multiplying the Vesting
Percentage corresponding to that Measurement Period, times the ratio of the
Annual Actual Delta to the Annual Target Delta, times the total number of
Shares. For purposes of determining any partial vesting for the Measurement
Period January 1, 1999 - December 31, 1999, "Target Income for the immediately
preceding Measurement Period" will be deemed to be $5,500,000.
For purposes hereof:
"ANNUAL ACTUAL DELTA" means the difference between the actual Income
earned in any Measurement Period and the Target Income for the immediately
preceding Measurement Period.
"ANNUAL TARGET DELTA" means the difference between the Target Income for
any Measurement Period and the Target Income for the immediately preceding
Measurement Period.
If the actual Income earned in any Measurement Period exceeds the Target
Income corresponding to that Measurement Period, the amount by which the actual
Income exceeds the Target Income shall be carried forward to the following
Measurement Period and added to the actual Income for such Measurement Period.
Excess Incomes may not be carried backward to preceding periods and Shares that
are eligible to vest but do not vest in any Measurement Period
<PAGE> 22
will not vest unless the Company forgives the Restrictions applicable thereto in
its discretion or fails to repurchase them within one (1) year of the end of
that Measurement Period (i.e., Shares that fail to vest cannot be "recovered"
based upon subsequent performance).
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until actual Income for the
subject Measurement Period is fully and finally determined. In no case will the
total number of Shares that the Purchaser has the right to have vested for any
Measurement Period exceed the product of the Shares and the Vesting Percentage
corresponding to that Measurement Period. Fractional vested Shares will be
carried forward and combined to constitute whole vested Shares that can be
issued, or cashed out by the Company at fair market value following
determination of actual Income for the last Measurement Period.
<TABLE>
<CAPTION>
TARGET VESTING
MEASUREMENT PERIOD INCOME PERCENTAGE
- ---------------------------------- ----------- -----------
<S> <C> <C>
January 1, 1999- December 31, 1999 $ 6,600,000 25%
January 1, 2000- December 31, 2000 $ 7,920,000 25%
January 1, 2001- December 31, 2001 $ 9,504,000 25%
January 1, 2002- December 31, 2002 $11,405,000 25%
</TABLE>
For purposes hereof:
"BUSINESS" means the business of Holden Corporation operating as a
division or subsidiary of the Company.
"INCOME" for any Measurement Period means pre-tax income of the Business
for that Measurement Period calculated according to GAAP and consistent with
historical financial statements of Holden Corporation. In calculating Income,
except as set forth herein, all costs attributable directly to the Business,
whether paid by the Business, the Company or any of its affiliates, shall be
charged to the Business, including, without limitation costs, bonuses and other
distributions to persons who are engaged principally in the Business. The
calculation of Income will not be affected by any allocation to the Business of
(i) any overhead charges of the Company not attributable directly to the
Business, (ii) any expenses incurred by or in connection with the Business but
reimbursed pursuant to an indemnification payment made by James Holden or by
receipt of insurance proceeds, (iii) any compensation charges resulting from
restricted stock issued concurrently herewith to persons employed in connection
with the Business, or any goodwill charges resulting from acquisition of Holden
Corporation or that are not consistent with the annual business plan of the
Business or approved by James Holden or, if he ceases to be employed in
connection with the Business, by the management of Holden Corporation, (iv) any
costs incurred to comply with initiatives that are required by the Company's
management, without the consent of James Holden while he is employed in
connection with the Business, and otherwise the management of the Business, that
are in excess of the costs of the Business replaced by any such initiatives, or
(v) any revenue or profit attributable to business operations other than the
Business with which Purchaser may be involved.
CALCULATION OF INCOME
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<PAGE> 23
(a) Within 90 days after the end of each Measurement Period, the Company
shall prepare and deliver to the Purchaser a statement of the actual Income of
the Business for such Measurement Period (the "Statement of Income"). The
Statement of Income will be prepared consistent with the definition of "Income"
provided in this Schedule 4.
(b) Not later than 15 days after the date the Statement of Income is
delivered to the Purchaser, the Purchaser shall review the Statement of Income
and shall notify the Company in writing whether the Purchaser disagrees with the
Statement of Income. Such notice shall specify with reasonable detail the items
on the Statement of Income with which the Purchaser disagrees with the Company.
If the Purchaser shall fail to give the Company such notice within such 15 day
period, the Purchaser shall be deemed to have agreed with the Company as to the
Statement of Income. The Purchaser shall have the right to review such work
papers of the Company in preparing the Statement of Income as are reasonably
necessary to verify the accuracy and fairness of presentation of the Statement
of Income and its conformity with the procedures set forth for its preparation
contained in this Schedule 4.
(c) In the event that the Purchaser notifies the Company of a
disagreement as to the Statement of Income within the 15 day period referred to
above, the Company and the Purchaser shall use reasonable efforts to resolve any
such dispute, but if a final resolution is not obtained within 30 days after the
Statement of Income is delivered to the Purchaser, any remaining dispute shall
be submitted for resolution to a nationally recognized firm of independent
accountants (other than any such firm that has provided services to the Company
or the Purchaser within the past three years) as shall be mutually agreed upon
by the Company and the Purchaser. If the Company and the Purchaser are unable to
mutually agree upon an accounting firm within 10 days after the expiration of
such 30 day period, then the Company and the Purchaser shall each have the right
to request the American Arbitration Association, New York, New York, to appoint
an independent accounting firm. The chosen accounting firm may examine all work
papers utilized in connection with the accounting and preparation of the
Statement of Income but the scope of its engagement will be limited to resolving
those items which the Purchaser identified in the notice to the Company as to
which the Purchaser disagreed and determining whether such items were properly
reflected on the Statement of Income prepared in accordance with the
requirements of this Schedule 4. The decision of such accounting firm (the
"Final Accounting Report") shall be delivered in a written report addressed to
the Company and the Purchaser and shall be binding and conclusive upon the
parties hereto for purposes of vesting for that Measurement Period. The costs
and fees of such accounting firm shall be borne by the Purchaser unless the
Income reflected in the Final Accounting Report (i) is in excess of the Income
reflected in the Statement of Income, and (ii) results in vesting of shares in
excess of the vesting that would result from the Income reflected in the
Statement of Income.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
(a) If the employment of the Purchaser with the Employer is terminated
by death or by "Disability" as defined below, and if the actual Income for any
Measurement Period equals or exceeds the Target Income corresponding to that
Measurement Period, the Restrictions will lapse with respect to such number of
Shares as is equal to the product of the Vesting Percentage
3
<PAGE> 24
corresponding to that Measurement Period and the total number of Shares. If the
actual Income earned in any Measurement Period is less than the Target Income
for that Measurement Period, but is more than the sum of the Target Income for
the immediately preceding Measurement Period plus half of the Annual Target
Delta, the Restrictions will lapse with respect to such number of Shares as is
equal to the product obtained by multiplying the Vesting Percentage
corresponding to that Measurement Period, times the ratio of the Annual Actual
Delta to the Annual Target Delta, times the total number of Shares.
(b) As set forth in the Purchaser's Employment Agreement, the employment
of the Purchaser with the Employer shall not be terminated without "Cause" (as
defined in the Employment Agreement) without Required Approval. For these
purposes, "REQUIRED APPROVAL" means approval by at least three members,
including the member representing the President's Council, of an executive
management committee of the Company, which committee shall consist of four (4)
members of the senior management of the Company and one (1) representative of
the President's Council of the Company.
(c) If the employment of the Purchaser is terminated by Purchaser for
"Good Reason" (as defined in the Employment Agreement), or by the Employer
without a conclusion reached pursuant to the procedure set forth in paragraph
(b) that an event or circumstance constituting "Cause" listed in paragraphs (A)
or (B) of Schedule 1 of Purchaser's Employment Agreement has occurred, and (i)
if the Purchaser's employment is terminated prior to the last day of the first
Measurement Period or if the actual Income has exceeded the Target Income for
all Measurement Periods prior to the termination of the Purchaser's employment,
upon the last day of each Measurement Period ending after the termination of the
Purchaser's employment with the Employer, the Restrictions will lapse with
respect to such number of Shares as is equal to the product of the Vesting
Percentage corresponding to that Measurement Period and the total number of
Shares, or (ii) if the Purchaser's employment is terminated after the last day
of the first Measurement Period and if the actual Income has not equaled or
exceeded the Target Income for all Measurement Periods prior to the termination
of the Purchaser's employment, upon the last day of each Measurement Period
ending after the termination of the Purchaser's employment with the Employer,
the Restrictions will lapse with respect to such number of Shares as is equal to
the greater of (A) the product of thirty-five percent (35%) of the Vesting
Percentage corresponding to that Measurement Period and the total number of
Shares, or (B) the product obtained by multiplying the Vesting Percentage
corresponding to that measurement period times the ratio of the actual income
for that Measurement Period to the Target Income for that Measurement Period
(provided that this ratio will not exceed 100%), times the total number of
Shares, provided however, that if any of the events or circumstances
constituting "Cause" listed in item A of Schedule 1 of the Purchaser's
Employment Agreement occurs at any time before the end of the final Measurement
Period, then, in addition to the rights of the Company set forth in Section
4.1(d), the Shares shall no longer continue to vest as set forth in this
paragraph (c) and the Company or its assignee may, in the Company's discretion,
at any time and from time to time for a period of one (1) year following such
occurrence, repurchase from the Purchaser at the price per share that the
Purchaser paid to the Company, and the Purchaser will sell to the Company, any
or all unvested Shares.
For purposes hereof, the term "DISABILITY" means the Purchaser suffers
an ongoing physical or psychological impairment that has rendered Purchaser
unable, as determined in good
4
<PAGE> 25
faith by the Company's Chief Executive Officer, to perform the Purchaser's
duties to the Employer, notwithstanding reasonable accommodation by the Employer
(the Company, at its option and expense, being entitled to retain a physician to
confirm the existence of such disability), for a period of three (3) consecutive
months or six (6) months in any 12-month period.
5
<PAGE> 1
EXHIBIT 10.12
FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT
THIS FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT (this
"AGREEMENT") is made and entered into as of March 19, 1999 (the "EFFECTIVE
DATE") by and between EPS Solutions Corporation, a Delaware corporation (the
"COMPANY") and James F. Holden (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and effective
as of December 14, 1998, the Company acquired approximately 38 companies
engaged in such business by means of acquisitions by the Company of all
or substantially all of the assets or stock or other equity interests of
such companies (collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
B. The Company intends to acquire various other companies (the
"ADDITIONAL CONSOLIDATION TRANSACTIONS," and with the Initial
Consolidation Transactions, the "CONSOLIDATION TRANSACTIONS").
C. The Purchaser is employed by the Company's wholly owned subsidiary
Enterprise Profit Solutions Corporation, a Delaware corporation ("EPS"
or the "EMPLOYER") to manage the Business (as defined in Schedule 4) and
has entered into that certain Employment Agreement with the Employer of
even date herewith (the "EMPLOYMENT AGREEMENT").
D. The Purchaser and certain other persons affiliated with
certain companies acquired, being acquired or to be acquired by the Company in
the Consolidation Transactions and who are to serve as employees of the Employer
or any of its affiliates pursuant to employment agreements executed concurrently
with the acquisition of such companies (collectively, the "FOUNDERS") and
certain persons responsible for effecting the Consolidation Transactions and/or
who are to serve as employees of the Employer or any of its affiliates (the
"SPONSORS") are being offered an opportunity to purchase shares of the common
stock of the Company, par value $0.001 per share (the "COMMON STOCK") (in the
case of Founders, generally Series A Common Stock and in the case of Sponsors,
generally Series B Common Stock) at a price of $1.20 per share.
E. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain performance
related milestones described herein are not met.
F. The Shares shall be subject to certain additional restrictions
as set forth herein.
G. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
<PAGE> 2
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Series A Common Stock
set forth on Schedule 1.1 (the "SHARES") for the consideration of $1.20 per
Share, resulting in an aggregate purchase price as set forth on Schedule 1.1
(the "PURCHASE PRICE"). Concurrently herewith the Purchaser is paying to the
Company in cash $0.001 per Share, resulting in an aggregate payment of the
amount set forth on Schedule 1.1 under the item "Cash Payment" (the "CASH
PAYMENT"). The obligation of the Purchaser to pay the remainder of the Purchase
Price in the amount set forth on Schedule 1.1 under the item "Note" is evidenced
by the Purchaser's delivery to the Company concurrently herewith of a secured
promissory note of the Purchaser in the form attached hereto as Exhibit A (the
"NOTE"). The Note is secured by a pledge of the Shares made pursuant to Section
5 of the Note. The Shares are sold pursuant to and governed by this Agreement
and not any other contract or plan of the Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(d) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(e) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of
2
<PAGE> 3
development to the Company and has sufficient knowledge and experience in
financial and business matters to assess the relative merits and risks of an
investment in the Shares. In connection with the purchase of the Shares, the
Purchaser has relied solely upon independent investigations made by the
Purchaser, and has consulted the Purchaser's own investment advisors, counsel
and accountants. The Purchaser has adequate means of providing for current needs
and personal contingencies, and has no need for liquidity and can sustain a
complete loss of the investment in the Shares.
(f) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(g) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has limited
financial and operating history.
(ii) There can be no assurance that any particular Additional
Consolidation Transactions will occur, that the Company will be successful in
accomplishing the purpose for which it was formed or that it will ever be
profitable. No assurance can be given regarding (A) whether the companies
acquired by the Company in the Consolidation Transactions can be successfully
integrated and operated, or (B) what companies will ultimately be acquired by
the Company. No company is obligated to participate in the Additional
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company and such Additional Consolidation Transaction company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IPO, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the
3
<PAGE> 4
business of the Company will have the right to vote the Shares pursuant to the
voting agreement referenced in Section 4.1(i).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Sponsors and
the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "ENFORCEABILITY EXCEPTIONS").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Enforceability Exceptions.
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3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; (ii) violate any provision or requirement of any domestic
or foreign, federal, state or local law, statute, judgment, order, writ,
injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company; (iii) violate,
result in a breach of, constitute (with due notice or lapse of time or both) a
material default or cause any obligation, penalty, premium or right of
termination to arise or accrue under, any contracts, agreements, instrument,
licenses, commitments or other arrangements to which the Company is a party;
(iv) result in the creation or imposition of any material lien, charge or
encumbrance of any kind whatsoever upon any of the properties or assets of the
Company; or (v) result in the cancellation, modification, revocation or
suspension of any material license, permit, certificate, franchise,
authorization or approval issued or granted by any Governmental Entity, except
where any occurrence or result referred to in (iii), (iv) and (v) above would
not result in a material adverse effect on or material adverse change in the
financial condition or results of operations of the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.001 per share. As of February 28, 1999, 22,051,468 shares of Series A
Common Stock, 21,231,191 shares of Series B Common Stock and no shares of
preferred stock were issued and outstanding. Approximately 1,500,000 of the
issued and outstanding shares of Series B Common Stock are restricted and will
be forfeited if the transactions contemplated hereby and certain additional
acquisitions expected to be completed substantially concurrently with the
transactions contemplated hereby are not completed, and approximately 12,600,000
of the issued and outstanding shares of Series B Common Stock are restricted and
will be forfeited if certain future acquisitions are not completed. Additional
shares will be issued in connection with future acquisitions, as well as under
compensatory employment arrangements. Holders of Series B Common Stock are
entitled to elect all the directors in one of the Company's three classes of
directors, with the holders of the Series A Common Stock entitled to elect the
remaining directors. In all other respects, the Series A Common Stock and the
Series B Common Stock is identical. The Shares, when issued, sold, and delivered
in accordance with the terms of this Agreement for the consideration expressed
herein will be duly and validly issued, fully paid, and nonassessable, except
that the Purchaser may be required to pay amounts owed under the Note.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional
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requirements or restrictions contained herein have been satisfied, terminated or
expressly waived by the Company in writing. Any attempted transfer in violation
of such Restrictions will be void.
(b) The Restrictions will lapse and the Shares will vest in accordance
with the provisions in Schedule 4 (the "VESTING SCHEDULE"), provided, however,
that the Company, in its discretion, may from time to time accelerate the
vesting of any Shares at any time or forgive Restrictions and allow Shares or
restricted shares owned by any other Sponsor, any Founder or other third party
to vest notwithstanding that the conditions to vesting thereof may not have been
satisfied.
(c) In addition to any repurchase rights of the Company set forth in
Schedule 4, the Company, or its assignee, may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the end of
each Measurement Period (as described in Schedule 4), repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all of the Shares that were eligible
to vest but did not vest in accordance with the Vesting Schedule for such
Measurement Period and are not deferred to a subsequent Measurement Period to
the extent permitted under Schedule 4. Shares originally corresponding to any
Measurement Period that cannot vest because of failure prior to the end of that
Measurement Period of conditions to vesting thereof may be repurchased at any
time and from time to time from the failure of such conditions to the end of the
applicable repurchase period specified herein. Any Shares that do not vest in
accordance with the Vesting Schedule shall be subject to repurchase by the
Company regardless of the services performed, or other consideration given, by
the Purchaser to the Company. Shares not vested in accordance with the Vesting
Schedule but not repurchased by the Company during the applicable repurchase
periods described herein (including in Schedule 4) shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer under
the circumstances described in Schedule 4 under the heading "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in form satisfactory to the Company of all claims against
the Company or any of its officers, directors or affiliates arising from or in
connection with this Agreement or the Purchaser's employment with the Employer
or the termination of that employment. Upon such a termination of employment,
any Shares that do not vest as described therein will be subject to repurchase
in the manner described in Section 4(d)(ii).
(ii) In case of termination of the Purchaser's employment by the
Employer for any reason other than a reason that causes vesting as described in
Schedule 4, the Company or its assignee may, in the Company's discretion, at any
time and from time to time for a period of one (1) year following the
termination of employment, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares designated by the Company that have not vested
as of the date of termination of employment.
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(iii) In addition to the Company's repurchase rights set forth
above, if any of the events or circumstances constituting "Cause" listed in
paragraphs (A) or (B) of Schedule 1 of the Purchaser's Employment Agreement
occurs at any time before the end of the final Measurement Period, then
notwithstanding any vesting provided for herein the Company or its assignee may,
in the Company's discretion, at any time and from time to time for a period of
one (1) year following such occurrence, repurchase from the Purchaser at the
price per Share that the Purchaser paid to the Company, and the Purchaser will
sell to the Company, any or all Shares designated by the Company that had not
vested at the time of such occurrence, or that vested effective as of a date
within 365 days before such occurrence, provided however, that if the
Purchaser's employment with the Employer was terminated by the Employer without
Cause or by the Purchaser for Good Reason (each as defined in the Employment
Agreement), then the Company will not be entitled to repurchase vested Shares
pursuant to this subparagraph (iii) solely because of the occurrence after
termination of employment of any of the events or circumstances constituting
Cause listed in item A of Schedule 1 of the Purchaser's Employment Agreement.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase
any Shares under this Agreement but the Purchaser cannot deliver such Shares to
the Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other Founders, the Sponsors or
other third parties that are subject to restrictions, or to accelerate vesting
or forgive Restrictions applicable to such Common Stock, shall be within the
discretion of the Company. The Company may (but will not be required to)
exercise its right to repurchase, accelerate, or forgive Restrictions with
respect to any or all shares of restricted Common Stock owned by the Purchaser
or any Founder, Sponsor, or other third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Common Stock owned by the Purchaser or any Founder, Sponsor, or other third
party. The Company will exercise its power to repurchase, accelerate and forgive
restrictions, if at all, only by action of its Board of Directors or Chief
Executive Officer in good faith, for legitimate business purposes, and without
discrimination among similarly situated holders of restricted stock unless such
discrimination is in the best interests of the Company.
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(g) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as described in Section 5.2(b). Shares that have
vested shall nevertheless be governed by the Stockholder Agreement. The
Company's repurchase rights hereunder will supersede the purchase provisions of
the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the Purchaser has paid to the Company the full Purchase Price
for such Shares, and an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld and paid over to such
Governmental Entity for the Purchaser's account, or otherwise made arrangements
satisfactory to the Company for payment of such amounts through withholding or
otherwise, and (b) the Purchaser has, if requested by the Company, made
appropriate representations in a form satisfactory to the Company that such
Shares will not be transferred other than (i) pursuant to an effective
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act; (ii) in compliance with all
applicable state securities laws and regulations; and (iii) in compliance with
all terms and conditions of the Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
this Agreement and the Stockholder Agreement, the Shares (or interests therein)
cannot be offered, sold or transferred unless the Shares are registered and
qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company.
(b) In addition to any legends required by the Stockholder Agreement and
the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THE HOLDER OF THE
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SHARES OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
(d) In connection with any underwritten public offering of securities of
the Company or any of its affiliates within three (3) years of the date hereof,
if the managing underwriter believes that it is appropriate in connection with
the offering to limit public sales of such securities by Company's stockholders,
the Purchaser will agree to the managing underwriter's standard form of "lock
up" agreement prohibiting transfers of any Common Stock owned by the Purchaser,
including without limitation shares acquired other than pursuant hereto (other
than shares included in the offering) for such period as may be required by the
managing underwriter not to exceed twenty (20) days prior to, and one hundred
and eighty (180) days after, the effective date of the registration statement
for such offering, provided however, that (i) such lock up provision may not be
invoked more than once in any 365 day period, (ii) such lock up provision will
be contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) the Purchaser will not be required to
comply with this lock up provision if any other stockholder owning more shares
of Common Stock than the Purchaser and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
(e) As a material inducement to the Purchaser to enter into this
Agreement, the Company hereby represents and warrants that it is not a party to
any stock purchase agreement, asset purchase agreement, or similar agreement
which contains provisions governing securities restrictions that are different
in any material respect from the terms contained in this Section 4.2.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement, the Purchaser will have all of the rights of a stockholder of
the Company with respect to all of the Shares, including without limitation the
right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, accelerates the vesting and forgives the Restrictions.
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4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any of
the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission (the "SEC") for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then the
Purchaser shall have the right, subject to the limitations set forth in this
Section 4.7(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by the Purchaser.
Other stockholders (including but not limited to stockholders who acquired
Common Stock in the Consolidation Transactions and stockholders who acquired
Common Stock in the formation, or work on behalf of, the Company) will have
rights to include shares of Common Stock in such offering, and if the aggregate
amount of shares that all stockholders with such rights (collectively, the
"SELLING STOCKHOLDERS") desire to include exceeds the number of shares of Common
Stock that can be sold by all Selling Stockholders, then all Selling
Stockholders desiring to sell in any such offering will participate pro-rata on
the basis of the relative numbers of shares of Common Stock eligible for
inclusion that they originally sought to include. However, notwithstanding the
foregoing no Selling Stockholder will be permitted to include in any such
registration and offering (i) any Shares subject to performance-related
restrictions at the time of filing of the registration statement for such
offering, or (ii) more than, in the aggregate for all such registrations and
offerings, half of the Shares and other Common Stock owned by the Purchaser as
of the date hereof. Furthermore, in no case will the Purchaser be permitted to
include in the IPO registration and offering more than the number of Shares
acquired by Purchaser pursuant to this Agreement listed on Schedule 1.1 under
the item "Maximum IPO Shares," which number will not limit the number of shares
permitted to be included by the Purchaser in the IPO pursuant to any other
agreement.
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(b) If at any time before the fourth anniversary of the IPO, the Company
files a shelf registration statement with the SEC covering an offering of the
common stock of the Company by selling stockholders, other than a registration
statement of the type described in Section 4.7(a), the Purchaser shall have the
right to include in such registration statement that percentage of the total
number of shares of common stock of the Company registered pursuant to that
registration statement for sale by selling stockholders as is equal to the
quotient, expressed as a percentage, obtained by dividing the total number of
shares of common stock eligible for inclusion owned by the Purchaser by the
total number of shares of common stock eligible for inclusion owned by all
selling stockholders participating in such registration. If the Purchaser
participates in any such registration, he or she must do so on the same terms as
the other stockholders participating therein. As long as such registration
statement remains effective and sales of common stock by the Purchaser would not
violate applicable laws or regulations, the Company shall furnish to the
Purchaser such number of copies of the final prospectus included in any such
registration statement and any amendment or supplement thereto as the Purchaser
may reasonably request in order to effect the sale of the shares of common stock
included by the Purchaser in such registration statement.
(c) If the Purchaser acting pursuant to this Section 4.7 includes any
securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(d) Shares may only be included in a registration and offering pursuant
to this Section 4.7, pursuant to the underwriting agreement negotiated between
the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(e) At all times that equity securities of the Company are registered
pursuant to the Securities Exchange Act of 1934, as amended, the Company shall
use its best efforts to fulfill all conditions applicable to a registrant as are
necessary to enable selling security holders of the Company to make sales
pursuant to Rule 144 under the Securities Act.
(f) As a material inducement to the Purchaser to enter into this
Agreement, the Company hereby represents and warrants that it is not a party to
any stock purchase agreement,
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asset purchase agreement, or similar agreement which contains provisions
governing registration rights that are different in any material respect from
the terms contained in this Section 4.7. Upon the request of the Purchaser and
without further action on the part of the Company, this Section 4.7 shall
automatically be amended to incorporate any provision governing registration
rights contained in any stock purchase agreement, asset purchase agreement or
other similar agreement to which the Company is a party as of the date of this
Agreement, or in any modification or amendment to such agreement, that is more
beneficial in any material respect to the party thereto having registration
rights than the provisions of this Agreement are to the Purchaser. The Company
hereby consents to be bound by any such amendments to this Section 4.7. If the
Purchaser has any reasonable basis to believe that the Company is party to any
such agreement that has a provision governing registration rights that is more
beneficial in any material respect to the party thereto having registration
rights than the provisions of this Agreement are to the Purchaser, the Company
shall provide copies of the relevant provisions of such agreement to the
Purchaser upon the Purchaser's request.
4.8 INDEMNIFICATION. Each party hereto shall indemnify, defend and hold
harmless the other party hereto, its affiliates, their successors and assigns,
and the officers, directors, employees and agents of any of them, from and
against any and all losses, liabilities, claims, damages, obligations,
assessments, penalties, interests, demands, actions and expenses (including,
without limitation, settlement costs and any and all expenses reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim) arising out of or in connection with or
based upon any inaccuracy of any representation or warranty, or breach or
failure by such party hereto obligated to indemnify (the "Indemnitor") to comply
with any covenant or agreement, made by the Indemnitor herein or in any other
Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the parties under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right to
exercise the Stock Power if it is determined that the Company is entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
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5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall deliver
to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto without the prior written consent of the other parties hereto
except that the Company may assign this Agreement or any of its rights hereunder
to its affiliates or to successors to all or substantially all of its business.
Nothing in this Agreement will confer upon any person or entity not a party to
this Agreement, or the legal representatives of such person or entity, any
rights or remedies of any nature or kind whatsoever under or by reason of this
Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
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6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder, provided however, that the parties
shall seek any permanent injunctive relief, and any such proceeding shall be
resolved, pursuant to this section.
(ii) If any controversy or claim arising out of or relating to this
Agreement also arises out of or relates to the employment of Purchaser by the
Employer or any affiliate of the Employer,
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<PAGE> 15
the provisions of this Agreement governing dispute resolution shall govern
resolution of such controversy or claim. The provisions of this Agreement
governing dispute resolution supersede any provisions relating to such matters
in any employment agreement between Purchaser and the Employer or any affiliate
of the Employer.
(iii) The arbitration shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrators are hereinafter referred to as
the "ARBITRATORS"). The judgment of the award rendered by the Arbitrators may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement. If a party has a counterclaim against the
other party, such party shall furnish the party with whom it has the dispute a
notice of such claim as provided in the Rules (a "NOTICE OF COUNTERCLAIM")
within ten (10) days of receipt of the Arbitration Notice, which, in addition to
the items required by the Rules, shall include a statement of the nature, with
reasonable detail, of the dispute. A copy of the Notice of Counterclaim shall be
concurrently provided to the AAA. Within fifteen (15) days after receipt of the
Arbitration Notice or the Notice of Counterclaim as applicable, each party shall
select one person to act as Arbitrator and the two (2) selected shall select a
third Arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third Arbitrator
within such time, the third Arbitrator shall be selected by the AAA. Each
Arbitrator shall be a practicing attorney or a retired or former judge with at
least fifteen (15) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrators are assigned to hear the matter, the
Arbitrators shall schedule a pre-hearing conference to reach agreement on
procedural and scheduling matters, arrange for the exchange of information,
obtain stipulations and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrators shall have the
discretion to order, to the extent the Arbitrators deem relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrators.
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<PAGE> 16
(e) The parties must file briefs with the Arbitrators at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrators of the arrangement in advance of
the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrators selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before those
Arbitrators.
(g) The Arbitrators' award shall be in writing, signed by the
Arbitrators and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrators shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-
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<PAGE> 17
Prevailing Party shall pay to the Prevailing Party a reasonable sum for
attorneys' fees and costs (at the Prevailing Party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting or defending such Action and/or
enforcing any judgment, order, ruling, or award (collectively, a "DECISION")
granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any Decision entered in such Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ MARK C. COLEMAN By: /s/ JAMES F. HOLDEN
----------------------------- ----------------------------------
Name: Mark C. Coleman Name: James F. Holden
---------------------------
Title: SVP
--------------------------
Address: Address:
695 Town Center Drive, Suite 400 211 Otis Road
Costa Mesa, California 92626 Barrington Hills, Illinois 60010
Telephone No.: (714) 429-5500 Telephone No.: (847) 382-1782
Facsimile No.: (714) 429-5559 Facsimile No.: (847) 382-1783
18
<PAGE> 19
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
4A 2000 Projected Pro Forma
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
<PAGE> 20
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
Aggregate Number of Shares: 424,907
Aggregate Purchase Price: $509,888.40
Cash Payment: $424.91
Note: $509,463.49
Maximum IPO Shares: 65,463
<PAGE> 21
SCHEDULE 4
VESTING SCHEDULE
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the Shares will lapse, and the Shares will vest if
and when the performance targets of the Purchaser set forth below are met,
provided, however, that except as set forth in this Schedule 4, in order for
Shares eligible to vest for any Measurement Period to vest the Purchaser must
have remained an employee of the Employer (or, pursuant to Section 4.4, in the
case of certain transactions involving an acquisition of the Company or the
Employer, the successor of the Employer), from the date hereof through the last
day of that Measurement Period. The table below lists four Measurement Periods,
with each having corresponding Target Income and a corresponding Vesting
Percentage. Actual Income as of each Measurement Period will be determined
within ninety (90) days of the end of that Measurement Period.
VESTING DURING EMPLOYMENT.
Shares will vest as follows:
(a) If the actual Income earned in any Measurement Period equals or
exceeds the Target Income corresponding to that Measurement Period, the
Restrictions will lapse with respect to such number of Shares as is equal to the
product of the Vesting Percentage corresponding to that Measurement Period and
the total number of Shares.
(b) If the actual Income earned in the Measurement Period ending
December 31, 2000 is less than the Target Income for that Measurement Period,
the Restrictions will lapse with respect to such number of Shares as is equal to
the product obtained by multiplying the Vesting Percentage corresponding to that
Measurement Period, times the ratio of the actual Income earned in that
Measurement Period to the Target Income for that Measurement Period, times the
number of Shares. If the actual Income earned in any Measurement Period after
December 31, 2000 is less than the Target Income for that Measurement Period,
but is more than the sum of the Target Income for the immediately preceding
Measurement Period plus half of the Annual Target Delta, the Restrictions will
lapse with respect to such number of Shares as is equal to the product obtained
by multiplying the Vesting Percentage corresponding to that Measurement Period,
times the ratio of the Annual Actual Delta to the Annual Target Delta, times the
total number of Shares.
(c) Notwithstanding anything herein to the contrary, if (i) that certain
Agreement re eFox, LLC of even date herewith by and among the Company, eFox,
LLC, and the members of eFox named therein (the "eFOX AGREEMENT") has not been
knowingly, willfully, or recklessly breached in any material respect by eFox,
LLC or any of the members party thereto (or any such breach has been cured and
any material adverse effects of such breach have been ameliorated in all
material respects within 15 days of notice of such breach), and (ii) Purchaser
continues to be employed by the Employer, or the employment of the Purchaser
with the Employer has been terminated by Purchaser for "Good Reason" (as defined
in the Employment Agreement), or by the Employer without a conclusion reached
pursuant to the procedure set forth in paragraph (b)
<PAGE> 22
under "Vesting Upon Certain Termination of Employment" that an event or
circumstance constituting "Cause" listed in paragraphs (A) or (B) of Schedule 1
of Purchaser's Employment Agreement has occurred (provided that the operation of
eFox, LLC consistent with past practices will not constitute an act described in
such paragraph (A)) and Purchaser would qualify for vesting as described below
under "Vesting Upon Certain Termination of Employment", then any Shares eligible
to vest for any Measurement Period ending on or before December 31, 2001 that do
not vest may, in the Purchaser's discretion, be deferred and reallocated to any
subsequent Measurement Period, in which case the amount by which actual Income
for the Measurement Period for which the Shares did not vest fell short of
Target Income for that Measurement Period will be added to the Target Income for
the Measurement Period to which the unvested Shares are reallocated.
For purposes hereof:
"ANNUAL ACTUAL DELTA" means the difference between the actual Income
earned in any Measurement Period and the Target Income for the immediately
preceding Measurement Period.
"ANNUAL TARGET DELTA" means the difference between the Target Income for
any Measurement Period and the Target Income for the immediately preceding
Measurement Period.
If the actual Income earned in any Measurement Period exceeds the Target
Income corresponding to that Measurement Period, the amount by which the actual
Income exceeds the Target Income shall be carried forward to the following
Measurement Period and added to the actual Income for such Measurement Period.
Excess Incomes may not be carried backward to preceding periods and Shares that
are eligible to vest but do not vest in any Measurement Period will not vest
unless the Company forgives the Restrictions applicable thereto in its
discretion or fails to repurchase them within one (1) year of the end of that
Measurement Period (i.e., Shares that fail to vest cannot be "recovered" based
upon subsequent performance).
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until actual Income for the
subject Measurement Period is fully and finally determined. In no case will the
total number of Shares that the Purchaser has the right to have vested for any
Measurement Period exceed the product of the Shares and the Vesting Percentage
corresponding to that Measurement Period. Fractional vested Shares will be
carried forward and combined to constitute whole vested Shares that can be
issued, or cashed out by the Company at fair market value following
determination of actual Income for the last Measurement Period.
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<PAGE> 23
<TABLE>
<CAPTION>
TARGET VESTING
MEASUREMENT PERIOD INCOME PERCENTAGE
<S> <C> <C>
January 1, 2000- December 31, 2000 $1,500,000 25%
January 1, 2001- December 31, 2001 $1,800,000 25%
January 1, 2002- December 31, 2002 $2,160,000 25%
January 1, 2003-December 31, 2003 $2,592,000 25%
</TABLE>
For purposes hereof:
"BUSINESS" means the business of the EMD.
"EMD" means the Electronic Media Division formed by the Employer to
utilize electronic media to market, sell and deliver sales training products and
services. If eFox, LLC becomes a wholly owned subsidiary of the Company or any
of its affiliates, it will be included in the EMD.
"INCOME" for any Measurement Period means pre-tax income of the Business
for that Measurement Period calculated according to GAAP and consistent with
accounting policies to be agreed upon by the Chief Financial Officer of the
Company and Purchaser by March 31, 2000 and applied consistently from period to
period. In calculating Income, except as set forth herein, all costs
attributable directly to the Business, whether paid by the Company or any of its
affiliates, shall be charged to the Business, including, without limitation
costs attributable to, and bonuses and other distributions paid to persons who
are engaged principally in the Business. The calculation of Income will not be
affected by any allocation to the Business of (i) any overhead charges of the
Company not attributable directly to the Business, (ii) any expenses incurred by
or in connection with the Business but reimbursed pursuant to an indemnification
payment made by James Holden or by receipt of insurance proceeds, (iii) any
compensation charges resulting from restricted stock issued concurrently
herewith to persons employed in connection with the Business, or any goodwill
charges resulting from acquisition of eFox, LLC, or that are not consistent with
the annual business plan of the Business or approved by James Holden while he is
employed in connection with the Business and otherwise the management of the
Business, (iv) any costs incurred to comply with initiatives that are required
by the management of the Company, without the consent of James Holden while he
is employed in connection with the Business, and otherwise the management of the
Business, that are in excess of the costs of the Business replaced by any such
initiatives, or (v) any revenue or profit attributable to business operations
other than the Business with which Purchaser may be involved. In addition, if at
the time of calculation of Income for any Measurement Period, (i) the eFox
Agreement has not been knowingly, willfully or recklessly breached in any
material respect by eFox, LLC or any of the members party thereto (or any such
breach has been cured and any material adverse effects of such breach have been
ameliorated in all material respects within 15 days of notice of such breach),
and (ii) Purchaser continues to be employed by the Employer, or notwithstanding
termination of the employment of Purchaser, Purchaser is eligible for vesting
(subject to Income determination) as described below in paragraph (c) under
"Vesting Upon Certain Termination of Employment," then the pretax net income of
eFox, LLC for that Measurement Period will be included in Income of the Business
for that Measurement Period for purposes of this Agreement.
3
<PAGE> 24
COMMITMENT TO EMD
During the Option Period (as defined in the eFox Agreement) and as long
as the eFox Agreement has not been knowingly or willfully or recklessly breached
in a material respect by eFox, LLC or the Members of eFox, LLC (or any such
breach has been cured and any material adverse effects of such breach have been
ameliorated in all material respects within 15 days of notice of such breach),
the Employer will commit the Leased Employees (as defined in the eFox Agreement)
to work in the Business under the day-to-day supervision of James F. Holden or
his successor as the Chief Executive Officer of the EMD, provided however, that
the Employer and its affiliates will only be obligated to provide to the
Business employees, assets, or other resources or support, the full cost of
which is paid or promptly recovered through profit generated by the Business,
including without limitation leasing to eFox, LLC or any other third party of
the employees assigned to the Business.
CALCULATION OF INCOME
(a) Within 90 days after the end of each Measurement Period, the Company
shall prepare and deliver to the Purchaser a statement of the actual Income of
the Business for such Measurement Period (the "Statement of Income"). The
Statement of Income will be prepared consistent with the definition of "Income"
provided in this Schedule 4.
(b) Not later than 15 days after the date the Statement of Income is
delivered to the Purchaser, the Purchaser shall review the Statement of Income
and shall notify the Company in writing whether the Purchaser disagrees with the
Statement of Income. Such notice shall specify with reasonable detail the items
on the Statement of Income with which the Purchaser disagrees with the Company.
If the Purchaser shall fail to give the Company such notice within such 15 day
period, the Purchaser shall be deemed to have agreed with the Company as to the
Statement of Income. The Purchaser shall have the right to review such work
papers of the Company in preparing the Statement of Income as are reasonably
necessary to verify the accuracy and fairness of presentation of the Statement
of Income and its conformity with the procedures set forth for its preparation
contained in this Schedule 4.
(c) In the event that the Purchaser notifies the Company of a
disagreement as to the Statement of Income within the 15 day period referred to
above, the Company and the Purchaser shall use reasonable efforts to resolve any
such dispute, but if a final resolution is not obtained within 30 days after the
Statement of Income is delivered to the Purchaser, any remaining dispute shall
be submitted for resolution to a nationally recognized firm of independent
accountants (other than any such firm that has provided services to the Company
or the Purchaser within the past three years) as shall be mutually agreed upon
by the Company and the Purchaser. If the Company and the Purchaser are unable to
mutually agree upon an accounting firm within 10 days after the expiration of
such 30 day period, then the Company and the Purchaser shall each have the right
to request the American Arbitration Association, New York, New York, to appoint
an independent accounting firm. The chosen accounting firm may examine all work
papers utilized in connection with the accounting and preparation of the
Statement of Income but the scope of its engagement will be limited to resolving
those items which the Purchaser identified in the notice to the Company as to
which the Purchaser disagreed and determining whether such items were properly
reflected on the Statement of Income prepared in accordance with the
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<PAGE> 25
requirements of this Schedule 4. The decision of such accounting firm (the
"Final Accounting Report") shall be delivered in a written report addressed to
the Company and the Purchaser and shall be binding and conclusive upon the
parties hereto for purposes of vesting for that Measurement Period. The costs
and fees of such accounting firm shall be borne by the Purchaser unless the
Income reflected in the Final Accounting Report (i) is in excess of the Income
reflected in the Statement of Income, and (ii) results in vesting of shares in
excess of the vesting that would result from the Income reflected in the
Statement of Income.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
(a) If the employment of the Purchaser with the Employer is terminated
by death or by "Disability" as defined below, and if the actual Income for any
Measurement Period equals or exceeds the Target Income corresponding to that
Measurement Period, the Restrictions will lapse with respect to such number of
Shares as is equal to the product of the Vesting Percentage corresponding to
that Measurement Period and the total number of Shares. If the actual Income
earned in any Measurement Period is less than the Target Income for that
Measurement Period, but is more than the sum of the Target Income for the
immediately preceding Measurement Period plus half of the Annual Target Delta,
the Restrictions will lapse with respect to such number of Shares as is equal to
the product obtained by multiplying the Vesting Percentage corresponding to that
Measurement Period, times the ratio of the Annual Actual Delta to the Annual
Target Delta, times the total number of Shares.
(b) As set forth in the Purchaser's Employment Agreement, the employment
of the Purchaser with the Employer shall not be terminated without "Cause" (as
defined in the Employment Agreement) without Required Approval. For these
purposes, "REQUIRED APPROVAL" means approval by at least three members,
including the member representing the President's Council, of an executive
management committee of the Company, which committee shall consist of four (4)
members of the senior management of the Company and one (1) representative of
the President's Council of the Company.
(c) If the employment of the Purchaser by the Employer is terminated by
Purchaser for "Good Reason" (as defined in the Employment Agreement), or by the
Employer without a conclusion reached pursuant to the procedure set forth in
paragraph (b) that an event or circumstance constituting "Cause" listed in
paragraphs (A) or (B) of Schedule 1 of Purchaser's Employment Agreement has
occurred (provided that the operation of eFox, LLC consistent with past
practices will not constitute an act described in such paragraph (A)), and (i)
if the Purchaser's employment is terminated prior to the last day of the first
Measurement Period or if the actual Income has exceeded the Target Income for
all Measurement Periods prior to the termination of the Purchaser's employment,
upon the last day of each Measurement Period ending after the termination of the
Purchaser's employment with the Employer, the Restrictions will lapse with
respect to such number of Shares as is equal to the product of the Vesting
Percentage corresponding to that Measurement Period and the total number of
Shares, or (ii) if the Purchaser's employment is terminated after the last day
of the first Measurement Period and if the actual Income has not equaled or
exceeded the Target Income for all Measurement Periods prior to the termination
of the Purchaser's employment, upon the last day of each Measurement Period
ending after the termination of the Purchaser's employment with the Employer,
the Restrictions will lapse with respect to such number of Shares as is equal to
the greater of (A) the
5
<PAGE> 26
product of thirty-five percent (35%) of the Vesting Percentage corresponding to
that Measurement Period and the total number of Shares, or (B) the product
obtained by multiplying the Vesting Percentage corresponding to that measurement
period times the ratio of the actual income for that Measurement Period to the
Target Income for that Measurement Period (provided that this ratio will not
exceed 100%), times the total number of Shares, provided however, that if any of
the events or circumstances constituting "Cause" listed in item A of Schedule 1
of the Purchaser's Employment Agreement occurs at any time before the end of the
final Measurement Period, then, in addition to the rights of the Company set
forth in Section 4.1(d), the Shares shall no longer continue to vest as set
forth in this paragraph (c) and the Company or its assignee may, in the
Company's discretion, at any time and from time to time for a period of one (1)
year following such occurrence, repurchase from the Purchaser at the price per
share that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all unvested Shares. For purposes of vesting under this
paragraph (c), "INCOME" will include only pre-tax income of eFox calculated
according to GAAP consistently applied. In the event of any eFox Liquidity
Transaction, the number of Shares that would otherwise vest pursuant to this
paragraph (c) after such eFox Liquidity Transaction, will not exceed the
remainder obtained by subtracting from the Target Value (a) the product obtained
by multiplying 35 times the number of Shares vested pursuant to this Agreement,
as well as (b) the product obtained by multiplying the Purchaser Ratio times the
Liquidity Transaction Value for each eFox Liquidity Transaction. For these
purposes: ( i ) the "Purchaser Ratio" means the ratio of the number of Shares
sold to Purchaser pursuant hereto to the total number of shares sold
concurrently herewith to all persons acquiring Series A common stock of the
Company that vests based upon performance of the Business; (ii) "Target Value"
means the product of the Purchaser Ratio and $25 million; (iii) "eFox Liquidity
Transaction" means any sale by eFox, LLC or any of its members of securities of
or any interest in eFox, LLC or assets of eFox, LLC (other than sales of assets
in the ordinary course of business) or any joint venture or similar arrangement
involving consideration to eFox, LLC or its members; and (iv) "Liquidity
Transaction Value" means the value of the consideration paid or payable to eFox,
LLC or its members in any eFox Liquidity Transaction, net of direct transaction
expenses.
For purposes hereof, the term "DISABILITY" means the Purchaser suffers
an ongoing physical or psychological impairment that has rendered Purchaser
unable, as determined in good faith by the Company's Chief Executive Officer, to
perform the Purchaser's duties to the Employer, notwithstanding reasonable
accommodation by the Employer (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such disability), for
a period of three (3) consecutive months or six (6) months in any 12-month
period.
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SCHEDULE 4A
2000 PROJECTED PRO FORMA
FOR
ELECTRONIC MEDIA DIVISION
<PAGE> 1
EXHIBIT 10.13
AMENDMENT TO RESTRICTED STOCK PURCHASE AGREEMENT
THIS AMENDMENT to Founders Restricted Stock Purchase Agreement
(this "Agreement") is made and entered into as of September 1, 1999 (the
"EFFECTIVE DATE") by and between EPS Solutions Corporation, a Delaware
Corporation (the "COMPANY") and James F. Holden (the "PURCHASER") to amend that
certain Restricted Stock Purchase Agreement by and between the Company and the
Purchaser dated as of March 19, 1999 (the "RESTRICTED STOCK PURCHASE
AGREEMENT"). All capitalized terms not otherwise defined herein have the meaning
ascribed to them in the Restricted Stock Purchase Agreement.
A. The Purchaser continues to be employed by the Company's wholly
owned subsidiary Enterprise Profit Solutions Corporation, a Delaware corporation
("EPS" or the "EMPLOYER") and has executed that certain Employment Agreement
with the Employer as of March 19, 1999 (the "EMPLOYMENT AGREEMENT").
B. The Company and Purchaser desire to amend the Restricted Stock
Purchase Agreement to increase the number of shares of the Series A Common Stock
of the Company, par value $0.001 per share (the "COMMON STOCK") covered by the
Restricted Stock Purchase Agreement by 26,072 shares(the "NEW SHARES") and to
set forth the vesting provisions applicable to the New Shares.
C. The Company and the Purchaser intend that the New Shares shall
be subject to all restrictions and provisions set forth in the Restricted Stock
Purchase Agreement, together with all schedules and exhibits thereto.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. AMENDMENT TO SCHEDULES 1.1 AND 4 OF THE RESTRICTED STOCK PURCHASE AGREEMENT.
Subject to Section 3 hereof, Schedule 1.1 and Schedule 4 to the Restricted Stock
Purchase Agreement are hereby amended and superseded by amended Schedule 1.1 and
amended Schedule 4, set forth below, to include the New Shares and the
additional cash payment and note amount referenced in Section 3.2 hereof. The
New Shares are in addition to and cumulative with the shares purchased pursuant
to the Restricted Stock Purchase Agreement. All shares of Common Stock set forth
on amended Schedule 1.1 (the "SHARES") are subject to all terms and conditions
of the Restricted Stock Purchase Agreement as amended hereby, together with all
schedules and exhibits thereto and transaction documents executed thereunder,
including, without limitation, the Stockholder Agreement and the Voting
Agreement, as amended. For clarification, the term "Shares" as used in this
Agreement and the Restricted Stock Purchase Agreement include the shares
originally purchased pursuant to the Restricted Stock Purchase Agreement and the
New Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
<PAGE> 2
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicted on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current needs and personal contingencies, and has no need for
liquidity and can sustain a complete loss of the investment in the Shares.
(g) The Purchaser is an "ACCREDITED INVESTOR" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit A
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
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<PAGE> 3
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has limited
financial and operating history.
(ii) There can be no assurance that the Company will acquire
additional companies or be successful in accomplishing the purpose for which it
was formed or that it will ever be profitable. No assurance can be given
regarding (A) whether the companies already acquired by the Company can be
successfully integrated and operated, or (B) what companies will ultimately be
acquired by the Company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IPO, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Company's management and
operations and IPO will be made by the Company's management, and certain
individuals involved in planning the formation of the Company and managing the
business of the Company will have the right to vote the Shares pursuant to the
Voting Agreement.
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Shares are intended to be used by
the Company for general and administrative expenses and working capital. The
proceeds from such sales may be exhausted notwithstanding failure of the Company
to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. The Restricted Stock
Purchase Agreement, this amendment thereto and all other documents delivered in
connection with the Restricted Stock Purchaser Agreement and this amendment
thereto (collectively, the
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<PAGE> 4
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights.
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit B.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. CONCURRENT DELIVERIES.
3.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the stock certificates for the New
Shares issued in the Purchaser's name.
3.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. The purchase price for the New Shares is $2.50 per
share. Concurrent herewith the Purchaser shall pay to the Company $26.08 in
cash, representing $0.001 per Share for the New Shares.
(b) The Note. The obligation of the Purchaser to pay the remainder of
the Purchase Price for the New Shares is evidenced by a secured promissory note
of the Purchaser in the amount of $65,154, in the form attached hereto as
Exhibit C, which together with that certain secured promissory note of the
Purchaser in the amount of $509,463.49, dated December 14, 1998 (collectively,
the "NOTES"), represents payment of the non-cash Purchase Price for all the
Shares. The Notes are secured by a pledge of the Shares made pursuant to Section
5 of the Notes.
4. SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the
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<PAGE> 5
Purchaser acquires exceeds the price paid therefor only if, prior to making any
such election, the Purchaser (a) notifies the Company of the Purchaser's
intention to make such election, by delivering to the Company a copy of the
fully-executed Section 83(b) Election Form attached hereto as Exhibit D, and (b)
pays to the Company an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld or paid over to such
Governmental Entity for the Purchaser's account, or otherwise makes arrangements
satisfactory to the Company for the payment of such amounts through withholding
or otherwise. Purchaser hereby acknowledges that (a) any information provided to
the Purchaser by the Company in connection with making an election pursuant to
Section 83(b) has been provided as a courtesy, (b) the Purchaser is fully
responsible for making elections pursuant to Section 83(b), (c) the Company has
not rendered any tax advice to the Purchaser in connection with making such an
election, and (d) the Purchaser should consult with the Purchaser's independent
tax advisers on such matters.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
amendment to the Restricted Stock Purchase Agreement as of the date first above
written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ MARK C. COLEMAN By: /s/ JAMES F. HOLDEN
----------------------------- ----------------------------------
Name: Mark C. Coleman Name: James F. Holden
----------------------------- --------------------------------
Title: SVP
----------------------------
Address: Address:
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500 Telephone No.:
Facsimile No.: (714) 429-5559 Facsimile No.:
5
<PAGE> 6
SCHEDULES
1.1 (Amended) Shares and Purchase Price
4 (Amended) Vesting Schedule
EXHIBITS
A. Form of Investor Questionnaire and Confidentiality Agreement
B. Summary of Certain Considerations
C. Form of the Note
D. Section 83(b) Election Form
<PAGE> 7
SCHEDULE 1.1 (AMENDED)
SHARES AND PURCHASE PRICE
450,979
Aggregate Number of Shares:
Number of Performance Shares:
424,907
Number of New Performance Shares:
10,000
Number of New Time Shares:
16,072
Aggregate Purchase Price: $575,068.40
3/19/99 Cash Payment: $424.91
3/19/99 Note: $509,463.49
9/1/99 Cash Payment: $26.07
9/1/99 Note: $65,153.93
Maximum IPO Shares: 67,463
<PAGE> 8
SCHEDULE 4 (AMENDED)
VESTING SCHEDULE
The Shares are divided into three categories and are subject to a
two-tier Vesting Schedule. Subject to the terms and conditions described in this
Agreement, the Restrictions applicable to Performance Shares, New Performance
Shares and New Time Shares will lapse, and such Shares, if any, will vest as set
forth below, provided, however, that except as set forth in this Schedule 4, in
order for Shares eligible to vest for any Measurement Period to vest, the
Purchaser must have remained an employee of the Company, or an affiliate of the
Company (or, pursuant to Section 4.4, in the case of certain transactions
involving an acquisition of the Company or the Employer, the successor of the
Employer), from the date hereof through the last day of that Measurement Period.
The table below lists four Measurement Periods, with each having a corresponding
Performance Target Income and, a corresponding Vesting Percentage. Actual Income
as of each Measurement Period will be determined within ninety (90) days of the
end of that Measurement Period.
VESTING DURING EMPLOYMENT.
Shares will vest as follows:
1. VESTING DURING EMPLOYMENT--AGGREGATE PERFORMANCE SHARES
(a) If the actual Income earned in the Measurement Period equals or
exceeds the Performance Target Income corresponding to that Measurement Period,
the Restrictions will lapse with respect to such number of Performance Shares
and New Performance Shares listed on Schedule 1.1 (the "AGGREGATE PERFORMANCE
SHARES") as is equal to the product of the Vesting Percentage corresponding to
that Measurement Period and the total number of Performance Shares and New
Performance Shares, respectively.
(b) If the actual Income earned in the Measurement Period ending
December 31, 2000 is less than the Performance Target Income for that
Measurement Period, the Restrictions will lapse with respect to such number of
Aggregate Performance Shares as is equal to the product obtained by multiplying
the Vesting Percentage corresponding to that Measurement Period, times the ratio
of the actual Income earned in that Measurement Period to the Performance Target
Income for that Measurement Period, times the number of Aggregate Performance
Shares. If the actual Income earned in any Measurement Period after December 31,
2000 is less than the Performance Target Income for that Measurement Period, but
is more than the sum of the Performance Target Income for the immediately
preceding Measurement Period plus half of the Performance Annual Target Delta,
the Restrictions will lapse with respect to such number of Aggregate Performance
Shares as is equal to the product obtained by multiplying the Vesting Percentage
corresponding to that Measurement Period, times the ratio of the Performance
Annual Actual Delta to the Performance Annual Target Delta, times the total
number of Aggregate Performance Shares.
<PAGE> 9
(c) Notwithstanding anything herein to the contrary, if (i) that certain
Agreement re eFox, LLC of even date herewith by and among the Company, eFox,
LLC, and the members of eFox named therein (the "eFOX AGREEMENT") has not been
knowingly, willfully, or recklessly breached in any material respect by eFox,
LLC or any of the members party thereto (or any such breach has been cured and
any material adverse effects of such breach have been ameliorated in all
material respects within 15 days of notice of such breach), and (ii) Purchaser
continues to be employed by the Employer, or the employment of the Purchaser
with the Employer has been terminated by Purchaser for "Good Reason" (as defined
in the Employment Agreement), or by the Employer without a conclusion reached
pursuant to the procedure set forth in paragraph (b) under "Vesting Upon Certain
Termination of Employment" that an event or circumstance constituting "Cause"
listed in paragraphs (A) or (B) of Schedule 1 of Purchaser's Employment
Agreement has occurred (provided that the operation of eFox, LLC consistent with
past practices will not constitute an act described in such paragraph (A)) and
Purchaser would qualify for vesting as described below under "Vesting Upon
Certain Termination of Employment--Aggregate Performance Shares", then any
Aggregate Performance Shares eligible to vest for any Measurement Period ending
on or before December 31, 2001 that do not vest may, in the Purchaser's
discretion, be deferred and reallocated to any subsequent Measurement Period, in
which case the amount by which actual Income for the Measurement Period for
which the Aggregate Performance Shares did not vest fell short of Target Income
for that Measurement Period will be added to the Target Income for the
Measurement Period to which the unvested Aggregate Performance Shares are
reallocated.
For purposes hereof:
"PERFORMANCE ANNUAL ACTUAL DELTA" means the difference between the
actual Income earned in any Measurement Period and the Performance Target Income
for the immediately preceding Measurement Period.
"PERFORMANCE ANNUAL TARGET DELTA" means the difference between the
Performance Target Income for any Measurement Period and the Performance Target
Income for the immediately preceding Measurement Period.
If the actual Income earned in any Measurement Period exceeds the
Performance Target Income corresponding to that Measurement Period, the amount
by which the actual Income exceeds the Performance Target Income shall be
carried forward to the following Measurement Period and added to the actual
Income for such Measurement Period. Excess Incomes may not be carried backward
to preceding periods and Aggregate Performance Shares that are eligible to vest
but do not vest in any Measurement Period will not vest unless the Company
forgives the Restrictions applicable thereto in its discretion or fails to
repurchase them within one (1) year of the end of that Measurement Period (i.e.,
Aggregate Performance Shares that fail to vest cannot be "recovered" based upon
subsequent performance).
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period even if vesting targets
are attained before the end of the Measurement Period, but vesting for any
Measurement Period will not be finally determined
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<PAGE> 10
until actual Income for the subject Measurement Period is fully and finally
determined. In no case will the total number of Shares that the Purchaser has
the right to have vested for any Measurement Period exceed the sum of the
Aggregate Performance Shares and the Time Shares corresponding to that
Measurement Period multiplied by the Vesting Percentage corresponding to that
Measurement Period. Fractional vested Shares will be carried forward and
combined to constitute whole vested Shares that can be issued, or cashed out by
the Company at fair market value following determination of actual Income for
the last Measurement Period.
<TABLE>
<CAPTION>
PERFORMANCE TARGET VESTING
MEASUREMENT PERIOD INCOME PERCENTAGE
<S> <C> <C>
January 1, 2000- December 31, 2000 $1,500,000 25%
January 1, 2001- December 31, 2001 $1,800,000 25%
January 1, 2002- December 31, 2002 $2,160,000 25%
January 1, 2003- December 31, 2003 $2,592,000 25%
</TABLE>
For purposes hereof:
For purposes of this Schedule 4:
(i) "BUSINESS" means the business of the EMD.
(ii) "EMD" means the Electronic Media Division formed by the
Employer to utilize electronic media to market, sell and deliver sales training
products and services. If eFox, LLC becomes a wholly-owned subsidiary of the
Company or any of its affiliates, it will be included in the EMD.
(iii) "INCOME" for any Measurement Period means pre-tax income of
the Business for that Measurement Period calculated according to GAAP and
consistent with accounting policies to be agreed upon by the Chief Financial
Officer of the Company and Purchaser by March 31, 2000 and applied consistently
from period to period. In calculating Income, except as set forth herein, all
costs attributable directly to the Business, whether paid by the Company or any
of its affiliates, shall be charged to the Business, including, without
limitation costs attributable to, and bonuses and other distributions paid to
persons who are engaged principally in the Business. The calculation of Income
will not be affected by any allocation to the Business of (i) any overhead
charges of the Company not attributable directly to the Business, (ii) any
expenses incurred by or in connection with the Business but reimbursed pursuant
to an indemnification payment made by James Holden or by receipt of insurance
proceeds, (iii) any compensation charges resulting from restricted stock issued
concurrently herewith to persons employed in connection with the Business, or
any goodwill charges resulting from acquisition of eFox, LLC, or that are not
consistent with the annual business plan of the Business or approved by James
Holden while he is employed in connection with the Business and otherwise the
management of the Business, (iv) any costs incurred to comply with initiatives
that are required by the management of the Company, without the consent of James
Holden while he is employed in connection with the Business, and otherwise the
management of the Business, that are in excess of the costs of the Business
replaced by any such initiatives, or (v)
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<PAGE> 11
any revenue or profit attributable to business operations other than the
Business with which Purchaser may be involved. In addition, if at the time of
calculation of Income for any Measurement Period, (i) the eFox Agreement has not
been knowingly, willfully or recklessly breached in any material respect by
eFox, LLC or any of the members party thereto (or any such breach has been cured
and any material adverse effects of such breach have been ameliorated in all
material respects within 15 days of notice of such breach), and (ii) Purchaser
continues to be employed by the Employer, or notwithstanding termination of the
employment of Purchaser, Purchaser is eligible for vesting (subject to Income
determination) as described below in paragraph (c) under "Vesting Upon Certain
Termination of Employment," then the pretax net income of eFox, LLC for that
Measurement Period will be included in Income of the Business for that
Measurement Period for purposes of this Agreement.
COMMITMENT TO EMD
During the Option Period (as defined in the eFox Agreement) and as long
as the eFox Agreement has not been knowingly or willfully or recklessly breached
in a material respect by eFox, LLC or the Members of eFox, LLC (or any such
breach has been cured and any material adverse effects of such breach have been
ameliorated in all material respects within 15 days of notice of such breach),
the Employer will commit the Leased Employees (as defined in the eFox Agreement)
to work in the Business under the day-to-day supervision of James F. Holden or
his successor as the Chief Executive Officer of the EMD, provided however, that
the Employer and its affiliates will only be obligated to provide to the
Business employees, assets, or other resources or support, the full cost of
which is paid or promptly recovered through profit generated by the Business,
including without limitation leasing to eFox, LLC or any other third party of
the employees assigned to the Business.
CALCULATION OF INCOME
(a) Within 90 days after the end of each Measurement Period, the Company
shall prepare and deliver to the Purchaser a statement of the actual Income of
the Business for such Measurement Period (the "Statement of Income"). The
Statement of Income will be prepared consistent with the definition of "Income"
provided in this Schedule 4.
(b) Not later than 15 days after the date the Statement of Income is
delivered to the Purchaser, the Purchaser shall review the Statement of Income
and shall notify the Company in writing whether the Purchaser disagrees with the
Statement of Income. Such notice shall specify with reasonable detail the items
on the Statement of Income with which the Purchaser disagrees with the Company.
If the Purchaser shall fail to give the Company such notice within such 15 day
period, the Purchaser shall be deemed to have agreed with the Company as to the
Statement of Income. The Purchaser shall have the right to review such work
papers of the Company in preparing the Statement of Income as are reasonably
necessary to verify the accuracy and fairness of presentation of the Statement
of Income and its conformity with the procedures set forth for its preparation
contained in this Schedule 4.
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<PAGE> 12
(c) In the event that the Purchaser notifies the Company of a
disagreement as to the Statement of Income within the 15 day period referred to
above, the Company and the Purchaser shall use reasonable efforts to resolve any
such dispute, but if a final resolution is not obtained within 30 days after the
Statement of Income is delivered to the Purchaser, any remaining dispute shall
be submitted for resolution to a nationally recognized firm of independent
accountants (other than any such firm that has provided services to the Company
or the Purchaser within the past three years) as shall be mutually agreed upon
by the Company and the Purchaser. If the Company and the Purchaser are unable to
mutually agree upon an accounting firm within 10 days after the expiration of
such 30 day period, then the Company and the Purchaser shall each have the right
to request the American Arbitration Association, New York, New York, to appoint
an independent accounting firm. The chosen accounting firm may examine all work
papers utilized in connection with the accounting and preparation of the
Statement of Income but the scope of its engagement will be limited to resolving
those items which the Purchaser identified in the notice to the Company as to
which the Purchaser disagreed and determining whether such items were properly
reflected on the Statement of Income prepared in accordance with the
requirements of this Schedule 4. The decision of such accounting firm (the
"Final Accounting Report") shall be delivered in a written report addressed to
the Company and the Purchaser and shall be binding and conclusive upon the
parties hereto for purposes of vesting for that Measurement Period. The costs
and fees of such accounting firm shall be borne by the Purchaser unless the
Income reflected in the Final Accounting Report (i) is in excess of the Income
reflected in the Statement of Income, and (ii) results in vesting of shares in
excess of the vesting that would result from the Income reflected in the
Statement of Income.
2. VESTING DURING EMPLOYMENT -- NEW TIME SHARES
On the last day of each of the applicable Measurement Periods set forth in the
table above, if the Purchaser has remained an Employee of the Employer from the
date hereof through the last day of such Measurement Period, the Restrictions
will lapse with respect to such number of New Time Shares listed on Schedule 1.1
(the "NEW TIME SHARES") as is equal to the product of the Vesting Percentage
corresponding to that Measurement Period and the total number of New Time
Shares.
<TABLE>
<CAPTION>
VESTING
MEASUREMENT PERIOD PERCENTAGE
<S> <C>
January 1, 1999 - December 31, 1999 25%
January 1, 2000 - December 31, 2000 25%
January 1, 2001 - December 31, 2001 25%
January 1, 2002 - December 31, 2002 25%
</TABLE>
3. VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT -- AGGREGATE
PERFORMANCE Shares:
(a) If the employment of the Purchaser with the Employer is terminated
by death or by "Disability" as defined below, and if the actual Income for any
Measurement Period equals or exceeds the Performance Target Income corresponding
to that Measurement Period, the
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<PAGE> 13
Restrictions will lapse with respect to such number of Aggregate Performance
Shares as is equal to the product of the Vesting Percentage corresponding to
that Measurement Period and the total number of Aggregate Performance Shares. If
the actual Income earned in any Measurement Period is less than the Performance
Target Income for that Measurement Period, but is more than the sum of the
Performance Target Income for the immediately preceding Measurement Period plus
half of the Annual Target Delta, the Restrictions will lapse with respect to
such number of Aggregate Performance Shares as is equal to the product obtained
by multiplying the Vesting Percentage corresponding to that Measurement Period,
times the ratio of the Annual Actual Delta to the Annual Target Delta, times the
total number of Aggregate Performance Shares.
(b) As set forth in the Purchaser's Employment Agreement, the employment
of the Purchaser with the Employer shall not be terminated without "Cause" (as
defined in the Employment Agreement) without Required Approval. For these
purposes, "REQUIRED APPROVAL" means approval by at least three members,
including the member representing the President's Council, of an executive
management committee of the Company, which committee shall consist of four (4)
members of the senior management of the Company and one (1) representative of
the President's Council of the Company.
(c) If the employment of the Purchaser by the Employer is terminated by
Purchaser for "Good Reason" (as defined in the Employment Agreement), or by the
Employer without a conclusion reached pursuant to the procedure set forth in
paragraph (b) that an event or circumstance constituting "Cause" listed in
paragraphs (A) or (B) of Schedule 1 of Purchaser's Employment Agreement has
occurred (provided that the operation of eFox, LLC consistent with past
practices will not constitute an act described in such paragraph (A)), and (i)
if the Purchaser's employment is terminated prior to the last day of the first
Measurement Period or if the actual Income has exceeded the Performance Target
Income for all Measurement Periods prior to the termination of the Purchaser's
employment, upon the last day of each Measurement Period ending after the
termination of the Purchaser's employment with the Employer, the Restrictions
will lapse with respect to such number of Aggregate Performance Shares as is
equal to the product of the Vesting Percentage corresponding to that Measurement
Period and the total number of Aggregate Performance Shares, or (ii) if the
Purchaser's employment is terminated after the last day of the first Measurement
Period and if the actual Income has not equaled or exceeded the Performance
Target Income for all Measurement Periods prior to the termination of the
Purchaser's employment, upon the last day of each Measurement Period ending
after the termination of the Purchaser's employment with the Employer, the
Restrictions will lapse with respect to such number of Aggregate Performance
Shares as is equal to the greater of (A) the product of thirty-five percent
(35%) of the Vesting Percentage corresponding to that Measurement Period and the
total number of Aggregate Performance Shares, or (B) the product obtained by
multiplying the Vesting Percentage corresponding to that measurement period
times the ratio of the actual Income for that Measurement Period to the
Performance Target Income for that Measurement Period (provided that this ratio
will not exceed 100%), times the total number of Aggregate Performance Shares,
provided however, that if any of the events or circumstances constituting
"Cause" listed in item A of Schedule 1 of the Purchaser's Employment Agreement
occurs at any time before the end of the final Measurement Period, then, in
addition to the rights of the Company set forth in Section 4.1(d), the Aggregate
Performance Shares shall no longer
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<PAGE> 14
continue to vest as set forth in this paragraph (c) and the Company or its
assignee may, in the Company's discretion, at any time and from time to time for
a period of one (1) year following such occurrence, repurchase from the
Purchaser at the price per share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all unvested Aggregate Performance
Shares. For purposes of vesting under this paragraph (c), "INCOME" will include
only pre-tax income of eFox calculated according to GAAP consistently applied.
In the event of any eFox Liquidity Transaction, the number of Aggregate
Performance Shares that would otherwise vest pursuant to this paragraph (c)
after such eFox Liquidity Transaction, will not exceed the remainder obtained by
subtracting from the Target Value (a) the product obtained by multiplying 35
times the number of Aggregate Performance Shares vested pursuant to this
Agreement, as well as (b) the product obtained by multiplying the Purchaser
Ratio times the Liquidity Transaction Value for each eFox Liquidity Transaction.
For these purposes: ( i ) the "PURCHASER RATIO" means the ratio of the number of
Aggregate Performance Shares sold to Purchaser pursuant hereto to the total
number of shares sold concurrently herewith to all persons acquiring Series A
common stock of the Company that vests based upon performance of the Business;
(ii) "TARGET VALUE" means the product of the Purchaser Ratio and $25 million;
(iii) "EFOX LIQUIDITY TRANSACTION" means any sale by eFox, LLC or any of its
members of securities of or any interest in eFox, LLC or assets of eFox, LLC
(other than sales of assets in the ordinary course of business) or any joint
venture or similar arrangement involving consideration to eFox, LLC or its
members; and (iv) "LIQUIDITY TRANSACTION VALUE" means the value of the
consideration paid or payable to eFox, LLC or its members in any eFox Liquidity
Transaction, net of direct transaction expenses.
For purposes hereof, the term "DISABILITY" means the Purchaser suffers
an ongoing physical or psychological impairment that has rendered Purchaser
unable, as determined in good faith by the Company's Chief Executive Officer, to
perform the Purchaser's duties to the Employer, notwithstanding reasonable
accommodation by the Employer (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such disability), for
a period of three (3) consecutive months or six (6) months in any 12-month
period.
4. VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT -- NEW TIME SHARES:
If the employment of the Purchaser with the Employer is terminated by
death, by the Employer without "Cause" (provided that working in the business of
eFox, LLC consistent with past practices will not constitute an act described in
paragraph (A) of such definition of Cause) or by "Disability" as defined above,
the Restrictions will lapse with respect to such number of New Time Shares (in
addition to those New Time Shares previously vested for prior Measurement
Periods) as is equal to the product of the Vesting Percentage corresponding to
the Measurement Period in which termination of employment occurred multiplied by
the total number of New Time Shares times a fraction, the numerator of which is
the number of days in the Measurement Period in which termination of employment
occurred through the date of termination of the employment of the Purchaser, and
the denominator of which is 365.
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of December 14, 1998 (the "EFFECTIVE DATE") by and between Pritchett
Publishing Company, a Texas corporation (the "COMPANY") and an indirect wholly
owned subsidiary of ProfitSource Corporation, a Delaware corporation (the
"PROFITSOURCE"), and Early Price Pritchett, III ("EMPLOYEE").
The Company desires to retain the services of Employee, and Employee
desires to render such services, on the terms set forth herein.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employee's employment with the Company will be at-will,
which means that either Employee or the Company may terminate Employee's
employment at any time for any reason or no reason without payment, penalty or
further obligation except as set forth in Section 8, provided, however, that
Employee's employment with the Company shall not be terminated without Cause
without majority approval of an executive management committee of Enterprise
Profit Solutions Corporation, a Delaware corporation and parent of the Company
("EPS"), which committee shall consist of four (4) members of the senior
management of EPS and one (1) representative of the President's Council of EPS.
2. DUTIES. Employee shall initially serve as Chairman of the Company. In
that capacity, Employee shall have authority and responsibility to manage the
operations of the Company consistent with the Company's annual business plan.
This business plan will set forth guidelines related to budgeting, capital
expenditures, hiring, and strategic initiatives, and will be formulated by the
Employee and approved by the Service Line Leader of ProfitSource with respect to
the Company. Employee will formulate the business plan and manage the Company
with the primary goal of enhancing ProfitSource stockholder value by maximizing
revenues and profitability of the Company. Employee will have authority to bind
the Company to contracts that are consistent with Employee's duties and
responsibilities hereunder, subject to limitations consistent with ProfitSource
and Company policies. The Employee shall perform such related duties and
services as the Company's board of directors (the "BOARD") and/or ProfitSource's
Chief Executive Officer (each with authority delegated by EPS) may from time to
time assign, provided however, that if Employee remains employed by the Company,
Employee's responsibility and authority within the Company will not be
materially diminished without Employee's consent as long as shares of restricted
stock purchased by Employee pursuant to that certain Restricted Stock Purchase
Agreement of even date herewith between Employee and ProfitSource (the
"RESTRICTED STOCK PURCHASE AGREEMENT") are subject to Restrictions (as defined
in the Restricted Stock Purchase Agreement) (the "RESTRICTED PERIOD"). Except as
set forth herein, Employee's position and duties may be changed at any time and
from time to time by the Board or ProfitSource's Chief Executive Officer (each
through authority delegated by EPS). Such duties shall be rendered at such place
or places as the Company shall require based upon the interest, need, business
and/or opportunities of the Company, provided however, that for the Restricted
Period, the principal place at which Employee renders such duties (the
<PAGE> 2
"Principal Place") shall not be relocated more than twenty-five (25) miles from
the location of Principal Place on the date hereof without Employee's consent.
3. TIME AND EFFORTS. While employed by the Company (the "EMPLOYMENT
PERIOD"), Employee shall use his or her best efforts and devote his or her time
and attention to the business of the Company on a full-time basis and shall at
all times faithfully and industriously and to the best of his or her ability,
experience and talent, perform all of the duties that may be required of him or
her pursuant to the terms hereof. During the Employment Period, Employee shall
not engage in any other employment or consulting activities without the express
written consent of the Company. The foregoing shall not preclude Employee from
engaging in civic, charitable and/or religious activities, directing his or her
own passive investments and/or serving on boards of directors of other entities
so long as such activities do not interfere or conflict with Employee's duties
hereunder as reasonably determined by the Company.
4. COMPENSATION. During the Employment Period, the Company shall pay
Employee at the annual rate of One Hundred and Fifty Thousand and Seven Hundred
and Forty Two Dollars ($150,742) (as such pay may be increased by the Company
from time to time in its discretion, the "ANNUAL SALARY") for all services
rendered to the Company by Employee, payable in accordance with the Company's
regular payroll policies, subject, however, to withholding deductions, including
without limitation social security taxes and applicable federal, state and local
income and other employment taxes. In addition, in connection with Employee's
employment by the Company and services performed by Employee for the Company,
Employee is acquiring concurrently herewith restricted stock of the Company
pursuant to the Restricted Stock Purchase Agreement. The Company may, but shall
not be obligated to, pay bonuses from time to time to Employee in accordance
with such plans or standards as the Company may develop. Employee has no right
to any specific compensation or benefits other than as set forth herein or
required pursuant to applicable law.
5. VACATION. Until the Company adopts a vacation policy, Employee shall
be entitled to such number of days of paid vacation each year as Employee was
entitled pursuant to the vacation policy in place with Employee's employer
immediately prior to the date hereof. Upon adoption by the Company of a vacation
policy, Employee shall be entitled to such number of days as is consistent with
such policy and the Company's vacation policy as so adopted shall thereafter
govern accrual of vacation days. Vacation may be used, subject to approval by
the Company consistent with business needs, as it is earned. Employee may not
accrue more than 30 days of unused vacation. If Employee at any time has 30 days
of accrued unused vacation, no further vacation days shall accrue until Employee
again has fewer than 30 days of unused vacation. The Company shall pay Employee
for accrued unused vacation days only in connection with termination of
employment. Such payment shall be made on the basis of Employee's Annual Salary
at the time of payment, pro-rated for the number of accrued unused vacation days
at the time of termination.
6. BENEFITS. In addition to the compensation described in Section 4, the
Company shall provide Employee with benefits consistent with the Company's
employment policies as in effect from time to time.
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7. CERTAIN DEFINITIONS.
(a) Cause. For purposes hereof, the term "CAUSE" has the meaning
set forth in Schedule 1 hereto. Any termination by the Company of Employee's
employment within 90 days after the Company's becoming aware of the occurrence
of an event or circumstance constituting "Cause" will constitute termination for
Cause.
(b) Good Reason. If the Company breaches this Agreement in any
material respect and does not cure such breach within 15 days of receipt from
Employee of notice of such breach and demand for cure, and Employee terminates
Employee's employment with the Company within 90 days of such breach, such
termination by Employee will be termination with "GOOD REASON" for purposes
hereof.
8. CERTAIN PAYMENTS.
(a) Termination by Employee with Good Reason or the Company
Without Cause. Subject to Section 8(c), if Employee's employment under this
Agreement is terminated by Employee with Good Reason, by the Company without
Cause as by the Employee if he is forced to relocate more than twenty-five (25)
miles from the Principal Place subsequent to the Restricted Period, then
contingent upon execution and delivery by Employee to the Company of an
unconditional release in form satisfactory to the Company of all claims against
ProfitSource, EPS, the Company or any of their officers, directors or affiliates
arising from or in connection with this Agreement or Employee's employment with
the Company or the termination of that employment, Employee shall be entitled to
continue to receive regular monthly installments of his or her Annual Salary
over the Severance Period (as defined below) in accordance with the Company's
normal payroll schedule (the "SEVERANCE PAYMENT") for the duration of the
Severance Period. For purposes hereof, the "SEVERANCE PERIOD" means 90 days
following termination of employment.
(b) No Other Benefits. Except as set forth in Section 8(a) or
Section 5 or as may be required by applicable law or separate written agreement
between ProfitSource, the Company and Employee, the Company shall have no
obligations to pay any salary, bonus, accrued vacation or other amounts in
connection with any termination of Employee's employment or attributable to the
period after termination of Employee's employment. Without limiting the
foregoing, and subject to any separate written agreement to the contrary,
Employee will not be entitled to any severance payment or benefit if Employee's
employment under this Agreement is terminated by death, or by Employee without
Good Reason, or by the Company for Cause or disability.
(c) Post-Termination Cause. If any of the events or circumstances
constituting Cause listed in items A, B or C of Schedule 1 occurs during the
Severance Period, then (i) the Company will have no further obligation to
provide to Employee the Severance Payment, and (ii) the Company will be entitled
to recover from Employee any Severance Payment amounts paid to Employee or
Employee's successors and assigns, together with the costs of effecting such
recovery.
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<PAGE> 4
9. CONFIDENTIALITY. Employee shall execute the Confidential Information
and Employee Invention Agreement attached hereto as Exhibit A (the
"CONFIDENTIALITY AGREEMENT"), which will survive termination or expiration of
this Agreement.
10. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to
the Company that (a) he or she is under no contractual restriction or other
restrictions or obligations that are inconsistent with the execution of this
Agreement, the performance of his or her duties and the covenants hereunder, and
(b) he or she is under no physical or mental disability that would interfere
with his or her keeping and performing all of the agreements, covenants and
conditions to be kept or performed hereunder.
11. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of California, excluding its rules on
conflicts of law.
(b) Arbitration. Any dispute regarding the application,
interpretation or breach of this Agreement shall be resolved by final and
binding arbitration before the American Arbitration Association ("AAA") in
accordance with AAA's National Rules for the Resolution of Employment Disputes.
Attorney's fees, costs and damages (where appropriate) shall be awarded to the
prevailing party in any dispute, and any resolution, opinion or order of AAA may
be entered as a judgment of the Superior Court.
(c) Modification and Waiver. No waiver or modification of this
Agreement or any term hereof shall be binding unless it is in writing signed by
the parties hereto. No failure to insist upon compliance with any term,
provision or condition to this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
(d) Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede and replace all prior employment
agreements, if any, between the parties. No oral statements or prior written
agreements with respect to the subject matter hereof which are not specifically
incorporated herein or in the Confidentiality Agreement shall be of any force or
effect.
(e) Severability. If any provisions hereof shall be held or
construed to be illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining provisions of this Agreement, but the same shall
be construed and enforced just as though the illegal or invalid provisions had
not been included herein.
(f) Notices. Any notice, demand or other communication required,
permitted or desired to be given hereunder shall be in writing and shall be
deemed effectively given upon personal delivery, facsimile transmission (with
confirmation of receipt), delivery by reputable overnight delivery service or
five (5) days following deposit in the United States mail (if sent by certified
or registered mail, postage prepaid, return receipt requested), in each case
duly
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addressed to the Company at its headquarters or to Employee at his or her
address of record listed with the Company.
(g) Assignment. Employee's rights, duties and obligations under
this Agreement may not be assigned by Employee. The Company may assign its
rights, duties and obligations under this Agreement to any affiliate of the
Company.
(h) Headings. The section headings herein are intended for
reference and shall not affect in any way the construction or interpretation of
this Agreement.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
EMPLOYEE THE COMPANY
Pritchett Publishing Company
Signature: /s/ PRICE PRITCHETT By: /s/ PRICE PRITCHETT
--------------------------- ----------------------------------
Printed Name: Early Price Pritchett, Name:
III --------------------------------
Title:
-------------------------------
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<PAGE> 7
SCHEDULE 1 TO
EMPLOYMENT AGREEMENT
"CAUSE" means the occurrence of any one or more of the following events
or circumstances, provided however, that if any such event or circumstance is
susceptible to cure by Employee, such event or circumstance will not constitute
Cause unless Employee has failed to cure such event or circumstance within 15
days after receipt by Employee of written notice thereof: (i) Employee engages
in any wrongful conduct or knowingly violates any reasonable rule or regulation
of the Board, the Company's President or Chief Executive Officer or other senior
officer designated by the Chief Executive Officer that results in material
damage to the Company or any parent corporation of the Company, any subsidiary
corporation of the Company or any entity controlling, controlled by, or under
common control with the Company (an "AFFILIATED ENTITY"); (ii) any willful
misconduct or gross negligence by Employee in the responsibilities assigned to
Employee; (iii) any willful and material failure to perform Employee's job as
required to meet the lawful objectives of the Company or any Affiliated Entity;
(iv) Employee fails to comply with all material applicable laws and regulations
in performing Employee's duties and responsibilities to the Company; or (v)
Employee does any of the things described in (A)-(C) below.
(A) Employee renders services for any organization or engages directly
or indirectly in any business that, in the reasonable judgment of the Chief
Executive Officer of the Company or other senior officer designated by the Chief
Executive Officer, (x) during Employee's employment with the Company or any
Affiliated Entity, is or becomes competitive with the Company or any Affiliated
Entity, or which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise materially prejudicial to or
in material conflict with the business or interests of the Company or any
Affiliated Entity, or (y) after termination of Employee's employment with the
Company or any Affiliated Entity, is or becomes competitive with the business
units of the Company or any Affiliated Entity to which Employee devoted
significant time and attention within the scope of Employee's employment
hereunder (the "BUSINESS UNITS"), or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the business or interests of the Business
Units. For an Employee whose employment has terminated, the judgment of the
Chief Executive Officer or such other senior officer shall be based upon the
Employee's position and responsibilities while employed by the Company or any
Affiliated Entity, the Employee's post-employment responsibilities and position
with the other organization or business, the extent of past, current and
potential competition or conflict between the Business Units and the other
organization or business, the effect on the customers, suppliers and competitors
of the Business Units of Employee's assuming the post-employment position, the
guidelines established in any employee handbook, any employment agreement with
the Employee, and such other considerations as are deemed by the Company to be
relevant given applicable facts and circumstances.
(B) Employee fails to comply with the Confidentiality Agreement or with
the lawful policies of the Company or any Affiliated Entity regarding
nondisclosure of confidential information, or without prior written
authorization from the Company or any Affiliated Entity discloses to anyone
outside the Company or any Affiliated Entity or uses for any purpose or in any
context other than in performance of Employee's duties to the Company or any
Affiliated Entity any confidential or trade secret information of the Company or
any Affiliated Entity.
<PAGE> 8
(C) Employee breaches in any material respect any agreement with or
legal duty to the Company or any Affiliated Entity.
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<PAGE> 1
EXHIBIT 10.15
FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT
THIS FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of December 14, 1998 (the "EFFECTIVE DATE") by and
between ProfitSource Corporation, a Delaware corporation (the "Company") and
Early Price Pritchett, III (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and is acquiring, in a
series of transactions by means of mergers into the Company, or acquisitions by
the Company of all or substantially all of the assets or stock or other equity
interests, various companies providing such services (the "CONSOLIDATION
TRANSACTIONS").
B. The Purchaser has entered into that certain Employment Agreement
with the Company or its affiliate of even date herewith (the "EMPLOYMENT
AGREEMENT").
C. The Purchaser and certain other persons affiliated with certain
companies being acquired by the Company in the Consolidation Transactions and
who are to serve as employees of the Company pursuant to employment agreements
executed concurrently with the acquisition of such companies (collectively, the
"FOUNDERS") and certain persons responsible for effecting the Consolidation
Transactions (the "SPONSORS") are being offered an opportunity to purchase
shares of the common stock of the Company, par value $0.001 per share (the
"COMMON STOCK") (in the case of Founders, Series A Common Stock and in the case
of Sponsors, Series B Common Stock) at a price of $1.56 per share (or if less,
the value per share determined by Houlihan, Lokey, Howard & Zukin as of the date
hereof).
D. The Shares (as hereinafter defined) shall be subject to repurchase
by the Company, in the Company's discretion, if certain performance related
milestones described herein are not met.
E. The Shares shall be subject to certain additional restrictions as
set forth herein.
F. The Purchaser desires to purchase and the Company desires to sell
the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company, the number of shares of Series A Common Stock
set forth on Schedule 1.1 (the "SHARES") for the consideration of $1.56 per
Share (or if less, the value per share determined by Houlihan, Lokey, Howard &
Zukin as of the date hereof), resulting in an aggregate purchase price as set
forth on Schedule 1.1 (the "PURCHASE PRICE"). Concurrently herewith the
Purchaser
<PAGE> 2
is paying to the Company in cash $0.001 per Share, resulting in an aggregate
payment of the amount set forth on Schedule 1.1 under the item "Cash Payment"
(the "CASH PAYMENT"). The obligation of the Purchaser to pay the remainder of
the Purchase Price in the amount set forth on Schedule 1.1 under the item "Note"
is evidenced by the Purchaser's delivery to the Company concurrently herewith of
a secured promissory note of the Purchaser in the form attached hereto as
Exhibit A (the "NOTE"). The Note is secured by a pledge of the Shares made
pursuant to Section 5 of the Note. The Shares are sold pursuant to and governed
by this Agreement and not any other contract or plan of the Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "Securities Act") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
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<PAGE> 3
(f) The Purchaser, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current needs and personal contingencies, and has no need for
liquidity and can sustain a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that the Consolidation Transactions
will occur, that the Company will be successful in accomplishing the purpose for
which it was formed or that it will ever be profitable. No assurances can be
given regarding what companies will ultimately participate in the Consolidation
Transactions. No company is obligated to participate in the Consolidation
Transactions unless a written agreement to such effect is entered into by the
Company and such Consolidation Transaction company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IPO, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the
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business of the Company will have the right to vote the Shares pursuant to the
voting agreement referenced in Section 4.1(i).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Founders are
intended to be used by the Company for general and administrative expenses and
working capital. The proceeds from such sales may be exhausted notwithstanding
failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
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authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance
by the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, national, federal, state or local law, statute, judgment,
order, writ, injunction, decree, award, rule, or regulation of any court,
arbitrator, federal, state, local or foreign government agency, regulatory body,
or other governmental authority or any department, agency, board, commission,
bureau or instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY,"
and collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 240,000,000 shares of Common Stock, of which 200,000,000 are Series
A Common Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares
of undesignated preferred stock. All capital stock of the Company has a par
value of $0.001 per share. Holders of Series B Common Stock are entitled to
elect all the directors in one of the Company's three classes of directors, with
the holders of the Series A Common Stock entitled to elect the remaining
directors. In all other respects, the Series A Common Stock and the Series B
Common Stock is identical. The Shares, when issued, sold, and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein will be duly and validly issued, fully paid, and nonassessable, except
that the Purchaser may be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming the execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein, not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional
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requirements or restrictions contained herein have been satisfied, terminated or
expressly waived by the Company in writing. Any attempted transfer in violation
of such Restrictions will be void.
(b) The Restrictions will lapse and the Shares will vest in accordance
with Schedule 4 (the "VESTING SCHEDULE"), provided, however, that the Company,
in its discretion, may from time to time accelerate the vesting of any Shares at
any time or forgive Restrictions and allow Shares or restricted shares owned by
any other Founder or other third party to vest notwithstanding that the
conditions to vesting thereof may not have been satisfied.
(c) If Shares do not vest in accordance with the Vesting Schedule for
any Measurement Period, the Company, or its assignee, may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following the end of such Measurement Period, repurchase from the Purchaser at
the price per Share that the Purchaser paid to the Company, and the Purchaser
will sell to the Company, any or all of the number of Shares by which the
maximum potential number of Shares that could vest for such Measurement Period
exceeds the number of Shares actually vested for such Measurement Period, if
any. Any Shares that do not vest in accordance with the Vesting Schedule shall
be subject to repurchase by the Company regardless of the services performed, or
other consideration given, by the Purchaser to the Company. Shares not vested in
accordance with the Vesting Schedule but not repurchased by the Company during
the applicable one-year repurchase period as described herein shall vest.
(d) (i) Termination of the Purchaser's employment by the Company or its
affiliate under the circumstances described in Schedule 4 under the heading
"Vesting Upon Certain Termination of Employment" will cause vesting as described
therein, provided that the vesting of any Shares upon termination of the
Purchaser's employment with the Company, or subsequent to such termination shall
be contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in form satisfactory to the Company of all claims against
the Company or any of its officers, directors or affiliates arising from or in
connection with this Agreement or the Purchaser's employment with the Company or
the termination of that employment. Any Shares that do not vest as described
therein shall be subject to repurchase by the Company or its assignee, in the
Company's discretion, at any time and from time to time for a period of one (1)
year following the end of the Measurement Period in which employment of the
Purchaser is terminated at the price per Share that the Purchaser paid to the
Company.
(ii) In case of termination of the Purchaser's employment by
the Company or its affiliate for any reason other than a reason that causes
vesting as described in Schedule 4, the Company or its assignee may, in the
Company's discretion, at any time and from time to time for a period of one (1)
year following the termination of employment, repurchase from the Purchaser at
the price per Share that the Purchaser paid to the Company, and the Purchaser
will sell to the Company, any or all of the Shares designated by the Company
that have not vested as of the date of termination of employment.
(iii) In addition to the Company's repurchase right set forth
in subparagraph (ii) above, if any of the events or circumstances constituting
"Cause" listed in items A or B of Schedule 1 of the Purchaser's Employment
Agreement occurs at any time before the end of the final Measurement Period,
then notwithstanding any prior vesting the Company or its assignee
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may, in the Company's discretion, at any time and from time to time for a period
of one (1) year following such occurrence, repurchase from the Purchaser at the
price per Share that the Purchaser paid to the Company, and the Purchaser will
sell to the Company, any or all Shares designated by the Company, that had not
vested at the time of such occurrence, or that vested effective as of a date
within 365 days before such occurrence, provided however, that if the
Purchaser's employment with the Company or its affiliate was terminated by the
Company without Cause or by the Purchaser for Good Reason (each as defined in
the Employment Agreement), then the Company will not be entitled to repurchase
Shares pursuant to this subparagraph (iii) solely because of the occurrence
after termination of employment of any of the events or circumstances
constituting Cause listed in item A of Schedule 1 of the Purchaser's Employment
Agreement.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase any
Shares under this Agreement but the Purchaser cannot deliver such Shares to the
Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other Founders, the Sponsors or
other third parties that are subject to restrictions, or to accelerate vesting
or forgive Restrictions applicable to such Common Stock, shall be within the
discretion of the Company. The Company may (but will not be required to)
exercise its right to repurchase, accelerate, or forgive Restrictions with
respect to any or all shares of restricted Common Stock owned by the Purchaser
or any Founder, Sponsor or other third party without incurring any obligation to
repurchase, accelerate, or forgive Restrictions with respect to any other Common
Stock owned by the Purchaser or any Founder, Sponsor or other third party.
(g) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as described in Section 5.2(b). Shares that have
vested shall nevertheless be governed by the Stockholder Agreement. The
Company's repurchase rights hereunder will supersede the purchase provisions of
the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the
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Purchaser has paid to the Company the full Purchase Price for such Shares, and
an amount sufficient to satisfy any taxes or other amounts required by any
Governmental Entity to be withheld and paid over to such Governmental Entity for
the Purchaser's account, or otherwise made arrangements satisfactory to the
Company for payment of such amounts through withholding or otherwise, and (b)
the Purchaser has, if requested by the Company, made appropriate representations
in a form satisfactory to the Company that such Shares will not be transferred
other than (i) pursuant to an effective registration statement under the
Securities Act, or an applicable exemption from the registration requirements of
the Securities Act; (ii) in compliance with all applicable state securities laws
and regulations; and (iii) in compliance with all terms and conditions of the
Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth
in this Agreement and the Stockholder Agreement, the Shares (or interests
therein) cannot be offered, sold or transferred unless the Shares are registered
and qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder Agreement
and the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
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(d) In connection with any underwritten public offering of securities
of the Company or any of its affiliates within three (3) years of the date
hereof, if the managing underwriter believes that it is appropriate in
connection with the offering to limit public sales of such securities by
Company's stockholders, the Purchaser will agree to the managing underwriter's
standard form of "lock up" agreement prohibiting transfers of Common Stock
(other than shares included in the offering) for such period as may be required
by the managing underwriter not to exceed twenty (20) days prior to, and one
hundred and eighty (180) days after, the effective date of the registration
statement for such offering, provided however, that (i) such lock up provision
may not be invoked more than once in any 365 day period, (ii) such lock up
provision will be contingent upon the officers and directors of the registrant
entering into similar lock up agreements, and (iii) the Purchaser will not be
required to comply with this lock up provision if any other stockholder owning
more shares of Common Stock than the Purchaser and who is subject to a
contractual lock up provision similar to this one has been released from such
lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and
removal of the Restrictions, except as otherwise provided herein, and subject to
the Voting Agreement, the Purchaser will have all of the rights of a stockholder
of the Company with respect to all of the Shares, including without limitation
the right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, forgives the Restrictions.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Company, or limits in any way the right of the Company to
terminate the Purchaser's services to
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the Company at any time, with or without cause. Such matters are addressed, if
at all, only pursuant to the Employment Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any of
the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission for an underwritten IPO of
its equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Purchaser shall have
the right, subject to the limitations set forth in this Section 4.7(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by the Purchaser. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in the
formation, or work on behalf of, the Company) will have rights to include shares
of Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing no Selling Stockholder will be
permitted to include in any such registration and offering (i) any Shares
subject to performance-related restrictions at the time of filing of the
registration statement for such offering, or (ii) more than, in the aggregate
for all such registrations and offerings, half of the Shares and other Common
Stock owned by the Purchaser as of the date hereof. Furthermore, in no case will
the Purchaser be permitted to include in all such registrations and offerings,
in the aggregate, more than the number of shares listed on Schedule 1.1 under
the item "Maximum IPO Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes any
securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering pursuant
to this Section 4.7 pursuant to the underwriting agreement negotiated between
the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all
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underwriting discounts and commissions applicable to any such sale of shares,
(ii) the Purchaser's ratable share (based on the relative number of shares of
Common Stock included in the offering) of any fees and disbursements of a single
counsel for all selling stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are registered
pursuant to the Securities Exchange Act of 1934, as amended, the Company shall
use its best efforts to fulfill all conditions applicable to a registrant as are
necessary to enable selling security holders of the Company to make sales
pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the parties under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
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5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall deliver
to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b);
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of
the rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
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6.5 COUNTERPARTS. This Agreement and the other Transaction Documents
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the
other Transaction Documents are for reference purposes only and shall not affect
in any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement also arises out of or relates to the employment of the Purchaser by
the Company or any affiliate of the Company, the provisions of this Agreement
governing dispute resolution shall govern resolution
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of such controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in an employment
agreement between the Purchaser and the Company or any affiliate of the Company.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand Dollars
($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees, the
dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 6.11(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Threshold, the Notice of Counterclaim shall so state. If pursuant
to Section 6.11(a) three (3) Arbitrators are to be appointed, within fifteen
(15) days after receipt of the Arbitration Notice or the Notice of Counterclaim
as applicable, each party shall select one person to act as Arbitrator and the
two (2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses
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to the interrogatories shall be delivered to the propounding party thirty (30)
days after receipt by the responding party of such document demand or
interrogatory. Each deposition shall be taken on reasonable notice to the
deponent, and must be concluded within four (4) hours and all depositions must
be taken within forty-five (45) days following the pre-hearing conference. Any
party deposing an opponent's expert must pay the expert's fee for attending the
deposition. All discovery disputes shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding. The Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
15
<PAGE> 16
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but
not be limited to, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION PURCHASER
By: /s/ MARK COLEMAN By: /s/ EARLY PRICE PRITCHETT, III
----------------------------------- ----------------------------------
Name: Mark Coleman Name: Early Price Pritchett, III
Title: CFO
Address: Address:
695 Town Center Drive, Suite 400 13155 Noel Road, Suite 1600
Costa Mesa, California 92626 Dallas, TX 75240
Telephone No.: (714) 429-5500 Telephone No.: (972) 789-7901
Facsimile No.: (714) 429-5559 Facsimile No.: (972) 789-9100
16
<PAGE> 17
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
4A 1998 Projected Pro Forma
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
<PAGE> 18
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
Aggregate Number of Shares: 179,147
Aggregate Purchase Price: $279,290.17
Cash Payment: $ 179.15
Note: $279,469.32
Maximum IPO Shares: 0
<PAGE> 19
SCHEDULE 4
VESTING SCHEDULE
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the Shares will lapse, and the Shares will vest if
and when the performance targets of the Purchaser set forth below are met,
provided, however, that except as set forth in this Schedule 4, in order for
Shares eligible to vest for any Measurement Period to vest the Purchaser must
have remained an employee of the Company, or an affiliate of the Company, from
the date hereof through the last day of that Measurement Period. The table below
lists five Measurement Periods, with each having corresponding Target Income and
a corresponding Vesting Percentage. Actual Income as of each Measurement Period
will be determined within ninety (90) days of the end of that Measurement
Period.
VESTING DURING EMPLOYMENT.
Shares will vest as follows:
(a) Cliff Vesting: January 1, 1998-December 31, 1998. If the
actual Income earned in the Measurement Period January 1, 1998-December
31, 1998 equals or exceeds the Target Income corresponding to that
Measurement Period, the Restrictions will lapse with respect to such
number of Shares as is equal to the product of the Vesting Percentage
corresponding to that Measurement Period and the total number of
Shares.
(b) Proportional Vesting: Subsequent Measurement Periods. For
all Measurement Periods after December 31, 1998:
(i) If the actual Income earned in any Measurement Period
equals or exceeds the Target Income corresponding to that
Measurement Period, the Restrictions will lapse, with respect
to such number of Shares as is equal to the product of the
Vesting Percentage corresponding to that Measurement Period
and the total number of Shares.
(ii) If the actual Income earned in any Measurement Period
is less than the Target Income for that Measurement Period,
but is more than the sum of the Target Income for the
immediately preceding Measurement Period plus half of the
Annual Target Delta, the Restrictions will lapse with respect
to such number of Shares as is equal to the product obtained
by multiplying the Vesting Percentage corresponding to that
Measurement Period, times the ratio of the Annual Actual Delta
to the Annual Target Delta, times the total number of Shares.
<PAGE> 20
For purposes hereof:
"ANNUAL ACTUAL DELTA" means the difference between the actual
Income earned in any Measurement Period and the Target Income for the
immediately preceding Measurement Period.
"ANNUAL TARGET DELTA" means the difference between the Target
Income earned in any Measurement Period and the Target Income for the
immediately preceding Measurement Period.
If the actual Income earned in any Measurement Period exceeds the
Target Income corresponding to that Measurement Period, the amount by which the
actual Income exceeds the Target Income shall be carried forward to the
following Measurement Period and added to the actual Income for such Measurement
Period. Excess Incomes may not be carried backward to preceding periods and
Shares that are eligible to vest but do not vest in any Measurement Period will
not vest unless the Company forgives the Restrictions applicable thereto in its
discretion or fails to repurchase them within one (1) year of the end of that
Measurement Period (i.e., Shares that fail to vest cannot be "recovered" based
upon subsequent performance).
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until actual Income for the
subject Measurement Period is fully and finally determined. In no case will the
total number of Shares that the Purchaser has the right to have vested for any
Measurement Period exceed the product of the Shares and the Vesting Percentage
corresponding to that Measurement Period. Fractional vested Shares will be
carried forward and combined to constitute whole vested Shares that can be
issued, or cashed out by the Company at fair market value following
determination of actual Income for the last Measurement Period.
TARGET VESTING
MEASUREMENT PERIOD INCOME PERCENTAGE
- ------------------ ------ ----------
(IN MILLIONS)
January 1, 1998- December 31, 1998 $1.500 20%
January 1, 1999- December 31, 1999 $1.800 20%
January 1, 2000- December 31, 2000 $2.16 20%
January 1, 2001- December 31, 2001 $2.592 20%
January 1, 2002- December 31, 2002 $3.110 20%
For purposes hereof:
"BUSINESS" means the business division or subsidiary of the Company to
which the Purchaser is assigned.
"INCOME" for any Measurement Period means pre-tax income of the
Business for that Measurement Period calculated according to GAAP and consistent
with the 1998 pre-tax projected pro forma net income calculation for Pritchett
Publishing Company attached hereto as Schedule 4A, including, without limitation
the recastings and add-back adjustments reflected therein. In calculating
Income, except as set forth herein, all costs attributable directly to the
Business, whether paid by the Business, the Company or any of its affiliates,
shall be charged to
2
<PAGE> 21
the Business, including, without limitation costs, bonuses and other
distributions to persons who are engaged principally in the Business. The
calculation of Income will not be affected by any allocation to the Business of
(i) any overhead charges of the Company not attributable directly to the
Business, or (ii) any costs incurred to comply with initiatives that are
required by the Company's management, without the consent of management of the
Business, that are in excess of the costs of the Business replaced by any such
initiatives.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
(a) If the employment of the Purchaser is terminated by death or by
"Disability" as defined below, and if the actual Income for any Measurement
Period equals or exceeds the Target Income corresponding to that Measurement
Period, the Restrictions will lapse with respect to such number of Shares as is
equal to the product of the Vesting Percentage corresponding to that Measurement
Period and the total number of Shares. If the actual Income earned in any
Measurement Period is less than the Target Income for that Measurement Period,
but is more than the sum of the Target Income for the immediately preceding
Measurement Period plus half of the Annual Target Delta, the Restrictions will
lapse, with respect to such number of Shares as is equal to the product obtained
by multiplying the Vesting Percentage corresponding to that Measurement Period,
times the ratio of the Annual Actual Delta to the Annual Target Delta, times the
total number of Shares.
(b) As set forth in the Purchaser's Employment Agreement, the
employment of the Purchaser with the Company or an affiliate of the Company
shall not be terminated without "Cause" (as defined in the Employment Agreement)
without majority approval of an executive management committee of the Company,
which committee shall consist of four (4) members of the senior management of
the Company and one (1) representative of the President's Council of the
Company.
(c) If the employment of the Purchaser is terminated by the Company
without "Cause" or by the Purchaser for "GOOD REASON" (each as defined in the
Employment Agreement) pursuant to the procedure set forth in paragraph (b), and
(i) if the Purchaser's employment is terminated prior to the last day of the
first Measurement Period or if the actual Income has exceeded the Target Income
for all Measurement Periods prior to the termination of the Purchaser's
employment, upon the last day of each Measurement Period ending after the
termination of the Purchaser's employment with the Company or an affiliate of
the Company, the Restrictions will lapse with respect to such number of Shares
as is equal to the product of the Vesting Percentage corresponding to that
Measurement Period and the total number of Shares, or (ii) if the Purchaser's
employment is terminated after the last day of the first Measurement Period and
if the actual Income has not equaled or exceeded the Target Income for all
Measurement Periods prior to the termination of the Purchaser's employment, upon
the last day of each Measurement Period ending after the termination of the
Purchaser's employment with the Company or an affiliate of the Company, the
Restrictions will lapse with respect to such number of Shares as is equal to the
product of fifty percent (50%) of the Vesting Percentage corresponding to that
Measurement Period and the total number of Shares, provided however, that if any
of the events or circumstances constituting "Cause" listed in item A of Schedule
1 of the Purchaser's Employment Agreement occurs at any time before the end of
the final Measurement Period, then, in addition to the rights of the Company set
forth in Section 4.1(d),
3
<PAGE> 22
the Shares shall no longer continue to vest as set forth in this paragraph (c)
and the Company or its assignee may, in the Company's discretion, at any time
and from time to time for a period of one (1) year following such occurrence,
repurchase from the Purchaser at the price per share that the Purchaser paid to
the Company, and the Purchaser will sell to the Company, any or all unvested
Shares.
For purposes hereof, the term "DISABILITY" means the Purchaser suffers
an ongoing physical or psychological impairment that has rendered Purchaser
unable, as determined in good faith by the Company's Chief Executive Officer, to
perform the Purchaser's duties to the Company, notwithstanding reasonable
accommodation by the Company (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such disability), for
a period of three (3) consecutive months or six (6) months in any 12-month
period.
4
<PAGE> 23
SCHEDULE 4A
1998 PROJECTED PRO FORMA
FOR
PRITCHETT PUBLISHING COMPANY
[SEE ATTACHED DOCUMENT]
<PAGE> 24
PRITCHETT & ASSOCIATES, INC.
SCHEDULE 4(a.) -- 1998 PROJECTED PROFORMA PRETAX ADJUSTMENTS
This analysis represents the anticipated 1998 projected pretax income with an
explanation of agreed-upon proforma add-back adjustments.
Projected Pretax Income for the year ended December 31, 1998 $(1,039,812)
Proforma Adjustments:
Product Development Costs 280,867
Employee Termination 100,000
401(K) Plan 122,967
Signing Bonus to President 25,000
Compensation -- Pritchett 186,000
Compensation -- Aberger 85,000
Compensation -- Covert 50,000
Pritchett's Life Insurance 26,462
Employee Assistance Plan 1,004
Moving Costs 10,206
Brokerage Fee 94,163
Rent Savings 438,383
Depreciation/Amortization Savings From Move 189,672
Keys for the 17th Floor 225
Accounting Fees 2,500
Audit Fees 99,500
Legal Fees 46,346
Loss on Disposal of 17th floor assets 818,519
--------
Total Adjustments 2,576,814
----------
Projected Proforma Pretax Income $1,537,002
==========
Term Sheet $1,537,000
<PAGE> 1
EXHIBIT 10.16
ADDENDUM TO
ASSET PURCHASE AGREEMENT
THIS ADDENDUM, is made and entered into as of April 27, 2000, by and
between Hoffmann Investment Company, Inc., f/k/a DHR International, Inc.
(hereinafter referred to as "Seller") and ProfitSource Corporation (hereinafter
referred to as "Buyer").
WHEREAS, the parties entered into an Asset Purchase Agreement dated
November 19, 1998; and
WHEREAS, a dispute has arisen regarding the interpretation of Section
4.19 of the Agreement; and
WHEREAS, the parties wish to resolve the dispute.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
Section 4.19 of the Asset Purchase Agreement shall be revised
to read as follows:
ADDITIONAL PURCHASE PRICE. If Buyer does not close the IPO of
its equity securities by June 30, 1999, Buyer will agree to
pay the Seller an additional purchase price based on the
performance of the Buyer since date of acquisition. Amounts
payable under, and other terms of, any such plan will be
subject to restrictions imposed by Buyer's lenders, Buyer's
capital investment requirements and preservation of adequate
working capital.
In all other respects, the terms and conditions of the Asset Purchase
Agreement dated November 19, 1998 are hereby reaffirmed.
HOFFMANN INVESTMENT
COMPANY, INC. EPS SOLUTIONS CORPORATION
(F/K/A DHR INTERNATIONAL, INC.) (F/K/A PROFITSOURCE CORPORATION)
By: /s/ David H. Hoffmann By: /s/ Michael G. Goldstein
--------------------------- ----------------------------
David H. Hoffmann Michael G. Goldstein
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of December 10, 1999 (the "EFFECTIVE DATE") by and between Enterprise Profit
Solutions Corporation, a Delaware corporation (the "COMPANY") and wholly owned
subsidiary of EPS Solutions Corporation, a Delaware corporation ("EPS"), and
Mark C. Coleman ("EMPLOYEE").
Employee is employed by the Company pursuant to an employment agreement
dated December 14, 1998 (the "ORIGINAL EMPLOYMENT AGREEMENT"), and the Company
and Employee desire to continue Employee's employment, but on the terms set
forth herein rather than pursuant to the Original Employment Agreement.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employee's employment with the Company will be at-will,
which means that either Employee or the Company may terminate Employee's
employment at any time for any reason or no reason without payment, penalty or
further obligation except as set forth in Section 8 or in the Restricted Stock
Purchase Agreement described below or another written agreement between Employee
and the Company or EPS, provided, however, that Employee's employment with the
Company shall not be terminated without Cause (as defined in Schedule 1) without
majority approval of an executive management committee of EPS, which committee
shall consist of four (4) members of the senior management of EPS and one (1)
representative of the President's Council of EPS.
2. DUTIES. Employee shall serve as Executive Vice President and Chief
Financial Officer of the Company and EPS. In those capacities, Employee shall
report directly to the Chief Executive Officer of EPS and be responsible for the
duties and functions listed on Schedule 2 and shall perform such related duties
and services as the board of directors and/or Chief Executive Officer of EPS may
from time to time assign, either directly or by delegated authority, provided
however, that Employee's responsibility and authority within the Company and EPS
will not be materially diminished without Employee's consent as long as shares
of restricted stock purchased by Employee pursuant to that certain Restricted
Stock Purchase Agreement dated August 13, 1999 between Employee and EPS (the
"RESTRICTED STOCK PURCHASE AGREEMENT") are subject to Restrictions (as defined
in the Restricted Stock Purchase Agreement) (the "RESTRICTED PERIOD"). Except as
set forth herein, Employee's position and duties may be changed at any time and
from time to time by the board of directors or Chief Executive Officer of EPS.
Such duties shall be rendered at such place or places as the Company shall
require based upon the interest, need, business and/or opportunities of the
Company, and EPS, provided however, that the place at which Employee renders
such duties shall not be relocated more than twenty-five (25) miles from the
location of such place on the date hereof without Employee's consent.
3. TIME AND EFFORTS. While employed by the Company (the "EMPLOYMENT
PERIOD"), Employee shall use his best efforts and devote his or her time and
attention to the business of the Company and EPS on a full-time basis and shall
at all times faithfully and industriously and to the best of his ability,
experience and talent, perform all of the duties that
<PAGE> 2
may be required of him pursuant to the terms hereof. During the Employment
Period, Employee shall not engage in any other paid employment or consulting
activities without the express written consent of the Company, but the foregoing
shall not preclude Employee from engaging in civic, charitable and/or religious
activities, directing his own passive investments, setting up, owning interests
in and/or managing investment entities with assets of Employee or third-parties,
and/or serving on boards of directors of other entities so long as such
activities do not interfere or conflict with Employee's duties hereunder as
reasonably determined by the Chief Executive Officer of EPS.
4. COMPENSATION.
(a) Salary, Bonus. During the Employment Period, the Company shall pay
Employee at the annual rate of Three Hundred Thousand Dollars ($300,000) (as
such pay may be increased by the Company from time to time in its discretion,
the "ANNUAL SALARY") for all services rendered by Employee to the Company and
EPS and their affiliates, payable in accordance with the Company's regular
payroll policies, subject, however, to withholding deductions, including without
limitation social security taxes and applicable federal, state and local income
and other employment taxes. Bonuses will be payable in the Company's discretion,
but (i) Employee will be entitled to participate in any bonus program on terms
at least as favorable as those made available to other executive employees of
the Company or EPS, and (ii) Employee's bonus (after tax) for any year shall be
not less than the annual interest that Employee is required to pay in cash to
EPS in that year on any notes issued by Employee to EPS for the purchase by
Employee of stock of EPS.
(b) Equity. In connection with employment by the Company and services
performed by Employee under this Agreement, Employee has acquired 319,286 shares
of restricted stock of EPS pursuant to the Restricted Stock Purchase Agreement,
in addition to a total of 317,163 shares of stock of EPS previously acquired by
Employee pursuant to a Restricted Stock Purchase Agreement dated December 14,
1998, and a Restricted Stock Purchase Agreement and a Subscription Agreement
each dated August 28, 1998, which shares will remain outstanding according to
the terms of those agreements, as amended if applicable.
(c) Notes and Liquidity. During and after the Employment Period, and
regardless of the reason for or circumstances of any termination of Employee's
employment, Employee will be entitled to receive (i) the most favorable
treatment of interest on promissory notes incurred to purchase stock of EPS that
is received at any time by any other officer of former officer of the Company or
EPS as a purchaser of EPS Stock, and (ii) the most favorable registration rights
or other access to liquidity, on a ratable basis based upon relative holdings,
that is received at any time by any other officer or former officer of the
Company or EPS.
5. PERSONAL TIME OFF POLICY. Employee shall be entitled to such number
of days of paid personal time off ("PTO") each year as is consistent with the
number of days set forth on Exhibit A and the Company's Personal Time Off
Policy, as such policy may be amended from time to time at the discretion of the
Company. Employee may not accrue more PTO days than the number of days set forth
on Exhibit A under the item "Maximum Accrued PTO." If Employee at any time has
more than such number of days, no further PTO days shall accrue until
2
<PAGE> 3
Employee again has fewer than such number of days of unused PTO. PTO days may be
used, subject to approval by EPS consistent with business needs, as they are
earned. The Company shall pay Employee for accrued unused PTO days only in
connection with termination of employment. Such payment shall be made on the
basis of Employee's Annual Salary at the time of payment, pro-rated for the
number of accrued unused PTO days at the time of termination.
6. BENEFITS. In addition to the compensation described in Section 4, the
Company shall provide Employee with benefits consistent with the Company's
employment policies as in effect from time to time, but in any case Employee's
benefits will be not less favorable than benefits provided to other executive
officers of the Company or EPS.
7. CERTAIN DEFINITIONS.
(a) Cause. For purposes hereof, the term "CAUSE" has the meaning set
forth in Schedule 1 hereto. Any termination of Employee's employment in
compliance with Section 1 and within 90 days after the Company becomes aware of
the occurrence of an event or circumstance constituting "Cause" will constitute
termination for Cause.
(b) Good Reason. If the Company or EPS breaches this Agreement or
any other agreement with Employee in any material respect and does not cure such
breach within 15 days of receipt from Employee of notice of such breach and
demand for cure, or a Change in Control (as defined in Schedule 1) occurs, and
Employee terminates Employee's employment with the Company (or its successor)
for any reason within 90 days of such breach or Change in Control, such
termination by Employee will be termination with "GOOD REASON."
8. CERTAIN PAYMENTS.
(a) Notice of Termination. Any termination of Employee's employment
shall be communicated by a Notice of Termination. For purposes of this
Agreement, a "NOTICE OF TERMINATION" shall mean a written notice of termination
of Employee's employment setting forth the effective date of such termination
and, if the termination is for cause, the specific termination provisions in
this Agreement relied upon and, in reasonable detail, the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.
(b) Termination by Employee with Good Reason or by the Company
Without Cause. If Employee's employment under this Agreement is terminated by
Employee with Good Reason or by the Company without Cause, then contingent upon
execution and delivery by Employee of an unconditional release, in form
consistent with the form of release attached as an exhibit to the Restricted
Stock Purchase Agreement, of all claims against the Company, EPS or any of their
officers, directors or affiliates arising from or in connection with this
Agreement or Employee's employment with the Company or the termination of that
employment, Employee shall be entitled to receive within five days of
termination of employment a lump sum payment equal to his Annual Salary (the
"SEVERANCE PAYMENT").
(c) No Other Benefits. Except as set forth in Sections 5 or 8(b), or
as may be required by applicable law or separate written agreement between the
Company or EPS and
3
<PAGE> 4
Employee, the Company and EPS shall have no obligations to pay any salary,
bonus, accrued vacation or other amounts in connection with any termination of
Employee's employment or attributable to the period after termination of
Employee's employment. Without limiting the foregoing, and subject to any
separate written agreement to the contrary, Employee will not be entitled to any
severance payment or benefit if Employee's employment under this Agreement is
terminated as a result of death or Disability, or by Employee without Good
Reason, or by the Company for Cause.
9. CONFIDENTIALITY. The Confidential Information and Employee Invention
Agreement (the "CONFIDENTIALITY AGREEMENT") executed and delivered by Employee
on August 28, 1998 will remain in full force and effect and will survive
termination or expiration of this Agreement.
10. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants
that (a) he is under no contractual restriction or other restrictions or
obligations that are inconsistent with the execution of this Agreement, the
performance of his duties and the covenants hereunder, and (b) he is under no
physical or mental disability that would interfere with his keeping and
performing all of the agreements, covenants and conditions to be kept or
performed hereunder.
11. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of California, excluding its rules on
conflicts of law.
(b) Arbitration. Any dispute regarding the application,
interpretation or breach of this Agreement shall be resolved by final and
binding arbitration before the American Arbitration Association ("AAA") in
accordance with AAA's National Rules for the Resolution of Employment Disputes.
Attorney's fees, costs and damages (where appropriate) shall be awarded to the
prevailing party in any dispute, and any resolution, opinion or order of AAA may
be entered as a judgment in a court of competent jurisdiction.
(c) Modification and Waiver. No waiver or modification of this
Agreement or any term hereof shall be binding unless it is in writing signed by
the parties hereto. No failure to insist upon compliance with any term,
provision or condition to this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
(d) Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede and replace all prior employment
agreements, each of which prior employment agreements is hereby terminated. No
oral statements or prior written agreements with respect to the subject matter
hereof which are not specifically incorporated herein or in the Confidentiality
Agreement shall be of any force or effect.
(e) Severability. If any provisions hereof shall be held or
construed to be illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining
4
<PAGE> 5
provisions of this Agreement, but the same shall be construed and enforced just
as though the illegal or invalid provisions had not been included herein.
(f) Notices. Any notice, demand or other communication required,
permitted or desired to be given hereunder shall be in writing and shall be
deemed effectively given upon personal delivery, facsimile transmission (with
confirmation of receipt), delivery by reputable overnight delivery service or
five (5) days following deposit in the United States mail (if sent by certified
or registered mail, postage prepaid, return receipt requested), in each case
duly addressed to the Company at the headquarters of EPS or to Employee at his
or her address of record listed with EPS.
(g) Assignment. Employee's rights, duties and obligations under this
Agreement may not be assigned by Employee. The Company may assign rights, duties
and obligations under this Agreement to any affiliate of EPS. This Agreement
shall be binding upon the successors and assignees of the Company.
(h) Headings. The section headings herein are intended for reference
and shall not affect in any way the construction or interpretation of this
Agreement.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
/s/ Mark C. Coleman
_______________________________________
Mark C. Coleman
Enterprise Profit Solutions Corporation
By: /s/ DAVID H. HOFFMAN
-----------------------------------
Name: David H. Hoffman
Title: CEO
5
<PAGE> 6
SCHEDULE 1 TO
EMPLOYMENT AGREEMENT
"CAUSE" means the occurrence at any time of any one or more of the
following events or circumstances, provided however, that if any such event or
circumstance is susceptible to cure by Employee without damage to the Company or
EPS, such event or circumstance will not constitute Cause unless Employee has
failed to cure such event or circumstance within 15 days after receipt by
Employee of written notice thereof: (i) Employee engages in any wrongful conduct
or knowingly violates any reasonable rule or regulation of the Board, or the
Chief Executive Officer of EPS that results in material damage or risk of legal
liability to the Company or EPS, any subsidiary corporation of the Company or
EPS or any entity controlling, controlled by, or under common control with the
Company or EPS (each an "AFFILIATE"); (ii) any willful misconduct or gross
negligence by Employee in the responsibilities assigned to Employee; (iii) any
willful and material failure to perform Employee's job as required to meet the
lawful objectives of the Company or any Affiliate or any repeated failure to
achieve reasonable performance standards that have been described by the Company
or EPS in writing and communicated to Employee in reasonable detail; (iv)
Employee fails to comply with all material applicable laws and regulations in
performing Employee's duties and responsibilities to the Company or any
Affiliate; (v) any criminal conduct (other than misdemeanors that do not meet
the criteria set forth in subsection (vi)); (vi) any actions involving moral
turpitude or injurious to the business or reputation of the Company or any
Affiliate; (vii) any legal action against Employee or the Company or any
Affiliate occurs as a result of Employee's service to the Company or any
Affiliate and results in a judgment or arbitral award that is based upon gross
negligence or intentional misconduct by Employee and that requires the Company
or any Affiliate to pay substantial damages; (viii) any legal action by Employee
or Employee's representatives or successors against the Company or any Affiliate
or any person or entity that the Company or any Affiliate would be obligated to
indemnify or defend in connection with such action; or (ix) Employee does any of
the things described in (A)-(C) below.
(A) Employee renders services for any organization or engages directly
or indirectly in any business that, in the reasonable judgment of the Chief
Executive Officer of EPS or other senior officer designated by the Chief
Executive Officer, is or becomes competitive with the Company or any Affiliate,
or which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict
with the business or interests of the Company or any Affiliate.
(B) Employee fails to comply with the Confidentiality Agreement or with
the lawful policies of the Company or any Affiliate regarding nondisclosure of
confidential information, or without prior written authorization from the
Company or any Affiliate discloses to anyone outside the Company or any
Affiliate or uses for any purpose or in any context other than in performance of
Employee's duties to the Company or any Affiliate any confidential or trade
secret information of the Company or any Affiliate.
6
<PAGE> 7
(C) Employee breaches in any material respect any agreement with or
legal duty to the Company or any Affiliate.
"CHANGE IN CONTROL" means the completion of:
(i) any acquisition or series of related acquisitions resulting in any
person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
beneficially owning (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than thirty percent (30%) of either the then outstanding
shares of Common Stock or the combined voting power of then outstanding voting
securities entitled to vote generally in the election of directors of EPS or the
Company, provided that a Change in Control shall not be deemed to have occurred
if the "person" described in the preceding provisions is an underwriter or
underwriting syndicate that has acquired the ownership voting securities of EPS
or the Company solely in connection with a public offering of those securities;
or
(ii) any reorganization, merger or consolidation of EPS or the Company
with any other person, entity or corporation, other than a transaction which
would result in the owners of voting securities of EPS outstanding immediately
prior thereto continuing to own directly or indirectly more than fifty percent
(50%) of the combined voting power of the voting securities of the entity or
entities surviving such reorganization, merger or consolidation that own and
conduct the business owned and conducted by EPS and the Company prior thereto;
or
(iii) the sale or other disposition by EPS or the Company, in one
transaction or a series of related transactions, of all or substantially all of
the assets of EPS or the Company; or
(iv) Individuals who, as of the Effective Date, constitute the board of
directors of EPS or the Company (in each case, the "INCUMBENT BOARD OF
DIRECTORS") cease for any reason to constitute at least a majority of the board
of directors of EPS or the Company, respectively, provided that any individual
who becomes a director after the Effective Date whose election, or nomination
for election by stockholders, is approved by a vote of at least a majority of
the directors then comprising the relevant Incumbent Board of Directors shall be
considered to be a member of the relevant Incumbent Board of Directors unless
that individual was nominated or elected by any person, entity or group (as
defined above) having the power to exercise, through beneficial ownership,
voting agreement and/or proxy, thirty percent (30%) or more of either the
outstanding shares of common stock of EPS or the Company or the combined voting
power of the outstanding securities of EPS or the Company entitled to vote
generally in the election of directors, in which case that individual shall not
be considered to be a member of the Incumbent Board of Directors unless such
individual's election or nomination for election by EPS' shareholders is
approved by a vote of at least two-thirds of the directors then comprising the
Incumbent Board of Directors; or
For purposes of this definition, references to EPS and the Company shall
also refer to their successors and assigns such that reorganizations or other
corporate transactions do not impair the substantive intent of these provisions.
7
<PAGE> 8
"DISABILITY" means Employee suffers an ongoing physical or psychological
impairment that has rendered Employee unable, as determined in good faith by the
Chief Executive Officer of EPS, to perform Employee's duties to the Company and
EPS, notwithstanding reasonable accommodation by the Company and EPS (the
Company and EPS, at their option and expense, being entitled to retain a
physician to confirm the existence of such disability), for a period of three
(3) consecutive months or six (6) months in any 12-month period.
8
<PAGE> 9
SCHEDULE 2
[Job Description]
9
<PAGE> 10
EXHIBIT A
PERSONAL TIME OFF
Aggregate Amount of time off: 28 days (in addition to holidays
observed by the Company)
Maximum Accrued PTO: 28 days
<PAGE> 1
EXHIBIT 10.19
AMENDMENT AGREEMENT
This Amendment Agreement is made as of December 10, 1999 by and among
EPS Solutions Corporation (the "COMPANY") and Mark C. Coleman ("EMPLOYEE").
A. Effective as of December 14, 1998, Employee and the Company entered
into that certain Restricted Stock Purchase Agreement (the "FIRST RSPA")
pursuant to which Employee purchased from the Company 265,518 shares of Series A
Common Stock of the Company (the "ORIGINAL SHARES").
B. In payment of the purchase price for the Original Shares Employee
made a promissory note payable to the order of the Company dated December 14,
1998 in the principal amount of $318,356.08 (the "FIRST NOTE").
C. Employee also made payable to the order of the Company a promissory
note dated August 13, 1999 in the principal amount of $797,895.71 in payment of
a portion of the purchase price for shares of the Company's restricted stock
purchased by Employee on August 13, 1999 (the "SECOND NOTE").
D. The Company and Employee desire to amend the First RSPA and the First
Note and Second Note in certain respects as set forth herein.
Therefore, in consideration of the mutual covenants set forth herein and
other consideration, the value and sufficiency of which is hereby acknowledged,
the Company and Employee hereby agree as follows:
1. Schedule 1.1 to the First RSPA is hereby amended to read in its
entirety as set forth on Schedule 1.1 attached hereto.
2. Schedule 4 to the First RSPA is hereby amended to read in its
entirety as set forth on Schedule 4 attached hereto.
3. There is hereby added to the First RSPA a new Section 4.11, which
reads as follows:
4.11 Change in Control. Notwithstanding anything in this Agreement or
other agreements to the contrary, any unvested Shares shall vest and the
Restrictions shall lapse as of immediately before the closing of a
transaction that constitutes a Change in Control (as defined in the
Employment Agreement), or upon a Change in Control other than a
transaction, in any case that occurs during Purchaser's employment by
the Company or any of its affiliates or within 90 days thereafter.
Accordingly, the Company will defer its repurchase rights hereunder for
at least such 90 day period.
<PAGE> 2
4. The Employment Agreement referenced in the First RSPA, as amended,
shall be the Employment Agreement between Employee and Enterprise Profit
Solutions Corporation dated as of December 10, 1999.
5. Effective as of immediately before the closing of the initial public
offering of shares of the Company or its successor or affiliate, all
Restrictions will lapse, and vesting will occur, with respect to (i) the portion
of the Original Shares and that would otherwise be scheduled to vest for the
final "Measurement Period" under the First RSPA.
6. Employee will be permitted, in his discretion, to (a) defer any
payment of interest accrued on the First Note and Second Note and any other
indebtedness of Employee incurred in connection with purchase of any shares from
the Company or any successor or affiliate (collectively, the "PURCHASE DEBT")
until the last principal of the Purchase Debt is paid; (b) extend the maturity
of the Purchase Debt by ten years if Employee's employment with all affiliates
of the Company and their successors terminates for any reason (and for this
purpose, an affiliate of the Company is an entity controlling, controlled by, or
under common control with the Company); and (c) pay any principal or interest on
the Purchase Debt at any time or from time to time by surrendering to the
Company or its successor or affiliate any vested shares of capital stock of the
Company or any successor or affiliate, in which case the principal or interest,
as specified by Employee, will be reduced by the aggregate fair market value of
such shares surrendered, and for this purpose the fair market value of such
shares will be the average closing price of such type of shares on the principal
exchange or market system upon which they trade for the previous 20 trading days
(or such shorter period of time as the stock has been so traded), and if not so
traded, the value determined and documented to Employee in writing by the
Company's board of directors in good faith by reference, if applicable, to the
Purchase Price under the Company's Stockholder Agreement and any other relevant
factors, but without any discount for minority interest or lack of liquidity.
7. The 12,151 shares of Common Stock of the Company purchased by
Employee from the Company pursuant to that certain Restricted Stock Purchase
Agreement dated December 14, 19998 are vested.
8. Sections 6.1 through 6.13 inclusive of the Restricted Stock Purchase
Agreement are included herein by reference and will govern this Agreement as
though set forth herein.
In Witness Whereof, the Company and Employee have entered into this
Agreement as of the date first above set forth.
EPS SOLUTIONS CORPORATION
By: /s/ DAVID H. HOFFMAN /s/ MARK C. COLEMAN
----------------------------------- -----------------------------------
Mark C. Coleman
Name: David H. Hoffman
-----------------------------------
Title: CEO
-----------------------------------
2
<PAGE> 3
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
<TABLE>
<S> <C> <C>
Aggregate Number of Shares 265,518
Aggregate Purchase Price $318,621.60
Cash Payment $265.52
Note $318,356.08
Maximum IPO Shares 53,104
Type of Shares
Time Vesting Shares
</TABLE>
3
<PAGE> 4
SCHEDULE 4
TO AMENDMENT AGREEMENT
BASIC TERMS.
VESTING. The Shares consist of 265,518 Time Vesting Shares (as
identified on Schedule 1.1). Subject to the terms and conditions set forth in
this Agreement, the Restrictions applicable to the Shares will lapse, and the
Shares will vest, if and when the conditions to vesting of the Shares, as set
forth in this Schedule 4, are met. However, except as set forth in this Schedule
4, in order for any Shares eligible for vesting for any Measurement Period to
vest, the Purchaser must have remained an employee of the Company, or an entity
controlling, controlled by, or under common control with the Company (an
"AFFILIATE"), from the date hereof through the last day of that Measurement
Period. In addition, as a condition to each and every vesting of Shares, the
Purchaser must execute and deliver to the Company a release, in form and
substance satisfactory to the Company, releasing the Company and all of its
Affiliates and their employees, officers and directors, and the successors and
assigns of each of them, from any claims or liabilities arising from or in
connection with the employment of the Purchaser by the Company or any of its
Affiliates.
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period. Fractional vested Shares
will be carried forward and combined to constitute whole vested Shares that can
be issued, or cashed out by the Company at fair market value following
determination of whether any performance requirements associated with the last
Measurement Period have been met.
TIME VESTING SHARES
On the last day of each Measurement Period set forth in the table below,
subject to the other provisions of this Agreement, the Restrictions will lapse
with respect to the number of Time Vesting Shares (as set forth in Schedule 1.1)
set forth opposite that Measurement Period below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
MEASUREMENT PERIOD VESTING
- ------------------ -------
<S> <C>
January 1, 1999 - December 31, 1999 178,130
January 1, 2000 - December 31, 2000 87,388
</TABLE>
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
If employment of the Purchaser with the Employer is terminated by the
Employer without "Cause" or by the Purchaser with "Good Reason" (each as defined
in the Employment Agreement), the Restrictions will immediately lapse and
vesting will immediately occur with respect to all of the Shares not already
vested. If employment of the Purchaser with the Employee terminates as a result
of the Purchaser's death or Disability (as defined in the
4
<PAGE> 5
Employment Agreement), the Restrictions will immediately lapse with respect to
half of the Shares not then already vested.
5
<PAGE> 1
EXHIBIT 10.20
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of August 13, 1999 (the "EFFECTIVE DATE") by and
between EPS Solutions Corporation, a Delaware corporation (the "COMPANY") and
Mark C. Coleman (the "PURCHASER").
A. The Purchaser is employed by the Company's wholly owned
subsidiary Enterprise Profit Solutions Corporation, a Delaware corporation
("EPS") or any of its affiliates (the "EMPLOYER") and has entered into that
certain Employment Agreement with the Employer of even date herewith (the
"EMPLOYMENT AGREEMENT").
B. In connection with that employment, the Purchaser is being
offered an opportunity to purchase shares of the common stock of the Company,
par value $0.001 per share (the "COMMON STOCK").
C. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain vesting
requirements described herein are not met.
D. The Shares shall be subject to certain additional restrictions
as set forth herein.
E. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Series A Common Stock
set forth on Schedule 1.1 (the "SHARES") for the consideration of $2.50 per
Share, resulting in an aggregate purchase price as set forth on Schedule 1.1
(the "PURCHASE PRICE"). Concurrently herewith the Purchaser is paying to the
Company in cash $0.001 per Share, resulting in an aggregate payment of the
amount set forth on Schedule 1.1 under the item "Cash Payment" (the "CASH
PAYMENT"). The obligation of the Purchaser to pay the remainder of the Purchase
Price in the amount set forth on Schedule 1.1 under the item "Note" is evidenced
by the Purchaser's delivery to the Company concurrently herewith of a secured
promissory note of the Purchaser in the form attached hereto as Exhibit A (the
"NOTE"). The Note is secured by a pledge of the Shares made pursuant to Section
5 of the Note. The Shares are sold pursuant to and governed by this Agreement
and not any other contract or plan of the Company, and are in addition to any
other shares previously or subsequently acquired by the Purchaser.
<PAGE> 2
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current
2
<PAGE> 3
needs and personal contingencies, and has no need for liquidity and can sustain
a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund
except as specifically set forth in a written agreement between the Purchaser
and the Company.
2.3 THE COMPANY.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has
limited financial and operating history.
(ii) There can be no assurance that the Company will
acquire additional companies or be successful in accomplishing the purpose for
which it was formed or that it will ever be profitable. No assurance can be
given regarding (A) whether the companies already acquired by the Company can be
successfully integrated and operated, or (B) what companies will ultimately be
acquired by the Company.
(iii) No assurances can be given that an initial public
offering ("IPO") of the Company's securities will occur. If an IPO does occur,
no assurances can be given as to timing of the IPO, whether the Purchaser will
be able to participate, or the price at which any shares of Common Stock would
be sold.
(iv) No assurances can be given as to the ultimate value
of the Common Stock or the Shares or the liquidity thereof.
(b) The Purchaser acknowledges that no assurances have been made
to the Purchaser with respect to any of the foregoing and no representations,
oral or written, have been made to the Purchaser by the Company or any of its
employees, representatives or agents concerning the Shares, their potential
value or the prospects of the Company, except as set forth herein.
3
<PAGE> 4
(c) The proceeds from the sale of the Shares are intended to be
used by the Company for general and administrative expenses and working capital.
The proceeds from such sales may be exhausted notwithstanding failure of the
Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the
4
<PAGE> 5
consummation of the transactions contemplated thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; or (ii) violate any provision or requirement of any domestic or
foreign, federal, state or local law, statute, judgment, order, writ,
injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.001 per share. Holders of Series B Common Stock are entitled to elect all
the directors in one of the Company's three classes of directors, with the
holders of the Series A Common Stock entitled to elect the remaining directors.
In all other respects, the Series A Common Stock and the Series B Common Stock
is identical. The Shares, when issued, sold, and delivered in accordance with
the terms of this Agreement for the consideration expressed herein will be duly
and validly issued, fully paid, and nonassessable, except that the Purchaser may
be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional requirements or restrictions
contained herein have been satisfied, terminated or expressly waived by the
Company in writing. Any attempted transfer in violation of such Restrictions
will be void.
(b) The Restrictions will lapse and the Shares will vest in
accordance with the provisions in Schedule 4 (the "VESTING SCHEDULE"), provided,
however, that the Company, in its
5
<PAGE> 6
discretion, may from time to time accelerate the vesting of any Shares at any
time or forgive Restrictions and allow Shares or restricted shares owned by any
other party to vest notwithstanding that the conditions to vesting thereof may
not have been satisfied.
(c) In addition to any repurchase rights of the Company set forth
in Schedule 4, the Company, or its assignee, may, in the Company's discretion,
at any time and from time to time for a period of one (1) year following the end
of each Measurement Period (as described in Schedule 4), repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all of the Shares that were eligible
to vest but did not vest in accordance with the Vesting Schedule for such
Measurement Period. Shares originally corresponding to any Measurement Period
that cannot vest because of failure prior to the end of that Measurement Period
of conditions to vesting thereof may be repurchased at any time and from time to
time from the failure of such conditions to the end of the applicable repurchase
period specified herein. Any Shares that do not vest in accordance with the
Vesting Schedule shall be subject to repurchase by the Company regardless of the
services performed, or other consideration given, by the Purchaser to the
Company. Shares not vested in accordance with the Vesting Schedule but not
repurchased by the Company during the applicable repurchase periods described
herein (including in Schedule 4) shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer
under the circumstances described in Schedule 4 under the heading "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in substantially the form attached hereto as Exhibit D.
Upon such a termination of employment, any Shares that do not vest as described
therein will be subject to repurchase in the manner described in Section
4(d)(ii).
(ii) In case of termination of the Purchaser's employment by
the Employer for any reason other than a reason that causes vesting as described
in Schedule 4, the Company or its assignee may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the
termination of employment, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares designated by the Company that have not vested
as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set
forth above, if any of the events or circumstances constituting "Cause" listed
in Schedule 1 of the Purchaser's Employment Agreement occurs at any time before
the end of the final Measurement Period, then notwithstanding any vesting
provided for herein the Company or its assignee may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following such occurrence, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all Shares designated by the Company that had not vested at the
time of such occurrence, or that vested effective as of a date within 365 days
before such occurrence, provided however, that (i) if the Purchaser's
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employment with the Employer was terminated by the Employer without Cause or by
the Purchaser for Good Reason (each as defined in the Employment Agreement), or
(ii) the Purchaser's employment with the Employer is terminated by the Purchaser
or the Employer (or its successor) within one hundred twenty (120) days after a
Change in Control (as defined in the Employment Agreement) of the Company, then
the Company will not be entitled to repurchase vested Shares pursuant to this
subparagraph (iii) solely because of the occurrence after termination of
employment of any of the events or circumstances constituting Cause listed in
item A of Schedule 1 of the Purchaser's Employment Agreement.
(e) (i) The purchase price for any repurchase pursuant to this
Section 4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to
repurchase any Shares under this Agreement but the Purchaser cannot deliver such
Shares to the Company because such Shares have previously been sold by the
Purchaser, the Company may, in its discretion, upon payment to the Purchaser of
the price per Share that the Purchaser paid to the Company, recover from the
Purchaser, and the Purchaser shall deliver to the Company, all proceeds to the
Purchaser of the sale of such Shares (or the cash value thereof), such that the
Purchaser retains no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or
to accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and
its right to repurchase Common Stock purchased by third parties that are subject
to restrictions, or to accelerate vesting or forgive Restrictions applicable to
such Common Stock, shall be within the discretion of the Company. The Company
may (but will not be required to) exercise its right to repurchase, accelerate,
or forgive Restrictions with respect to any or all shares of restricted Common
Stock owned by the Purchaser or any third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Common Stock owned by the Purchaser or any third party.
(g) The Shares shall be subject to the Stockholder Agreement and
Voting Agreement entered into by the Purchaser as of August 28, 1998 in
connection with previous purchase of Common Stock of the Company restricting
transfers and imposing certain obligations upon the Purchaser. Shares that have
vested shall nevertheless be governed by such agreements. The Company's
repurchase rights hereunder will supersede the purchase provisions of the
Stockholder Agreement.
(h) The Company will release the Certificates representing Shares
as such Shares become free of both the Restrictions and the Stockholder
Agreement, provided that (a) the Purchaser has paid to the Company the full
Purchase Price for such Shares, and an amount sufficient to satisfy any taxes or
other amounts required by any Governmental Entity to be
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withheld and paid over to such Governmental Entity for the Purchaser's account,
or otherwise made arrangements satisfactory to the Company for payment of such
amounts through withholding or otherwise, and (b) the Purchaser has, if
requested by the Company, made appropriate representations in a form
satisfactory to the Company that such Shares will not be transferred other than
(i) pursuant to an effective registration statement under the Securities Act, or
an applicable exemption from the registration requirements of the Securities
Act; (ii) in compliance with all applicable state securities laws and
regulations; and (iii) in compliance with all terms and conditions of the
Stockholder Agreement.
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set
forth in this Agreement and the Stockholder Agreement, the Shares (or interests
therein) cannot be offered, sold or transferred unless the Shares are registered
and qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder
Agreement, the Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE
SHARES OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a
condition to transfer of any Shares or interest therein, cause the transferee to
enter into the Stockholder Agreement, provided that, with respect to each such
agreement, this requirement will not apply to transfers made after the agreement
has terminated.
(d) In connection with any underwritten public offering of
securities of the Company or any of its affiliates within three (3) years of the
date hereof, if the managing underwriter believes that it is appropriate in
connection with the offering to limit public sales of
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such securities by Company's stockholders, the Purchaser will agree to the
managing underwriter's standard form of "lock up" agreement prohibiting
transfers of any Common Stock owned by the Purchaser, including without
limitation shares acquired other than pursuant hereto (other than shares
included in the offering) for such period as may be required by the managing
underwriter not to exceed twenty (20) days prior to, and one hundred and eighty
(180) days after, the effective date of the registration statement for such
offering, provided however, that (i) such lock up provision may not be invoked
more than once in any 365 day period, (ii) such lock up provision will be
contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) the Purchaser will not be required to
comply with this lock up provision if any other stockholder owning more shares
of Common Stock than the Purchaser and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, the Purchaser will
have all of the rights of a stockholder of the Company with respect to all of
the Shares, including without limitation the right to receive all dividends or
other distributions with respect to such Shares. In connection with the payment
of such dividends or other distributions, the Company will be entitled to deduct
any taxes or other amounts required by any Governmental Entity to be withheld
and paid over to such Governmental Entity for the Purchaser's account.
4.4 CHANGE IN CONTROL. Notwithstanding anything in this Agreement or
other agreements to the contrary, any unvested Shares shall vest and the
Restrictions shall lapse as of immediately before the closing of a transaction
that constitutes a Change in Control (as defined in the Employment Agreement),
or upon a Change in Control other than a transaction, in any case that occurs
during Employee's employment by the Company or any of its affiliates or within
90 days thereafter. Accordingly, the Company will defer its repurchase rights
hereunder for at least such 90 day period.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit E, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise. Purchaser
hereby acknowledges that (a) any information provided to the Purchaser by the
Company in connection with making an election pursuant to Section 83(b) has been
provided as a courtesy, (b) the Purchaser is fully responsible for making
elections pursuant to Section 83(b), (c) the Company has not rendered any tax
advice to the Purchaser in connection with making such election, and (d) the
Purchaser should consult with the Purchaser's independent tax advisors on such
matters.
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4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of
any of the Shares, or to participate in any registration undertaken by the
Company except as set forth in this Section 4.7. If the Company files a
registration statement with the Securities and Exchange Commission for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then the
Purchaser shall have the right, subject to the limitations set forth in this
Section 4.7(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by the Purchaser.
Other stockholders will have rights to include shares of Common Stock in such
offering, and if the aggregate amount of shares that all stockholders with such
rights (collectively, the "SELLING STOCKHOLDERS") desire to include exceeds the
number of shares of Common Stock that can be sold by all Selling Stockholders,
then all Selling Stockholders desiring to sell in any such offering will
participate pro-rata on the basis of the relative numbers of shares of Common
Stock eligible for inclusion that they originally sought to include. However,
notwithstanding the foregoing no Selling Stockholder will be permitted to
include in any such registration and offering (i) any Shares subject to
performance-related restrictions at the time of filing of the registration
statement for such offering, or (ii) more than, in the aggregate for all such
registrations and offerings, half of the Shares and other Common Stock owned by
the Purchaser as of the date hereof. Furthermore, in no case will the Purchaser
be permitted to include in the IPO registration and offering more than the
number of Shares listed on Schedule 1.1 under the item "Maximum IPO Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes
any securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering
pursuant to this Section 4.7, pursuant to the underwriting agreement negotiated
between the Company and the
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underwriters, and the Purchaser must enter into the underwriting agreement with
respect to any Shares to be included in the registration and offering. The
Purchaser shall pay (i) all underwriting discounts and commissions applicable to
any such sale of shares, (ii) the Purchaser's ratable share (based on the
relative number of shares of Common Stock included in the offering) of any fees
and disbursements of a single counsel for all Selling Stockholders, which
counsel shall be selected by the two (2) stockholders (or affiliated stockholder
groups) selling the most shares in the offering, and (iii) the fees and costs of
any separate counsel retained by the Purchaser alone.
(d) At all times that equity securities of the Company are
registered pursuant to the Securities Exchange Act of 1934, as amended, the
Company shall use its best efforts to fulfill all conditions applicable to a
registrant as are necessary to enable selling security holders of the Company to
make sales pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable
damage would occur if any of the obligations of the parties under this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrently herewith, the Purchaser shall deliver a stock
power executed by the Purchaser and the Purchaser's spouse, if applicable (the
"STOCK POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
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4.11 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "Exchange
Consideration"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization, provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to any
Restrictions not satisfied.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrently herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrently herewith and as a condition to
receipt of any Shares, the Purchaser shall deliver to the Company the Cash
Payment, the Accredited Investor Questionnaire, and the Stock Power described in
Section 4.9(b).
(b) Other Closing Documents. The Company shall receive such other
duly executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
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entity, any rights or remedies of any nature or kind whatsoever under
or by reason of this Agreement. This Agreement will be binding upon the
successors and assignees of the Company.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to
this Agreement shall be solely and finally settled by arbitration administered
by the American Arbitration
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Association (the "AAA") in accordance with its Commercial Arbitration Rules as
then in effect (the "RULES"), except to the extent such Rules vary from the
following provisions. Notwithstanding the previous sentence, the parties hereto
may seek provisional remedies in courts of appropriate jurisdiction and such
request shall not be deemed a waiver of the right to compel arbitration of a
dispute hereunder.
(ii) If any controversy or claim arising out of or
relating to this Agreement also arises out of or relates to the employment of
the Purchaser by the Employer, the provisions of this Agreement governing
dispute resolution shall govern resolution of such controversy or claim. The
provisions of this Agreement governing dispute resolution supersede any
provisions relating to such matters in any employment agreement between the
Purchaser and the Employer.
(iii) The arbitration shall be conducted by one
independent and impartial arbitrator, appointed by the AAA; provided however, if
the claim and any counterclaim, in the aggregate, together with other
arbitrations that are consolidated pursuant to Section 6.11(f), exceed Five
Hundred Thousand Dollars ($500,000) (the "THRESHOLD"), exclusive of interest and
attorneys' fees, the dispute shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrator or arbitrators are hereinafter
referred to as the "ARBITRATOR"). The judgment of the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof. The
arbitration proceedings shall be held in Orange County, California unless the
parties agree to another location.
(b) If a party hereto determines to submit a dispute for
arbitration pursuant to this Section 6.11, such party shall furnish the other
party with whom it has the dispute with a notice of arbitration as provided in
the Rules (an "ARBITRATION NOTICE") which, in addition to the items required by
the Rules, shall include a statement of the nature, with reasonable detail, of
the dispute. A copy of the Arbitration Notice shall be concurrently provided to
the AAA, along with a copy of this Agreement, and if pursuant to Section 6.11(a)
one (1) Arbitrator is to be appointed, a request to appoint the Arbitrator. If a
party has a counterclaim against the other party, such party shall furnish the
party with whom it has the dispute a notice of such claim as provided in the
Rules (a "NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the
Arbitration Notice, which, in addition to the items required by the Rules, shall
include a statement of the nature, with reasonable detail, of the dispute. A
copy of the Notice of Counterclaim shall be concurrently provided to the AAA. If
the claim set forth in the Notice of Counterclaim causes the aggregate amount in
dispute to exceed the Threshold, the Notice of Counterclaim shall so state. If
pursuant to Section 6.11(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
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(c) Once the Arbitrator is selected, the Arbitrator shall
schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least
three (3) days before the arbitration hearing, specifying the facts each intends
to prove and analyzing the applicable law. The parties have the right to
representation by legal counsel throughout the arbitration proceedings. The
presentation of evidence at the arbitration hearing shall be governed by the
Federal Rules of Evidence. Oral evidence given at the arbitration hearing shall
be given under oath. Any party desiring a stenographic record may secure a court
reporter to attend the arbitration proceedings. The party requesting the court
reporter must notify the other parties and the Arbitrator of the arrangement in
advance of the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more
arbitrations involving other parties, which arise under agreement(s) between the
Company and such other parties, if more than one such arbitration is commenced
and any party thereto contends that two or more arbitrations are substantially
related and that the issues should be heard in one proceeding. The Arbitrator
selected in the first-filed of such proceedings shall determine whether, in the
interests of justice and efficiency, the proceedings should be consolidated
before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of
the Arbitrator shall be final. It is the intent of the parties that the
arbitration provisions hereof be enforced to the fullest extent permitted by
applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice
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of venue is intended by the parties to be mandatory and not permissive in
nature, thereby precluding the possibility of litigation between the parties
with respect to or arising out of this Agreement or any other Transaction
Document in any jurisdiction other than that specified in this paragraph. Each
party hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates and
acknowledges that it has had sufficient minimum contacts with California such
that the State and Federal courts located in the County of Orange, State of
California shall have in personam jurisdiction over each of them for the purpose
of litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 6.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ DAVID H. HOFFMAN By: /s/ MARK C. COLEMAN
--------------------------- -----------------------------
Name: David H. Hoffman Name: Mark C. Coleman
Title: CEO
Address: Address:
210 Orchid Avenue
695 Town Center Drive, Suite 400 Corona del Mar, California 92625
Costa Mesa, California 92626
Telephone No.: (949) 644-0386
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
17
<PAGE> 18
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of Release
E. Section 83(b) Election Form
<PAGE> 19
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
<TABLE>
<CAPTION>
<S> <C>
Aggregate Number of Shares: 319,286
Aggregate Purchase Price: $ 798,215
Cash Payment: $ 319.29
Note: $797,895.71
Maximum IPO Shares: 63,857
Type of Shares:
Employment Shares
</TABLE>
2
<PAGE> 20
SCHEDULE 4
VESTING SCHEDULE
BASIC TERMS.
VESTING. Subject to the terms and conditions set forth in this
Agreement, the Restrictions applicable to the Shares will lapse, and the Shares
will vest, if and when the conditions to vesting of the Shares, as set forth in
this Schedule 4, are met. However, except as set forth in this Schedule 4, in
order for any Shares eligible for vesting for any Measurement Period to vest,
the Purchaser must have remained an employee of the Company, or an entity
controlling, controlled by, or under common control with the Company (an
"AFFILIATE"), from the date hereof through the last day of that Measurement
Period. In addition, as a condition to each and every vesting of Shares, the
Purchaser must execute and deliver to the Company a release, in form and
substance satisfactory to the Company, releasing the Company and all of its
Affiliates and their employees, officers and directors, and the successors and
assigns of each of them, from any claims or liabilities arising from or in
connection with the employment of the Purchaser by the Company or any of its
Affiliates.
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period. Fractional vested Shares
will be carried forward and combined to constitute whole vested Shares that can
be issued, or cashed out by the Company at fair market value following
determination of whether vesting for the last Measurement Period has occurred.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
If employment of the Purchaser with the Employer is terminated by the
Employer without "Cause" or by the Purchaser with "Good Reason" (each as defined
in the Employment Agreement), the Restrictions will immediately lapse and
vesting will immediately occur with respect to all of the Shares not already
vested. If employment of the Purchaser with the Employee terminates as a result
of the Purchaser's death or Disability (as defined in the Employment Agreement),
the Restrictions will immediately lapse with respect to half of the Shares not
then already vested.
<PAGE> 21
EMPLOYMENT SHARES
On the last day of each Measurement Period set forth in the table below,
subject to the other provisions of this Agreement, the Restrictions will lapse
with respect to the number of Employment Shares (as set forth in Schedule 1.1)
set forth opposite that Measurement Period in the table below.
NUMBER OF SHARES
MEASUREMENT PERIOD VESTING
January 1, 2000 - December 31, 2000 58,814
January 1, 2001 - December 31, 2001 146,201
January 1, 2002 - December 31, 2002 114,271
Effective as of immediately before the closing of the initial public
offering of shares of the Company or its successor or affiliate, all
Restrictions will lapse, and vesting will occur, with respect to the Employment
Shares that would otherwise be scheduled to vest for the final Measurement
Period applicable thereto.
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<PAGE> 1
EXHIBIT 10.21
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of December 14, 1998 (the "EFFECTIVE DATE") by and
between ProfitSource Corporation, a Delaware corporation (the "COMPANY") and
Mark C. Coleman (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and is acquiring, in a
series of transactions by means of mergers into the Company, or acquisitions by
the Company of all or substantially all of the assets or stock or other equity
interests, various companies providing such services (the "CONSOLIDATION
TRANSACTIONS").
B. The Purchaser is employed by the Company's wholly owned
subsidiary Enterprise Profit Solutions Corporation, a Delaware corporation
("EPS") or any of its affiliates (the "EMPLOYER") and has entered into that
certain Employment Agreement with the Employer of even date herewith (the
"EMPLOYMENT AGREEMENT").
C. The Purchaser and certain other persons responsible for
effecting the Consolidation Transactions and who are to serve as employees of
the Employer (the "SPONSORS") and certain other persons affiliated with certain
companies being acquired by the Company in the Consolidation Transactions and
who are also to serve as employees of the Employer (the "FOUNDERS") are being
offered an opportunity to purchase shares of the common stock of the Company,
par value $0.001 per share (the "COMMON STOCK") (in the case of Founders, Series
A Common Stock and in the case of Sponsors, Series B Common Stock) at a price of
$1.20 per share.
D. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain performance
related milestones described herein are not met.
E. The Shares shall be subject to certain additional restrictions
as set forth herein.
F. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the aggregate number of shares of Series B
Common Stock set forth on Schedule 1.1 as "Aggregate Number of Shares" (the
"SHARES") for the consideration of $1.20 per Share, resulting in an aggregate
purchase price as set forth on Schedule 1.1 (the "PURCHASE PRICE").
<PAGE> 2
Concurrently herewith the Purchaser is paying to the Company in cash $0.001 per
Share, resulting in an aggregate payment of the amount set forth on Schedule 1.1
under the item "Cash Payment" (the "CASH PAYMENT"). The obligation of the
Purchaser to pay the remainder of the Purchase Price in the amount set forth on
Schedule 1.1 under the item "Note" is evidenced by the Purchaser's delivery to
the Company concurrently herewith of a secured promissory note of the Purchaser
in the form attached hereto as Exhibit A (the "NOTE"). The Note is secured by a
pledge of the Shares made pursuant to Section 5 of the Note. The Shares are sold
pursuant to and governed by this Agreement and not any other contract or plan of
the Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
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<PAGE> 3
(f) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current needs and personal contingencies, and has no need for
liquidity and can sustain a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has no financial
or operating history.
(ii) There can be no assurance that the Consolidation
Transactions will occur, that the Company will be successful in accomplishing
the purpose for which it was formed or that it will ever be profitable. No
assurances can be given regarding what companies will ultimately participate in
the Consolidation Transactions. No company is obligated to participate in the
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company and such Consolidation Transaction company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IPO, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the business of the Company will have the right to
vote the Shares pursuant to the voting agreement
3
<PAGE> 4
referenced in Section 4.1(i).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Sponsors and
the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 SHARE NUMBER. The Purchaser acknowledges that the number of A
Purchase Arbitrage Shares (as described in Schedule 1.1) reflects the number of
shares of Common Stock allocated or allocable to the Purchaser for his role in
effecting Consolidation Transactions with the companies set forth on Schedule
2.4, minus (i) the number of shares of Common Stock purchased pursuant to that
certain Restricted Stock Purchase Agreement dated August 28, 1998 between the
Company and the Purchaser for which restrictions set forth in such Agreement
either lapsed because the companies set forth on Schedule 4 to such Agreement
are participating in the Consolidation Transactions or were forgiven by the
Company and (ii) the number of shares of Common Stock purchased pursuant to that
certain Subscription Agreement dated August 28, 1998 between the Company and the
Purchaser (other than the number of employment related shares purchased on
August 28, 1998, which number equaled twenty percent (20%) of the aggregate
employment related shares allocated to the Purchaser).
2.5 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.6 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.7 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.8 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.9 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be
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<PAGE> 5
stated herein or therein or necessary to make the statements and facts contained
herein or therein not materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, federal, state or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.001 per share. Holders of Series B Common Stock are entitled to elect all
the directors in one of the Company's three classes of directors, with the
holders of the Series A Common Stock entitled to elect the remaining directors.
In all other respects, the Series A Common Stock and the Series B Common Stock
is identical. The Shares, when issued, sold, and delivered in accordance with
the terms of this Agreement for the consideration expressed herein will be duly
and validly issued, fully paid, and nonassessable, except that the Purchaser may
be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any
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<PAGE> 6
material fact necessary in order to make the statements and facts contained
herein or therein not materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares consist of "Employment Related Shares," "A Purchase
Arbitrage Shares," "B Purchase Arbitrage Shares" and "Pooling Arbitrage Shares"
each as designated on Schedule 1.1. Such Shares are subject to "RESTRICTIONS"
and may not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of; alienated or encumbered until the Shares "vest" by the lapse of the
Restrictions applicable thereto as set forth in Section 4.1(b) and any
additional requirements or restrictions contained herein have been satisfied,
terminated or expressly waived by the Company in writing. Any attempted transfer
in violation of such Restrictions will be void.
(b) The Restrictions will lapse and the various Shares will vest in
accordance with the provisions related to the various Shares in Schedule 4 (the
"VESTING SCHEDULE"), provided, however, that the Company, in its discretion, may
from time to time accelerate the vesting of any Shares at any time or forgive
Restrictions and allow Shares or restricted shares owned by any other Sponsor,
any Founder or other third party to vest notwithstanding that the conditions to
vesting thereof may not have been satisfied.
(c) In addition to any repurchase rights of the Company set forth in
Schedule 4, the Company, or its assignee, may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the end of
each Measurement Period, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares that were eligible to vest but did not vest in
accordance with the Vesting Schedule for such Measurement Period. Shares
originally corresponding to any Measurement Period that cannot vest because of
failure prior to the end of that Measurement Period of conditions to vesting
thereof may be repurchased at any time and from time to time from the failure of
such conditions to the end of the applicable repurchase period specified herein.
Any Shares that do not vest in accordance with the Vesting Schedule shall be
subject to repurchase by the Company regardless of the services performed, or
other consideration given, by the Purchaser to the Company. Shares not vested in
accordance with the Vesting Schedule but not repurchased by the Company during
the applicable repurchase periods described herein (including in Schedule 4)
shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer under
the circumstances described in Schedule 4 under the headings "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in form satisfactory to the Company of all claims against
the Company or any of its officers, directors or affiliates arising from or in
connection with this Agreement or the Purchaser's employment with the Employer
or the termination of that employment. Any Shares that do not vest as described
therein shall be subject to repurchase as described therein, or if not so
described therein, by the Company or its assignee, in the Company's discretion,
at any time and from time to time until the first anniversary of the last day of
the Measurement Period
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<PAGE> 7
in which it is determined that the Shares will not vest at the price per Share
that the Purchaser paid to the Company.
(ii) In case of termination of the Purchaser's employment by the
Employer for any reason other than a reason that causes vesting as described in
Schedule 4, the Company or its assignee may, in the Company's discretion, at any
time and from time to time for a period of one (1) year following the
termination of employment, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares designated by the Company that have not vested
as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set forth above, if
any of the events or circumstances constituting "Cause" listed in Schedule 1 of
the Purchaser's Employment Agreement occurs at any time before the end of the
final Measurement Period, then notwithstanding any vesting provided for herein
the Company or its assignee may, in the Company's discretion, at any time and
from time to time for a period of one (1) year following such occurrence,
repurchase from the Purchaser at the price per Share that the Purchaser paid to
the Company, and the Purchaser will sell to the Company, any or all Shares
designated by the Company that had not vested at the time of such occurrence, or
that vested effective as of a date within 365 days before such occurrence,
provided however, that (i) if the Purchaser's employment with the Employer was
terminated by the Employer without Cause or by the Purchaser for Good Reason
(each as defined in the Employment Agreement), or (ii) the Purchaser's
employment with the Employer is terminated by the Purchaser or the Employer (or
its successor) within one hundred twenty (120) days after a Change in Control of
the Company, then the Company will not be entitled to repurchase vested Shares
pursuant to this subparagraph (iii) solely because of the occurrence after
termination of employment of any of the events or circumstances constituting
Cause listed in item A of Schedule 1 of the Purchaser's Employment Agreement.
For purposes of this Agreement a "CHANGE IN CONTROL" shall have the meaning
ascribed to such term in the Company's Senior Credit Agreement.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase
any Shares under this Agreement but the Purchaser cannot deliver such Shares to
the Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other Sponsors, the Founders or
other third parties that are subject to restrictions,
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<PAGE> 8
or to accelerate vesting or forgive Restrictions applicable to such Common
Stock, shall be within the discretion of the Company. The Company may (but will
not be required to) exercise its right to repurchase, accelerate, or forgive
Restrictions with respect to any or all shares of restricted Common Stock owned
by the Purchaser or any Sponsor, Founder, or other third party without incurring
any obligation to repurchase, accelerate, or forgive Restrictions with respect
to any other Common Stock owned by the Purchaser or any Sponsor, Founder, or
other third party.
(g) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as described in Section 5.2(b). Shares that have
vested shall nevertheless be governed by the Stockholder Agreement. The
Company's repurchase rights hereunder will supersede the purchase provisions of
the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the Purchaser has paid to the Company the full Purchase Price
for such Shares, and an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld and paid over to such
Governmental Entity for the Purchaser's account, or otherwise made arrangements
satisfactory to the Company for payment of such amounts through withholding or
otherwise, and (b) the Purchaser has, if requested by the Company, made
appropriate representations in a form satisfactory to the Company that such
Shares will not be transferred other than (i) pursuant to an effective
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act; (ii) in compliance with all
applicable state securities laws and regulations; and (iii) in compliance with
all terms and conditions of the Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
this Agreement and the Stockholder Agreement, the Shares (or interests therein)
cannot be offered, sold or transferred unless the Shares are registered and
qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder Agreement and
the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
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<PAGE> 9
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
(d) In connection with any underwritten public offering of securities of
the Company or any of its affiliates within three (3) years of the date hereof;
if the managing underwriter believes that it is appropriate in connection with
the offering to limit public sales of such securities by Company's stockholders,
the Purchaser will agree to the managing underwriter's standard form of "lock
up" agreement prohibiting transfers of any Common Stock owned by the Purchaser,
including without limitation shares acquired other than pursuant hereto (other
than shares included in the offering) for such period as may be required by the
managing underwriter not to exceed twenty (20) days prior to, and one hundred
and eighty (180) days after, the effective date of the registration statement
for such offering, provided however, that (i) such lock up provision may not be
invoked more than once in any 365 day period, (ii) such lock up provision will
be contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) the Purchaser will not be required to
comply with this lock up provision if any other stockholder owning more shares
of Common Stock than the Purchaser and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement, the Purchaser will have all of the rights of a stockholder of
the Company with respect to all of the Shares, including without limitation the
right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, accelerates the vesting and forgives the Restrictions.
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4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any of
the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission for an underwritten IPO of
its equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Purchaser shall have
the right, subject to the limitations set forth in this Section 4.7(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by the Purchaser. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in the
formation, or work on behalf of, the Company) will have rights to include shares
of Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing no Selling Stockholder will be
permitted to include in any such registration and offering (i) any Shares
subject to performance-related restrictions at the time of filing of the
registration statement for such offering, or (ii) more than, in the aggregate
for all such registrations and offerings, half of the Shares and other Common
Stock owned by the Purchaser as of the date hereof. Furthermore, in no case will
the Purchaser be permitted to include in the IPO registration and offering more
than the number of Shares listed on Schedule 1.1 under the item "Maximum IPO
Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes any
securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary
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<PAGE> 11
prospectus or prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or caused by any omission, or
alleged omission, to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to the Company by the Purchaser expressly for
use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering pursuant
to this Section 4.7, pursuant to the underwriting agreement negotiated between
the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are registered
pursuant to the Securities Exchange Act of 1934, as amended, the Company shall
use its best efforts to fulfill all conditions applicable to a registrant as are
necessary to enable selling security holders of the Company to make sales
pursuant to Rule 144 under the Securities Act.
(e) This Section 4.7 supersedes any registration rights granted to the
Purchaser pursuant to any prior agreement.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the parties under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on
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<PAGE> 12
transfer of the Shares set forth herein or in the Stockholder Agreement. The
Company shall have the right, in its discretion, to exercise the Stock Power if
the Company becomes entitled to repurchase any or all of the Shares pursuant to
the provisions of this Agreement or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall deliver
to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1 (g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof; the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
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6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will center upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
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6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement also arises out of or relates to the employment of the Purchaser by
the Employer, the provisions of this Agreement governing dispute resolution
shall govern resolution of such controversy or claim. The provisions of this
Agreement governing dispute resolution supersede any provisions relating to such
matters in any employment agreement between the Purchaser and the Employer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand Dollars
($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees, the
dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 6.11(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Threshold, the Notice of Counterclaim shall so state. If pursuant
to Section 6.11(a) three (3) Arbitrators are to be appointed, within fifteen
(15) days after receipt of the Arbitration Notice or the Notice of Counterclaim
as applicable, each party shall select one person to act as Arbitrator and the
two (2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
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<PAGE> 15
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding. The Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum
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non conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates and
acknowledges that it has had sufficient minimum contacts with California such
that the State and Federal courts located in the County of Orange, State of
California shall have in personam jurisdiction over each of them for the purpose
of litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 6.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION PURCHASER
By: /s/ ERIK WATTS By: /s/ MARK C. COLEMAN
----------------------- --------------------------
Name: Erik Watts Name: Mark C. Coleman
---------------------
Title: President
--------------------
Address: Address:
695 Town Center Drive, Suite 400
-----------------------------
Costa Mesa, California 92626
-----------------------------
Telephone No.: (714) 429-5500 Telephone No.:
---------------
Facsimile No.: (714) 429-5559 Facsimile No.:
---------------
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SCHEDULES
1.1 Shares and Purchase Price
2.4 Consolidation Transactions
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
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SCHEDULE 1.1
SHARES AND PURCHASE PRICE
<TABLE>
<CAPTION>
<S> <C>
Aggregate Number of Shares: 265,518
Employment Related Shares: 71,428
A Purchase Arbitrage Shares: 88,393
B Purchase Arbitrage Shares 0
Pooling Arbitrage Shares: 105,697
Aggregate Purchase Price: $318,621.60
Cash Payment: $265.52
Note: $318,356.08
Maximum IPO Shares: 53,104
</TABLE>
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SCHEDULE 2.4
CONSOLIDATION TRANSACTIONS
Benefit Designs, Inc.
TSSC
Wells and Affiliates
Wells Satellite
FDSI Logistics
Medco Review, Inc./ICCN
Mobility Services International, Inc.
The Wadley-Donovan Group
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SCHEDULE 4
VESTING SCHEDULE
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the various Shares will lapse and the various Shares
will vest if and when the corresponding performance targets of the Purchaser set
forth below are met, provided, however, that except as set forth in this
Schedule 4, in order for Shares eligible to vest for any Measurement Period to
vest, the Purchaser must have remained an employee of the Employer from the date
hereof through the last day of that Measurement Period. For purposes of this
Agreement, "AFFILIATE" shall have the meaning ascribed to such term in Rule 405
of the Securities Act.
(a) EMPLOYMENT RELATED SHARES
(i) VESTING DURING EMPLOYMENT
On the last day of each of the Measurement Periods set forth in
the table below, if the Purchaser has remained an Employee of the Employer from
the date hereof through the last day of such Measurement Period, the
Restrictions will lapse with respect to such number of Employment Related Shares
(as set forth in Schedule 1.1) as is equal to the product of the Vesting
Percentage corresponding to that Measurement Period and the total number of
Employment Related Shares.
VESTING
MEASUREMENT PERIOD PERCENTAGE
January 1, 1999 - December 31, 1999 25%
January 1, 2000 - December 31, 2000 25%
January 1, 2001 - December 31, 2001 25%
January 1, 2002 - December 31, 2002 25%
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by death,
by the Employer without "Cause" or by the Purchaser for "Good Reason" (each as
defined in the Employment Agreement), or by "Disability" as defined below, the
Restrictions will lapse with respect to such number of Employment Related Shares
(in addition to those Employment Related Shares previously vested for prior
Measurement Periods) as is equal to the product of the Vesting Percentage
corresponding to the Measurement Period in which termination of employment
occurred times the total number of Employment Related Shares times a fraction,
the numerator of which is the number of days in the Measurement Period in which
termination of employment occurred through the date of termination of the
employment of the Purchaser, and the denominator of which is 365.
For purposes hereof; the term "DISABILITY" means the Purchaser suffers
an ongoing physical or psychological impairment that has rendered Purchaser
unable, as determined in good faith by the Chief Executive Officer of EPS, to
perform the Purchaser's duties to the Employer, notwithstanding reasonable
accommodation by the Employer (EPS, at its option and expense,
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<PAGE> 22
being entitled to retain a physician to confirm the existence of such
disability), for a period of three (3) consecutive months or six (6) months in
any 12-month period.
(b) A PURCHASE ARBITRAGE SHARES
(i) VESTING DURING EMPLOYMENT
On the last day of each of the Measurement Periods set forth in
the table below, if the Purchaser has remained an employee of the Employer from
the date hereof through the last day of such Measurement Period, the
Restrictions will lapse with respect to such number of A Purchase Arbitrage
Shares (as set forth in Schedule 1.1) as is equal to the product of the Vesting
Percentage corresponding to that Measurement Period in the table below and the
total number of A Purchase Arbitrage Shares.
MEASUREMENT PERIOD VESTING
PERCENTAGE
January 1, 1999 - December 31, 1999 25%
January 1, 2000 - December 31, 2000 25%
January 1, 2001 - December 31, 2001 25%
January 1, 2002 - December 31, 2002 25%
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If the employment of the Purchaser is terminated by death or by
Disability or is terminated by the Employer without Cause or by the Purchaser
for Good Reason or the Purchaser's employment with the Employer is terminated by
the Purchaser or the Employer (or its successor) within one hundred and twenty
(120) days after a Change in Control of the Company, upon the last day of each
Measurement Period ending after the termination of the Purchaser's employment
with the Employer, the Restrictions will lapse with respect to such number of A
Purchase Arbitrage Shares (in addition to those A Purchase Arbitrage Shares
previously vested for prior Measurement Periods) as is equal to the product of
the Vesting Percentage corresponding to that Measurement Period and the total
number of A Purchase Arbitrage Shares, provided however, that if any of the
events or circumstances constituting "Cause" listed in Items B and C of Schedule
1 of the Purchaser's Employment Agreement occurs at any time before the end of
the final Measurement Period, then, in addition to the rights of the Company set
forth in Section 4.1(d), the Shares shall no longer continue to vest as set
forth in this paragraph and the Company or its assignee may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following such occurrence, repurchase from the Purchaser at the price per share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all unvested shares.
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(c) B PURCHASE ARBITRAGE SHARES
(i) VESTING DURING EMPLOYMENT
If and when, while the Purchaser is employed by the Employer, a "B
Purchase Company" listed below is acquired by the Company or any of its
Affiliates in a consummated Consolidation Transaction before the Vesting
Deadline for B Purchase Arbitrage Shares set forth below, (a "TIMELY B PURCHASE
CLOSING") the Restrictions will lapse with respect to twenty percent (20%) of
the B Purchase Arbitrage Shares corresponding to that B Purchase Company in the
table below.
B PURCHASE COMPANY B PURCHASE ARBITRAGE
SHARES
-------------------
Total 0
--------------------
In addition to the vesting described in the immediately preceding
paragraph, on the last day of each of the Measurement Periods set forth below,
if the Purchaser has remained an employee of the Employer from the date hereof
through the last day of such Measurement Period, then for each B Purchase
Company that is acquired in a Timely B Purchase Closing, the Restrictions will
lapse with respect to twenty percent (20%) of the number of B Purchase Arbitrage
Shares corresponding to that B Purchase Company in the table above.
MEASUREMENT PERIOD
January 1, 1999 - December 31, 1999
January 1, 2000 - December 31, 2000
January 1, 2001 - December 31, 2001
January 1, 2002 - December 31, 2002
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by death,
by Disability, by the Employer without Cause, or by the Purchaser for Good
Reason or the Purchaser's employment with the Employer is terminated by the
Purchaser or the Employer (or its successor) within one hundred and twenty (120)
days after a Change in Control of the Company, and if any B Purchase Company
participates (or participated) in a Timely B Purchase Closing prior to the date
that is 180 days after the date of termination of the Purchaser's employment
with the Employer, then upon consummation of such Timely B Purchase Closing
after termination of the Purchaser's employment twenty percent (20%) of the B
Purchase Arbitrage Shares associated with such B Purchase Company shall vest,
and upon the last day of each Measurement Period set forth above ending after
the termination of the Purchaser's employment with ______________ Restrictions
will lapse with respect to twenty percent (20%) of the B
Purchase __________________ associated with such B Purchase Company, provided
however, that (i) such _____________ duplicative of any vesting that occurred
while the Purchaser was employed b__________________ (ii) if any of the events
or circumstances constituting "Cause"
23
<PAGE> 24
listed _____________________________ Schedule 1 of the Purchaser's Employment
Agreement occurs at any time _____________________ final Measurement Period,
then, in addition to the rights of the Company set for in Section 4.1(d), the
Shares shall no longer continue to vest as set forth in this paragraph and the
Company or its assignee may, in the Company's discretion, at any time and from
time to time for a period of one (1) year following such occurrence, repurchase
from the Purchaser at the price per share that the Purchaser paid to the
Company, and the Purchaser will sell to the Company, any or all unvested shares.
(iii) VESTING DEADLINE
The Vesting Deadline for B Purchase Arbitrage Shares is the earlier of
(i) the filing of a registration statement for an IPO of the Company's equity
securities, or (ii) December 31, 1999.
(d) POOLING COMPANY ARBITRAGE SHARES
(i) VESTING DURING EMPLOYMENT
If and when, while the Purchaser is employed by the Employer, a "Pooling
Company" listed below is acquired by the Company or any of its Affiliates in a
consummated Consolidation Transaction before the Vesting Deadline for Pooling
Company Arbitrage Shares set forth below (a "TIMELY POOLING CLOSING"), the
Restrictions will lapse with respect to twenty percent (20%) of the Earned
Shares associated with such Pooling Company. Upon the Pooling Closing of any
Pooling Company the Company or its assignee may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following such
Pooling Closing, repurchase from the Purchaser at the price per share that the
Purchaser paid to the Company, and the Purchaser will sell to the Company, any
or all Unearned Shares associated with such Pooling Company.
For purposes of this Agreement:
"EARNED SHARES" associated with any Pooling Company means (i) if the
1998 proforma pretax income upon which the actual purchase price for such
Pooling Company is based (the "1998 CLOSING INCOME") is at least 90% of the
"1998 Proforma Pretax Target Income" listed in the table below for such Pooling
Company, the Pooling Arbitrage Shares corresponding to such Pooling Company in
the table below; or otherwise (ii) the product of the Pooling Arbitrage Shares
corresponding to such Pooling Company in the table below times a fraction, the
numerator of which is the 1998 Closing Income for such Pooling Company, and the
denominator of which is the "1998 Proforma Pretax Target Income" listed in the
table below for such Pooling Company.
"UNEARNED SHARES" for any Pooling Company, if any, means the Pooling
Arbitrage
24
<PAGE> 25
Shares corresponding to that Pooling Company in the table below less the
Earned Shares for that Pooling Company.
<TABLE>
<CAPTION>
POOLING COMPANY 1998 PROFORMA PRETAX POOLING ARBITRAGE
TARGET INCOME SHARES
<S> <C> <C>
CRESA Consolidated $20,000,000 79,297
NCRI 1,100,000 26,400
----------------
Total 105,697
================
</TABLE>
In addition to the vesting described in the immediately preceding
paragraph, on the last day of each of the Measurement Periods set forth below,
if the Purchaser has remained an employee of the Employer from the date hereof
through the last day of such Measurement Period, then for each Pooling Company
that is acquired in a Timely Pooling Closing, the Restrictions will lapse with
respect to twenty percent (20%) of the "Earned Shares" associated with such
Pooling Company.
MEASUREMENT PERIOD
January 1, 1999 - December 31, 1999
January 1, 2000 - December 31, 2000
January 1, 2001 - December 31, 2001
January 1, 2002 - December 31, 2002
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by death,
by Disability, by the Employer without Cause, or by the Purchaser for Good
Reason or the Purchaser's employment with the Employer is terminated by the
Purchaser or the Employer (or its successor) within one hundred and twenty (120)
days after a Change in Control of the Company, and if any Pooling Company
participates (or participated) in a Timely Pooling Closing prior to the date
that is 180 days after the date of termination of the Purchaser's employment
with the Employer, then upon consummation of such Timely Pooling Closing after
termination of the Purchaser's employment twenty percent (20%) of the Earned
Shares associated with such Pooling Company shall vest, and upon the last day of
each Measurement Period set forth above ending after the termination of the
Purchaser's employment with the Employer, the Restrictions will lapse with
respect to twenty percent (20%) of the Earned Shares associated with such
Pooling Company, provided however, that (i) such vesting will not be duplicative
of any vesting that occurred while the Purchaser was employed by the Employer,
and (ii) if any of the events or circumstances constituting "Cause" listed in
Items B or C of Schedule 1 of the Purchaser's Employment Agreement occurs at any
time before the end of the final Measurement Period, then, in addition to the
rights of the Company set forth in Section 4.1(d), the Shares shall no longer
continue to vest as set forth in this paragraph and the Company or its assignee
may, in the Company's discretion, at any time and from time to time for a period
of one (1) year following such occurrence, repurchase from the Purchaser at the
price per share that the Purchaser paid to the Company, and the Purchaser will
sell to the Company, any or all unvested shares.
25
<PAGE> 26
(iii) VESTING DEADLINE
The Vesting Deadline for Pooling Company Arbitrage Shares is the earlier
of (i) the closing of an IPO of the Company's equity securities, or (ii)
December 31, 1999.
(e) ACKNOWLEDGMENT
The Company and its Affiliates have no obligation to the Purchaser to
affect any particular acquisition, or to time any particular acquisition, so as
to permit vesting hereunder to occur. The Purchaser recognizes that decisions
regarding acquisitions and the timing thereof and of any IPO filing will be made
by management of the Company consistent with duties to the Company and its
stockholders, and without regard to the Purchaser's vesting hereunder.
(f) FRACTIONAL SHARES
Fractional vested Shares of any kind may, in the Company's discretion,
be combined with any other fractional vested Shares of any kind (including for
later Measurement Periods) to constitute whole vested Shares, or repurchased by
the Company or its assignee at fair market value on the date of repurchase.
(g) REPLACEMENT TARGET COMPANIES
If the Company or any particular B Purchase Company or Pooling Company
determines that such B Purchase Company or Pooling Company will not participate
in a Timely B Purchase Closing or Timely Pooling Closing, as the case may be,
the Company may in its discretion (but will not be required to) assign any or
all of the B Purchase Arbitrage Shares or Pooling Arbitrage Shares corresponding
to that non-participating B Purchase Company or Pooling Company to one or more
replacement "Target Companies" identified by the Company that may participate in
either a Timely B Purchase Closing or a Timely Pooling Closing. If and when such
a replacement Target Company consummates a Timely B Purchase Closing or a Timely
Pooling Closing, as specified by the Company, the B Purchase Arbitrage Shares or
the Pooling Arbitrage Shares corresponding to that replacement Target Company
shall be eligible to vest in the same manner as set forth herein for original B
Purchase Arbitrage Shares or Pooling Arbitrage Shares, as the case may be,
provided that the maximum aggregate number of vested B Purchase Arbitrage Shares
and vested Pooling Arbitrage Shares may not exceed the total number of B
Purchase Arbitrage Shares and Pooling Arbitrage Shares set forth in Schedule 1.
Any allocation of B Purchase Arbitrage Shares or Pooling Arbitrage Shares to a
replacement Target Company may be effected only by a written amendment to this
Agreement executed and delivered by the Company and the Purchaser.
26
<PAGE> 1
EXHIBIT 10.22
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of August 28, 1998 (the "EFFECTIVE DATE") by and
between ProfitSource Corporation, a Delaware corporation (the "COMPANY") and
Mark Coleman (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and is acquiring, in a
series of transactions by means of mergers into the Company, or acquisitions by
the Company of all or substantially all of the assets or stock or other equity
interests, various companies providing such services (the "CONSOLIDATION
TRANSACTIONS").
B. The Purchaser has entered into an Employment Agreement with
the Company or its affiliate (the "EMPLOYMENT AGREEMENT").
C. The Purchaser and certain other persons responsible for
effecting the Consolidation Transactions and who are to serve as employees of
the Company (collectively, the "SPONSORS") are being offered an opportunity to
purchase shares of the Series B common stock of the Company, par value $0.00l
per share (the "COMMON STOCK") at a price of $0.02 per share. At the
consummation of the initial Consolidation Transactions, certain other persons
affiliated with certain companies being acquired by the Company in the
Consolidation Transactions and who are also to serve as employees of the.
Company (the "FOUNDERS") and the Sponsors will be offered the opportunity to
purchase additional shares.
D. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain
performance-related milestones described herein are not met.
E. The Shares shall be subject to certain additional restrictions
on transfer as set forth herein.
F. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Common Stock set forth
on Schedule 1 (the "SHARES") for the per share and aggregate consideration set
forth on Schedule 1 (the "PURCHASE PRICE"), which is being paid by the Purchaser
to the Company concurrently herewith in the form described in Schedule 1.
<PAGE> 2
1.2 DELIVERIES. In exchange for the Purchase Price, the Company is
issuing the Shares in the Purchaser's name, or such other name as may be set
forth on Schedule 1, on the Company's stock transfer ledger, and valid stock
certificates representing the Shares (the "CERTIFICATES") shall be held by the
Company or its agent pending release pursuant to Section 4.1(g).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to the Company and its officers,
directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the offer
and sale thereof are registered or qualified under the Securities Act of 1933,
as amended (the "SECURITIES ACT") or any state securities or "blue Sky" laws, on
the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) the Company's reliance on
such exemptions is predicated on the Purchaser's representations set forth
herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the Purchaser's
advisors the opportunity to obtain information to evaluate the merits and risks
of the purchase of the Shares, and the Purchaser has received all information
requested from the Company. The Purchaser has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has passed
upon the Shares or made any finding or determination as to the fairness of the
investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current
2
<PAGE> 3
needs and personal contingencies, and has no need for liquidity and can sustain
a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has documented his or her accredited status by
delivery to the Company of a completed questionnaire in the form of Exhibit A
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or general
advertising concerning the Shares, nor is the Purchaser aware of any such
solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has no financial
or operating history.
(ii) There can be no assurance that any particular Consolidation
Transactions will occur, that the Company will be successful in accomplishing
the purpose for which it was formed or that it will ever be profitable. No
assurances can be given regarding what companies will ultimately participate in
the Consolidation Transactions. No company is obligated to participate in the
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IP0, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the business of the Company will have the right to
vote the Shares pursuant to the voting agreement referenced in Section 4.1(h).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
3
<PAGE> 4
(c) The proceeds from the sale of the Common Stock to the Sponsors and
the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein, in light
of the circumstances in which they were or are made, not materially false or
misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated hereby and thereby
do not and will not: (i) violate or conflict with any provision of the charter
documents or bylaws of the Company; or (ii) violate any provision or requirement
of any domestic or foreign, national,
4
<PAGE> 5
state or local law, statute, judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, state, local or foreign government
agency, regulatory body, or other governmental authority or any department,
agency, board, commission, bureau or instrumentality of any of the foregoing
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES")
applicable to the Company.
3.3 LITIGATION. There is no litigation, claim, action, proceeding or
investigation pending against the Company or, to the knowledge of the Company,
any basis therefor or threat thereof.
3.4 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.00l per share. Holders of Series B Common Stock are entitled to elect all
the directors in one of the Company's three classes of directors, with the
holders of the Series A Common Stock entitled to elect the remaining directors.
In all other respects, the Series A Common Stock and the Series B Common Stock
is identical. The Shares, when issued, sold, and delivered in accordance with
the terms of this Agreement will be duly and validly issued, fully paid, and
nonassessable.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain an untrue statement of a
material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances in which they were or are made,
not materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS; STOCKHOLDER AGREEMENT AND VOTING
AGREEMENT.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of; alienated
or encumbered until the Shares "vest" as set forth in Section 4.1(b), and any
additional requirements or restrictions contained herein have been satisfied.
terminated or expressly waived by the Company in writing.
(b) The Restrictions will lapse and the Shares will vest in accordance
with Schedule 4 (the "VESTING SCHEDULE"), provided, however, that the Company,
in its discretion, may from time to time accelerate the vesting of any Shares or
restricted shares owned by any other Sponsor, and Founder or other third party
at any time, or forgive Restrictions and allow Shares or restricted shares owned
by any other Sponsor, any Founder or other third party to vest notwithstanding
that the conditions to vesting thereof may not have been satisfied. Any Shares
that have not vested by the Vesting Deadline set forth in Schedule 4 shall on
such Vesting Deadline become subject to repurchase by the Company in its
discretion at the price per share that the Purchaser paid to the Company
therefor, at any time and from time to time for a period of thirty (30) days
following the date that the Shares become subject to such repurchase.
5
<PAGE> 6
(c) If the employment of the Purchaser by the Company or its affiliate
terminates for any reason other than a reason that causes vesting as described
in Schedule 4 the Company or its assignee may, in the Company's discretion at
any time and from time to time for a period of thirty (30) days following the
termination of employment, repurchase from the Purchaser at the price per share
that the Purchaser paid to the Company therefor, all Shares not vested as of the
date of termination of employment.
(d) Any Shares that are subject to repurchase by the Company hereunder
shall be subject to repurchase regardless of the services performed, or other
consideration given, by the Purchaser to the Company. The purchase price for any
repurchase pursuant to this Section 4.1 shall be paid in the Company's
discretion, in cash or by a promissory note bearing interest at 7% and payable
in up to 12 equal monthly amortizing installments of principal and accrued
interest, or by any combination of cash and such a promissory note. Shares that
are subject to repurchase by the Company hereunder but that are not repurchased
by the Company within thirty (30) days of the date they become repurchasable by
the Company as described herein shall vest.
(e) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1 and its
right to repurchase Common Stock purchased by other Sponsors, the Founders or
other third parties that are subject to restrictions, or to accelerate vesting
or forgive Restrictions applicable to such Common Stock, shall be within the
discretion of the Company. The Company may ("but will not be required to)
exercise its right to repurchase, accelerate, or forgive Restrictions with
respect to any or all Shares or restrictions applicable to Common Stock owned by
any other Sponsor, Founder or other third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Shares or restrictions applicable to Common Stock owned by any other Sponsor,
Founder or other third party.
(f) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit B (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as described in Section 5.2(b). Shares that have
vested shall nevertheless be governed by the Stockholder Agreement. The
Company's repurchase rights hereunder will supersede the purchase provisions of
the Stockholder Agreement
(g) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the Purchaser has paid to the Company the full Purchase Price
for such Shares, and an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld and paid over to such
Governmental Entity for the Purchaser's account, or otherwise made arrangements
satisfactory to the Company for payment of such amounts through withholding or
otherwise, and (b) the Purchaser has, if requested by the Company, made
appropriate representations in a form satisfactory to the Company that such
Shares will not be transferred other than (i) pursuant to an effective
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act; (ii) in compliance with all
applicable state securities laws and regulations; and (iii) in compliance with
all terms and conditions of the Stockholder Agreement.
6
<PAGE> 7
(h) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit C (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
this Agreement and the Stockholder Agreement, the Shares (or interests therein)
cannot be offered, sold or transferred unless the Shares are registered and
qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely, and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder Agreement and
the Voting Agreement, the Certificates will bear a legend to the effect set
forth below and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE
HOLDER OF THE SHARES OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement and the Stockholder Agreement, the Purchaser will have all of
the rights of a stockholder of the Company with respect to all of the Shares,
including without limitation the right to receive all dividends or other
distributions with respect to such Shares. In connection with the payment of
such dividends or other distributions, the Company will be entitled to deduct
any taxes or other amounts required by any Governmental Entity to be withheld
and paid over to such Governmental Entity for the Purchaser's account.
4.4 MERGER, CONSOLIDATION TRANSACTIONS OR REORGANIZATION. In the event
of a merger, consolidation or reorganization of the Company in which the Common
Stock of the
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<PAGE> 8
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, forgives the Restrictions.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit D and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Company, or limits in any way the right of the Company to
terminate the Purchaser's services to the Company at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION. The Purchaser will have no rights to demand
registration of any of the Shares, or to participate in any registration
undertaken by the Company except as set forth in this Section 4.7. If the
Company files a registration statement with the Securities and Exchange
Commission for an IP0 of its equity securities or any subsequent public offering
within twelve (12) months of the closing of the IPO (not including a
registration statement filed in connection with an acquisition or employee
benefit plan). and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then the
Purchaser shall have the right to include in such registration statement and
offering up to that number of Shares listed on Schedule 1 under the item
"Maximum IP0 Shares." Other stockholders (including but not limited to
stockholders who acquired Common Stock in the Consolidation Transactions and
stockholders who acquired Common Stock in the formation, or work on behalf of,
the Company) will have rights to include shares of Common Stock in such
offering, and if the aggregate shares that all stockholders desire to include
exceeds the number of shares that can be sold by all selling stockholders, then
all stockholders desiring to sell in the offering will participate pro-rata on
the basis of the relative numbers of shares they originally sought to include.
In no case, however, will the Purchaser be permitted to include, in the
aggregate, more than half of the aggregate of all Shares and other Common Stock
owned by the Purchaser in such offerings, or any Shares subject to
performance-related restrictions. Shares may only be included pursuant to the
underwriting agreement negotiated between the Company and the underwriters, and
the Purchaser must enter into the underwriting agreement with respect to any
Shares to be included in the offering. The Purchaser shall pay (i) all
underwriting discounts and commissions applicable to any such sale of shares,
(ii) the Purchaser's ratable shares based on the relative number of shares of
Common Stock included in the offering) of any
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<PAGE> 9
fees and disbursements of a single counsel for all selling stockholders, which
counsel shall be selected by the two (2) stockholders (or affiliated stockholder
groups) selling the most shares in the offering, and (iii) the fees and costs of
any separate counsel retained by the Purchaser alone.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the Purchaser under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. The Company shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the Purchaser and to enforce specifically
the terms and provisions hereto, this being in addition to any other remedy to
which the Company is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES OF THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name or such other name as may be set forth on Schedule 1.
5.2 DELIVERIES OF THE PURCHASER.
(a) The Purchase Price. Concurrent herewith, the Purchaser shall deliver
to the Company the Purchase Price in the form described in Schedule 1.
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<PAGE> 10
(b) Documents of the Purchaser. In addition to the Accredited Investor
Questionnaire, concurrent herewith and as a condition to receipt of any Shares,
the Purchaser shall cause the Purchaser's spouse to execute and deliver to the
Company a spousal consent in the form of Exhibit E, and shall execute and
deliver to the Company, each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(f);
(ii) The Voting Agreement described in Section 4.1(h); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request. Without limiting the foregoing, the
Company may require the Purchaser to execute and deliver to the Company an
acknowledgment of certain disclosures and risks in the form executed and
delivered by Founders in connection with their acquisition of Common Stock, and
failure or refusal of the Purchaser to execute and deliver such an
acknowledgment upon request by the Company will entitle the Company to
repurchase the Shares at their original issue price.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
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<PAGE> 11
6.4 GOVERNING LAW. This Agreement, shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. The arbitration shall be conducted by
one independent and impartial arbitrator, appointed by the AAA; provided
however, if the claim and any counterclaim, in the aggregate, together with
other arbitrations that are consolidated pursuant to Section 6.11(f) exceed Five
Hundred Thousand Dollars ($500,000)
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<PAGE> 12
(the "THRESHOLD"), exclusive of interest and attorneys' fees, the dispute shall
be heard and determined by three (3) arbitrators as provided herein (such
arbitrator or arbitrators are hereinafter referred to as the "Arbitrator"). The
judgment of the award rendered by the Arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11 such party shall furnish the other party with whom
it has the dispute with a notice of arbitration as provided in the Rules (an
"ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 6.11 (a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Threshold, the Notice of Counterclaim shall so state. If pursuant
to Section 6.11(a) three (3) Arbitrators are to be appointed, within fifteen
(15) days after receipt of the Arbitration Notice or the Notice of Counterclaim
as applicable, each party shall select one person to act as Arbitrator and the
two (2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
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(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-
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<PAGE> 14
Prevailing Party shall pay to the Prevailing Party a reasonable sum for
attorneys' fees and costs (at the Prevailing Party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting or defending such Action and/or
enforcing any judgment, order, ruling, or award (collectively, a "DECISION")
granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any Decision entered in such Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION PURCHASER
By: /s/ ERIK WATTS By: /s/ MARK C. COLEMAN
------------------------------ ----------------------------
Name: Erik Watts Name: Mark Coleman
----------------------------
Title: President
---------------------------
Address: Address:
695 Town Center Drive, Suite 400 210 Orchid Avenue
Costa Mesa, California 92626 Corona del Mar, CA 92625
Telephone No.: (714) 429-5500 Telephone No.: (949) 644-0386
Facsimile No.: (714) 429-5559 Facsimile No.: (949) 644-1905
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<PAGE> 15
SCHEDULES
1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Accredited Investor Questionnaire
B. Form of the Stockholder Agreement
C. Form of the Voting Agreement
D. Section 83(b) Election Form
E. Spousal Consent
15
<PAGE> 16
SCHEDULE 1
SHARES AND PURCHASE PRICE
<TABLE>
<S> <C>
Aggregate Number of Shares: 12,151
Purchase Price per Share: $0.02
Aggregate Purchase Price: $243.02
Maximum IPO Shares: 12,151
Name in which Shares are to be issued: _______
Form of Payment of Purchase Price (cash or promissory note in the
form of Exhibit A to this Schedule 1) Cash
</TABLE>
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<PAGE> 17
SCHEDULE 4
VESTING SCHEDULE
Subject to the terms and conditions set forth in this Agreement, if and
when a "Target Company" listed below consummates a Consolidation Transaction in
a transaction accounted for as a purchase a "PURCHASE CLOSING"), the
"Attributable Shares" associated with such Target Company shall vest. If any
particular Target Company determines not to participate in a Purchase Closing,
the Company may in its discretion (but will not be required to) assign any or
all of the Attributable Shares associated with that non-participating Target
Company to one or more replacement "Target Companies" identified by the Company
that may participate in a Purchase Closing. If and when such a replacement
Target Company consummates a Purchase Closing, the Attributable Shares
associated with that replacement Target Company shall vest, provided that the
maximum aggregate number of Attributable Shares may not exceed the Total set
forth below. Any allocation of Attributable Shares to a replacement Target
Company may be effected only by a written amendment to this Agreement executed
and delivered by the Company and the Purchaser.
<TABLE>
<CAPTION>
TARGET COMPANY ATTRIBUTABLE SHARES
<S> <C>
Profit Technologies (PTC & PTIC) 12,151
------
Total 12,151
======
</TABLE>
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT: If employment of the
Purchaser with the Company or its affiliate is terminated by death, by
"Disability," by the Company without "Cause," or by the Purchaser for "Good
Reason" (all as defined in the Employment Agreement), and if any Target Company
participates in a Purchase Closing prior to the Vesting Deadline and prior to
the earlier of (i) the date that is 180 days after the date of termination of
the Purchaser's employment with the Company or its affiliate, and (ii) the
filing of a registration statement for an IPO of the Company's securities, upon
consummation of such transaction the Attributable Shares associated with such
Target Company shall vest.
VESTING DEADLINE: The earlier of (i) the consummation of the first
Consolidation Transactions accounted for as purchasers, or (ii) December 31,
1999.
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<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective as of
January 1, 2000 (the "EFFECTIVE Date") by and between Enterprise Profit
Solutions Corporation, a Delaware corporation (the "COMPANY") and wholly owned
subsidiary of ProfitSource Corporation, a Delaware corporation ("PROFITSOURCE"),
and David M. Ehlen (the "EXECUTIVE").
1. EMPLOYMENT STATUS; DUTIES.
(a) Status. Effective January 1, 2000 your title will be "Chief
Executive, Performance Learning" and "Executive Vice President" of the Company
and you will report to the Company's Chief Executive Officers (CEO). Your
employment with the Company will be at-will, which means that either you or the
Company may terminate your employment at any time for any reason or no reason
without payment, penalty or further obligation except as set forth in Section 5,
provided, however, that your employment with the Company shall not be terminated
without Cause without majority approval of an executive management committee of
the Company, which committee shall consist of four (4) members of the senior
management of the Company and one (1) representative of the President's Council
of the Company.
(b) Duties. Your duties will be (i) strategic acquisition planning
for performance learning companies approved by the Company's CEO and other
acquisition targets specified by the Company's CEO, (ii) participation in
strategic operational oversight of the Company's performance learning and
e-learning businesses in such manner as the Company's CEO may from time to time
specify, (iii) develop and manage the strategy, funding and marketing approach
of the e-learning businesses as approved by the Company's CEO and (iv) such
other duties not unrelated to the foregoing and not inconsistent with Section
1(c) as the Company's CEO may from time to time assign.
(c) Location. You may live and maintain your office wherever you
like in the Continental U.S. You will be required to visit the Company's
headquarters and business unit locations and offices of potential acquisition
targets as may be reasonably required by the Company's CEO in connection with
performance of your duties.
<PAGE> 2
(d) Efforts. While employed by the Company, you shall use your best
efforts to advance the business of the Company and shall at all times faithfully
and industriously and to the best of your ability, experience and talent,
perform all of the duties that may be required of you pursuant to the terms
hereof. You may undertake other business activities that do not interfere with
performance of your duties to the Company and that are approved by the Company's
CEO, which approval will not be unreasonably withheld. The foregoing shall not
preclude you from engaging in civic, charitable and/or religious activities,
directing your own passive investments and/or serving on boards of directors of
other entities so long as such activities do not interfere or conflict with your
duties hereunder as reasonably determined by the Company.
2. COMPENSATION.
(a) Salary. Effective as of the Effective Date, your salary will be
$350,000 per year gross, subject to applicable withholding, payable in
accordance with the Company's normal payroll practices.
(b) Bonuses. In addition to your salary, the Company will pay you a
bonus in connection with the closing of each Qualifying Acquisition. For this
purpose, a "QUALIFYING ACQUISITION" is an acquisition by the Company or any of
its affiliates of all or substantially all of the assets or capital stock of any
business that (i) is approved by the President of the Company in writing as a
Qualifying Acquisition, (ii) you have played a substantial role in acquiring on
behalf of the Company, and (iii) closes (A) during your employment with the
Company or within 45 days after your employment with the Company is terminated
by the Company without Cause or by you with Good Reason, and (B) before or
concurrently with the earlier of the initial public offering of equity
securities by the Company or any of its affiliates or June 30, 2000 (the earlier
of such two dates referred to herein as the "ASSESSMENT DATE"). For these
purposes and other purposes of this Agreement, "CAUSE" and "GOOD REASON" have
the meanings set forth in Schedule I hereto. The amount of the bonus for a
Qualifying Acquisition will be $100,000 if the pro-forma pre-tax income of the
acquired company upon which the purchase price is based (the "PTI") is at least
$500,000 but less than $2.5 million; $150,000 if the PTI of the acquired company
is at least $2.5 million but less than $7.5 million; and $250,000 if the PTI of
the acquired company is $7.5 million or more. No bonus is payable on acquired
companies with PTI less than $500,000. Bonuses are payable within 30 days of the
closing of the corresponding Qualifying Acquisition and are subject to
applicable withholding. The Company has no obligation to pursue or complete any
acquisition and no bonus level is assured.
2
<PAGE> 3
3. SHARES.
(a) Summary. In August 1998, you purchased 61,459 shares of Series B
Common Stock of EPS Solutions Corporation ("EPS") pursuant to a Subscription
Agreement (the "SUBSCRIPTION SHARES"). On December 14, 1998, you entered into a
Restricted Stock Purchase Agreement with EPS (the "RSPA") pursuant to which you
purchased 653,704 shares of Series B Common Stock of EPS (the "RESTRICTED
SHARES"). The Restricted Shares consist of (i) 85,714 shares vesting in equal
installments over four years beginning with 1999 based on your continued
employment (the "EMPLOYMENT SHARES"); (ii) 17,132 shares vested as a result of
EPS's acquisition of the Holden Corporation in March 1999 (the "VESTED HOLDEN
SHARES"), (iii) 158,213 shares "earned" as a result of acquisitions made by EPS
in December 1998 and March 1999 and eligible to vest in equal installments over
four years beginning with 1999 based on your continued employment (the "EARNED
ARBITRAGE SHARES"); and (iv) an additional 392,645 shares eligible to be earned
in connection with potential future EPS acquisitions, but not earned or vested
as of the Effective Date (the "FUTURE ACQUISITION SHARES"). You paid for the
Restricted Shares by paying EPS $653.70 in cash, representing the aggregate par
value thereof at $.001 per share, and by issuing to EPS a promissory note dated
December 14, 1998 in the original principal amount of $783,791.10 (the "NOTE"),
representing the balance of the aggregate purchase price for the Restricted
Shares. In addition, at various times, EPS has promised to issue to you
additional shares in connection with your assumption of additional duties in
1999 (the "ADDITIONAL EMPLOYMENT SHARES"), and additional shares in connection
with the so-called "superperformance" program (the "SUPERPERFORMANCE SHARES").
(b) Effect on Certain Shares. The Subscription Shares and the Vested
Holden Shares, and the promissory note you made to EPS in connection with the
purchase of the Subscription Shares, are not affected by this Agreement. Any
rights you may have to any Additional Employment Shares and Superperformance
Shares are hereby canceled.
(c) Repurchase of Certain Shares. 192,645 of the Future Acquisition
Shares (the "REPURCHASED SHARES") are being repurchased by EPS effective as of
the original date of issuance thereof. The purchase price for the Repurchased
Shares is $1.20 per share (matching your original purchase price) and will be
paid by reducing the principal amount of the Note by $231,174. The remaining
balance of the Note ($552,617.10) covers 461,059 shares in the aggregate,
consisting of the Employment Shares, the Vested Holden Shares, the Earned
Arbitrage Shares, and the 200,000 Future Acquisition Shares remaining after the
repurchase of the Repurchased Shares (such remaining Future Acquisition Shares
referred to herein as the "PENDING SHARES"), and reflects the $1.199 portion of
the purchase price per share paid by note for the Restricted Shares other than
the Repurchased Shares, less the $.001 par value per share for the Repurchased
Shares originally paid by you in cash but repaid by reduction of the Note.
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<PAGE> 4
(d) Vesting. The Employment Shares, the Earned Arbitrage Shares, and
the Pending Shares will be governed by Schedule 1 to this Agreement. This
Section 3 and Schedule 1 to this Agreement replace Schedule 4 and Schedule 1.1
to the RSPA in their entirety, such that the provisions of the original Schedule
4 and Schedule 1.1 to the RSPA are of no further force or effect.
4. EXPENSES AND BENEFITS.
(a) Benefits. You will be entitled to participate in all employee
benefit programs of the Company consistent with Company policies.
(b) Business and Entertainment Expenses. Upon submission of
appropriate documentation in accordance with its policies in effect from time to
time, the Company shall pay or reimburse Executive for all business expenses
which Executive incurs in performing his duties under this Agreement, including,
but not limited to, travel, entertainment, professional dues and subscriptions,
and all dues, fees, and expenses associated with membership in various
professional, business, and civic associations and societies in which Executive
participates in accordance with the Company's policies in effect from time to
time.
(c) Moving. The Company will pay the reasonable expenses of moving
your residence from Orange County to anywhere else in the continental U.S., and
reimburse to you any real estate brokerage commission cost you incur in selling
your Orange County house, provided such costs are incurred within 180 days of
the Effective Date, and provided further that, at the time of such move, you are
employed by the Company or, if no longer employed, your employment was
terminated by the Company without Cause or by you for Good Reason. Furthermore,
if the Company pays any moving or brokerage costs for you, and before the
Assessment Date either you resign your employment without Good Reason or the
Company terminates your employment with Cause, you will repay to the Company all
moving or brokerage costs paid by the Company.
(d) Personal Time Off Policy. Executive shall be entitled to such
number of days of paid personal time off (PTO) each year as is consistent with
the Company's Personal Time Off Policy and the number of days set forth are 28,
as such policy may be
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<PAGE> 5
amended form time to time at the discretion of the Company. Executive may not
accrue more than 10 PTO days. If Executive at any time has more than such number
of days, no further PTO days shall accrue until Executive again has few than
such number of days of unused PTO. PTO days may be used, subject to approval by
the Company consistent with business needs, as they are earned. The Company
shall pay Executive for accrued unused PTO days only in connection with
termination of employment. Such payment shall be made on the basis of
Executive's Annual Salary at the time of payment, pro-rated for the number of
accrued unused PTO days at the time of termination.
5. CERTAIN PAYMENTS.
(a) Termination by You with Good Reason or the Company Without
Cause. Subject to Section 5(c), if your employment under this Agreement is
terminated by you with Good Reason or by the Company without Cause, then
contingent upon execution and delivery by you to the Company of an unconditional
release in form satisfactory to the Company of all claims against the Company
and its affiliates, their successors, and their officers, directors, employees,
representatives and affiliates arising from or in connection with this Agreement
or your employment with the Company or the termination of that employment, you
shall be entitled to receive a severance payment , any Accrued Benefits; the
Prorated Bonus; a severance amount equal to one (1) times Executive's then
Target Pay, payable in substantially equal installments over 12 months in
accordance with the Company's standard payroll practice.
(b) No Other Benefits. Except as set forth in Section 5(a) or as may
be required by applicable law or separate written agreement between the Company
and you, the Company shall have no obligations to pay any salary, bonus, accrued
vacation or other amounts in connection with any termination of your employment
or attributable to the period after termination of your employment. Without
limiting the foregoing, and subject to any separate written agreement to the
contrary, you will not be entitled to any severance payment or benefit if your
employment under this Agreement is terminated by death, or by you without Good
Reason, or by the Company for Cause, or as a result of Disability.
(c) Post-Termination Cause. If any of the events or circumstances
constituting Cause listed in Schedule 1 occurs during or within one year after
any termination of your employment, then (i) the Company will have no further
obligation to provide you the severance payment, and (ii) the Company will be
entitled to recover from you any severance payment amounts paid to you or your
successors and assigns, together with the costs of effecting such recovery.
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<PAGE> 6
6. CONFIDENTIALITY. The Confidential Information and Employee Invention
Agreement you entered into in connection with your employment by the Company
will remain in effect.
7. REPRESENTATIONS AND WARRANTIES. You represent and warrant to the
Company that (a) you are under no contractual restriction or other restrictions
or obligations that are inconsistent with the execution of this Agreement, the
performance of your duties and the covenants hereunder, and (b) you are under no
physical or mental disability that would interfere with your keeping and
performing all of the agreements, covenants and conditions to be kept or
performed hereunder.
8. RELEASE
(a) As of the Effective Date, you, on behalf of yourself and your
successors and assigns, do hereby forever release, discharge and acquit the
Company, its affiliates (including without limitation EPS) and their respective
members, partners, principals, shareholders, directors, officers, agents,
employees, and representatives, and the successors and assigns of each of them
("RELEASED PARTIES"), from any and all charges, complaints, claims, demands,
obligations, promises, agreements, damages, actions, causes of action, suits,
rights, costs, losses, debts, expenses (including attorneys' fees and costs),
liabilities, and indebtedness, of every type, kind, nature, description or
character, whether known or unknown, suspected or unsuspected, liquidated or
unliquidated arising from, under or related to (i) your employment or retention
with the Company or its Affiliates until the Effective Date, including without
limitation the changes in your employment effected by this Agreement; (ii) the
Repurchased Shares, Superformance Shares, Additional Employment Shares, and any
other securities of the Company or EPS or any of their Affiliates other than the
Subscription Shares, the Vested Holden Shares, the Employment Shares, the Earned
Arbitrage Shares, and the Pending Shares; (iii) your status as a stockholder of
EPS, or any claims arising or accruing as a result of that status, on or before
the Effective Date; and (iv) any other event, act or omission arising on or
before the Effective Date (the "RELEASED Matters"). Without limiting the
foregoing, the Released Matters include any claim of fraud in the inducement,
defamation, or emotional distress. You specifically agree not to claim, and have
waived any right to claim, to have been under duress in connection with the
review, negotiation, execution and delivery of this Agreement. However,
notwithstanding the foregoing, the Released Matters shall not include any claims
by you for: (i) your rights under this Agreement or arising as a result of or in
connection with your employment with the Company from and after the Effective
Date, (ii) your rights, if any, under the Company's 401(k) plan, or (iii) your
status as a stockholder of EPS, or any claims arising or accruing as a result of
that status, after the Effective Date.
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<PAGE> 7
(b) You acknowledge and agree that the releases made herein
constitute final and complete releases of the Released Parties with respect to
all Released Matters, and that by signing this Agreement, you are forever giving
up the right to sue or attempt to recover money, damages or any other relief
from the Released Parties for all claims you have or may have with respect to
the Released Matters (even if any such claim is unforeseen as of the date
hereof).
9. NO CLAIMS. You represent and warrant that you have not instituted
any complaints, charges, lawsuits or other proceedings against any Released
Parties with any governmental agency, court, arbitration agency or tribunal. You
further agree that you will not, directly or indirectly, (i) file, bring, cause
to be brought, join or participate in, or provide any assistance in connection
with any complaint, charge, lawsuit or other proceeding or action against any
Released Parties at any time hereafter for any Released Matters, or (ii) defend
any action, proceeding or suit in whole or in part on the grounds that any or
all of the terms or provisions of this Agreement are illegal, invalid, not
binding, unenforceable or against public policy. If any agency or court assumes
jurisdiction of any complaint, charge, or lawsuit against the Company or any
Released Party, on your behalf, you agree to immediately notify such agency or
court, in writing, of the existence of this Agreement, including providing a
copy of it and to request, in writing, that such agency or court dismiss the
matter with prejudice.
10. ADVICE OF COUNSEL. You represent and agree that you fully
understand your right to discuss, and that the Company has advised you to
discuss, all aspects of this Agreement with your private attorney, that you have
carefully read and fully understand all the provisions of the Agreement, that
you understand its final and binding effect, that you are competent to sign this
Agreement, and that you are voluntarily entering into this Agreement.
11. ACKNOWLEDGMENT. You represent and agree that in executing this
Agreement, you rely solely upon your own judgment, belief and knowledge, and the
advice and recommendations of any independently selected counsel, concerning the
nature, extent and duration of your rights and claims. You acknowledge that no
other individual has made any promise, representation or warranty, express or
implied, not contained in this Agreement, to induce you to execute this
Agreement. You further acknowledge that you are not executing this Agreement in
reliance on any promise, representation, or warranty not contained in this
Agreement.
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<PAGE> 8
12. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of Illinois, excluding its rules on conflicts
of law.
(b) Arbitration. Any dispute regarding the application,
interpretation or breach of this Agreement shall be resolved by final and
binding arbitration before the American Arbitration Association ("AAA)" in
accordance with AAA's National Rules for the Resolution of Employment Disputes.
Attorneys' fees, costs and damages (where appropriate) shall be awarded to the
prevailing party in any dispute, and any resolution, opinion or order of AAA may
be entered as a judgment in a court of competent jurisdiction.
(c) Modification and Waiver. No waiver or modification of this
Agreement or any term hereof shall be binding unless it is in writing signed by
the parties hereto. No failure to insist upon compliance with any term,
provision or condition to this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
(d) Entire Agreement. This Agreement and the Restricted Stock
Purchase Agreement and the agreements entered into in connection therewith
contain the entire agreement and understanding between you and the Company
regarding your employment and ownership of EPS stock, and this Agreement
replaces all prior employment agreements, arrangements and understandings,
written or oral regarding your employment or engagement with the Company and its
Affiliates, including without limitation the Confidential Agreement between you
and the Company dated September 17, 1999, which is hereby terminated and of no
further force or effect. Neither you nor the Company shall be bound or liable
for any representation, promise or inducement not contained in this Agreement.
This Agreement cannot be amended, modified, supplemented, or altered, except by
written amendment or supplement signed by you and the Company.
(e) Severability. If any provision hereof is held or construed by a
court or arbitrator of competent jurisdiction to be illegal, invalid or
unenforceable for any reason, the legality, validity and enforceability of the
remaining provisions of this Agreement will not be affected and the illegal,
invalid or unenforceable provision will be deemed not to be a part of this
Agreement unless without such provision, the purposes and intent of this
Agreement cannot be carried out.
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<PAGE> 9
(f) Notices. Any notice, demand or other communication required,
permitted or desired to be given hereunder shall be in writing and shall be
deemed effectively given upon personal delivery, facsimile transmission (with
confirmation of receipt), delivery by reputable overnight delivery service or
five (5) days following deposit in the United States mail (if sent by certified
or registered mail, postage prepaid, return receipt requested), in each case
duly addressed to the Company at its headquarters or to Executive at his or her
address of record listed with the Company.
(g) Assignment. Your rights, duties and obligations under this
Agreement may not be assigned by you. The Company may assign its rights, duties
and obligations under this Agreement to any affiliate of the Company.
(h) Headings. The section headings herein are intended for reference
and shall not affect in any way the construction or interpretation of this
Agreement.
(i) Third Party Beneficiaries. The Released Parties are third party
beneficiaries of this Agreement.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
THE COMPANY
Enterprise Profit Solutions Corporation
EPS Solutions Corporation
By: /s/ David H. Hoffmann
-----------------------------------
David H. Hoffmann
Chairman & Chief Executive Officer
EXECUTIVE
/s/ David M. Ehlen 4/25/00
- ------------------------------------- --------------------
David M. Ehlen Date
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<PAGE> 10
SCHEDULE 1
BASIC TERMS.
VESTING. The shares covered by the vesting provisions of this Schedule
1 consist of 85,714 Employment Shares, 158,213 Earned Arbitrage Shares, and
200,000 Pending Shares. Subject to the terms and conditions set forth in the
RSPA, the Restrictions applicable to each type of shares will lapse, and shares
of that type will vest, if and when the conditions to vesting of that type of
shares, as set forth in this Schedule 1, are met. As a condition to each and
every vesting of shares, the Purchaser must execute and deliver to the Company a
release, in form and substance satisfactory to the Company, releasing the
Company and all of its affiliates and their successors and the officers,
directors, employees, and representatives of each of them from any claims or
liabilities arising from or in connection with the employment of the Purchaser
by the Company or any of its affiliates. For purposes hereof, David M. Ehlen is
referred to as the "PURCHASER."
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until it is finally determined
through year-end closing of the books, audits and any other necessary
procedures, whether any performance requirements associated with particular
shares for that Measurement Period have been met. In no case will the total
number of any particular type of shares that the Purchaser has the right to have
vested for any Measurement Period exceed the product of the total number of that
type of shares and the applicable Vesting Percentage corresponding to that
Measurement. Fractional vested shares will be carried forward and combined to
constitute whole vested shares that can be issued, or cashed out by the Company
at fair market value following determination of whether any performance
requirements associated with the last Measurement Period have been met.
EMPLOYMENT SHARES.
On the last day of each of the Measurement Periods set forth in the
table immediately below, if the Purchaser has remained Executive of the Company
or any of its affiliates from the date hereof through the last day of such
Measurement Period, the Restrictions will lapse with respect to such number of
Employment Shares as is equal to the product of the Vesting Percentage
corresponding to that Measurement Period and the total number of Employment
Shares.
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MEASUREMENT PERIOD VESTING PERCENTAGE
------------------ ------------------
January 1, 1999 - December 31, 1999 40%
January 1, 2000 - December 31, 2000 20%
January 1, 2001 - December 31, 2001 20%
January 1, 2002 - December 31, 2002 20%
EARNED ARBITRAGE SHARES.
The Earned Arbitrage Shares will vest on the Assessment Date if the
Purchaser has remained an employee of the Company or any of its affiliates from
the date hereof until that time.
PENDING SHARES.
Upon each closing of a Qualifying Acquisition, a portion of the Pending
Shares will be "earned" by the Purchaser and eligible to vest. The number of
Pending Shares earned by the Purchaser in connection with each Qualifying
Acquisition will be calculated by application of the following formula
consistent with the general methodology used by EPS in the past to value and
acquire target companies:
X = [.10 (35 - A) (B)] / C
Where
X = the number of Pending Shares earned
A = the multiple applied to the pro forma net income of the target to
determine the index value deliverable to the target or its
stockholders
B = the pro forma net income of the target used to determine the index
value deliverable to the target or its stockholders
C = the assumed long-term value per share of EPS stock used in
converting index value deliverable to the target or its
stockholders to a number of shares
20% of any Pending Shares earned in connection with a closed Qualifying
Acquisition according to the foregoing formula will vest at the time of closing
of the Qualifying Acquisition. The remaining 80% of the Pending Shares earned in
connection with a Qualifying Acquisition will vest in four equal installments as
of December 31 of 1999, 2000, 2001, and 2002, if the Purchaser has remained an
employee of the Company or any of its affiliates from the date hereof until such
date. The Purchaser may not vest more than the total number of Pending Shares in
connection with Qualifying Acquisitions.
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EPS and its affiliates have no obligation to effect any particular
acquisition, or to time any particular acquisition, so as to permit vesting
hereunder to occur. The Purchaser recognizes that decisions regarding
acquisitions and the timing thereof will be made by management of EPS consistent
with duties to EPS and its stockholders, and without regard to the Purchaser's
vesting hereunder.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT.
Except as specifically set forth herein, upon termination of the
Purchaser's employment by the Company without Cause, or by the Purchaser with
Good Reason, all Employment Shares, Earned Arbitrage Shares, and Pending Shares
that have been earned in connection with completed Qualifying Acquisitions will
vest, vesting of other shares will cease, and unvested shares will be subject to
repurchase according to the RSPA.
Upon the Purchaser's death or disability, all Earned Arbitrage Shares
and Pending Shares that have been earned in connection with complete Qualifying
Acquisitions will vest, vesting of other shares will cease, and unvested shares
will be subject to repurchase according to the RSPA.
OTHER PROVISIONS.
If a Change in Control occurs while the Purchaser is still employed by
the Company or its affiliates or within 45 days after the Purchaser's employment
is terminated by the Company without Cause or by the Purchaser with Good Reason,
all of the unvested Employment Shares, Earned Arbitrage Shares, and Pending
Shares that have been earned in connection with completed Qualifying
Acquisitions will immediately vest.
Upon completion of the initial public offering of the equity securities
of the Company or EPS, in addition to vesting of the Earned Arbitrage Shares as
set forth above, all of the Pending Shares that have been earned in connection
with completed Qualifying Acquisitions will immediately vest, but unvested
Employment Shares will remain subject to vesting as set forth in this Schedule
1.
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<PAGE> 13
Except as otherwise specifically set forth herein, termination of the
Purchaser's employment by the Company with Cause, or by the Purchaser without
Good Reason, will cause all vesting of the Purchaser's shares to cease and
unvested shares will be subject to repurchase according to the RSPA.
EVENTS OF CAUSE.
Notwithstanding anything herein or in the RSPA to the contrary, in
addition to any other repurchase rights of EPS, if any of the events or
circumstances constituting Cause occurs at any time before December 31, 2002,
then, in addition to the rights of EPS set forth in the RSPA, vesting of shares
will cease and EPS or its assignee may, in the discretion of EPS or its
assignee, at any time and from time to time for a period of one (1) year
following such occurrence, repurchase from the Purchaser at the price per share
that the Purchaser paid to EPS, and the Purchaser will sell to EPS or its
assignee, any or all unvested shares and any or all shares that vested within
365 days before the event or circumstance constituting Cause. However,
notwithstanding the foregoing, (i) if the Purchaser's employment with the
Company was terminated by the Company without Cause or by the Purchaser with
Good Reason, or (ii) following a Change in Control that occurs while the
Purchaser is still employed by the Company or its affiliates or within 45 days
after the Purchaser's employment is terminated by the Company without Cause or
by the Purchaser with Good Reason, the Company will not be entitled to
repurchase vested shares pursuant to this paragraph solely because of the
occurrence after any termination of employment of any of the events or
circumstances listed in item A of the definition of Cause. In addition,
notwithstanding the foregoing, Earned Arbitrage Shares that have vested in
accordance with this Schedule 1 may not be repurchased by EPS solely because of
the occurrence after any termination of employment of any of the events or
circumstances listed on item A of the definition of Cause. This paragraph
supersedes Section 4.1(d)(iii) of the RSPA.
CERTAIN DEFINITIONS.
For purposes of this Agreement:
"CAUSE" means the occurrence at any time of any one or more of the
following events or circumstances, provided however, that if any such event or
circumstance is susceptible to cure by Executive without damage to the Company,
such event or circumstance will not constitute Cause unless Executive has failed
to cure such event or circumstance within 15 days after receipt by Executive of
written notice thereof: (i) Executive engages in any wrongful conduct or
knowingly violates any reasonable rule or regulation of the Board, the
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<PAGE> 14
Company's President or Chief Executive Officer or the Executive's superiors that
results in material damage or risk of legal liability to the Company or any
parent corporation of the Company, any subsidiary corporation of the Company or
any entity controlling, controlled by, or under common control with the Company
(an "AFFILIATED Entity"); (ii) any willful misconduct or gross negligence by
Executive in the responsibilities assigned to Executive; (iii) any willful and
material failure to perform Executive's job as required to meet the lawful
objectives of the Company or any Affiliated Entity or any persistent failure to
achieve reasonable performance standards that have been described by the Company
in writing and communicated to Executive in reasonable detail; (iv) Executive
fails to comply with all material applicable laws and regulations in performing
Executive's duties and responsibilities to the Company; (v) any criminal conduct
(other than misdemeanors that do not meet the criteria set forth in subsection
(vi)); (vi) any actions involving moral turpitude or injurious to the business
or reputation of the Company or its Affiliated Entities; (vii) any legal action
against you or the Company or any of its Affiliated Entities occurs as a result
of Executive's employment by the Company; (viii) any legal action by Executive
or Executive's representatives or successors against the Company or any of its
Affiliates or any person or entity that the Company or any of its Affiliates
would be obligated to indemnify or defend in connection with such action; or
(ix) Executive does any of the things described in (A)-(C) below.
(A) Executive renders services for any organization or engages directly
or indirectly in any business that, in the reasonable judgment of the Chief
Executive Officer of the Company or other senior officer designated by the Chief
Executive Officer, is or becomes competitive with the Company or any Affiliated
Entity, or which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict
with the business or interests of the Company or any Affiliated Entity.
(B) Executive fails to comply with the Confidentiality Agreement or
with the lawful policies of the Company or any Affiliated Entity regarding
nondisclosure of confidential information, or without prior written
authorization from the Company or any Affiliated Entity discloses to anyone
outside the Company or any Affiliated Entity or uses for any purpose or in any
context other than in performance of Executive's duties to the Company or any
Affiliated Entity any confidential or trade secret information of the Company or
any Affiliated Entity.
(C) Executive breaches in any material respect any agreement with or
legal duty to the Company or any Affiliated Entity.
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<PAGE> 15
"CHANGE IN CONTROL" means the completion of:
(i) any acquisition or series of related acquisitions resulting in any
person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
beneficially owning (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than fifty percent (50%) of either the then outstanding
shares of Common Stock or the combined voting power of then outstanding voting
securities entitled to vote generally in the election of directors of EPS or the
Company; or
(ii) any reorganization, merger or consolidation of EPS or the Company
with any other person, entity or corporation, other than a transaction which
would result in the owners of voting securities of EPS outstanding immediately
prior thereto continuing to own directly or indirectly more than fifty percent
(50%) of the combined voting power of the voting securities of the entity or
entities surviving such reorganization, merger or consolidation that own and
conduct the business owned and conducted by EPS and the Company prior thereto;
or
(iii) the sale or other disposition by EPS or the Company, in one
transaction or a series of related transactions, of all or substantially all of
the assets of EPS or the Company, provided that a Change in Control shall not be
deemed to have occurred if the "person" described in the preceding provisions is
an underwriter or underwriting syndicate that has acquired the ownership of 50%
or more of the combined voting power of the outstanding voting securities of EPS
or the Company solely in connection with a public offering of those securities.
"DISABILITY" means the Purchaser suffers an ongoing physical or
psychological impairment that has rendered Purchaser unable, as determined in
good faith by the Chief Executive Officer of the Company, to perform the
Purchaser's duties to the Company, notwithstanding reasonable accommodation by
the Company (the Company, at its option and expense, being entitled to retain a
physician to confirm the existence of such disability), for a period of three
(e) consecutive months or six (6) months in any 12-month period.
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<PAGE> 1
EXHIBIT 10.24
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of December 14, 1998 (the "EFFECTIVE DATE") by and between
ProfitSource Corporation, a Delaware corporation (the "COMPANY") and David M.
Ehlen (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and is acquiring, in a
series of transactions by means of mergers into the Company, or acquisitions by
the Company of all or substantially all of the assets or stock or other equity
interests, various companies providing such services (the "CONSOLIDATION
TRANSACTIONS").
B. The Purchaser is employed by the Company's wholly owned subsidiary
Enterprise Profit Solutions Corporation, a Delaware corporation ("EPS") or any
of its affiliates (the "EMPLOYER") and has entered into that certain Employment
Agreement with the Employer of even date herewith (the "EMPLOYMENT AGREEMENT").
C. The Purchaser and certain other persons responsible for effecting the
Consolidation Transactions and who are to serve as employees of the Employer
(the "SPONSORS") and certain other persons affiliated with certain companies
being acquired by the Company in the Consolidation Transactions and who are also
to serve as employees of the Employer (the "FOUNDERS") are being offered an
opportunity to purchase shares of the common stock of the Company, par value
$0.001 per share (the "COMMON STOCK") (in the case of Founders, Series A Common
Stock and in the case of Sponsors, Series B Common Stock) at a price of $1.20
per share.
D. The Shares (as hereinafter defined) shall be subject to repurchase by
the Company, in the Company's discretion, if certain performance related
milestones described herein are not met.
E. The Shares shall be subject to certain additional restrictions as set
forth herein.
F. The Purchaser desires to purchase and the Company desires to sell the
Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the aggregate number of shares of Series B
Common Stock set forth on Schedule 1.1 as "Aggregate Number of Shares" (the
"SHARES") for the consideration of $1.20 per Share, resulting in an aggregate
purchase price as set forth on Schedule 1.1 (the "PURCHASE PRICE"). Concurrently
herewith the Purchaser is paying to the Company in cash $0.001 per Share,
resulting in an aggregate payment of the amount set forth on Schedule 1.1 under
the item "Cash
<PAGE> 2
Payment" (the "CASH PAYMENT"). The obligation of the Purchaser to pay the
remainder of the Purchase Price in the amount set forth on Schedule 1.1 under
the item "Note" is evidenced by the Purchaser's delivery to the Company
concurrently herewith of a secured promissory note of the Purchaser in the form
attached hereto as Exhibit A (the "NOTE"). The Note is secured by a pledge of
the Shares made pursuant to Section 5 of the Note. The Shares are sold pursuant
to and governed by this Agreement and not any other contract or plan of the
Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of
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development to the Company and has sufficient knowledge and experience in
financial and business matters to assess the relative merits and risks of an
investment in the Shares. In connection with the purchase of the Shares, the
Purchaser has relied solely upon independent investigations made by the
Purchaser, and has consulted the Purchaser's own investment advisors, counsel
and accountants. The Purchaser has adequate means of providing for current needs
and personal contingencies, and has no need for liquidity and can sustain a
complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has no
financial or operating history.
(ii) There can be no assurance that the Consolidation
Transactions will occur, that the Company will be successful in accomplishing
the purpose for which it was formed or that it will ever be profitable. No
assurances can be given regarding what companies will ultimately participate in
the Consolidation Transactions. No company is obligated to participate in the
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company and such Consolidation Transaction company.
(iii) No assurances can be given that an initial public
offering ("IPO") of the Company's securities will occur. If an IPO does occur,
no assurances can be given as to timing of the IPO, whether the Purchaser will
be able to participate, or the price at which any shares of Common Stock would
be sold.
(iv) No assurances can be given as to the ultimate value of
the Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions,
any IPO, and the Company's management and operations will be made by the
Company's management, and certain individuals involved in planning the
Consolidation Transactions and managing the business of the Company will have
the right to vote the Shares pursuant to the voting agreement referenced in
Section 4.1(i).
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(b) The Purchaser acknowledges that no assurances have been made to
the Purchaser with respect to any of the foregoing and no representations, oral
or written, have been made to the Purchaser by the Company or any of its
employees, representatives or agents concerning the Shares, their potential
value or the prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Sponsors
and the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 SHARE NUMBER. The Purchaser acknowledges that the number of A
Purchase Arbitrage Shares (as described in Schedule 1.1) reflects the number of
shares of Common Stock allocated or allocable to the Purchaser for his role in
effecting Consolidation Transactions with the companies set forth on Schedule
2.4, less the number of shares of Common Stock purchased pursuant to that
certain Subscription Agreement dated August 28, 1998 between the Company and the
Purchaser (other than employment related shares purchased pursuant to such
agreement, which equaled twenty percent (20%) of the aggregate employment
related shares allocated or allocable to the Purchaser).
2.5 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.6 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.7 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.8 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.9 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, federal, state or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.001 per share. Holders of Series B Common Stock are entitled to elect all
the directors in one of the Company's three classes of directors, with the
holders of the Series A Common Stock entitled to elect the remaining directors.
In all other respects, the Series A Common Stock and the Series B Common Stock
is identical. The Shares, when issued, sold, and delivered in accordance with
the terms of this Agreement for the consideration expressed herein will be duly
and validly issued, fully paid, and nonassessable, except that the Purchaser may
be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
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3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares consist of "Employment Related Shares," "A Purchase
Arbitrage Shares," "B Purchase Arbitrage Shares" and "Pooling Arbitrage Shares"
each as designated on Schedule 1.1. Such Shares are subject to "RESTRICTIONS"
and may not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, alienated or encumbered until the Shares "vest" by the lapse of the
Restrictions applicable thereto as set forth in Section 4.1(b) and any
additional requirements or restrictions contained herein have been satisfied,
terminated or expressly waived by the Company in writing. Any attempted transfer
in violation of such Restrictions will be void.
(b) The Restrictions will lapse and the various Shares will vest in
accordance with the provisions related to the various Shares in Schedule 4 (the
"VESTING SCHEDULE"), provided, however, that the Company, in its discretion, may
from time to time accelerate the vesting of any Shares at any time or forgive
Restrictions and allow Shares or restricted shares owned by any other Sponsor,
any Founder or other third party to vest notwithstanding that the conditions to
vesting thereof may not have been satisfied.
(c) In addition to any repurchase rights of the Company set forth in
Schedule 4, the Company, or its assignee, may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the end of
each Measurement Period, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares that were eligible to vest but did not vest in
accordance with the Vesting Schedule for such Measurement Period. Shares
originally corresponding to any Measurement Period that cannot vest because of
failure prior to the end of that Measurement Period of conditions to vesting
thereof may be repurchased at any time and from time to time from the failure of
such conditions to the end of the applicable repurchase period specified herein.
Any Shares that do not vest in accordance with the Vesting Schedule shall be
subject to repurchase by the Company regardless of the services performed, or
other consideration given, by the Purchaser to the Company. Shares not vested in
accordance with the Vesting Schedule but not repurchased by the Company during
the applicable repurchase periods described herein (including in Schedule 4)
shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer
under the circumstances described in Schedule 4 under the headings "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in form satisfactory to the Company of all claims against
the Company
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<PAGE> 7
or any of its officers, directors or affiliates arising from or in connection
with this Agreement or the Purchaser's employment with the Employer or the
termination of that employment. Any Shares that do not vest as described therein
shall be subject to repurchase as described therein, or if not so described
therein, by the Company or its assignee, in the Company's discretion, at any
time and from time to time until the first anniversary of the last day of the
Measurement Period in which it is determined that the Shares will not vest at
the price per Share that the Purchaser paid to the Company.
(ii) In case of termination of the Purchaser's employment by
the Employer for any reason other than a reason that causes vesting as described
in Schedule 4, the Company or its assignee may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the
termination of employment, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares designated by the Company that have not vested
as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set forth
above, if any of the events or circumstances constituting "Cause" listed in
Schedule 1 of the Purchaser's Employment Agreement occurs at any time before the
end of the final Measurement Period, then notwithstanding any vesting provided
for herein the Company or its assignee may, in the Company's discretion, at any
time and from time to time for a period of one (1) year following such
occurrence, repurchase from the Purchaser at the price per Share that the
Purchaser paid to the Company, and the Purchaser will sell to the Company, any
or all Shares designated by the Company that had not vested at the time of such
occurrence, or that vested effective as of a date within 365 days before such
occurrence, provided however, that (i) if the Purchaser's employment with the
Employer was terminated by the Employer without Cause or by the Purchaser for
Good Reason (each as defined in the Employment Agreement), or (ii) the
Purchaser's employment with the Employer is terminated by the Purchaser or the
Employer (or its successor) within one hundred twenty (120) days after a Change
in Control of the Company, then the Company will not be entitled to repurchase
vested Shares pursuant to this subparagraph (iii) solely because of the
occurrence after termination of employment of any of the events or circumstances
constituting Cause listed in item A of Schedule 1 of the Purchaser's Employment
Agreement. For purposes of this Agreement a "CHANGE IN CONTROL" shall have the
meaning ascribed to such term in the Company's Senior Credit Agreement.
(e) (i) The purchase price for any repurchase pursuant to this
Section 4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
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<PAGE> 8
(ii) If the Company wishes to exercise its right to repurchase
any Shares under this Agreement but the Purchaser cannot deliver such Shares to
the Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other Sponsors, the Founders or
other third parties that are subject to restrictions, or to accelerate vesting
or forgive Restrictions applicable to such Common Stock, shall be within the
discretion of the Company. The Company may (but will not be required to)
exercise its right to repurchase, accelerate, or forgive Restrictions with
respect to any or all shares of restricted Common Stock owned by the Purchaser
or any Sponsor, Founder, or other third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Common Stock owned by the Purchaser or any Sponsor, Founder, or other third
party.
(g) The Shares shall be subject to a Stockholder Agreement in the
form attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting
transfers and imposing certain obligations upon the Purchaser, which must be
executed and delivered by the Purchaser as described in Section 5.2(b). Shares
that have vested shall nevertheless be governed by the Stockholder Agreement.
The Company's repurchase rights hereunder will supersede the purchase provisions
of the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the Purchaser has paid to the Company the full Purchase Price
for such Shares, and an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld and paid over to such
Governmental Entity for the Purchaser's account, or otherwise made arrangements
satisfactory to the Company for payment of such amounts through withholding or
otherwise, and (b) the Purchaser has, if requested by the Company, made
appropriate representations in a form satisfactory to the Company that such
Shares will not be transferred other than (i) pursuant to an effective
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act; (ii) in compliance with all
applicable state securities laws and regulations; and (iii) in compliance with
all terms and conditions of the Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
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4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set
forth in this Agreement and the Stockholder Agreement, the Shares (or interests
therein) cannot be offered, sold or transferred unless the Shares are registered
and qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder Agreement
and the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a
condition to transfer of any Shares or interest therein, cause the transferee to
enter into the Stockholder Agreement and the Voting Agreement, provided that,
with respect to each such agreement, this requirement will not apply to
transfers made after the agreement has terminated.
(d) In connection with any underwritten public offering of
securities of the Company or any of its affiliates within three (3) years of the
date hereof, if the managing underwriter believes that it is appropriate in
connection with the offering to limit public sales of such securities by
Company's stockholders, the Purchaser will agree to the managing underwriter's
standard form of "lock up" agreement prohibiting transfers of any Common Stock
owned by the Purchaser, including without limitation shares acquired other than
pursuant hereto (other than shares included in the offering) for such period as
may be required by the managing underwriter not to exceed twenty (20) days prior
to, and one hundred and eighty (180) days after, the effective date of the
registration statement for such offering, provided however, that (i) such lock
up provision may not be invoked more than once in any 365 day period, (ii) such
lock up provision will be contingent upon the officers and directors of the
registrant entering into similar lock up agreements, and (iii) the Purchaser
will not be required to comply with this lock up provision if any other
stockholder owning more shares of Common Stock than the Purchaser and
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<PAGE> 10
who is subject to a contractual lock up provision similar to this one has been
released from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement, the Purchaser will have all of the rights of a stockholder of
the Company with respect to all of the Shares, including without limitation the
right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, accelerates the vesting and forgives the Restrictions.
4.5 SECTION 83(B) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any
of the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission for an underwritten IPO of
its equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling
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stockholders in the offering, then the Purchaser shall have the right, subject
to the limitations set forth in this Section 4.7(a), to include in such
registration statement or statements and offering or offerings Shares and other
Common Stock owned by the Purchaser. Other stockholders (including but not
limited to stockholders who acquired Common Stock in the Consolidation
Transactions and stockholders who acquired Common Stock in the formation, or
work on behalf of, the Company) will have rights to include shares of Common
Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing no Selling Stockholder will be
permitted to include in any such registration and offering (i) any Shares
subject to performance-related restrictions at the time of filing of the
registration statement for such offering, or (ii) more than, in the aggregate
for all such registrations and offerings, half of the Shares and other Common
Stock owned by the Purchaser as of the date hereof. Furthermore, in no case will
the Purchaser be permitted to include in the IPO registration and offering more
than the number of Shares listed on Schedule 1.1 under the item "Maximum IPO
Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes
any securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering
pursuant to this Section 4.7, pursuant to the underwriting agreement negotiated
between the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are
registered pursuant to the Securities Exchange Act of 1934, as amended, the
Company shall use its best efforts to fulfill all conditions applicable to a
registrant as are necessary to enable selling security holders of the Company to
make sales pursuant to Rule 144 under the Securities Act.
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(e) This Section 4.7 supersedes any registration rights granted to
the Purchaser pursuant to any prior agreement.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable
damage would occur if any of the obligations of the parties under this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall
deliver to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
12
<PAGE> 13
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other
duly executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with
13
<PAGE> 14
respect thereto. The parties acknowledge that their agreements hereunder were
not procured through representations or agreements not set forth herein or
therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement also arises out of or relates to the employment of the Purchaser by
the Employer, the provisions of this Agreement governing dispute resolution
shall govern resolution of such controversy or claim. The provisions of this
Agreement governing dispute resolution supersede any provisions relating to such
matters in any employment agreement between the Purchaser and the Employer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand Dollars
($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees, the
dispute shall be heard and determined by three (3) arbitrators as provided
herein (such
14
<PAGE> 15
arbitrator or arbitrators are hereinafter referred to as the "Arbitrator"). The
judgment of the award rendered by the Arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 6.11(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Threshold, the Notice of Counterclaim shall so state. If pursuant
to Section 6.11(a) three (3) Arbitrators are to be appointed, within fifteen
(15) days after receipt of the Arbitration Notice or the Notice of Counterclaim
as applicable, each party shall select one person to act as Arbitrator and the
two (2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three
(3) days before the arbitration hearing, specifying the facts each intends to
prove and analyzing the applicable law.
15
<PAGE> 16
The parties have the right to representation by legal counsel throughout the
arbitration proceedings. The presentation of evidence at the arbitration hearing
shall be governed by the Federal Rules of Evidence. Oral evidence given at the
arbitration hearing shall be given under oath. Any party desiring a stenographic
record may secure a court reporter to attend the arbitration proceedings. The
party requesting the court reporter must notify the other parties and the
Arbitrator of the arrangement in advance of the hearing, and must pay for the
cost incurred.
(f) Any arbitration can be consolidated with one or more
arbitrations involving other parties, which arise under agreement(s) between the
Company and such other parties, if more than one such arbitration is commenced
and any party thereto contends that two or more arbitrations are substantially
related and that the issues should be heard in one proceeding. The Arbitrator
selected in the first-filed of such proceedings shall determine whether, in the
interests of justice and efficiency, the proceedings should be consolidated
before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or
16
<PAGE> 17
defending such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION PURCHASER
By: /s/ MARK C. COLEMAN By: /s/ DAVID M. EHLEN
--------------------------- ----------------------------
Name: Mark C. Coleman Name: David M. Ehlen
-------------------------
Title: SVP
------------------------
Address: Address:
695 Town Center Drive, Suite 400 -------------------------------
Costa Mesa, California 92626
-------------------------------
Telephone No.:
-----------------
Telephone No.: (714) 429-5500 Facsimile No.:
-----------------
Facsimile No.: (714) 429-5559
17
<PAGE> 18
SCHEDULES
1.1 Shares and Purchase Price
2.4 Consolidation Transactions
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
<PAGE> 19
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
<TABLE>
<S> <C>
Aggregate Number of Shares: 653,704
Employment Related Shares:
85,714
A Purchase Arbitrage Shares:
89,685
B Purchase Arbitrage Shares
98,609
Pooling Arbitrage Shares:
379,696
Aggregate Purchase Price: $784,444.80
Cash Payment: $ 653.70
Note: $783,791.10
Maximum IPO Shares: 130,741
</TABLE>
<PAGE> 20
SCHEDULE 2.4
CONSOLIDATION TRANSACTIONS
Bay Group International, Inc.
Better Communications, Inc.
Praxis/Vitality Alliance
Pritchett & Assoc.
RBG Group Ltd.
Sigma International, Inc.
The Dublin Group, Inc.
Young, Clark & Associates, Inc.
<PAGE> 21
SCHEDULE 4
VESTING SCHEDULE
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the various Shares will lapse and the various Shares
will vest if and when the corresponding performance targets of the Purchaser set
forth below are met, provided, however, that except as set forth in this
Schedule 4, in order for Shares eligible to vest for any Measurement Period to
vest, the Purchaser must have remained an employee of the Employer from the date
hereof through the last day of that Measurement Period. For purposes of this
Agreement, "AFFILIATE" shall have the meaning ascribed to such term in Rule 405
of the Securities Act.
(a) EMPLOYMENT RELATED SHARES
(i) VESTING DURING EMPLOYMENT
On the last day of each of the Measurement Periods set forth in the
table below, if the Purchaser has remained an Employee of the Employer from the
date hereof through the last day of such Measurement Period, the Restrictions
will lapse with respect to such number of Employment Related Shares (as set
forth in Schedule 1.1) as is equal to the product of the Vesting Percentage
corresponding to that Measurement Period and the total number of Employment
Related Shares.
<TABLE>
<CAPTION>
VESTING
MEASUREMENT PERIOD PERCENTAGE
------------------ ----------
<S> <C>
January 1, 1999- December 31, 1999 25%
January 1, 2000- December 31, 2000 25%
January 1, 2001- December 31, 2001 25%
January 1, 2002- December 31, 2002 25%
</TABLE>
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by
death, by the Employer without "Cause" or by the Purchaser for "Good Reason"
(each as defined in the Employment Agreement), or by "Disability" as defined
below, the Restrictions will lapse with respect to such number of Employment
Related Shares (in addition to those Employment Related Shares previously vested
for prior Measurement Periods) as is equal to the product of the Vesting
Percentage corresponding to the Measurement Period in which termination of
employment occurred times the total number of Employment Related Shares times a
fraction, the numerator of which is the number of days in the Measurement Period
in which termination of employment occurred through the date of termination of
the employment of the Purchaser, and the denominator of which is 365.
<PAGE> 22
For purposes hereof, the term "DISABILITY" means the Purchaser
suffers an ongoing physical or psychological impairment that has rendered
Purchaser unable, as determined in good faith by the Chief Executive Officer of
EPS, to perform the Purchaser's duties to the Employer, notwithstanding
reasonable accommodation by the Employer (EPS, at its option and expense, being
entitled to retain a physician to confirm the existence of such disability), for
a period of three (3) consecutive months or six (6) months in any 12-month
period.
(b) A PURCHASE ARBITRAGE SHARES
(i) VESTING DURING EMPLOYMENT
On the last day of each of the Measurement Periods set forth in the
table below, if the Purchaser has remained an employee of the Employer from the
date hereof through the last day of such Measurement Period, the Restrictions
will lapse with respect to such number of A Purchase Arbitrage Shares (as set
forth in Schedule 1.1) as is equal to the product of the Vesting Percentage
corresponding to that Measurement Period in the table below and the total number
of A Purchase Arbitrage Shares.
<TABLE>
<CAPTION>
VESTING
MEASUREMENT PERIOD PERCENTAGE
------------------ ----------
<S> <C>
January 1, 1999- December 31, 1999 25%
January 1, 2000- December 31, 2000 25%
January 1, 2001- December 31, 2001 25%
January 1, 2002- December 31, 2002 25%
</TABLE>
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If the employment of the Purchaser is terminated by death or by
Disability or is terminated by the Employer without Cause or by the Purchaser
for Good Reason or the Purchaser's employment with the Employer is terminated by
the Purchaser or the Employer (or its successor) within one hundred and twenty
(120) days after a Change in Control of the Company, upon the last day of each
Measurement Period ending after the termination of the Purchaser's employment
with the Employer, the Restrictions will lapse with respect to such number of A
Purchase Arbitrage Shares (in addition to those A Purchase Arbitrage Shares
previously vested for prior Measurement Periods) as is equal to the product of
the Vesting Percentage corresponding to that Measurement Period and the total
number of A Purchase Arbitrage Shares, provided however, that if any of the
events or circumstances constituting "Cause" listed in Items B and C of Schedule
1 of the Purchaser's Employment Agreement occurs at any time before the end of
the final Measurement Period, then, in addition to the rights of the Company set
forth in Section 4.1(d), the Shares shall no longer continue to vest as set
forth in this paragraph and the Company or its assignee may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following such occurrence, repurchase from the Purchaser at the price per share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all unvested shares.
2
<PAGE> 23
(c) B PURCHASE ARBITRAGE SHARES
(i) VESTING DURING EMPLOYMENT
If and when, while the Purchaser is employed by the Employer, a "B
Purchase Company" listed below is acquired by the Company or any of its
Affiliates in a consummated Consolidation Transaction before the Vesting
Deadline for B Purchase Arbitrage Shares set forth below, (a "TIMELY B PURCHASE
CLOSING") the Restrictions will lapse with respect to twenty percent (20%) of
the B Purchase Arbitrage Shares corresponding to that B Purchase Company in the
table below.
<TABLE>
<CAPTION>
B PURCHASE
B PURCHASE COMPANY ARBITRAGE SHARES
------------------ ----------------
<S> <C>
Holden Corporation 85,661
Paradigm Learning, Inc. 12,948
------
Total 98,609
------
</TABLE>
In addition to the vesting described in the immediately preceding
paragraph, on the last day of each of the Measurement Periods set forth below,
if the Purchaser has remained an employee of the Employer from the date hereof
through the last day of such Measurement Period, then for each B Purchase
Company that is acquired in a Timely B Purchase Closing, the Restrictions will
lapse with respect to twenty percent (20%) of the number of B Purchase Arbitrage
Shares corresponding to that B Purchase Company in the table above.
MEASUREMENT PERIOD
January 1, 1999- December 31, 1999
January 1, 2000- December 31, 2000
January 1, 2001- December 31, 2001
January 1, 2002- December 31, 2002
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by death,
by Disability, by the Employer without Cause, or by the Purchaser for Good
Reason or the Purchaser's employment with the Employer is terminated by the
Purchaser or the Employer (or its successor) within one hundred and twenty (120)
days after a Change in Control of the Company, and if any B Purchase Company
participates (or participated) in a Timely B Purchase Closing prior to the date
that is 180 days after the date of termination of the Purchaser's employment
with the Employer, then upon consummation of such Timely B Purchase Closing
after termination of the Purchaser's employment twenty percent (20%) of the B
Purchase Arbitrage Shares associated with such B Purchase Company shall vest,
and upon the last day of each Measurement Period set
3
<PAGE> 24
forth above ending after the termination of the Purchaser's employment with the
Employer, the Restrictions will lapse with respect to twenty percent (20%) of
the B Purchase Arbitrage Shares associated with such B Purchase Company,
provided however, that (i) such vesting will not be duplicative of any vesting
that occurred while the Purchaser was employed by the Employer, and (ii) if any
of the events or circumstances constituting "Cause" listed in Items B or C of
Schedule 1 of the Purchaser's Employment Agreement occurs at any time before the
end of the final Measurement Period, then, in addition to the rights of the
Company set forth in Section 4.1(d), the Shares shall no longer continue to vest
as set forth in this paragraph and the Company or its assignee may, in the
Company's discretion, at any time and from time to time for a period of one (1)
year following such occurrence, repurchase from the Purchaser at the price per
share that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all unvested shares.
(iii) VESTING DEADLINE
The Vesting Deadline for B Purchase Arbitrage Shares is the earlier of
(i) the filing of a registration statement for an IPO of the Company's equity
securities, or (ii) December 31, 1999.
(d) POOLING COMPANY ARBITRAGE SHARES
(i) VESTING DURING EMPLOYMENT
If and when, while the Purchaser is employed by the Employer, a "Pooling
Company" listed below is acquired by the Company or any of its Affiliates in a
consummated Consolidation Transaction before the Vesting Deadline for Pooling
Company Arbitrage Shares set forth below (a "TIMELY POOLING CLOSING"), the
Restrictions will lapse with respect to twenty percent (20%) of the Earned
Shares associated with such Pooling Company. Upon the Pooling Closing of any
Pooling Company the Company or its assignee may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following such
Pooling Closing, repurchase from the Purchaser at the price per share that the
Purchaser paid to the Company, and the Purchaser will sell to the Company, any
or all Unearned Shares associated with such Pooling Company.
For purposes of this Agreement:
"EARNED SHARES" associated with any Pooling Company means (i) if the
1998 proforma pretax income upon which the actual purchase price for such
Pooling Company is based (the "1998 CLOSING INCOME") is at least 90% of the
"1998 Proforma Pretax Target Income" listed in the table below for such Pooling
Company, the Pooling Arbitrage Shares corresponding to such Pooling Company in
the table below; or otherwise (ii) the product of the Pooling Arbitrage Shares
corresponding to such Pooling Company in the table below times a fraction, the
numerator of which is the 1998 Closing Income for such Pooling Company, and the
denominator of which is the "1998 Proforma Pretax Target Income" listed in the
table below for such Pooling Company.
"UNEARNED SHARES" for any Pooling Company, if any, means the Pooling
Arbitrage Shares corresponding to that Pooling Company in the table below less
the Earned Shares for that Pooling Company.
4
<PAGE> 25
<TABLE>
<CAPTION>
1998 PROFORMA PRETAX POOLING ARBITRAGE
POOLING COMPANY TARGET INCOME SHARES
--------------- -------------------- -----------------
<S> <C> <C>
Acclivus $ 3,400,000 51,000
Caliper 2,000,000 28,410
Institute for Applied Management and Law 2,000,000 36,000
Kepner Tregoe 10,000,000 150,000
Personnel Decisions International 10,000,000 114,286
-----------
Total 379,696
-----------
</TABLE>
In addition to the vesting described in the immediately preceding
paragraph, on the last day of each of the Measurement Periods set forth below,
if the Purchaser has remained an employee of the Employer from the date hereof
through the last day of such Measurement Period, then for each Pooling Company
that is acquired in a Timely Pooling Closing, the Restrictions will lapse with
respect to twenty percent (20%) of the "Earned Shares" associated with such
Pooling Company.
MEASUREMENT PERIOD
January 1, 1999- December 31, 1999
January 1, 2000- December 31, 2000
January 1, 2001- December 31, 2001
January 1, 2002- December 31, 2002
(ii) VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT
If employment of the Purchaser with the Employer is terminated by death,
by Disability, by the Employer without Cause, or by the Purchaser for Good
Reason or the Purchaser's employment with the Employer is terminated by the
Purchaser or the Employer (or its successor) within one hundred and twenty (120)
days after a Change in Control of the Company, and if any Pooling Company
participates (or participated) in a Timely Pooling Closing prior to the date
that is 180 days after the date of termination of the Purchaser's employment
with the Employer, then upon consummation of such Timely Pooling Closing after
termination of the Purchaser's employment twenty percent (20%) of the Earned
Shares associated with such Pooling Company shall vest, and upon the last day of
each Measurement Period set forth above ending after the termination of the
Purchaser's employment with the Employer, the Restrictions will lapse with
respect to twenty percent (20%) of the Earned Shares associated with such
Pooling Company,
5
<PAGE> 26
provided however, that (i) such vesting will not be duplicative of any vesting
that occurred while the Purchaser was employed by the Employer, and (ii) if any
of the events or circumstances constituting "Cause" listed in Items B or C of
Schedule 1 of the Purchaser's Employment Agreement occurs at any time before the
end of the final Measurement Period, then, in addition to the rights of the
Company set forth in Section 4.1(d), the Shares shall no longer continue to vest
as set forth in this paragraph and the Company or its assignee may, in the
Company's discretion, at any time and from time to time for a period of one (1)
year following such occurrence, repurchase from the Purchaser at the price per
share that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all unvested shares.
(iii) VESTING DEADLINE
The Vesting Deadline for Pooling Company Arbitrage Shares is the earlier
of (i) the closing of an IPO of the Company's equity securities, or (ii)
December 31, 1999.
(e) ACKNOWLEDGMENT
The Company and its Affiliates have no obligation to the Purchaser to
affect any particular acquisition, or to time any particular acquisition, so as
to permit vesting hereunder to occur. The Purchaser recognizes that decisions
regarding acquisitions and the timing thereof and of any IPO filing will be made
by management of the Company consistent with duties to the Company and its
stockholders, and without regard to the Purchaser's vesting hereunder.
(f) FRACTIONAL SHARES
Fractional vested Shares of any kind may, in the Company's discretion,
be combined with any other fractional vested Shares of any kind (including for
later Measurement Periods) to constitute whole vested Shares, or repurchased by
the Company or its assignee at fair market value on the date of repurchase.
(g) REPLACEMENT TARGET COMPANIES
If the Company or any particular B Purchase Company or Pooling Company
determines that such B Purchase Company or Pooling Company will not participate
in a Timely B Purchase Closing or Timely Pooling Closing, as the case may be,
the Company may in its discretion (but will not be required to) assign any or
all of the B Purchase Arbitrage Shares or Pooling Arbitrage Shares corresponding
to that non-participating B Purchase Company or Pooling Company to one or more
replacement "Target Companies" identified by the Company that may participate in
either a Timely B Purchase Closing or a Timely Pooling Closing. If and when such
a replacement Target Company consummates a Timely B Purchase Closing or a Timely
Pooling Closing, as specified by the Company, the B Purchase Arbitrage Shares or
the Pooling Arbitrage Shares corresponding to that replacement Target Company
shall be eligible to vest in the same manner as set forth herein for original B
Purchase Arbitrage Shares or Pooling Arbitrage Shares, as the case may be,
provided that the maximum aggregate number of vested B Purchase Arbitrage Shares
and vested Pooling Arbitrage Shares may not exceed the total number of B
Purchase Arbitrage Shares and Pooling Arbitrage Shares set forth in Schedule 1.
Any allocation of B Purchase Arbitrage Shares or Pooling Arbitrage Shares to a
replacement Target Company
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<PAGE> 27
may be effected only by a written amendment to this Agreement executed and
delivered by the Company and the Purchaser.
7
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of December 10, 1999 (the "EFFECTIVE DATE") by and between First Financial
Resources Holding Co., Inc., a Delaware corporation (the "COMPANY") and wholly
owned subsidiary of EPS Solutions Corporation, a Delaware corporation ("EPS"),
and Michael G. Goldstein ("EMPLOYEE").
Employee is employed by the Company pursuant to an employment agreement
dated March 18, 1999 (the "ORIGINAL EMPLOYMENT AGREEMENT"), and the Company and
Employee desire to continue Employee's employment, but on the terms set forth
herein rather than pursuant to the Original Employment Agreement.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employee's employment with the Company will be at-will,
which means that either Employee or the Company may terminate Employee's
employment at any time for any reason or no reason without payment, penalty or
further obligation except as set forth in Section 8 or in the Restricted Stock
Purchase Agreement described below or another written agreement between Employee
and the Company or EPS, provided, however, that Employee's employment with the
Company shall not be terminated without Cause (as defined in Schedule 1) without
majority approval of an executive management committee of EPS, which committee
shall consist of four (4) members of the senior management of EPS and one (1)
representative of the President's Council of EPS.
2. DUTIES. Employee shall serve as President of the Company, Senior Vice
President - Financial Solutions of EPS, and President - Financial Solutions of
Enterprise Profit Solutions Corporation, the wholly owned operating subsidiary
of EPS ("ENTERPRISE"). In those capacities, Employee shall report directly to
the Chief Executive Officer of EPS and be responsible for the duties and
functions listed on Schedule 2 and shall perform such related duties and
services as the board of directors and/or Chief Executive Officer of EPS may
from time to time assign, either directly or by delegated authority, provided
however, that Employee's responsibility and authority within the Company will
not be materially diminished without Employee's consent as long as shares of
restricted stock purchased by Employee pursuant to that certain Restricted Stock
Purchase Agreement of even date herewith between Employee and EPS the form of
which is attached hereto as Exhibit A (the "RESTRICTED STOCK PURCHASE
AGREEMENT") are subject to Restrictions (as defined in the Restricted Stock
Purchase Agreement) based upon the performance of the Company and its
subsidiaries (the "RESTRICTED PERIOD"). Except as set forth herein, Employee's
position and duties may be changed at any time and from time to time by the
board of directors or Chief Executive Officer of EPS. Such duties shall be
rendered at such place or places as the Company shall require based upon the
interest, need, business and/or opportunities of the Company, Enterprise, and
EPS, provided however, that the place at which Employee renders such duties
shall not be relocated more than twenty-five (25) miles from the location of
such place on the date hereof without Employee's consent.
<PAGE> 2
3. TIME AND EFFORTS. While employed by the Company (the "EMPLOYMENT
PERIOD"), Employee shall use his best efforts and devote his or her time and
attention to the business of the Company, Enterprise and EPS on a full-time
basis and shall at all times faithfully and industriously and to the best of his
ability, experience and talent, perform all of the duties that may be required
of him pursuant to the terms hereof. During the Employment Period, Employee
shall not engage in any other paid employment or consulting activities without
the express written consent of EPS, but the foregoing shall not preclude
Employee from engaging in civic, charitable and/or religious activities,
personal legal related speaking engagements, receiving honorariums, publishing
legal related personal manuscripts, directing his own passive investments,
setting up, owning interests in and/or managing investment entities with assets
of Employee or third-parties, providing legal advice to personal friends and
family, and/or serving on boards of directors of other entities so long as such
activities do not interfere or conflict with Employee's duties hereunder as
reasonably determined by the Chief Executive Officer of EPS.
4. COMPENSATION.
(a) Salary, Bonus. During the Employment Period, the Company shall pay
Employee at the annual rate of Two Hundred Fifty Thousand Dollars ($250,000) (as
such pay may be increased by the Company from time to time in its discretion,
the "ANNUAL SALARY") for all services rendered to the Company, Enterprise and
EPS by Employee, payable in accordance with the Company's regular payroll
policies, subject, however, to withholding deductions, including without
limitation social security taxes and applicable federal, state and local income
and other employment taxes. Upon the consummation of an initial underwritten
public offering of the equity securities of EPS, Employee will receive an
increase in Employee's Annual Salary to a rate of Three Hundred Thousand Dollars
($300,000), provided that Employee is still employed with the Company at such
time. Bonuses will be payable in the Company's discretion, but (i) Employee will
be entitled to participate in any bonus program on terms at least as favorable
as those made available to other executive employees of the Company, Enterprise
or EPS, and (ii) Employee's bonus (after tax) for any year shall be not less
than the annual interest that Employee is required to pay in cash to EPS in that
year on any notes issued by Employee to EPS for the purchase by Employee of
stock of EPS.
(b) Equity. In connection with employment by the Company and services
performed by Employee under this Agreement, Employee is acquiring concurrently
herewith 180,000 shares of restricted stock of EPS pursuant to the Restricted
Stock Purchase Agreement and 20,000 shares of vested common stock of EPS
pursuant to a subscription agreement of even date herewith. These shares are in
addition to 100,000 shares of stock of EPS previously acquired by Employee
pursuant to a Restricted Stock Purchase Agreement dated March 18, 1999 (the
"FIRST RSPA"), which will remain outstanding according to the terms of the First
RSPA, as amended by the Amendment Agreement entered into by Employee and EPS
concurrently with this Agreement.
(c) Notes and Liquidity. During and after the Employment Period, and
regardless of the reason for or circumstances of any termination of Employee's
employment, Employee will be entitled to receive (i) the most favorable
treatment of interest on promissory notes incurred to purchase stock of EPS that
is received at any time by any other officer of former officer of the
2
<PAGE> 3
Company or EPS as a purchaser of EPS Stock, and (ii) the most favorable
registration rights or other access to liquidity, on a ratable basis based upon
relative holdings, that is received at any time by any other officer or former
office of the Company or EPS.
5. PERSONAL TIME OFF POLICY. Employee shall be entitled to such number
of days of paid personal time off ("PTO") each year as is consistent with the
number of days set forth on Exhibit B and the Company's Personal Time Off
Policy, as such policy may be amended from time to time at the discretion of the
Company. Employee may not accrue more PTO days than the number of days set forth
on Exhibit B under the item "Maximum Accrued PTO." If Employee at any time has
more than such number of days, no further PTO days shall accrue until Employee
again has fewer than such number of days of unused PTO. PTO days may be used,
subject to approval by EPS consistent with business needs, as they are earned.
The Company shall pay Employee for accrued unused PTO days only in connection
with termination of employment. Such payment shall be made on the basis of
Employee's Annual Salary at the time of payment, pro-rated for the number of
accrued unused PTO days at the time of termination.
6. BENEFITS. In addition to the compensation described in Section 4, the
Company shall provide Employee with benefits consistent with the Company's
employment policies as in effect from time to time, but in any case Employee's
benefits will be not less favorable than benefits provided to other executive
officers of EPS.
7. CERTAIN DEFINITIONS.
(a) Cause. For purposes hereof, the term "CAUSE" has the meaning
set forth in Schedule 1 hereto. Any termination by the EPS, Enterprise or the
Company of Employee's employment in compliance with Section 1 and within 90 days
after EPS becoming aware of the occurrence of an event or circumstance
constituting "Cause" will constitute termination for Cause.
(b) Good Reason. If the Company breaches this Agreement or any
other agreement with Employee in any material respect and does not cure such
breach within 15 days of receipt from Employee of notice of such breach and
demand for cure, or a Change in Control (as defined in Schedule 1) occurs, and
Employee terminates Employee's employment with the Company (or its successor)
for any reason within 90 days of such breach or Change in Control, such
termination by Employee will be termination with "GOOD REASON."
8. CERTAIN PAYMENTS.
(a) Notice of Termination. Any termination of Employee's
employment shall be communicated by a Notice of Termination. For purposes of
this Agreement, a "NOTICE OF TERMINATION" shall mean a written notice of
termination of Employee's employment setting forth the effective date of such
termination and, if the termination is for cause, the specific termination
provisions in this Agreement relied upon and, in reasonable detail, the facts
and circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.
3
<PAGE> 4
(b) Termination by Employee with Good Reason or the Company,
Enterprise or EPS Without Cause. If Employee's employment under this Agreement
is terminated by Employee with Good Reason or by the Company, Enterprise or EPS
without Cause, then contingent upon execution and delivery by Employee of an
unconditional release, in form consistent with the form of release attached as
an exhibit to the Restricted Stock Purchase Agreement, of all claims against the
Company, Enterprise, EPS or any of their officers, directors or affiliates
arising from or in connection with this Agreement or Employee's employment with
the Company or the termination of that employment, Employee shall be entitled to
receive within five days of termination of employment a lump sum payment equal
to his Annual Salary and his share, if any, of the Company bonus calculated to
the date of termination (the "SEVERANCE PAYMENT"). However, if the Company bonus
for the year in which termination of employment occurs has not been determined
at the time of termination, payment of the Company bonus portion of the
Severance Payment will be delayed until the Company bonus, if any, for that year
is determined.
(c) No Other Benefits. Except as set forth in Sections 5 or 8(b),
or as may be required by applicable law or separate written agreement between
the Company, Enterprise or EPS and Employee, the Company, Enterprise and EPS
shall have no obligations to pay any salary, bonus, accrued vacation or other
amounts in connection with any termination of Employee's employment or
attributable to the period after termination of Employee's employment. Without
limiting the foregoing, and subject to any separate written agreement to the
contrary, Employee will not be entitled to any severance payment or benefit if
Employee's employment under this Agreement is terminated as a result of death or
Disability, or by Employee without Good Reason, or by the Company, Enterprise or
EPS for Cause.
9. CONFIDENTIALITY. The Confidential Information and Employee Invention
Agreement (the "CONFIDENTIALITY AGREEMENT") executed and delivered by Employee
in connection with the Original Employment Agreement will remain in full force
and effect and will survive termination or expiration of this Agreement.
10. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants
that (a) he is under no contractual restriction or other restrictions or
obligations that are inconsistent with the execution of this Agreement, the
performance of his duties and the covenants hereunder, and (b) he is under no
physical or mental disability that would interfere with his keeping and
performing all of the agreements, covenants and conditions to be kept or
performed hereunder.
11. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be interpreted under and
governed by the laws of the State of California, excluding its rules on
conflicts of law.
(b) Arbitration. Any dispute regarding the application,
interpretation or breach of this Agreement shall be resolved by final and
binding arbitration before the American Arbitration Association ("AAA") in
accordance with AAA's National Rules for the Resolution of Employment Disputes.
Attorney's fees, costs and damages (where appropriate) shall be awarded to the
prevailing party in any dispute, and any resolution, opinion or order of AAA may
be entered as a judgment in a court of competent jurisdiction.
4
<PAGE> 5
(c) Modification and Waiver. No waiver or modification of this
Agreement or any term hereof shall be binding unless it is in writing signed by
the parties hereto. No failure to insist upon compliance with any term,
provision or condition to this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
(d) Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede and replace all prior employment
agreements, including without limitation Employee's Employment Agreement dated
March 18, 1999, each of which agreements is hereby terminated. No oral
statements or prior written agreements with respect to the subject matter hereof
which are not specifically incorporated herein or in the Confidentiality
Agreement shall be of any force or effect.
(e) Severability. If any provisions hereof shall be held or
construed to be illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining provisions of this Agreement, but the same shall
be construed and enforced just as though the illegal or invalid provisions had
not been included herein.
(f) Notices. Any notice, demand or other communication required,
permitted or desired to be given hereunder shall be in writing and shall be
deemed effectively given upon personal delivery, facsimile transmission (with
confirmation of receipt), delivery by reputable overnight delivery service or
five (5) days following deposit in the United States mail (if sent by certified
or registered mail, postage prepaid, return receipt requested), in each case
duly addressed to the Company, Enterprise or EPS at the headquarters of EPS or
to Employee at his or her address of record listed with EPS.
(g) Assignment. Employee's rights, duties and obligations under
this Agreement may not be assigned by Employee. The Company, Enterprise and EPS
may assign rights, duties and obligations under this Agreement to any affiliate
of EPS. This Agreement shall be binding upon the successors and assignees of the
Company, Enterprise and EPS.
(h) Headings. The section headings herein are intended for
reference and shall not affect in any way the construction or interpretation of
this Agreement.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth above.
/s/ MICHAEL G. GOLDSTEIN
- ----------------------------------------
Michael G. Goldstein
Enterprise Profit Solutions Corporation
EPS Solutions Corporation
By: /s/ DAVID H. HOFFMANN
-------------------------------------
Name: David H. Hoffmann
-----------------------------------
Title: CEO
----------------------------------
6
<PAGE> 7
SCHEDULE 1 TO
EMPLOYMENT AGREEMENT
"CAUSE" means the occurrence at any time of any one or more of the
following events or circumstances, provided however, that if any such event or
circumstance is susceptible to cure by Employee without damage to the Company,
Enterprise or EPS, such event or circumstance will not constitute Cause unless
Employee has failed to cure such event or circumstance within 15 days after
receipt by Employee of written notice thereof: (i) Employee engages in any
wrongful conduct or knowingly violates any reasonable rule or regulation of the
Board, or the Chief Executive Officer of EPS that results in material damage or
risk of legal liability to the Company, Enterprise or EPS, any subsidiary
corporation of the Company, Enterprise or EPS or any entity controlling,
controlled by, or under common control with the Company, Enterprise or EPS (each
an "AFFILIATE"); (ii) any willful misconduct or gross negligence by Employee in
the responsibilities assigned to Employee; (iii) any willful and material
failure to perform Employee's job as required to meet the lawful objectives of
the Company or any Affiliate or any repeated failure to achieve reasonable
performance standards that have been described by the Company, Enterprise or EPS
in writing and communicated to Employee in reasonable detail; (iv) Employee
fails to comply with all material applicable laws and regulations in performing
Employee's duties and responsibilities to the Company or any Affiliate; (v) any
criminal conduct (other than misdemeanors that do not meet the criteria set
forth in subsection (vi)); (vi) any actions involving moral turpitude or
injurious to the business or reputation of the Company or any Affiliate; (vii)
any legal action against Employee or the Company or any Affiliate occurs as a
result of Employee's service to the Company or any Affiliate and results in a
judgment or arbitral award that is based upon gross negligence or intentional
misconduct by Employee and that requires the Company or any Affiliate to pay
substantial damages; (viii) any legal action by Employee or Employee's
representatives or successors against the Company or any Affiliate or any person
or entity that the Company or any Affiliate would be obligated to indemnify or
defend in connection with such action; or (ix) Employee does any of the things
described in (A)-(C) below.
(A) Employee renders services for any organization or engages directly
or indirectly in any business that, in the reasonable judgment of the Chief
Executive Officer of EPS or other senior officer designated by the Chief
Executive Officer, is or becomes competitive with the Company or any Affiliate,
or which organization or business, or the rendering of services to such
organization or business, is or becomes otherwise prejudicial to or in conflict
with the business or interests of the Company or any Affiliate.
(B) Employee fails to comply with the Confidentiality Agreement or with
the lawful policies of the Company or any Affiliate regarding nondisclosure of
confidential information, or without prior written authorization from the
Company or any Affiliate discloses to anyone outside the Company or any
Affiliate or uses for any purpose or in any context other than in performance of
Employee's duties to the Company or any Affiliate any confidential or trade
secret information of the Company or any Affiliate. (C)Employee breaches in any
material respect any agreement with or legal duty to the Company or any
Affiliate.
7
<PAGE> 8
"CHANGE IN CONTROL" means the completion of:
(i) any acquisition or series of related acquisitions resulting in any
person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
beneficially owning (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than thirty percent (30%) of either the then outstanding
shares of Common Stock or the combined voting power of then outstanding voting
securities entitled to vote generally in the election of directors of EPS or
Enterprise, provided that a Change in Control shall not be deemed to have
occurred if the "person" described in the preceding provisions is an underwriter
or underwriting syndicate that has acquired the ownership voting securities of
EPS or Enterprise solely in connection with a public offering of those
securities; or
(ii) any reorganization, merger or consolidation of EPS or Enterprise
with any other person, entity or corporation, other than a transaction which
would result in the owners of voting securities of EPS outstanding immediately
prior thereto continuing to own directly or indirectly more than fifty percent
(50%) of the combined voting power of the voting securities of the entity or
entities surviving such reorganization, merger or consolidation that own and
conduct the business owned and conducted by EPS and Enterprise prior thereto; or
(iii) the sale or other disposition by EPS or Enterprise, in one
transaction or a series of related transactions, of all or substantially all of
the assets of EPS or Enterprise; or
(iv) Individuals who, as of the Effective Date, constitute the board of
directors of EPS or Enterprise (in each case, the "INCUMBENT BOARD OF
DIRECTORS") cease for any reason to constitute at least a majority of the board
of directors of EPS or Enterprise, respectively, provided that any individual
who becomes a director after the Effective Date whose election, or nomination
for election by stockholders, is approved by a vote of at least a majority of
the directors then comprising the relevant Incumbent Board of Directors shall be
considered to be a member of the relevant Incumbent Board of Directors unless
that individual was nominated or elected by any person, entity or group (as
defined above) having the power to exercise, through beneficial ownership,
voting agreement and/or proxy, thirty percent (30%) or more of either the
outstanding shares of common stock of EPS or Enterprise or the combined voting
power of the outstanding securities of EPS or Enterprise entitled to vote
generally in the election of directors, in which case that individual shall not
be considered to be a member of the Incumbent Board of Directors unless such
individual's election or nomination for election by EPS' shareholders is
approved by a vote of at least two-thirds of the directors then comprising the
Incumbent Board of Directors; or
For purposes of this definition, references to EPS and Enterprise shall
also refer to their successors and assigns such that reorganizations or other
corporate transactions do not impair the substantive intent of these provisions.
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<PAGE> 9
"DISABILITY" means Employee suffers an ongoing physical or psychological
impairment that has rendered Employee unable, as determined in good faith by the
Chief Executive Officer of EPS, to perform Employee's duties to the Company,
Enterprise and EPS, notwithstanding reasonable accommodation by the Company,
Enterprise and EPS (the Company, Enterprise and EPS, at their option and
expense, being entitled to retain a physician to confirm the existence of such
disability), for a period of three (3) consecutive months or six (6) months in
any 12-month period.
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<PAGE> 10
SCHEDULE 2
Employee shall (i) manage the operations of the Company consistent with the
Company's business plan, (ii) manage the other financial services companies of
EPS consistent with their business plans, and (iii) shall perform such related
duties and services as the EPS board of directors and/or its Chief Executive
Officer may from time to time assign.
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<PAGE> 11
EXHIBIT B
PERSONAL TIME OFF
Aggregate Amount of time off: 28 days (in addition to holidays
observed by the Company)
Maximum Accrued PTO: 28 days
<PAGE> 1
EXHIBIT 10.26
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of March 18, 1999 (the "EFFECTIVE DATE") by and between
EPS Solutions Corporation, a Delaware corporation (the "COMPANY") and Michael G.
Goldstein (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and effective as of
December 14, 1998, the Company acquired approximately 38 companies engaged in
such business by means of acquisitions by the Company of all or substantially
all of the assets or stock or other equity interests of such companies
(collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
B. The Company intends to acquire various other companies (the
"ADDITIONAL CONSOLIDATION TRANSACTIONS," and with the Initial Consolidation
Transactions, the "CONSOLIDATION TRANSACTIONS").
C. The Purchaser is employed by the Company's wholly owned
subsidiary Enterprise Profit Solutions Corporation, a Delaware corporation
("EPS") or any of its affiliates (the "EMPLOYER") and has entered into that
certain Employment Agreement with the Employer (the "EMPLOYMENT AGREEMENT").
D. The Purchaser and certain other persons are being offered an
opportunity to purchase shares of the common stock of the Company, par value
$0.001 per share (the "COMMON STOCK").
E. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain performance
related milestones described herein are not met.
F. The Shares shall be subject to certain additional restrictions
as set forth herein.
G. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Series A Common Stock
set forth on Schedule 1.1 (the "SHARES") for the consideration of $1.20 per
Share, resulting in an aggregate purchase price as set forth on Schedule 1.1
(the "PURCHASE PRICE"). Concurrently herewith the Purchaser is paying to
<PAGE> 2
the Company in cash $0.001 per Share, resulting in an aggregate payment of the
amount set forth on Schedule 1.1 under the item "Cash Payment" (the "CASH
PAYMENT"). The obligation of the Purchaser to pay the remainder of the Purchase
Price in the amount set forth on Schedule 1.1 under the item "Note" is evidenced
by the Purchaser's delivery to the Company concurrently herewith of a secured
promissory note of the Purchaser in the form attached hereto as Exhibit A (the
"NOTE"). The Note is secured by a pledge of the Shares made pursuant to Section
5 of the Note. The Shares are sold pursuant to and governed by this Agreement
and not any other contract or plan of the Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
2
<PAGE> 3
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current needs and personal contingencies, and has no need for
liquidity and can sustain a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has limited
financial and operating history.
(ii) There can be no assurance that any particular Additional
Consolidation Transactions will occur, that the Company will be successful in
accomplishing the purpose for which it was formed or that it will ever be
profitable. No assurance can be given regarding (A) whether the companies
acquired by the Company in the Consolidation Transactions can be successfully
integrated and operated, or (B) what companies will ultimately be acquired by
the Company. No company is obligated to participate in the Additional
Consolidation Transactions unless a written agreement to such effect is entered
into by the Company and such Additional Consolidation Transaction company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing
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of the IPO, whether the Purchaser will be able to participate, or the price at
which any shares of Common Stock would be sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the business of the Company will have the right to
vote the Shares pursuant to the voting agreement referenced in Section 4.1(i).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Sponsors and
the Founders are intended to be used by the Company for general and
administrative expenses and working capital. The proceeds from such sales may be
exhausted notwithstanding failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be
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stated herein or therein or necessary to make the statements and facts contained
herein or therein not materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, federal, state or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, of which 200,000,000 are Series A Common
Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares of
undesignated preferred stock. All capital stock of the Company has a par value
of $0.001 per share. Holders of Series B Common Stock are entitled to elect all
the directors in one of the Company's three classes of directors, with the
holders of the Series A Common Stock entitled to elect the remaining directors.
In all other respects, the Series A Common Stock and the Series B Common Stock
is identical. The Shares, when issued, sold, and delivered in accordance with
the terms of this Agreement for the consideration expressed herein will be duly
and validly issued, fully paid, and nonassessable, except that the Purchaser may
be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
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3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional requirements or restrictions
contained herein have been satisfied, terminated or expressly waived by the
Company in writing. Any attempted transfer in violation of such Restrictions
will be void.
(b) The Restrictions will lapse and the Shares will vest in accordance
with the provisions in Schedule 4 (the "VESTING SCHEDULE"), provided, however,
that the Company, in its discretion, may from time to time accelerate the
vesting of any Shares at any time or forgive Restrictions and allow Shares or
restricted shares owned by any other party to vest notwithstanding that the
conditions to vesting thereof may not have been satisfied.
(c) In addition to any repurchase rights of the Company set forth in
Schedule 4, the Company, or its assignee, may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the end of
each Measurement Period (as described in Schedule 4), repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all of the Shares that were eligible
to vest but did not vest in accordance with the Vesting Schedule for such
Measurement Period. Shares originally corresponding to any Measurement Period
that cannot vest because of failure prior to the end of that Measurement Period
of conditions to vesting thereof may be repurchased at any time and from time to
time from the failure of such conditions to the end of the applicable repurchase
period specified herein. Any Shares that do not vest in accordance with the
Vesting Schedule shall be subject to repurchase by the Company regardless of the
services performed, or other consideration given, by the Purchaser to the
Company. Shares not vested in accordance with the Vesting Schedule but not
repurchased by the Company during the applicable repurchase periods described
herein (including in Schedule 4) shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer under
the circumstances described in Schedule 4 under the heading "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in form satisfactory to the Company of all claims against
the Company or any of its officers, directors or affiliates arising from or in
connection with this Agreement or the Purchaser's employment with the Employer
or the termination of that employment. Upon
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such a termination of employment, any Shares that do not vest as described
therein will be subject to repurchase in the manner described in Section
4(d)(ii).
(ii) In case of termination of the Purchaser's employment by the
Employer for any reason other than a reason that causes vesting as described in
Schedule 4, the Company or its assignee may, in the Company's discretion, at any
time and from time to time for a period of one (1) year following the
termination of employment, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares designated by the Company that have not vested
as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set forth
above, if any of the events or circumstances constituting "Cause" listed in
Schedule 1 of the Purchaser's Employment Agreement occurs at any time before the
end of the final Measurement Period, then notwithstanding any vesting provided
for herein the Company or its assignee may, in the Company's discretion, at any
time and from time to time for a period of one (1) year following such
occurrence, repurchase from the Purchaser at the price per Share that the
Purchaser paid to the Company, and the Purchaser will sell to the Company, any
or all Shares designated by the Company that had not vested at the time of such
occurrence, or that vested effective as of a date within 365 days before such
occurrence.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase
any Shares under this Agreement but the Purchaser cannot deliver such Shares to
the Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by third parties that are subject to
restrictions, or to accelerate vesting or forgive Restrictions applicable to
such Common Stock, shall be within the discretion of the Company. The Company
may (but will not be required to) exercise its right to repurchase, accelerate,
or forgive Restrictions with respect to any or all shares of restricted Common
Stock owned by the Purchaser or other third party without incurring any
obligation to repurchase, accelerate, or
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forgive Restrictions with respect to any other Common Stock owned by the
Purchaser or any other third party.
(g) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as described in Section 5.2(b). Shares that have
vested shall nevertheless be governed by the Stockholder Agreement. The
Company's repurchase rights hereunder will supersede the purchase provisions of
the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the Purchaser has paid to the Company the full Purchase Price
for such Shares, and an amount sufficient to satisfy any taxes or other amounts
required by any Governmental Entity to be withheld and paid over to such
Governmental Entity for the Purchaser's account, or otherwise made arrangements
satisfactory to the Company for payment of such amounts through withholding or
otherwise, and (b) the Purchaser has, if requested by the Company, made
appropriate representations in a form satisfactory to the Company that such
Shares will not be transferred other than (i) pursuant to an effective
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act; (ii) in compliance with all
applicable state securities laws and regulations; and (iii) in compliance with
all terms and conditions of the Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
this Agreement and the Stockholder Agreement, the Shares (or interests therein)
cannot be offered, sold or transferred unless the Shares are registered and
qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder Agreement and
the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
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"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
(d) In connection with any underwritten public offering of securities of
the Company or any of its affiliates within three (3) years of the date hereof,
if the managing underwriter believes that it is appropriate in connection with
the offering to limit public sales of such securities by Company's stockholders,
the Purchaser will agree to the managing underwriter's standard form of "lock
up" agreement prohibiting transfers of any Common Stock owned by the Purchaser,
including without limitation shares acquired other than pursuant hereto (other
than shares included in the offering) for such period as may be required by the
managing underwriter not to exceed twenty (20) days prior to, and one hundred
and eighty (180) days after, the effective date of the registration statement
for such offering, provided however, that (i) such lock up provision may not be
invoked more than once in any 365 day period, (ii) such lock up provision will
be contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) the Purchaser will not be required to
comply with this lock up provision if any other stockholder owning more shares
of Common Stock than the Purchaser and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, and subject to the
Voting Agreement, the Purchaser will have all of the rights of a stockholder of
the Company with respect to all of the Shares, including without limitation the
right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization;
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provided, however, that the Purchaser's share of the Exchange Consideration
shall be subject to the Restrictions not yet satisfied, unless the Board of
Directors of the Company, in its discretion, accelerates the vesting and
forgives the Restrictions.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to the Employer at any time, with or without
cause. Such matters are addressed, if at all, only pursuant to the Employment
Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any of
the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission for an underwritten IPO of
its equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Purchaser shall have
the right, subject to the limitations set forth in this Section 4.7(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by the Purchaser. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in the
formation, or work on behalf of, the Company) will have rights to include shares
of Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing no Selling Stockholder will be
permitted to include in any such registration and offering (i) any Shares
subject to performance-related restrictions at the time of filing of the
registration statement for such offering, or (ii) more than, in the aggregate
for all such registrations and offerings, half of the Shares and other Common
Stock owned by the Purchaser
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as of the date hereof. Furthermore, in no case will the Purchaser be permitted
to include in the IPO registration and offering more than the number of Shares
listed on Schedule 1.1 under the item "Maximum IPO Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes any
securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering pursuant
to this Section 4.7, pursuant to the underwriting agreement negotiated between
the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are registered
pursuant to the Securities Exchange Act of 1934, as amended, the Company shall
use its best efforts to fulfill all conditions applicable to a registrant as are
necessary to enable selling security holders of the Company to make sales
pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon (i)
any false acknowledgment, representation or warranty, or breach or failure by
the Purchaser to comply with any covenant or agreement, made by the Purchaser
herein or in any other Transaction Document or (ii) any actions of Purchaser
outside the Purchaser's scope of employment with EPS.
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4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the parties under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall deliver
to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b).
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
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6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) business days after being mailed by certified or registered mail,
postage prepaid, return receipt requested, or one (1) business day after being
sent via a nationally recognized overnight courier service if overnight courier
service is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the
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meaning or interpretation hereof or thereof. References herein or therein to
Articles, Sections, Schedules and Exhibits refer to the referenced Articles,
Sections, Schedules or Exhibits hereof or thereof as the case may be, unless
otherwise specified. This Agreement and the other Transaction Documents shall be
deemed the joint work product of the parties hereto or thereto without regard to
the identity of the draftsperson, and any rule of construction that a document
shall be interpreted or construed against the drafting party shall not be
applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to
this Agreement also arises out of or relates to the employment of the Purchaser
by the Employer, the provisions of this Agreement governing dispute resolution
shall govern resolution of such controversy or claim. The provisions of this
Agreement governing dispute resolution supersede any provisions relating to such
matters in any employment agreement between the Purchaser and the Employer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand Dollars
($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees, the
dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice
14
<PAGE> 15
of arbitration as provided in the Rules (an "ARBITRATION NOTICE") which, in
addition to the items required by the Rules, shall include a statement of the
nature, with reasonable detail, of the dispute. A copy of the Arbitration Notice
shall be concurrently provided to the AAA, along with a copy of this Agreement,
and if pursuant to Section 6.11(a) one (1) Arbitrator is to be appointed, a
request to appoint the Arbitrator. If a party has a counterclaim against the
other party, such party shall furnish the party with whom it has the dispute a
notice of such claim as provided in the Rules (a "NOTICE OF COUNTERCLAIM")
within ten (10) days of receipt of the AAA's acknowledgement of its receipt of
the Arbitration Notice, which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Notice of Counterclaim shall be concurrently provided to the AAA.
If the claim set forth in the Notice of Counterclaim causes the aggregate amount
in dispute to exceed the Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 6.11(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the
15
<PAGE> 16
arbitration proceedings. The party requesting the court reporter must notify the
other parties and the Arbitrator of the arrangement in advance of the hearing,
and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding. The Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement
16
<PAGE> 17
of such Action and shall be paid whether or not such action is prosecuted to a
Decision. Any Decision entered in such Action shall contain a specific provision
providing for the recovery of attorneys' fees and costs incurred in enforcing
such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ DAVID H. HOFFMAN By: /s/ MICHAEL G. GOLDSTEIN
------------------------------ ---------------------------------
Name: David H. Hoffman Michael G. Goldstein
----------------------------
Title: CEO
---------------------------
Address: Address:
695 Town Center Drive, Suite 400 ------------------------------------
Costa Mesa, California 92626 ------------------------------------
Telephone No.: (714) 429-5500 Telephone No.:______________________
Facsimile No.: (714) 429-5559 Facsimile No.:______________________
17
<PAGE> 18
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
<PAGE> 19
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
Aggregate Number of Shares: 100,000
Aggregate Purchase Price: $120,000
Cash Payment: $100.00
Note: $119,900
Maximum IPO Shares: 20,000
Type of Shares:
Five-Year Time Vesting Shares
<PAGE> 20
SCHEDULE 4
VESTING SCHEDULE
BASIC TERMS.
VESTING. The shares consist of the Types of Shares identified on
Schedule 1.1. Subject to the terms and conditions set forth in this Agreement,
the Restrictions applicable to each Type of Shares will lapse, and Shares of
that Type will vest, if and when the conditions to vesting of that Type of
Shares, as set forth in this Schedule 4, are met. However, except as set forth
in this Schedule 4, in order for any Shares eligible for vesting for any
Measurement Period to vest, the Purchaser must have remained an employee of the
Company, or an affiliate of the Company, from the date hereof through the last
day of that Measurement Period. In addition, as a condition to each and every
vesting of Shares, the Purchaser must execute and deliver to the Company a
release, in form and substance satisfactory to the Company, releasing the
Company and all of its affiliates from any claims or liabilities arising from or
in connection with the employment of the Purchaser by the Company or any of its
Affiliates.
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until it is finally determined
through year-end closing of the books, audits and any other necessary
procedures, whether any performance requirements associated with particular
Shares for that Measurement Period have been met. In no case will the total
number of any particular Type of Shares that the Purchaser has the right to have
vested for any Measurement Period exceed the product of the total number of that
Type of Shares and the applicable Vesting Percentage corresponding to that
Measurement Period. Fractional vested Shares will be carried forward and
combined to constitute whole vested Shares that can be issued, or cashed out by
the Company at fair market value following determination of whether any
performance requirements associated with the last Measurement Period have been
met.
VESTING WITHIN FIRST YEAR:
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
If employment of the Purchaser with the Company or an affiliate of the
Company is terminated by death or by the Company without "Cause" or by
"Disability" (as defined below), and if the performance requirements, if any,
associated with any particular Shares for the applicable Measurement Period in
which the employment of the Purchaser is terminated are met, the Restrictions
will lapse with respect to such portion of those Shares as is equal to the
product of the number of those Shares times a fraction, the numerator of which
is the number of days in such Measurement Period with which those Shares are
associated through the date of termination of the employment of the Purchaser,
and the denominator of which is 365. There shall be no
<PAGE> 21
proportional partial vesting for such Measurement Period in respect of partial
satisfaction of performance requirements.
DEFINITIONS.
For purposes hereof:
"CAUSE" means the occurrence of any one or more of the following events
or circumstances, provided however, that if any such event or circumstance is
susceptible to cure by the Purchaser without damage to the Company, such event
or circumstance will not constitute Cause unless the Purchaser has failed to
cure such event or circumstance within 15 days after receipt by the Purchaser of
written notice thereof: the Purchaser engages in (i) any wrongful conduct or
knowingly violates any reasonable rule or regulation of the Employer's Board of
Directors, the Employer's President or Chief Executive Officer or the
Purchaser's superiors that results in material damage or risk of legal liability
to the Employer or any parent corporation of the Employer, any subsidiary
corporation of the Employer or any entity controlling, controlled by, or under
common control with the Employer (an "AFFILIATED ENTITY"); (ii) any willful
misconduct or gross negligence by the Purchaser in the responsibilities assigned
to the Purchaser; (iii) any willful and material failure to perform the
Purchaser's job as required to meet the lawful objectives of the Employer or any
Affiliated Entity; (iv) the Purchaser fails to comply with all material
applicable laws and regulations in performing the Purchaser's duties and
responsibilities to the Employer; (v) any criminal conduct (other than
misdemeanors that do not meet the criteria set forth in subsection (vi)); (vi)
any actions involving moral turpitude or injurious to the business or reputation
of the Company or its Affiliated Entities; (vii) any legal action against
Purchaser or the Company or any of its Affiliated Entities occurs as a result of
the Purchaser's employment by the Company; or (viii) any of the things described
in (A)-(C) below.
(A) The Purchaser renders services for any organization or engages
directly or indirectly in any business that, in the reasonable judgment of the
Chief Executive Officer of the Employer or other senior officer designated by
the Chief Executive Officer, is or becomes competitive with the Employer or any
Affiliated Entity, or which organization or business, or the rendering of
services to such organization or business, is or becomes otherwise prejudicial
to or in conflict with the business or interests of the Employer or any
Affiliated Entity, provided, however, that any personal legal related speaking
engagements, receipt of honorariums and publishing of legal related personal
manuscripts shall not be a violation of this Paragraph A.
(B) The Purchaser fails to comply with any confidentiality agreement
with the Employer or with the lawful policies of the Employer or any Affiliated
Entity regarding nondisclosure of confidential information, or without prior
written authorization from the Employer or any Affiliated Entity discloses to
anyone outside the Employer or any Affiliated Entity or uses for any purpose or
in any context other than in performance of the Purchaser's duties to the
Employer or any Affiliated Entity any confidential or trade secret information
of the Employer or any Affiliated Entity.
(C) The Purchaser breaches in any material respect any agreement with or
legal duty to the Employer or any Affiliated Entity.
2
<PAGE> 22
If "Cause" is defined in an employment agreement of Purchaser, such
definition therein shall control for purposes of this Agreement.
"DISABILITY" means the Purchaser suffers an ongoing physical or
psychological impairment that has rendered Purchaser unable, as determined in
good faith by the Chief Executive Officer of the Employer, to perform the
Purchaser's duties to the Employer, notwithstanding reasonable accommodation by
the Employer (the Employer, at its option and expense, being entitled to retain
a physician to confirm the existence of such disability), for a period of three
(3) consecutive months or six (6) months in any 12-month period.
3
<PAGE> 23
SCHEDULE 4, CONTINUED
FIVE-YEAR TIME VESTING SHARES
If the Purchaser has remained an employee of the Employer from the date
hereof through the last day of a Measurement Period, the Restrictions will lapse
with respect to such number of Five Year Time Vesting Shares (as set forth in
Schedule 1.1) as is equal to the product of the Vesting Percentage corresponding
to that Measurement Period and the total number of Five Year Time Vesting
Shares.
<TABLE>
<CAPTION>
VESTING
MEASUREMENT PERIOD PERCENTAGE
<S> <C>
January 1, 1999 - December 31, 1999 20%
January 1, 2000 - December 31, 2000 20%
January 1, 2001 - December 31, 2001 20%
January 1, 2002 - December 31, 2002 20%
January 1, 2003 - December 31, 2003 20%
</TABLE>
<PAGE> 1
EXHIBIT 10.27
AMENDMENT AGREEMENT
This Amendment Agreement is made as of December 10, 1999 by and among EPS
Solutions Corporation (the "COMPANY") and Michael G. Goldstein ("EMPLOYEE").
A. Effective as of March 18, 1999, Employee and the Company entered
into that certain Restricted Stock Purchase Agreement (the "FIRST RSPA")
pursuant to which Employee purchased from the Company 100,000 shares of Series A
Common Stock of the Company (the "TIME VESTING SHARES").
B. In payment of the purchase price for the Time Vesting Shares
Employee made a promissory note payable to the Company dated March 18, 1999 in
the principal amount of $119,900 (the "FIRST NOTE").
C. The Company and Employee desire to amend the First RSPA and the
First Note in certain respects as set forth herein.
Therefore, in consideration of the mutual covenants set forth herein and
other consideration, the value and sufficiency of which is hereby acknowledged,
the Company and Employee hereby agree as follows:
1. Schedule 1.1 to the First RSPA is hereby amended to change the
reference to "Five-Year Time Vesting Shares" to "Time Vesting Shares."
2. Schedule 4 to the First RSPA is hereby amended to read in its
entirety as set forth on Schedule 4 attached hereto.
3. There is hereby added to the First RSPA a new Section 4.11, which
reads as follows:
4.11 Change in Control. Notwithstanding anything in this Agreement
or other agreements to the contrary, any unvested Shares shall vest
and the Restrictions shall lapse as of immediately before the
closing of a transaction that constitutes a Change in Control (as
defined in the Employment Agreement), or upon a Change in Control
other than a transaction, in any case that occurs during Purchaser's
employment by the Company or any of its affiliates or within 90 days
thereafter. Accordingly, the Company will defer its repurchase
rights hereunder for at least such 90 day period.
4. The Employment Agreement referenced in the First RSPA, as amended,
shall be the Employment Agreement between Employee and First Financial Resources
Holding Co., Inc. dated as of December 10, 1999.
5. Effective as of immediately before the closing of the initial public
offering of shares of the Company or its successor or affiliate, all
Restrictions will lapse, and vesting will occur, with respect to (i) the portion
of the Time Vesting Shares and that would otherwise be scheduled
<PAGE> 2
to vest for the final "Measurement Period" under the First RSPA; and (ii) the
portion of the shares of restricted common stock of the Company that are being
purchased by Employee as of the date hereof and that vest solely based upon
Employee's continued employment (and not based upon any performance criteria)
that would otherwise be scheduled to vest for the final Measurement Period
applicable to those shares.
6. Employee will be permitted, in his discretion, to (a) defer any
payment of interest accrued on the First Note, the promissory note made by
Employee to the Company in connection with the purchase of shares on the date
hereof, and any other indebtedness of Employee incurred in connection with
purchase of any shares from the Company or any successor or affiliate
(collectively, the "PURCHASE DEBT") until the last principal of the Purchase
Debt is paid; (b) extend the maturity of the Purchase Debt by ten years if
Employee's employment with all affiliates of the Company and their successors
terminates for any reason (and for this purpose, an affiliate of the Company is
an entity controlling, controlled by, or under common control with the Company);
and (c) pay any principal or interest on the Purchase Debt at any time or from
time to time by surrendering to the Company or its successor or affiliate any
vested shares of capital stock of the Company or any successor or affiliate, in
which case the principal or interest, as specified by Employee, will be reduced
by the aggregate fair market value of such shares surrendered, and for this
purpose the fair market value of such shares will be the average closing price
of such type of shares on the principal exchange or market system upon which
they trade for the previous 20 trading days (or such shorter period of time as
the stock has been so traded), and if not so traded, the value determined and
documented to Employee in writing by the Company's board of directors in good
faith by reference, if applicable, to the Purchase Price under the Company's
Stockholder Agreement and any other relevant factors, but without any discount
for minority interest or lack of liquidity.
7. Sections 6.1 through 6.13 inclusive of the Restricted Stock Purchase
Agreement are included herein by reference and will govern this Agreement as
though set forth herein.
In Witness Whereof, the Company and Employee have entered into this
Agreement as of the date first above set forth.
EPS SOLUTIONS CORPORATION
By: /s/ DAVID H. HOFFMAN /s/ MICHAEL G. GOLDSTEIN
------------------------------ ---------------------------------
Name: David H. Hoffman Michael G. Goldstein
----------------------------
Title: CEO
---------------------------
<PAGE> 3
SCHEDULE 4
TO AMENDMENT AGREEMENT
BASIC TERMS.
VESTING. The Shares consist of 100,000 Time Vesting Shares (as
identified on Schedule 1.1). Subject to the terms and conditions set forth in
this Agreement, the Restrictions applicable to the Shares will lapse, and the
Shares will vest, if and when the conditions to vesting of the Shares, as set
forth in this Schedule 4, are met. However, except as set forth in this Schedule
4, in order for any Shares eligible for vesting for any Measurement Period to
vest, the Purchaser must have remained an employee of the Company, or an entity
controlling, controlled by, or under common control with the Company (an
"AFFILIATE"), from the date hereof through the last day of that Measurement
Period. In addition, as a condition to each and every vesting of Shares, the
Purchaser must execute and deliver to the Company a release, in form and
substance satisfactory to the Company, releasing the Company and all of its
Affiliates and their employees, officers and directors, and the successors and
assigns of each of them, from any claims or liabilities arising from or in
connection with the employment of the Purchaser by the Company or any of its
Affiliates.
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period. Fractional vested Shares
will be carried forward and combined to constitute whole vested Shares that can
be issued, or cashed out by the Company at fair market value following
determination of whether any performance requirements associated with the last
Measurement Period have been met.
TIME VESTING SHARES
On the last day of each Measurement Period set forth in the table below,
subject to the other provisions of this Agreement, the Restrictions will lapse
with respect to the number of Time Vesting Shares (as set forth in Schedule 1.1)
set forth opposite that Measurement Period below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
MEASUREMENT PERIOD VESTING
<S> <C>
January 1, 1999 - December 31, 1999 25,000
January 1, 2000 - December 31, 2000 42,857
January 1, 2001 - December 31, 2001 32,143
</TABLE>
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
If employment of the Purchaser with the Employer is terminated by the
Employer without "Cause" or by the Purchaser with "Good Reason" (each as defined
in the Employment Agreement), the Restrictions will immediately lapse and
vesting will immediately occur with respect to all of the Shares not already
vested. If employment of the Purchaser with the
<PAGE> 4
Employee terminates as a result of the Purchaser's death or Disability (as
defined in the Employment Agreement), the Restrictions will immediately lapse
with respect to half of the Shares not then already vested.
<PAGE> 1
EXHIBIT 10.28
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made
and entered into as of December 10, 1999 (the "EFFECTIVE DATE") by and between
EPS Solutions Corporation, a Delaware corporation (the "COMPANY") and Michael G.
Goldstein (the "PURCHASER").
A. The Purchaser is employed by the Company's wholly owned
subsidiary Enterprise Profit Solutions Corporation, a Delaware corporation
("EPS") or any of its affiliates (the "Employer") and has entered into that
certain Employment Agreement with the Employer of even date herewith (the
"EMPLOYMENT AGREEMENT").
B. In connection with that employment, the Purchaser is being
offered an opportunity to purchase shares of the common stock of the Company,
par value $0.001 per share (the "COMMON STOCK").
C. The Shares (as hereinafter defined) shall be subject to
repurchase by the Company, in the Company's discretion, if certain vesting
requirements described herein are not met.
D. The Shares shall be subject to certain additional restrictions
as set forth herein.
E. The Purchaser desires to purchase and the Company desires to
sell the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company the number of shares of Common Stock set forth
on Schedule 1.1 (the "SHARES") for the consideration of $2.50 per Share,
resulting in an aggregate purchase price as set forth on Schedule 1.1 (the
"PURCHASE PRICE"). Concurrently herewith the Purchaser is paying to the Company
in cash $0.001 per Share, resulting in an aggregate payment of the amount set
forth on Schedule 1.1 under the item "Cash Payment" (the "CASH PAYMENT"). The
obligation of the Purchaser to pay the remainder of the Purchase Price in the
amount set forth on Schedule 1.1 under the item "Note" is evidenced by the
Purchaser's delivery to the Company concurrently herewith of a secured
promissory note of the Purchaser in the form attached hereto as Exhibit A (the
"NOTE"). The Note is secured by a pledge of the Shares made pursuant to Section
5 of the Note. The Note also evidences the Purchaser's obligation to pay a
portion of the purchase price for 20,000 shares of the Company's Common Stock
purchased by the Purchaser pursuant to a Subscription Agreement of even date
herewith. The Shares are sold pursuant to and governed by
<PAGE> 2
this Agreement and not any other contract or plan of the Company, and are in
addition to any other shares previously or subsequently acquired by the
Purchaser.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents
and warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "SECURITIES ACT") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(f) The Purchaser, personally or through advisors, has expertise
in evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In
2
<PAGE> 3
connection with the purchase of the Shares, the Purchaser has relied solely upon
independent investigations made by the Purchaser, and has consulted the
Purchaser's own investment advisors, counsel and accountants. The Purchaser has
adequate means of providing for current needs and personal contingencies, and
has no need for liquidity and can sustain a complete loss of the investment in
the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund
except as specifically set forth in a written agreement between the Purchaser
and the Company.
2.3 THE COMPANY.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has limited
financial and operating history.
(ii) There can be no assurance that the Company will acquire
additional companies or be successful in accomplishing the purpose for which it
was formed or that it will ever be profitable. No assurance can be given
regarding (A) whether the companies already acquired by the Company can be
successfully integrated and operated, or (B) what companies will ultimately be
acquired by the Company.
(iii) No assurances can be given that an initial public
offering ("IPO") of the Company's securities will occur. If an IPO does occur,
no assurances can be given as to timing of the IPO, whether the Purchaser will
be able to participate, or the price at which any shares of Common Stock would
be sold.
(iv) No assurances can be given as to the ultimate value of
the Common Stock or the Shares or the liquidity thereof.
(b) The Purchaser acknowledges that no assurances have been made
to the Purchaser with respect to any of the foregoing and no representations,
oral or written, have been made to the Purchaser by the Company or any of its
employees, representatives or agents concerning the Shares, their potential
value or the prospects of the Company, except as set forth herein.
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(c) The proceeds from the sale of the Shares are intended to be
used by the Company for general and administrative expenses and working capital.
The proceeds from such sales may be exhausted notwithstanding failure of the
Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company of the Transaction Documents to be executed and delivered by the
Company and the
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consummation of the transactions contemplated thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; or (ii) violate any provision or requirement of any domestic or
foreign, federal, state or local law, statute, judgment, order, writ,
injunction, decree, award, rule, or regulation of any court, arbitrator,
federal, state, local or foreign government agency, regulatory body, or other
governmental authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 240,000,000 shares of Common Stock, and 10,000,000 shares of undesignated
preferred stock. All capital stock of the Company has a par value of $0.001 per
share. The Shares, when issued, sold, and delivered in accordance with the terms
of this Agreement for the consideration expressed herein will be duly and
validly issued, fully paid, and nonassessable, except that the Purchaser may be
required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional requirements or restrictions
contained herein have been satisfied, terminated or expressly waived by the
Company in writing. Any attempted transfer in violation of such Restrictions
will be void.
(b) The Restrictions will lapse and the Shares will vest in
accordance with the provisions in Schedule 4 (the "VESTING SCHEDULE"), provided,
however, that the Company, in its discretion, may from time to time accelerate
the vesting of any Shares at any time or forgive Restrictions and allow Shares
or restricted shares owned by any other party to vest notwithstanding that the
conditions to vesting thereof may not have been satisfied.
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(c) In addition to any repurchase rights of the Company set forth
in Schedule 4, the Company, or its assignee, may, in the Company's discretion,
at any time and from time to time for a period of one (1) year following the end
of each Measurement Period (as described in Schedule 4), repurchase from the
Purchaser at the price per Share that the Purchaser paid to the Company, and the
Purchaser will sell to the Company, any or all of the Shares that were eligible
to vest but did not vest in accordance with the Vesting Schedule for such
Measurement Period. Shares originally corresponding to any Measurement Period
that cannot vest because of failure prior to the end of that Measurement Period
of conditions to vesting thereof may be repurchased at any time and from time to
time from the failure of such conditions to the end of the applicable repurchase
period specified herein. Any Shares that do not vest in accordance with the
Vesting Schedule shall be subject to repurchase by the Company regardless of the
services performed, or other consideration given, by the Purchaser to the
Company. Shares not vested in accordance with the Vesting Schedule but not
repurchased by the Company during the applicable repurchase periods described
herein (including in Schedule 4) shall vest.
(d) (i) Termination of the Purchaser's employment by the Employer
under the circumstances described in Schedule 4 under the heading "Vesting Upon
Certain Termination of Employment" will cause vesting as described therein,
provided that the vesting of any Shares upon termination of the Purchaser's
employment with the Employer, or subsequent to such termination shall be
contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in substantially the form attached hereto as Exhibit D.
Upon such a termination of employment, any Shares that do not vest as described
therein will be subject to repurchase in the manner described in Section
4(d)(ii).
(ii) In case of termination of the Purchaser's employment by
the Employer for any reason other than a reason that causes vesting as described
in Schedule 4, the Company or its assignee may, in the Company's discretion, at
any time and from time to time for a period of one (1) year following the
termination of employment, repurchase from the Purchaser at the price per Share
that the Purchaser paid to the Company, and the Purchaser will sell to the
Company, any or all of the Shares designated by the Company that have not vested
as of the date of termination of employment.
(iii) In addition to the Company's repurchase rights set forth
above, if any of the events or circumstances constituting "Cause" listed in
Schedule 1 of the Purchaser's Employment Agreement occurs at any time before the
end of the final Measurement Period, then notwithstanding any vesting provided
for herein the Company or its assignee may, in the Company's discretion, at any
time and from time to time for a period of one (1) year following such
occurrence, repurchase from the Purchaser at the price per Share that the
Purchaser paid to the Company, and the Purchaser will sell to the Company, any
or all Shares designated by the Company that had not vested at the time of such
occurrence, or that vested effective as of a date within 365 days before such
occurrence, provided however, that (i) if the Purchaser's employment with the
Employer was terminated by the Employer without Cause or by the Purchaser for
Good Reason (each as defined in the Employment Agreement), or (ii) the
Purchaser's employment with the Employer is terminated by the Purchaser or the
Employer (or its successor) within one hundred twenty (120) days after a Change
in Control (as defined in the
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Employment Agreement) of the Company, then the Company will not be entitled to
repurchase vested Shares pursuant to this subparagraph (iii) solely because of
the occurrence after termination of employment of any of the events or
circumstances constituting Cause listed in item A of Schedule 1 of the
Purchaser's Employment Agreement.
(e) (i) The purchase price for any repurchase pursuant to this
Section 4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to
repurchase any Shares under this Agreement but the Purchaser cannot deliver such
Shares to the Company because such Shares have previously been sold by the
Purchaser, the Company may, in its discretion, upon payment to the Purchaser of
the price per Share that the Purchaser paid to the Company, recover from the
Purchaser, and the Purchaser shall deliver to the Company, all proceeds to the
Purchaser of the sale of such Shares (or the cash value thereof), such that the
Purchaser retains no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by third parties that are subject to
restrictions, or to accelerate vesting or forgive Restrictions applicable to
such Common Stock, shall be within the discretion of the Company. The Company
may (but will not be required to) exercise its right to repurchase, accelerate,
or forgive Restrictions with respect to any or all shares of restricted Common
Stock owned by the Purchaser or any third party without incurring any obligation
to repurchase, accelerate, or forgive Restrictions with respect to any other
Common Stock owned by the Purchaser or any third party.
(g) The Shares shall be subject to the Stockholder Agreement
entered into by the Purchaser as of March 18, 1999 in connection with previous
purchase of Common Stock of the Company (the "STOCKHOLDER AGREEMENT")
restricting transfers and imposing certain obligations upon the Purchaser.
Shares that have vested shall nevertheless be governed by the Stockholder
Agreement. The Company's repurchase rights hereunder will supersede the purchase
provisions of the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares
as such Shares become free of both the Restrictions and the Stockholder
Agreement, provided that (a) the Purchaser has paid to the Company the full
Purchase Price for such Shares, and an amount sufficient to satisfy any taxes or
other amounts required by any Governmental Entity to be withheld and paid over
to such Governmental Entity for the Purchaser's account, or otherwise made
arrangements satisfactory to the Company for payment of such amounts through
withholding or otherwise, and (b) the Purchaser has, if requested by the
Company, made appropriate representations in a form satisfactory to the Company
that such Shares will not be
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transferred other than (i) pursuant to an effective registration statement under
the Securities Act, or an applicable exemption from the registration
requirements of the Securities Act; (ii) in compliance with all applicable state
securities laws and regulations; and (iii) in compliance with all terms and
conditions of the Stockholder Agreement.
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set
forth in this Agreement and the Stockholder Agreement, the Shares (or interests
therein) cannot be offered, sold or transferred unless the Shares are registered
and qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder
Agreement, the Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE
SHARES OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a
condition to transfer of any Shares or interest therein, cause the transferee to
enter into the Stockholder Agreement, provided that, with respect to each such
agreement, this requirement will not apply to transfers made after the agreement
has terminated.
(d) In connection with any underwritten public offering of
securities of the Company or any of its affiliates within three (3) years of the
date hereof, if the managing underwriter believes that it is appropriate in
connection with the offering to limit public sales of such securities by
Company's stockholders, the Purchaser will agree to the managing underwriter's
standard form of "lock up" agreement prohibiting transfers of any Common Stock
owned by the Purchaser, including without limitation shares acquired other than
pursuant hereto (other than shares included in the offering) for such period as
may be required by the managing
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underwriter not to exceed twenty (20) days prior to, and one hundred and eighty
(180) days after, the effective date of the registration statement for such
offering, provided however, that (i) such lock up provision may not be invoked
more than once in any 365 day period, (ii) such lock up provision will be
contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) the Purchaser will not be required to
comply with this lock up provision if any other stockholder owning more shares
of Common Stock than the Purchaser and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and removal
of the Restrictions, except as otherwise provided herein, the Purchaser will
have all of the rights of a stockholder of the Company with respect to all of
the Shares, including without limitation the right to receive all dividends or
other distributions with respect to such Shares. In connection with the payment
of such dividends or other distributions, the Company will be entitled to deduct
any taxes or other amounts required by any Governmental Entity to be withheld
and paid over to such Governmental Entity for the Purchaser's account.
4.4 CHANGE IN CONTROL. Notwithstanding anything in this Agreement or
other agreements to the contrary, any unvested Shares shall vest and the
Restrictions shall lapse as of immediately before the closing of a transaction
that constitutes a Change in Control (as defined in the Employment Agreement),
or upon a Change in Control other than a transaction, in any case that occurs
during Employee's employment by the Company or any of its affiliates or within
90 days thereafter. Accordingly, the Company will defer its repurchase rights
hereunder for at least such 90 day period.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit E, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise. Purchaser
hereby acknowledges that (a) any information provided to the Purchaser by the
Company in connection with making an election pursuant to Section 83(b) has been
provided as a courtesy, (b) the Purchaser is fully responsible for making
elections pursuant to Section 83(b), (c) the Company has not rendered any tax
advice to the Purchaser in connection with making such election, and (d) the
Purchaser should consult with the Purchaser's independent tax advisors on such
matters.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Employer, or limits in any way the right of the Employer to
terminate the Purchaser's services to
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the Employer at any time, with or without cause. Such matters are addressed, if
at all, only pursuant to the Employment Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of
any of the Shares, or to participate in any registration undertaken by the
Company except as set forth in this Section 4.7. If the Company files a
registration statement with the Securities and Exchange Commission for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then the
Purchaser shall have the right, subject to the limitations set forth in this
Section 4.7(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by the Purchaser.
Other stockholders will have rights to include shares of Common Stock in such
offering, and if the aggregate amount of shares that all stockholders with such
rights (collectively, the "SELLING STOCKHOLDERS") desire to include exceeds the
number of shares of Common Stock that can be sold by all Selling Stockholders,
then all Selling Stockholders desiring to sell in any such offering will
participate pro-rata on the basis of the relative numbers of shares of Common
Stock eligible for inclusion that they originally sought to include. However,
notwithstanding the foregoing no Selling Stockholder will be permitted to
include in any such registration and offering (i) any Shares subject to
performance-related restrictions at the time of filing of the registration
statement for such offering, or (ii) more than, in the aggregate for all such
registrations and offerings, half of the Shares and other Common Stock owned by
the Purchaser as of the date hereof. Furthermore, in no case will the Purchaser
be permitted to include in the IPO registration and offering more than the
number of Shares listed on Schedule 1.1 under the item "Maximum IPO Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes
any securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering
pursuant to this Section 4.7, pursuant to the underwriting agreement negotiated
between the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all underwriting
discounts and commissions applicable to any such sale of shares, (ii) the
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Purchaser's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are
registered pursuant to the Securities Exchange Act of 1934, as amended, the
Company shall use its best efforts to fulfill all conditions applicable to a
registrant as are necessary to enable selling security holders of the Company to
make sales pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable
damage would occur if any of the obligations of the parties under this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrently herewith, the Purchaser shall deliver a stock
power executed by the Purchaser and the Purchaser's spouse, if applicable (the
"STOCK POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
4.11 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "Exchange
Consideration"), the Purchaser
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will be entitled to receive a proportionate share of the Exchange Consideration
in exchange for the Shares the Purchaser owns at the time of such merger,
consolidation or reorganization, provided, however, that the Purchaser's share
of the Exchange Consideration shall be subject to any Restrictions not
satisfied.
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrently herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrently herewith and as a condition to
receipt of any Shares, the Purchaser shall deliver to the Company the Cash
Payment, the Accredited Investor Questionnaire, and the Stock Power described in
Section 4.9(b).
(b) Other Closing Documents. The Company shall receive such other
duly executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement. This Agreement will be binding upon the successors and
assignees of the Company.
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6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents may
be executed in counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the other
Transaction Documents are for reference purposes only and shall not affect in
any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to
this Agreement shall be solely and finally settled by arbitration administered
by the American Arbitration Association (the "AAA") in accordance with its
Commercial Arbitration Rules as then in effect (the "RULES"), except to the
extent such Rules vary from the following provisions. Notwithstanding the
previous sentence, the parties hereto may seek provisional remedies in
13
<PAGE> 14
courts of appropriate jurisdiction and such request shall not be deemed a waiver
of the right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating
to this Agreement also arises out of or relates to the employment of the
Purchaser by the Employer, the provisions of this Agreement governing dispute
resolution shall govern resolution of such controversy or claim. The provisions
of this Agreement governing dispute resolution supersede any provisions relating
to such matters in any employment agreement between the Purchaser and the
Employer.
(iii) The arbitration shall be conducted by one independent
and impartial arbitrator, appointed by the AAA; provided however, if the claim
and any counterclaim, in the aggregate, together with other arbitrations that
are consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand
Dollars ($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees,
the dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties agree to another
location.
(b) If a party hereto determines to submit a dispute for
arbitration pursuant to this Section 6.11, such party shall furnish the other
party with whom it has the dispute with a notice of arbitration as provided in
the Rules (an "ARBITRATION NOTICE") which, in addition to the items required by
the Rules, shall include a statement of the nature, with reasonable detail, of
the dispute. A copy of the Arbitration Notice shall be concurrently provided to
the AAA, along with a copy of this Agreement, and if pursuant to Section 6.11(a)
one (1) Arbitrator is to be appointed, a request to appoint the Arbitrator. If a
party has a counterclaim against the other party, such party shall furnish the
party with whom it has the dispute a notice of such claim as provided in the
Rules (a "NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the
Arbitration Notice, which, in addition to the items required by the Rules, shall
include a statement of the nature, with reasonable detail, of the dispute. A
copy of the Notice of Counterclaim shall be concurrently provided to the AAA. If
the claim set forth in the Notice of Counterclaim causes the aggregate amount in
dispute to exceed the Threshold, the Notice of Counterclaim shall so state. If
pursuant to Section 6.11(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule
a pre-hearing conference to reach agreement on procedural and scheduling
matters, arrange for the exchange of information, obtain stipulations and
attempt to narrow the issues.
14
<PAGE> 15
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within four
(4) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least
three (3) days before the arbitration hearing, specifying the facts each intends
to prove and analyzing the applicable law. The parties have the right to
representation by legal counsel throughout the arbitration proceedings. The
presentation of evidence at the arbitration hearing shall be governed by the
Federal Rules of Evidence. Oral evidence given at the arbitration hearing shall
be given under oath. Any party desiring a stenographic record may secure a court
reporter to attend the arbitration proceedings. The party requesting the court
reporter must notify the other parties and the Arbitrator of the arrangement in
advance of the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more
arbitrations involving other parties, which arise under agreement(s) between the
Company and such other parties, if more than one such arbitration is commenced
and any party thereto contends that two or more arbitrations are substantially
related and that the issues should be heard in one proceeding. The Arbitrator
selected in the first-filed of such proceedings shall determine whether, in the
interests of justice and efficiency, the proceedings should be consolidated
before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of
the Arbitrator shall be final. It is the intent of the parties that the
arbitration provisions hereof be enforced to the fullest extent permitted by
applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this
15
<PAGE> 16
paragraph. Each party hereby waives any right it may have to assert the doctrine
of forum non conveniens or similar doctrine or to object to venue with respect
to any proceeding brought in accordance with this paragraph, and stipulates and
acknowledges that it has had sufficient minimum contacts with California such
that the State and Federal courts located in the County of Orange, State of
California shall have in personam jurisdiction over each of them for the purpose
of litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 6.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but not
be limited to, fees incurred in the following: (1) post-judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION PURCHASER
By: /s/ DAVID H. HOFFMAN By: /s/ MICHAEL G. GOLDSTEIN
------------------------------ ---------------------------------
Name: David H. Hoffman Name: Michael G. Goldstein
----------------------------
Title: CFO
---------------------------
Address: Address:
695 Town Center Drive, Suite 400 2011 Yacht Mischief
Costa Mesa, California 92626 Newport Beach, California 92660
Telephone No.: (714) 429-5500 Telephone No.: (949)
Facsimile No.: (714) 429-5559
17
<PAGE> 18
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of Release
E. Section 83(b) Election Form
<PAGE> 19
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
<TABLE>
<CAPTION>
<S> <C>
Aggregate Number of Shares: 180,000
Aggregate Purchase Price: $450,000
Cash Payment: $180
Note: $449,820
Maximum IPO Shares: 36,000
Types of Shares:
Employment Shares (53,571)
Performance Shares (126,429)
</TABLE>
2
<PAGE> 20
SCHEDULE 4
VESTING SCHEDULE
BASIC TERMS.
VESTING. The Shares consist of 53,571 Employment Shares and 126,429
Performance Shares (as identified on Schedule 1.1). Subject to the terms and
conditions set forth in this Agreement, the Restrictions applicable to each Type
of Shares will lapse, and Shares of that Type will vest, if and when the
conditions to vesting of that Type of Shares, as set forth in this Schedule 4,
are met. However, except as set forth in this Schedule 4, in order for any
Shares eligible for vesting for any Measurement Period to vest, the Purchaser
must have remained an employee of the Company, or an entity controlling,
controlled by, or under common control with the Company (an "AFFILIATE"), from
the date hereof through the last day of that Measurement Period. In addition, as
a condition to each and every vesting of Shares, the Purchaser must execute and
deliver to the Company a release, in form and substance satisfactory to the
Company, releasing the Company and all of its Affiliates and their employees,
officers and directors, and the successors and assigns of each of them, from any
claims or liabilities arising from or in connection with the employment of the
Purchaser by the Company or any of its Affiliates.
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until it is finally determined
through year-end closing of the books, audits and any other necessary
procedures, whether any performance requirements associated with particular
Shares for that Measurement Period have been met. Fractional vested Shares will
be carried forward and combined to constitute whole vested Shares that can be
issued, or cashed out by the Company at fair market value following
determination of whether any performance requirements associated with the last
Measurement Period have been met.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
If employment of the Purchaser with the Employer is terminated by the
Employer without "Cause" or by the Purchaser with "Good Reason" (each as defined
in the Employment Agreement), the Restrictions will immediately lapse and
vesting will immediately occur with respect to all of the Shares not already
vested. If employment of the Purchaser with the Employee terminates as a result
of the Purchaser's death or Disability (as defined in the Employment Agreement),
the Restrictions will immediately lapse with respect to half of the Shares not
then already vested.
<PAGE> 21
EMPLOYMENT SHARES
On the last day of each Measurement Period set forth in the table below,
subject to the other provisions of this Agreement, the Restrictions will lapse
with respect to the number of Employment Shares (as set forth in Schedule 1.1)
set forth opposite that Measurement Period in the table below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
MEASUREMENT PERIOD VESTING
<S> <C>
January 1, 2001- December 31, 2001 10,714
January 1, 2002- December 31, 2002 42,857
</TABLE>
Effective as of immediately before the closing of the initial public
offering of shares of the Company or its successor or affiliate, all
Restrictions will lapse, and vesting will occur, with respect to the portion of
the Employment Shares that would otherwise be scheduled to vest for the final
Measurement Period applicable thereto.
PERFORMANCE SHARES
On the last day of each of the four Measurement Periods set forth in the
table below, if the FFR Income for that Measurement Period is at least equal to
the FFR Income Target set forth below opposite that Measurement Period, and
subject to the other provisions of this Agreement, the Restrictions will lapse
with respect to one-fourth of the Performance Shares.
<TABLE>
<CAPTION>
FFR
MEASUREMENT PERIOD INCOME TARGET
<S> <C>
January 1, 1999 - December 31, 1999 4,812,000
January 1, 2000 - December 31, 2000 5,774,400
January 1, 2001 - December 31, 2001 6,929,280
January 1, 2002 - December 31, 2002 8,315,136
</TABLE>
For these purposes, "FFR INCOME" for any Measurement Period means all
pre-tax income of the FFR business unit of EPS for that Measurement Period
calculated according to GAAP. In calculating FFR Income, all costs attributable
directly to the FFR business unit, whether paid by FFR or EPS or another
affiliate of the Company, shall be charged to the FFR business unit, including
without limitation costs, bonuses and other distributions to persons who are
engaged principally in the business of the FFR business unit. The calculation of
FFR Income will not be affected by any allocation to the FFR business unit of
any overhead charges of the Company not attributable directly to the FFR
business.
2
<PAGE> 22
If the FFR Income for any Measurement Period exceeds the FFR Target
Income corresponding to that Measurement Period, the amount by which the FFR
Income exceeds the FFR Income Target shall be carried forward and added to the
FFR Income for the immediately following Measurement Period (but not subsequent
Measurement Periods). Excess FFR Income may not be carried backward to preceding
periods.
3
<PAGE> 1
EXHIBIT 10.29
PARTICIPATING CONSULTANT AGREEMENT ASSIGNMENT
This Participating Consultant Agreement Assignment (this "AGREEMENT") is
made as of December 14, 1998, by ProfitSource Corporation, a Delaware
corporation ("PROFITSOURCE") and The Ringco Group LLC, a California limited
liability company (the "CONSULTANT").
RECITALS
A. National Benefits Consultants, LLC, a Nevada limited liability
company ("NBC") and Consultant entered into that certain Participating
Consultant Agreement ("CONSULTANT AGREEMENT") dated as of January 1, 1997,
pursuant to which NBC has certain payment and other obligations to Consultant.
B. Pursuant to that certain Equity Purchase Agreement of even date
herewith by and between ProfitSource and NBC (ProfitSource and NBC collectively
referred to herein as the "COMPANY") ProfitSource is acquiring all of the
outstanding equity interests of NBC.
C. The Company desires to assume from Consultant and Consultant desires
to assign to the Company all of Consultant's right, title, and interest in and
to the Consultant Agreement and all amendments, additions or documents related
thereto, including, without limitation, all rights to payments arising
thereunder, as of the Closing Date (as defined herein) as specified in this
Agreement.
NOW, THEREFORE, in consideration of the execution and delivery of this
Agreement, and of the promises contained herein, effective as of the Closing
Date the parties hereto agree as follows:
ARTICLE 1
ASSIGNMENT
At the Closing (as defined herein) Consultant shall assign to the
Company and the Company shall assume from Consultant all of Consultant's right,
title and interest in and to the Consultant Agreement and all amendments,
additions or documents related thereto including, without limitation, all rights
to payments arising at any time thereunder (the "ASSIGNMENT"). Notwithstanding
the foregoing, the Company is not assuming any obligation or liability of
Consultant arising out of representations or promises made by Consultant in the
course of sales pursuant to the Consultant Agreement.
<PAGE> 2
ARTICLE 2
EFFECT OF ASSIGNMENT
Consultant acknowledges that as a result of the Assignment described in
Article 1, Consultant will no longer have any right to receive payments pursuant
to, and will no longer be entitled to conduct business under, the Consultant
Agreement. The Company shall succeed to all such rights and obligations and the
Company shall have no further obligations whatsoever to Consultant arising
under, or in connection with, the Consultant Agreement including, without
limitation, those obligations arising at any time with respect to, or in
connection with, the Approved Customers (as such term is defined in the
Consultant Agreement) listed on Schedule 1 attached hereto .
ARTICLE 3
CONSIDERATION
3.1 CONSIDERATION. In consideration of the terms hereof, the Company
shall at the Closing:
(a) Cash Payment. Deliver to Consultant One Hundred Thousand
Dollars ($100,000) by wire transfer of immediately available funds to the
account set forth below:
Pacific National Bank
Acct # 1004856701
(b) Common Stock. Issue to Consultant 193,804 shares of Series A
Common Stock of the Company (the "SHARES"), certificates for which will be
retained by the Company in order to facilitate replacement of such certificates
upon an initial public offering of the Company's stock (an "IPO") with the
transfer agent's form of certificate, and to facilitate enforcement of the
Stockholder Agreement described in Section 3.4. The Company will keep custody of
the certificates representing such Shares until the IPO and until such Shares
are no longer subject to the Stockholder Agreement and recipients of shares will
execute and deliver blank stock powers. This custody arrangement will not affect
the rights as a stockholder of any permitted recipient of such Shares.
3.2 ASSIGNMENT SAVINGS.
(a) Guaranty. As a result of the Assignment described in Article
1, Consultant guarantees that the Company shall avoid payments that would
otherwise be due Consultant under the Consultant Agreement of a minimum of One
Million Eight Hundred and Seventy Five Thousand Dollars between the Closing Date
and the Closing Date's fifth anniversary (the "TOTAL AVOIDED PAYMENT AMOUNT"),
in amounts equal to at least Three Hundred and Seventy-Five Thousand Dollars per
Measurement Period (the "YEARLY AVOIDED PAYMENT AMOUNT") . For purposes hereof
"MEASUREMENT PERIOD" refers to those five twelve month measurement periods, the
first Measurement Period commencing on the Closing Date, and the succeeding
Measurement Periods commencing on the first, second, third and fourth
anniversaries of the Closing Date, respectively.
2
<PAGE> 3
(b) Offset. In the event that the Company fails to avoid payments
equal to the Yearly Avoided Payment Amount for any particular Measurement
Period, the Company shall have the right to offset any payment due to Consultant
under any other agreement between the Consultant and the Company or its
affiliates, whether such agreement is now or hereafter existing, until the
Company avoids payments to Consultant equal to the Yearly Avoided Payment
Amount.
(c) Surplus. In the event that the Company avoids payments to
Consultant in an amount greater than the Yearly Avoided Payment Amount during
any particular Measurement Period, the amount of surplus will be carried forward
and applied to future Measurement Periods in the event that in a future
Measurement Period the Company fails to avoid the Yearly Avoided Payment Amount.
(d) Shortfall Amount. In the event that the Company does not avoid
payments to the Consultant equal to the Total Avoided Payment Amount prior to
the fifth anniversary of the Closing Date (the "ANNIVERSARY DATE"), Consultant
shall be obligated to pay to the Company the difference between the sum of the
actual avoided payments attributable to the Assignment described in Section 1
plus any offsets taken pursuant to Section 3.2(b) and the Total Avoided Payment
Amount (the "SHORTFALL AMOUNT"). On the Anniversary Date Consultant shall
execute a promissory note in the principal amount of the Shortfall Amount,
bearing interest at a rate of (10%), and secured by any payment due to
Consultant under any other agreement between the Consultant and the Company or
its Affiliates, whether such agreement is now or hereafter existing.
3.3 SECURITIES RESTRICTIONS. (a) In addition to the contractual
restrictions on transfer set forth in the Stockholder Agreement referred to in
Section 3.3, the Shares (or interests therein) cannot be offered, sold or
transferred unless the Shares are registered and qualified under the Securities
Act and applicable state securities laws or exemptions from such registration
and qualification requirements are available, or such registration and
qualification requirements are inapplicable, as reflected in an opinion of
counsel to any transferring stockholders in form and substance reasonably
satisfactory to the Company. In the absence of an effective registration
statement covering the Shares or an available exemption from registration under
the Securities Act, the Shares must be held indefinitely, and may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth
below, and appropriate stop transfer instructions against the Shares will be
placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS
PROFITSOURCE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL TO THE
HOLDER OF THE SHARES OR OTHER EVIDENCE, SATISFACTORY TO
3
<PAGE> 4
PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a
condition to transfer of any Shares or interests therein, cause the transferee
to enter into the Stockholder Agreement described in Section 3.5 and the Voting
Agreement described in Section 3.5, provided that, with respect to each such
agreement, this requirement will not apply to transfers made after the agreement
has terminated.
3.4 REGISTRATION. Consultant will not have any rights to demand
registration of any of the Shares, or to participate in any registration
undertaken by the Company except as set forth in this Section 3.4. If the
Company files a registration statement with the Securities and Exchange
Commission for an IPO of its equity securities or any subsequent public offering
within twenty-four (24) months of the closing of the IPO (not including a
registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then
Consultant, shall have the right to include in such registration statement and
offering up to that number of Shares and other common stock of the Company (the
"COMMON STOCK") listed on Schedule 3.3. Other stockholders (including but not
limited to stockholders who acquired Common Stock in the Consolidation
Transactions (as defined in Section 5.3) and stockholders who acquired Common
Stock in connection with the formation, or work on behalf of, the Company) will
have rights to include shares of Common Stock in such offering, and if the
aggregate amount of shares that all stockholders with such rights (collectively,
the "SELLING STOCKHOLDERS") desire to include exceeds the number of shares of
Common Stock that can be sold by all Selling Stockholders, then all Selling
Stockholders desiring to sell in the offering will participate pro-rata on the
basis of the relative numbers of shares of Common Stock they originally sought
to include. In general, in such offerings, no Selling Stockholder will be
permitted to include in the aggregate more than half of the shares of Common
Stock held by such Selling Stockholder, or any shares subject to
performance-related restrictions. Shares of Common Stock may only be included
pursuant to the underwriting agreement negotiated between the Company and the
underwriters, and Selling Stockholders must enter into the underwriting
agreement with respect to any shares held by them to be included in the
offering. Each Selling Stockholder shall pay (i) all underwriting discounts and
commissions applicable to such Selling Stockholder's sale of shares of Common
Stock, (ii) such Selling Stockholder's ratable share (based on the relative
number of shares of Common Stock included in the offering) of any fees and
disbursements of a single counsel for all Selling Stockholders, which counsel
shall be selected by the two Selling Stockholders (or affiliated stockholder
groups) selling the most shares of Common Stock in the offering, and (iii) the
fees and costs of any separate counsel retained by such Selling Stockholder
alone.
3.5 STOCKHOLDER AGREEMENT. Consultant shall enter into a "STOCKHOLDER
AGREEMENT" substantially in the form of Exhibit A and a "VOTING AGREEMENT"
substantially in the form of Exhibit B concurrently with the execution of this
Agreement.
3.6 SECURITIES MATTERS.
4
<PAGE> 5
(a) Consultant understands that (i) neither the Shares nor the
offer and sale thereof have been registered or qualified under the Securities
Act or any state securities or "BLUE SKY" laws, on the ground that the sale
provided for in this Agreement and the issuance of securities hereunder is
exempt from registration and qualification under Sections 4(2) and 18 of the
Securities Act, and (ii) the Company's reliance on such exemptions is predicated
on Consultant's representations set forth herein.
(b) Consultant acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that Consultant may lose its entire
investment in the Shares.
(c) the Company has made available to Consultant and Consultants'
advisors the opportunity to obtain information to evaluate the merits and risks
of the investment in the Shares, and Consultant has received all information
requested from the Company. Consultant has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of the
offering of the Shares and the business, properties, plans, prospects, and
financial condition of the Company and to obtain additional information as
Consultant has deemed appropriate for purposes of investing in the Shares
pursuant to this Agreement.
(d) Consultant, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Company. In connection with
the purchase of the Shares, Consultant has relied solely upon independent
investigations made by Consultant, and has consulted its own investment
advisors, counsel and accountants. Consultant has adequate means of providing
for current needs and personal contingencies, and has no need for liquidity and
can sustain a complete loss of the investment in the Shares.
(e) The Shares to be issued by the Company hereunder will be
acquired for the recipient's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(f) Consultant understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
(g) Each Member of Consultant represents and warrants that he, she
or it, as the case may be, is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has documented such accredited status by delivery
to the Company of a completed questionnaire in the form of Exhibit C attesting
thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE"). Consultant represents and
warrants that each of its Members is an Accredited Investor.
(h) Consultant has not received any general solicitation or
general advertising concerning the Shares, nor is Consultant aware of any such
solicitation or advertising.
3.7 CONSULTANT ACKNOWLEDGMENTS.
5
<PAGE> 6
(a) Consultant is aware that:
(i) The Company has recently been organized and has no
financial or operating history.
(ii) There can be no assurance that any of the
Consolidation Transactions will occur, that the Company will be successful in
accomplishing the purpose for which it was formed or that it will ever be
profitable. No assurance can be given regarding what companies, if any, will
ultimately be acquired by the Company. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by the Company and such company.
(iii) No assurance can be given that an initial public
offering ("IPO") of the Company's securities will occur. If an IPO does occur,
no assurances can be given as to timing of the IPO, whether Consultant would be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as consideration for the transactions
contemplated by this Agreement or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions,
any IPO, and the Company's management and operations will be made by the
Company's management, and certain individuals involved in planning the
Consolidation Transactions and managing the business of the Company will have
the right to vote the Shares pursuant to the Voting Agreement referred to in
Section 3.6.
(b) Consultant acknowledges that no assurances have been made to
Consultant with respect to any of the foregoing and no representations, oral or
written, have been made to Consultant by the Company or any of its employees,
representatives or agents concerning the potential value of the Shares issued as
consideration for the transactions contemplated by this Agreement or the
prospects of the Company, except as set forth herein.
ARTICLE 4
INDEMNIFICATION
4.1 INDEMNIFICATION BY CONSULTANT.
Subject to the limits set forth in this Article 4, Consultant and its
successors and assigns shall indemnify, defend, reimburse and hold harmless the
Company, persons controlling, controlled by, or under common control with the
Company ("AFFILIATES"), and their successors and assigns, and the officers,
directors, employees and agents of any of them, from and against any and all
claims, losses, damages, liabilities, obligations, assessments, penalties and
interest, demands, actions and expenses, whether direct or indirect, known or
unknown, absolute or contingent (including, without limitation, settlement costs
and any legal, accounting and other
6
<PAGE> 7
expenses for investigating or defending any actions or threatened actions)
("LOSSES") reasonably incurred by any such indemnitee, arising out of or in
connection with any of the following:
(a) the operations and liabilities of Consultant (other than
obligations assumed by the Company) including, without limitation, any
representations or promises made by Consultant in the course of sales pursuant
to the Consultant Agreement;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Consultant or any Member in this Agreement;
or
(c) the breach of any covenant, agreement or obligation of
Consultant contained in this Agreement.
4.2 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder
(a "CLAIM"), the Company shall promptly give written notice to Consultant with
respect to the Claim after the receipt by the Company of reliable information of
the facts constituting the basis for the Claim; but the failure to timely give
such notice shall not relieve Consultant from any obligation under this
Agreement, except to the extent, if any, that Consultant is materially
prejudiced thereby.
(b) Upon receipt of written notice from the Company of a Claim,
Consultant shall provide counsel (such counsel subject to the reasonable
approval of the Company) to defend the Company against the matter from which the
Claim arose, at Consultant's sole cost, risk and expense. The Company shall
cooperate in all reasonable respects, at Consultant's sole cost, risk and
expense, with Consultant in the investigation, trial, defense and any appeal
arising from the matter from which the Claim arose; provided, however, that the
Company may (but shall not be obligated to) participate in any such
investigation, trial, defense and any appeal arising in connection with the
Claim. If the Company's participation in any such investigation, trial, defense
and any appeal arising from such Claim relates to a legal position or defense
that varies materially from the legal positions or defenses pursued by
Consultant, and if the Company reasonably believes that the Company's interests
will be adversely and materially affected if such legal position or defense is
not pursued, Consultant shall bear the sole cost, risk and expense of the
Company's separate participation, including all fees, costs and expenses of one
separate counsel for the Company (or multiple Companies). If the Company elects
to so participate, Consultant shall cooperate with the Company, and Consultant
shall deliver to the Company or its counsel copies of all pleadings and other
information within Consultant's knowledge or possession reasonably requested by
the Company or its counsel that is relevant to the defense of such Claim and
that will not prejudice Consultant's position, claims or defenses. The Company
and its counsel shall maintain confidentiality with respect to all such
information consistent with the conduct of a defense hereunder. Consultant shall
have the right to elect to settle any claim for monetary damages only without
the Company's consent, if the settlement includes a complete release of the
Company. If the settlement does not include such a release, it will be subject
to the consent of the Company, which will not be unreasonably withheld.
Consultant may not admit any liability of the Company or waive any of the
Company's rights without the Company's prior written consent, which will not be
unreasonably withheld. If the subject of any Claim results in a judgment or
settlement, Consultant shall promptly pay such judgment or settlement.
7
<PAGE> 8
(c) If Consultant fails to assume the defense of the subject of
any Claim in accordance with the terms hereof, if Consultant fails diligently to
prosecute such defense, or if Consultant has, in the Company's good faith
judgment, a conflict of interest, the Company may defend against the subject of
the Claim, at Consultant's sole cost, risk and expense, in such manner and on
such terms as the Company deems appropriate, including, without limitation,
settling the subject of the Claim after giving reasonable notice to Consultant.
If the Company defends the subject of a Claim in accordance with this Section,
Consultant shall cooperate with the Company and its counsel, at Consultant's
sole cost, risk and expense, in all reasonable respects, and shall deliver to
the Company or its counsel copies of all pleadings and other information within
Consultant's knowledge or possession reasonably requested by the Company or its
counsel that are relevant to the defense of the subject of any such Claim and
that will not prejudice Consultant's position, claims or defenses. The Company
shall maintain confidentiality with respect to all such information consistent
with the conduct of a defense hereunder.
(d) The obligation of Consultant to indemnify the Company against
Losses arising under this Agreement shall be in addition to any other
obligations Consultant might otherwise have and any other rights the Company
might otherwise have.
4.3 PAYMENT. All payments owing under this Article 4 will be made
promptly as indemnifiable Losses are incurred. If the Company defends the
subject matter of any Claim in accordance with Section 4.2(c) or proceeds with
separate counsel in accordance with Section 4.2(b), the expenses (including
attorneys' fees) incurred by the Company shall be paid by Consultant in advance
of the final disposition of such matter as incurred by the Company, if the
Company undertakes in writing to repay any such advances in the event that it is
ultimately determined that the Company is not entitled to indemnification under
the terms of this Agreement or applicable law.
4.4 SET-OFF. In addition to any rights of set off or other rights that
the Company of any of the other indemnitees may have at common law, by statute
or otherwise, each such indemnitee shall have the right to set off any amount
that is owed by such indemnitee to Consultant against any amount otherwise
payable by Consultant to such indemnitee.
4.5 LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the
contrary, Consultant shall have no obligation to indemnify any person entitled
to indemnity under this Article 4 or to pay damages in respect of contract
claims arising under this Agreement unless the persons so entitled to indemnity
or recovery thereunder have suffered Losses in an aggregate amount attributable
to all Claims and obligors in excess of Ten Thousand Dollars ($10,000) (the
"THRESHOLD"). Once the aggregate amount of Losses exceeds the Threshold, persons
entitled to recovery shall be entitled to recover the full amount of all Losses,
including any amounts which constituted the Threshold. No person shall be
entitled to indemnification under this Article 4 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to
Consultant.
(b) The maximum aggregate liability of Consultant for all claims
arising under this Agreement shall equal the aggregate consideration paid to
Consultant hereunder. For purposes of
8
<PAGE> 9
this Section 4.5(b), the value of Shares received shall be (i) prior to the IPO,
the per share Agreed Price (as defined in the Stockholder Agreement) then
prevailing; and (ii) after the IPO, the per share closing price on the primary
exchange or market on which the Common Stock is traded on the date such
indemnifiable Losses become payable, except that the value of any Shares sold in
bona fide third party transactions will be the gross proceeds to Consultant of
such sale.
ARTICLE 5
MISCELLANEOUS
5.1 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place at the offices of Gibson, Dunn &
Crutcher LLP, 4 Park Plaza, Irvine, California, on a date to be selected by the
Company (the "CLOSING Date"). Prior to the Closing Date, the Company shall
provide written notice (the "CLOSING NOTICE") to Consultant informing Consultant
of the date selected as the Closing Date.
5.2 CONFIDENTIALITY. For purposes hereof, Consultant will keep the
matters contemplated herein and all information provided by the Company related
to the Company and the Consolidation Transactions (as defined below) and
potential participants therein, including without limitation Deloitte and Touche
LLP, confidential, and will not provide information about such matters to any
party or use such information except to the extent necessary to effect the
transactions contemplated hereby. The Company will keep the matters contemplated
herein and all information provided by Consultant related to Consultant
confidential, and will not provide information about such matters to any party
or use such information except to the extent necessary to effect the
transactions contemplated hereby. The Company and Consultant shall each cause
their respective Affiliates, officers, directors, members, employees, agents,
and advisors to keep confidential all information received in connection with
the transactions contemplated hereby. Consultant acknowledges that the Company
may provide information about Consultant to other participants in the
Consolidation Transactions. If this Agreement terminates without consummation of
the Closing, Consultant and the Company shall, and shall cause their Affiliates
to, each maintain the confidentiality of any information obtained from the other
in connection with the transactions contemplated hereby, the Consolidation
Transactions, and the Company's business plans (the "INFORMATION"), other than
Information that (i) was in the public domain before the date of this Agreement
or subsequently came into the public domain other than as a result of disclosure
by the party to whom the Information was delivered; or (ii) was lawfully
received by a party from a third party free of any obligation of confidence of
or to such third party; or (iii) was already in the possession of the party
prior to receipt thereof, directly or indirectly, from the other party; or (iv)
is required to be disclosed in a judicial or administrative proceeding after
giving the other party as much advance notice of the possibility of such
disclosure as practicable so that the other party may attempt to stop such
disclosure; or (v) is subsequently and independently developed by employees of
the party to whom the Information was delivered without reference to the
Information. If this Agreement terminates without consummation of the Closing,
the Company, on the one hand, and Consultant, on the other, shall return to the
other all material containing or reflecting the Information provided by the
other, shall not retain any copies, extracts, or other reproductions thereof or
derived therefrom, and shall thereafter refrain from using the Information and
shall maintain its confidentiality pursuant to this Agreement.
9
<PAGE> 10
5.3 CONSOLIDATION TRANSACTION. Concurrent with the Closing hereof, the
Company is acquiring in a series of transactions various other companies engaged
in the business of cost reduction, cost recovery and profit enhancement services
by means of mergers into the Company, or acquisitions by the Company of all or
substantially all of the assets or stock or other equity interests of such
companies (collectively, the "CONSOLIDATION TRANSACTIONS"). Consultant
acknowledges that as a result of the complexity of the transactions contemplated
hereby and the Consolidation Transactions, the Closing contemplated hereby and
the closing of the Consolidation Transactions must be concurrent at a time
designated by the Company. Accordingly, Consultant shall upon receipt of the
Closing Notice but prior to the Closing Date (i) provide any outstanding
documentation required to effect the Closing pursuant to this Agreement in
escrow pending release upon authorization by Consultant at the Closing, (ii)
complete performance of their respective obligations hereunder by the Closing.
5.4 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 5.4:
If to the Company: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5559
With a copy to: Brian W. Copple
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3800
Fax: (949) 451-4220
If to Consultant: Mark Coleman
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5559
5.5 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
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<PAGE> 11
5.6 COUNTERPARTS. Facsimile transmission of any signed original document
and/or retransmission of any signed facsimile transmission will be deemed the
same as delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
5.7 PUBLICITY. Prior to the Closing Date, no party may, or may it permit
its Affiliates to, issue or cause the publication of any press release or other
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the Company and
Consultant, except that the Company may disclose details of this Agreement to
other participants in, or as necessary to effect, the Consolidation
Transactions. Notwithstanding the foregoing, in the event any such press release
or announcement is required by law to be made by the party proposing to issue
the same, such party shall consult in good faith with the other party as far in
advance as practicable to the issuance of any such press release or
announcement.
5.8 COMPLETE AGREEMENT. This Agreement and the exhibits hereto contain
or will contain the entire agreement between the parties hereto with respect to
the transactions contemplated herein and therein and shall supersede all
previous oral and written and all contemporaneous oral negotiations,
commitments, and understandings.
5.9 MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time prior to the
Closing Date of this Agreement, any party may, (a) waive any inaccuracies in the
representations and warranties of any other party contained in this Agreement;
and (b) waive compliance by any other party with any of the covenants or
agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
5.10 HEADINGS; REFERENCES. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References herein to Articles, Sections and
Exhibits refer to the referenced Articles, Sections or Exhibits hereof unless
otherwise specified.
5.11 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
5.12 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company in connection with the transactions contemplated by this Agreement
shall be borne by the Company, and all fees, costs, and expenses incurred by
Consultant in connection with the transactions contemplated by this Agreement
shall be borne by Consultant.
5.13 BINDING EFFECT. This Agreement will be binding upon and will inure
to the benefit of each of the parties and their respective successors, permitted
assigns and legal
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representatives. None of the parties may assign this Agreement without the prior
written consent of the other parties.
5.14 FURTHER ASSURANCES. Each of the parties shall execute such
documents and other papers and perform such further acts as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby.
5.15 INTERPRETATION OF AGREEMENT. In the event that interpretation of
this Agreement, or any portion thereof, be necessary, it is deemed that this
Agreement was prepared by each of the parties jointly and equally and shall not
be interpreted against any of the parties on the ground that such party drafted
the Agreement or caused it to be prepared.
5.16 ARBITRATION.
(a) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. The arbitration shall be conducted by
one independent and impartial arbitrator, appointed by the AAA; provided
however, if the claim and any counterclaim, in the aggregate, together with
other arbitrations that are consolidated pursuant to Section 5.16(f), exceed
Five Hundred Thousand Dollars ($500,000) (the "ARBITRATION THRESHOLD"),
exclusive of interest and attorneys' fees, the dispute shall be heard and
determined by three (3) arbitrators as provided herein (such arbitrator or
arbitrators are hereinafter referred to as the "ARBITRATOR"). The judgment of
the award rendered by the Arbitrator may be entered in any court having
jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
(b) If a party hereto determines to submit a dispute for
arbitration pursuant to this Section 5.16, such party shall furnish the other
party with whom it has the dispute with a notice of arbitration as provided in
the Rules (an "ARBITRATION NOTICE") which, in addition to the items required by
the Rules, shall include a statement of the nature, with reasonable detail, of
the dispute. A copy of the Arbitration Notice shall be concurrently provided to
the AAA, along with a copy of this Agreement, and if pursuant to Section 5.16(a)
one (1) Arbitrator is to be appointed, a request to appoint the Arbitrator. If a
party has a counterclaim against the other party, such party shall furnish the
party with whom it has the dispute a notice of such claim as provided in the
Rules (a "NOTICE OF COUNTERCLAIM") within ten(10) days of receipt of the
Arbitration Notice, which, in addition to the items required by the Rules, shall
include a statement of the nature, with reasonable detail, of the dispute. A
copy of the Notice of Counterclaim shall be concurrently provided to the AAA. If
the claim set forth in the Notice of Counterclaim causes the aggregate amount in
dispute to exceed the Arbitration Threshold, the Notice of Counterclaim shall so
state. If pursuant to Section 5.16(a) three (3) Arbitrators are to be appointed,
within fifteen (15) days after receipt of the Arbitration Notice or the Notice
of Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least
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<PAGE> 13
twenty (20) years experience with and knowledge of securities laws, complex
business transactions, and mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the
Arbitrator shall schedule a pre-hearing conference to reach agreement on
procedural and scheduling matters, arrange for the exchange of information,
obtain stipulations and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least
three (3) days before the arbitration hearing, specifying the facts each intends
to prove and analyzing the applicable law. The parties have the right to
representation by legal counsel throughout the arbitration proceedings. The
presentation of evidence at the arbitration hearing shall be governed by the
Federal Rules of Evidence. Oral evidence given at the arbitration hearing shall
be given under oath. Any party desiring a stenographic record may secure a court
reporter to attend the arbitration proceedings. The party requesting the court
reporter must notify the other parties and the Arbitrator of the arrangement in
advance of the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more
arbitrations involving other parties, which arise under agreement(s) between the
Company and such other parties, if more than one such arbitration is commenced
and any party thereto contends that two or more arbitrations are substantially
related and that the issues should be heard in one proceeding, the Arbitrator
selected in the first-filed of such proceedings shall determine whether, in the
interests of justice and efficiency, the proceedings should be consolidated
before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of
the Arbitrator shall be final. It is the intent of the parties that the
arbitration provisions hereof be enforced to the fullest extent permitted by
applicable law.
5.17 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any, shall be tried and litigated exclusively in
the state or federal courts located in the County of
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<PAGE> 14
Orange, State of California. The aforementioned choice of venue is intended by
the parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Agreement in any jurisdiction other than that specified in this paragraph.
Each party hereby waives any right it may have to assert the doctrine of forum
non conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 5.4. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
5.18 ATTORNEYS' FEES. If the Company or any of its Affiliates,
successors or assigns brings any action, suit, counterclaim, cross-claim,
appeal, arbitration, or mediation for any relief against Consultant or any of
its Affiliates, successors or assigns, or if Consultant or any of its
Affiliates, successors or assigns brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Company or any of its Affiliates, successors or assigns, declaratory or
otherwise, to enforce the terms hereof or to declare rights hereunder
(collectively, an "Action"), in addition to any damages and costs which the
prevailing party otherwise would be entitled, the non-prevailing party shall pay
to the prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "Decision") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party.
5.19 ENFORCEMENT OF THE AGREEMENT. Consultant and the Company
acknowledge that irreparable damage would occur if any of the obligations of
Consultant under this Agreement were not performed in accordance with their
specific terms or were otherwise breached. The
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<PAGE> 15
Company will be entitled to an injunction or injunctions to prevent breaches of
this Agreement by Consultant and to enforce specifically the terms and
provisions hereto, this being in addition to any other remedy to which the
Company is entitled at law or in equity.
5.20 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated (a) by the Company, if (i) Consultant fails to comply
in any material respect with any of its or their covenants or agreements
contained herein, or (ii) any of the representations and warranties of the
Consultant is breached or is inaccurate in any material way; (b) by the
Consultant if (i) the Company fails to comply in any material respect with any
of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of the Company is breached or is inaccurate in
any material way; or (c) by the Company or Consultant if (i) a governmental
entity has issued a non-appealable order, decree or ruling or taken any other
action (which order, decree or ruling the parties hereto have used their best
efforts to lift), which permanently restrains, enjoins or otherwise prohibits
the transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to November 30,
1998; provided, however that if the board of directors of Buyer should, in good
faith, determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Consolidation Transactions, it may extend such
date by thirty-five (35) days. Notwithstanding the foregoing, a party may not
terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of the
covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above set forth.
COMPANY" "CONSULTANT"
PROFITSOURCE CORPORATION, a THE RINGCO GROUP LLC, a California limited
Delaware corporation liability company
By: /s/ ERIK WITTS By: /s/ MARK COLEMAN
----------------------------- -----------------------------------
Mark Coleman, in his capacity as a
Name: Erik Witts Manager and as a Member
-----------------------------
By: /s/ DAVID RINGLER
Title: President -----------------------------------
-------------------------- David Ringler, in his capacity as a
Manager and as a Member
By: /s/ DAVID SCHUPP
-----------------------------------
David Schupp, in his capacity as a
Manager and as a Member
By: /s/ FREDERICK TOWNSEND
-----------------------------------
Frederick Townsend, in his capacity
as a Manager and as a Member
By: /s/ JUKKA LIPPONEN
-----------------------------------
Jukka Lipponen, in his capacity as a
Manager and as a Member
16
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Exhibits
<TABLE>
<S> <C>
Exhibit A Form of Stockholder Agreement
Exhibit B Form of Voting Agreement
Exhibit C Form of Accredited Investor Questionnaire
</TABLE>
17
<PAGE> 18
SCHEDULE 1 TO PARTICIPATING CONSULTANT AGREEMENT ASSIGNMENT
<TABLE>
<S> <C>
1. Travelers Indemnity Company
2. Hartford Fire Insurance Company
3. American Medical Security, Inc.
4. Fortis Insurance Company (Fortis Benefits, Time Insurance Company, John Alden Life
Insurance Company)
5. Bridgestone/Firestone, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.30
ASSET PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
DHR INTERNATIONAL, INC.
"SELLER"
AND
THE STOCKHOLDERS NAMED HEREIN
"STOCKHOLDERS"
NOVEMBER 19, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
1. Sale and Transfer of Assets.............................................................1
1.1 Assets.......................................................................1
1.2 Assumption of Certain Liabilities............................................1
1.3 Closing......................................................................2
1.4 Purchase Price...............................................................2
1.5 Allocation of Purchase Price.................................................2
1.6 Certificates for Shares......................................................2
2. Representations and Warranties of Seller and the Stockholders...........................2
2.1 Organization and Good Standing...............................................3
2.2 Subsidiaries.................................................................3
2.3 Authorization of Agreement...................................................3
2.4 Acquired Assets..............................................................3
2.5 Financial Condition and Accounting...........................................4
2.6 Certain Property of Seller...................................................5
2.7 Year 2000 Compliance.........................................................7
2.8 No Conflict or Violation.....................................................7
2.9 Consents.....................................................................8
2.10 Labor and Employment Matters.................................................8
2.11 Employee Plans...............................................................8
2.12 Litigation..................................................................11
2.13 Certain Agreements..........................................................11
2.14 Compliance with Applicable Law..............................................12
2.15 Licenses....................................................................12
</TABLE>
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<TABLE>
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2.16 Accounts Receivable.........................................................13
2.17 Intercompany and Affiliate Transactions; Insider Interests..................13
2.18 Insurance...................................................................14
2.19 Customers...................................................................14
2.20 No Undisclosed Liabilities..................................................14
2.21 Taxes.......................................................................14
2.22 Environmental Matters.......................................................16
2.23 Securities Matters..........................................................17
2.24 Buyer and the Consolidation Transactions....................................18
2.25 Minute Books and Stock Records..............................................19
2.26 Brokers.....................................................................19
2.27 Summary of Certain Considerations...........................................19
2.28 Accuracy of Information.....................................................19
3. Representations and Warranties of Buyer................................................20
3.1 Organization and Corporate Authority........................................20
3.2 No Conflict or Violation....................................................20
3.3 Capitalization..............................................................20
3.4 Notes.......................................................................20
3.5 Litigation..................................................................21
3.6 Buyer's Operations and Financial Condition..................................21
3.7 Accuracy of Information.....................................................21
4. Certain Understandings and Agreements of the Parties...................................21
4.1 Access......................................................................21
4.2 Confidentiality.............................................................22
4.3 Certain Changes and Conduct of Business.....................................22
</TABLE>
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<TABLE>
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4.4 Restrictive Covenants.......................................................24
4.5 Securities Restrictions.....................................................27
4.6 Registration................................................................28
4.7 Taxes.......................................................................29
4.8 Access to Records and Files.................................................31
4.9 Cooperation in Litigation...................................................32
4.10 Employment..................................................................32
4.11 Change of Name..............................................................33
4.12 Bulk Sales Laws.............................................................33
4.13 Stockholder Representative..................................................33
4.14 Supplemental Disclosure.....................................................34
4.15 HSR.........................................................................34
4.16 Competing Proposals.........................................................34
4.17 Consolidation Transactions..................................................35
4.18 Collection of Accounts Receivable...........................................35
4.19 Bonus Plan..................................................................36
4.20 Best Efforts................................................................36
4.21 Further Assurances..........................................................36
4.22 Notice of Breach............................................................36
4.23 Share Transfer..............................................................37
5. Survival; Indemnification..............................................................37
5.1 Survival....................................................................37
5.2 Indemnification by Seller and the Stockholders..............................37
5.3 Indemnification by Buyer....................................................38
5.4 Indemnification Procedure...................................................39
</TABLE>
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<TABLE>
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5.5 Payment.....................................................................40
5.6 Limitations.................................................................40
6. Conditions to Closing..................................................................41
6.1 Conditions to Obligations of Each Party.....................................41
6.2 Conditions to Obligations of Buyer..........................................41
6.3 Conditions to Obligations of Seller.........................................44
7. Miscellaneous..........................................................................45
7.1 Termination.................................................................45
7.2 Notices.....................................................................46
7.3 Assignability and Parties in Interest.......................................47
7.4 Governing Law...............................................................47
7.5 Counterparts................................................................47
7.6 Publicity...................................................................47
7.7 Complete Agreement..........................................................47
7.8 Modifications, Amendments and Waivers.......................................48
7.9 Headings; References........................................................48
7.10 Severability................................................................48
7.11 Investigation...............................................................48
7.12 Expenses of Transactions....................................................48
7.13 Arbitration.................................................................48
7.14 Submission to Jurisdiction..................................................50
7.15 Attorneys' Fees.............................................................51
7.16 Enforcement of the Agreement................................................51
7.17 Form of Agreement...........................................................52
</TABLE>
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EXHIBITS
A. Form of Bill of Sale
B. Form of Assignment and Assumption Agreement
C. Form of Accredited Investor Questionnaire
D. Summary of Certain Considerations
E. Form of Employee General Release Agreement
F. Form of Stockholder Agreement
F-1 Form of Stock Power
G. Form of Voting Agreement and Irrevocable Proxy
H. Form of Subordination Agreement
I. Form of Employment Agreements for Key Employees
I-2. Form of Employment Agreements for Other Employees
J. Form of Opinion of Counsel to Seller and the Stockholders
K. Form of Opinion of Counsel to Buyer
L. Form of Officer's Certificate
M. Form of Note
SCHEDULES
1.1(a) Acquired Assets
1.1(b) Excluded Assets
1.2 Assumed Liabilities
1.4 Purchase Price
1.5 Allocation of Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.18 Insurance
2.19 Customers
2.21(b) Tax Filings
2.21(i) 351 Information
2.26 Seller's Brokers
3.5 Buyer Litigation
3.6 Buyer Debt
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(x) Stockholder Distributions
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4.6 Maximum IPO Shares
4.10 Employees to be Employed by Buyer
4.23 Share Transfer
6.2 Employees Signing Employment Agreements
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 19, 1998 by and among DHR International, Inc., an
Illinois corporation ("SELLER"), the stockholders of Seller listed on the
signature page(s) hereof (each such individual a "STOCKHOLDER," and
collectively, the "STOCKHOLDERS"), David Hoffmann, acting for and on behalf of
the Stockholders as their representative pursuant to Section 4.13 (the
"STOCKHOLDER REPRESENTATIVE"), and ProfitSource Corporation, a Delaware
corporation ("BUYER").
A. Seller is engaged in the business of developing and selling
consulting opportunities to recruit executives for client companies (the
"BUSINESS").
B. Prior to the Closing, the Stockholders shall own all of the
issued and outstanding shares of capital stock of Seller.
C. Seller desires to sell and assign to Buyer, and Buyer desires
to purchase and assume from Seller, certain assets, rights and obligations of
Seller on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER OF ASSETS.
1.1 ASSETS.
(a) Acquired Assets. On the terms and subject to the conditions set
forth in this Agreement, on the Closing Date (as hereinafter defined) Seller,
pursuant to a Bill of Sale substantially in the form of Exhibit A (the "BILL OF
SALE"), shall convey, transfer, assign, sell and deliver to Buyer, and Buyer
shall acquire, accept and purchase, all of the assets, properties and rights of
Seller listed on Schedule 1.1(a) (the "ACQUIRED ASSETS").
(b) Excluded Assets. Notwithstanding anything contained in Section
1.1(a) to the contrary, Seller is not selling, and Buyer is not purchasing, any
of the assets listed on Schedule 1.1(b) (the "EXCLUDED ASSETS"), all of which
shall be retained by Seller.
1.2 ASSUMPTION OF CERTAIN LIABILITIES.
On the terms and subject to the conditions set forth in this Agreement,
on the Closing Date, Buyer shall assume those certain liabilities and
obligations of Seller identified on Schedule 1.2 (the "ASSUMED LIABILITIES")
pursuant to an Assignment and Assumption Agreement substantially in the form of
Exhibit B (the "ASSUMPTION AGREEMENT"). Buyer is not assuming, and will not be
obligated or liable for, any liability of Seller not listed on
<PAGE> 9
Schedule 1.2. Buyer will be indemnified, pursuant to Section 5.2, from and
against any claims in respect of any debts, obligations or liabilities of Seller
of any nature whatsoever other than the Assumed Liabilities.
1.3 CLOSING.
The closing of the sale and purchase of the Acquired Assets and the
assumption of the Assumed Liabilities (the "CLOSING") will take place at the
offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Irvine, California, on a
date to be selected by Buyer after all the conditions set forth in Article 6
have either been satisfied or, in the case of conditions not satisfied, waived
in writing by the party entitled to the benefit of such conditions (the "CLOSING
DATE"). Prior to the Closing Date, Buyer shall provide written notice (the
"CLOSING NOTICE") to Seller informing Seller of the anticipated Closing Date. At
the Closing, Seller shall convey, transfer, assign, sell and deliver to Buyer
the Acquired Assets, by delivery to Buyer of the Bill of Sale, and Buyer shall
thereupon assume the Assumed Liabilities by execution and delivery of the
Assumption Agreement and pay to Seller the Purchase Price as provided in Section
1.4.
1.4 PURCHASE PRICE.
The consideration to be paid by Buyer for the Acquired Assets (the
"PURCHASE Price") is described in Schedule 1.4.
1.5 ALLOCATION OF PURCHASE PRICE.
The Purchase Price will be allocated for tax purposes (the "ALLOCATION")
in the manner set forth on Schedule 1.5. The Allocation will be used by the
parties in preparing all applicable tax returns and shall be binding upon the
parties and upon each of their successors and assigns, and the parties shall
report the transaction herein for tax purposes in accordance with the Allocation
and shall not take any position or action inconsistent with the Allocation.
1.6 CERTIFICATES FOR SHARES.
In order to facilitate replacement of certificates for shares of Common
Stock (as defined herein) constituting part of the Purchase Price upon an IPO
(as defined herein) with the transfer agent's form of certificate, and to
facilitate enforcement of the Stockholder Agreement (as defined herein), Buyer
will keep custody of the certificates representing such shares until the IPO and
until such shares are no longer subject to the Stockholder Agreement and
recipients of shares will execute and deliver blank stock powers as described in
Section 6.2(c)(vi). This custody arrangement will not affect the rights as a
stockholder of any permitted recipient of such shares.
2. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Schedule 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. Seller and the
Stockholders, jointly and severally, represent and warrant to Buyer that:
2
<PAGE> 10
2.1 ORGANIZATION AND GOOD STANDING.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois, with full corporate power and
authority to carry on the Business as it is now and has since its organization
been conducted and as proposed to be conducted, and to own, lease or operate the
Acquired Assets. Seller is duly qualified to do business and is in good standing
in every jurisdiction in which the character of the properties owned or leased
by it or the nature of the business conducted by it makes such qualification
necessary, except where failure to be so qualified would not have a material
adverse effect on the Business or Seller's assets or financial condition (a
"MATERIAL ADVERSE EFFECT"). Schedule 2.1 lists all of the jurisdictions in which
Seller is qualified to do business. Complete and accurate copies of the charter
documents and bylaws of Seller, with all amendments thereto to the date hereof,
have been furnished to Buyer or its representatives.
2.2 SUBSIDIARIES.
Seller does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 AUTHORIZATION OF AGREEMENT.
Seller has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and all other agreements and instruments to be executed by the parties
hereto in connection herewith (together with all other documents to be delivered
in connection herewith or therewith, collectively, the "TRANSACTION DOCUMENTS")
have (except for Transaction Documents to be executed and delivered solely by
Buyer) been duly and validly approved by the Board of Directors of Seller (the
"BOARD OF DIRECTORS") and no other proceedings on the part of Seller or the
Stockholders are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be delivered by Seller or any Stockholder have been (or upon
execution will have been) duly executed and delivered by Seller and each
Stockholder, have been effectively authorized by all necessary action, corporate
or otherwise, and constitute (or upon execution will constitute) legal, valid
and binding obligations of Seller and each Stockholder, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4 ACQUIRED ASSETS.
(a) Ownership. Seller is the lawful owner of or has the right to use and
transfer to Buyer each of the Acquired Assets. The Acquired Assets are free and
clear of all liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances and claims of any kind except any of the following:
(i) purchase money security interests in specific items of equipment each having
a value not in excess of $25,000; (ii) Personal Property leased pursuant to
Personal Property Leases; (iii) liens for taxes not yet payable; (iv) additional
security
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<PAGE> 11
interests and liens consented to in writing by Buyer; (v) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not delinquent;
(vi) liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by liens of the type described above in clauses (i) or
(ii) above, provided that any extension, renewal or replacement lien is limited
to the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase. The
delivery to Buyer of the Bill of Sale will vest good title to the Acquired
Assets in Buyer, free and clear of all liens, mortgages, pledges, security
interests, restrictions, prior assignments, encumbrances and claims of any kind.
There are no outstanding agreements, options or commitments of any nature
obligating Seller to transfer any of the Acquired Assets or rights or interests
therein to any party.
(b) Sufficiency of Assets. The Acquired Assets (i) constitute all of the
assets and properties used by Seller in connection with the operation of the
Business; and (ii) are sufficient and adequate to conduct the Business as
presently conducted.
2.5 FINANCIAL CONDITION AND ACCOUNTING.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
Seller as of December 31, 1995, 1996 and 1997 and the related statements of
income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the balance sheet, and the related statements of income and
cash flow of Seller for the nine-month period ended September 30, 1998 or the
most recent interim date available (the "INTERIM FINANCIAL STATEMENTS," and with
the Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of Seller;
(ii) were prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied; (iii) fairly present the financial condition and
the results of the operations of Seller as at the relevant dates thereof and for
the periods covered thereby; (iv) to the extent required by GAAP, contain and
reflect all necessary adjustments and accruals for a fair presentation of the
financial condition and the results of the operations of Seller for the periods
covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, including, without limitation, for all taxes, federal, state, local
or foreign, with respect to the period then ended and all prior periods; and
(vi) do not contain any items of a special or nonrecurring nature, except as
expressly stated therein. The Interim Financial Statements accurately reflect
all information normally reported to the independent public accountants of
Seller for the preparation of its financial statements. There have been no
changes or modifications of revenue recognition, cost allocation practices or
method of, accounting or other financial or operational practices or principles
except for any such change required by reason of a concurrent change in GAAP
during the periods covered by the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997, there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3(a). For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any
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<PAGE> 12
event, circumstance, condition, development or occurrence causing, resulting in,
having, or that could reasonably be expected to have, a Material Adverse Effect.
2.6 CERTAIN PROPERTY OF SELLER.
(a) Real Property. Seller has never and does not currently own any real
property. Schedule 2.6(a) lists all real properties leased by Seller, including
a brief description of the operating facilities located thereon, the annual rent
payable thereon, the length of the term, any option to renew with respect
thereto and the notice and other provisions with respect to termination of
rights to the use thereof.
(i) Seller has a valid leasehold in the real properties shown in
Schedule 2.6(a) under written leases (each lease being referred to herein as a
"REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES") and to the
knowledge of Seller or any Stockholder, each Real Property Lease is a valid and
binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) Seller is not, and neither Seller nor any Stockholder has
any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, no event has occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of Seller.
(iii) To the knowledge of Seller or any Stockholder all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by Seller other than the Excluded Assets (the "PERSONAL PROPERTY"). All
items of Personal Property are in good operating condition and repair sufficient
to enable Seller to operate the Business as presently conducted. Schedule 2.6(b)
identifies each item of Personal Property as owned or leased by Seller. The
items of Personal Property identified as owned are Acquired Assets, and the
items of Personal Property identified as leased are leased pursuant to lease
agreements that are Acquired Assets. All of such leases are valid and in full
force and effect and none of such Personal Property is subject to any sublease,
license or other agreement granting to any person any right to use such property
(each such lease, sublease, license or other agreement, a "PERSONAL PROPERTY
LEASE," and collectively the "PERSONAL PROPERTY LEASES"). Seller is not in
material breach of or default, and no event has occurred which, with due notice
or lapse of time or both, may constitute such a material breach or default,
under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by Seller
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<PAGE> 13
that are material to the Business. For purposes of this Agreement "PROPRIETARY
RIGHTS" means trademarks and service marks (registered or unregistered), trade
dress, trade names including, without limitation, the name DHR International,
Inc. and other names and slogans embodying business or product goodwill or
indications of origin, all applications or registrations in any jurisdiction
pertaining to the foregoing and all goodwill associated therewith, as well as
the following: (i) patents, patentable inventions, discoveries, improvements,
ideas, know-how, formula, methodology, processes, technology and computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications and
data), and all applications or registrations in any jurisdiction pertaining to
the foregoing, including all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof; (ii) trade secrets,
know-how, including confidential and other non-public information, and the right
in any jurisdiction to limit the use or disclosure thereof; (iii) copyrights in
writings, designs, mask works or other works, and registrations or applications
for registration of copyrights in any jurisdiction; (iv) licenses, including,
without limitation, software licenses, immunities, covenants not to sue and the
like relating to any of the foregoing; (v) Internet Web sites, domain names and
registrations or applications for registration thereof; (vi) customer lists;
(vii) books and records describing or used in connection with any of the
foregoing; and (viii) claims or causes of action arising out of or related to
infringement or misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by Seller free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by Seller pursuant to a
valid and enforceable license granting rights sufficiently broad to permit the
historical and anticipated uses of the Proprietary Rights in connection with the
conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which Seller grants a license to any person to use the
Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind Seller. There have not been any actions or other judicial or
adversary proceedings involving Seller concerning any of the Proprietary Rights,
nor to the knowledge of Seller or any Stockholder, is any such action or
proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names, or other intellectual property
rights of others. To the knowledge of Seller or any Stockholder, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) Seller is the sole owner of its trade secrets, including,
without limitation, customer lists, formulas, inventions, processes, know-how,
computer programs and routines
6
<PAGE> 14
associated, developed or used in connection with the Business (the "TRADE
SECRETS"), free and clear of any liens, encumbrances, restrictions, or legal or
equitable claims of others, and has taken all reasonable security measures to
protect the secrecy, confidentiality, and value of the Trade Secrets. Any of the
employees of Seller and any other persons who, either alone or in concert with
others, developed, invented, discovered, derived, programmed or designed the
Trade Secrets, or who have knowledge of or access to information relating to
them, have been put on notice and have entered into agreements that the Trade
Secrets are proprietary to Seller and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of Seller or the Business.
(viii) Seller has taken all commercially reasonable precautions
necessary to ensure that all Proprietary Rights have been properly protected and
have been kept secret.
2.7 YEAR 2000 COMPLIANCE.
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by Seller and material to the Business are Year 2000 Compliant. For purposes of
this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 NO CONFLICT OR VIOLATION.
7
<PAGE> 15
The execution, delivery and performance by Seller and the Stockholders
of this Agreement and the other Transaction Documents to be delivered by Seller
or any Stockholder and the consummation of the transactions contemplated hereby
and thereby do not and will not: (i) violate or conflict with any provision of
the charter documents or bylaws of Seller; (ii) violate in any material respect
any provision or requirement of any domestic or foreign, federal, state, or
local law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to Seller or the Business;
(iii) violate in any material respect, result in a material breach of,
constitute (with due notice or lapse of time or both) a material default or
cause any material obligation, penalty, premium or right of termination to arise
or accrue under any Contract (as hereinafter defined); (iv) result in the
creation or imposition of any material lien, charge or encumbrance of any kind
whatsoever upon any of the properties or assets of Seller; or (v) result in the
cancellation, modification, revocation or suspension of any material license,
permit, certificate, franchise, authorization or approval issued or granted by
any Governmental Entity (each a "LICENSE," and collectively, the "LICENSES").
2.9 CONSENTS.
Schedule 2.9 lists all consents and notices required to be obtained or
given by or on behalf of Seller or any Stockholder before consummation of the
transactions contemplated by this Agreement in compliance with all applicable
laws, rules, regulations, or orders of any Governmental Entity, or the
provisions of any material Contract, and all such consents have been duly
obtained and are in full force and effect, except where the failure to obtain
such consent will not have a Material Adverse Effect.
2.10 LABOR AND EMPLOYMENT MATTERS.
Schedule 2.10 lists all employees of Seller, including date of
retention, current title and compensation. There is no employment agreement,
collective bargaining agreement or other labor agreement to which Seller is a
party or by which it is bound. Seller has complied in all material respects with
all applicable laws, rules and regulations relating to the employment of labor,
including those related to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by appropriate Governmental
Entities and has withheld and paid to the appropriate Governmental Entities or
is holding for payment not yet due to such Governmental Entities, all amounts
required to be withheld from employees of Seller and is not liable for any
arrears of wages, taxes, penalties or other sums for failure to comply with any
of the foregoing. There is no unfair labor practice complaint against Seller
pending before the National Labor Relations Board or any state or local agency;
pending labor strike or other material labor trouble affecting Seller; material
labor grievance pending against Seller; pending representation question
respecting the employees of Seller; pending arbitration proceedings arising out
of or under any collective bargaining agreement to which Seller is a party. For
purposes of this Agreement, "EMPLOYEES" includes employees, independent
contractors and other persons filling similar functions.
2.11 EMPLOYEE PLANS.
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(a) All accrued obligations of Seller, whether arising by operation of
law, by contract or past custom, or otherwise, for payments by Seller to trusts
or other funds or to any Governmental Entity, with respect to unemployment
compensation benefits, social security benefits or any other benefits or
obligations, with respect to employment of employees through the date hereof
have been paid or adequate accruals therefor have been made in the Financial
Statements, and adequate accruals for all such obligations will be made through
the Closing Date. All reasonably anticipated obligations of Seller with respect
to employees, whether arising by operation of law, by contract, by past custom,
or otherwise, for salaries, vacation and holiday pay, sick pay, bonuses and
other forms of compensation payable to employees in respect of the services
rendered by any of them prior to the date hereof have been or will be paid by
Seller prior to the Closing Date or adequate accruals therefor have been made in
the Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of Seller, and any other entity ("ERISA
AFFILIATE") related to Seller under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS"),
together with all accrued liabilities under such Employee Plans. With respect to
each Employee Plan, Seller has made available to Buyer, to the extent
applicable, true and complete copies of (i) all plan documents, (ii) the most
recent determination letter received from the Internal Revenue Service (the
"IRS"), (iii) the most recent application for determination filed with the IRS,
(iv) the latest actuarial valuations, (v) the latest financial statements, (vi)
the three (3) most recent Form 5500 Annual Reports, including Schedule A and
Schedule B thereto, (vii) all related trust agreements, insurance contracts or
other funding arrangements which implement any of such Employee Plans, (viii)
all Summary Plan Descriptions and summaries of material modifications and all
modifications thereto communicated to employees, and (ix) in the case of stock
options or stock appreciation rights issued under any Employee Plan, a list of
holders, dates of grant, number of shares, exercise price per share and dates
exercisable. Neither Seller nor any ERISA Affiliate of Seller has any liability
or contingent liability with respect to the Employee Plans, nor will any of the
Acquired Assets be subject to any lien, charge or claim relating to the
obligations of Seller with respect to employees or Employee Plans. No party to
any Employee Plan is in default with respect to any material term or condition
thereof, nor has any event occurred which through the passage of time or the
giving of notice, or both, would constitute a default thereunder or would cause
the acceleration of any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in material compliance with the requirements provided by any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, without limitation, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Code. Each of Seller and its ERISA
Affiliates has made full and timely payment of all amounts required to be
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contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither Seller nor any ERISA Affiliate sponsors or has sponsored,
maintained, contributed to, incurred an obligation to contribute to or withdrawn
from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of ERISA) or any
Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064 or Code
Section 413), whether or not terminated, for which any withdrawal or partial
withdrawal liability has been or could be incurred, whether or not any such
liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of Seller regarding office administration,
personnel matters and hiring, evaluation, supervision, training, termination and
promotion of employees, including, without limitation, all communications to
employees concerning such matters, each of which is an accurate description of
the terms of such plans or policies. Seller has no affirmative action
obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of Seller's employees with "change of control" or similar provisions. There
is no contract, agreement, plan or arrangement covering Seller or any employee,
that individually or collectively could give rise to the payment of any amount
that would not be deductible pursuant to the terms of Section 280G of the Code.
Neither Seller nor any of its ERISA Affiliates has incurred any liability under
the Worker Adjustment Retraining and Notification Act or any similar state law
relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither Seller nor any ERISA Affiliate has had asserted against it
any claim for any excise tax or penalty imposed under ERISA or the Code with
respect to any Employee Plan nor, to the knowledge of Seller or any Stockholder,
is there any basis for any such claim. No officer, director or employee of
Seller or any of its ERISA Affiliates has committed a material breach of any
responsibilities or obligations imposed upon fiduciaries by Title I of ERISA
with respect to any Employee Plan.
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(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by Seller or any of its ERISA Affiliates,
each of Seller and the ERISA Affiliates have complied in all material respects
to the provisions of Part 6 of Title I of ERISA and Sections 4980B, 9801 and
9802 of the Code. Seller is not obligated to provide health care or other
welfare benefits of any kind to its retired or former employees or their
dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12 LITIGATION.
There are no claims, actions, suits or proceedings of any nature pending
or, to the knowledge of Seller or any Stockholder, threatened by or against the
Stockholders, Seller, the officers, directors, employees, agents of Seller, or
any of their respective Affiliates involving, affecting or relating to the
Business or any assets, properties or operations of Seller or the transactions
contemplated by this Agreement. Neither Seller nor any of the Acquired Assets is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have the
meaning ascribed to such term in Rule 405 under the Securities Act.
2.13 CERTAIN AGREEMENTS.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which Seller is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all material written, or oral, (i) contracts,
agreements and commitments not made in the ordinary course of business, (ii)
agency and brokerage agreements, (iii) service and other customer contracts,
(iv) contracts, loan agreements, letters of credit, repurchase agreements,
mortgages, security agreements, guarantees, pledge agreements, trust indentures,
promissory notes and other documents or arrangements relating to the borrowing
of money or for lines of credit, (v) tax sharing agreements, real property
leases or any subleases relating thereto, personal property leases, any material
agreement relating to Proprietary Rights (including service agreements relating
thereto) and insurance contracts, (vi) agreements and other arrangements for the
sale of any assets, property or rights other than in the ordinary course of
business or for the grant of any options or preferential rights to purchase any
assets, property or rights, (vii) documents granting any power of attorney with
respect to the affairs of Seller, (viii) suretyship contracts, performance
bonds, working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining Seller or any of its employees
or Affiliates from engaging or competing in any lines of business or with any
person or entity, (x) partnership or joint venture agreements, (xi) stockholder
agreements or agreements relating to the issuance of any securities of Seller or
the granting of any registration rights with respect thereto, and (xii) all
amendments, modifications, extensions or renewals of any of the foregoing (each
a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. Seller has performed all material
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obligations required to be performed by it under, and is not in material default
or breach of, any Contract, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a material default or breach.
(c) To the knowledge of Seller or any Stockholder, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of Seller or any Stockholder, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) Seller has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by Seller or any Stockholder since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of Seller or any Stockholder, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 COMPLIANCE WITH APPLICABLE LAW.
The operations of Seller are, and have been, conducted in all material
respects in accordance with all applicable laws, regulations, orders and other
requirements of all Governmental Entities having jurisdiction over it and its
assets, properties and operations, including, without limitation, all such laws,
regulations, orders and requirements relating to the Business, except in any
case where the failure to so conduct its operations would not have a Material
Adverse Effect. Seller has not received any notice of any material violation of
any such law, regulation, order or other legal requirement, and is not in
material default with respect to any order, writ, judgment, award, injunction or
decree of any Governmental Entity, applicable to Seller or any of its assets,
properties or operations. To the knowledge of Seller or any Stockholder, there
are no proposed changes in any such laws, rules or regulations (other than laws
of general applicability) that would adversely affect the transactions
contemplated by this Agreement or reasonably be expected to have a Material
Adverse Effect.
2.15 LICENSES.
(a) Schedule 2.15 lists all material Licenses issued or granted to
Seller, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by Seller in connection with the Business or that are necessary for
the execution, delivery and performance by Seller and the Stockholders of this
Agreement and the other Transaction Documents. The Licenses are sufficient and
adequate in all material respects to permit the continued lawful conduct of the
Business in the manner now
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conducted and the ownership, occupancy and operation of Seller's properties for
its present uses and the execution, delivery and performance of this Agreement.
No jurisdiction in which Seller is not qualified or licensed as a foreign
corporation has demanded or requested in writing that it qualify or become
licensed as a foreign corporation. Seller has delivered to Buyer or its
representatives true and complete copies of all the material Licenses together
with all amendments and modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by Seller and is valid, in full force and effect, and not subject to any
pending or known threatened administrative or judicial proceeding to suspend,
revoke, cancel or declare such License invalid in any respect. Seller is not in
violation in any material respect of any of the Licenses. The Licenses have
never been suspended, revoked or otherwise terminated, subject to any fine or
penalty, or subject to judicial or administrative review, for any reason other
than the renewal or expiration thereof, nor has any application of Seller for
any License ever been denied.
2.16 ACCOUNTS RECEIVABLE.
Schedule 2.16 lists all accounts receivable of Seller (the "ACCOUNTS
RECEIVABLE") as of the date hereof, including their aging. Schedule 2.16 will be
updated at the Closing Date to reflect all Accounts Receivable as of the Closing
Date, including their aging. All Accounts Receivable as of the date hereof
represent, and all Accounts Receivable as of the Closing Date will represent,
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business that are current and collectible in
amounts not less than the aggregate amount thereof (net of reserves established
in accordance with GAAP applied consistently with prior practice) carried (or to
be carried) on the books of Seller and reflected in the Financial Statements,
and are not subject to any valid counterclaims or set-offs, disputes or
contingencies.
2.17 INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) There are no material transactions, agreements or arrangements of
any kind, direct or indirect, between Seller and any director, officer,
employee, stockholder, relative or Affiliate of Seller or the Stockholders,
including, without limitation, loans, guarantees or pledges to, by or for Seller
or from, to, by or for any of such persons, that are either (i) currently in
effect, or (ii) reflected in Seller's financial results.
(b) No officer, director or stockholder of Seller, or any Affiliate of
any such person, now has, or within the last three (3) years had, either
directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to Seller, or purchased, or during such period purchased from Seller,
any goods or services, or otherwise does, or during such period did, business
with Seller;
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(ii) a beneficial interest in any contract, commitment or
agreement to which Seller is or was a party or under which it was obligated or
bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between Seller and
such persons in their capacities as employees, officers or directors of Seller;
or
(iii) any rights in or to any of the assets, properties or rights
used by Seller in the ordinary course of business.
2.18 INSURANCE.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by Seller at any time during the three (3) years prior to the date of
this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity that require or recommend any changes in the conduct of the
Business, or any repairs or other work to be done on or with respect to any of
the properties or assets of Seller. Seller has not received any notice or other
communication from any such insurance company within the three (3) years
preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of Seller or any Stockholder, no such
cancellation, amendment or increase of premiums is threatened.
2.19 CUSTOMERS.
Schedule 2.19 lists the ten (10) largest customers of Seller, together
with revenues to Seller from each such customer during the most recent complete
fiscal year and the current fiscal year to the date hereof, and the scheduled
termination dates of their current contracts with Seller. None of such customers
has given written notice to Seller of an intention to terminate or materially
impair its business relationship with Seller, and neither Seller nor any
Stockholder has any knowledge of any event that would precipitate the
impairment, or termination of, or the failure to renew, or entitle any such
customer to terminate, such business relationship.
2.20 NO UNDISCLOSED LIABILITIES.
Except as and to the extent specifically reflected or reserved against
in the Interim Financial Statements and except as incurred in the ordinary
course of business since the date of the Interim Financial Statements, Seller
has no material liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, and whether due or to become due (including,
without limitation, any liability for taxes and interest, penalties and other
charges payable with respect to any such liability or obligation) and no facts
or circumstances exist which, with notice or the passage of time or both, could
reasonably be expected to result in any material claims against or obligations
or liabilities of Seller.
2.21 TAXES.
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(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of Seller for
or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any Straddle
Period to the extent allocable to the period ending on the Closing Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of Seller
that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of Seller that includes
but does not end on the Closing Date.
(iv) "TAX" or "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to be
filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. Seller has (i) timely
filed or caused to be timely filed all Tax Returns of Seller required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not shown on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to Seller. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which Seller has received a written
and/or oral notice from a Tax authority that such Tax authority intends to
commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which Seller has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. Seller has either delivered to Buyer or made
available for inspection by Buyer or its representatives or agents complete and
correct copies of all Tax audit reports and statements of Tax deficiencies with
respect to any delinquent Tax assessed against or agreed to by Seller for all
taxable periods commencing on or after January 1, 1993, for which audit reports
or statements of deficiencies have been received by Seller.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of Seller (whether
imposed before or after Closing and whether imposed upon filing of a Tax Return
or as a result of an audit or examination) which are unpaid as of the close of
business on the Closing Date will not exceed the reserves for Tax Liabilities
(not including any reserve for deferred Taxes established to
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reflect timing differences between book and Tax income) as set forth in the
account for accrued taxes payable or similar account included in the Interim
Financial Statements.
(d) Tax Sharing Agreements. Seller is not a party to any tax-sharing or
tax-indemnity agreement and has not otherwise assumed by contract or otherwise
the Tax Liability of any other person.
(e) Section 481 Adjustments. Seller has not agreed, nor is it required
to make, any adjustment under Code Section 481(a) by reason of a change in
accounting method or otherwise.
(f) Foreign Tax Matters. Seller is not and has never been either (i) a
United States real property holding corporation as defined in Section 897(c)(2)
of the Code, or (ii) a foreign person as defined in Section 1445(f)(3) of the
Code.
(g) No Liens. None of the assets of Seller are subject to any liens in
respect of Taxes (other than for current Taxes not yet due and payable).
(h) No Closing Agreements. Seller has not executed or entered into any
closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(i) Section 351. It is acknowledged that Buyer, Seller and the
Stockholders intend that the transfer of the Acquired Assets by Seller to Buyer
pursuant to this Agreement qualify as (i) a transfer of property to a controlled
corporation pursuant to the provisions of Code Section 351 and comparable
provisions of applicable state income tax law, and (ii) under Code Section 351
as part of a transfer by Seller and other persons transferring property to Buyer
who collectively will be in control (as defined in Section 368(c) of the Code)
of Buyer following such transfers. The information set forth on Schedule 2.21(i)
is accurate and may be used by Buyer for tax filing purposes.
2.22 ENVIRONMENTAL MATTERS.
Notwithstanding anything to the contrary contained in this Agreement:
(a) Seller and its operations comply and have at all times complied in
all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) Seller has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
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(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by Seller at any time or any other property in material violation of any
Environmental Laws such that Seller could be subject to material liability under
any Environmental Laws.
(d) Seller has not exposed any employee or third party to any Hazardous
Materials or conditions that could subject it to any material liability under
any Environmental Laws.
(e) Seller does not now own or operate, and has never owned or operated,
aboveground or underground storage tanks.
(f) To the knowledge of Seller or any Stockholder, with respect to any
or all of the real properties leased at any time by Seller, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of Seller or any
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of Seller or any Stockholder, any threatened actions or claims,
or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to Seller, its
operations or the real properties leased or owned by it at any time.
(h) Seller has delivered to Buyer copies of all written environmental
assessments, audits, studies and other environmental reports in its possession
or reasonably available to it relating to any of the current or former
businesses of Seller or its operations.
2.23 SECURITIES MATTERS.
(a) Seller and the Stockholders understand that (i) neither the Shares
(as defined in Schedule 1.4) nor any notes issued by Buyer, or the offer and
sale thereof have been registered or qualified under the Securities Act or any
state securities or "Blue Sky" laws, on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from
registration and qualification under Sections 4(2) and 18 of the Securities Act,
and (ii) Buyer's reliance on such exemptions is predicated on Seller's and the
Stockholders' representations set forth herein.
(b) Seller and the Stockholders acknowledge that an investment in Buyer
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that Seller and the Stockholders may lose
their entire investment in the Shares and any notes issued by Buyer (the
"SECURITIES").
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(c) Buyer has made available to Seller and the Stockholders or Seller's
and the Stockholders' advisors the opportunity to obtain information to evaluate
the merits and risks of the investment in the Securities, and Seller and the
Stockholders have received all information requested from Buyer. Seller and the
Stockholders have had an opportunity to ask questions and receive answers from
Buyer regarding the terms and conditions of the offering of the Securities and
the business, properties, plans, prospects, and financial condition of Buyer and
to obtain additional information as Seller and the Stockholders have deemed
appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) Seller and the Stockholders, personally or through advisors, have
expertise in evaluating and investing in private placement transactions of
securities of companies in a similar stage of development to Buyer and have
sufficient knowledge and experience in financial and business matters to assess
the relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, Seller and the Stockholders have relied solely upon
independent investigations made by Seller and the Stockholders, and have
consulted their own investment advisors, counsel and accountants. Seller and the
Stockholders have adequate means of providing for current needs and personal
contingencies, and have no need for liquidity and can sustain a complete loss of
the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the recipient's own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) Seller and the Stockholders understand that no federal or state
agency has passed upon the Securities or made any finding or determination as to
the fairness of the investment in the Securities.
(g) Seller and each Stockholder is an "Accredited Investor" as defined
in Rule 501(a) under the Securities Act and have each documented his, her or its
accredited status by delivery to Buyer of a completed questionnaire in the form
of Exhibit C attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE.")
(h) Neither Seller nor any Stockholder has received any general
solicitation or general advertising concerning the Securities, nor is Seller or
any Stockholder aware of any such solicitation or advertising.
2.24 BUYER AND THE CONSOLIDATION TRANSACTIONS.
(a) Seller and the Stockholders are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.17) will occur, that Buyer will be
successful in accomplishing the purpose for which
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it was formed or that it will ever be profitable. No assurance can be given
regarding what companies, if any, will ultimately be acquired by Buyer. No
company is obligated to participate in the Consolidation Transactions unless a
written agreement to such effect is entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether Seller or any Stockholder would be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(c)(vii).
(b) Seller and the Stockholders acknowledge that no assurances have been
made to Seller or any Stockholder with respect to any of the foregoing and no
representations, oral or written, have been made to Seller or any Stockholder by
Buyer or any of its employees, representatives or agents concerning the
potential value of the Shares issued as part of the Purchase Price or the
prospects of Buyer, except as set forth herein.
2.25 MINUTE BOOKS AND STOCK RECORDS.
Seller has made available to Buyer true, complete and correct copies of:
(a) the minute books of Seller, containing all records required to be
set forth of all proceedings, consents, actions, and meetings of its
stockholders and the Board of Directors; and
(b) all stock record books of Seller setting forth all transfers of
capital stock.
2.26 BROKERS.
Except as set forth on Schedule 2.26, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of Seller or any of the
Stockholders.
2.27 SUMMARY OF CERTAIN CONSIDERATIONS.
Each Stockholder acknowledges receipt and understanding of the Summary
of Certain Considerations attached hereto as Exhibit D.
2.28 ACCURACY OF INFORMATION.
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None of the representations or warranties or information provided and to be
provided by Seller or any Stockholder to Buyer in this Agreement, the Disclosure
Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby do not and will
not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 CAPITALIZATION.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 NOTES.
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Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
3.5 LITIGATION.
Except as set forth on Schedule 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or proceedings
including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.6 BUYER'S OPERATIONS AND FINANCIAL CONDITION.
Since its date of incorporation, Buyer has had no operations except
operations in connection with effecting the Consolidation Transactions and
preparing for operation of its business after the Closing. Buyer has no material
tangible assets, and except as set forth on Schedule 3.6, Buyer has no material
liabilities or obligations for borrowed money or payment for services rendered
to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.7 ACCURACY OF INFORMATION.
None of the representations or warranties or information provided and to
be provided by Buyer to Seller in this Agreement, the schedules or exhibits
hereto, or in any of the other Transaction Documents delivered by Buyer contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements and facts
contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 ACCESS.
Seller shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of Seller (including, without
limitation, Seller's accounting records, the workpapers of Seller's independent
accountants, and all environmental studies, reports and other environmental
records)
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and, during such period, shall furnish promptly to Buyer all information
concerning Seller, the Business, Seller's properties, liabilities and personnel
as Buyer may reasonably request.
4.2 CONFIDENTIALITY.
For purposes hereof, Seller and the Stockholders will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including
without limitation Deloitte & Touche LLP, confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Buyer will
keep the matters contemplated herein and all information provided by Seller and
the Stockholders related to Seller and the Business confidential, and will not
provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and Seller shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby. Seller and the
Stockholders acknowledge that Buyer may provide information about Seller and the
Business to other participants in the Consolidation Transactions to the extent
necessary to facilitate the Consolidation Transactions. If this Agreement
terminates without consummation of the Closing, Seller, the Stockholders and
Buyer shall, and shall cause their Affiliates to, each maintain the
confidentiality of any information obtained from the other in connection with
the transactions contemplated hereby, the Consolidation Transactions, and
Buyer's business plans (the "INFORMATION"), other than Information that (i) was
in the public domain before the date of this Agreement or subsequently came into
the public domain other than as a result of disclosure by the party to whom the
Information was delivered; or (ii) was lawfully received by a party from a third
party free of any obligation of confidence of or to such third party; or (iii)
was already in the possession of the party prior to receipt thereof, directly or
indirectly, from the other party; or (iv) is required to be disclosed in a
judicial or administrative proceeding after giving the other party as much
advance notice of the possibility of such disclosure as practicable so that the
other party may attempt to stop such disclosure; or (v) is subsequently and
independently developed by employees of the party to whom the Information was
delivered without reference to the Information. If this Agreement terminates
without consummation of the Closing, Buyer, on the one hand, and the
Stockholders and Seller, on the other, shall return to the other all material
containing or reflecting the Information provided by the other, shall not retain
any copies, extracts, or other reproductions thereof or derived therefrom, and
Buyer shall ensure the return of all such material from all other parties with
whom it has been shared, and shall thereafter refrain from using the Information
and shall maintain its confidentiality pursuant to this Agreement.
4.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), Seller shall, and the Stockholders
shall cause Seller to, conduct Seller's business solely in the ordinary course
consistent with past practices. Without limiting the generality of the preceding
sentence, except as required or permitted pursuant to the terms hereof, Seller
shall not, and the Stockholders shall cause Seller not to:
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(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts of the type described in
Schedule 4.3(a)(i), in any case calling for payments to or by Seller in excess
of $20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of Seller or any part thereof, except
transactions required pursuant to existing contracts of Seller and dispositions
of inventory or worn out or obsolete equipment for fair or reasonable value in
the ordinary course of business consistent with past practices;
(iii) subject any of the assets of Seller, or any part thereof,
to any lien, security interest, charge, interest or other encumbrance, or suffer
such to be imposed other than such liens, security interests, charges, interests
or other encumbrances as may arise in the ordinary course of business consistent
with past practices;
(iv) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(v) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(vi) make or commit to make any capital expenditure in excess of
$25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(vii) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Stockholder or any Affiliate of Seller or any
Stockholder;
(viii) guarantee any indebtedness for borrowed money or any other
obligation;
(ix) delay payment of payables or accelerate collection of
receivables relative to Seller's historical practices regarding the timing of
such payments and collections;
(x) declare or make any dividends, distributions or other
payments to equity holders, except as set forth on Schedule 4.3(a)(x);
(xi) except as necessary to comply with Section 4.3(b)(iv), make
any change in any revenue recognition or cost allocation practices or method of
accounting or accounting principle, method, estimate or practice (except for any
such change required by reason of a concurrent change in GAAP), or write down
the value of any assets or write-off as uncollectible any Accounts Receivable
except in the ordinary course of business consistent with past practices;
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(xii) settle, release or forgive any material claim or litigation
or waive any material right;
(xiii) take any other action that would cause any of the
representations and warranties made by Seller or any Stockholder herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xiv) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), Seller shall, and the Stockholders shall cause
it to:
(i) maintain, in all material respects, the assets and properties
of Seller in accordance with present practices and in a condition suitable for
their current use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of Seller in the ordinary
course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by Seller (or on behalf of
it) on the date hereof.
4.4 RESTRICTIVE COVENANTS.
(a) Non-Competition. Seller and the Stockholders recognize that the
covenants of Seller and each Stockholder contained in this Section 4.4(a) (the
"COVENANT NOT TO COMPETE") are an essential part of this Agreement and the other
Transaction Documents and that but for the agreement of Seller and each
Stockholder to comply with such covenants Buyer would not enter into this
Agreement or the other Transaction Documents. Seller and the Stockholders
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Acquired Assets acquired by Buyer, including without limitation, goodwill
and the Proprietary Rights, and
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that irreparable harm and damage will be done to Buyer if Seller or any
Stockholder competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, Seller and the Stockholders acknowledge that the Purchase
Price is consideration for professional relationships and market place
reputation developed by Seller and the Stockholders and Seller and the Covenant
Not to Compete is necessary for Buyer to receive the full benefit of this
Agreement. After the Closing, Seller and each Stockholder shall not
individually, or in concert, directly or indirectly:
(i) either on its, his, her or their own account or for any other person
or entity, solicit, induce, attempt to induce, interfere with, or endeavor to
cause (in each case in such a manner that could have a material adverse effect
on the financial condition, prospects or operation of the Business, the Acquired
Assets or Buyer or any of its Affiliates) any customer, which has utilized the
services of Seller at any time during the two (2) year period preceding the
Closing Date or with whom Seller was engaged in meaningful negotiations as of
the Closing Date (each, a "CUSTOMER"), to modify, amend, terminate or otherwise
alter the terms upon which it acquires services from Buyer or Buyer's
Affiliates, or to acquire from any party other than Buyer or its Affiliates any
services of the kind available from Buyer or its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by
Seller at any time during the two (2) year period preceding the Closing Date or
under development by Seller on the Closing Date);
(iii) take any material action intended to advance an interest of any
competitor of the Business, or encourage any other person to take such action;
or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the world, where Seller generated revenue or established
goodwill at any time during the two (2) year period preceding the Closing Date.
This Covenant Not to Compete shall bind Seller and each Stockholder until
December 31, 2002, provided however, that if the employment of any Stockholder
is terminated by Buyer without Cause or by such Stockholder for Good Reason
(each as defined in such Stockholder's Employment Agreement delivered pursuant
to Section 6.3(c)(vi)), and if either (i) a registration statement for an
underwritten IPO of Buyer's equity securities has not been filed by December 31,
1999, or (ii) Buyer fails to consummate a public offering that results in a
public market of equity securities of Buyer on a national securities exchange or
the Nasdaq Stock Market by May 15, 2000, then after termination of such
Stockholder's employment with the Company or any of its Affiliates such
Stockholder will no longer be subject to the covenants contained in Section
4.4(a)(ii) and (iii) and the covenants in Section 4.4(a)(iv) will not be
breached by any general marketing efforts with which such Stockholder may be
involved that are not targeted specifically at any Customer. The parties
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hereto agree that the duration and area for which the Covenant Not to Compete
set forth in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Seller and each Stockholder acknowledge their
intent that Seller shall fully and effectively convey to Buyer all Proprietary
Rights to be transferred to Buyer pursuant hereto. Accordingly, notwithstanding
the expiration of the Covenant Not to Compete set forth in Section 4.4(a),
Seller and each Stockholder shall at all times keep confidential and shall not
disclose to others any Proprietary Rights and shall not use or permit to be used
any Proprietary Rights for any purpose other than performance of obligations to
Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds Seller and the Stockholders pursuant to Section 4.4(a), Seller and
each of the Stockholders shall not, and shall cause their Affiliates not to,
divert or attempt to divert or take advantage of or attempt to take advantage of
any actual or potential business or opportunities of Buyer or its Affiliates of
which Seller or any of the Stockholders become aware as the result of their
affiliation with the Business or their relationship with Buyer or its Affiliates
and which relate specifically to the Business, or any part thereof. This Section
4.4(c) is in addition to and not by way of limitation of any other duties the
Stockholders may have to Buyer or its Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds Seller and the Stockholders pursuant to Section 4.4(a), Seller,
and each of the Stockholders shall not, and shall cause their Affiliates not to,
hire away, or cause any other person to hire away, any employee of or consultant
to Buyer or its Affiliates (including without limitation persons employed or
engaged by Seller before the Closing Date), or directly or indirectly entice or
solicit or seek to induce or influence any of such employees or consultants to
leave their employment or engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on Seller and the Stockholders in light of the activities
and business of Seller and future plans of Buyer. Seller and each Stockholder
acknowledges that if they violate any of the covenants contained in this Section
4.4 (collectively, the "RESTRICTIVE COVENANTS"), it will be difficult to
determine the resulting damages to Buyer and, in addition to any other remedies
Buyer may have, Buyer shall be entitled to temporary injunctive relief without
being required to post a bond and permanent injunctive relief without the
necessity of proving actual damages. Seller and the Stockholders shall be liable
to pay all costs, including reasonable attorneys' fees and expenses, that Buyer
may incur in enforcing or defending, to any extent, any of the Restrictive
Covenants breached by Seller, and each Stockholder shall be severally liable to
pay all costs, including reasonable attorneys' fees and expenses, that Buyer may
incur in enforcing or defending, to any extent, any of the Restricted Covenants
breached by such Stockholder, whether or not litigation is actually commenced
and including litigation of any appeal defended by Buyer where such party
succeeds in enforcing any of the Restrictive Covenants. Buyer may elect to seek
one or more remedies at its discretion on a case by case basis. Failure to seek
any or all remedies in one case shall not restrict Buyer from seeking any
remedies in another situation. Such action by Buyer shall not constitute a
waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its
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enforceability. However, if any term, provision or condition of the Restrictive
Covenants is held by a court or arbitrator to be invalid, void or unenforceable,
the remainder of the provisions thereof shall remain in full force and effect
and shall in no way be affected, impaired or invalidated. If a court or
arbitrator should determine any of the Restrictive Covenants are unenforceable
because of over-breadth, then the court or arbitrator shall modify such covenant
so as to make it enforceable to the fullest extent the court or arbitrator deems
reasonable and enforceable under the prevailing circumstances. The Covenant Not
to Compete shall be deemed to be a series of separate covenants, one for each
and every county of each and every state of the United States of America and
each and every political subdivision of each and every country outside the
United States of America where the Covenant Not to Compete is intended to be
effective.
4.5 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(c)(vi), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(e)(vi) and the Voting
Agreement described in Section 6.2(e)(vii), provided that, with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
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(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholders will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period, (ii) such lock up provision will be contingent upon
the officers and directors of the registrant entering into similar lock up
agreements, and (iii) no Stockholder will be required to comply with this lock
up provision if any other stockholder owning more shares of Common Stock than
such Stockholder and who is subject to a contractual lock up provision similar
to this one has been released from such lock up obligation.
4.6 REGISTRATION.
(a) Neither Seller nor any Stockholder will have any rights to demand
registration of any of the Shares, or to participate in any registration
undertaken by Buyer except as set forth in this Section 4.6. If Buyer files a
registration statement with the Securities and Exchange Commission for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then Seller,
each Stockholder and each Unit Holder (as defined in Section 4.23), in the
aggregate, shall have the right, subject to the limitations set forth in this
Section 4.6(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by Seller and such
Stockholders and Unit Holders. Other stockholders (including but not limited to
stockholders who acquired Common Stock in the Consolidation Transactions and
stockholders who acquired Common Stock in connection with the formation, or work
on behalf of, Buyer) will have rights to include shares of Common Stock in any
such offering, and if the aggregate amount of shares that all stockholders with
such rights (collectively, the "SELLING STOCKHOLDERS") desire to include exceeds
the number of shares of Common Stock that can be sold by all Selling
Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing, no Selling Stockholder or Unit
Holder will be permitted to include in any such registration and offering (i)
any Shares subject to performance-related restrictions at the time of filing of
the registration statement for such offering, or (ii) more than, in the
aggregate for all such registrations and offerings, half of the shares of Common
Stock held by such Selling Stockholder or Unit Holder as of the date hereof.
Furthermore, in no case will Seller, the Stockholders or any Unit Holders be
permitted to include in all such registrations and offerings, in the aggregate,
more than the number of shares listed on Schedule 4.6 under the item "Maximum
IPO Shares" (such shares will be allocated among Seller, each of the
Stockholders and each of the Unit Holders hereunder desiring to participate in
any such registration and offering ratably on the basis of their relative
ownership of Shares and other Common Stock).
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(b) If any Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by Stockholder expressly for use
therein for which the Stockholder will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7 TAXES.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of Seller's business activities on the Closing Date, and all of Seller's
income, gains and other Tax items attributable to the Closing Date shall be
included and reported by Seller in Tax Returns of Seller to be filed following
the Closing and that all Taxes attributable to Seller's income, gains or other
taxable items for the Closing Date shall be paid by Seller.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date, and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of Seller as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period
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ending on and inclusive of the Closing Date and the period following the Closing
Date in the proportion which the number of days in each such period bears to the
total number of days in the Straddle Period. With respect to Straddle Periods,
(A) Seller shall be responsible for and shall pay all Taxes attributable to the
business, assets, employees and activities of Seller (including but not limited
to all activities related to the Acquired Assets) through to and inclusive of
the Closing Date and all Taxes attributable to the business, assets, employees
and activities of Seller after the Closing Date, and (B) Buyer shall be
responsible for and shall pay all Taxes attributable to the Acquired Assets and
Buyer's activities related thereto after the Closing Date (hereinafter the
liability for Taxes described in this clause (B) shall be referred to as "BUYER
TAX LIABILITIES").
(iii) Without limitation in any manner on the foregoing, all Taxes
attributable to the transfer of the Acquired Assets by Seller to Buyer as
contemplated by this Agreement, including but not limited to income, sales and
transfer Taxes, shall be the responsibility of and shall be paid by Seller.
(b) Filing of Tax Returns; Payment of Taxes.
(i) Seller shall prepare and file, or cause to be prepared and filed,
all Tax Returns of Seller required to be filed (after giving effect to any valid
extension of time in which to make such filings) prior to the Closing Date and
shall pay or cause to be paid, on or before the applicable due date(s) therefor,
all Taxes shown to be due and payable on such Tax Returns.
(ii) (A) Seller shall prepare or cause to be prepared, for
Pre-Acquisition Taxable Periods and for any Straddle Periods, all Tax Returns
required to be filed by Seller and (after giving effect to any valid extensions)
which are not required to be filed on or prior to the Closing Date. The books
and records of Seller will be maintained, and the federal, state and other
income Tax Returns of Seller will be filed, so as to properly reflect the
operations of Seller through the end of the Closing Date.
(B) Seller shall file or cause to be filed all Tax Returns
to which this Section 4.7(b)(ii) applies and shall pay or cause to be paid, on
or before the applicable due date(s) therefor, all Taxes shown on such Tax
Returns to be due and payable.
(C) On or before the date that is ten (10) days prior to
Seller's filing of a Tax Return for a Straddle Period with respect to which
Buyer is obligated to pay a Buyer Tax Liability in accordance with the
provisions of Section 4.7(a), Seller shall furnish a copy of such Tax return to
Buyer together with a notice (the "BUYER TAX LIABILITY Notice") setting forth
Seller's calculation of the Buyer Tax Liability for such Straddle Period and
specifying such information as may be reasonably necessary for Buyer to review
the accuracy of such calculation. If Buyer has no dispute with respect to
Seller's calculation of the Buyer Tax Liability for such Straddle Period, Buyer
shall pay to Seller the full amount of such Buyer Tax Liability within five (5)
days following Buyer's receipt of such Buyer Tax Liability Notice. If Buyer
disputes in good faith its obligation hereunder to pay all or any portion of the
Buyer Tax Liability as calculated by Seller, Buyer shall pay the undisputed
portion (if any) to Seller within five (5) days of Buyer's receipt of the Buyer
Tax Liability Notice, and the dispute with respect to the balance shall be
resolved pursuant to arbitration in accordance with Section 7.13, provided,
however, nothing herein shall be deemed to preclude Buyer from paying the full
amount of the
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Buyer Tax Liability as calculated by Seller and thereafter making a claim for
restitution of all or any portion thereof pursuant to the arbitration provisions
of Section 7.13.
(c) Tax Proceedings.
(i) Seller shall, promptly upon receipt of notice thereof by Seller,
notify Buyer in writing of any communication with respect to any pending or
threatened Tax Proceeding in connection with a Pre-Acquisition Tax Liability (or
any issue related thereto). Seller shall include with such notification a true,
correct and complete copy of any written communication, and an accurate and
complete written summary of any oral communication, so received by Seller.
(ii) Seller shall have responsibility and authority to represent the
interests of Seller in any Tax Proceeding relating to Pre-Acquisition Taxable
Periods, Straddle Periods or otherwise with respect to Pre-Acquisition Tax
Liabilities and to employ counsel of its choice and at its expense; provided,
however, that Buyer shall be permitted to participate in any such Tax
Proceedings and all hearings related thereto; and provided further, that,
without Buyer's prior written consent, Seller shall not agree to settle any such
Tax Proceeding and/or any issues arising therein if such settlement is likely to
result in an increase in Buyer Tax Liabilities or otherwise have an adverse
effect on the Tax consequences of Buyer's use of the Acquired Assets following
the Closing.
(d) Seller Costs; Maintenance and Retention of Records. Seller shall pay
any reasonable legal, accounting and other fees and out-of-pocket expenses
incurred in connection with (i) the preparation of any Tax Return by Seller
pursuant to Section 4.7(b) and (ii) the conduct of any Tax Proceeding described
in Section 4.7(c), but not including Buyer's costs and expenses attributable to
its voluntary participation therein. Seller shall retain or cause to be retained
all such Tax Returns, together with all schedules, workpapers and all material
records or other documents relating thereto, until the expiration of the statute
of limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which such Tax Returns relate. Seller shall notify Buyer in
writing of any waivers or extensions of any statute of limitations that may
affect the period for which the foregoing records or other documents must be
retained.
(e) Section 351. For all federal and state income tax purposes, Seller
and Buyer shall (i) treat and report the transfer of the Acquired Assets in a
manner consistent with its qualification as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of state income tax law, and (ii) file such Tax returns
and Tax information reports related to the transfer as may be required or
otherwise appropriate under the Tax laws and regulations applicable to transfers
of property pursuant to Code Section 351.
(f) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.7 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.8 ACCESS TO RECORDS AND FILES.
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Seller shall have the right for a period of three (3) years following the
Closing Date to have reasonable access to such books, records and accounts,
correspondence, employment records and other similar information as are
transferred to Buyer pursuant to the terms of this Agreement for any proper
purpose. Buyer shall have the right for a period of three (3) years following
the Closing Date to have reasonable access to those books, records and accounts,
correspondence, and other records which are retained by Seller pursuant to the
terms of this Agreement to the extent that any of the foregoing relate to the
Business or the Acquired Assets and to the extent that such access is required
for any lawful purpose.
4.9 COOPERATION IN LITIGATION.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and Seller or any Stockholder and/or their Affiliates or assignees, on the
other, arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payment by each party of its costs and
payment of attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.10 EMPLOYMENT.
(a) Except as set forth herein, Buyer shall not assume any liabilities
or obligations of Seller to any current or former employee of Seller. Buyer
shall not have any liability or obligation to or in respect of any employee of
Seller, including, without limitation, any liability or obligation (i) to employ
or engage any such employee, (ii) arising from such employee's dismissal by
Seller, or any notice and/or payment in lieu of notice required by applicable
law in connection with such dismissal, or (iii) in respect of any compensation,
tenure, seniority, benefit or welfare plan or arrangement of any kind.
(b) Schedule 4.10 lists of all those employees of Seller to whom Buyer
intends to offer employment or engagement. Buyer shall offer employment or
engagement to all of the persons listed on Schedule 4.10 at such salaries, wages
or compensation rates and with such medical insurance and other benefits as
Buyer may determine. At any time after the Closing, Buyer may, but is in no way
obligated to, offer employment or similar engagements to other employees of
Seller, notwithstanding that such employees are not listed on Schedule 4.10.
(c) If any of the employees of Seller elect to become employed or
engaged by Buyer, the employment or relationship between such employee and
Seller shall first terminate, and such
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employee shall execute an Employee General Release Agreement substantially in
the form of Exhibit E (the "EMPLOYEE GENERAL RELEASE") and shall then be
employed or engaged by Buyer according to Buyer's own policies and procedures.
Buyer shall not be liable for any severance payments asserted against Seller, or
other liability or obligation to any employees or former employees of Seller who
do not accept such offers of employment or similar engagements from Buyer.
(d) Employee Plans.
(i) On or before Closing, Seller shall take all actions as may be
necessary or appropriate to cause Buyer to be the sponsor of the DHR
International, Inc. Retirement Savings Plan (the "401(k) PLAN") and for Seller
to cease to be the sponsor of the 401(k) Plan, in each case subject to Closing
and effective on Closing. On or before Closing, Seller shall take all actions
necessary or appropriate to cause the health and welfare plans and corresponding
insurance policies listed on Schedule 4.10(d) to be assigned to Buyer, effective
on Closing. Buyer shall recognize for purposes of its initial paid time off
policies the accrued but unused paid time off for each employee of Seller who
becomes an employee of Buyer, in an amount not to exceed the lesser of (x) the
maximum paid time off each employee of Seller is eligible to earn in one year
under Seller's current paid time off policies applicable to each such employee
or (y) such employee's actual accrued but unused paid time off, to the extent
such time is accrued on the Financial Statements of Seller prior to Closing.
Nothing in this subsection (i) shall prevent Buyer from amending or terminating
any Employee Plan at any time.
(ii) Except as provided in subsection (i) above, Buyer shall not
assume any Employee Plan and Seller shall retain and be responsible for any
cost, expense, liability, damage or obligation relating to any Employee Plan,
whether arising before, on or after Closing.
4.11 CHANGE OF NAME.
Promptly after the Closing Date, Seller will, and the Stockholders will
cause Seller to, change its name to "Hoffmann Investor Company", or such other
name not confusingly similar with "DHR International, Inc." as may be acceptable
to Buyer.
4.12 BULK SALES LAWS.
Seller shall comply with the provisions of any applicable bulk sales
laws, and shall be responsible and liable for the costs of any non-compliance,
irrespective of which party is obligated under such laws.
4.13 STOCKHOLDER REPRESENTATIVE.
The Stockholders shall at all times maintain a representative (the
"STOCKHOLDER REPRESENTATIVE") for purposes of taking certain actions and giving
certain consents on behalf of the Stockholders as specified herein. The
Stockholder Representative will be David Hoffmann unless and until the
Stockholders, each having voting power in proportion to such Stockholder's
ownership of voting securities of Seller, elect his replacement by majority vote
of such shares and notify Buyer thereof. Actions taken, consents given and
representations made by the Stockholder Representative on behalf of the
Stockholders pursuant hereto shall be binding upon
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the Stockholders. Before the Closing, the Stockholder Representative is
authorized by the Stockholders to take any action on behalf of the Stockholders
to facilitate the transactions contemplated hereby which such Stockholder
Representative is directed to take by Seller acting through a majority of the
members of the Board of Directors in office prior to the Closing, including,
without limitation, amending this Agreement, and executing documents or
instruments. After the Closing, the Stockholder Representative is authorized by
the Stockholders to take any action on behalf of the Stockholders to facilitate
or administer the transactions contemplated hereby as the Stockholder
Representative deems appropriate.
4.14 SUPPLEMENTAL DISCLOSURE.
At the Closing, Seller shall supplement or amend each of the schedules
hereto with respect to any matter hereafter arising which, if existing or
occurring at or prior to the date hereof, would have been required to be set
forth or listed in the schedules or which is necessary to complete or correct
any information in the schedules.
4.15 HSR.
Seller and Buyer shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Seller and Buyer shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Seller and Buyer shall pay its own costs incurred in preparation of all
reports and notifications required under the HSR Act.
4.16 COMPETING PROPOSALS.
(a) Neither Seller nor any Stockholder shall, directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire Seller, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) Seller and the Stockholders shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Stockholders or Seller or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) Seller and the Stockholders shall not transfer or hypothecate the
Business, the Acquired Assets or any interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
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4.17 CONSOLIDATION TRANSACTIONS.
Concurrent with the acquisition of the Acquired Assets, Buyer is
acquiring in a series of transactions various other companies engaged in the
business of cost reduction, cost recovery and profit enhancement services by
means of mergers into Buyer, or acquisitions by Buyer of all or substantially
all of the assets or stock or other equity interests of such companies
(collectively, the "CONSOLIDATION TRANSACTIONS"). Seller and the Stockholders
acknowledge that as a result of the complexity of the transactions contemplated
hereby and the Consolidation Transactions, the Closing contemplated hereby and
the closing of the Consolidation Transactions must be concurrent at a time
designated by Buyer. Accordingly, Seller and the Stockholders shall at any time
upon or after execution of this Agreement, but prior to the Closing Date (i)
provide any outstanding documentation required to effect the Closing pursuant to
this Agreement in escrow pending release upon authorization by Seller at the
Closing, (ii) complete performance of their respective obligations hereunder and
under the other Transaction Documents to be performed by the Closing, and (iii)
update the schedules hereto and any other documentation or information provided
to Buyer during the course of this transaction such that all such disclosures
shall be accurate and current as of the Closing Date.
4.18 COLLECTION OF ACCOUNTS RECEIVABLE.
(a) Promptly after the Closing, Seller shall prepare and deliver to
Buyer a list of all Accounts Receivable outstanding on the Closing Date. For a
period of 120 days after the Closing Date (the "COLLECTION PERIOD") Buyer shall
use its reasonable best efforts to collect the Accounts Receivable. Buyer may,
but shall not be obligated to, use a collection agency or commence legal actions
in connection with such collection efforts. Promptly after the expiration of the
Collection Period, Buyer shall provide written notice to Seller of those
Accounts Receivable which have not been collected as of the end of the
Collection Period to the extent that the aggregate amount unpaid exceeds the
allowance for doubtful accounts specified in Schedule 1.5. Within ten (10) days
of receipt of such notice from Buyer, Seller shall purchase (without recourse to
Buyer) such designated Accounts Receivable then remaining unpaid for a purchase
price thereof equal to the face amount thereof, less any amounts collected
thereunder by Buyer. Buyer may in its discretion cause Seller to pay the
purchase price for such Accounts Receivable through offset of any payment
obligations of Buyer or its Affiliates to Seller or any Stockholder.
(b) Upon the repurchase by Seller of any unpaid Accounts Receivable
pursuant to this Section 4.18, (i) Buyer shall promptly deliver to Seller any
tangible evidence of such Accounts Receivable then in the possession of Buyer or
under its control, and (ii) Seller shall be entitled to take any and all actions
which it may deem necessary or desirable in order to collect such unpaid
Accounts Receivable. Buyer will, from time to time after such repurchase,
execute and deliver to Seller such instruments and other documents as Seller may
reasonably request to assist Seller in its collection efforts.
(c) If any payment received by Buyer during the Collection Period is
remitted by a customer which is indebted under both Accounts Receivable and an
account receivable arising
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out of a sale after the Closing Date (a "NEW RECEIVABLE"), such payments shall
first be applied to the New Receivable due from such customer and the balance
remaining after payment in full of all New Receivables due from such customer
shall be applied to the Accounts Receivable unless the payment is designated by
the payor as applicable to the Accounts Receivable, in which case such payment
will be first applied to the Accounts Receivable to the extent such application
would be consistent with Seller's historical account collection practices.
(d) Seller hereby authorizes Buyer to open any and all mail addressed to
Seller (if delivered to Buyer) received on or after the Closing Date and hereby
grants to Buyer a power of attorney to endorse and cash any checks or
instruments made payable or endorsed to Seller or its order and received by
Buyer.
(e) Seller shall forward promptly to Buyer any monies, checks or
instruments received by Seller after the Closing with respect to the Accounts
Receivable or New Receivables, except with respect to those Accounts Receivable
which are repurchased by Seller pursuant to Section 4.18(a).
4.19 BONUS PLAN.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
4.20 BEST EFFORTS.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.21 FURTHER ASSURANCES.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
perfect title of Buyer and its successors and assigns to the Acquired Assets or
otherwise to effectuate the purposes of this Agreement.
4.22 NOTICE OF BREACH.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party
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contained herein or in any other Transaction Document to the parties to whom or
which such representation, warranty or covenant was made.
4.23 SHARE TRANSFER.
The Seller has entered into repurchase agreements (the "REPURCHASE
AGREEMENTS") with those individuals (the "UNIT HOLDERS") set forth on Schedule
4.23. Pursuant to the Repurchase Agreements, the Seller has acquired any and all
of the outstanding equity rights in the Seller that the Unit Holders held or may
have held. Notwithstanding anything to the contrary contained herein, the Buyer
consents to and acknowledges that the Seller may transfer Shares to the Unit
Holders in the amounts set forth on Schedule 4.23, provided that each of the
Unit Holders (i) is an Accredited Investor, (ii) has executed and delivered to
the Buyer a Stockholder Agreement, a Voting Agreement, and a Stock Power in form
and substance satisfactory to the Buyer, (iii) has received and acknowledged the
Unit Holder's understanding of the Summary of Certain Considerations attached
hereto as Exhibit D and (iv) has executed and delivered a release in form and
substance satisfactory to the Buyer, pursuant to which the Unit Holder releases
the Buyer of any claims against, or liabilities or obligations of Buyer, Seller
or Stockholder against the Unit Holder and any claim, or liability or obligation
that may arise pursuant to the Repurchase Agreements.
5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.26 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Section 2.4
(Acquired Assets), which will survive indefinitely. As to any matter or claim
which is based upon fraud by the indemnifying party, the representations and
warranties set forth in this Agreement shall expire only upon expiration of the
applicable statute of limitations. No party will be liable to another under any
warranty or representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2 INDEMNIFICATION BY SELLER AND THE STOCKHOLDERS.
Subject to the limits set forth in this Article 5, Seller, the
Stockholders and their successors and assigns shall jointly and severally
indemnify, defend, reimburse and hold
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harmless Buyer and its Affiliates and their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all claims, losses, damages, liabilities, obligations, assessments,
penalties and interest, demands, actions and expenses, whether direct or
indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("Losses")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the operations of Seller and the ownership or operation of the
Excluded Assets at any time before or after the Closing;
(b) the ownership or operation of the Acquired Assets or Business before
the Closing other than obligations specifically assumed by Buyer;
(c) any untruth, or inaccuracy of any representation warranty or
certification made by Seller or any Stockholder in this Agreement or any other
Transaction Document;
(d) the breach of any covenant, agreement or obligation of Seller or any
Stockholder contained in this Agreement or any other Transaction Document;
(e) any claims against, or liabilities or obligations of, Seller not
specifically assumed by Buyer pursuant to this Agreement; and
(f) any claims by, or liabilities or obligations to any Unit Holder or
any claims, liabilities or obligations that may arise pursuant to the Repurchase
Agreements.
5.3 INDEMNIFICATION BY BUYER.
Subject to the limits set forth in this Article 5, Buyer and its
successors and assigns, shall indemnify, defend, reimburse and hold harmless
Seller and its successors and assigns and their officers, directors, employees
and agents from and against any and all Losses reasonably incurred by any such
indemnitee arising out of or in connection with any of the following:
(a) the ownership and operation of the Acquired Assets and the Business
after the Closing (except that to the extent not prohibited by applicable law,
Buyer and its successors and assigns will not be required to indemnify, defend,
reimburse or hold harmless any Stockholder in respect of any Losses arising as a
result of acts or omissions of that Stockholder, including without limitation in
such Stockholder's capacity as an employee of or consultant to Buyer or its
Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document; and
(d) any claims against, or liabilities or obligations of, Seller
specifically assumed by Buyer pursuant to this Agreement; and
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5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the
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Indemnitor shall cooperate with the Indemnitee and its counsel, at the
Indemnitor's sole cost, risk and expense, in all reasonable respects, and shall
deliver to the Indemnitee or its counsel copies of all pleadings and other
information within the Indemnitor's knowledge or possession reasonably requested
by the Indemnitee or its counsel that are relevant to the defense of the subject
of any such Claim and that will not prejudice the Indemnitor's position, claims
or defenses. The Indemnitee shall maintain confidentiality with respect to all
such information consistent with the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 PAYMENT.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of Seller and the Stockholders, on
the one hand, to Buyer, and Buyer, on the other hand, to Seller, for all claims
arising under this Agreement and the other Transaction Documents shall equal the
aggregate Purchase Price. For purposes of this Section 5.6(b), the value of
Shares received shall be (i) prior to the IPO, the per share Agreed Price (as
defined in the Stockholder Agreement) then prevailing; and (ii) after the IPO,
the per share closing price on the primary exchange or market on which the
Common Stock is traded on
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the date such indemnifiable Losses become payable, except that the value of any
Shares sold in bona fide third party transactions will be the gross proceeds to
the seller of such sale.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The obligations of Buyer, on the one hand, and the Stockholders and
Seller, on the other hand, to consummate the transactions contemplated hereby
are subject to the fulfillment, at or before the Closing Date, of the conditions
set forth in this Section 6.1, any one or more of which may be waived in writing
by the party entitled to the benefit of such condition; provided, however, that
such waiver will not diminish such party's right to indemnification pursuant to
Article 5, unless so stated, and provided further that Seller and the
Stockholders will be required to perform their obligations hereunder,
notwithstanding lack of fulfillment of the conditions set forth in this Section
6.1, if Buyer agrees in writing to be liable for, and to indemnify Seller and
the Stockholders from and against, any obligations that Seller or the
Stockholders would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, net income or financial
condition of Seller, is in effect; and no action or proceeding has been
instituted or threatened by any Governmental Entity, other person, or entity
which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for Seller may reasonably deem necessary or appropriate so that consummation of
the transactions contemplated by this Agreement will be in compliance with
applicable laws, including, without limitation, expiration or termination of the
waiting period prescribed by the HSR Act.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of Seller and the Stockholders contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date,
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and at the Closing Seller and the Stockholders shall each have delivered to
Buyer a certificate dated the Closing Date to such effect signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Seller and by the Stockholders.
(b) Performance of Seller and the Stockholders. Seller and the
Stockholders shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement on or before the
Closing Date, and at the Closing Seller and the Stockholders shall each have
delivered to Buyer a certificate to such effect dated the Closing Date and
signed by, respectively, the President or any Vice President and the Secretary
or any Assistant Secretary of Seller and the Stockholders, as applicable.
(c) Additional Closing Documents of Seller. Buyer has received, or is
receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Seller of resolutions of the Board of Directors and the Stockholders
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents to be delivered by Seller and the consummation of
the transactions contemplated hereby and thereby;
(ii) The Bill of Sale described in Section 1.1;
(iii) Leasehold assignments or similar forms of conveyance in
proper statutory form for recording duly executed and acknowledged by Seller
covering the Real Property Leases to be conveyed to Buyer pursuant to this
Agreement;
(iv) Such further instruments of sale, transfer, conveyance,
assignment or delivery covering the Acquired Assets, or any part thereof, as
Buyer may reasonably require to assure the full and effective sale, transfer,
conveyance, assignment or delivery to it of the Acquired Assets to be
transferred pursuant to this Agreement;
(v) A Stockholder Agreement substantially in the form of Exhibit
F, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit F-1 executed by each recipient of Shares and the
spouse of each such recipient, if applicable;
(vi) A Voting Agreement substantially in the form of Exhibit G,
executed and delivered by each recipient of Shares;
(vii) A Subordination Agreement substantially in the form of
Exhibit H, executed and delivered by the recipient of the Note (as defined in
Schedule 1.4);
(viii) The Accredited Investor Questionnaire described in Section
2.23(g);
(ix) Each Employee General Release as described in Section
4.10(c); and
(x) Such other documents as Buyer may reasonably request.
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(d) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(e) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(f) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the Acquired Assets, the business, operations, financial
condition and prospects of Seller.
(g) Financing. Buyer shall have available, on commercially reasonable
terms, reasonably satisfactory to Buyer, debt financing sufficient to finance
the Cash Payment (as defined in Schedule 1.4), the cash portion of the purchase
price being paid by Buyer pursuant to each of the Consolidation Transactions and
to provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(h) Closing Date Value. At the Closing Date Seller will have (i) a net
worth calculated according to GAAP, of at least Three Million Eight Hundred and
Forty-Three Thousand Dollars ($3,843,000), not counting Excluded Assets or
liabilities of Seller not assumed by Buyer, and (ii) sufficient working capital
to operate the Business; and at the Closing Seller shall have delivered to Buyer
a certificate dated the Closing Date to such effect with supporting financial
information, signed by the President or any Vice President and the Secretary or
any Assistant Secretary of Seller.
(i) No Default. Seller shall not be in default of any material
obligation.
(j) Employee Matters. Buyer shall be reasonably assured that employees
of a quantity and having the skills sufficient for the operation of the Business
are continuing their affiliation with the Business through employment with Buyer
or Buyer's Affiliates after the Closing; and Buyer has received an Employee
General Release executed by each person leaving the employ of Seller to become
an employee of Buyer or any of Buyer's Affiliates. Buyer shall have received an
employment agreement substantially in the form attached hereto as Exhibit I-1
for each key employee designated by Buyer or Exhibit I-2 for other employees
(each with conforming changes as appropriate for the employee), duly executed by
each of the persons named on Schedule 6.2;
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to Seller in substantially the form
of Exhibit J. In giving such opinion, such counsel may rely upon certificates of
public officials, upon opinions of local counsel and, as to matters of fact,
upon a certificate of Seller, or its officers, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by Buyer.
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(l) Schedules. Buyer shall have received final schedules to this
Agreement, prior to the Closing Date, from the Seller and the Stockholders which
accurately reflect the information required to be provided therein pursuant to
this Agreement and in form and substance satisfactory to the Buyer.
(m) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of Seller or the Stockholders or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER.
The obligations of Seller to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.3, any one or more of which may be waived
by Seller in writing in its discretion; provided however, such waiver will not
waive or diminish the right of Seller to indemnification pursuant to Article 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to Seller
a certificate to such effect dated the Closing Date, signed by the President or
any Vice President and the Secretary or any Assistant Secretary of Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
Seller a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the
execution and delivery of this Agreement and the other Transaction
Documents to be delivered by Buyer and the consummation of the
transactions contemplated hereby;
(ii) The Assumption Agreement as described in Section 1.3;
(iii) The Cash Payment (as defined in Schedule 1.4);
(iv) The Note;
(v) A photocopy of the certificates evidencing the Shares (as
defined in Schedule 1.4);
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(vi) An employment agreement substantially in the form attached
hereto as Exhibit I-1 for each key employee designated by Buyer or
Exhibit I-2 for other employees (each with conforming changes as
appropriate for the employee) with each of the persons named on Schedule
6.2; and
(vii) Such other closing documents as Seller may reasonably
request.
(d) Opinion of Counsel. Seller shall have received a favorable opinion,
dated as of the Closing Date, from counsel to Buyer in substantially the form of
Exhibit K. In giving such opinion, such counsel may rely upon certificates of
public officials, upon opinions of local counsel and, as to matters of fact,
upon a certificate of Buyer, and such counsel may assume that this Agreement has
been duly authorized, executed and delivered by Seller and the Stockholders.
(e) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including Seller, having aggregate Pre-tax Income of at least $20 million and at
the Closing Buyer shall have delivered to Seller a certificate to such effect in
substantially the form of Exhibit L, dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer. For these purposes, "PRE-TAX INCOME" of any particular company means that
company's projected 1998 pre-tax income, as adjusted pursuant to agreement
between Buyer and that company to reflect certain cost reductions and modified
business practices and accounting methods expected to take effect after the
closing of the Consolidation Transactions.
(f) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Acquired Assets
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by Seller and the Stockholders.
7. MISCELLANEOUS.
7.1 TERMINATION.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) Seller or the Stockholders fail to comply in any
material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of Seller or the
Stockholders is breached or is inaccurate in any material way; (b) by Seller if
(i) Buyer fails to comply in any material respect with any of its covenants or
agreements contained herein, or (ii) any of the representations and warranties
of Buyer is breached or is inaccurate in any material way; or (c) by Seller or
Buyer if (i) a Governmental Entity has issued a non-appealable order, decree or
ruling or taken any other action (which order, decree or ruling the parties
hereto have used their best efforts to lift), which permanently restrains,
enjoins or otherwise prohibits the transactions contemplated by this Agreement;
or (ii) a condition to its performance hereunder has not been satisfied or
waived prior to November 30, 1998, provided however, that if the board of
directors of Buyer should, in good faith, determine that it is necessary to
extend the Closing for the purpose of facilitating the financing of the
Consolidation Transactions, it may extend such date by thirty-five (35) days.
Notwithstanding the foregoing, a
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party may not terminate this Agreement if the event giving rise to the
termination right results from the willful failure of such party to perform or
observe any of the covenants or agreements set forth herein to be performed or
observed by such party or if such party is, at such time, in material breach of
this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.26 (Brokers), 4.2 (Confidentiality), 7.12
(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction) and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2 NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5559
With a copy to: Brian W. Copple
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3874
Fax: (949) 451-4220
If to Seller or any Stockholder:
David Hoffmann
DHR International, Inc.
10 South Riverside Plaza, Suite 220
Chicago, Illinois 60606
Tel: 312-782-1581
Fax: 312-782-2096
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With a copy to: Day, Campbell & McGill LLP
Rowland Day
3070 Bristol, Suite 650
Costa Mesa, California 92626
Tel: 714-429-2919
Fax: 714-429-2901
7.3 ASSIGNABILITY AND PARTIES IN INTEREST.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and Seller and their respective permitted successors and
assigns and upon each Stockholder and his [or her] executors, administrators,
heirs, legal representatives and permitted successors and assigns. Nothing in
this Agreement will confer upon any person or entity not a party to this
Agreement, or the legal representatives of such person or entity, any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement.
7.4 GOVERNING LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 COUNTERPARTS.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 PUBLICITY.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and Seller, except that Buyer
may disclose details of this Agreement to other participants in, or as necessary
to effect, the Consolidation Transactions. Notwithstanding the foregoing, in the
event any such press release or announcement is required by law to be made by
the party proposing to issue the same, such party shall consult in good faith
with the other party as far in advance as practicable to the issuance of any
such press release or announcement.
7.7 COMPLETE AGREEMENT.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the
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transactions contemplated herein and therein and shall supersede all previous
oral and written and all contemporaneous oral negotiations, commitments, and
understandings.
7.8 MODIFICATIONS, AMENDMENTS AND WAIVERS.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 HEADINGS; REFERENCES.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10 SEVERABILITY.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 INVESTIGATION.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of Seller
shall be deemed made to the knowledge of the Stockholders only and no other
person.
7.12 EXPENSES OF TRANSACTIONS.
All fees, costs and expenses incurred by Buyer in connection with the
transactions contemplated by this Agreement shall be borne by Buyer, and all
fees, costs, and expenses incurred by Seller or the Stockholders in connection
with the transactions contemplated by this Agreement shall be borne by Seller
and the Stockholders jointly and severally.
7.13 ARBITRATION.
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(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any Affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least
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twenty (20) years experience with and knowledge of securities laws, complex
business transactions, and mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 SUBMISSION TO JURISDICTION.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated
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exclusively in the state or federal courts located in the County of Orange,
State of California. The aforementioned choice of venue is intended by the
parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Agreement in any jurisdiction other than that specified in this paragraph.
Each party hereby waives any right it may have to assert the doctrine of forum
non conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 7.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
7.15 ATTORNEYS' FEES.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against Seller or any of its Affiliates, successors or assigns or any
Stockholder, or if Seller or any of its Affiliates, successors or assigns or any
Stockholder brings any action, suit, counterclaim, cross-claim, appeal,
arbitration, or mediation for any relief against Buyer or any of its Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party.
7.16 ENFORCEMENT OF THE AGREEMENT.
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<PAGE> 59
Seller, the Stockholders and Buyer acknowledge that irreparable damage would
occur if any of the obligations of Seller and the Stockholders under this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Buyer will be entitled to an injunction or injunctions to
prevent breaches of this Agreement by Seller or the Stockholders and to enforce
specifically the terms and provisions hereto, this being in addition to any
other remedy to which Buyer is entitled at law or in equity.
7.17 FORM OF AGREEMENT.
The original text of this Agreement contained certain errors and
ambiguities, which are corrected by this version of the agreement. This version
of the Agreement is made effective as of the Effective Date, without any
representations or inducements not set forth herein, solely to set forth the
parties' agreement with respect to the subject matter hereof, and supersedes all
previous versions.
[SIGNATURES INTENTIONALLY APPEAR ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
"BUYER"
By: /s/ MARK C. COLEMAN
------------------------------------
Name: Mark C. Coleman
----------------------------------
Title: SVP
---------------------------------
DHR INTERNATIONAL, INC.
"SELLER"
By: /s/ DAVID H. HOFFMANN
------------------------------------
David H. Hoffmann
Chairman/CEO
STOCKHOLDER REPRESENTATIVE
/s/ DAVID H. HOFFMANN
- ---------------------------------------
David H. Hoffmann
STOCKHOLDERS
/s/ DAVID H. HOFFMANN
- ---------------------------------------
David H. Hoffmann
/s/ JERRILYN M. HOFFMANN
- ---------------------------------------
Jerrilyn M. Hoffmann
53
<PAGE> 1
EXHIBIT 10.31
STOCK PURCHASE AGREEMENT
BY AND AMONG
EPS SOLUTIONS CORPORATION
"BUYER"
HOLDEN CORPORATION
"COMPANY"
AND
THE STOCKHOLDERS NAMED HEREIN
"STOCKHOLDERS"
MARCH 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Purchase of Membership Interests.............................................1
2. Option.......................................................................1
2.1. RIGHT TO PURCHASE..................................................1
2.2. EXERCISE PROCEDURE.................................................2
2.3. EXERCISE PRICE.....................................................2
2.4. MATERIAL INFORMATION...............................................2
2.5. NO INTERFERENCE WITH OPTION.........................................2
3. Representations and Warranties of the Company and the Members................2
3.1. ORGANIZATION AND GOOD STANDING.....................................3
3.2. OWNERSHIP OF MEMBERSHIP INTERESTS..................................3
3.3. AUTHORIZATION OF AGREEMENT.........................................4
3.4. TITLE TO ASSETS....................................................4
3.5. CERTAIN PROPERTY OF THE COMPANY....................................4
3.6. YEAR 2000 COMPLIANCE...............................................6
3.7. NO CONFLICT OR VIOLATION...........................................7
3.8. CONSENTS...........................................................7
3.9. LABOR AND EMPLOYMENT MATTERS.......................................7
3.10. EMPLOYEE PLANS....................................................8
3.11. LITIGATION........................................................8
3.12. CERTAIN AGREEMENTS................................................9
3.13. COMPLIANCE WITH APPLICABLE LAW....................................9
3.14. LICENSES.........................................................10
3.15. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.......10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.16. LIABILITIES.......................................................11
3.17. TAXES.............................................................11
3.18. BROKERS...........................................................12
3.19. ACKNOWLEDGMENT RE DELOITTE & TOUCHE LLP...........................12
4. Representations and Warranties of Buyer.....................................12
4.1. ORGANIZATION AND CORPORATE AUTHORITY..............................12
4.2. NOTES.............................................................12
4.3. NO CONFLICT OR VIOLATION..........................................12
4.4. PURCHASE FOR INVESTMENT...........................................13
4.5. INVESTIGATION BY BUYER............................................13
5. Certain Understandings and Agreements of the Parties........................13
5.1. ACCESS............................................................13
5.2. CONFIDENTIALITY...................................................13
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
5.3. CERTAIN CHANGES AND CONDUCT OF BUSINESS...........................14
5.4. RESTRICTIVE COVENANTS.............................................16
5.5. MEMBER RESTRICTIONS...............................................19
5.6. NOTICE OF BREACH..................................................19
5.7. FINANCIALS........................................................19
5.8. CONTINUANCE OF EXISTING INDEMNIFICATION RIGHTS....................19
5.9. TAX MATTERS.......................................................20
5.10. TAKE-ALONG AND TAG-ALONG RIGHTS...................................22
5.11. BUSINESS PLAN.....................................................23
5.12. FINANCING OF THE COMPANY..........................................23
5.13. EMPLOYEES.........................................................24
5.14. USE OF SERVICES...................................................25
6. Survival; Indemnification...................................................25
6.1. SURVIVAL..........................................................25
6.2. INDEMNIFICATION BY THE MEMBERS....................................26
6.3. INDEMNIFICATION BY BUYER..........................................26
6.4. INDEMNIFICATION PROCEDURE.........................................26
6.5. PAYMENT...........................................................28
6.6. LIMITATIONS.......................................................29
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
7. Miscellaneous...............................................................29
7.1. NOTICES...........................................................29
7.2. ASSIGNABILITY AND PARTIES IN INTEREST.............................30
7.3. GOVERNING LAW.....................................................30
7.4. COUNTERPARTS......................................................30
7.5. COMPLETE AGREEMENT................................................30
7.6. MODIFICATIONS, AMENDMENTS AND WAIVERS.............................30
7.7. HEADINGS; REFERENCES..............................................31
7.8. SEVERABILITY......................................................31
7.9. INVESTIGATION.....................................................31
7.10. EXPENSES OF TRANSACTIONS.........................................31
7.11. ARBITRATION......................................................31
7.12. SUBMISSION TO JURISDICTION.......................................33
7.13. ATTORNEYS' FEES..................................................33
7.14. ENFORCEMENT OF THE AGREEMENT.....................................34
</TABLE>
iv
<PAGE> 6
EXHIBITS
A. Form of Accredited Investor Questionnaire
B. Summary of Certain Considerations
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Form of Voting Agreement
E. Form of Subordination Agreement
F. Form of Opinion of Counsel to the Company and the Stockholders
G-1 Form of Employment Agreement for Key Employees
G-2 Form of Employment Letter for Other Employees
H. Form of Opinion of Counsel to the Buyer
I. Form of Officer's Certificate
J. Form of Notes
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.22 Indebtedness
2.26 Banks
2.29 Brokers
3.5 Buyer Litigation
3.6(a) EPSC Subsidiaries
3.6(b) Consolidated Indebtedness
3.6(c) Business Descriptions
3.7(a) Buyer Financial Statements
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
v
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of March 1, 1999 by and among Holden Corporation, an Illinois
corporation (the "COMPANY"), the stockholders of the Company listed on the
signature page(s) hereof (each such individual a "STOCKHOLDER," and
collectively, the "STOCKHOLDERS"), James F. Holden, acting for and on behalf of
the Stockholders as their representative pursuant to Section 4.9 (the
"STOCKHOLDER REPRESENTATIVE"), and EPS Solutions Corporation, a Delaware
corporation ("BUYER").
A. The Company is engaged in (1) the provision of sales training
seminars that teach salespeople, sales managers and sales support people the
process of selling in the areas of territory, account and relationship selling
as expressed in the Power Base(R) Selling, Territory Value Selling, Partnership
Selling and Relationship Management seminars currently offered by the Company;
(2) the provision of marketing workshops that teach sales and marketing
personnel to more effectively align their marketing efforts to the Power Base(R)
Selling methodology, as expressed in the Company's Power Base(R) Marketing
Alignment Workshops; (3) the development of diagnostics that relate to the
Company's sales training seminars and marketing workshops, as identified above,
including Architectural Assessments(R) 1.0 through 7.0 tool, Revenue Risk Report
and Valu-Driver(R) tool; (4) the development of software that relates to the
Power Base(R) Selling methodology, in terms of assisting in the implementation
of the methodology, including software designs for future possible software, as
expressed in the SmartSel(TM) software, IntelliCoach software design, and
VALUGUIDE(R) software offerings; and (5) the provision of consulting services
that relate to increasing sales force effectiveness in the areas of recruiting
and selection, compensation, performance management and competency assessment of
sales and sales management personnel as they relate to the Company's current
offerings, as identified above, and sales presentations at customer conferences
that are an introduction to the Company's approach to sales effectiveness (the
"BUSINESS").
B. The Stockholders own 1,000 shares of common stock of the
Company, constituting all of the issued and outstanding shares of capital stock
of the Company (the "SELLER SHARES").
C. The Stockholders desire to sell to Buyer, and Buyer desires to
purchase from the Stockholders, all of the Seller Shares on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE> 8
1. SALE AND PURCHASE.
1.1. Agreements to Sell and Purchase. On the Closing Date (as hereinafter
defined) the Stockholders shall sell to Buyer, and Buyer shall purchase from the
Stockholders, all of the Seller Shares, for the purchase price described in
Section 1.3.
1.2. Closing. The closing of the sale and purchase of the Seller Shares (the
"CLOSING") will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park
Plaza, Irvine, California, on a date to be selected by Buyer after all the
conditions set forth in Article 6 have either been satisfied or, in the case of
conditions not satisfied, waived in writing by the party entitled to the benefit
of such conditions (the "CLOSING DATE"). Prior to the Closing Date, Buyer shall
provide written notice (the "CLOSING NOTICE") to the Company and the
Stockholders informing the Company and the Stockholders of the anticipated
Closing Date. At the Closing, the Stockholders shall deliver to Buyer or its
designees stock certificates, duly endorsed in blank (or accompanied by duly
executed stock powers), representing the Seller Shares being sold by the
Stockholders and each other instrument of transfer Buyer may reasonably request
to vest effectively in Buyer good and valid title to the Seller Shares, free and
clear of any liens, pledges, options, security interest, trusts, encumbrances or
other rights or interests of any person or entity, together with any taxes,
direct or indirect, attributable to such transfer of the Seller Shares, and
Buyer shall thereupon pay to each Stockholder the Purchase Price for such
Stockholder's Seller Shares.
1.3. Purchase Price. The consideration to be paid by Buyer for the Seller Shares
(the "PURCHASE PRICE"), both in the aggregate and to each Stockholder for such
Stockholder's Seller Shares, is described in Schedule 1.3.
1.4. Certificates for Shares. In order to facilitate replacement of certificates
for the shares of Series A Common Stock of Buyer constituting part of the
Purchase Price (the "SHARES") upon an IPO (as defined herein) with the transfer
agent's form of certificate, and to facilitate enforcement of the Stockholder
Agreement (as defined herein), Buyer will keep custody of the certificates
representing the Shares until the IPO and until the Shares are no longer subject
to the Stockholder Agreement, and recipients of Shares will execute and deliver
blank stock powers as described in Section 6.2(d)(i). This custody arrangement
will not affect the rights as a stockholder of any permitted recipient of
Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Schedule 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Stockholders, jointly
and severally, represent and warrant to Buyer that:
2.1. Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois, with full corporate power and authority to carry on the Business as it
is now being conducted, and to own, lease or operate its assets and properties.
The Company is duly qualified to do business and is in good standing in every
jurisdiction in which the character of the properties owned
2
<PAGE> 9
or leased by it or the nature of the business conducted by it makes such
qualification necessary, except where failure to be so qualified would not have
a Material Adverse Effect. Schedule 2.1 lists all of the jurisdictions in which
the Company is qualified to do business. "MATERIAL ADVERSE EFFECT" shall mean a
material adverse effect on or change in the Business or the financial condition
or results of operation of the Company, other than any such change or effect
attributable to or resulting from (i) changes in conditions (economic or
otherwise) generally applicable to the industries in which the Company operates
the Business, or general economic conditions globally, in the United States or
in the regions thereof in which the Company operates the Business, or (ii) any
change in laws, rules or regulations of general applicability relating to or
affecting the industries in which the Company operates the Business or
interpretations of such laws, rules or regulations by any Governmental Entity.
Complete and accurate copies of the charter documents of the Company, with all
amendments thereto to the date hereof, and the bylaws as presently in effect,
have been furnished to Buyer or its representatives.
2.2. Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 5,000 shares
of common stock of the Company, no par value, of which 1,000 shares are issued
and outstanding and held by the Stockholders as joint tenants. There is no other
issued and outstanding capital stock of the Company. Without limiting the
foregoing, any and all shares of capital stock of the Company issued to Arthur
Jacobs have been returned to the Company and canceled and Arthur Jacobs has no
equity or other interest in the Company.
(b) The Seller Shares are all of the issued and outstanding capital
stock of the Company and are validly issued and outstanding, fully paid and
non-assessable. Neither the Stockholders nor the Company has granted, issued or
agreed to grant or issue any other equity interests in the Company and there are
no outstanding options, warrants, subscription rights, securities that are
convertible into or exchangeable for, or any other commitments of any character
relating to, any equity interests of the Company.
(c) The Stockholders have good and valid title to, and sole record and
beneficial ownership of, the Seller Shares, free and clear of any claims, liens,
pledges, options, security interests, trusts encumbrances or other rights or
interests of any person or entity.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
3
<PAGE> 10
(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3. Authorization of Agreement. The Company and the Stockholders have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the "TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Board of Directors of the Company (the "BOARD OF
DIRECTORS") and the Stockholders and no other proceedings on the part of the
Company or the Stockholders are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the other
Transaction Documents to be delivered by the Company or any Stockholder have
been (or upon execution will have been) duly executed and delivered by the
Company or such Stockholder and constitute (or upon execution will constitute)
legal, valid and binding obligations of the Company or such Stockholder, except
as such enforceability may be limited by general principles of equity and
bankruptcy, insolvency, reorganization and moratorium and other similar laws
relating to creditors' rights (the "ENFORCEABILITY EXCEPTIONS.")
2.4. Title to Assets. The Company owns, or has valid leasehold interests in, all
material assets used to conduct the Business, whether real, personal, mixed,
tangible or intangible, free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and claims of
any kind except any of the following: (i) purchase money security interests in
specific items of equipment each having a value not in excess of $5,000; (ii)
Personal Property leased pursuant to Personal Property Leases; (iii) liens for
taxes not yet payable; (iv) additional security interests and liens consented to
in writing by Buyer; (v) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vi) such imperfections of title
and encumbrances, if any, as would not have a Material Adverse Effect; (vii)
liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or (ii)
above, provided that any extension, renewal or replacement lien is limited to
the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase. There are
no outstanding agreements, options or commitments of any nature obligating the
Company or any Stockholder to transfer any of the assets of the Company or
rights or interests therein to any party other than sales of inventory in the
ordinary course of business.
2.5. Financial Condition and Accounting.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of December 31, 1995, 1996 and 1997 and the related statements of
income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the balance sheet, and the related statements of income and
cash flow of the Company for the
4
<PAGE> 11
nine-month period ended September 30, 1998 (the "INTERIM FINANCIAL STATEMENTS,"
and with the Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The
Financial Statements (i) were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied except as disclosed in the
footnotes thereto (except that the Interim Financial Statements are subject to
year-end adjustments, the net effect of which will not represent a Material
Adverse Change); and (ii) fairly present, in all material respects, the
financial condition and the results of the operations of the Company as at the
relevant dates thereof and for the periods covered thereby. There have been no
material changes or modifications of revenue recognition, cost allocation
practices, method of accounting, or other financial or operational practices or
principles except for any such change required by reason of a concurrent change
in GAAP during the periods covered by the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997 the Company has
not experienced any Material Adverse Change, or experienced any event, action,
or circumstance of the kind described in Section 4.3(a). For purposes of this
Agreement, a "MATERIAL ADVERSE CHANGE" means any event, circumstance, condition,
development or occurrence causing, resulting in, having, or that could
reasonably be expected to have, a Material Adverse Effect.
2.6. Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company and each Stockholder, each Real Property
Lease is a valid and binding obligation of each of the other parties thereto,
except as enforceability may be limited by the Enforceability Exceptions.
(ii) The Company is not, and neither the Company nor any
Stockholder has any knowledge that any other party to any Real Property Lease
is, in default with respect to any material term or condition thereof, and no
event has occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto or the creation of a lien or encumbrance
upon any asset of the Company.
(iii) To the knowledge of the Company and each Stockholder all of
the buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, except for ordinary wear and
tear, and the operation
5
<PAGE> 12
thereof as presently conducted is not in violation of any applicable building
code, zoning ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
that are material to the Business are in good operating condition and repair,
except for ordinary wear and tear, and are sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property, accurately identifies such Personal Property as owned or
leased, and lists each Personal Property Lease. The Company is not in material
breach of or default, and no event has occurred which, with due notice or lapse
of time or both, may constitute such a material breach or default, under any
Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all material Proprietary Rights owned
by, registered in the name of, licensed to, or otherwise used by the Company
that are material to the Business. For purposes of this Agreement "PROPRIETARY
RIGHTS" means trademarks and service marks that are registered with the United
States Patent and Trademark Office, all applications or registrations in any
jurisdiction pertaining to the foregoing and all goodwill associated therewith;
patents, patent applications and disclosures for patent applications; computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications and
data); copyrights that are registered with the United States Copyright Office;
licenses, including, without limitation, software licenses, immunities,
covenants not to sue and the like relating to any of the foregoing; Internet Web
sites, domain names and registrations or applications for registration thereof;
books and records describing or used in connection with any of the foregoing;
and claims or causes of action arising out of or related to infringement or
misappropriation of any of the foregoing. All trademarks and service marks that
are material to the conduct of the Business as of the date hereof and as of the
Closing Date are registered with the United States Patent and Trademark Office,
and all copyrights that are material to the conduct of the Business as of the
date hereof and as of the Closing Date are registered with the United States
Copyright Office.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the uses of the Proprietary Rights in connection with the conduct of the
Business in the manner presently conducted and to convey such right and
authority to Buyer.
6
<PAGE> 13
(iii) Schedule 2.6(c) lists any material licenses, sublicenses or
other agreements pursuant to which the Company grants a license to any person to
use the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company except as would not have a Material Adverse
Effect. There have not been any actions or other judicial or adversary
proceedings involving the Company concerning any of the Proprietary Rights, nor
to the knowledge of the Company or any Stockholder, is any such action or
proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Stockholder, there are
no conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business that are material to the operation of the Business
(the "TRADE SECRETS"), free and clear of any liens, encumbrances, restrictions,
or legal or equitable claims of others, and has taken all reasonable security
measures to protect the secrecy, confidentiality, and value of the Trade
Secrets. Any of the employees of the Company and any other persons who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed or designed the Trade Secrets, or who have knowledge of or access to
information relating to them, have been put on notice and have entered into
agreements that the Trade Secrets are proprietary to the Company and not to be
divulged or misused.
(vii) The representations and warranties of the Company set forth
in that certain Licensing Agreement between the Company and FoxPaw, Inc. and
that certain Licensing Agreement between the Company and eFox, LLC, each dated
July 5, 1998, are true and correct.
2.7. Year 2000 Compliance. All date-related output, calculations or results
before, during or after the calendar year 2000 that are produced or used by any
hardware, software (other than software that is generally available upon payment
of a "shrink-wrap" type license and that has not been customized for use in
connection with the Business), firmware or facilities systems (the "COMPUTER
SYSTEMS") owned or used by the Company and material to the Business are Year
2000 Compliant except as the failure to be compliant would not have a Material
Adverse Effect. For purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits,
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and (ii) have date elements in interfaces and data storage that will permit
specifying the century to eliminate date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8. No Conflict or Violation. The execution, delivery and performance by the
Company and the Stockholders of this Agreement and the other Transaction
Documents to be delivered by the Company or any Stockholder and the consummation
of the transactions contemplated hereby and thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; (ii) violate any provision or requirement of any domestic or foreign,
federal or state, law, statute, judgment, order, writ, injunction, decree,
award, rule, or regulation of any Governmental Entity applicable to the Company
or the Business; (iii) violate, result in a breach of, constitute (with due
notice or lapse of time or both) a default or cause any obligation, penalty,
premium or right of termination to arise or accrue under any Contract (as
hereinafter defined); (iv) result in the creation or imposition of any lien,
charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Company; or (v) result in the cancellation, modification,
revocation or suspension of any license, permit, certificate, franchise,
authorization or approval issued or granted by any Governmental Entity (each a
"LICENSE," and collectively, the "LICENSES"), except where any occurrence or
result referred to in (ii), (iii), (iv) or (v) above would not result in a
Material Adverse Effect.
2.9. Consents. Schedule 2.9 lists all material consents and notices required to
be obtained or given by or on behalf of the Company or any Stockholder before
consummation of the transactions contemplated by this Agreement in compliance
with all applicable laws, rules, regulations, or orders of any Governmental
Entity, or the provisions of any material Contract, and all such consents have
been duly obtained and are in full force and effect, except where the failure to
obtain such consent will not have a Material Adverse Effect.
2.10. Labor and Employment Matters. Schedule 2.10 lists all employees of the
Company, including date of retention, current title and compensation. There is
no employment agreement, collective bargaining agreement or other labor
agreement to which the Company
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is a party or by which it is bound. The Company has complied with all applicable
laws, rules and regulations relating to the employment of labor, including those
related to wages, hours, collective bargaining and the payment and withholding
of taxes and other sums as required by appropriate Governmental Entities, except
where the failure to comply would not result in a Material Adverse Effect, and
has withheld and paid to the appropriate Governmental Entities or is holding for
payment not yet due to such Governmental Entities, all amounts required to be
withheld from employees of the Company and is not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply with any of the
foregoing. There is no unfair labor practice complaint against the Company
pending before the National Labor Relations Board or any state or local agency;
pending labor strike or other material labor trouble affecting the Company;
material labor grievance pending against the Company; pending representation
question respecting the employees of the Company; pending arbitration
proceedings arising out of or under any collective bargaining agreement to which
the Company is a party. For purposes of this Agreement, "EMPLOYEES" includes
employees, independent contractors and other persons filling similar functions.
2.11. Employee Plans.
(a) All deferred compensation obligations of the Company to LaVon
Koerner have been paid, and all accrued obligations of the Company, whether
arising by operation of law, by contract or past custom, or otherwise, for
payments by the Company to trusts or other funds or to any Governmental Entity,
with respect to unemployment compensation benefits, social security benefits or
any other benefits or obligations, with respect to employment of employees
through the date hereof have been paid or adequate accruals therefor have been
made in the Financial Statements, and all required payments and accruals for all
such obligations will be made through the Closing Date. All reasonably
anticipated obligations of the Company with respect to employees, whether
arising by operation of law, by contract, by past custom, or otherwise, for
salaries, vacation and holiday pay, sick pay, bonuses and other forms of
compensation payable to employees in respect of the services rendered by any of
them prior to the date hereof have been or will be paid by the Company prior to
the Closing Date or adequate accruals therefor have been made in the Financial
Statements, and payments or adequate accruals for all such obligations will be
made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of the Company, and any other entity ("ERISA
AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS").
With respect to each Employee Plan, the Company has made available to Buyer, to
the extent applicable, true and complete copies of (i) all plan documents,
including in the case of any Employee Plan not set forth in writing, a written
description thereof, (ii) the most recent determination letter received from the
Internal
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<PAGE> 16
Revenue Service (the "IRS"), (iii) the most recent application for determination
filed with the IRS, (iv) the latest actuarial valuations, (v) the latest
financial statements, (vi) the three (3) most recent Form 5500 Annual Reports,
including Schedule A and Schedule B thereto, (vii) all related trust agreements,
insurance contracts or other funding arrangements which implement any of such
Employee Plans, (viii) all Summary Plan Descriptions and summaries of material
modifications and all modifications thereto communicated to employees, and (ix)
in the case of stock options or stock appreciation rights issued under any
Employee Plan, a list of holders, dates of grant, number of shares, exercise
price per share and dates exercisable. Neither the Company nor any ERISA
Affiliate of the Company has any liability or contingent liability with respect
to the Employee Plans, nor will any of the Company's assets be subject to any
lien, charge or claim relating to the obligations of the Company with respect to
employees or Employee Plans. No party to any Employee Plan is in default with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof,
is and has been in material compliance with the requirements provided by any and
all applicable statutes, orders or governmental rules or regulations currently
in effect, including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Code, and, with respect to
each Employee Plan, there is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code. Each of the Company and its
ERISA Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination of
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status. Subject to applicable
law, each Employee Plan can be amended or terminated at any time, without
consent from any other party and without liability other than for benefits
accrued as of the date of such amendment or termination. The assets of any
401(k) plan sponsored by the Company do not include any life insurance policies.
(d) Neither the Company nor any ERISA Affiliate sponsors or has ever
sponsored, maintained, contributed to or incurred an obligation to contribute to
any Employee Plan subject to the provisions of Title IV of ERISA.
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(e) Buyer has been provided copies of all material manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code. Neither the Company nor any of its ERISA Affiliates has incurred any
liability under the Worker Adjustment Retraining and Notification Act or any
similar state law relating to employment termination in connection with a mass
layoff, plant closing or similar event, and the transactions contemplated by
this Agreement will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder, is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to the
terms of any Employee Plan or pursuant to any agreement or understanding, other
than as required by applicable law.
(i) Other than routine claims for benefits, there is no claim pending or
to the knowledge of the Company or any Stockholder, threatened, involving any
Employee Plan by any person against such Employee Plan, the Company or any of
its ERISA Affiliates. There is no pending or, to the knowledge of the Company or
any Stockholder, threatened, proceeding involving any Employee Plan before the
IRS, the United States Department of Labor or any other governmental authority.
(j) There is no Employee Plan maintained for any Company employees who
work outside of the United States.
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2.12. Litigation. There are no claims, actions, suits or proceedings of any
nature pending or, to the knowledge of the Company or any Stockholder,
threatened by or against the Stockholders, the Company, the officers, directors,
employees, agents of the Company, or any of their respective Affiliates
involving, affecting or relating to the Business or any assets, properties or
operations of the Company or the transactions contemplated by this Agreement,
except for claims, actions, suits or proceedings that would not result in a
Material Adverse Effect. Neither the Company nor any of the Company's assets is
subject to any material order, writ, judgment, award, injunction or decree of
any Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have
the meaning ascribed to such term in Rule 405 under the Securities Act.
2.13. Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to, or affecting in any material respect, any of its assets,
properties or operations, including, without limitation, all material written,
or oral, (i) contracts, agreements and commitments not made in the ordinary
course of business, (ii) agency and brokerage agreements, (iii) service and
other customer contracts, (iv) contracts, loan agreements, letters of credit,
repurchase agreements, mortgages, security agreements, guarantees, pledge
agreements, trust indentures, promissory notes and other documents or
arrangements relating to the borrowing of money or for lines of credit, (v) tax
sharing agreements, real property leases or any subleases relating thereto,
personal property leases, any material agreement relating to Proprietary Rights
(including service agreements relating thereto) and insurance contracts, (vi)
agreements and other arrangements for the sale of any assets, property or rights
other than in the ordinary course of business or for the grant of any options or
preferential rights to purchase any assets, property or rights, (vii) documents
granting any power of attorney with respect to the affairs of the Company,
(viii) suretyship contracts, performance bonds, working capital maintenance or
other forms of guaranty agreements, (ix) contracts or commitments limiting or
restraining the Company or any of its employees or Affiliates from engaging or
competing in any lines of business or with any person or entity, (x) partnership
or joint venture agreements, (xi) stockholder agreements or agreements relating
to the issuance of any securities of the Company or the granting of any
registration rights with respect thereto, and (xii) all amendments,
modifications, extensions or renewals of any of the foregoing (each a
"CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Enforceability Exceptions, and is in full force and effect on the
date hereof other than those Contracts not requiring the payment of money to the
Company, the failure of which to be enforceable or in full force and effect
would not have a Material Adverse Effect. The Company has performed all material
obligations required to be performed by it under, and is not in material default
or breach of, any Contract, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a material default or breach by the
Company.
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(c) To the knowledge of the Company and each Stockholder, no other party
to any Contract is in material default or breach in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company and each Stockholder, no party to any Contract
has credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or Buyer's representatives true
and complete originals or copies of all the Contracts and a copy of every
Material Notice received by the Company or any Stockholder since January 1,
1996, with respect to any of the Contracts. For purposes hereof, "MATERIAL
NOTICE" means those notices alleging a material breach of a Contract or
intention to terminate or materially modify a Contract, but does not include
routine correspondence.
(f) To the knowledge of the Company and each Stockholder, no party to
any Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14. Compliance with Applicable Law. The operations of the Company are, and
have been, conducted in all material respects in accordance with all applicable
laws, regulations, orders and other requirements of all Governmental Entities
having jurisdiction over the Company or its assets, properties or operations,
including, without limitation, all such laws, regulations, orders and
requirements relating to the Business except in any case where the failure to so
conduct its operations would not have a Material Adverse Effect. The Company has
not received any notice of any material violation of any such law, regulation,
order or other legal requirement, and is not in material default with respect to
any order, writ, judgment, award, injunction or decree of any Governmental
Entity, applicable to the Company or any of its assets, properties or
operations.
2.15. Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Stockholders of this Agreement and the other Transaction Documents. The Licenses
are sufficient and adequate in all material respects to permit the continued
lawful conduct of the Business in the manner now conducted and the ownership,
occupancy and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested in writing that it qualify or become licensed as a foreign
corporation. The Company has delivered to Buyer or its representatives true and
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<PAGE> 20
complete copies of all the material Licenses together with all amendments and
modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any material respect.
The Company is not in violation in any material respect of any of the Licenses.
2.16. Accounts Receivable. Schedule 2.16 lists all accounts receivable of the
Company (the "ACCOUNTS RECEIVABLE") as of the date hereof, including their
aging. Schedule 2.16 will be updated at the Closing Date to reflect all Accounts
Receivable as of the Closing Date, including their aging. All Accounts
Receivable as of the date hereof represent, and all Accounts Receivable as of
the Closing Date will represent, valid obligations arising from sales actually
made or services actually performed in the ordinary course of business, and are
not subject to any valid counterclaims or set-offs, disputes or known
contingencies.
2.17. Intercompany and Affiliate Transactions; Insider Interests.
(a) There are no material transactions, agreements or arrangements of
any kind, direct or indirect, between the Company and any director, officer,
employee, stockholder, relative or Affiliate of the Company or any of the
Stockholders, including, without limitation, loans, guarantees or pledges to, by
or for the Company or from, to, by or for any of such persons, that are either
(i) currently in effect, or (ii) reflected in the Company's financial results.
(b) No officer, director or stockholder of the Company, or any Affiliate
of any such person, now has, or within the last three (3) years had, either
directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18. Insurance. Schedule 2.18 lists all insurance policies of any nature
whatsoever maintained by the Company at any time during the three (3) years
prior to the date of this
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Agreement and the annual or other premiums payable thereunder. The Company has
not received any notice or other communication from any such insurance company
within the three (3) years preceding the date hereof canceling or materially
amending or materially increasing the annual or other premiums payable under any
of such insurance policies, and to the knowledge of the Company or any
Stockholder, no such cancellation, amendment or increase of premiums is
threatened.
2.19. Customers. Schedule 2.19 lists the ten (10) largest customers of the
Company in terms of revenues of the Company attributable to such customers,
together with revenues to the Company from each such customer during the most
recent complete fiscal year, and the scheduled termination dates of their
current contracts with the Company. None of such customers has given written
notice to the Company of an intention to terminate or materially impair its
business relationship with the Company and neither the Company nor any
Stockholder has any knowledge that any such customer intends to terminate such
business relationship.
2.20. No Undisclosed Liabilities. Except as and to the extent specifically
reflected or reserved against in the Interim Financial Statements and except as
incurred in the ordinary course of business since the date of the Interim
Financial Statements, the Company has no material liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise, and whether due
or to become due (including, without limitation, any liability for taxes and
interest, penalties and other charges payable with respect to any such liability
or obligation) that are required to be reflected on a balance sheet of the
Company prepared in accordance with GAAP (including appropriate footnote
disclosure), and no facts or circumstances exist which, with notice or the
passage of time or both, could reasonably be expected to result in any material
claims against or obligations or liabilities of the Company, except for such
liabilities or obligations which will not result in a Material Adverse Effect.
2.21. Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the Company
for or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any
Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
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(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all income and other material Tax Returns of
the Company required to be filed as of the date hereof (after giving effect to
any extension of time to file such Tax Returns) and (ii) paid, when due, all
Taxes due and payable for the tax periods relating to such Tax Returns (whether
or not shown on such Tax Returns). All such previously-filed Tax Returns were
complete and accurate in all material respects when filed, and as of the date
hereof no additional Tax Liabilities for periods covered by such
previously-filed Tax Returns have been assessed on or proposed to the Company.
With respect to each such Tax Return, Schedule 2.21(b) specifies (A) each such
Tax Return that (1) is currently being audited by a Tax authority, or (2) as to
which the Company has received a written notice from a Tax authority that such
Tax authority intends to commence an audit or examination of such Tax Return,
and (B) each such Tax Return as to which the Company has given its consent to
waive or extend the applicable statute of limitations for such Tax Return or the
assessment of Taxes required to be reported thereon. The Company has either
delivered to Buyer or made available for inspection by Buyer or its
representatives or agents complete and correct copies of all Tax audit reports
and statements of Tax deficiencies with respect to any delinquent Tax assessed
against or agreed to by the Company for all taxable periods commencing on or
after January 1, 1993, for which audit reports or statements of deficiencies
have been received by the Company.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (not including any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
(d) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(e) Foreign Tax Matters. The Company is not and has never been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(f) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
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(g) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(h) S Corporation Status. The Company (and any predecessor of the
Company) has been a validly electing S corporation within the meaning of Code
Sections 1361 at all times since March 6, 1986, and the Company will be an S
corporation up to and including the day before the Closing Date. The Company
will similarly qualify as an S corporation for state or local income tax
purposes.
2.22. Indebtedness. Schedule 2.22 lists each creditor (other than a creditor
that owns trade debt incurred in the ordinary course of the Company's business)
of the Company (including, without limitation, any creditor that directly or
indirectly owns indebtedness in the Company for borrowed money, whether or not
evidenced by a note or other written instrument) and a description of each such
debt interest.
2.23. Environmental Matters. Notwithstanding anything to the contrary contained
in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") except where the
failure to be in compliance would not result in a Material Adverse Effect, and
have obtained and maintained in effect all material licenses, permits and other
authorizations or registrations (collectively "ENVIRONMENTAL PERMITS") required
under all Environmental Laws and are in material compliance with all such
Environmental Permits.
(b) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed or disposed of by the Company on any of
the properties owned or leased by the Company at any time such that the Company
could be subject to material liability under any Environmental Laws.
(c) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(d) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(e) To the knowledge of the Company or any Stockholder, with respect to
any or all of the real properties leased at any time by the Company, there are
no asbestos-containing
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materials, urea formaldehyde insulation, polychlorinated biphenyls or lead-based
paints present at any such properties.
(f) There are no pending or, to the knowledge of the Company or any
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of the Company or any Stockholder, any threatened actions or
claims, or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(g) The Company has delivered to Buyer or its representatives copies of
all written environmental assessments, audits, studies and other environmental
reports in its possession or reasonably available to it relating to any of the
current or former businesses of the Company or its operations.
2.24. Securities Matters.
(a) The Stockholders understand that (i) neither the Shares nor any
notes issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Stockholders' representations set forth herein.
(b) The Stockholders acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Stockholders may lose their entire investment in
the Shares and any notes issued by Buyer (the "SECURITIES").
(c) The Stockholders, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Stockholders have relied solely upon independent
investigations made by the Stockholders, and have consulted their own investment
advisors, counsel and accountants. The Stockholders have adequate means of
providing for current needs and personal contingencies, and have no need for
liquidity and can sustain a complete loss of the investment in the Securities.
(d) The Securities to be issued by Buyer hereunder will be acquired for
the Stockholders' own account, for investment purposes, not as a nominee or
agent, and not with a view to or for sale in connection with any distribution of
the Securities in violation of applicable securities laws.
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(e) The Stockholders understand that no federal or state agency has
passed upon the Securities or made any finding or determination as to the
fairness of the investment in the Securities.
(f) Each Stockholder is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and have each documented his or her accredited
status by delivery to Buyer of a completed questionnaire in the form of Exhibit
A hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(g) Neither the Company nor any Stockholder has received any general
solicitation or general advertising concerning the Securities, nor is the
Company or any Stockholder aware of any such solicitation or advertising.
2.25. Buyer and the Consolidation Transactions.
(a) The Stockholders are aware that:
(i) Buyer has recently been organized and has limited financial
and operating history.
(ii) There can be no assurance that any of the Additional
Consolidation Transactions or Further Consolidation Transactions (as defined in
Section 4.10) will occur, that Buyer will be successful in accomplishing the
purpose for which it was formed or that it will ever be profitable. No assurance
can be given regarding (A) whether the companies acquired by Buyer in the
Initial Consolidation Transactions can be successfully integrated and operated,
or (B) what companies, if any, will ultimately be acquired by Buyer. No company
is obligated to participate in the Additional Consolidation Transactions or
Further Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Stockholder would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Stockholders acknowledge that no assurances have been made to
any Stockholder with respect to any of the foregoing and no representations,
oral or written, have
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been made to any Stockholder by Buyer or any of its employees, representatives
or agents concerning the potential value of the Shares issued as part of the
Purchase Price or the prospects of Buyer, except as set forth herein.
2.26. Banks. Schedule 2.26 lists the account information at each bank or other
institution at which the Company has a line of credit, check, savings or other
account, certificate of deposit or safe deposit box and the names of each person
authorized to draw thereon or have access thereto.
2.27. Powers of Attorneys and Suretyships. The Company does not have any general
or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.28. Brokers. Except as set forth on Schedule 2.28, no broker, finder,
investment banker, or other person is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of the Company or any of
the Stockholders.
2.29. Summary of Certain Considerations. Each Stockholder acknowledges receipt
and understanding of the Summary of Certain Considerations attached hereto as
Exhibit B.
2.30. Acknowledgment re Deloitte & Touche LLP. As part of the Initial
Consolidation Transactions, Buyer purchased the Integrated Cost Reduction
Strategies ("ICRS") business unit of Deloitte & Touche LLP ("DELOITTE"). The
Company and the Stockholders acknowledge, for the benefit of Deloitte and its
Affiliates, that Deloitte is not related to Buyer, that Buyer and the
individuals related to Buyer with whom the Company and the Stockholders have
dealt in connection with the transactions contemplated by the various agreements
of the Company and the Stockholders with Buyer have acted and will act on behalf
of Buyer and not Deloitte or any of Deloitte's Affiliates (as partners,
principals, employees, agents, associates or otherwise). For these purposes,
"Affiliates" of Deloitte include persons controlling, controlled by, or under
common control with Deloitte, including without limitation partners of Deloitte.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Stockholders that:
3.1. Organization and Corporate Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to carry on its business as it
is now conducted and to own, lease or operate its assets and properties and has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the other
Transaction Documents to be executed and delivered by Buyer have been (or upon
execution by Buyer will have been) duly executed and delivered by
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Buyer, have been effectively authorized by all necessary action of Buyer,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer, except as such enforceability may
be limited by the Enforceability Exceptions.
3.2. No Conflict or Violation. The execution, delivery and performance by Buyer
of this Agreement and the other Transaction Documents to be executed and
delivered by Buyer and the consummation of the transactions contemplated hereby
and thereby do not and will not: (i) violate or conflict with any provision of
the charter documents or bylaws of Buyer; (ii) violate any provision or
requirement of any domestic or foreign, federal or state, law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer; (iii) violate, result in a breach of,
constitute (with due notice or lapse of time or both) a default or cause any
obligation, penalty, premium or right of termination to arise or accrue under
any material contract, agreement, instrument, license, commitment or other
arrangement to which Buyer is a party or otherwise relating to, or affecting in
any material respect, any of its assets, properties or operations; (iv) result
in the creation or imposition of any lien, charge or encumbrance of any kind
whatsoever upon any of the properties or assets of Buyer; or (v) result in the
cancellation, modification, revocation or suspension of any license, permit,
certificate, franchise, authorization or approval issued or granted by any
Governmental Entity, except where any occurrence or result referred to in (ii),
(iii), (iv) or (v) above would not result in a material adverse effect on or
change in the financial condition or results of operation of Buyer.
3.3. Capitalization. The authorized capital stock of Buyer consists of
240,000,000 shares of common stock, par value $0.001 per share (the "COMMON
STOCK") of which 200,000,000 are Series A Common Stock and 40,000,000 are Series
B Common Stock, and 10,000,000 shares of undesignated preferred stock. As of
February 28, 1999, 22,051,468 shares of Series A Common Stock, 21,231,191 shares
of Series B Common Stock, no options to purchase shares of Series A Common Stock
or Series B Common Stock were issued and outstanding, and no shares of preferred
stock were issued and outstanding. Approximately 1,500,000 of the issued and
outstanding shares of Series B Common Stock are restricted and will be forfeited
if the transactions contemplated hereby and certain additional acquisitions
expected to be completed substantially concurrently with the transactions
contemplated hereby are not completed, and approximately 12,600,000 of the
issued and outstanding shares of Series B Common Stock are restricted and will
be forfeited if certain future acquisitions are not completed. Additional shares
will be issued in connection with future acquisitions, as well as under
compensatory employment arrangements. The Shares, when issued, sold, and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4. Notes. Any note to be delivered by Buyer as part of the Purchase Price,
when delivered in accordance with the terms of this Agreement, will be duly
executed, and will constitute a
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legal, valid and binding obligation of Buyer, except as such enforceability may
be limited by the Enforceability Exceptions.
3.5. Litigation. Except as set forth on Schedule 3.5, there are no material
claims, actions, suits, or proceedings of any nature pending or, to the
knowledge of Buyer, threatened by or against Buyer, the officers, directors,
employees, agents of Buyer, or any of their respective Affiliates involving,
affecting or relating to any assets, properties or operations of Buyer or any of
its Affiliates or the transactions contemplated by this Agreement. Buyer is not
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. From and after the Closing, Buyer or its Affiliates may be
subject to claims, actions, suits, or proceedings including as a result of
acquisitions by Buyer in the Additional Consolidation Transactions or Further
Consolidation Transactions, and Buyer makes no representations or warranties
about any such claims, actions, suits or proceedings or the absence thereof.
3.6. Buyer's Operations and Financial Condition.
(a) Buyer has one subsidiary, Enterprise Profit Solutions Corporation, a
Delaware corporation ("EPSC"). Buyer owns all of the issued and outstanding
capital stock of EPSC, and there are no outstanding rights of any party to
acquire any interest in EPSC other than a pledge of the capital stock of EPSC to
lenders of senior indebtedness of EPSC (the "SENIOR LENDERS"). Buyer is a
holding company, and substantially all of Buyer's consolidated assets and
operations are held and conducted by EPSC and EPSC's subsidiaries. Set forth on
Schedule 3.6(a) is complete and accurate list of all subsidiaries of EPSC.
Except as specified on Schedule 3.6(a), EPSC owns all of the issued and
outstanding capital stock of each of its subsidiaries, and there are no
outstanding rights of any party to acquire any interest in any of such
subsidiaries other than a pledge of the issued and outstanding capital stock of
each such subsidiary to the Senior Lenders.
(b) Set forth on Schedule 3.6(b) is a complete and accurate summary of
the indebtedness of Buyer, EPSC, and EPSC's subsidiaries for borrowed money
(excluding trade debt).
(c) Set forth on Schedule 3.6(c) is a description of the businesses
acquired in the Initial Consolidation Transactions and currently conducted by
EPSC through its various divisions and subsidiaries, together with 1998 revenues
and pre-tax income for each of such businesses and subsidiaries. Such business
description, revenue and income information was provided by the companies
acquired or their stockholders, reflects the operations of each such division
and subsidiary as an independent company before its acquisition by Buyer in the
Initial Consolidation Transactions, and is made available by Buyer solely for
informational purposes without representation or ratification of any kind. No
representations are made regarding future performance.
3.7. Financial Statements; Liabilities. Schedule 3.7(a) sets forth the pro forma
unaudited balance sheet of Buyer as of September 30, 1998 and the related
statements of income and cash flow for the period then ended (the "BUYER
FINANCIAL STATEMENTS"). To Buyer's knowledge based upon representations made by
the companies acquired in the Initial
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Consolidation Transactions or their Stockholders, (a) the Buyer Financial
Statements (i) were prepared in accordance with GAAP consistently applied,
except as disclosed in the footnotes thereto, and (ii) fairly present, in all
material respects, the financial condition an the results of operations of Buyer
as at the date thereof and for the period covered thereby; and (b) except as and
to the extent specifically reflected or reserved against in the Buyer Financial
Statements and except as incurred in the ordinary course of business since the
date of the Buyer Financial Statements, neither Buyer nor its subsidiaries has
any material liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, and whether due or to become due (including,
without limitation, any liability for taxes and interest, penalties and other
charges payable with respect to any such liability or obligation) that are
required to be reflected on a balance sheet of Buyer prepared in accordance with
GAAP (including appropriate footnote disclosure), except for such liabilities or
obligations that would not result in a material adverse effect on the financial
condition or results of operation of Buyer together with its subsidiaries.
However, Buyer has not independently verified all facts and circumstances
represented by companies acquired in the Initial Consolidation Transactions or
the stockholders of such companies, which representations form the basis for
Buyer's representation in this Section 3.7, and Buyer undertakes and will have
no liability as a result of any inaccuracy of the representations set forth in
(a) and (b) above attributable to inaccurate or incomplete information provided
to Buyer by companies acquired in the Initial Consolidation Transactions or any
Additional Consolidation Transactions completed before the Closing or the
stockholders of such companies unless Buyer had actual knowledge of such
inaccuracy as of the date of this Agreement.
3.8. Purchase for Investment. Buyer acknowledges that neither the offer nor the
sale of the Seller Shares has been registered under the Securities Act. Buyer is
acquiring the Seller Shares solely for its own account and not with a view to
any distribution or other disposition of such Seller Shares, and the Seller
Shares will not be transferred except in a transaction registered or exempt from
registration under the Securities Act.
3.9. Investigation by Buyer. In entering into this Agreement, Buyer acknowledges
that, except for the specific representations and warranties of the Company and
the Stockholders contained in Article 2, none of the Company, the Stockholders,
or any of their respective directors, officers, employees, Affiliates,
controlling persons, agents, advisors or representatives, makes or shall be
deemed to have made any representation or warranty, either express or implied,
as to the accuracy or completeness of any of the information (including, without
limitation, any reserve estimates, projections, forecasts or other
forward-looking information) provided or otherwise made available to Buyer or
any of its directors, officers, employees, Affiliates, controlling persons,
agents, advisors or representatives.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1. Access. Each party shall afford, to any other party and such other party's
accountants, counsel and representatives, full access during normal business
hours throughout the period prior to the Closing Date (or the earlier
termination of this Agreement) to its records (including, without limitation,
its accounting records, the workpapers of its independent accountants, and all
environmental studies, reports and other environmental records), and to
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the properties, books, material contracts, agreements, instruments, licenses,
commitments and other arrangements that it is a party to or that otherwise
relate to, or affect, its assets, properties or operations and, during such
period, shall furnish promptly to the other party all information concerning it
or its properties, liabilities and personnel as the other party may reasonably
request, provided however, that neither the Company nor the Stockholders shall
have the right to access records relating to terms of any specific Initial,
Additional or Further Consolidation Transaction, information concerning the
holders of any class of stock of Buyer or its Affiliates, other than the names
of such stockholders, employment-related information or other documentation to
which stockholders would not have the right of access.
4.2. Confidentiality. For purposes hereof, the Company and the Stockholders will
keep the matters contemplated herein and all information provided by Buyer
related to Buyer and the Initial, Additional, and Further Consolidation
Transactions and potential participants therein, including without limitation
Deloitte & Touche LLP, confidential, and will not provide information about such
matters to any party or use such information except to the extent necessary to
effect the transactions contemplated hereby. Buyer will keep the matters
contemplated herein and all information provided by the Company and the
Stockholders related to the Company and the Business confidential, and will not
provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and the Company shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby. The Company
and the Stockholders acknowledge that Buyer may provide information about the
Company and the Business to other participants in the Additional or Further
Consolidation Transactions to the extent necessary to facilitate those
transactions. If this Agreement terminates without consummation of the Closing,
the Company, the Stockholders and Buyer shall, and shall cause their Affiliates
to, each maintain the confidentiality of any information obtained from the other
in connection with the transactions contemplated hereby, the Additional or
Further Consolidation Transactions, and Buyer's business plans (the
"INFORMATION"), other than Information that (i) was in the public domain before
the date of this Agreement or subsequently came into the public domain other
than as a result of disclosure by the party to whom the Information was
delivered; or (ii) was lawfully received by a party from a third party free of
any obligation of confidence of or to such third party; or (iii) was already in
the possession of the party prior to receipt thereof, directly or indirectly,
from the other party; or (iv) is required to be disclosed in a judicial or
administrative proceeding after giving the other party as much advance notice of
the possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Stockholders and
the Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
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4.3. Certain Changes and Conduct of Business. (a) From and after the date of
execution and delivery of this Agreement and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Stockholders shall
cause the Company to, conduct the Company's business in the ordinary course
consistent with past practices. Without limiting the generality of the preceding
sentence, except as required or permitted pursuant to the terms hereof or as
consented to in writing by Buyer, the Company shall not, and the Stockholders
shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract
other than in the ordinary course of business; or enter into any new contract
other than contracts of the type described in Schedule 4.3(a)(i), in any case
calling for payments to or by the Company in excess of $100,000 over the life of
the contract or series of related contracts, without the prior written consent
of Buyer, which may not be unreasonably withheld;
(ii) make any change in the charter documents or bylaws of the
Company, issue any additional shares of capital stock or equity securities or
grant any option, warrant or right to acquire any capital stock or equity
securities or issue any security convertible into or exchangeable for the
capital stock of the Company, alter any term of any of the outstanding
securities of the Company, or make any change in the outstanding shares of
capital stock or other ownership interests or in the capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions in the ordinary course of business consistent with past practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, other than in the ordinary
course of business consistent with past practices;
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(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $100,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Stockholder or any Affiliate of the Company
or any Stockholder;
(x) guarantee any indebtedness for borrowed money or any other
obligation in excess of $20,000;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Stockholder herein not
to remain true and correct in all material respects, or that would cause any of
the conditions to the parties' respective obligations to consummate the
transactions contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not
to be met; or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date of execution and delivery hereof and until
the Closing (or the earlier termination of this Agreement), the Company shall,
and the Stockholders shall cause it to:
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(i) use commercially reasonable efforts to maintain, in all
material respects, the assets and properties of the Company in accordance with
present practices and in a condition suitable for their current use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) use commercially reasonable efforts to continue to conduct
the business of the Company in the ordinary course consistent with past
practices;
(iv) use commercially reasonable efforts to continue to maintain
existing business relationships with suppliers and customers except to the
extent that such relationships are, at the same time, judged in good faith to be
non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(vii) use commercially reasonable efforts to keep in full force
and effect any insurance policies comparable in amount and scope to coverage
maintained by the Company (or on behalf of it) on the date hereof.
4.4. Restrictive Covenants.
(a) Non-Competition. The Stockholders recognize that the covenants of
each Stockholder contained in this Section 4.4(a) (the "COVENANT NOT TO
COMPETE") are an essential part of this Agreement and the other Transaction
Documents and that but for the agreement of each Stockholder to comply with such
covenants Buyer would not enter into this Agreement or the other Transaction
Documents. The Stockholders acknowledge and agree that the Covenant Not to
Compete is necessary to protect the Business acquired by Buyer, including
without limitation, goodwill and the Proprietary Rights, and that irreparable
harm and damage will be done to Buyer if any Stockholder competes with Buyer in
any way prohibited by the Covenant Not to Compete. In addition, the Stockholders
acknowledge that the Purchase Price is consideration for professional
relationships and market place reputation developed by the Company and the
Stockholders and the Covenant Not to Compete is necessary for Buyer to receive
the full benefit of this Agreement. After the Closing, each Stockholder shall
not individually, or in concert, directly or indirectly:
(i) either on its, his, her or their own account or for any other
person or entity, solicit, induce, attempt to induce, or endeavor to cause (in
each case in such a manner that could have a material adverse effect on the
financial condition or operation of the Business or the assets of the Company or
Buyer or any of its Affiliates) any customer, which
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has utilized the services of the Company at any time during the two (2) year
period preceding the Closing Date or with whom the Company was engaged in
meaningful negotiations as of the Closing Date (each, a "CUSTOMER"), to modify,
amend, terminate or otherwise alter the terms upon which it acquires services
from Buyer or Buyer's Affiliates, or to acquire from any party other than Buyer
or its Affiliates any services of the kind available from Buyer or its
Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 5% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date), provided that the
restrictions in this paragraph (ii) will not prohibit James Holden from any
activities that are specifically permitted under his Employment Agreement with
the Company entered into at the Closing.
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the world, where the Company generated revenue or established
goodwill at any time during the two (2) year period preceding the Closing Date.
This Covenant Not to Compete shall bind each Stockholder until December 31,
2002, provided however, that if the employment of any Stockholder is terminated
by Buyer without Cause or by such Stockholder for Good Reason (each as defined
in such Stockholder's Employment Agreement delivered pursuant to Section
6.3(c)(iv)), and if either (i) a registration statement for an underwritten IPO
of Buyer's equity securities has not been filed by December 31, 1999, or (ii)
Buyer fails to consummate a public offering that results in a public trading
market of equity securities of Buyer on a national securities exchange or the
Nasdaq Stock Market by May 15, 2000, then after termination of such
Stockholder's employment with the Company or any of its Affiliates, such
Stockholder will no longer be subject to the covenants contained in Sections
4.4(a)(ii) and (iii), and the covenants in Section 4.4(a)(iv) will not be
breached by any general marketing efforts with which such Stockholder may be
involved that are not targeted specifically at any Customer. The parties hereto
agree that the duration and area for which the Covenant Not to Compete set forth
in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Stockholder shall at all times keep
confidential and
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shall not disclose to others any Proprietary Rights and shall not use or permit
to be used any Proprietary Rights for any purpose other than performance of
obligations to Buyer.
(c) Non-Diversion. For the maximum period during which the Covenant Not
to Compete could apply pursuant to Section 4.4(a) each of the Stockholders shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the
Stockholders become aware as the result of their affiliation with the Business
or their relationship with Buyer or its Affiliates and which relate specifically
to the Business, or any part thereof. This Section 4.4(c) is in addition to and
not by way of limitation of any other duties the Stockholders may have to Buyer
or its Affiliates.
(d) Non-Recruitment. For the maximum period during which the Covenant
Not to Compete could apply pursuant to Section 4.4(a) each of the Stockholders
shall not, and shall cause their Affiliates not to, hire away, or cause any
other person to hire away, any employee of or consultant to Buyer or its
Affiliates (including without limitation persons employed or engaged by the
Company before the Closing Date), or directly or indirectly entice or solicit or
seek to induce or influence any of such employees or consultants to leave their
employment or engagement with Buyer or its Affiliates, provided however, that
such restrictions shall not apply to persons responding to a public
advertisement by the Stockholders directed to potential employees generally.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Stockholders in light of the activities and business
of the Company and future plans of Buyer. The Stockholders acknowledge that if
they violate any of the covenants contained in this Section 4.4 (collectively,
the "RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, Buyer
shall be entitled to temporary injunctive relief without being required to post
a bond and permanent injunctive relief without the necessity of proving actual
damages. Each Stockholder shall be severally liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants breached by such
Stockholder, whether or not litigation is actually commenced and including
litigation of any appeal defended by Buyer, where such party succeeds in
enforcing any of the Restrictive Covenants. Buyer may elect to seek one or more
remedies at its discretion on a case by case basis. Failure to seek any or all
remedies in one case shall not restrict Buyer from seeking any remedies in
another situation. Such action by Buyer shall not constitute a waiver of any of
its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and
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enforceable under the prevailing circumstances. The Covenant Not to Compete
shall be deemed to be a series of separate covenants, one for each and every
county of each and every state of the United States of America and each and
every political subdivision of each and every country outside the United States
of America where the Covenant Not to Compete is intended to be effective.
(g) Allocation. The parties agree to allocate $100,000 of the Cash
Payment, and no other portion of the Purchase Price, to the Covenant Not to
Compete.
4.5. Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS EPS SOLUTIONS CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO EPS SOLUTIONS CORPORATION AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholders will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing
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underwriter not to exceed twenty (20) days prior to, and one hundred and eighty
(180) days after, the effective date of the registration statement for such
offering, provided however, that (i) such lock up provision may not be invoked
more than once in any 365 day period, (ii) such lock up provision will be
contingent upon the officers and directors of the registrant entering into
similar lock up agreements, and (iii) no Stockholder will be required to comply
with this lock up provision if any other stockholder owning more shares of
Common Stock than such Stockholder and who is subject to a contractual lock up
provision similar to this one has been released from such lock up obligation.
(e) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that it is not a party to any
stock purchase agreement, asset purchase agreement, or similar agreement which
contains provisions governing securities restrictions that are different in any
material respect from the terms contained in this Section 4.5.
4.6. Registration.
(a) No Stockholder will have any rights to demand registration of any of
the Shares, or to participate in any registration undertaken by Buyer except as
set forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission (the "SEC") for an underwritten IPO of its
equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then each Stockholder, shall
have the right, subject to the limitations set forth in this Section 4.6(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by such Stockholder. Other stockholders
(including but not limited to stockholders acquiring Common Stock in the
Initial, Additional, and Further Consolidation Transactions and stockholders who
acquired Common Stock in connection with the formation, or work on behalf of,
Buyer) will have rights to include shares of Common Stock in such offering, and
if the aggregate amount of shares that all stockholders with such rights
(collectively, the "SELLING STOCKHOLDERS") desire to include exceeds the number
of shares of Common Stock that can be sold by all Selling Stockholders, then all
Selling Stockholders desiring to sell in any such offering will participate
pro-rata on the basis of the relative numbers of shares of Common Stock eligible
for inclusion that they originally sought to include. However, notwithstanding
the foregoing no Selling Stockholder will be permitted to include in any such
registration and offering (i) any Shares subject to performance-related
restrictions at the time of filing of the registration statement for such
offering or (ii) more than, in the aggregate for all such registrations and
offerings, half of the shares of Common Stock held by such Selling Stockholder
as of the date hereof. Furthermore, in no case will the Stockholders hereunder
be permitted to include in the IPO registration and offering more than the
number of Shares acquired by the Stockholders pursuant to this Agreement listed
on Schedule 4.6 under the item "Maximum IPO Shares" (such Shares will be
allocated among Stockholders hereunder desiring to participate in any such
registration and offering ratably on the basis of their relative ownership of
Shares and other Common Stock). The Shares listed on Schedule
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4.6 under the item "Maximum IPO Shares" will not limit the number of shares
permitted to be included by the stockholders in the IPO pursuant to any other
agreement.
(b) If at any time before the fourth anniversary of the IPO Buyer files
a shelf registration statement with the SEC covering an offering of the common
stock of Buyer by selling stockholders, other than a registration statement of
the type described in Section 4.6(a), the Stockholders shall have the right to
include in such registration statement that percentage of the total number of
shares of common stock of Buyer registered pursuant to that registration
statement for sale by selling stockholders as is equal to the quotient,
expressed as a percentage, obtained by dividing the total number of shares of
common stock eligible for inclusion owned by the Stockholders by the total
number of shares of common stock eligible for inclusion owned by all selling
stockholders participating in such registration. If the Stockholders participate
in any such registration, they must do so on the same terms as the other
stockholders participating therein. As long as such registration statement
remains effective and sales of common stock by the Stockholders would not
violate applicable laws or regulations, Buyer shall furnish to the Stockholders
such number of copies of the final prospectus included in any such registration
statement and any amendment or supplement thereto as the Stockholders may
reasonably request in order to effect the sale of the shares of common stock
included by the Stockholders in such registration statement.
(c) If any Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by such Stockholder expressly for use
therein, for which the Stockholder will be responsible.
(d) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone, and the Buyer shall be
responsible for all other expenses of the offering.
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(e) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
(f) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that it is not a party to any
stock purchase agreement, asset purchase agreement, or similar agreement which
contains provisions governing registration rights that are different in any
material respect from the terms contained in this Section 4.6. Upon the request
of Stockholders and without further action on the part of Buyer, this Section
4.6 shall automatically be amended to incorporate any provision governing
registration rights contained in any stock purchase agreement, asset purchase
agreement or other similar agreement to which Buyer is a party as of the Closing
Date, or in any modification or amendment to such agreement, that is more
beneficial in any material respect to the party thereto having registration
rights than the provisions of this Agreement are to the Stockholders party
hereto. Buyer hereby consents to be bound by any such amendments to this Section
4.6. If the Stockholders have any reasonable basis to believe that the Buyer is
party to any such agreement that has a provision governing registration rights
that is more beneficial in any material respect to the party thereto having
registration rights than the provisions of this Agreement are to the
Stockholders, Buyer shall provide copies of the relevant provisions of such
agreement to the Stockholders upon the Stockholders' request.
4.7. Cooperation in Litigation. Each party will fully cooperate with the others
in the defense or prosecution of any litigation or proceeding already instituted
or which may be instituted hereafter against or by such party relating to or
arising out of the conduct of the Business prior to or after the Closing Date
(other than litigation between Buyer and/or its Affiliates or assignees, on the
one hand, and the Company or any Stockholder and/or their Affiliates or
assignees, on the other, arising out of the transactions contemplated by this
Agreement). Subject to the provisions hereof regarding payments by each party of
its costs and payments or attorneys' fees and costs, the party requesting such
cooperation shall pay the out-of-pocket expenses (including reasonable legal
fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or other similar expenses paid by the
party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8. Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of the Company's business activities on the Closing Date, and, in the case
of Pre-Acquisition Taxable Periods ending on the Closing Date, all of the
Company's income, gains and other Tax items attributable to the Closing Date
shall be included and reported by the Company in
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Tax Returns of the Company for such Pre-Acquisition Taxable Periods to be filed
following the Closing and that all Taxes attributable to the Company's income,
gains or other taxable items for the Closing Date shall be reported on such Tax
Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated between the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) The Stockholders shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods.
(ii) Stockholders shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes with respect to Pre-Acquisition Taxable Periods to
the extent not specifically reserved (excluding reserves for deferred taxes)
against in the Interim Financial Statements. Each Stockholder shall pay his or
her proportionate share of such costs, expenses and Tax liabilities promptly
following receipt by such Stockholder (either directly or through the
Stockholder Representative) of a notice of such Stockholder's payment obligation
hereunder together with copies of the relevant Tax Returns and other information
supporting the calculation. Any additional Taxes attributable to the periods
covered by such Tax returns, pursuant to any Tax Proceeding, shall be paid by
Stockholders promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be required,
with respect to certain Taxes for Straddle Periods, to file a full year return
(herein a "STRADDLE
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PERIOD RETURN") reporting and accounting for such Taxes on an aggregate basis
covering both the Pre-Closing Period and the Post-Closing Period. The Buyer, at
its expense, shall cause the Company to prepare and file such Straddle Period
Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The
Stockholders shall be responsible for and shall pay all Pre-Closing Taxes shown
or reported to be due and payable on such Straddle Period Returns to the extent
not specifically reserved (excluding reserves for deferred taxes) against in the
Interim Financial Statements. Each Stockholder shall pay his or her
proportionate share of such Pre-Closing Taxes promptly following receipt by such
Stockholder (either directly or through the Stockholder Representative) of a
notice from Buyer of Buyer's calculation of such Stockholder's payment
obligation hereunder together with copies of the relevant Tax Returns and other
information supporting Buyer's calculation. If a Stockholder disputes all or any
portion of the payment obligation hereunder as calculated by Buyer, such
Stockholder shall nevertheless promptly pay to Buyer the amount specified in the
notice and any dispute related thereto shall be resolved pursuant to the
arbitration provisions of Section 7.13. Any additional Taxes attributable to the
Pre-Closing Periods covered by such Tax Returns, pursuant any Tax Proceeding,
shall be paid by Stockholders promptly upon demand therefor by Buyer.
(e) Cooperation. Buyer and the Stockholders shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to Sections 4.8(c) and (d), and in preparing
and filing the information statements required by Treas. Reg. 1.351-3. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to the filing
of such Tax Returns.
(f) Closing Date. Without limiting the generality of Sections
4.8(a),(b),(c),or (d), Buyer shall be liable for, and shall indemnify and hold
the Stockholders harmless against, all Taxes of the Company attributable to
operations, acts or omissions of Buyer with respect to the Company on the
Closing Date that are not in the ordinary course of business.
(g) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify the
Stockholder Representative of any written communication from a Tax authority
with respect to any pending Tax Proceeding involving a Pre-Acquisition Tax
Liability. Buyer shall include with such notification a copy of the written
communication so received by Company.
(ii) The Stockholder Representative shall have responsibility and
authority to represent the interests of the Company in any Tax Proceeding
relating to Pre-Acquisition Taxable Periods and Straddle Periods and to employ
counsel of its choice in connection therewith; provided however, that Buyer
shall be permitted to participate in any such Tax Proceedings relating to
Straddle Periods and all hearings related thereto at the expense of Buyer; and
provided further, that, without the prior written consent of Buyer, which shall
not
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be unreasonably withheld, the Stockholder Representative shall not agree to
settle or compromise any Tax Proceeding relating to Pre-Acquisition Taxable
Periods or Straddle Periods and/or any Pre-Acquisition Tax Liability issue
arising therein if such settlement or compromise can reasonably be expected to
materially impact the Tax position of Buyer, its Affiliates or the Company in a
negative way following the Closing. Without the prior written consent of the
Stockholder Representative, which shall not be unreasonably withheld, Buyer
shall not agree to settle or compromise any such Tax Proceeding relating to
Post-Closing Periods or Tax Liabilities arising therein if such settlement or
compromise can reasonably be expected to materially impact in a negative way the
Tax position of the Stockholders or the Company with respect to any Pre-Closing
Period. In any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Stockholders are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Stockholders are not
responsible, the Buyer, on the one hand, and the Stockholders, on the other
hand, shall jointly bear the costs and expenses thereof as allocated between
them on an equitable basis. The Stockholder Representative shall also have the
right, but not the obligation (at the expense of the Stockholders) to initiate
any claim for refund or contest to the extent such claim or contest affects the
amount of Taxes for which the Stockholders are or may be liable under this
Agreement.
(iii) All notices to Stockholders provided for hereunder shall be deemed
delivered to each Stockholder upon receipt thereof either directly by the
Stockholder or by the Stockholder Representative. The Stockholders shall
proportionately pay all Tax Liabilities and costs and expenses for which the
Stockholders are responsible hereunder; provided however, the Stockholders shall
be jointly and severally liable for all such Tax Liabilities, costs and
expenses.
(iv) Each of Buyer, the Stockholders, the Company, and the Stockholder
Representative shall furnish to the other relevant party or parties such
information and documents as may be reasonably requested by such other party or
parties, and shall otherwise reasonably cooperate with such other party or
parties, in connection with the preparation of any Tax Return and the conduct of
any Tax Proceedings.
(h) Amended Returns. The Company shall not amend, and Buyer shall not
permit the Company to amend, any Tax Return that may affect the Taxes for which
Stockholders are or may be liable under this Agreement without written consent
from the Stockholder Representative, which shall not be unreasonably withheld.
(i) Refunds or Credits. Except as otherwise set forth in this Agreement,
any refunds or credits of Taxes, to the extent that such refunds or credits are
attributable to Pre-Acquisition Taxable Periods, shall be for the account of
Stockholders, and, to the extent that such refunds or credits are attributable
to taxable periods beginning after the Closing Date, such refunds or credits
shall be attributable to the account of Buyer. To the extent that such refunds
or credits are attributable to Taxes for the Straddle Periods, such refunds and
credits shall be for the account of the party who bears the responsibility for
such Taxes pursuant to Section 4.8(a)(ii). Buyer shall, or shall cause the
Company to, promptly forward to Stockholders or reimburse Stockholders for any
such refunds or credits due to Stockholders
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under this Section 4.8(i) after receipt thereof by Buyer or the Company, and
Stockholders shall promptly forward to Buyer or reimburse Buyer for any refunds
or credits due to the Buyer under this Section 4.8(i) after receipt thereof by
Stockholders.
(j) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Stockholders shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until 90 days after the expiration of
the applicable statute of limitations (including any waivers or extensions
thereof) with respect to the taxable periods to which the Tax Returns relate.
Prior to disposing of any such books and records, Buyer or the Company, as the
case may be, shall offer such books and records to the Stockholder
Representative (at the sole expense of the Stockholders).
(k) Section 351. It is acknowledged that Buyer, the Company and
Stockholders intend that the transfer of the Seller Shares by the Stockholders
to Buyer pursuant to this Agreement qualify (i) as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of applicable state income tax law, and (ii) under Code
Section 351 as part of a transfer by the Stockholders and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. For all
federal and state income tax purposes the Stockholders and Buyer shall (i) treat
and report the transfer of the Seller Shares in a manner consistent with its
qualification as a transfer of property to a controlled corporation pursuant to
the provisions of Code Section 351 and comparable provisions of state income tax
law, and (ii) file such Tax returns and Tax information reports related to the
transfer as may be required or otherwise appropriate under the Tax laws and
regulations applicable to transfers of property pursuant to Code Section 351.
None of the Stockholders, the Company or Buyer shall take any action
inconsistent with the treatment of the Seller Shares as a transfer of property
pursuant to Code Section 351.
(l) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(m) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9. Stockholder Representative. The Stockholders shall at all times maintain a
representative (the "STOCKHOLDER REPRESENTATIVE") for purposes of taking certain
actions and giving certain consents on behalf of the Stockholders as specified
herein. The Stockholder Representative will be James F. Holden unless and until
the Stockholders, mutually agree upon a replacement and notify Buyer thereof.
Each Stockholder hereby grants to the
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Stockholder Representative the right to vote such Stockholder's shares in the
Company as the proxy of such Stockholder consistent with this Section 4.9, and
actions taken, consents given and representations made by the Stockholder
Representative on behalf of the Stockholders pursuant hereto shall be binding
upon the Stockholders. The proxy granted by each Stockholder hereby is coupled
with an interest and is irrevocable. Before the Closing, the Stockholder
Representative is authorized by the Stockholders to take any action on behalf of
the Stockholders to facilitate the transactions contemplated hereby which such
Stockholder Representative is directed to take by the Company acting through a
majority of the members of the Board of Directors in office prior to the
Closing, including, without limitation, amending this Agreement, and executing
documents or instruments. After the Closing for a period of 18 months, the
Stockholder Representative is authorized by the Stockholders to take any action
on behalf of the Stockholders to facilitate or administer the transactions
contemplated hereby as the Stockholder Representative deems appropriate.
4.10. Consolidation Transactions. Effective as of December 14, 1998, the Buyer
acquired approximately 38 companies engaged in the business of cost reduction,
cost recovery and profit enhancement services by means of acquisitions by Buyer
of all or substantially all of the assets or stock or other equity interests of
such companies (collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
Contemporaneously with the transaction contemplated hereby, Buyer is attempting
to acquire various other companies (with the transaction contemplated hereby,
the "ADDITIONAL CONSOLIDATION TRANSACTIONS"), and following closing or
abandonment of the Additional Consolidation Transactions, Buyer intends to
pursue still more acquisitions (the "FURTHER CONSOLIDATION TRANSACTIONS"). The
Company and the Stockholders acknowledge that as a result of the complexity of
the transactions contemplated hereby and the other Additional Consolidation
Transactions, and for valuation and other reasons, the Closing contemplated
hereby and the closing of the other Additional Consolidation Transactions may
need to be concurrent or sequenced as designated by Buyer. Accordingly, the
Company and the Stockholders shall at any time upon or after execution of this
Agreement, but prior to the Closing Date (i) provide any outstanding
documentation required to effect the Closing pursuant to this Agreement in
escrow pending release upon authorization of the Stockholder Representative at
the Closing, (ii) complete performance of their respective obligations hereunder
and under the other Transaction Documents to be performed by the Closing, and
(iii) update the schedules hereto and any other documentation or information
provided to Buyer during the course of this transaction such that all such
disclosures shall be accurate and current as of the Closing Date.
4.11. Supplemental Disclosure. At or prior to the Closing, the Company and the
Stockholders shall supplement or amend each of the schedules hereto with respect
to any matter hereafter arising which, if existing or occurring at or prior to
the date hereof, would have been required to be set forth or listed in the
schedules or which is necessary to complete or correct any information in the
schedules.
4.12. HSR. Buyer and the Company shall cooperate in preparing and delivering to
the Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust
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Improvements Act of 1976 (the "HSR ACT"), if applicable. Buyer and the Company
shall each pay half of all filing fees payable under the HSR Act in connection
with the transactions contemplated hereby, and each of Buyer and the Company
shall pay its own costs incurred in preparation of all reports and notifications
required under the HSR Act.
4.13. Competing Proposals.
Prior to the Closing Date or termination of this Agreement:
(a) Neither the Company nor any Stockholder shall directly or
indirectly, initiate, solicit, encourage or participate in any discussions or
negotiations with, or provide any nonpublic information to, any person or entity
concerning any potential offer (other than as described herein) to acquire the
Company, the Business or any assets thereof or interests therein, or any other
transaction or arrangement that would interfere with the transactions
contemplated hereby (a "COMPETING PROPOSAL").
(b) The Company and the Stockholders shall promptly communicate to Buyer
the existence or occurrence and terms of any Competing Proposal or contact
related thereto which the Stockholders or the Company or any of its employees,
directors, or agents may receive in respect of any such proposed transaction and
the identity of the person, entity or group from whom such proposal or contact
was received.
(c) The Company and the Stockholders shall not transfer or hypothecate
the Business or any assets thereof or interests therein except to Buyer, or
enter into any agreement with any person other than Buyer in connection with any
of the foregoing.
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4.14. Bonus Plan. If Buyer does not close the IPO of its equity securities by
June 30, 1999, Buyer will implement a cash bonus plan designed to reward
employees on the basis of the performance of the divisions or subsidiaries of
Buyer in which they work. Amounts payable under, and other terms of, any such
plan will be subject to restrictions imposed by Buyer's lenders, Buyer's capital
investment requirements, and preservation of adequate working capital.
4.15. Best Efforts. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts (other than the
payment of money unreimbursed by the other party) to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to cause the fulfillment of the
conditions to Closing set forth herein and to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
4.16. Further Assurances. Upon the reasonable request of a party or parties
hereto at any time after the Closing Date, the other party or parties shall
forthwith execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as the
requesting party or parties or its or their counsel may reasonably request in
order to effectuate the purposes of this Agreement.
4.17. Notice of Breach. At all times before the Closing, and thereafter until
the second anniversary of the Closing Date, each of the parties hereto shall
promptly give written notice with particularity of any breach or inaccuracy of
any representation, warranty, agreement or covenant of such party contained
herein or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
4.18. Employee Matters. From and after the Closing Date, Buyer shall honor
written employment contracts to which the Company is a party on the Closing Date
and copies of which have been provided to Buyer, except those entered into that
are inconsistent with the covenants and representations of the Company
hereunder.
4.19. Continuance of Existing Indemnification Rights. From and after the Closing
Date and for a period of six years thereafter and for so long as any claims that
have been asserted prior to the end of such six-year period remain outstanding,
Buyer shall cause the Company to continue, or if the Company is merged into
Buyer or any Affiliate of Buyer or liquidated, Buyer will provide for, the
performance of the Company's indemnification obligations to present and former
directors and officers of the Company provided for in the Certificate of
Incorporation and Bylaws of the Company as in effect on the date of this
Agreement, and with respect to indemnification for acts or omissions occurring
prior to the Closing Date, provided however, that such obligations shall not
apply to any claim or cost (i) in respect of which such former director or
officer would not be entitled to indemnity under applicable law, or (ii) arising
in connection with facts or circumstances involving any inaccuracy of any
representation or breach of any covenant of the Company or Stockholders in this
Agreement or in any other Transaction Document.
4.20. Stockholder, Voting and Subordination Agreements, Subordinated Promissory
Note.
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(a) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that each of Buyer's
stockholders is, and as long as the Stockholders are bound by the same each will
be, a party to a stockholder agreement and voting agreement that are not
different in any material respect from the Voting Agreement and Stockholder
Agreement described in Section 6.2(d)(i) and Section 6.2(d)(iii), except that
certain stockholders owning shares of stock that, in the aggregate, do not
represent material voting power may not be subject to a voting agreement. Upon
the request of Stockholders and without further action on the part of Buyer, the
Stockholder Agreement and Voting Agreement to which the Stockholders will be a
party shall automatically be amended to incorporate any provisions contained in
any other similar stockholder agreement or voting agreement to which Buyer is
now or hereafter becomes a party, or in any modification or amendment to any
such agreement, that is more beneficial in any material respect to the
stockholder party to such agreement than the provisions of the Stockholder
Agreement and Voting Agreement to be signed by the Stockholders are to the
Stockholders. Buyer hereby consents to be bound by any such amendments to the
Voting Agreement and Stockholder Agreement. In the event that the Stockholders
have any reasonable basis to believe that the Buyer is party to any such similar
stockholder agreement or voting agreement that has provisions that are more
beneficial in any material respect to another stockholder party thereto than the
provisions of the Stockholder Agreement and Voting Agreement to be signed by the
Stockholders are to the Stockholders, Buyer shall provide copies of the relevant
provisions of such agreements to the Stockholders upon the Stockholders'
request.
(b) As a material inducement to the Stockholders to enter into this
Agreement, Buyer hereby represents and warrants that the form of the
subordinated promissory note issued by Buyer to, and the form of subordination
agreement entered into by, each holder (other than a person or entity receiving
cash and/or notes but no equity in consideration of sale of their business to
Buyer or its affiliates) of a subordinated promissory note issued by Buyer in
connection with any Initial Consolidation Transaction or Additional
Consolidation Transaction, are and will be no more beneficial in any material
respect to such holder than the Note and Subordination Agreement to be executed
by the Stockholders, described in Schedule 1.3 and Section 6.2(d)(iv)
respectively, are to the Stockholders, except as to changes to any subordinated
promissory note or subordination agreement required to be made by any lender
providing financing for Buyer's business operations or any Initial, Additional
or Further Consolidation Transaction. Upon the request of Stockholders and with
the approval of all lenders providing financing for Buyer's business operations
or any Initial, Additional or Further Consolidation Transaction, without further
action on the part of Buyer, the Note that the Stockholders will hold and the
Subordination Agreement to which the Stockholders will be a party shall
automatically be amended to incorporate any provisions contained in any other
subordinated promissory notes issued by Buyer or subordination agreements
related thereto, respectively, that any holder of a subordinated promissory note
issued in connection with the Initial Consolidation Transactions or Additional
Consolidation Transactions (other than a person or entity receiving cash and/or
notes but no equity in consideration of sale of their business to Buyer or its
affiliates) has already or hereafter will become a party, or in any modification
or amendment to any such subordinated promissory note or subordination
agreement, that is more beneficial in any material respect to the
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subordinated promissory note holder than the provisions of the Note issued to
and Subordination Agreement signed by the Stockholders are to the Stockholders.
Buyer hereby consents to be bound by any such amendments to the Note and the
Subordination Agreement. In the event that the Stockholders have any reasonable
basis to believe that the Buyer is party to any such subordinated promissory
note or subordination agreement that has provisions that are more beneficial in
any material respect to another subordinated note holder than the provisions of
the Note issued to and the Subordination Agreement signed by the Stockholders,
Buyer shall provide copies of the relevant provisions of such note or agreement
to the Stockholders upon the Stockholders' request. The Company will exercise
its power to prepay subordinated promissory notes issued in the Initial
Consolidation Transactions and the Additional Consolidation Transactions, if at
all, only by action of its Board of Directors or Chief Executive Officer, in
good faith, for legitimate business purposes, and without discrimination among
similarly situated holders of such notes unless such discrimination is in the
best interests of the Company.
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5. SURVIVAL; INDEMNIFICATION.
5.1. Survival. The representations and warranties made in this Agreement or in
any exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until March 31, 2000, except those
representations and warranties contained in (i) Sections 2.21 (Taxes) and 2.28
(Brokers), which will survive until the expiration (including extensions) of the
applicable statute of limitations; and (ii) Sections 2.2 (Ownership of Capital
Stock); 2.4 (Title to Assets) and 2.22 (Indebtedness), which will survive
indefinitely. As to any matter or claim which is based upon fraud by the
indemnifying party, the representations and warranties set forth in this
Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2. Indemnification by the Stockholders. Subject to the limits set forth in
this Article 5, the Stockholders and, if the transactions contemplated hereby
are not consummated, the Company, and their successors and assigns shall jointly
and severally indemnify, defend, reimburse and hold harmless Buyer and its
Affiliates and their successors and assigns, and the officers, directors,
employees and agents of any of them, from and against any and all claims,
losses, damages, liabilities, obligations, assessments, penalties and interest,
demands, actions and expenses, whether direct or indirect, known or unknown,
absolute or contingent (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any actions
or threatened actions) ("LOSSES") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation or liability reflected as
a liability or reserve of the Company in the Interim Financial Statements or an
obligation or liability incurred in the ordinary course of business since the
date of the Interim Financial Statements;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by the Company or the Stockholders in this Agreement or any
other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Stockholders contained in this Agreement or any other Transaction
Document.
5.3. Indemnification by Buyer. Subject to the limits set forth in this Article
5, Buyer and its successors and assigns shall indemnify, defend, reimburse and
hold harmless the
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Stockholders and their successors and assigns from and against any and all
Losses reasonably incurred by any such Stockholders arising out of or in
connection with any of the following:
(a) the ownership and operation of the Company after the Closing
(except that, to the extent permitted by law, Buyer and its successors and
assigns will not be required to indemnify, defend, reimburse or hold harmless
any Stockholder in respect of any Losses arising as a result of acts or
omissions of that Stockholder, including without limitation in such
Stockholder's capacity as an employee of or consultant to Buyer or its
Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4. Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's
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position, claims or defenses. The Indemnitee and its counsel shall maintain
confidentiality with respect to all such information consistent with the conduct
of a defense hereunder. The Indemnitor shall have the right to elect to settle
any claim for monetary damages only without the Indemnitee's consent, if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim with the
consent of the Indemnitor. If the Indemnitee defends the subject of a Claim in
accordance with this Section, the Indemnitor shall cooperate with the Indemnitee
and its counsel, at the Indemnitor's sole cost, risk and expense, in all
reasonable respects, and shall deliver to the Indemnitee or its counsel copies
of all pleadings and other information within the Indemnitor's knowledge or
possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
(e) At the request of the Indemnitor, the Indemnitee shall seek recovery
from its insurance provider(s) with respect to any Loss for which the Indemnitor
is or may be required to make an indemnification payment pursuant to this
Section 5.4.
(f) The amount which the Indemnitor is required to pay to, for or on
behalf of the Indemnitee pursuant to this Section 5.4 shall be adjusted
(including, without limitation, retroactively) (i) by any insurance proceeds
actually recovered by or on behalf of such Indemnitee in reduction of the
related indemnifiable Loss and (ii) to take account of the cash value to Buyer
of any Tax benefit realized as a result of the indemnifiable Loss. If the
Indemnitee has received or has had paid on its behalf an indemnification payment
for an indemnifiable Loss and subsequently receives insurance proceeds for such
Loss, or realizes any cash value as a result of any Tax benefit as a result of
such Loss, then the Indemnitee shall (i) promptly notify the Indemnitor of the
amount and nature of such proceeds and benefits and (ii) pay to the Indemnitor
the amount of such insurance proceeds or cash Tax benefit or, if lesser, the
amount of the indemnification payment.
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(g) The Indemnitee shall be obligated to use all reasonable efforts to
mitigate to the fullest extent practicable the amount of any Loss arising from
any claim by a third party for which it is entitled to seek indemnification
hereunder, and the Indemnitor shall not be required to make any payment to the
Indemnitee in respect of such Loss to the extent the Indemnitee fails to comply
with the foregoing obligations.
(h) The Indemnitor shall be subrogated to all rights of the Indemnitee
against any third party in respect of any matter giving rise to a claim for
indemnification hereunder.
(i) Notwithstanding any other provision of this Agreement, this Section
5.4 shall not apply to any claims under Section 4.8, which shall be governed
solely and exclusively by the provisions thereof.
(j) The indemnification provisions in this Article 5 encompass Claims
solely between the parties hereto, not involving any third party, as well as
Claims involving third parties.
(k) Following the Closing, the indemnities provided for in this Article
5 shall be the sole and exclusive remedies of the parties and their successors
and assigns with respect to any disputes relating to this Agreement, the events
giving rise to this Agreement and the transactions provided for herein or
contemplated hereby, it being agreed and understood that the parties expressly
waive any and all other remedies, including any and all such remedies as may be
provided by statute, rule or regulation (other than intentional fraud).
5.5. Payment. All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including reasonable attorneys'
fees) incurred by the Indemnitee shall be paid by the Indemnitor in advance of
the final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay promptly any such advances in the
event that it is ultimately determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement or applicable law.
5.6. Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of One
Hundred Fifty Thousand Dollars ($150,000) (the "THRESHOLD"), except claims
arising from any breach of the representations and warranties contained in
Section 2.21 (Taxes) shall not be subject to the Threshold. Once the aggregate
amount of Losses exceeds the Threshold, persons entitled to recovery shall be
entitled to recover the full amount of all Losses in excess of the Threshold. No
person shall be entitled to indemnification under this Article 5 for Losses
directly or indirectly caused by a breach by
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such person of any representation, warranty, covenant or other agreement set
forth in this Agreement or any duty to the potential Indemnitor.
(b) The maximum aggregate liability of the Stockholders on the one hand,
to Buyer, and Buyer, on the other hand to the Stockholders, for all claims
arising under or otherwise related to this Agreement and the other Transaction
Documents shall equal the aggregate Purchase Price, provided that the maximum
aggregate liability of the Stockholders, on the one hand, to Buyer, and the
Buyer, on the other hand to the Stockholders, in respect of such claims that are
first brought or noticed in writing by the claimant after March 31, 2000 will
not exceed $10,000,000. For purposes of this Section 5.6(b), the value of Shares
received shall be (A) prior to the IPO, the per share Agreed Price (as defined
in the Stockholder Agreement) then prevailing; and (B) after the IPO, the per
share closing price on the primary exchange or market on which the Common Stock
is traded on the date such indemnifiable Losses become payable, except that the
value of any Shares sold in bona fide third party transactions will be the gross
proceeds to the Stockholders of such sale.
6. CONDITIONS TO CLOSING.
6.1. Conditions to Obligations of Each Party. The obligations of the
Stockholders, on the one hand, and Buyer, on the other hand, to consummate the
transactions contemplated hereby are subject to the fulfillment, at or before
the Closing Date, of the conditions set forth in this Section 6.1, any one or
more of which may be waived in writing by the party entitled to the benefit of
such condition; provided however, that such waiver will not diminish such
party's right to indemnification pursuant to Article 5, unless so stated.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby is in effect; and no action
or proceeding has been instituted or threatened by any Governmental Entity,
other person, or entity which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could have a Material
Adverse Effect.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
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6.2. Conditions to Obligations of Buyer. The obligations of Buyer to consummate
the transactions contemplated hereby are subject to the fulfillment, at or
before the Closing Date, of the conditions set forth in this Section 6.2, any
one or more of which may be waived by Buyer in writing in its discretion;
provided however, such waiver will not waive or diminish Buyer's right to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Stockholders contained in this Agreement or in
any other Transaction Document shall be true and correct in all material
respects as of the date hereof and on the Closing Date, and at the Closing the
Company and the Stockholder Representative shall each have delivered to Buyer a
certificate dated the Closing Date to such effect signed by the President or any
Vice President and the Secretary or any Assistant Secretary of the Company and
by the Stockholder Representative.
(b) Performance of the Company and the Stockholders. The Company and the
Stockholders shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement on or before the
Closing Date, and at the Closing the Company and the Stockholders, as the case
may be, shall each have delivered to Buyer a certificate to such effect dated
the Closing Date and signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company or the Stockholders, as
applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Board of Directors and the Stockholders
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents to be delivered by the Company and the Stockholders
and the consummation of the transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Stockholder. Buyer has
received, or is receiving at the Closing, all of the following, each duly
executed by each Stockholder and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by each Stockholder and the spouse of
each Stockholder, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24(g);
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(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit E, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, the absence of which
could result in material liability to Buyer or have a Material Adverse Effect,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company, provided, however, that Buyer may not
refuse to consummate the transactions contemplated hereby on the basis of
non-satisfaction with its due diligence review after the tenth day after the
date of this Agreement or, if later, after the tenth day following the delivery
to Buyer of all documents and information requested by Buyer for due diligence
purposes in connection with the transactions contemplated hereby
(h) Closing Date Net Worth. At the Closing the Company will have current
assets, net of total liabilities, calculated according to GAAP of at least One
Million Two Hundred Thousand Dollars ($1,200,000.00); and at the Closing the
Company shall have delivered to Buyer a certificate dated the Closing Date to
such effect with supporting financial information, signed by the President or
any Vice President and the Secretary or any Assistant Secretary of the Company.
(i) Financing. Buyer shall have received the consent of its senior
lenders to the transactions contemplated hereby, and shall have available, on
commercially reasonable terms reasonably satisfactory to Buyer, debt financing
sufficient to finance the cash portion of the Purchase Price and the cash
portion of the purchase price being paid by Buyer pursuant to each of the
Consolidation Transactions, and to provide Buyer with adequate working capital
following the transactions contemplated hereby and the Additional Consolidation
Transactions.
(j) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Stockholders
in substantially the
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form of Exhibit F. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of the Company, or its officers, and such
counsel may assume that this Agreement has been duly authorized, executed and
delivered by Buyer.
(k) Certificates. The Stockholders shall have delivered to Buyer the
certificates representing the Seller Shares and the stock certificates or stock
powers as described in Section 1.2.
(l) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
(m) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received an Employment
Agreement, substantially in the form attached hereto as Exhibit G-1 for each key
employee designated by Buyer and named on Schedule 6.2(a), and an Employment
Letter substantially in the form attached hereto as Exhibit G-2 for other
employees named on Schedule 6.2(b) (each with conforming changes as appropriate
for the employee), duly executed and delivered by each person named on Schedule
6.2(a) or (b).
(n) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(o) Intellectual Property Licenses. The Licensing Agreement between the
Company and FoxPaw, Inc. and the Licensing Agreement between the Company and
eFox, LLC, each dated July 5, 1998, shall be amended, effective as of the
Closing, in a manner satisfactory to Buyer, provided that the amendments to such
license agreements will not (i) impair the rights of FoxPaw, Inc. to the Holden
Intellectual Property (as defined therein) required so that the publication,
marketing and sale of books owned by FoxPaw, Inc. as of the Closing Date do not
infringe the Holden Intellectual Property, (ii) impair the rights of eFox, LLC
to use for its business purposes consistent with the option agreement described
in Section 6.1(c) (but not transfer) the Holden Intellectual Property during the
term of the option described in Section 6.1(c), or (iii) cause FoxPaw, Inc., the
Company, or James Holden to violate that certain agreement among John Wiley &
Sons, Inc., James Holden and the Company dated December 16, 1988, relating to
Power Base Selling, or cause FoxPaw, Inc. or James Holden to violate that
certain agreement among John Wiley & Sons, Inc., James Holden and FoxPaw, Inc.
dated May 28, 1998, relating to World Class Selling.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Stockholders or in
furtherance of the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
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6.3. Conditions to Obligations of the Stockholders. The obligations of the
Stockholders to consummate the transactions contemplated hereby are subject to
the fulfillment, at or before the Closing Date, of the conditions set forth in
this Section 6.3, any one or more of which may be waived by the Stockholders in
writing in their discretion; provided however, such waiver will not waive or
diminish the right of the Stockholders to indemnification pursuant to Article 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby and
thereby;
(ii) The Notes;
(iii) A photocopy of the certificates representing the Shares
issued in the name of each Stockholder as set forth in Schedule 1.3;
(iv) An Employment Agreement substantially in the form attached
hereto as Exhibit G-1 with James F. Holden, and an employment letter in the form
of Exhibit G-2 with each of the persons named in part (b) of Schedule 6.2 (each
with conforming changes as appropriate for the employee);
(v) A Stockholder Agreement substantially in the form of Exhibit
C; and
(vi) Other documents as the Stockholders may reasonably request.
(d) The Cash Payment. The Stockholders shall have received the Cash
Payment (as described in Schedule 1.3).
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<PAGE> 58
(e) Opinion of Counsel. The Stockholders shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Stockholders.
(f) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Stockholders; the Stockholders
shall have received at the Closing a copy of such opinion in substantially the
form presented to them for review at least ten business days before the Closing;
and, if the Closing has not occurred within 45 days of the date of this
Agreement, there have not occurred any material events or changes in
circumstances that cause the Stockholders reasonably to believe, based upon the
written advice of nationally recognized counsel, that the purchase and sale of
the Seller Shares contemplated hereby should not qualify for treatment under
Section 351 of the Code.
(g) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, the absence of which
could result in a material liability to the Company or the Stockholders, or have
a Material Adverse Effect, shall have been duly obtained in form reasonably
satisfactory to the Stockholders and shall be in full force and effect on the
Closing Date.
(h) No Adverse Changes to Buyer. Between the date of this Agreement and
the Closing Date, Buyer shall not have suffered any material adverse effect on
or change in the financial conditions or results of operations of Buyer and its
subsidiaries.
7. MISCELLANEOUS.
7.1. Termination. This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Stockholders fail to comply
in any material respect with any of its or their covenants or agreements
contained herein, or (ii) any of the representations and warranties of the
Company or the Stockholders is breached or is inaccurate in any material way;
(b) by the Company or the Stockholders if (i) Buyer fails to comply in any
material respect with any of its covenants or agreements contained herein, or
(ii) any of the representations and warranties of Buyer is breached or is
inaccurate in any material way; or (c) by the Company or Buyer if (i) a
Governmental Entity has issued a non-appealable order, decree or ruling or taken
any other action (which order, decree or ruling the parties hereto have used
their best efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the transactions contemplated by this Agreement; or (ii) a condition
to its performance hereunder has not been satisfied or waived prior to March 15,
1999, provided however, that if the board of directors of Buyer should, in good
faith, determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Additional
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<PAGE> 59
Consolidation Transactions, it may extend such date by thirty (30) days.
Notwithstanding the foregoing, a party may not terminate this Agreement if the
event giving rise to the termination right results from the willful failure of
such party to perform or observe any of the covenants or agreements set forth
herein to be performed or observed by such party or if such party is, at such
time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.28 (Brokers), 4.2 (Confidentiality), 7.12
(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction), and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2. Notices. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed given upon personal delivery or three
(3) days after being mailed by certified or registered mail, postage prepaid,
return receipt requested, or one (1) business day after being sent via a
nationally recognized overnight courier service if overnight courier service is
requested from such service or upon receipt of electronic or other confirmation
of transmission if sent via facsimile, to the parties, their successors in
interest or their assignees at the following addresses and telephone numbers, or
at such other addresses or telephone numbers as the parties may designate by
written notice in accordance with this Section 7.2:
If to Buyer: EPS Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
Attn: General Counsel
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<PAGE> 60
With a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
Attn.: Thomas D. Magill, Esq.
If to the Company
or any Stockholder: James F. Holden
211 Otis Road
Barrington Hills, Illinois 60010
Telephone No.: (847) 382-1782
Facsimile No.: (847) 382-1783
With a copy to: Skadden, Arps, Slate, Meagher & Flom
(Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Facsimile No.: (312) 407-0411
Attn.: Peter C. Krupp, Esq.
7.3. Assignability and Parties in Interest. This Agreement and the rights,
interests or obligations hereunder may not be assigned by any of the parties
hereto without the prior written consent of the other parties hereto. This
Agreement shall inure to the benefit of and be binding upon Buyer and the
Company and their respective permitted successors and assigns and upon each
Stockholder and his or her executors, administrators, heirs, legal
representatives and permitted successors and assigns. Nothing in this Agreement
will confer upon any person or entity not a party to this Agreement, or the
legal representatives of such person or entity, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
7.4. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, without regard
to its conflicts-of-law principles.
7.5. Counterparts. Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6. Publicity. Prior to the Closing Date, no party may, or may it permit its
Affiliates to, issue or cause the publication of any press release or other
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer and the Company,
except that Buyer may disclose details of this Agreement to
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<PAGE> 61
other participants in, or as necessary to effect, the Consolidation
Transactions. Notwithstanding the foregoing, in the event any such press release
or announcement is required by law to be made by the party proposing to issue
the same, such party shall consult in good faith with the other party as far in
advance as practicable to the issuance of any such press release or
announcement.
7.7. Complete Agreement. This Agreement, the exhibits and schedules hereto, and
the other Transaction Documents contain or will contain the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and therein and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, and understandings.
7.8. Modifications, Amendments and Waivers. At any time prior to the Closing
Date or termination of this Agreement, any party may, (a) waive any inaccuracies
in the representations and warranties of any other party contained in this
Agreement or in any other Transaction Document; and (b) waive compliance by any
other party with any of the covenants or agreements contained in this Agreement.
No waiver of any of the provisions of this Agreement will be considered, or will
constitute, a waiver of any of the rights or remedies, at law or equity, of the
party entitled to the benefit of such provisions unless made in writing and
executed by the party entitled to the benefit of such provision. This Agreement
may be amended, supplemented or modified only by a written instrument duly
executed by each party hereto.
7.9. Headings; References. The headings contained in this Agreement and the
other Transaction Documents are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. References herein to
Articles, Sections, Schedules and Exhibits refer to the referenced Articles,
Sections, Schedules or Exhibits hereof unless otherwise specified.
7.10. Severability. Any provision of this Agreement which is invalid, illegal,
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11. Investigation. All representations and warranties contained herein which
are made to the knowledge of a party shall require that such party make
reasonable investigation and inquiry with respect thereto to ascertain the
correctness and validity thereof. Representations and warranties made to the
knowledge of the Company shall be deemed made to the knowledge of the
Stockholders only and no other person.
7.12. Expenses of Transactions. All fees, costs and expenses incurred by Buyer,
in connection with the transactions contemplated by this Agreement shall be
borne by Buyer, and all fees, costs and expenses incurred by the Company or the
Stockholders in connection with the transactions contemplated by this Agreement
shall be borne by the Stockholders jointly and severally.
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7.13. Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder, provided however, that the parties
shall seek any permanent injunctive relief, and any such proceeding shall be
resolved, pursuant to this section.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any Affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrators are hereinafter referred to as
the "ARBITRATORS"). The judgment of the award rendered by the Arbitrators may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement. If a party has a counterclaim against the
other party, such party shall furnish the party with whom it has the dispute a
notice of such claim as provided in the Rules (a "NOTICE OF COUNTERCLAIM")
within ten (10) days of receipt of the Arbitration Notice, which, in addition to
the items required by the Rules, shall include a statement of the nature, with
reasonable detail, of the dispute. A copy of the Notice of Counterclaim shall be
concurrently provided to the AAA. Within fifteen (15) days after receipt of the
Arbitration Notice or the Notice of Counterclaim as applicable, each party shall
select one person to act as Arbitrator and the two (2) selected shall select a
third Arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third Arbitrator
within such time, the third Arbitrator shall be selected by the AAA. Each
Arbitrator shall be a practicing attorney or a retired or former judge with at
least fifteen (15) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
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(c) Once the Arbitrators are assigned to hear the matter, the
Arbitrators shall schedule a pre-hearing conference to reach agreement on
procedural and scheduling matters, arrange for the exchange of information,
obtain stipulations and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrators shall have the
discretion to order, to the extent the Arbitrators deem relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrators.
(e) The parties must file briefs with the Arbitrators at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrators of the arrangement in advance of
the hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrators selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before those
Arbitrators.
(g) The Arbitrators' award shall be in writing, signed by the
Arbitrators and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrators shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14. Submission to Jurisdiction. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any,
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shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in Section 7.2. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
7.15. Attorneys' Fees. If Buyer or any of its Affiliates, successors or assigns
brings any action, suit, counterclaim, cross-claim, appeal, arbitration, or
mediation for any relief against the Company or any of its Affiliates,
successors or assigns or any Stockholder, or if the Company or any of its
Affiliates, successors or assigns or any Stockholder brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against Buyer or any of its Affiliates, successors or assigns, declaratory or
otherwise, to enforce the terms hereof or to declare rights hereunder
(collectively, an "ACTION"), in addition to any damages and costs which the
prevailing party otherwise would be entitled, the non-prevailing party shall pay
to the prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16. Enforcement of the Agreement. The Company, the Stockholders and Buyer
acknowledge that irreparable damage would occur if any of the obligations of the
Company
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and the Stockholders under this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Buyer will be entitled to an
injunction or injunctions to prevent breaches of this Agreement by the Company
or the Stockholders and to enforce specifically the terms and provisions hereto,
this being in addition to any other remedy to which Buyer is entitled at law or
in equity.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION
"BUYER"
By: /s/ MARK C. COLEMAN
-----------------------------------
Name: Mark C. Coleman
-----------------------------------
Title: SVP
-----------------------------------
HOLDEN CORPORATION
"COMPANY"
By: /s/ JAMES F. HOLDEN
-----------------------------------
Name: James F. Holden
-----------------------------------
Title: President
-----------------------------------
STOCKHOLDERS
/s/ JAMES F. HOLDEN
- --------------------------------------------
James F. Holden
/s/ CHRISTINE E. HOLDEN
- --------------------------------------------
Christine E. Holden
STOCKHOLDER REPRESENTATIVE
/s/ JAMES F. HOLDEN
- --------------------------------------------
James F. Holden
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SCHEDULE 1.3
PURCHASE PRICE
(i) An aggregate of Four Million Dollars ($4,000,000) by wire
transfer of immediately available funds to an account or accounts
specified by the Stockholders (the "CASH PAYMENT").
(ii) Promissory notes of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate principal amount
of Four Million Dollars ($4,000,000) (the "NOTES")
(iii) An aggregate of 1,320,114 shares of Series A Common Stock
of Buyer (the "SHARES"), certificates for which will be retained by
Buyer pending release pursuant to Section 1.4.
<PAGE> 1
EXHIBIT 10.32
AGREEMENT RE eFOX
BY AND AMONG
EPS SOLUTIONS CORPORATION
"BUYER"
ENTERPRISE PROFIT SOLUTIONS CORPORATION
"EPS"
eFOX CORPORATION
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
MARCH 19, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Purchase of Membership Interests.............................................1
2. Option.......................................................................1
2.1. RIGHT TO PURCHASE..................................................1
2.2. EXERCISE PROCEDURE.................................................2
2.3. EXERCISE PRICE.....................................................2
2.4. MATERIAL INFORMATION...............................................2
2.5. NO INTERFERENCE WITH OPTION.........................................2
3. Representations and Warranties of the Company and the Members................2
3.1. ORGANIZATION AND GOOD STANDING.....................................3
3.2. OWNERSHIP OF MEMBERSHIP INTERESTS..................................3
3.3. AUTHORIZATION OF AGREEMENT.........................................4
3.4. TITLE TO ASSETS....................................................4
3.5. CERTAIN PROPERTY OF THE COMPANY....................................4
3.6. YEAR 2000 COMPLIANCE...............................................6
3.7. NO CONFLICT OR VIOLATION...........................................7
3.8. CONSENTS...........................................................7
3.9. LABOR AND EMPLOYMENT MATTERS.......................................7
3.10. EMPLOYEE PLANS....................................................8
3.11. LITIGATION........................................................8
3.12. CERTAIN AGREEMENTS................................................9
3.13. COMPLIANCE WITH APPLICABLE LAW....................................9
3.14. LICENSES.........................................................10
3.15. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.......10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.16. LIABILITIES.......................................................11
3.17. TAXES.............................................................11
3.18. BROKERS...........................................................12
3.19. ACKNOWLEDGMENT RE DELOITTE & TOUCHE LLP...........................12
4. Representations and Warranties of Buyer.....................................12
4.1. ORGANIZATION AND CORPORATE AUTHORITY..............................12
4.2. NOTES.............................................................12
4.3. NO CONFLICT OR VIOLATION..........................................12
4.4. PURCHASE FOR INVESTMENT...........................................13
4.5. INVESTIGATION BY BUYER............................................13
5. Certain Understandings and Agreements of the Parties........................13
5.1. ACCESS............................................................13
5.2. CONFIDENTIALITY...................................................13
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
5.3. CERTAIN CHANGES AND CONDUCT OF BUSINESS...........................14
5.4. RESTRICTIVE COVENANTS.............................................16
5.5. MEMBER RESTRICTIONS...............................................19
5.6. NOTICE OF BREACH..................................................19
5.7. FINANCIALS........................................................19
5.8. CONTINUANCE OF EXISTING INDEMNIFICATION RIGHTS....................19
5.9. TAX MATTERS.......................................................20
5.10. TAKE-ALONG AND TAG-ALONG RIGHTS...................................22
5.11. BUSINESS PLAN.....................................................23
5.12. FINANCING OF THE COMPANY..........................................23
5.13. EMPLOYEES.........................................................24
5.14. USE OF SERVICES...................................................25
6. Survival; Indemnification...................................................25
6.1. SURVIVAL..........................................................25
6.2. INDEMNIFICATION BY THE MEMBERS....................................26
6.3. INDEMNIFICATION BY BUYER..........................................26
6.4. INDEMNIFICATION PROCEDURE.........................................26
6.5. PAYMENT...........................................................28
6.6. LIMITATIONS.......................................................29
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
7. Miscellaneous...............................................................29
7.1. NOTICES...........................................................29
7.2. ASSIGNABILITY AND PARTIES IN INTEREST.............................30
7.3. GOVERNING LAW.....................................................30
7.4. COUNTERPARTS......................................................30
7.5. COMPLETE AGREEMENT................................................30
7.6. MODIFICATIONS, AMENDMENTS AND WAIVERS.............................30
7.7. HEADINGS; REFERENCES..............................................31
7.8. SEVERABILITY......................................................31
7.9. INVESTIGATION.....................................................31
7.10. EXPENSES OF TRANSACTIONS.........................................31
7.11. ARBITRATION......................................................31
7.12. SUBMISSION TO JURISDICTION.......................................33
7.13. ATTORNEYS' FEES..................................................33
7.14. ENFORCEMENT OF THE AGREEMENT.....................................34
</TABLE>
iv
<PAGE> 6
EXHIBITS
A. Form of Promissory Note
B. Form of Subordination Agreement
C. Form of Assignment Agreement
D. Form of Employment Offer Letter
E. Form of Restricted Stock Purchase Agreement
SCHEDULES
3.5(a) Real Property
3.5(b) Personal Property
3.5(c) Proprietary Rights
3.8 Consents
3.9 Employees
3.12 Contracts
3.14 Licenses
3.16 Liabilities
3.17(b) Tax Returns
3.18 Brokers
5.13 eFox Employees
v
<PAGE> 7
AGREEMENT RE eFOX
THIS AGREEMENT RE eFOX (this "AGREEMENT") is made and entered into as of
March 19, 1999 by and among eFox, LLC, a Delaware limited liability Company,
(the "COMPANY"), the members of the Company listed on the signature page hereof
(each such individual a "MEMBER," and collectively, the "MEMBERS"), James F.
Holden, acting for and on behalf of the Members as their representative pursuant
to Section 5.5 (the "MEMBER REPRESENTATIVE"), EPS Solutions Corporation, a
Delaware corporation ("BUYER"), and Enterprise Profit Solutions Corporation, a
Delaware corporation and the wholly owned subsidiary of Buyer ("EPS").
A. The Company is engaged in the business of developing and marketing
web-enabled sales effectiveness applications on the Internet and on a company's
intranet or extranet, including artificial intelligence-driven sales coaching
applications, Just In Time sales training modules and database-oriented sales
performance tools. (the "BUSINESS").
B. The Members each own fifty percent (50%) of the membership interests
of the Company, constituting all of the issued and outstanding membership
interests in the Company.
C. The Members desire to sell to Buyer certain membership interests in
the Company and to grant to Buyer an option to acquire all of the remaining
issued and outstanding membership interests in the Company on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE OF MEMBERSHIP INTERESTS. Concurrently with execution and
delivery by Buyer and the Members of this Agreement, (i) Buyer is purchasing
from each of the Members 19.9% of his or her membership interests in the Company
(the "INITIAL INTERESTS") in exchange for $200,000, paid in the form of a
promissory note of Buyer (the "INITIAL NOTE") in the form of Exhibit A, and (ii)
the Members are entering into a Subordination Agreement in the form of Exhibit B
(the "SUBORDINATION AGREEMENT") related to their rights to payment under the
Initial Note and any promissory note delivered by Buyer upon exercise of the
Option (as defined in Section 2.1) pursuant to Section 2.3(a). The Members
hereby acknowledge receipt from Buyer of the Initial Note and Buyer hereby
acknowledges receipt from the Members of the Subordination Agreement and an
Assignment Agreement, in the form attached hereto as Exhibit C, transferring the
Initial Interests to Buyer free of any liens or restrictions. In addition, Buyer
acknowledges receipt of an opinion of counsel to the Company, and the Company
acknowledges receipt of an opinion of counsel to Buyer, as to the enforceability
of this Agreement and the Subordination Agreement.
2. OPTION.
2.1. RIGHT TO PURCHASE The Members hereby grant to Buyer an exclusive,
irrevocable option (the "OPTION") to purchase all of the membership interests in
the Company that may be
<PAGE> 8
issued and outstanding on the date of exercise of the Option, together with any
options or other securities or rights to acquire membership interests in the
Company and any other equity or voting rights in the Company outstanding on such
date (collectively, the "OUTSTANDING SECURITIES"), for the Exercise Price
described in Section 2.3. The Option may be exercised at any time in Buyer's
discretion, in one single transaction for all the Outstanding Securities, at any
time from the date hereof until 5:00 p.m. on March 31, 2004 (the "OPTION
PERIOD"). Buyer may, in its discretion, by written notice to the Company,
terminate the Option Period and Buyer's right to exercise the Option before 5:00
p.m. on March 31, 2004.
2.2. EXERCISE PROCEDURE. Buyer shall exercise the Option, if at all, by
delivering a written notice of exercise to the Member Representative together
with the Exercise Price. Promptly (but no later than three days) after receipt
by the Member Representative of the exercise notice and the Exercise Price, the
Members shall deliver to Buyer certificates representing the Outstanding
Securities, if any, duly endorsed for transfer to Buyer or an assignment of
membership interests duly endorsed, and sufficient to transfer full right, title
and interest in the Outstanding Securities to Buyer, free of any liens or
encumbrances.
2.3. EXERCISE PRICE. The "EXERCISE PRICE" payable by Buyer upon exercise
of the Option shall be $800,000, payable (a) by bank check or by promissory note
in the form of Exhibit A, in Buyer's discretion, if, at the time of exercise,
the Initial Note has not become due and payable in full according to its terms,
or (b) by wire transfer of immediately available funds to an account specified
in writing by the Members if, at the time of exercise, the Initial Note has
become due and payable in full according to its terms.
2.4 MATERIAL INFORMATION. If in connection with or within thirty (30)
days after Exercise (as defined below) Buyer becomes aware of any material
information related to the Company not disclosed to Buyer in writing before
Buyer's delivery of the notice of exercise, Buyer will have ten days from
receipt of such information to rescind the exercise, and if Buyer rescinds the
exercise, the Option will be deemed not to have been exercised and will remain
exercisable for the duration of the Option Period. Buyer will be entitled in
connection with exercise of the Option to rely upon any information provided by
the Company or the Members. The date of exercise of the Option, if such exercise
is not rescinded by Buyer, is referred to herein as the "EXERCISE DATE") and the
exercise of the Option may be referred to herein as the "EXERCISE."
2.5 NO INTERFERENCE WITH OPTION. During the Option Period, no Member may
(a) transfer any membership interest or other securities of or equity interest
in the Company, or any interest therein, or agree to any such transfer, or (b)
engage in any of the activities described in Section 5.4(a), (b), (c). or (d).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
Each representation and warranty contained in this Article 3 is
qualified by the disclosures made in the disclosure schedule attached hereto.
This Article 3 and the disclosure schedule shall be read together as an
integrated provision. The Company and the Members, jointly and severally,
represent and warrant to Buyer that:
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<PAGE> 9
3.1. ORGANIZATION AND GOOD STANDING. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware with full corporate power and authority to carry on the
Business as it is now being conducted, and to own, lease or operate its assets
and properties. The Company is duly qualified to do business and is in good
standing in every jurisdiction in which the character of the properties owned or
leased by it or the nature of the business conducted by it makes such
qualification necessary, except where failure to be so qualified would not have
a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" shall mean a material
adverse effect on or change in the Business or the financial condition or
results of operation of the Company, other than any such change or effect
attributable to or resulting from (i) changes in conditions (economic or
otherwise) generally applicable to the industries in which the Company operates
the Business, or general economic conditions globally, in the United States or
in the regions thereof in which the Company operates the Business, or (ii) any
change in laws, rules or regulations of general applicability relating to or
affecting the industries in which the Company operates the Business or
interpretations of such laws, rules or regulations by any Governmental Entity.
Complete and accurate copies of the charter documents of the Company, with all
amendments thereto to the date hereof, and the bylaws as presently in effect,
have been furnished to Buyer or its representatives.
3.2. OWNERSHIP OF MEMBERSHIP INTERESTS.
(a) The Members each own fifty percent (50%) of the membership interests
of the Company, constituting all of the issued and outstanding membership
interests in the Company (the "CURRENT Interests").
(b) The Current Interests constitute all of the issued and outstanding
membership interests in the Company and are validly issued and outstanding,
fully paid and non-assessable. Neither the Members nor the Company has granted,
issued or agreed to grant or issue any other equity interests in the Company and
there are no outstanding options, warrants, subscription rights, securities that
are convertible into or exchangeable for, or any other commitments of any
character relating to, any equity interests of the Company.
(c) Immediately before the sale contemplated by Article 1, the Members
have good and valid title to, and sole record and beneficial ownership of, the
Current Interests, free and clear of any claims, liens, pledges, options,
security interests, trusts encumbrances or other rights or interests of any
person or entity.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of membership interests in the Company prior to
the date hereof were exempt from the registration requirements of the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
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<PAGE> 10
3.3. AUTHORIZATION OF AGREEMENT. The Company and the Members have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
approved by the Members and no other proceedings on the part of the Company or
the Members are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and the Members and constitutes the legal, valid and
binding obligation of the Company and the Members, except as such enforceability
may be limited by general principles of equity and bankruptcy, insolvency,
reorganization and moratorium and other similar laws relating to creditors'
rights (the "ENFORCEABILITY EXCEPTIONS.")
3.4. TITLE TO ASSETS. The Company owns, or has valid leasehold interests
in, all material assets used in the Business, whether real, personal, mixed,
tangible or intangible, free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and claims of
any kind except any of the following: (i) purchase money security interests in
specific items of equipment each having a value not in excess of $5,000; (ii)
Personal Property leased pursuant to Personal Property Leases; (iii) liens for
taxes not yet payable; (iv) additional security interests and liens consented to
in writing by Buyer; (v) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vi) such imperfections of title
and encumbrances, if any, as would not have a Material Adverse Effect; (vii)
liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or (ii)
above, provided that any extension, renewal or replacement lien is limited to
the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase (all of the
foregoing, the "PERMITTED LIENS"). There are no outstanding agreements, options
or commitments of any nature obligating the Company or any Member to transfer
any of the assets of the Company or rights or interests therein to any party
other than sales of inventory in the ordinary course of business.
3.5. CERTAIN PROPERTY OF THE COMPANY.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 3.5(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 3.5(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company and each Member, each Real Property Lease is
a valid and binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Enforceability Exceptions.
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<PAGE> 11
(ii) The Company is not, and neither the Company nor any Member
has any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and no event has
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company.
(iii) To the knowledge of the Company and each Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, except for ordinary wear and
tear, and the operation thereof as presently conducted is not in violation of
any applicable building code, zoning ordinance or other law or regulation.
(b) Personal Property. Schedule 3.5(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
that are material to the Business are in good operating condition and repair,
except for ordinary wear and tear, and are sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 3.5(b) provides a description and the location of each item
of Personal Property, accurately identifies such Personal Property as owned or
leased, and lists each Personal Property Lease. The Company is not in material
breach of or default, and no event has occurred which, with due notice or lapse
of time or both, may constitute such a material breach or default, under any
Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 3.5(c) lists all material Proprietary Rights owned
by, registered in the name of, licensed to, or otherwise used by the Company
that are material to the Business. For purposes of this Agreement "PROPRIETARY
RIGHTS" means trademarks and service marks that are registered with the United
States Patent and Trademark Office, all applications or registrations in any
jurisdiction pertaining to the foregoing and all goodwill associated therewith;
patents, patent applications and disclosures for patent applications; computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications and
data); copyrights that are registered with the United States Copyright Office;
licenses, including, without limitation, software licenses, immunities,
covenants not to sue and the like relating to any of the foregoing; Internet Web
sites, domain names and registrations or applications for registration thereof;
books and records describing or used in connection with any of the foregoing;
and claims or causes of action arising out of or related to infringement or
misappropriation of any of the foregoing. All trademarks and service marks that
are material to the conduct of the Business as of the date hereof are registered
with the United States Patent and Trademark Office, and all copyrights that are
material to the conduct of the Business as of the date hereof are registered
with the United States Copyright Office.
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<PAGE> 12
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the uses of the Proprietary Rights in connection with the conduct of the
Business in the manner presently conducted and to convey such right and
authority to Buyer.
(iii) Schedule 3.5(c) lists any material licenses, sublicenses or
other agreements pursuant to which the Company grants a license to any person to
use the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 3.5(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company except as would not have a Material Adverse
Effect. There have not been any actions or other judicial or adversary
proceedings involving the Company concerning any of the Proprietary Rights, nor
to the knowledge of the Company or any Member, is any such action or proceeding
threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Member, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business that are material to the operation of the Business
(the "TRADE SECRETS"), free and clear of any liens, encumbrances, restrictions,
or legal or equitable claims of others, and has taken all reasonable security
measures to protect the secrecy, confidentiality, and value of the Trade
Secrets. Any of the employees of the Company and any other persons who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed or designed the Trade Secrets, or who have knowledge of or access to
information relating to them, have been put on notice and have entered into
agreements that the Trade Secrets are proprietary to the Company and not to be
divulged or misused.
3.6 YEAR 2000 COMPLIANCE. All date-related output, calculations or
results before, during or after the calendar year 2000 that are produced or used
by any hardware, software (other than software that is generally available upon
payment of a "shrink-wrap" type license and that has not been customized for use
in connection with the Business), firmware or facilities systems (the "COMPUTER
SYSTEMS") owned or used by the Company and material to the Business are Year
2000 Compliant except as the failure to be compliant would not have a Material
Adverse Effect. For purposes of this Section, "YEAR 2000 COMPLIANT" means:
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<PAGE> 13
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
3.7. NO CONFLICT OR VIOLATION. The execution, delivery and performance
by the Company and the Members of this Agreement and the consummation of the
transactions contemplated hereby do not and will not: (i) violate or conflict
with any provision of the charter documents or bylaws of the Company; (ii)
violate any provision or requirement of any domestic or foreign, federal or
state, law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to the Company or the Business;
(iii) violate, result in a breach of, constitute (with due notice or lapse of
time or both) a default or cause any obligation, penalty, premium or right of
termination to arise or accrue under any Contract (as hereinafter defined); (iv)
result in the creation or imposition of any lien, charge or encumbrance of any
kind whatsoever upon any of the properties or assets of the Company; or (v)
result in the cancellation, modification, revocation or suspension of any
license, permit, certificate, franchise, authorization or approval issued or
granted by any Governmental Entity (each a "LICENSE," and collectively, the
"LICENSES"), except where any occurrence or result referred to in (ii), (iii),
(iv) or (v) above would not result in a Material Adverse Effect.
3.8. CONSENTS. Schedule 3.8 lists all material consents and notices
required to be obtained or given by or on behalf of the Company or any Member
before consummation of the transactions contemplated by this Agreement in
compliance with all applicable laws, rules, regulations, or orders of any
Governmental Entity, or the provisions of any material Contract, and all such
consents have been duly obtained and are in full force and effect, except where
the failure to obtain such consent will not have a Material Adverse Effect.
3.9. LABOR AND EMPLOYMENT MATTERS. Schedule 3.9 lists all employees of
the Company, including date of retention, current title and compensation. There
is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has complied with all applicable laws, rules and regulations relating to the
employment of labor, including those related to wages, hours,
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<PAGE> 14
collective bargaining and the payment and withholding of taxes and other sums as
required by appropriate Governmental Entities, except where the failure to
comply would not result in a Material Adverse Effect, and has withheld and paid
to the appropriate Governmental Entities or is holding for payment not yet due
to such Governmental Entities, all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no unfair labor practice complaint against the Company pending before the
National Labor Relations Board or any state or local agency; pending labor
strike or other material labor trouble affecting the Company; material labor
grievance pending against the Company; pending representation question
respecting the employees of the Company; pending arbitration proceedings arising
out of or under any collective bargaining agreement to which the Company is a
party. For purposes of this Agreement, "EMPLOYEES" includes employees,
independent contractors and other persons filling similar functions.
3.10. EMPLOYEE PLANS.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof, and for salaries, vacation and holiday pay, sick pay, bonuses and
other forms of compensation payable to employees in respect of the services
rendered by any of them prior to the date hereof, have been paid.
(b) The Company does not have and has never had any bonus, pension,
stock option, stock purchase, benefit, welfare, profit-sharing, deferred
compensation, retainer, consulting, retirement, welfare, disability, vacation,
severance, hospitalization, insurance, incentive, deferred compensation and
other similar fringe or employee benefit plans, funds, programs or arrangements,
whether written or oral, in each of the foregoing cases which cover, are
maintained for the benefit of, or relate to any current or former employees,
members, officers or directors of the Company ("EMPLOYEE PLANS").
(c) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code.
3.11. LITIGATION. There are no claims, actions, suits or proceedings of
any nature pending or, to the knowledge of the Company or any Member, threatened
by or against the Members, the Company, the officers, directors, employees,
agents of the Company, or any of their respective Affiliates involving,
affecting or relating to the Business or any assets, properties or operations of
the Company or the transactions contemplated by this Agreement, except for
claims, actions, suits or proceedings that would not result in a Material
Adverse Effect. Neither the Company nor any of the Company's assets is subject
to any material order, writ, judgment, award, injunction or decree of any
Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have the
meaning ascribed to such term in Rule 405 under the Securities Act.
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<PAGE> 15
3.12. CERTAIN AGREEMENTS.
(a) Schedule 3.12 lists all material, written or oral contracts,
agreements, instruments, licenses, commitments and other arrangements to which
the Company is a party or otherwise relating to, or affecting in any material
respect, any of its assets, properties or operations (each a "CONTRACT," and
collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Enforceability Exceptions, and is in full force and effect on the
date hereof other than those Contracts not requiring the payment of money to the
Company, the failure of which to be enforceable or in full force and effect
would not have a Material Adverse Effect. The Company has performed all material
obligations required to be performed by it under, and is not in material default
or breach of, any Contract, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a material default or breach by the
Company.
(c) To the knowledge of the Company and each Member, no other party to
any Contract is in material default or breach in respect thereof, and no event
has occurred which, with due notice or lapse of time or both, would constitute
such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company and each Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or Buyer's representatives true
and complete originals or copies of all the Contracts and a copy of every
Material Notice received by the Company or any Member since formation of the
Company, with respect to any of the Contracts. For purposes hereof, "MATERIAL
NOTICE" means those notices alleging a material breach of a Contract or
intention to terminate or materially modify a Contract, but does not include
routine correspondence.
(f) To the knowledge of the Company and each Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
3.13 COMPLIANCE WITH APPLICABLE LAW. The operations of the Company are,
and have been, conducted in all material respects in accordance with all
applicable laws, regulations, orders and other requirements of all Governmental
Entities having jurisdiction over the Company or its assets, properties or
operations, including, without limitation, all such laws, regulations, orders
and requirements relating to the Business except in any case where the failure
to so conduct its operations would not have a Material Adverse Effect. The
Company has not received any notice of any material violation of any such law,
regulation, order or other legal requirement, and is not in material default
with respect to any order, writ, judgment, award, injunction or decree of any
Governmental Entity, applicable to the Company or any of its assets, properties
or operations.
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<PAGE> 16
3.14. LICENSES.
(a) Schedule 3.14 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Members of this Agreement. The Licenses are sufficient and adequate in all
material respects to permit the continued lawful conduct of the Business in the
manner now conducted and the ownership, occupancy and operation of the Company's
properties for its present uses and the execution, delivery and performance of
this Agreement. No jurisdiction in which the Company is not qualified or
licensed as a foreign corporation has demanded or requested in writing that it
qualify or become licensed as a foreign corporation. The Company has delivered
to Buyer or its representatives true and complete copies of all the material
Licenses together with all amendments and modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any material respect.
The Company is not in violation in any material respect of any of the Licenses.
3.15. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) Except pursuant to this Agreement, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, member, relative or
Affiliate of the Company or any of the Members, including, without limitation,
loans, guarantees or pledges to, by or for the Company or from, to, by or for
any of such persons, that are either (i) currently in effect, or (ii) reflected
in the Company's financial results.
(b) Except pursuant to this Agreement, no officer, director or member of
the Company, or any Affiliate of any such person, now has, or since formation of
the Company had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
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(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
3.16. LIABILITIES. Schedule 3.16 sets forth all material liabilities and
obligations of the Company, whether absolute, accrued, contingent or otherwise,
and whether due or to become due (including, without limitation, any liability
for taxes and interest, penalties and other charges payable with respect to any
such liability or obligation), and no facts or circumstances exist which, with
notice or the passage of time or both, could reasonably be expected to result in
any material claims against or obligations or liabilities of the Company, except
for such liabilities or obligations which will not result in a Material Adverse
Effect. The Company has no liabilities to any of its Members or any Affiliates
of its Members.
3.17. TAXES.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(ii) "TAX LIABILITIES" means all liabilities for Taxes.
(iii) "TAX PROCEEDING" means any audit or other examination, or
any judicial or administrative proceeding, relating to liability for or refunds
or adjustments with respect to Taxes.
(iv) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Federal and state partnership information
Tax Returns and other material Tax Returns of the Company required to be filed
as of the date hereof (after giving effect to any extension of time to file such
Tax Returns) and (ii) paid, when due, all Taxes due and payable by the Company
for the tax periods relating to such Tax Returns (whether or not shown on such
Tax Returns). All such previously-filed Tax Returns were complete and accurate
in all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. No Tax Return is currently being audited
by a Tax authority, or is the subject of a written notice from a Tax authority
that such Tax authority intends to commence an audit or examination of such Tax
Return. The Company has not given its consent to waive or extend the applicable
statute of limitations for any Tax Return or the assessment of Taxes required to
be reported thereon. The Company has either delivered to Buyer or made available
for inspection by Buyer or its representatives or agents complete and correct
copies of all Tax audit reports and statements of Tax deficiencies with respect
to any delinquent Tax assessed against or agreed to by the Company for all
taxable periods commencing on or after January 1, 1999, for which audit reports
or statements of deficiencies have been received by the Company.
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(c) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(d) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
3.18. BROKERS. Except as provided on Schedule 3.18, no broker, finder,
investment banker, or other person is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of the Company or any of
the Members.
3.19 ACKNOWLEDGMENT RE DELOITTE & TOUCHE LLP. In December 1998, Buyer
purchased the Integrated Cost Reduction Strategies ("ICRS") business unit of
Deloitte & Touche LLP ("DELOITTE"). The Company and the Members acknowledge, for
the benefit of Deloitte and its Affiliates, that Deloitte is not related to
Buyer, that Buyer and the individuals related to Buyer with whom the Company and
the Members have dealt in connection with the transactions contemplated by the
various agreements of the Company and the Members with Buyer have acted and will
act on behalf of Buyer and not Deloitte or any of Deloitte's Affiliates (as
partners, principals, employees, agents, associates or otherwise). For these
purposes, "Affiliates" of Deloitte include persons controlling, controlled by,
or under common control with Deloitte, including without limitation partners of
Deloitte.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to the Members that:
4.1. ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to carry on its business as it
is now conducted and to own, lease or operate its assets and properties and has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Buyer, has been effectively authorized by all
necessary action of Buyer, corporate or otherwise, and constitutes the legal,
valid and binding obligation of Buyer, except as such enforceability may be
limited by the Enforceability Exceptions.
4.2. NOTES. The Initial Note constitutes, and any note delivered by
Buyer in payment of the Exercise Price will constitute, a legal, valid and
binding obligation of Buyer, except as such enforceability may be limited by the
Enforceability Exceptions.
4.3. NO CONFLICT OR VIOLATION. The execution, delivery and performance
by Buyer of this Agreement and the consummation of the transactions contemplated
hereby do not and will not: (i) violate or conflict with any provision of the
charter documents or bylaws of Buyer; (ii) violate any provision or requirement
of any domestic or foreign, federal or state, law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any Governmental Entity
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<PAGE> 19
applicable to Buyer; (iii) violate, result in a breach of, constitute (with due
notice or lapse of time or both) a default or cause any obligation, penalty,
premium or right of termination to arise or accrue under any material contract,
agreement, instrument, license, commitment or other arrangement to which Buyer
is a party or otherwise relating to, or affecting in any material respect, any
of its assets, properties or operations; (iv) result in the creation or
imposition of any lien, charge or encumbrance of any kind whatsoever upon any of
the properties or assets of Buyer; or (v) result in the cancellation,
modification, revocation or suspension of any license, permit, certificate,
franchise, authorization or approval issued or granted by any Governmental
Entity, except where any occurrence or result referred to in (ii), (iii), (iv)
or (v) above would not result in a material adverse effect on or change in the
financial condition or results of operation of Buyer.
4.4. PURCHASE FOR INVESTMENT. Buyer acknowledges that neither the offer
nor the sale of the any membership interests in the Company has been registered
under the Securities Act. Buyer is acquiring membership interests in the Company
solely for its own account and not with a view to any distribution or other
disposition of such membership interests, and the membership interests in the
Company acquired by Buyer pursuant to this Agreement will not be transferred
except in a transaction registered or exempt from registration under the
Securities Act.
4.5. INVESTIGATION BY BUYER. In entering into this Agreement, Buyer
acknowledges that, except for the specific representations and warranties of the
Company and the Members contained in Article 3, none of the Company, the
Members, or any of their respective directors, officers, employees, Affiliates,
controlling persons, agents, advisors or representatives, makes or shall be
deemed to have made any representation or warranty, either express or implied,
as to the accuracy or completeness of any of the information (including, without
limitation, any reserve estimates, projections, forecasts or other
forward-looking information) provided or otherwise made available to Buyer or
any of its directors, officers, employees, Affiliates, controlling persons,
agents, advisors or representatives.
5. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
5.1. ACCESS. The Company shall afford to Buyer full access during normal
business hours throughout the Option Period to its records (including, without
limitation, its accounting records and the workpapers of its independent
accountants), and to the properties, books, material contracts, agreements,
instruments, licenses, commitments and other arrangements to which it is a party
or that otherwise relate to, or affect, its assets, properties or operations
and, during such period, shall furnish promptly to Buyer all information
concerning it or its properties, liabilities and personnel as Buyer may request.
In addition, throughout the Option Period the Company and the Members shall
inform Buyer promptly of all material developments, events or circumstances
related to the business or condition of the Company.
5.2. CONFIDENTIALITY. During the Option Period, (a) the Company and the
Members will keep the matters contemplated herein and all information provided
by Buyer (or Deloitte & Touche LLP), confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby, and (b)
Buyer will keep the matters contemplated herein and all information provided by
the Company and the Members related to the Company and its business
confidential, and will not
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provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and the Company shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby.
Notwithstanding the foregoing, however, this Section 5.2 will not prohibit Buyer
from making any disclosure that may be required under the Securities Exchange
Act of 1934, as amended. If the Option is not exercised by the end of the Option
Period or is terminated, the Company and the Members on the one hand, and Buyer
on the other hand, shall, and shall cause their Affiliates to, each maintain the
confidentiality of any information obtained from the other in connection with
the transactions contemplated hereby or during the Option Period (the
"INFORMATION"), other than Information that (i) was in the public domain before
the date of this Agreement or subsequently came into the public domain other
than as a result of disclosure by the party to whom the Information was
delivered; or (ii) was lawfully received by a party from a third party free of
any obligation of confidence of or to such third party; or (iii) was already in
the possession of the party prior to receipt thereof, directly or indirectly,
from the other party; or (iv) is required to be disclosed in a judicial or
administrative proceeding after giving the other party as much advance notice of
the possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is independently developed by the party
to whom the Information was delivered without reference to the Information. If
the Option is not exercised by the end of the Option Period, Buyer, on the one
hand, and the Members and the Company, on the other, shall return to the other
all material containing or reflecting the Information provided by the other,
shall not retain any copies, extracts, or other reproductions thereof or derived
therefrom, and Buyer shall ensure the return of all such material from all other
parties with whom it has been shared, and shall thereafter refrain from using
the Information and shall maintain its confidentiality pursuant to this
Agreement.
5.3. CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) During the Option Period, the Company shall, and the Members shall
use all reasonable efforts to cause the Company to, conduct the Company's
business in the ordinary course consistent with the Business Plan (as defined in
Section 5.11). Without limiting the generality of the preceding sentence, except
as required or permitted pursuant to the terms hereof or as consented to in
writing by Buyer or contemplated by the Business Plan, during the Option Period
the Company shall not, and the Members shall cause the Company not to:
(i) enter into any new contract calling for payments by the
Company in excess of $50,000 over the life of the contract or series of related
contracts, unless such contract is, or series of related contracts are,
terminable upon 90 days' notice without further cost to the Company;
(ii) make any change in the charter documents or bylaws of the
Company, issue any additional membership interests or equity securities or grant
any option, warrant or right to acquire any membership interests or equity
securities or issue any security convertible into or exchangeable for the
membership interests in the Company, alter any term of any of the outstanding
securities of the Company, or make any change in the outstanding membership
interests or other ownership interests or in the capitalization, whether by
reason of a
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<PAGE> 21
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, license,
abandonment or other conveyance of any of the assets of the Company or any part
thereof (including, without limitation, intellectual property), except
transactions in the ordinary course of business consistent with the Business
Plan;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than Permitted Liens;
(vi) acquire any assets or properties or own any interest in any
entity;
(vii) hire any employees or consultants, other than pursuant to
at-will employment arrangements, or enter into any Employee Plan, program or
arrangement or any employment, severance or consulting agreement or arrangement,
except as contemplated by Section 5.13;
(viii) make or commit to make any capital expenditure in excess
of $100,000 or invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders other than in amounts sufficient to enable all
members of the Company to pay their tax obligations resulting from income of the
Company;
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
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(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) provide any confidential, trade secret, or nonpublic
information about the Company other than as necessary to conduct the business of
the Company consistent with the Business Plan;
(xvi) transfer to any third party any actual or potential
business opportunities of the Company other than to Affiliates of Buyer; or
(xvii) engage in negotiations regarding or commit itself to do
any of the foregoing.
(b) During the Option Period, the Company shall, and the Members shall
cause it to:
(i) use commercially reasonable efforts to maintain, in all
material respects, the assets and properties of the Company in accordance with
present practices and in a condition suitable for their intended use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) maintain and comply with all material Licenses;
(iv) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(v) conduct the business of the Company in a manner that is
complementary to (not in competition with) the business of Buyer and its
Affiliates.
5.4. RESTRICTIVE COVENANTS.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 5.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement. After the Exercise Date, each Member shall not
individually, or in concert, directly or indirectly:
(i) either on its, his, her or their own account or for any other
person or entity, solicit, induce, attempt to induce, or endeavor to cause (in
each case in such a manner that could have a material adverse effect on the
financial condition or operation of the Business or the assets of the Company or
Buyer or any of its Affiliates) any customer, which has utilized the services of
the Company at any time during the Option Period or with whom the Company was
engaged in meaningful negotiations as of the Exercise Date (each, a "CUSTOMER"),
to modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
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(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 5% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the Option Period or under development by the Company
on the Exercise Date), provided that the restrictions in this paragraph (ii)
will not prohibit James Holden from any activities that are specifically
permitted under his Employment Agreement with Buyer or its Affiliates.
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the world, where the Company generated revenue or established
goodwill at any time during the Option Period. This Covenant Not to Compete
shall bind each Member until the third anniversary of the Exercise Date,
provided, however, that if the employment of James Holden is terminated after
the Exercise Date by EPS without Cause or by James Holden for Good Reason (each
as defined in James Holden's Employment Agreement with EPS), and if Buyer fails
to consummate a public offering that results in a public trading market of
equity securities of Buyer on a national securities exchange or the Nasdaq Stock
Market by the time that any restricted stock acquired by James Holden pursuant
to the Restricted Stock Purchase Agreement referenced in Section 5.13(b) vests,
then after such termination of employment and such vesting, James Holden will no
longer be subject to the covenants contained in Sections 5.4(a)(i) and (ii), and
the covenants in Section 5.4(a)(iv) will not be breached by any general
marketing efforts with which James Holden may be involved that are not targeted
specifically at any Customer. The parties hereto agree that the duration and
area for which the Covenant Not to Compete set forth in this Section 5.4(a) is
to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 5.4(a) each Member shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. During the Option Period and if the Option Period
terminates without Exercise, (i) each of the Members shall not, and shall cause
their Affiliates not to, divert or attempt to divert or take advantage of or
attempt to take advantage of any actual or potential business or opportunities
of Buyer or its Affiliates of which any of the Members become aware as the
result of their relationship with Buyer or its Affiliates and which relate
specifically to the business of Buyer or its Affiliates but are not also
opportunities of the Company; and (ii) Buyer shall not, and shall cause its
Affiliates not to, divert or attempt to divert or take advantage of or attempt
to take advantage of any actual or potential business or opportunities of the
Company of which Buyer becomes aware as the result of its relationship with the
Company and which relate
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specifically to the business of the Company but are not also opportunities of
Buyer. For the period during which the Covenant Not to Compete applies pursuant
to Section 5.4(a), each of the Members shall not, and shall cause their
Affiliates not to, divert or attempt to divert or take advantage of or attempt
to take advantage of any actual or potential business or opportunities of Buyer
or its Affiliates of which any of the Members become aware as the result of
their affiliation with the Company or their relationship with Buyer or its
Affiliates and which relate specifically to the business of the Company or Buyer
or its Affiliates. This Section 5.4(c) is in addition to and not by way of
limitation of any other duties the Members may have to Buyer or its Affiliates,
and any duties Buyer may have to the Company.
(d) Non-Recruitment. During the Option Period and if the Option
terminates without Exercise, (i) the Company and each of the Members shall not,
and shall cause their Affiliates not to, hire away, or cause any other person to
hire away, any employee of or consultant to Buyer or its Affiliates or directly
or indirectly entice or solicit or seek to induce or influence any of such
employees or consultants to leave their employment or engagement with Buyer or
its Affiliates, provided however, that such restrictions shall not apply to
persons responding to a public advertisement by the Members directed to
potential employees generally; and (ii) Buyer shall not, and shall cause its
Affiliates not to, hire away, or cause any other person to hire away, any
employee of or consultant to the Company, or directly or indirectly entice or
solicit or seek to induce or influence any of such employees or consultants to
leave their employment or engagement with the Company, provided however, that
such restrictions shall not apply to persons responding to a public
advertisement by Buyer directed to potential employees generally. Part (i) of
this Section 5.4(d) will not prohibit the Company from hiring any of the Leased
Employees after termination of the Option Period if (a) this Agreement has not
been knowingly, willfully or recklessly breached in any material respect by the
Company or any of the Members (or any such breach has been cured and any
material adverse effects of such breach have been ameliorated in all material
respects within 15 days of notice of such breach), and (b) the Company has
achieved at least 80% of the pre-tax income targets set forth from time to time
in the Business Plan (as defined in Section 5.11). For the period during which
the Covenant Not to Compete applies pursuant to Section 5.4(a), each of the
Members shall not, and shall cause their Affiliates not to, hire away, or cause
any other person to hire away, any employee of or consultant to Buyer or its
Affiliates (including without limitation persons employed or engaged by the
Company before the Exercise Date) or directly or indirectly entice or solicit or
seek to induce or influence any of such employees or consultants to leave their
employment or engagement with the company or Buyer or its Affiliates, provided
however, that such restrictions shall not apply to persons responding to a
public advertisement by the Members directed to potential employees generally
(e) Remedies. The covenants contained in this Section 5.4 impose a
reasonable restraint on the Members in light of the activities and business of
the Company and future plans of Buyer. The Members acknowledge that if they
violate any of the covenants contained in this Section 5.4 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, Buyer
shall be entitled to temporary injunctive relief without being required to post
a bond and permanent injunctive relief without the necessity of proving actual
damages. Each Member shall be severally liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants breached by such
Member, whether or not litigation
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is actually commenced and including litigation of any appeal defended by Buyer,
where such party succeeds in enforcing any of the Restrictive Covenants. Buyer
may elect to seek one or more remedies at its discretion on a case by case
basis. Failure to seek any or all remedies in one case shall not restrict Buyer
from seeking any remedies in another situation. Such action by Buyer shall not
constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
5.5. MEMBER REPRESENTATIVE. The Members shall at all times maintain a
representative (the "MEMBER REPRESENTATIVE") for purposes of taking certain
actions and giving certain consents on behalf of the Members as specified
herein. The Member Representative will be James F. Holden unless and until the
Members mutually agree upon a replacement and notify Buyer thereof. Each Member
hereby grants to the Member Representative the right to vote such Member's
membership interests in the Company as the proxy of such Member consistent with
this Section 5.5, and actions taken, consents given and representations made by
the Member Representative on behalf of the Members pursuant hereto shall be
binding upon the Members. The proxy granted by each Member hereby is coupled
with an interest and is irrevocable. During the Option Period, the Member
Representative is authorized by the Members to take any action on behalf of the
Members to facilitate the transactions contemplated hereby which such Member
Representative is directed to take by the Company acting through a majority of
the members of the Board of Directors in office prior to the Exercise ,
including, without limitation, amending this Agreement, and executing documents
or instruments. After the Option Period for a period of 18 months, the Member
Representative is authorized by the Members to take any action on behalf of the
Members to facilitate or administer the transactions contemplated hereby as the
Member Representative deems appropriate.
5.6. NOTICE OF BREACH. During the Option Period, each of the parties
hereto shall promptly give the other parties hereto written notice with
particularity of any breach or inaccuracy of any representation, warranty,
agreement or covenant of such party contained herein.
5.7. FINANCIALS. Within 45 days after the end of each fiscal quarter and
within 90 days after the end of each fiscal year of the Company, the Company
shall deliver to Buyer its balance sheets as at the end of such period and the
related statements of income and cash flow for the quarter or year then ended
(collectively the "FINANCIAL STATEMENTS"), together with the written
representation of the Members that (i) such Financial Statements were prepared
in accordance
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with generally accepted accounting principles ("GAAP") consistently applied
except as disclosed in the footnotes thereto (except that the quarterly
financial statements may be subject to year-end adjustments, the net effect of
which will not represent a Material Adverse Change); (ii) the Financial
Statements fairly present, in all material respects, the financial condition and
the results of the operations of the Company as at the relevant dates thereof
and for the periods covered thereby; and (iii) there have been no material
changes or modifications of revenue recognition, cost allocation practices,
method of accounting, or other financial or operational practices or principles
except for any such change required by reason of a concurrent change in GAAP
during the periods covered by the Financial Statements.
5.8. CONTINUANCE OF EXISTING INDEMNIFICATION RIGHTS. From and after the
Exercise Date and for a period of six years thereafter and for so long as any
claims that have been asserted prior to the end of such six-year period remain
outstanding, Buyer shall cause the Company to continue, or if the Company is
merged into Buyer or any Affiliate of Buyer or liquidated, Buyer will provide
for, the performance of the Company's indemnification obligations to present and
former directors and officers of the Company provided for in the Certificate of
Incorporation and Bylaws of the Company as in effect on the date of this
Agreement, and with respect to indemnification for acts or omissions occurring
prior to the Exercise Date, provided however, that such obligations shall not
apply to any claim or cost (i) in respect of which such former director or
officer would not be entitled to indemnity under applicable law, or (ii) arising
in connection with facts or circumstances involving any inaccuracy of any
representation or breach of any covenant of the Company or Members in this
Agreement
5.9 TAX MATTERS.
(a) Certain Operating Conventions and Procedures. The taxable year of
the Company shall close on the date of this Agreement and all items of Company
income, gain, loss, deduction and expense for the Company's 1999 taxable year
shall be based on a closing of the Company's books and records. The taxable year
of the Company shall also close on the Exercise Date, and thus, all items of
Company income, gain, loss, deduction and expense for the taxable year in which
the Exercise occurs shall be based on a closing of the Company's books and
records.
(b) Tax Returns Required to Be Filed Prior to the Exercise Date. The
Members shall cause the Company to prepare and file all Federal and state
partnership information Tax Returns and other Tax Returns required to be filed
by the Company for any taxable year of the Company ending on or before the
Exercise Date. The Company shall be responsible for, and shall pay all
reasonable costs and expenses related to, the preparation and filing of such Tax
Returns.
(c) Cooperation. Buyer and the Members shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to Section 5.9(b). Such cooperation shall include
the retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to the filing of such Tax Returns.
(d) Exercise Date. Without limiting the generality of Section 5.9(a) or
(b), Buyer shall be liable for, and shall indemnify and hold the Members
harmless against, all Taxes of the
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Company attributable to operations, acts or omissions of Buyer with respect to
the Company on the Exercise Date that are not in the ordinary course of
business.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company,
notify James F. Holden of any written communication from a Tax authority with
respect to any pending Tax Proceeding involving a taxable year ending on or
before the Exercise Date. Buyer shall include with such notification a copy of
the written communication so received by Company.
(ii) James F. Holden shall have the right, but not the
obligation, to represent the interests of the Company in any Tax Proceeding
relating to taxable years ending on or before the Exercise Date and to employ
counsel of his choice in connection therewith; provided however, that, without
the prior written consent of Buyer, which shall not be unreasonably withheld,
James F. Holden shall not agree to settle or compromise any Tax Proceeding
relating to taxable years ending on or before the Exercise Date and/or any Tax
Liability issue arising therein if such settlement or compromise can reasonably
be expected to materially adversely impact the Tax position of Buyer, its
Affiliates and the Company, taken as a whole, following the Exercise. Without
the prior written consent of James F. Holden, which shall not be unreasonably
withheld, Buyer shall not agree to settle or compromise any such Tax Proceeding
relating to taxable years ending on or after the Exercise Date or Tax
Liabilities arising therein if such settlement or compromise can reasonably be
expected to materially adversely impact the Tax position of the Members with
respect to any taxable year ending on or before the Exercise Date. All costs and
expenses relating to any such Tax Proceedings shall be borne by the Company.
(iii) All notices provided for hereunder shall be deemed
delivered to the relevant party upon receipt thereof by the relevant party.
(iv) Each party shall furnish to the other relevant party or
parties such information and documents as may be reasonably requested by such
other party or parties, and shall otherwise reasonably cooperate with such other
party or parties, in connection with the preparation of any Tax Return and the
conduct of any Tax Proceedings.
(f) Amended Returns. The Company shall not amend, and Buyer shall not
permit the Company to amend, any Tax Return that may affect the Taxes for which
Members are or may be liable under this Agreement.
(g) Books and Records. Prior to the Exercise Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 5.9, and at or before the Exercise
the Members shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until 90 days after the expiration of
the applicable statute of limitations (including any waivers or extensions
thereof) with respect to the taxable periods to which the Tax Returns relate.
Prior to disposing of any such books and records, Buyer
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or the Company, as the case may be, shall offer such books and records to the
Member Representative (at the sole expense of the Members).
5.10 TAKE-ALONG AND TAG-ALONG RIGHTS.
(a) Members' Take-Along Right.
(i) If at any time after the Option Period the Members shall
initiate to or receive from any person or entity not affiliated with any Member
or the Company (a "THIRD PARTY OFFEROR") a bona fide, arm's length proposal for
such Third Party Offeror to purchase all of the equity of the Company, or a
proposal to effect a business combination, by merger or otherwise, of the
Company with any entity following which the Company would be wholly owned by
such entity (either a "COMPANY SALE OFFER"), such Members shall deliver a notice
(the "TAKE-ALONG NOTICE") with respect to the Company Sale Offer to Buyer
summarizing pertinent information about the Company Sale Offer, including the
purchase price thereunder, together with a copy of any writings between the
Members and the Third Party Offeror necessary to establish the terms of such
Company Sale Offer.
(ii) Upon receipt of the Take-Along Notice, Buyer shall be
obligated in connection with the consummation of the Company Sale Event to sell
all membership interests in the Company and any securities convertible or
exchangeable into membership interests in the Company owned by Buyer to the
Third Party Offeror upon the terms and conditions of the Company Sale Offer.
Buyer will waive any appraisal or dissenters' rights in respect of such
transaction, and take all other actions reasonably necessary or desirable to
cause the consummation of the Company Sale Event on the terms proposed in the
Company Sale Offer, including, without limitation, the execution of any merger,
redemption, sale or other such agreement designed to facilitate such Company
Sale Event. Such a sale by Buyer will be at the same per security price and on
the same terms as the Members receive for their membership interests in such
transaction.
(iii) Buyer shall cause each person or entity to which Buyer
transfers membership interests in the Company or securities convertible or
exchangeable into membership interests in the Company to enter into an agreement
subjecting such person or entity to the obligations set forth in this Section
5.10(a).
(b) Buyer's Tag-Along Right.
(i) If at any time after the Option Period any Member proposes to
sell any of his or her membership interests in the Company or any securities
convertible or exchangeable into membership interests in the Company to any
person or entity (a "SALE TRANSACTION"), such Member shall deliver a notice (the
"TAG-ALONG NOTICE") to Buyer summarizing pertinent information about the
proposed sale, including the purchase price, together with a copy of any writing
between the Member and the third party necessary to establish the terms of such
sale.
(ii) Buyer shall have a period of ten (10) business days after
delivery of the Tag-Along Notice within which to deliver written notice (the
"ELECTION NOTICE") to the Member
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delivering the Tag-Along Notice of Buyer's desire to participate in the Member's
sale, in which event (A) Buyer will be entitled to sell to the third party (on
the same terms as the Member delivering the Tag-Along Notice) up to a number of
membership interests in the Company equal to the total number of membership
interests involved in the Sale Transaction multiplied by a fraction, the
numerator of which shall be the number of membership interests that Buyer owns
beneficially or is entitled to receive upon conversion or exercise of securities
issued by the Company, and the denominator of which shall be the aggregate
number of membership interests outstanding or issuable upon conversion or
exercise of securities issued by the Company, and (B) the membership interests
to be sold by the Member will reduced accordingly.
(iii) Notwithstanding anything herein to the contrary, Buyer may
not elect to have any membership interests included in such sale unless (A) such
membership interests shall when sold be free and clear of all liens, charges and
encumbrances of any kind other than restrictions arising under this Agreement,
and (B) Buyer takes all actions reasonably required to vest title to the
membership interests sold by Buyer in the purchaser thereof, free and clear of
all liens, charges and encumbrances.
(iv) The Members and the Company shall cause each person and
entity that becomes a member of the Company to enter into an agreement
subjecting such person or entity to the obligations set forth in this Section
5.10(b).
5.11 BUSINESS PLAN. Within 90 days of the date of this Agreement, the
Company will propose to Buyer a written business plan for the Company (the
"BUSINESS PLAN"), and from time to time during the Option Period the Company and
Buyer may propose modifications to the Business Plan. The Business Plan and all
changes thereto will be subject to written approval by the Buyer and the
Company, which will not be unreasonably withheld. In extenuating circumstances
or to take advantage of opportunities requiring immediate action, the Chief
Executive Officer of the Company may take action that could constitute a change
to the Business Plan with the prior verbal approval of Buyer if such action is
confirmed to Buyer in writing in reasonable detail within 15 days. Buyer
recognizes that, in light of its start-up nature, the Company may need to shift
its business focus to move with market opportunities or to advance itself toward
its goal of revenues and target profitability, and Buyer will, in general,
accommodate modifications to the Business Plan consistent with such shifts in
business focus and market opportunities, provided that it will be not be
unreasonable for Buyer or the Company to withhold its approval if the proposed
Business Plan or any proposed modification thereof (i) is inconsistent with the
initial Business Plan or the commitments of the Company and the Members set
forth in this Agreement, or (ii) deviates from a fundamental emphasis upon
enhancing member value by maximizing revenues and profitability of the Company.
During the Option Period, the Company will conduct its business in accordance
with the Business Plan.
5.12 FINANCING OF THE COMPANY. The Members shall provide, in the form of
contributions to the capital of the Company and not loans to the Company, all
cash needed by the Company at any time to finance its operations or to pursue
the Business Plan, except that the Members will not be required to provide
financing for business initiatives required by Buyer that are not provided for
in the Business Plan. Return by the Company to the Members of such capital
contributions will be subject to the restrictions set forth in Section 5.3(a).
If necessary in order to access sufficient cash to meet the Company's cash
needs, the Members will borrow
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money and secure such borrowings with personal guaranties and such collateral as
may be required by the lender, provided that the Members may not pledge any
membership interests in the Company or any stock of Buyer that is subject to
performance related restrictions. Buyer and its Affiliates shall have no
obligation to provide any financing to the Company and shall have no obligation
to the Members in respect of their contributions to the capital of the Company,
whether or not the Option is exercised. The Company shall incur no indebtedness
or other obligations to the Members in return for the Members' contributions to
the capital of the Company, other than the claims on the Company's equity
represented by the membership interests in the Company owned by the Members.
5.13 EMPLOYEES.
(a) Resignation From the Company. Schedule 5.13 lists each person
employed by the Company immediately before execution and delivery of this
Agreement (the "EFOX EMPLOYEES"). Concurrently with execution and delivery of
this Agreement and as a condition to its effectiveness, each eFox Employee is
resigning from the Company and becoming an employee of EPS, at the salary listed
on Schedule 5.13 corresponding to such person pursuant to an Employment Offer
Letter substantially in the form of Exhibit D.
(b) Restricted Stock. Concurrently with execution and delivery of this
Agreement and as a condition to its effectiveness, each person listed on
Schedule 5.13 is purchasing the number of shares of Series A Common Stock of
Buyer listed on Schedule 5.13 corresponding to such person, which shares are
subject to performance-based restrictions pursuant to a Restricted Stock
Purchase Agreement substantially in the form of Exhibit E.
(c) Assignment to the Company. During the Option Period and as long as
this Agreement has not been knowingly or willfully or recklessly breached in a
material respect by the Company or the Members (or any such breach has been
cured and any material adverse effects of such breach have been ameliorated in
all material respects within 15 days of notice of such breach), EPS will assign
the Leased Employees (as defined below) to work in the business of the Company
under the day-to-day supervision of James F. Holden or his successor as the
Chief Executive Officer of the Company. For purposes hereof, "LEASED EMPLOYEES"
means the persons listed on Schedule 5.13 and such additional personnel as may
be hired by EPS and assigned to the Company at the request of James Holden or
his successor. EPS will use reasonable efforts to hire additional Leased
Employees and assign them to the Company if and when requested by the Company,
consistent with the Business Plan. During the Option Period and as long as the
Company and the Members comply with this Agreement EPS will not transfer any
Leased Employee to any assignment other than work in the business of the
Company, unless the Company gives its written consent to such transfer.
(d) Compensation. As legal employer, EPS shall pay all salary and
benefits payable to the employees assigned to the Company, as well as all taxes
and other employee costs arising in connection with employment of such persons.
The Company shall pay to EPS, as compensation for provision of such employees to
the Company, all costs incurred by EPS to employ such employees, but not
including any allocation of general overhead of Buyer that is not increased in
connection with employing such employees. Such compensation will be paid by the
Company monthly against EPS's invoice and reasonable documentation of such
costs.
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(e) Training, Supplies. The Company shall be solely responsible for
providing, at its expense, all training, equipment and supplies required by
Leased Employees to perform their duties to the Company.
(f) Responsibility and Indemnity. The Company shall be responsible for,
and shall indemnify, defend, and hold harmless EPS and Buyer and their
successors and assigns and their directors, officers, employees and agents from
and against, any and all claims, costs, liabilities and damages arising as a
result of or in connection with (i) any acts or omissions of the Leased
Employees in performance of their duties to the Company, (ii) any acts or
omissions of the Company or termination of the employment of any Leased
Employees in connection with any reduction in force by the Company or any
decision by the Company not to continue to utilize any particular Leased
Employees.
(g) Intellectual Property. Inventions, works of authorship, or other
intellectual property ("Inventions") conceived, invented, written, or developed
by any Leased Employee in the course and scope of his or her employment with
Buyer and assignment to the Company will belong to the Company, provided that
the Company will obtain no rights to any Inventions of Leased Employees
conceived, invented, written or developed in the course and scope of their
employment with Buyer not in the course and scope of their assignment to the
Company.
5.14 USE OF SERVICES. During the Option Period, Buyer will use
reasonable efforts to facilitate the marketing of the services of eFox through
sales personnel associated with Buyer's Performance Learning Division to clients
with an identifiable need for such services.
6. SURVIVAL; INDEMNIFICATION.
6.1. SURVIVAL.
The representations and warranties made in this Agreement, which are
made only as of the date of this Agreement, shall survive any investigation made
by any party hereto until the date that is 90 days after the fiscal year in
which the Option is Exercised, except those representations and warranties
contained in (i) Sections 3.17 (Taxes) and 3.18 (Brokers), which will survive
until the expiration (including extensions) of the applicable statute of
limitations; and (ii) Sections 3.2 (Ownership of Membership Interests); 3.4
(Title to Assets) and 3.16 (Liabilities), which will survive indefinitely. As to
any matter or claim which is based upon fraud by the indemnifying party, the
representations and warranties set forth in this Agreement shall expire only
upon expiration of the applicable statute of limitations. No party will be
liable to another under any warranty or representation after the applicable
expiration of such warranty or representation; provided however, if a claim or
notice is given under this Article 6 with respect to any representation or
warranty prior to the applicable expiration date, such claim may be pursued to
resolution notwithstanding expiration of the representation or warranty under
which the claim was brought. Any investigations made by or on behalf of any of
the parties prior to the date hereof shall not affect any of the parties'
obligations hereunder. Completion of the transactions contemplated hereby shall
not be deemed or construed to be a waiver of any right or remedy of any of the
parties.
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6.2. INDEMNIFICATION BY THE MEMBERS.
Subject to the limits set forth in this Article 6, the Members and, if
the Option has not been exercised, the Company, and their successors and assigns
shall jointly and severally indemnify, defend, reimburse and hold harmless Buyer
and its Affiliates and their successors and assigns, and the officers,
directors, employees and agents of any of them, from and against any and all
claims, losses, damages, liabilities, obligations, assessments, penalties and
interest, demands, actions and expenses, whether direct or indirect, known or
unknown, absolute or contingent (including, without limitation, settlement costs
and any legal, accounting and other expenses for investigating or defending any
actions or threatened actions) ("Losses") reasonably incurred by any such
indemnitee, arising out of or in connection with any of the following:
(a) the ownership and operation of the Company before the date of this
Agreement;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by the Company or the Members in or pursuant to this
Agreement; and
(c) the breach of any covenant, agreement or obligation of the Company
or the Members contained in this Agreement.
6.3. INDEMNIFICATION BY BUYER.
Subject to the limits set forth in this Article 6, Buyer and its
successors and assigns shall indemnify, defend, reimburse and hold harmless the
Members and their successors and assigns from and against any and all Losses
reasonably incurred by any such Members arising out of or in connection with any
of the following:
(a) the ownership and operation of the Company after the exercise of the
Option (except that, to the extent permitted by law, Buyer and its successors
and assigns will not be required to indemnify, defend, reimburse or hold
harmless any Member in respect of any Losses arising as a result of acts or
omissions of that Member, including without limitation in such Member's capacity
as an employee of or consultant to Buyer or its Affiliates after the Exercise);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement; and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement.
6.4. INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
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(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 6.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim with the
consent of the Indemnitor. If the Indemnitee defends the subject of a Claim in
accordance with this Section, the Indemnitor shall cooperate with the Indemnitee
and its counsel, at the Indemnitor's sole cost, risk and expense, in all
reasonable respects, and shall deliver to the Indemnitee or its counsel copies
of all pleadings and other information within the Indemnitor's knowledge or
possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
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(e) At the request of the Indemnitor, the Indemnitee shall seek recovery
from its insurance provider(s) with respect to any Loss for which the Indemnitor
is or may be required to make an indemnification payment pursuant to this
Section 6.4.
(f) The amount which the Indemnitor is required to pay to, for or on
behalf of the Indemnitee pursuant to this Section 6.4 shall be adjusted
(including, without limitation, retroactively) (i) by any insurance proceeds
actually recovered by or on behalf of such Indemnitee in reduction of the
related indemnifiable Loss and (ii) to take account of the cash value to Buyer
of any Tax benefit realized as a result of the indemnifiable Loss. If the
Indemnitee has received or has had paid on its behalf an indemnification payment
for an indemnifiable Loss and subsequently receives insurance proceeds for such
Loss, or realizes any cash value as a result of any Tax benefit as a result of
such Loss, then the Indemnitee shall (i) promptly notify the Indemnitor of the
amount and nature of such proceeds and benefits and (ii) pay to the Indemnitor
the amount of such insurance proceeds or cash Tax benefit or, if lesser, the
amount of the indemnification payment.
(g) The Indemnitee shall be obligated to use all reasonable efforts to
mitigate to the fullest extent practicable the amount of any Loss arising from
any claim by a third party for which it is entitled to seek indemnification
hereunder, and the Indemnitor shall not be required to make any payment to the
Indemnitee in respect of such Loss to the extent the Indemnitee fails to comply
with the foregoing obligations.
(h) The Indemnitor shall be subrogated to all rights of the Indemnitee
against any third party in respect of any matter giving rise to a claim for
indemnification hereunder.
(i) Notwithstanding any other provision of this Agreement, this Section
6.4 shall not apply to any claims under Section 5.9, which shall be governed
solely and exclusively by the provisions thereof.
(j) The indemnification provisions in this Article 6 encompass Claims
solely between the parties hereto, not involving any third party, as well as
Claims involving third parties.
(k) Following the Exercise, the indemnities provided for in this Article
6 shall be the sole and exclusive remedies of the parties and their successors
and assigns with respect to any disputes relating to this Agreement, the events
giving rise to this Agreement and the transactions provided for herein or
contemplated hereby, it being agreed and understood that the parties expressly
waive any and all other remedies, including any and all such remedies as may be
provided by statute, rule or regulation (other than intentional fraud).
6.5. PAYMENT. All payments owing under this Article 6 will be made
promptly as indemnifiable Losses are incurred. If the Indemnitee defends the
subject matter of any Claim in accordance with Section 6.4(c) or proceeds with
separate counsel in accordance with Section 6.4(b), the expenses (including
reasonable attorneys' fees) incurred by the Indemnitee shall be paid by the
Indemnitor in advance of the final disposition of such matter as incurred by the
Indemnitee, if the Indemnitee undertakes in writing to repay promptly any such
advances in the event that it is ultimately determined that the Indemnitee is
not entitled to indemnification under the terms of this Agreement or applicable
law.
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6.6. LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 6 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 3.17 (Taxes)
or covenants in Section 5.9 (Tax Matters) shall not be subject to the Threshold.
Once the aggregate amount of Losses exceeds the Threshold, persons entitled to
recovery shall be entitled to recover the full amount of all Losses in excess of
the Threshold. No person shall be entitled to indemnification under this Article
6 for Losses directly or indirectly caused by a breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement or any duty to the potential Indemnitor.
(b) (i) The maximum aggregate liability of the Members (and, if the
Option is not exercised, the Company) on the one hand, to Buyer, and Buyer, on
the other hand to the Members (and, if the Option is not exercised, the
Company), for all claims arising under or otherwise related to this Agreement
shall be $500,000.
7. MISCELLANEOUS.
7.1. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 7.1:
If to Buyer: EPS Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
Attn: General Counsel
With a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
Attn.: Thomas D. Magill, Esq.
If to the Company
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or any Member: James F. Holden
211 Otis Road
Barrington Hills, Illinois 60010
Telephone No.: (847) 382-1782
Facsimile No.: (847) 382-1783
With a copy to: Skadden, Arps, Slate, Meagher & Flom
(Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Facsimile No.: (312) 407-0411
Attn.: Peter C. Krupp, Esq.
7.2. ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto without the prior written consent of the other parties hereto,
except that Buyer may assign its rights hereunder to (a) any successor to all or
substantially all of the business or assets of Buyer, but only if the transferee
assumes Buyer's liabilities hereunder, or (b) to any Affiliate of Buyer. This
Agreement shall inure to the benefit of and be binding upon Buyer and the
Company and their respective permitted successors and assigns and upon each
Member and his or her executors, administrators, heirs, legal representatives
and permitted successors and assigns. Nothing in this Agreement will confer upon
any person or entity not a party to this Agreement, or the legal representatives
of such person or entity, any rights or remedies of any nature or kind
whatsoever under or by reason of this Agreement.
7.3. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
7.4. COUNTERPARTS. Facsimile transmission of any signed original
document and/or retransmission of any signed facsimile transmission will be
deemed the same as delivery of an original. At the request of any party, the
parties will confirm facsimile transmission by signing a duplicate original
document. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute but one and the same
instrument.
7.5. COMPLETE AGREEMENT. This Agreement and the exhibits and schedules
hereto, contain the entire agreement between the parties hereto with respect to
the transactions contemplated herein and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments, and
understandings.
7.6. MODIFICATIONS, AMENDMENTS AND WAIVERS. Any party may, (a) waive any
inaccuracies in the representations and warranties of any other party contained
in this Agreement; and (b) waive compliance by any other party with any of the
covenants or agreements contained in this Agreement. No waiver of any of the
provisions of this Agreement will be considered, or will constitute, a waiver of
any of the rights or remedies, at law or equity, of the party entitled to the
benefit of such provisions unless made in writing and executed by the
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party entitled to the benefit of such provision. This Agreement may be amended,
supplemented or modified only by a written instrument duly executed by each
party hereto.
7.7. HEADINGS; REFERENCES. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References herein to Articles, Sections,
Schedules and Exhibits refer to the referenced Articles, Sections, Schedules or
Exhibits hereof unless otherwise specified.
7.8. SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.9. INVESTIGATION. All representations and warranties contained herein
which are made to the knowledge of a party shall require that such party make
reasonable investigation and inquiry with respect thereto to ascertain the
correctness and validity thereof. Representations and warranties made to the
knowledge of the Company shall be deemed made to the knowledge of the Members
only and no other person.
7.10. EXPENSES OF TRANSACTIONS. All fees costs and expenses incurred by
Buyer in connection with the transactions contemplated by this Agreement shall
be borne by Buyer, and all fees, costs and expenses incurred by the Company or
the Members in connection with the transactions contemplated by this Agreement
shall be borne by the Members jointly and severally.
7.11. ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder, provided however, that the parties
shall seek any permanent injunctive relief, and any such proceeding shall be
resolved, pursuant to this Section.
(ii) If any controversy or claim arising out of or relating to
this Agreement also arises out of or relates to the employment of any Member by
Buyer or any Affiliate of Buyer, the provisions of this Agreement governing
dispute resolution shall govern resolution of such controversy or claim. The
provisions of this Agreement governing dispute resolution supersede any
provisions relating to such matters in any employment agreement between any
Member and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrators are hereinafter referred to as
the "ARBITRATORS"). The judgment of the award rendered by the Arbitrators may be
entered in any court having jurisdiction thereof.
31
<PAGE> 38
The arbitration proceedings shall be held in Orange County, California unless
the parties to the arbitration agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement. If a party has a counterclaim against the
other party, such party shall furnish the party with whom it has the dispute a
notice of such claim as provided in the Rules (a "NOTICE OF COUNTERCLAIM")
within ten (10) days of receipt of the Arbitration Notice, which, in addition to
the items required by the Rules, shall include a statement of the nature, with
reasonable detail, of the dispute. A copy of the Notice of Counterclaim shall be
concurrently provided to the AAA. Within fifteen (15) days after receipt of the
Arbitration Notice or the Notice of Counterclaim as applicable, each party shall
select one person to act as Arbitrator and the two (2) selected shall select a
third Arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third Arbitrator
within such time, the third Arbitrator shall be selected by the AAA. Each
Arbitrator shall be a practicing attorney or a retired or former judge with at
least fifteen (15) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrators are assigned to hear the matter, the
Arbitrators shall schedule a pre-hearing conference to reach agreement on
procedural and scheduling matters, arrange for the exchange of information,
obtain stipulations and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrators shall have the
discretion to order, to the extent the Arbitrators deem relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrators.
(e) The parties must file briefs with the Arbitrators at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrators of the arrangement in advance of
the hearing, and must pay for the cost incurred.
32
<PAGE> 39
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrators selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before those
Arbitrators.
(g) The Arbitrators' award shall be in writing, signed by the
Arbitrators and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrators shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.12. SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any, shall be tried and litigated exclusively in
the state or federal courts located in the County of Orange, State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this paragraph. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 7.1. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
7.13. ATTORNEYS' FEES. If Buyer or any of its Affiliates, successors or
assigns brings any action, suit, counterclaim, cross-claim, appeal, arbitration,
or mediation for any relief against the Company or any of its Affiliates,
successors or assigns or any Member, or if the Company or any of its Affiliates,
successors or assigns or any Member brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against Buyer or
any of its Affiliates, successors or assigns, declaratory or otherwise, to
enforce the terms hereof or to declare rights hereunder (collectively, an
"ACTION"), in addition to any damages and costs which the prevailing party
otherwise would be entitled, the non-prevailing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision.
33
<PAGE> 40
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party.
7.14. ENFORCEMENT OF THE AGREEMENT. The Company, the Members and Buyer
acknowledge that irreparable damage would occur if any of the obligations of the
Company and the Members under this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Buyer will be entitled to
an injunction or injunctions to prevent breaches of this Agreement by the
Company or the Members and to enforce specifically the terms and provisions
hereto, this being in addition to any other remedy to which Buyer is entitled at
law or in equity.
34
<PAGE> 41
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION eFOX, LLC
By: /s/ MARK C. COLEMAN By: /s/ JAMES F. HOLDEN
----------------------------- --------------------------------
Name: Mark C. Coleman Name: James F. Holden
----------------------------- --------------------------------
Title: SVP Title: President
----------------------------- --------------------------------
ENTERPRISE PROFIT SOLUTIONS MEMBERS
CORPORATION /s/ JAMES F. HOLDEN
----------------------------------------
By: /s/ MARK C. COLEMAN James F. Holden
-----------------------------
Name: Mark C. Coleman /s/ CHRISTINE E. HOLDEN
----------------------------- ----------------------------------------
Title: SVP Christine E. Holden
-----------------------------
MEMBERS' REPRESENTATIVE
----------------------------------------
James F. Holden
35
<PAGE> 1
EXHIBIT 10.33
AGREEMENT
August 20, 1999
Mr. Walter L. Schindler
1800 Port Tiffin Place
Newport Beach, CA 92660
Dear Walter:
This letter sets forth the confidential agreement (the "AGREEMENT"),
with its general release and waiver of claims, we have reached concerning the
termination of your employment with Enterprise Profit Solutions Corporation (the
"COMPANY") and the consideration you will be entitled to receive from the
Company or any persons or entities controlling, controlled by, or under common
control with the Company ("AFFILIATES") in connection with such termination.
This Agreement and the consideration to you described herein are contingent upon
your execution and delivery to the Company of this Agreement and your compliance
with its terms.
1. EMPLOYMENT STATUS. The effective date of the termination of your
employment with the Company is August 20, 1999 (the "TERMINATION DATE"). You
acknowledge that (i) you have received all compensation, including without
limitation salary, bonuses and contributions to plans, due to you for your work
through the Termination Date, and (ii) you have used all personal time off,
which includes vacation, that accrued through the Termination Date and you are
therefore not entitled to any payment in respect of vacation or other personal
time off. Simultaneously with your execution of this Agreement, you will submit
a formal letter of resignation in the form of Exhibit A hereto confirming your
resignation as of the Termination Date, upon receipt of which you will be deemed
to have resigned effective as of the Termination Date.
2. PAYMENTS. In consideration of this Agreement and subject to its terms
and conditions, you will be entitled to receive payment of a total of $500,000
gross in cash (the "CASH PAYMENT"). The Cash Payment will be made in 26
installments of $19,230.77 (before applicable withholding); the first such
installment will be paid on September 3, 1999, and subsequent installments will
be made by the Company every other Friday thereafter until a total of $500,000
in gross has been paid. However, notwithstanding the foregoing, if a Capital
Event occurs before the entire Cash Payment has been paid, all unpaid portions
of the Cash Payment will be paid no later than ten days after the Capital Event.
For these purposes,
<PAGE> 2
Mr. Walter L. Schindler
August 20, 1999
Page 2
a "CAPITAL EVENT" means (i) the receipt by EPS or the Company of $50 million or
more in gross proceeds from the sale of equity of the Company or EPS in a single
transaction or series of related transactions, or (ii) a sale of all or
substantially all of the assets or equity of the Company or EPS. The Company
will notify you promptly in case of any Capital Event.
3 . SHARES.
(a) As of January 1, 1999, you purchased 60,000 shares of Series B
Common Stock (the "SUBSCRIPTION SHARES") from EPS Solutions Corporation ("EPS")
pursuant to a Subscription Agreement (the "SUBSCRIPTION AGREEMENT"), and 240,000
shares of Series B Common Stock (the "RESTRICTED SHARES") from EPS pursuant to a
Restricted Stock Purchase Agreement (the "RESTRICTED STOCK PURCHASE AGREEMENT").
In addition, as of January 1, 1999, you purchased 200,000 shares of Series B
Common Stock of EPS from IM Comet LLC pursuant to a promissory note made payable
by you to IM Comet LLC and a related stock power by IM Comet LLC (the
"ADDITIONAL SHARES"). Your Employment Agreement with the Company also provided
that you were entitled to purchase an additional 500,000 shares of restricted
stock of EPS that would vest upon achievement of certain performance milestones
(the "PERFORMANCE SHARES"). In connection with termination of your employment
with the Company, subject to the terms and conditions of this Agreement, (i) EPS
hereby accelerates vesting of all of the Restricted Shares, such that the
Restricted Shares become free of the restrictions limiting transfer set forth in
Section 4.1(a) of the Restricted Stock Purchase Agreement (but not free of
restrictions described in Section 4.2 of the Restricted Stock Purchase
Agreement); and (ii) you hereby surrender all rights, title and interest, if
any, to any Performance Shares, and any other equity in the Company or EPS or
any of their Affiliates other than the Subscription Shares, the Restricted
Shares and the Additional Shares. As a result, with respect to any shares
identified above, you will own only 500,000 shares of Series B Common Stock of
EPS, consisting of the Subscription Shares, the Restricted Shares, and the
Additional Shares (collectively, the "VESTED SHARES") and you specifically waive
and relinquish any right or claim you have, or believe you have, to any other
securities of or other equity rights in the Company or EPS or any of their
Affiliates, or IM Comet LLC.
(b) Except as specifically set forth in this Agreement and
notwithstanding the release in Section 10, you, the Company and EPS will
continue to have the rights and be subject to the obligations associated with
the Vested Shares as specifically set forth in the agreements pursuant to which
you purchased those shares, as well as the Stockholder Agreement and Voting
Agreement you entered into in connection therewith. Without limiting the
foregoing, EPS acknowledges that you will continue to have the rights set forth
in paragraph (b)(ii) of Schedule 4 to the Restricted Stock Purchase Agreement,
without regard to the time period of such rights, and that these rights apply to
all Subscription Shares and Restricted Shares.
<PAGE> 3
Mr. Walter L. Schindler
August 20, 1999
Page 3
(c) The Promissory Note dated January 1, 1999, made by you to EPS in
connection with your purchase of the Subscription Shares and the Restricted
Shares (the "EPS NOTE") is hereby amended by the addition to Section 1.1 of the
EPS Note, after the final sentence thereof, of the following:
"Notwithstanding the foregoing, however, Maker may, in his discretion,
elect to defer the payment of any interest that accrues under this Note until
the principal amount hereof upon which such interest accrues is paid, provided
that any payment by Maker hereunder will be applied in such a manner as to pay
all unpaid interest accrued on any principal repaid by such payment."
4. ADDITIONAL DOCUMENTS AND COVENANTS.
(a) Concurrently with your execution and delivery of this Agreement:
(i) Each of the Company and EPS will enter into an Indemnification
Agreement with you in the form of Exhibit B hereto (the "INDEMNIFICATION
AGREEMENTS");
(ii) You and IM Comet LLC will enter into an Agreement in the form
of Exhibit C hereto to amend the Promissory Note dated January 1, 1999 made by
you to IM Comet LLC in connection with your purchase of the Additional Shares
and to terminate your option to acquire up to 250,000 shares of Common Stock of
EPS from IM Comet LLC; and
(iii) EPS will deliver to you a certificate or certificates
representing the Vested Shares.
(b) Subject to Section 4(d), you may be employed in any capacity by or
serve as an attorney or advisor to or director or officer of any person or
entity, and any provisions of any agreement between you and the Company or EPS
to the contrary are hereby canceled.
(c) Subject to Section 4(d) and your obligations under Section 7(c), you
may participate in any manner with any person, entity or group that enters into
any transaction with the Company, EPS, or any of their Affiliates, including
without limitation the purchase of any business or assets or the investment of
any capital.
(d) Without prior written approval from the CEO or COO or Board of
Directors of EPS, you may not communicate directly with any employee, lender,
investment banker, or stockholder, or any person or entity known by you to be a
client or vendor, of the Company, EPS, or any of their Affiliates about any
material matters related directly to the Company, EPS, or any of their
Affiliates. You must disclose in writing to the Board of Directors of EPS all
transactions of the kind contemplated by Section 4(c), and the general nature of
your
<PAGE> 4
Mr. Walter L. Schindler
August 20, 1999
Page 4
participation therein, before commencement of your participation therein, and
you must keep the Board of Directors of EPS reasonably informed regarding such
matters during their pendency.
(e) Within a reasonable period of time after the close of each of the
first three fiscal quarters and each fiscal year of EPS, EPS shall provide to
you consolidated financial and other corporate information in substance and a
manner substantially similar to a report on Form 10-Q (for quarterly
information) or 10-K (for annual information) under the Securities Exchange Act
of 1934, as amended, provided that EPS may cease providing such information
specifically to you when such information becomes generally available to the
public.
5. OTHER PERQUISITES AND BENEFITS. The Company will (i) make COBRA
health and disability benefits available to you, your wife and daughter as
required by applicable law, and will pay the cost of COBRA premiums for you,
your wife and daughter until the earlier of December 31, 1999 or the date you
become eligible for medical benefits from another employer; (ii) forward to you
any mail and messages directed to you and received by the Company within six
months after the Termination Date; and (iii) transport your personal effects to
your residence or other local place requested by you at Company expense within a
reasonable period of time. All other employee benefits and perquisites terminate
as of the Termination Date.
6. WITHHOLDING AND TAXES. All consideration provided by the Company
hereunder shall be subject to any and all applicable withholdings, including any
withholdings for any related federal, state or local taxes. The Company makes no
representations to you regarding the tax consequences to you of this Agreement,
or the tax consequences of your ownership of or rights associated with the
Vested Shares or the Cash Payment, and you shall be responsible for, and hold
the Company, EPS and their Affiliates harmless from, any and all income taxes
and other taxes incurred by you as a result of the consideration provided to you
pursuant to this Agreement (whatever its nature or kind), your ownership of or
rights associated with the Vested Shares, and the Cash Payment.
7. COMPANY PROPERTY AND INFORMATION.
(a) Your privileges under all Company credit cards are terminated, and
you represent that you have returned all such credit cards. Upon execution of
this Agreement, you will return to the Company all property of the Company
including without limitation keys, parking card, documents, books, records,
reports, contracts, lists, computer disks (or other computer-generated files or
data), or copies thereof, created on any medium, prepared or obtained by you or
the Company in the course of or incident to your employment with the Company.
<PAGE> 5
Mr. Walter L. Schindler
August 20, 1999
Page 5
(b) Any information stored in your computer may be saved or discarded by
the Company as it deems appropriate at any time after August 20, 1999.
(c) Except as specifically provided otherwise by this Agreement, you
will comply with the Confidential Information and Employee Invention Agreement
you entered into as of January 1, 1999 in connection with your employment with
the Company, as well as the Subscription Agreement and the Restricted Stock
Purchase Agreement, and the Stockholder Agreement and Voting Agreement you
entered into in connection with your ownership of EPS shares.
8. CONFIDENTIALITY; NON-DISPARAGEMENT.
(a) You and the Company will keep the terms of this Agreement strictly
confidential and not disclose its terms to anyone other than advisors who need
to know its contents to discharge their duties to you or the Company, as the
case may be.
(b) You will not make to any third party any disparaging or otherwise
negative comments of any kind about any Company Released Parties (as defined
below), and the Company will not make to any third party any disparaging or
otherwise negative comments of any kind about you. In all communications with
third parties, you and the Company will explain the termination of your
employment as a mutually agreed upon "no-fault" separation. You will not
communicate with any third parties in any manner inconsistent with the foregoing
and the Company will cause the Company Released Parties (as defined below) not
to communicate with any third parties in any manner inconsistent with the
foregoing.
(c) All requests for references by future employers shall be directed to
Christopher Massey, and all references given by Massey relating to your
performance at the Company provided to future employers will be favorable.
9. CLARIFICATION OF ROLE. The Company and EPS acknowledge that (i) you
were not a member of the board of directors of the Company or EPS at any time;
(ii) after abolition of the so-called "Office of the Chairman," you have not
functioned substantively as a controlling person or as part of a control group
of the Company or EPS; (iii) it was not part of your duties or role with the
Company or EPS to communicate or work with the Company's lenders or to prepare
or review the financial statements of the Company or EPS.
10. RELEASE.
(a) As of the date you enter into this Agreement, you, on behalf of
yourself and your successors and assigns, hereby forever release, discharge and
acquit the Company, its Affiliates (including without limitation EPS), IM Comet
LLC, Christopher Massey, Erik
<PAGE> 6
Mr. Walter L. Schindler
August 20, 1999
Page 6
Watts, David Hoffman, and their respective members, partners, principals,
shareholders, directors, officers, agents, outside counsel, employees, and
representatives, and the successors and assigns of each of them ("RELEASED
COMPANY PARTIES"), and the Company and EPS, on behalf of themselves and their
successors and assigns, hereby forever release, discharge and acquit you, your
agents, counsel, and representatives, and the successors and assignees of you
and each of them ("RELEASED EMPLOYEE PARTIES") from any and all charges,
complaints, claims, demands, obligations, promises, agreements, damages,
actions, causes of action, suits, rights, costs, losses, debts, expenses
(including attorneys' fees and costs), liabilities, and indebtedness, of every
type, kind, nature, description or character, whether known or unknown,
suspected or unsuspected, liquidated or unliquidated arising from, under or
related to (A) your employment or retention with the Company or its Affiliates;
(B) the termination of that employment or retention; (C) the Performance Shares
or any other securities of the Company or EPS or any of their Affiliates other
than the Vested Shares; (D) your status as a stockholder of EPS, or any claims
arising or accruing as a result of that status, on or before the date you enter
into this Agreement; and (E) any other event, act or omission arising on or
before the date you enter into this Agreement (the "RELEASED MATTERS"). Without
limiting the foregoing, the Released Matters include any claim of fraud in the
inducement, defamation, or emotional distress. You, the Company, and EPS each
specifically agree not to claim, and have waived any right to claim, to have
been under duress in connection with the review, negotiation, execution and
delivery of this Agreement. Without limiting the foregoing, the Released Matters
also include your option to acquire up to 250,000 shares of EPS Common Stock
from IM Comet LLC. However, notwithstanding the foregoing, the Released Matters
shall not include any claims by you or the Company or EPS for any of the
following: (i) rights under this Agreement; (ii) rights, if any, under the
Company's 401(k) plan; (iii) rights under the Indemnification Agreements and
indemnification provisions of the certificate of incorporation and bylaws of the
Company and EPS; or (iv) your status as a stockholder of EPS, or any claims
arising or accruing as a result of that status, after the date you enter into
this Agreement.
(b) You acknowledge and agree that your releases made herein constitute
final and complete releases of the Released Company Parties with respect to all
Released Matters, and that by signing this Agreement, you are forever giving up
the right to sue or attempt to recover money, damages or any other relief from
the Released Company Parties for all claims you have or may have with respect to
the Released Matters (even if any such claim is unforeseen as of the date
hereof). The Company and EPS each acknowledges and agree that its releases made
herein constitute final and complete releases of the Released Employee Parties
with respect to all Released Matters, and that by signing this Agreement, it is
forever giving up the right to sue or attempt to recover money, damages or any
other relief from the Released Employee Parties for all claims it has or may
have with respect to the Released Matters (even if any such claim is unforeseen
as of the date hereof).
<PAGE> 7
Mr. Walter L. Schindler
August 20, 1999
Page 7
(c) You, the Company, and EPS understand California Civil Code Section
1542, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
You, the Company and EPS, being aware of Section 1542, hereby expressly waive
any and all rights that may exist thereunder as well as under any other statute
or common law principles of similar effect under the laws of any state or the
United States. This Agreement shall act as a release of all future claims that
may arise from the Released Matters, whether such claims are currently known or
unknown, foreseen or unforeseen including, without limitation, any claims for
damages incurred at any time after the date of this Agreement resulting from the
acts or omissions which occurred on or before the date of this Agreement.
Thus, notwithstanding the provisions of Section 1542, and for the
purpose of implementing a full and complete release and discharge of the
Released Company Parties by you and the Released Employee Parties by the Company
and EPS from all Released Matters, you, the Company and EPS expressly
acknowledge that this Agreement is intended to include in its effect, without
limitation, all Released Matters which not known or suspected to exist in favor
of the releasing party at the time of execution hereof, and that this Agreement
contemplates the extinguishment of all such Released Matters. All Released
Company Parties and Released Employee Parties are third party beneficiaries of
this Agreement.
The foregoing release includes any and all claims, rights and/or
remedies arising under the Age Discrimination in Employment Act and the Older
Workers Benefit Protection Act. You acknowledge that you and your attorneys
specifically waived any right you may have under law to consider this Agreement
before entering into it or to revoke it after you enter into it.
(d) (i) If the Company or EPS breaches this Agreement in any material
respect, and fails to cure that breach (and, in the case of a breach of the
Company's obligation to pay installments of the Cash Payment, payments not made
by the Company are not made by any third party) within 15 days of receipt of
notice from you demanding cure, then the release and covenants given by you
under this Section 10 will be void and any statute of limitations that would
apply to claims you might have that were Released Matters will be deemed to have
been tolled from the date you enter into this Agreement until the end of the
15-day notice
<PAGE> 8
Mr. Walter L. Schindler
August 20, 1999
Page 8
period described in this sentence. If the Company's breach is failure to pay any
installment of the Cash Payment, then any portions of the Cash Payment paid to
you and not repaid to the Company will be a credit against any recovery you make
against any Released Party in connection with any Released Matter that becomes
actionable as a result of the voiding of the release and covenants given by you
under this Section 10.
(ii) If you breach this Agreement in any material respect, and
fail to cure that breach within 15 days of receipt of notice from the Company or
EPS demanding cure, then the release and covenants given by the Company and EPS
under this Section 10 will be void and any statute of limitations that would
apply to claims the Company or EPS might have that were Released Matters will be
deemed to have been tolled from the date you enter into this Agreement until the
end of the 15-day notice period described in this sentence.
11. NO CLAIMS. You represent and warrant that you have not instituted
any complaints, charges, lawsuits or other proceedings against any Company
Released Parties with any governmental agency, court, arbitration agency or
tribunal. You further agree that you will not, directly or indirectly, (i) file,
bring, cause to be brought, join or participate in, or provide any assistance in
connection with any complaint, charge, lawsuit or other proceeding or action
against any Company Released Parties at any time hereafter for any Released
Matters, (ii) assist, encourage, or support employees or former employees or
stockholders or former stockholders of the Company, EPS or any of their
Affiliates in connection with any lawsuit, charge, claim or action they may
initiate, unless compelled to testify by appropriate civil processes, or (iii)
defend any action, proceeding or suit in whole or in part on the grounds that
any or all of the terms or provisions of this Agreement are illegal, invalid,
not binding, unenforceable or against public policy. If any agency or court
assumes jurisdiction of any complaint, charge, or lawsuit against the Company or
any Company Related Party, on your behalf, you will immediately notify such
agency or court, in writing, of the existence of this Agreement, including
providing a copy of it and to request, in writing, that such agency or court
dismiss the matter with prejudice.
12. ADVICE OF COUNSEL. You represent and agree that you have discussed
this Agreement with your private attorney, that you have participated fully in
the drafting of this Agreement, that you have carefully read and fully
understand all the provisions of this Agreement, that you understand its final
and binding effect, that you are competent to sign this Agreement, and that you
are voluntarily entering into this Agreement because you believe it to be in
your best interests.
13. ACKNOWLEDGMENT. You represent and agree that in executing this
Agreement you rely solely upon your own judgment, belief and knowledge, and the
advice and recommendations of your independently selected counsel, concerning
the nature, extent and
<PAGE> 9
Mr. Walter L. Schindler
August 20, 1999
Page 9
duration of your rights and claims. You acknowledge that no other individual has
made any promise, representation or warranty, express or implied, not contained
in this Agreement, to induce you to execute this Agreement. You further
acknowledge that you are not executing this Agreement in reliance on any
promise, representation, or warranty not contained in this Agreement and that
all previous discussions are now merged into this Agreement.
14. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company and its
Affiliates and shall inure to the benefit of and be binding upon your heirs,
executors, administrators, successors and assigns.
15. SETTLEMENT OF DISPUTES.
(a) Any controversy or dispute between the parties to this Agreement
involving the construction, interpretation, application or performance of the
terms, covenants or conditions of this Agreement or in any way arising under
this Agreement shall, on demand of any of the parties by written notice hereto
served on the others in the manner prescribed in Section 19 hereof, be
determined pursuant to the general reference provisions of California Code of
Civil Procedure ("CCP") Section 638(1), et seq., by a retired or former judge of
the Superior Court for the County of Orange, State of California. The parties
intend this general reference provision to be specifically enforceable in
accordance with said Section 638(1).
(b) The reference may be commenced by any party hereto by the filing in
the Superior Court of the State of California for the County of Orange of a
petition or a motion for a general reference. The petition and any opposition or
response thereto shall recite in a clear and meaningful manner the factual basis
of the controversy between the parties and identify the issues to be submitted
to the referee for decision.
(c) The petition or motion shall designate as a sole referee a retired
judge from the Orange County, California, Judicial Arbitration & Mediation
Services ("JAMS") panel acceptable to that party. If the parties to the
reference proceeding are unable to agree upon a referee, the Presiding Judge or
any judge of the Orange County Superior Court to whom the matter is assigned
shall appoint a retired or former Orange County Superior Court Judge from the
JAMS panel as the referee.
(d) The parties acknowledge that the terms of this Section 15 are
specifically enforceable and that the decision by the referee is tantamount to a
judgment by a trial court (CCP Section 644) and is subject to review in
accordance with CCP Section 645, and that any judgment rendered in the trial
court is appealable in the same manner as any other trial court judgment.
<PAGE> 10
Mr. Walter L. Schindler
August 20, 1999
Page 10
(e) This Section 15 applies to controversies or disputes under this
Agreement, including without limitation the applicability and continuing
validity of the release and covenants in Section 10, but this Section 15 does
not apply to claims that may be brought in respect of Released Matters if the
release and covenants under Section 10 are voided pursuant to Section 10(d).
16. SEVERABILITY. If any provision of this Agreement is found, held,
declared, determined, or deemed by any court of competent jurisdiction to be
void, illegal, invalid or unenforceable under any applicable statute or
controlling law, the legality, validity, and enforceability of the remaining
provisions will not be affected and the illegal, invalid, or unenforceable
provision will be deemed not to be a part of the Agreement unless without such
provision, the purposes and intent of the Agreement cannot fairly be carried
out.
17. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with California law.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding among the parties hereto regarding the matters set forth herein
and replaces all prior agreements, arrangements and understandings, written or
oral regarding the matters set forth herein. Neither you nor the Company shall
be bound or liable for any representation, promise or inducement not contained
in this Agreement. This Agreement cannot be amended, modified, supplemented, or
altered, except by written amendment or supplement signed by you and the Company
and EPS.
19. NOTICE. Each party to this Agreement is required to give written
notice to the others of any alleged breach of this Agreement and a reasonable
prompt opportunity to review and discuss the matter at a meeting that includes
members of the Company's board of directors. All notices, requests, demands and
other communications under this Agreement shall be in writing and shall be
deemed given upon personal delivery or three (3) days after being mailed by
certified or registered mail, postage prepaid, return receipt requested, or one
(1) business day after being sent via a nationally recognized overnight courier
service if overnight courier service is requested from such service or upon
receipt of electronic or other confirmation of transmission if sent via
facsimile to the parties, their successors in interest or their assignees.
Notices to the Company or any other Company Released Parties will be sent to the
Company's headquarters, attention General Counsel, and notices to you will be
sent to your address on the first page of this Agreement, or in either case to
such other addresses as the parties may designate by written notice in
accordance with this Section.
20. SPECIFIC ENFORCEMENT. You, the Company and EPS acknowledge that
irreparable damage would occur if any of the obligations hereunder other than
the payment of
<PAGE> 11
Mr. Walter L. Schindler
August 20, 1999
Page 11
money were not performed in accordance with their specific terms. If any
provision of this Agreement is breached the aggrieved party will be entitled to
institute and prosecute proceedings to enforce specific performance or to enjoin
the continuing breach of such provision. By seeking or obtaining any such
relief, the aggrieved party will not be precluded from seeking or obtaining
other relief to which it may be entitled.
21. ATTORNEYS' FEES. In case of any dispute hereunder, the prevailing
party or parties shall be entitled to recover from the non-prevailing party or
parties the reasonable fees and costs of counsel to the prevailing party.
Please sign below and return this letter to me to indicate your
agreement to these terms.
Sincerely,
Enterprise Profit Solutions Corporation
EPS Solutions Corporation
By: /s/ CHRISTOPHER P. MASSEY
-----------------------------------
Name: Christopher P. Massey
Title: Chief Executive Officer
I have carefully read this Agreement and I agree to its terms.
/s/ WALTER L. SCHINDLER August 20, 1999
- --------------------------- -------------------
Walter L. Schindler Date
<PAGE> 12
EXHIBIT A
Christopher P. Massey
Chief Executive Officer and Chairman of the Board
EPS Solutions Corporation
Enterprise Profit Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Dear Chris:
I hereby resign my employment and all officer positions with Enterprise
Profit Solutions Corporation, EPS Solutions Corporation, and their affiliates as
of August 20, 1999.
Sincerely,
Walter L. Schindler
<PAGE> 1
EXHIBIT 10.34
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
BENEFIT FUNDING SERVICES GROUP, LLC
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
NOVEMBER 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale and Purchase............................................................................................ 1
1.1 Agreements to Sell and Purchase............................................................... 1
1.2 Closing....................................................................................... 1
1.3 Purchase Price................................................................................ 2
1.4 Certificates for Shares....................................................................... 2
2. Representations and Warranties of the Company and the Members................................................ 2
2.1 Organization and Good Standing................................................................ 2
2.2 Ownership of Seller Interests................................................................. 2
2.3 Authorization of Agreement.................................................................... 3
2.4 Title to Assets............................................................................... 4
2.5 Financial Condition and Accounting............................................................ 4
2.6 Certain Property of the Company............................................................... 5
2.7 Year 2000 Compliance.......................................................................... 7
2.8 No Conflict or Violation...................................................................... 8
2.9 Consents...................................................................................... 8
2.10 Labor and Employment Matters.................................................................. 8
2.11 Employee Plans................................................................................ 9
2.12 Litigation.................................................................................... 11
2.13 Certain Agreements............................................................................ 11
2.14 Compliance with Applicable Law................................................................ 13
2.15 Licenses...................................................................................... 13
2.16 Accounts Receivable........................................................................... 13
2.17 Intercompany and Affiliate Transactions; Insider Interests.................................... 14
2.18 Insurance..................................................................................... 14
2.19 Customers..................................................................................... 15
2.20 No Undisclosed Liabilities.................................................................... 15
2.21 Taxes......................................................................................... 15
2.22 Indebtedness.................................................................................. 17
2.23 Environmental Matters......................................................................... 18
2.24 Securities Matters............................................................................ 19
2.25 Buyer and the Consolidation Transactions...................................................... 20
2.26 Minute Books and Records...................................................................... 21
2.27 Banks......................................................................................... 21
2.28 Powers of Attorneys and Suretyships........................................................... 21
2.29 Brokers....................................................................................... 21
2.30 Summary of Certain Considerations............................................................. 21
2.31 Accuracy of Information....................................................................... 21
3. Representations and Warranties of Buyer...................................................................... 22
3.1 Organization and Corporate Authority.......................................................... 22
3.2 No Conflict or Violation...................................................................... 22
3.3 Capitalization................................................................................ 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.4 Notes......................................................................................... 22
3.5 Litigation. Except as set forth on Schedule 3.5.............................................. 22
3.6 Buyer's Operations and Financial Condition.................................................... 23
3.7 Accuracy of Information....................................................................... 23
4. Certain Understandings and Agreements of the Parties......................................................... 23
4.1 Access........................................................................................ 23
4.2 Confidentiality............................................................................... 23
4.3 Certain Changes and Conduct of Business....................................................... 24
4.4 Restrictive Covenants......................................................................... 27
4.5 Securities Restrictions....................................................................... 29
4.6 Registration.................................................................................. 30
4.7 Cooperation in Litigation..................................................................... 32
4.8 Tax Matters................................................................................... 32
4.9 Member Representative......................................................................... 35
4.10 Consolidation Transactions.................................................................... 36
4.11 Supplemental Disclosure....................................................................... 36
4.12 HSR........................................................................................... 36
4.13 Competing Proposals........................................................................... 36
4.14 Bonus Plan.................................................................................... 37
4.15 Best Efforts.................................................................................. 37
4.16 Further Assurances............................................................................ 37
4.17 Notice of Breach.............................................................................. 37
4.18 Purchase of Other Membership Interests........................................................ 37
4.19 Assignment of Contracts....................................................................... 38
5. Survival; Indemnification.................................................................................... 39
5.1 Survival...................................................................................... 39
5.2 Indemnification by the Members................................................................ 39
5.3 Indemnification by Buyer...................................................................... 40
5.4 Indemnification Procedure..................................................................... 40
5.5 Payment....................................................................................... 41
5.6 Limitations................................................................................... 42
6. Conditions to Closing........................................................................................ 42
6.1 Conditions to Obligations of Each Party....................................................... 42
6.2 Conditions to Obligations of Buyer............................................................ 43
6.3 Conditions to Obligations of the Members...................................................... 45
7. Miscellaneous................................................................................................ 47
7.1 Termination................................................................................... 47
7.2 Notices....................................................................................... 48
7.3 Assignability and Parties in Interest......................................................... 48
7.4 Governing Law................................................................................. 49
7.5 Counterparts.................................................................................. 49
7.6 Publicity..................................................................................... 49
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.7 Complete Agreement............................................................................ 49
7.8 Modifications, Amendments and Waivers......................................................... 49
7.9 Headings; References.......................................................................... 50
7.10 Severability.................................................................................. 50
7.11 Investigation................................................................................. 50
7.12 Expenses of Transactions...................................................................... 50
7.13 Arbitration................................................................................... 50
7.14 Submission to Jurisdiction.................................................................... 52
7.15 Attorneys' Fees............................................................................... 53
7.16 Enforcement of the Agreement.................................................................. 53
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
A. Form of Assignment Agreement
B. Form of Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of Stockholder Agreement
D-1 Form of Stock Power
E. Form of Voting Agreement
F. Form of Opinion of Counsel to the Company and the Members
G. Form of Employment Agreement
H. Form of Opinion of Counsel to the Buyer
I. Form of Officer's Certificate
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.17 Intercompany and Affiliate Transactions and Insider Interests
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.21(j) 351 Information
2.22 Indebtedness
2.27 Banks
2.29 Brokers
3.5 Buyer Litigation
3.6 Buyer Liabilities
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Member Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
</TABLE>
iv
<PAGE> 6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 30, 1998 by and among Benefit Funding Services
Group, LLC, a Nevada limited liability company (the "COMPANY"), the members of
the Company listed on the signature page(s) hereof (each such individual a
"MEMBER," and collectively, the "MEMBERS"), George W. Imhoff acting for and on
behalf of the Members and their representatives pursuant to Section 4.9 the
"MEMBER REPRESENTATIVE"), and ProfitSource Corporation, a Delaware corporation
("Buyer").
A. The Company is engaged in the business of offering, primarily
to clients with large employee benefit plans, comprehensive reviews of existing
costs, features, services, investment performance and employee communication and
education of existing plans and providing access to a variety of variable
financial products (the "BUSINESS").
B. The Members own 83.756% of the ownership interests in the
Company (the "SELLER INTERESTS").
C. The Members desire to sell to Buyer, and Buyer desires to
purchase from the Members all of the Seller Interests on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 AGREEMENTS TO SELL AND PURCHASE. On the Closing Date (as hereinafter
defined) each Member shall sell to Buyer, and Buyer shall purchase from each
Member, the number of Seller Interests set forth opposite such Member's name on
Schedule 1.3, for the purchase price set forth in Section 1.3.
1.2 CLOSING. The closing of the sale and purchase of the Seller
Interests (the "CLOSING") will take place at the offices of Gibson, Dunn &
Crutcher LLP, 4 Park Plaza, Irvine, California, on a date to be selected by
Buyer after all the conditions set forth in Article 6 have either been satisfied
or, in the case of conditions not satisfied, waived in writing by the party
entitled to the benefit of such conditions (the "CLOSING DATE"). Prior to the
Closing Date, Buyer shall provide written notice (the "CLOSING NOTICE") to the
Company and the Members informing the Company and the Members of the anticipated
Closing Date. At the Closing, the Members shall deliver to Buyer or its
designees an Assignment Agreement in the form of Exhibit A, transferring the
Seller Interests being sold by the
<PAGE> 7
Members and each other instrument of transfer Buyer may reasonably request to
vest effectively in Buyer good and valid title to the Seller Interests, free and
clear of any liens, pledges, options, security interests, trusts, encumbrances
or other rights or interests of any person or entity, together with any taxes,
direct or indirect, attributable to such transfer of the Seller Interests, and
Buyer shall thereupon pay to each Member the Purchase Price described in part
(b) of Section 1.3 for such Member's Seller Interests.
1.3 PURCHASE PRICE. The consideration to be paid by Buyer for the Seller
Interests (the "PURCHASE PRICE"), both in the aggregate and to each Member for
such Member's Seller Interests, is described in Schedule 1.3.
1.4 CERTIFICATES FOR SHARES. In order to facilitate replacement of
certificates for the shares of Series A Common Stock of Buyer constituting part
of the Purchase Price (the "SHARES") upon an IPO (as defined herein) with the
transfer agent's form of certificate, and to facilitate enforcement of the
Stockholder Agreement (as defined herein), Buyer will keep custody of the
certificates representing the Shares until the IPO and until the Shares are no
longer subject to the Stockholder Agreement, and recipients of Shares will
execute and deliver blank stock powers as described in Section 6.2(d)(i). This
custody arrangement will not affect the rights as a stockholder of any permitted
recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS. Each
representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Schedule 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Members, jointly and
severally, represent and warrant to Buyer that:
2.1 ORGANIZATION AND GOOD STANDING. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Nevada, with full corporate power and authority to carry on the
Business as it is now and has since its organization been conducted and as
proposed to be conducted, and to own, lease or operate its assets and
properties. The Company is duly qualified to do business and is in good standing
in every jurisdiction in which the character of the properties owned or leased
by it or the nature of the business conducted by it makes such qualification
necessary, except where failure to be so qualified would not have a material
adverse effect on the Business or the Company's assets or financial condition (a
"MATERIAL ADVERSE Effect"). Schedule 2.1 lists all of the jurisdictions in which
the Company is qualified to do business. Complete and accurate copies of the
articles of organization and operating agreement of the Company, with all
amendments thereto to the date hereof, have been furnished to Buyer or its
representatives.
2.2 OWNERSHIP OF SELLER INTERESTS.
2
<PAGE> 8
(a) The Seller Interests constitute 83.756% of the outstanding equity
ownership interests of the Company ("INTERESTS") and are validly issued and
fully paid. The Seller Interests, together with the Interests held by CENV, LLC
("CENV") constitute all of the Interests. The Seller Interests owned by each
Member are set forth in part (b) of Schedule 1.3. Neither the Members nor the
Company has granted, issued or agreed to grant or issue any other equity
interests in the Company and there are no outstanding options, warrants, rights
to acquire ownership interests in the Company, subscription rights, securities
that are convertible into or exchangeable for, or any other commitments of any
character relating to, any equity interests of the Company.
(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests of the Company prior to the date
hereof were exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and were registered or qualified under
or exempt from all applicable state securities laws.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 AUTHORIZATION OF AGREEMENT. The Company and the Members have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the "TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Members of the Company and no other proceedings on
the part of the Company or the Members are necessary to approve this Agreement
and to consummate the transactions contemplated hereby. This Agreement and the
other Transaction Documents to be delivered by the Company or any Member have
been (or upon execution will have been) duly executed and delivered by the
Company and each Member, have been effectively authorized by all necessary
action, and constitute (or upon execution will constitute) legal, valid and
binding obligations of the Company and each Member, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
3
<PAGE> 9
2.4 TITLE TO ASSETS. The Company is the lawful owner of each of its
assets, whether real, personal, mixed, tangible or intangible. All of the
Company's assets are sufficient and adequate to conduct the Business as
presently conducted; and are free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and claims of
any kind except any of the following: (i) purchase money security interests in
specific items of equipment each having a value not in excess of $0.00; (ii)
Personal Property leased pursuant to Personal Property Leases; (iii) liens for
taxes not yet payable; (iv) additional security interests and liens consented to
in writing by Buyer; (v) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vi) liens incurred in connection
with the extension, renewal or refinancing of the indebtedness secured by liens
of the type described above in clauses (i) or (ii) above, provided that any
extension, renewal or replacement lien is limited to the property encumbered by
the existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or any Member to
transfer any of the assets of the Company or rights or interests therein to any
party.
2.5 FINANCIAL CONDITION AND ACCOUNTING.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of and the related statements of income and cash flow of the
Company for the six-month period ended September 30, 1998 or the most recent
interim date available (the "INTERIM FINANCIAL STATEMENTS"). The Interim
Financial Statements (i) were prepared in accordance with the books and records
of the Company; (ii) were prepared in accordance with generally accepted
accounting principles applicable to partnerships ("GAAP") consistently applied;
(iii) fairly present the financial condition and the results of the operations
of the Company as at the relevant dates thereof and for the periods covered
thereby; (iv) to the extent required by GAAP, contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
the results of the operations of the Company for the periods covered by the
Interim Financial Statements (except that the Interim Financial Statements are
subject to year-end adjustments, the net effect of which will not represent a
Material Adverse Change); (v) to the extent required by GAAP, contain and
reflect adequate provisions for all reasonably anticipated liabilities,
contingent or otherwise, with respect to the period then ended and all prior
periods; and (vi) do not contain any items of a special or nonrecurring nature,
except as expressly stated therein. The Interim Financial Statements accurately
reflect all information normally reported to the independent public accountants
of the Company for the preparation of its financial statements. There have been
no changes or modifications of revenue recognition, cost allocation practices or
method of, accounting or other financial or operational practices or principles
except for any such change required by reason of a concurrent change in GAAP
during the periods covered by the Interim Financial Statements.
4
<PAGE> 10
(b) Absence of Certain Changes. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3(a). For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
2.6 CERTAIN PROPERTY OF THE COMPANY.
(a) Real Property. The Company has never and does not currently own any
real property. Schedule 2.6(a) lists all real properties leased by the Company,
including a brief description of the operating facilities located thereon, the
annual rent payable thereon, the length of the term, any option to renew with
respect thereto and the notice and other provisions with respect to termination
of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties shown
in Schedule 2.6(a) under written leases (each lease being referred to herein as
a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES") and to the
knowledge of the Company or any Member each Real Property Lease is a valid and
binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor any Member
has any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and no event has
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company.
(iii) To the knowledge of the Company or any Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY Lease," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property accurately identifies such Personal Property as owned or
leased, and lists each Personal Property Lease. The Company is not in material
breach of or default, and no event has
5
<PAGE> 11
occurred which, with due notice or lapse of time or both, may constitute such a
material breach or default, under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names and other names and
slogans embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to sue and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof; (vi) customer lists; (vii) books and records describing or
used in connection with any of the foregoing; and (viii) claims or causes of
action arising out of or related to infringement or misappropriation of any of
the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the historical and anticipated uses of the Proprietary Rights in connection with
the conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company. There have not been any actions or other
6
<PAGE> 12
judicial or adversary proceedings involving the Company concerning any of the
Proprietary Rights, nor to the knowledge of the Company or any Member, is any
such action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Member, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "Trade Secrets"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
2.7 YEAR 2000 COMPLIANCE. All date-related output, calculations or
results before, during or after the calendar year 2000 that are produced or used
by any hardware, software (other than software that is generally available upon
payment of a "shrink-wrap" type license and that has not been customized for use
in connection with the Business), firmware or facilities systems (the "COMPUTER
SYSTEMS") owned or used by the Company and material to the Business are Year
2000 Compliant. For purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
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(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company and the Members of this Agreement and the other Transaction
Documents to be delivered by the Company or any Member and the consummation of
the transactions contemplated hereby and thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; (ii) violate in any material respect any provision or requirement of
any domestic or foreign, federal, state, or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any Governmental Entity
applicable to the Company or the Business; (iii) violate in any material
respect, result in a material breach of, constitute (with due notice or lapse of
time or both) a material default or cause any material obligation, penalty,
premium or right of termination to arise or accrue under any Contract (as
hereinafter defined); (iv) result in the creation or imposition of any material
lien, charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Company; or (v) result in the cancellation, modification,
revocation or suspension of any material license, permit, certificate,
franchise, authorization or approval issued or granted by any Governmental
Entity (each a "LICENSE," and collectively, the "LICENSES").
2.9 CONSENTS. Schedule 2.9 lists all consents and notices required to be
obtained or given by or on behalf of the Company or any Member before
consummation of the transactions contemplated by this Agreement in compliance
with all applicable laws, rules, regulations, or orders of any Governmental
Entity, or the provisions of any material Contract, and all such consents have
been duly obtained and are in full force and effect, except where the failure to
obtain such consent will not have a Material Adverse Effect.
2.10 LABOR AND EMPLOYMENT MATTERS. Schedule 2.10 lists all employees of
the Company, including date of retention, current title and compensation. There
is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has complied in all material
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respects with all applicable laws, rules and regulations relating to the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by appropriate Governmental Entities and has withheld and paid to the
appropriate Governmental Entities or is holding for payment not yet due to such
Governmental Entities, all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing. There is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any state or local agency; pending labor strike or other
material labor trouble affecting the Company; material labor grievance pending
against the Company; pending representation question respecting the employees of
the Company; pending arbitration proceedings arising out of or under any
collective bargaining agreement to which the Company is a party. For purposes of
this Agreement, "EMPLOYEES" includes employees, independent contractors and
other persons filling similar functions.
2.11 EMPLOYEE PLANS.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, option, security purchase,
benefit, welfare, profit-sharing, deferred compensation, retainer, consulting,
retirement, welfare, disability, vacation, severance, hospitalization,
insurance, incentive, deferred compensation and other similar fringe or employee
benefit plans, funds, programs or arrangements, whether written or oral, in each
of the foregoing cases which cover, are maintained for the benefit of, or relate
to any or all current or former employees, members, officers or directors of the
Company, and any other entity ("ERISA AFFILIATE") related to the Company under
Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such Employee Plans. With respect to each Employee Plan, the
Company has made available to Buyer, to the extent applicable, true and complete
copies of (i) all plan documents, (ii) the most recent determination letter
received from the Internal Revenue Service (the "IRS"), (iii) the most recent
application for determination filed with the IRS, (iv) the latest actuarial
valuations,
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(v) the latest financial statements, (vi) the three (3) most recent Form 5500
Annual Reports, including Schedule A and Schedule B thereto, (vii) all related
trust agreements, insurance contracts or other funding arrangements which
implement any of such Employee Plans, (viii) all Summary Plan Descriptions and
summaries of material modifications and all modifications thereto communicated
to employees, and (ix) in the case of stock options or stock appreciation rights
issued under any Employee Plan, a list of holders, dates of grant, number of
shares, exercise price per share and dates exercisable. Neither the Company nor
any ERISA Affiliate of the Company has any liability or contingent liability
with respect to the Employee Plans, nor will any of the Company's assets be
subject to any lien, charge or claim relating to the obligations of the Company
with respect to employees or Employee Plans. No party to any Employee Plan is in
default with respect to any material term or condition thereof, nor has any
event occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in material compliance with the requirements provided by any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, without limitation, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Code. Each of the Company and its
ERISA Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including,
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without limitation, all communications to employees concerning such matters,
each of which is an accurate description of the terms of such plans or policies.
The Company has no affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
Neither the Company nor any of its ERISA Affiliates has incurred any liability
under the Worker Adjustment Retraining and Notification Act or any similar state
law relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Member, is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12 LITIGATION. There are no claims, actions, suits or proceedings of
any nature pending or, to the knowledge of the Company or any Member, threatened
by or against the Members, the Company, the officers, directors, employees,
agents of the Company, or any of their respective Affiliates involving,
affecting or relating to the Business or any assets, properties or operations of
the Company or the transactions contemplated by this Agreement. Neither the
Company nor any of the Company's assets is subject to any order, writ, judgment,
award, injunction or decree of any Governmental Entity. For purposes of this
Agreement, "AFFILIATE" shall have the meaning ascribed to such term in Rule 405
under the Securities Act.
2.13 CERTAIN AGREEMENTS.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all
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material written, or oral, (i) contracts, agreements and commitments not made in
the ordinary course of business, (ii) agency and brokerage agreements, (iii)
service and other customer contracts, (iv) contracts, loan agreements, letters
of credit, repurchase agreements, mortgages, security agreements, guarantees,
pledge agreements, trust indentures, promissory notes and other documents or
arrangements relating to the borrowing of money or for lines of credit, (v) tax
sharing agreements, real property leases or any subleases relating thereto,
personal property leases, any material agreement relating to Proprietary Rights
(including service agreements relating thereto) and insurance contracts, (vi)
agreements and other arrangements for the sale of any assets, property or rights
other than in the ordinary course of business or for the grant of any options or
preferential rights to purchase any assets, property or rights, (vii) documents
granting any power of attorney with respect to the affairs of the Company,
(viii) suretyship contracts, performance bonds, working capital maintenance or
other forms of guaranty agreements, (ix) contracts or commitments limiting or
restraining the Company or any of its employees or Affiliates from engaging or
competing in any lines of business or with any person or entity, (x) partnership
or joint venture agreements, (xi) agreements relating to the issuance of any
securities of the Company or the granting of any registration rights with
respect thereto, and (xii) all amendments, modifications, extensions or renewals
of any of the foregoing (each a "CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or any Member since formation, with respect to
any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those notices
alleging a material breach of a Contract or intention to terminate or materially
modify a Contract, but does not include routine correspondence.
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(f) To the knowledge of the Company or any Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 COMPLIANCE WITH APPLICABLE LAW. The operations of the Company are,
and have been, conducted in all material respects in accordance with all
applicable laws, regulations, orders and other requirements of all Governmental
Entities having jurisdiction over it and its assets, properties and operations,
including, without limitation, all such laws, regulations, orders and
requirements relating to the Business except in any case where the failure to so
conduct its operations would not have a Material Adverse Effect. The Company has
not received any notice of any material violation of any such law, regulation,
order or other legal requirement, and is not in material default with respect to
any order, writ, judgment, award, injunction or decree of any Governmental
Entity, applicable to the Company or any of its assets, properties or
operations.
2.15 LICENSES.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Members of this Agreement and the other Transaction Documents. The Licenses are
sufficient and adequate in all material respects to permit the continued lawful
conduct of the Business in the manner now conducted and the ownership, occupancy
and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested in writing that it qualify or become licensed as a foreign
corporation. The Company has delivered to Buyer or its representatives true and
complete copies of all the material Licenses together with all amendments and
modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16 ACCOUNTS RECEIVABLE. Schedule 2.16 lists all accounts receivable of
the Company (the "ACCOUNTS RECEIVABLE") as of the date hereof, including their
aging. Schedule 2.16 will be updated at the Closing Date to reflect all Accounts
Receivable as of the Closing Date, including their aging. All Accounts
Receivable as of the date hereof represent,
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and all Accounts Receivable as of the Closing Date will represent, valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business that are current and collectible in amounts not
less than the aggregate amount thereof (net of reserves established in
accordance with GAAP applied consistently with prior practice) carried (or to be
carried) on the books of the Company and reflected in the Financial Statements,
and are not subject to any valid counterclaims or set-offs, disputes or
contingencies.
2.17 INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
(b) Except as set forth on Schedule 2.17, no officer, director or member
of the Company, or any Affiliate of any such person other than interests of Erik
R. Watts and any entity in which Erik R. Watts holds 50% or more of the equity
securities or ownership interests, now has, or within the last three (3) years
had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18 INSURANCE. Schedule 2.18 lists all insurance policies of any nature
whatsoever maintained by the Company at any time during the three (3) years
prior to the date of this Agreement and the annual or other premiums payable
from the time thereunder. There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or by any
Board of Fire Underwriters or other similar body exercising similar functions or
by any Governmental Entity that require or recommend any changes in the conduct
of the Business, or any repairs or other work to be done on or with respect to
any of
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the properties or assets of the Company. The Company has not received any notice
or other communication from any such insurance company within the three (3)
years preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of the Company or any Member, no such
cancellation, amendment or increase of premiums is threatened.
2.19 CUSTOMERS. Schedule 2.19 lists the ten (10) largest customers of
the Company, together with revenues to the Company from each such customer
during the most recent complete fiscal year and the current fiscal year to the
date hereof, and the scheduled termination dates of their current contracts with
the Company. None of such customers has given written notice to the Company of
an intention to terminate or materially impair its business relationship with
the Company and neither the Company nor any Member has any knowledge of any
event that would precipitate the impairment, or termination of, or the failure
to renew, or entitle any such customer to terminate, such business relationship.
2.20 NO UNDISCLOSED LIABILITIES. Except as and to the extent
specifically reflected or reserved against in the Interim Financial Statements
and except as incurred in the ordinary course of business since the date of the
Interim Financial Statements, the Company has no material liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due (including, without limitation, any liability
for taxes and interest, penalties and other charges payable with respect to any
such liability or obligation) and no facts or circumstances exist which, with
notice or the passage of time or both, could reasonably be expected to result in
any material claims against or obligations or liabilities of the Company.
2.21 TAXES.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the
Company for or with respect to (A) any Pre-Acquisition Taxable Period, or (B)
any Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of
the Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
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(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not shown on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which the Company has received a
written and/or oral notice from a Tax authority that such Tax authority intends
to commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which the Company has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. The Company has either delivered to Buyer or
made available for inspection by Buyer or its representatives or agents complete
and correct copies of all Tax audit reports and statements of Tax deficiencies
with respect to any delinquent Tax assessed against or agreed to by the Company
for all taxable periods commencing on or after January 1, 1993, for which audit
reports or statements of deficiencies have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Interim Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (not including any reserve for deferred Taxes established to reflect
timing differences between book and Tax income ) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
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(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for federal and state income tax purposes, and neither the Company
nor any Member has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(l) Section 351. It is acknowledged that Buyer, the Company and Members
intend that the transfer of the Seller Interests by the Members to Buyer
pursuant to this Agreement qualify (i) as a transfer of property to a controlled
corporation pursuant to the provisions of Code Section 351 and comparable
provisions of applicable state income tax law, and (ii) under Code Section 351
as part of a transfer by the Members and other persons transferring property to
Buyer who collectively will be in control (as defined in Section 368(c) of the
Code) of Buyer following such transfers. The information set forth on Schedule
2.21(j) is accurate and may be used by Buyer for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
2.22 INDEBTEDNESS. Schedule 2.22 lists each person or entity that owns
any direct or indirect debt interest (other than accounts payable incurred in
the ordinary course of the Company's business) in the Company (including,
without limitation, any indebtedness for borrowed money, whether or not
evidenced by a note or other written instrument) and a description of each such
debt interest.
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2.23 ENVIRONMENTAL MATTERS. Notwithstanding anything to the contrary
contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under the common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in material violation of any
Environmental Laws such that the Company could be subject to material liability
under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or any
Member, threatened administrative, judicial or regulatory proceedings, or, to
the knowledge of the Company or any Member, any threatened actions or claims, or
any consent decrees or other agreements in effect that relate to environmental
conditions in, on, under, about or related to
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the Company, its operations or the real properties leased or owned by the
Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24 SECURITIES MATTERS.
(a) The Members understand that (i) neither the Shares nor any notes
issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Members' representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members have had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the offering of
the Securities and the business, properties, plans, prospects, and financial
condition of Buyer and to obtain additional information as the Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members have adequate means of providing
for current needs and personal contingencies, and have no need for liquidity and
can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Members' own account, for investment purposes, not as a nominee or agent,
and not with a
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view to or for sale in connection with any distribution of the Securities in
violation of applicable securities laws.
(f) The Members understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Each Member is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has each documented his or her accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit B hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
any Member aware of any such solicitation or advertising.
2.25 BUYER AND THE CONSOLIDATION TRANSACTIONS.
(a) The Members are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.10) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Member would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the Common
Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
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(b) The Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents concerning the potential value of the Shares issued as
part of the Purchase Price or the prospects of Buyer, except as set forth
herein.
2.26 MINUTE BOOKS AND RECORDS. The Company has made available to Buyer
true, complete and correct copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its Members;
and
(b) all record books of the Company setting forth all transfers of
interests in the Company.
2.27 BANKS. Schedule 2.27 lists the account information at each bank or
other institution at which the Company has a line of credit, check, savings or
other account, certificate of deposit or safe deposit box and the names of each
person authorized to draw thereon or have access thereto.
2.28 POWERS OF ATTORNEYS AND SURETYSHIPS. The Company does not have any
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.29 BROKERS. Except as set forth on Schedule 2.29, no broker, finder,
investment banker, or other person is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of the Company or any of
the Members.
2.30 SUMMARY OF CERTAIN CONSIDERATIONS.
Each Member acknowledges receipt and understanding of the Summary of
Certain Considerations attached hereto as Exhibit C.
2.31 ACCURACY OF INFORMATION. None of the representations or warranties
or information provided and to be provided by the Company or any Member to Buyer
in this Agreement, the Disclosure Schedule, schedules or exhibits hereto, or in
any Accredited Investor Questionnaire contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements and facts contained herein or therein
not false or misleading. The descriptions set forth in the Disclosure Schedule
are accurate descriptions of the matters disclosed therein. Copies of all
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documents heretofore or hereafter delivered or made available to Buyer pursuant
hereto were or will be complete and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to the
Members that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and the other Transaction Documents to be executed and delivered by Buyer have
been (or upon execution by Buyer will have been) duly executed and delivered by
Buyer, have been effectively authorized by all necessary action of Buyer,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer, except as such enforceability may
be limited by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
Buyer of this Agreement and the other Transaction Documents to be executed and
delivered by Buyer and the consummation of the transactions contemplated hereby
and thereby, do not and will not: (i) violate or conflict with any provision of
the charter documents or bylaws of Buyer; or (ii) violate in any material
respect any provision or requirement of any domestic or foreign, national, state
or local law, statute, judgment, order, writ, injunction, decree, award, rule,
or regulation of any Governmental Entity applicable to Buyer.
3.3 CAPITALIZATION. The authorized capital stock of Buyer consists of
240,000,000 shares of common stock, par value $0.001 per share (the "COMMON
STOCK") of which 200,000,000 are Series A Common Stock and 40,000,000 are Series
B Common Stock, and 10,000,000 shares of undesignated preferred stock. The
Shares, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable. Holders of Series B Common Stock are
entitled to elect all the directors in one of the Buyer's three (3) classes of
directors, with the holders of Series A Common Stock entitled to elect the
remaining directors. In all other respects the Series A and Series B Common
Stock are identical.
3.4 NOTES. Any note to be delivered by Buyer as part of the Purchase
Price, when delivered in accordance with the terms of this Agreement, will be
duly executed, and will constitute a legal, valid and binding obligation of
Buyer, except as such enforceability may be limited by the Bankruptcy Exception.
3.5 Litigation. EXCEPT AS SET FORTH ON SCHEDULE 3.5, there are no
claims, actions, suits, or proceedings of any nature pending or, to the
knowledge of Buyer, threatened by or against Buyer, the officers, directors,
employees, agents of Buyer, or any of their respective Affiliates involving,
affecting or relating to any assets, properties or operations of Buyer or
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the transactions contemplated by this Agreement. Buyer is not subject to any
order, writ, judgment, award, injunction or decree of any Governmental Entity.
From and after the Closing, Buyer or its Affiliates may be subject to claims,
actions, suits, or proceedings, including as a result of acquisitions by Buyer
in the Consolidation Transactions, and Buyer makes no representations or
warranties about any such claims, actions, suits or proceedings or the absence
thereof.
3.6 BUYER'S OPERATIONS AND FINANCIAL CONDITION. Since its date of
incorporation Buyer has had no operations except operations in connection with
effecting the Consolidation Transactions and preparing for operation of its
business after the Closing. Buyer has no material tangible assets, and except as
set forth on Schedule 3.6, Buyer has no material liabilities or obligations for
borrowed money or payment for services rendered to Buyer. From and after the
Closing, Buyer or its Affiliates may have liabilities or obligations for money
borrowed to effect the Consolidation Transactions and as a result of
acquisitions by Buyer in the Consolidation Transactions, and Buyer makes no
representations or warranties about any such liabilities or obligations or the
absence thereof.
3.7 ACCURACY OF INFORMATION. None of the representations or warranties
or information provided and to be provided by Buyer to the Members in this
Agreement, the schedules or exhibits hereto, or in any of the other Transaction
Documents delivered by Buyer contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not false or
misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 ACCESS. The Company shall afford, to Buyer and Buyer's accountants,
counsel and representatives, full access during normal business hours throughout
the period prior to the Closing Date (or the earlier termination of this
Agreement) to all of the properties, books, Contracts and records of the Company
(including, without limitation, the Company's accounting records, the workpapers
of the Company's independent accountants, and all environmental studies, reports
and other environmental records) and, during such period, shall furnish promptly
to Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2 CONFIDENTIALITY. For purposes hereof, the Company and the Members
will keep the matters contemplated herein and all information provided by Buyer
related to Buyer and the Consolidation Transactions and potential participants
therein, including, without limitation, Deloitte & Touche, LLP, confidential,
and will not provide information about such matters to any party or
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use such information except to the extent necessary to effect the transactions
contemplated hereby. Buyer will keep the matters contemplated herein and all
information provided by the Company and the Members related to the Company and
the Business confidential, and will not provide information about such matters
to any party or use such information except to the extent necessary to effect
the transactions contemplated hereby. Buyer and the Company shall each cause
their respective Affiliates, officers, directors, employees, agents, and
advisors to keep confidential all information received in connection with the
transactions contemplated hereby. The Company and the Members acknowledge that
Buyer may provide information about the Company and the Business to other
participants in the Consolidation Transactions to the extent necessary to
facilitate the Consolidation Transactions. If this Agreement terminates without
consummation of the Closing, the Company, the Members and Buyer shall, and shall
cause their Affiliates to, each maintain the confidentiality of any information
obtained from the other in connection with the transactions contemplated hereby,
the Consolidation Transactions, and Buyer's business plans (the "INFORMATION"),
other than Information that (i) was in the public domain before the date of this
Agreement or subsequently came into the public domain other than as a result of
disclosure by the party to whom the Information was delivered; or (ii) was
lawfully received by a party from a third party free of any obligation of
confidence of or to such third party; or (iii) was already in the possession of
the party prior to receipt thereof, directly or indirectly, from the other
party; or (iv) is required to be disclosed in a judicial or administrative
proceeding after giving the other party as much advance notice of the
possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Members and the
Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
4.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Members
shall cause the Company to, conduct the Company's business solely in the
ordinary course consistent with past practices. Without limiting the generality
of the preceding sentence, except as required or permitted pursuant to the terms
hereof, the Company shall not, and the Members shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts of the type described in
Schedule 4.3(a)(i), in any case calling for payments to or by the Company in
excess of $20,000 over the life of the contract or series of related contracts,
without the prior written consent of Buyer, which may not be unreasonably
withheld;
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(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part thereof,
to any lien, security interest, charge, interest or other encumbrance, or suffer
such to be imposed other than such liens, security interests, charges, interests
or other encumbrances as may arise in the ordinary course of business consistent
with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess of
$25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
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(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to
equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Member herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Members shall cause
it to:
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and other
Tax Returns and other reports required to be filed and pay when due all Taxes,
assessments, fees and other charges lawfully levied or assessed against it,
unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
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(vi) comply with all material Environmental Laws, and upon receipt
of notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing; and
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof.
4.4 RESTRICTIVE COVENANTS.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement and the other Transaction Documents and that
but for the agreement of each Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights and that irreparable harm and damage will be done to Buyer if
any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
(i) either on its, his, her or their own account or for any other
person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or with whom the Company was
engaged in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"),
to modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
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(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited, with respect to any
Member, to any county or any other political subdivision of any state of the
United States of America, or of any other country in the world, where such
Member generated revenue or established goodwill at any time during the two (2)
year period preceding the Closing Date. This Covenant Not to Compete shall bind
each Member until December 31, 2002, provided however, that if the employment of
any Member is terminated by Buyer without Cause or by such Member for Good
Reason (each as defined in such Member's Employment Agreement delivered pursuant
to Section 6.3(c)(iv)), and if either (i) a registration statement for an
underwritten IPO of Buyer's equity securities has not been filed by December 31,
1999, or (ii) Buyer fails to consummate a public offering that results in a
public trading market of equity securities of Buyer on a national securities
exchange or the Nasdaq Stock Market by May 15, 2000, then after termination of
such Member's employment with the Company or any of its Affiliates, such Member
will no longer be subject to the covenants contained in Sections 4.4(a)(ii) and
(iii), and the covenants in Section 4.4(a)(iv) will not be breached by any
general marketing efforts with which such Member may be involved that are not
targeted specifically at any Customer. The parties hereto agree that the
duration and area for which the Covenant Not to Compete set forth in this
Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Member shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the Members
become aware as the result of their affiliation with the Business or their
relationship with Buyer or its Affiliates and which relate specifically to the
Business, or any part thereof. This Section 4.4(c) is in addition to and not by
way of limitation of any other duties the Members may have to Buyer or its
Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, hire away, or cause any other
person to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by the Company before
the Closing Date), or directly or indirectly entice or solicit or seek to
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induce or influence any of such employees or consultants to leave their
employment or engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Members in light of the activities and business of
the Company and future plans of Buyer. The Members acknowledge that if they
violate any of the covenants contained in this Section 4.4 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, Buyer
shall be entitled to temporary injunctive relief without being required to post
a bond and permanent injunctive relief without the necessity of proving actual
damages. Each Member shall be severally liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants breached by such
Member, whether or not litigation is actually commenced and including litigation
of any appeal defended by Buyer where such party succeeds in enforcing any of
the Restrictive Covenants. Buyer may elect to seek one or more remedies at its
discretion on a case by case basis. Failure to seek any or all remedies in one
case shall not restrict Buyer from seeking any remedies in another situation.
Such action by Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
4.5 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under
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the Securities Act, the Shares must be held indefinitely, and may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's members, the
Members will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period, (ii) such lock up provision will be contingent upon
the officers and directors of the registrant entering into similar lock up
agreements, and (iii) no Member will be required to comply with this lock up
provision if any other member owning more shares of Common Stock than such
Member and who is subject to a contractual lock up provision similar to this one
has been released from such lock up obligation.
4.6 REGISTRATION.
(a) No Member will have any rights to demand registration of any of the
Shares, or to participate in any registration undertaken by Buyer except as set
forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission for
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an underwritten IPO of its equity securities or any subsequent underwritten
public offering within twenty-four (24) months of the closing of the IPO (not
including a registration statement filed in connection with an acquisition or
employee benefit plan), and if the managing underwriter of such offering
believes that the market will accommodate selling stockholders in the offering,
then each Member shall have the right, subject to the limitations set forth in
the last sentence of this Section 4.6(a), to include in such registration
statement or statements and offering or offerings Shares and other Common Stock
owned by such Member. Other stockholders (including but not limited to
stockholders who acquired Common Stock in the Consolidation Transactions and
stockholders who acquired Common Stock in connection with the formation, or work
on behalf of, Buyer) will have rights to include shares of Common Stock in such
offering, and if the aggregate amount of shares that all stockholders with such
rights (collectively, the "SELLING Stockholders") desire to include exceeds the
number of shares of Common Stock that can be sold by all Selling Stockholders,
then all Selling Stockholders desiring to sell in any such offering will
participate pro-rata on the basis of the relative numbers of shares of Common
Stock eligible for inclusion that they originally sought to include. However,
notwithstanding the foregoing no Selling Stockholder will be permitted to
include in any such registration and offering (i) any Shares subject to
performance-related restrictions at the time of filing of the registration
statement for such offering or (ii) more than, in the aggregate for all such
registrations and offerings, half of the shares of Common Stock held by such
Selling Stockholder as of the date hereof. Furthermore, in no case will the
Members hereunder be permitted to include in the IPO registration and offering,
in the aggregate, more than the number of Shares listed on Schedule 4.6 under
the item "Maximum IPO Shares" (such Shares will be allocated among Members
hereunder desiring to participate in any such registration and offering ratably
on the basis of their relative ownership of Shares and other Common Stock).
(b) If any Member acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Member from and against any claims, costs and liabilities incurred by such
Member as a result of any untrue, or alleged untrue, statement of a material
fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by such Member expressly for use
therein, for which the Member will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling
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Stockholder's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
Selling Stockholders (or affiliated stockholder groups) selling the most shares
of Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7 COOPERATION IN LITIGATION. Each party will fully cooperate with the
others in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business prior to or after the
Closing Date (other than litigation between Buyer and/or its Affiliates or
assignees, on the one hand, and the Company or any Member and/or their
Affiliates or assignees, on the other, arising out of the transactions
contemplated by this Agreement). Subject to the provisions hereof regarding
payments by each party of its costs and payments or attorneys' fees and costs,
the party requesting such cooperation shall pay the out-of-pocket expenses
(including reasonable legal fees and disbursements) of the party providing such
cooperation and of its officers, directors, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for such party's
time spent in such cooperation or the salaries or costs of fringe benefits or
other similar expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
4.8 TAX MATTERS.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as
of the close of the Company's business activities on the Closing Date, and, in
the case of Pre-Acquisition Taxable Periods ending on the Closing Date, all of
the Company's income, gains and other Tax items attributable to the Closing Date
shall be included and reported by the Company in Tax Returns (including federal
Form 1065 and any similar state return) of the Company for such Pre-Acquisition
Taxable Periods to be filed following the Closing and that all Taxes
attributable to the Company's income, gains or other taxable items for the
Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of
any Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such
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date; provided, however, that exemptions, allowances or deductions that are
calculated on an annual basis (including, but not limited to, depreciation and
amortization deductions) shall be allocated between the period ending on and
inclusive of the Closing Date (the "PRE-CLOSING PERIOD") and the period
following the Closing Date (the "POST-CLOSING PERIOD") in the proportion which
the number of days in each such period bears to the total number of days in the
Straddle Period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods
which are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Members shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes shown or reported to be due and payable on such Tax
Returns to the extent not specifically reserved (excluding reserves for deferred
taxes) against in the Interim Financial Statements. Each Member shall pay his or
her proportionate share of such costs, expenses and Tax Liabilities of the
Company promptly following receipt by such Member (either directly or through
the Member Representative) of a notice from Buyer of Buyer's calculation of such
Member's payment obligation hereunder together with copies of the relevant Tax
Returns and other information supporting Buyer's calculation. If a Member
disputes all or any portion of the payment obligation hereunder as calculated by
Buyer, such Member shall nevertheless promptly pay to Buyer the amount specified
in the notice and any dispute related thereto shall be resolved pursuant to the
arbitration provisions of Section 7.13. Any additional Taxes attributable to the
periods covered by such Tax Returns, whether pursuant to an amended return or
any Tax Proceeding, shall be paid by Members promptly upon demand therefor by
Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE PERIOD RETURN") reporting and accounting for
such Taxes on an aggregate basis covering both the Pre-Closing Period and the
Post-Closing Period. The Buyer, at its expense, shall cause the Company to
prepare and file such Straddle Period Returns.
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(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns to the extent not
specifically reserved (excluding reserves for deferred taxes) against in the
Interim Financial Statements. Each Member shall pay his or her proportionate
share of Pre-Closing Taxes promptly following receipt by such Member (either
directly or through the Member Representative) of a notice from Buyer of Buyer's
calculation of such Member's payment obligation hereunder together with copies
of the relevant Tax Returns and other information supporting Buyer's
calculation. If a Member disputes all or any portion of the payment obligation
hereunder as calculated by Buyer, such Member shall nevertheless promptly pay to
Buyer the amount specified in the notice and any dispute related thereto shall
be resolved pursuant to the arbitration provisions of Section 7.13. Any
additional Taxes attributable to the Pre-Closing Periods covered by such Tax
Returns, whether pursuant to an amended return or any Tax Proceeding, shall be
paid by Members promptly upon demand therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify
the Member Representative of any written communication from a Tax authority with
respect to any pending Tax Proceeding involving a Pre-Acquisition Tax Liability.
Buyer shall include with such notification a copy of the written communication
so received by Company.
(ii) The Buyer shall have responsibility and authority to
represent the interests of the Company in any Tax Proceeding relating to
Pre-Acquisition Taxable Periods and Straddle Periods and to employ counsel of
its choice in connection therewith; provided, however, that the Member
Representative shall be permitted to participate in any such Tax Proceedings and
all hearings related thereto at the expense of the Members; and provided
further, that, without the prior written consent of the Member Representative,
which shall not be unreasonably withheld, the Buyer shall not agree to settle or
compromise any such Tax Proceeding and/or any Pre-Acquisition Tax Liability
issue arising therein if such settlement can reasonably be expected to result in
a material increase in the Pre-Acquisition Tax Liabilities for which the Members
are responsible hereunder, provided, however, the consent of the Member
Representative to such settlement or compromise shall not be required hereunder
if the failure to settle or compromise the Tax Proceeding or an issue arising
therein can reasonably be expected to result in an adverse effect on the Company
following the Closing. The Members, promptly upon demand from the Buyer, shall
pay the reasonable costs and expenses, including attorney fees, incurred by
Buyer in connection with any such Tax Proceedings, provided, however, in any Tax
Proceeding related to a Straddle Period which involves Tax Liabilities for which
Members are responsible hereunder and Tax Liabilities attributable to the
Post-Closing Period for which Members are not responsible, the Buyer, on the one
hand, and the Members, on the other hand, shall jointly bear the costs and
expenses thereof as allocated between them on an equitable basis.
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(iii) All notices to Members provided for hereunder shall be
deemed delivered to each Member upon receipt thereof either directly by the
Member or by the Member Representative. The Members shall proportionately pay
all Tax Liabilities and costs and expenses for which the Members are responsible
hereunder; provided, however, the Members shall be jointly and severally liable
for all such Tax Liabilities, costs and expenses.
(iv) The Member and the Member Representative shall furnish to
Buyer such information and documents as may be reasonably requested by Buyer,
and shall otherwise reasonably cooperate with Buyer, in connection with Buyer's
conduct of any Tax Proceedings described herein.
(f) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Members shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute of
limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests in a manner consistent with its qualification as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of state income tax law, and (ii) file such Tax
Returns and Tax information reports related to the transfer as may be required
or otherwise appropriate under the Tax laws and regulations applicable to
transfers of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9 MEMBER REPRESENTATIVE. The Members shall at all times maintain a
representative (the "MEMBER REPRESENTATIVE") for purposes of taking certain
actions and giving certain consents on behalf of the Members as specified
herein. The Member Representative will be George W. Imhoff unless and until the
Members, each having voting power in proportion to such Member's ownership of
voting securities of the Company, elect his replacement by majority vote of such
shares and notify Buyer thereof. Actions taken, consents given and
representations made by the Member Representative on behalf of the Members
pursuant hereto shall be binding upon the Members. Before the Closing, the
Member Representative is authorized by the Members to take any action on behalf
of the Members to facilitate the transactions contemplated hereby which such
Member Representative is directed to take by the Company acting through a
majority of the members of the Board of Directors in office prior to the
Closing, including, without limitation,
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amending this Agreement, and executing documents or instruments. After the
Closing, the Member Representative is authorized by the Members to take any
action on behalf of the Members to facilitate or administer the transactions
contemplated hereby as the Member Representative deems appropriate.
4.10 CONSOLIDATION TRANSACTIONS. Concurrent with the transaction
contemplated hereby, Buyer is acquiring in a series of transactions various
other companies engaged in the business of cost reduction, cost recovery and
profit enhancement services by means of mergers into Buyer, or acquisitions by
Buyer of all or substantially all of the assets or stock or other equity
interests of such companies (collectively, the "CONSOLIDATION TRANSACTIONS").
The Company and the Members acknowledge that as a result of the complexity of
the transactions contemplated hereby and the Consolidation Transactions, the
Closing contemplated hereby and the closing of the Consolidation Transactions
must be concurrent at a time designated by Buyer. Accordingly, the Company and
the Members shall at any time upon or after execution of this Agreement, but
prior to the Closing Date (i) provide any outstanding documentation required to
effect the Closing pursuant to this Agreement in escrow pending release upon
authorization of the Member Representative at the Closing, (ii) complete
performance of their respective obligations hereunder and under the other
Transaction Documents to be performed by the Closing, and (iii) update the
schedules hereto and any other documentation or information provided to Buyer
during the course of this transaction such that all such disclosures shall be
accurate and current as of the Closing Date.
4.11 SUPPLEMENTAL DISCLOSURE. At the Closing, the Company and the
Members shall supplement or amend each of the schedules hereto with respect to
any matter hereafter arising which, if existing or occurring at or prior to the
date hereof, would have been required to be set forth or listed in the schedules
or which is necessary to complete or correct any information in the schedules.
4.12 HSR. Buyer and the Company shall cooperate in preparing and
delivering to the Department of Justice and the Federal Trade Commission
notification of the transactions contemplated hereby pursuant to, and shall use
their commercially reasonable best efforts to obtain early termination of the
waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR ACT"), if applicable. Buyer and the Company shall each pay half of all
filing fees payable under the HSR Act in connection with the transactions
contemplated hereby, and each of Buyer and the Company shall pay its own costs
incurred in preparation of all reports and notifications required under the HSR
Act.
4.13 COMPETING PROPOSALS.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests
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therein, or any other transaction or arrangement that would interfere with the
transactions contemplated hereby (a "COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.14 BONUS PLAN. If Buyer does not close the IPO of its equity
securities by June 30, 1999, Buyer will implement a cash bonus plan designed to
reward employees on the basis of the performance of the divisions or
subsidiaries of Buyer in which they work. Amounts payable under, and other terms
of, any such plan will be subject to restrictions imposed by Buyer's lenders,
Buyer's capital investment requirements, and preservation of adequate working
capital.
4.15 BEST EFFORTS. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts (other than the
payment of money unreimbursed by the other party) to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to cause the fulfillment of the
conditions to Closing set forth herein and to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
4.16 FURTHER ASSURANCES. Upon the reasonable request of a party or
parties hereto at any time after the Closing Date, the other party or parties
shall forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its or their counsel may
reasonably request in order to effectuate the purposes of this Agreement.
4.17 NOTICE OF BREACH. At all times before the Closing, and thereafter
until the second anniversary of the Closing Date, each of the parties hereto
shall promptly give written notice with particularity of any breach or
inaccuracy of any representation, warranty, agreement or covenant of such party
contained herein or in any other Transaction Document to the parties to whom or
which such representation, warranty or covenant was made.
4.18 PURCHASE OF OTHER MEMBERSHIP INTERESTS.
(a) The Members acknowledge that the Purchase Price set forth in
Schedule 1.3 is the full and complete consideration for the Seller Interests
being purchased under this Agreement.
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(b) The Members acknowledge and understand that (i) Buyer will acquire
all of the Interests owned by CENV through the acquisition of an outstanding
option to purchase CENV (the "CENV OPTION"); (ii) the consideration paid for the
CENV Option may be different in both type and ratable amount than the
consideration paid to the Members under this Agreement; and (iii) the
differential consideration is consistent with all agreements among the Members.
(c) The Members agree that if, and to the extent to which, the
transactions pursuant to which Buyer acquires the Company and the CENV Option
violate any agreement among the Members or constitute unfair treatment of or
breach of duty to any Member, Members' remedies shall be against the ultimate
beneficial owners of CENV and the CENV Option prior to the acquisition of the
CENV Option by Buyer, and the Members hereby release and hold harmless Buyer and
its affiliates (other than the ultimate beneficial owners of CENV or the CENV
Option) from and against any and all claims, liabilities and costs arising in
connection with violation of any agreement among the Members or unfair treatment
of or breach of duty to any Member ("INTER-MEMBER MATTERS"). Each Member
represents and warrants that Member understands California Civil Code Section
1542, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Each Member, being aware of Section 1542, hereby expressly waives any and all
rights he or she may have thereunder as well as under any other statute or
common law principles of similar effect under the laws of any state or the
United States. This Agreement shall act as a general release of all future
claims of Member against Buyer and its affiliates (other than the ultimate
beneficial owners of CENV or the CENV Option) that may arise from Inter-Member
Matters, whether such claims are currently known, unknown, foreseen or
unforeseen.
4.19 ASSIGNMENT OF CONTRACTS. Subject to any restrictions imposed by
applicable law or regulations, each of the Members and their respective members
and beneficial owners have assigned or will upon request of Buyer or the Company
assign to the Company all payment and other rights developed by or accruing to
them in connection with the Business. If such assignment is not permitted under
applicable law or regulation, the parties will agree upon procedures whereby the
Company will receive all economic benefits of all payments and other rights
developed by or accruing to each of the Members and their respective members and
beneficial owners in connection with the Business.
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5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL. The representations and warranties made in this Agreement
or in any exhibit, schedule, or any other Transaction Document or certificate
shall survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Seller Interests), 2.4 (Title to Assets) and 2.22 (Indebtedness)
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2 INDEMNIFICATION BY THE MEMBERS. Subject to the limits set forth in
this Article 5, the Members and, if the transactions contemplated hereby are not
consummated, the Company, and their successors and assigns shall jointly and
severally indemnify, defend, reimburse and hold harmless Buyer and its
Affiliates and their successors and assigns, and the officers, directors,
employees and agents of any of them, from and against any and all claims,
losses, damages, liabilities, obligations, assessments, penalties and interest,
demands, actions and expenses, whether direct or indirect, known or unknown,
absolute or contingent (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any actions
or threatened actions) ("LOSSES") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company before the Closing,
provided that such Loss is not an obligation for payment of money in an amount
reflected as a liability of the Company in the Interim Financial Statements or a
trade payable incurred in the ordinary course of business since the date of the
Interim Financial Statements;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by the Company or the Members in this Agreement or any other
Transaction Document;
(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document; and
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(d) Inter-Member Matters
5.3 INDEMNIFICATION BY BUYER. Subject to the limits set forth in this
Article 5, Buyer and its successors and assigns shall indemnify, defend,
reimburse and hold harmless the Members and their successors and assigns from
and against any and all Losses reasonably incurred by any such Members arising
out of or in connection with any of the following:
(a) the ownership and operation of the Company after the Closing
(except that, to the extent permitted by law, Buyer and its successors and
assigns will not be required to indemnify, defend, reimburse or hold harmless
any Member in respect of any Losses arising as a result of acts or omissions of
that Member, including without limitation in such Member's capacity as an
employee of or consultant to Buyer or its Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the
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Indemnitee (or multiple Indemnitees). If the Indemnitee elects to so
participate, the Indemnitor shall cooperate with the Indemnitee, and the
Indemnitor shall deliver to the Indemnitee or its counsel copies of all
pleadings and other information within the Indemnitor's knowledge or possession
reasonably requested by the Indemnitee or its counsel that is relevant to the
defense of such Claim and that will not prejudice the Indemnitor's position,
claims or defenses. The Indemnitee and its counsel shall maintain
confidentiality with respect to all such information consistent with the conduct
of a defense hereunder. The Indemnitor shall have the right to elect to settle
any claim for monetary damages only without the Indemnitee's consent, if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 PAYMENT. All payments owing under this Article 5 will be made
promptly as indemnifiable Losses are incurred. If the Indemnitee defends the
subject matter of any Claim in accordance with Section 5.4(c) or proceeds with
separate counsel in accordance with Section 5.4(b), the expenses (including
attorneys' fees) incurred by the Indemnitee shall be paid by the Indemnitor in
advance of the final disposition of such matter as incurred by the Indemnitee,
if the Indemnitee undertakes in writing to repay any such advances in the event
that it is ultimately determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement or applicable law.
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5.6 LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses, in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Members, on the one hand to
Buyer and Buyer, on the other hand to Members, for all claims arising under this
Agreement and the other Transaction Documents shall equal the aggregate Purchase
Price. For purposes of this Section 5.6(b), the value of Shares received shall
be (i) prior to the IPO, the per share Agreed Price (as defined in the
Stockholder Agreement) then prevailing; and (ii) after the IPO, the per share
closing price on the primary exchange or market on which the Common Stock is
traded on the date such indemnifiable Losses become payable, except that the
value of any Shares sold in bona fide third party transactions will be the gross
proceeds to the Members of such sale.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of the
Members, on the one hand, and Buyer, on the other hand, to consummate the
transactions contemplated hereby are subject to the fulfillment, at or before
the Closing Date, of the conditions set forth in this Section 6.1, any one or
more of which may be waived in writing by the party entitled to the benefit of
such condition; provided, however, that such waiver will not diminish such
party's right to indemnification pursuant to Article 5, unless so stated, and
provided further that the Members will be required to perform their obligations
hereunder, notwithstanding lack of fulfillment of the conditions set forth in
this Section 6.1, if Buyer agrees in writing to be liable for, and to indemnify
the Members from and against, any obligations that the Members would incur as a
result of consummating the transactions contemplated hereby notwithstanding the
fact that the conditions in this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions
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contemplated hereby, or which materially adversely affects the assets,
properties, operations, net income or financial condition of the Company, is in
effect; and no action or proceeding has been instituted or threatened by any
Governmental Entity, other person, or entity which seeks to prevent or delay the
consummation of the transactions contemplated by this Agreement or which
challenges the validity or enforceability of this Agreement, the result of which
could constitute a Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transactions contemplated hereby are subject to the fulfillment,
at or before the Closing Date, of the conditions set forth in this Section 6.2,
any one or more of which may be waived by Buyer in writing in its discretion;
provided however, such waiver will not waive or diminish Buyer's right to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Members contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date, and at the Closing the Company and
the Member Representative shall each have delivered to Buyer a certificate dated
the Closing Date to such effect signed by the President or any Vice President
and the Secretary or any Assistant Secretary of the Company and by the Member
Representative.
(b) Performance of the Company and the Members. The Company and the
Members shall have performed in all material respects all obligations required
to be performed by each of them under this Agreement on or before the Closing
Date, and at the Closing the Company and the Members, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Members, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Members authorizing the execution, delivery
and performance
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of this Agreement and the other Transaction Documents to be delivered by the
Company and the Members and the consummation of the transactions contemplated
hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
D, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit D-1 executed by each Member and the spouse of each
Member, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24;
(iii) A Voting Agreement substantially in the form of Exhibit E,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit E, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least One Hundred Forty Thousand
Dollars ($140,000.00) based on the assets created by the Revenues as accounted
for on the financial
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statements of FFR, and (ii) sufficient working capital to operate the Company;
and at the Closing the Company shall have delivered to Buyer a certificate dated
the Closing Date to such effect with supporting financial information, signed by
the President or any Vice President and the Secretary or any Assistant Secretary
of the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Members in
substantially the form of Exhibit F. In giving such opinion, such counsel may
rely upon certificates of public officials, upon opinions of local counsel and,
as to matters of fact, upon a certificate of the Company, or its officers, and
such counsel may assume that this Agreement has been duly authorized, executed
and delivered by Buyer.
(l) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
(m) Books. The Company shall have delivered to Buyer the record books,
ledgers, minute books, seals of the Company and documents relating to the
transfer of ownership interests in the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit G (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(o) Resignation of Managers. Buyer shall have received written
resignations of the managers of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 CONDITIONS TO OBLIGATIONS OF THE MEMBERS. The obligations of the
Members to consummate the transactions contemplated hereby are subject to the
fulfillment, at or
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before the Closing Date, of the conditions set forth in this Section 6.3, any
one or more of which may be waived by the Members in writing in their
discretion; provided however, such waiver will not waive or diminish the right
of the Members to indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Members authorizing the execution and delivery
of this Agreement and the other Transaction Documents to be delivered by Buyer
and the consummation of the transactions contemplated hereby;
(ii) A photocopy of the certificates representing the Shares
issued in the name of each Member as set forth in Schedule 1.3; and
(iii) Employment Agreements substantially in the form of Exhibit G
(with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3).
(e) Opinion of Counsel. The Members shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Members.
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(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million
and at the Closing Buyer shall have delivered to the Members a certificate to
such effect in substantially the form of Exhibit I, dated the Closing Date,
signed by the President or any Vice President and the Secretary or any Assistant
Secretary of Buyer. For these purposes, "PRE-TAX INCOME" of any particular
company means that company's projected 1998 pre-tax income, as adjusted pursuant
to agreement between Buyer and that company to reflect certain cost reductions
and modified business practices and accounting methods expected to take effect
after the closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Member.
7. MISCELLANEOUS.
7.1 TERMINATION. This Agreement and the transactions contemplated hereby
may be terminated (a) by Buyer, if (i) the Company or the Members fail to comply
in any material respect with any of its or their covenants or agreements
contained herein, or (ii) any of the representations and warranties of the
Company or the Members is breached or is inaccurate in any material way; (b) by
the Company or the Members if (i) Buyer fails to comply in any material respect
with any of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of Buyer is breached or is inaccurate in any
material way; or (c) by the Company or Buyer if (i) a Governmental Entity has
issued a non-appealable order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto have used their best efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to November 30,
1998, provided however, that if the board of directors of Buyer should, in good
faith, determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Consolidation Transactions, it may extend such
date by thirty-five (35) days. Notwithstanding the foregoing, a party may not
terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of the
covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this
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Agreement will have any liability or further obligation to any other party to
this Agreement except as provided in Sections 2.29 (Brokers), 4.2
(Confidentiality), 7.12 (Expenses), 7.13 (Arbitration), 7.14 (Submission to
Jurisdiction), and 7.15 (Attorneys' Fees), and except that termination of this
Agreement will not affect any liability of any party for any breach of this
Agreement prior to termination, or any breach at any time of the provisions
hereof surviving termination.
7.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Member: George W. Imhoff
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Leonard J. McGill, Esq.
Day, Campbell & McGill
3070 Bristol Street, Suite 450
Costa Mesa, California 92626
Telephone No.: (714) 429-2900
Facsimile No.: (714) 429-2901
7.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto, except that Buyer
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may assign its rights and obligations under this Agreement in whole or in part
to any Affiliate or Affiliates of Buyer or any successor to all or substantially
all of the business or assets of Buyer. This Agreement shall inure to the
benefit of and be binding upon Buyer and the Company and their respective
permitted successors and assigns and upon each Member and his or her executors,
administrators, heirs, legal representatives and permitted successors and
assigns. Nothing in this Agreement will confer upon any person or entity not a
party to this Agreement, or the legal representatives of such person or entity,
any rights or remedies of any nature or kind whatsoever under or by reason of
this Agreement.
7.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
7.5 COUNTERPARTS. Facsimile transmission of any signed original document
and/or retransmission of any signed facsimile transmission will be deemed the
same as delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
7.6 PUBLICITY. Prior to the Closing Date, no party may, or may it permit
its Affiliates to, issue or cause the publication of any press release or other
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer and the Company,
except that Buyer may disclose details of this Agreement to other participants
in, or as necessary to effect, the Consolidation Transactions. Notwithstanding
the foregoing, in the event any such press release or announcement is required
by law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain or will contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and therein and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments, and
understandings.
7.8 MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time prior to the
Closing Date or termination of this Agreement, any party may, (a) waive any
inaccuracies in the representations and warranties of any other party contained
in this Agreement or in any other Transaction Document; and (b) waive compliance
by any other party with any of the covenants or agreements contained in this
Agreement. No waiver of any of the provisions of this Agreement will be
considered, or will constitute, a waiver of any of the rights of remedies, at
law or equity, of the party entitled to the benefit of such provisions unless
made in writing and executed by the party entitled to the benefit of such
provision.
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7.9 HEADINGS; REFERENCES. The headings contained in this Agreement and
the other Transaction Documents are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. References
herein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof unless otherwise specified.
7.10 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11 INVESTIGATION. All representations and warranties contained herein
which are made to the knowledge of a party shall require that such party make
reasonable investigation and inquiry with respect thereto to ascertain the
correctness and validity thereof. Representations and warranties made to the
knowledge of the Company shall be deemed made to the knowledge of the Members
only and no other person.
7.12 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
Buyer, in connection with the transactions contemplated by this Agreement shall
be borne by Buyer, and all fees, costs and expenses incurred by the Company or
the Members in connection with the transactions contemplated by this Agreement
shall be borne by the Members jointly and severally.
7.13 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Member by Buyer or any Affiliate of Buyer, the provisions of
this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Member and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section
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7.13(f), exceed Five Hundred Thousand Dollars ($500,000) (the "ARBITRATION
THRESHOLD"), exclusive of interest and attorneys' fees, the dispute shall be
heard and determined by three (3) arbitrators as provided herein (such
arbitrator or arbitrators are hereinafter referred to as the "ARBITRATOR"). The
judgment of the award rendered by the Arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
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eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any, shall be tried and litigated exclusively in
the state or federal courts located in the County of Orange, State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this paragraph. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its
52
<PAGE> 58
address for the giving of notices as set forth in Section 7.2. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
7.15 ATTORNEYS' FEES. If Buyer or any of its Affiliates, successors or
assigns brings any action, suit, counterclaim, cross-claim, appeal, arbitration,
or mediation for any relief against the Company or any of its Affiliates,
successors or assigns or any Member, or if the Company or any of its Affiliates,
successors or assigns or any Member brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against Buyer or
any of its Affiliates, successors or assigns, declaratory or otherwise, to
enforce the terms hereof or to declare rights hereunder (collectively, an
"ACTION"), in addition to any damages and costs which the prevailing party
otherwise would be entitled, the non-prevailing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16 ENFORCEMENT OF THE AGREEMENT. The Company, the Members and Buyer
acknowledge that irreparable damage would occur if any of the obligations of the
Company and the Members under this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Buyer will be entitled to
an injunction or injunctions to prevent breaches of this Agreement by the
Company or the Members and to enforce specifically the terms and provisions
hereto, this being in addition to any other remedy to which Buyer is entitled at
law or in equity.
53
<PAGE> 59
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ MARK C. COLEMAN
-------------------------------------------
Name: Mark C. Coleman
--------------------------------------
Title: SVP
-------------------------------------
BENEFIT FUNDING SERVICES GROUP, LLC
By: /s/ G. LIVINGSTON
-------------------------------------------
Name: G. Livingston
--------------------------------------
Title: President
-------------------------------------
MEMBERS
/s/ TIMOTHY O'BRIEN
-------------------------------------------
Timothy O'Brien
/s/ KEVIN BRODERICK
-------------------------------------------
Kevin Broderick
401K Benefit Funding Services, LLC
By: /s/ JOHN CAMPBELL
-------------------------------------------
Name: John Campbell
--------------------------------------
Title: Member
-------------------------------------
1758 Primary Properties LP
By: /s/ ERIK WELLS
-------------------------------------------
Name: Erik Wells
--------------------------------------
Title: Manager
-------------------------------------
Champagne, LLC
By: /s/ GEORGE IMHOFF
-------------------------------------------
Name: George Imhoff
--------------------------------------
Title: President
-------------------------------------
54
<PAGE> 60
MEMBER REPRESENTATIVE
/s/ GEORGE W. IMHOFF
-------------------------------------------
GEORGE W. IMHOFF
55
<PAGE> 61
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Two Hundred and Nine Thousand, Three Hundred
Ninety Dollars ($209,390.00) (the "CASH PAYMENT").
(ii) An aggregate of 187,270 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer
pending release pursuant to Section 1.4.
(b) Consideration per Member.
<TABLE>
<CAPTION>
Seller Interests Common
Name of Owned and to Cash Stock
Member be sold to Buyer Consideration Consideration
--------------- ---------------- ------------- -------------
<S> <C> <C> <C>
TIMOTHY O'BRIEN 16.244% $40,610.00 36,320
401K BENEFIT FUNDING
SERVICES, LLC 32.488% $81,220.00 72,640
1758 PRIMARY PROPERTIES, LP 16.244% $40,610.00 36,320
CHAMPAGNE, LLC 16.244% $40,610.00 36,320
KEVIN BRODERICK 2.536% $ 6,340.00 5,670
</TABLE>
<PAGE> 1
EXHIBIT 10.35
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
NATIONAL REVMAX CONSULTANTS, L.L.C.
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
DECEMBER 7, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale and Purchase........................................................................ 1
1.1 Agreements to Sell and Purchase.............................................. 1
1.2 Closing...................................................................... 1
1.3 Purchase Price............................................................... 2
1.4 Certificates for Shares...................................................... 2
2. Representations and Warranties of the Company and the Members............................ 2
2.1 Organization and Good Standing............................................... 2
2.2 Ownership of Seller Interests................................................ 3
2.3 Authorization of Agreement................................................... 3
2.4 Title to Assets.............................................................. 4
2.5 Financial Condition.......................................................... 4
2.6 Certain Property of the Company.............................................. 5
2.7 Year 2000 Compliance......................................................... 7
2.8 No Conflict or Violation..................................................... 8
2.9 Reserved..................................................................... 8
2.10 Labor and Employment Matters................................................. 8
2.11 Employee Plans............................................................... 9
2.12 Litigation................................................................... 11
2.13 Certain Agreements........................................................... 11
2.14 Compliance with Applicable Law............................................... 13
2.15 Licenses..................................................................... 13
2.16 Accounts Receivable.......................................................... 14
2.17 Intercompany and Affiliate Transactions; Insider Interests................... 14
2.18 Insurance.................................................................... 14
2.19 Reserved..................................................................... 15
2.20 No Undisclosed Liabilities................................................... 15
2.21 Taxes........................................................................ 15
2.22 Indebtedness................................................................. 17
2.23 Environmental Matters........................................................ 18
2.24 Securities Matters........................................................... 19
2.25 Buyer and the Consolidation Transactions..................................... 20
2.26 Minute Books and Records..................................................... 21
2.27 Reserved..................................................................... 21
2.28 Powers of Attorneys and Suretyships.......................................... 21
2.29 Brokers...................................................................... 21
2.30 Each Member acknowledges receipt and understanding of the Summary of
Certain Considerations attached hereto as Exhibit D.......................... 21
2.31 Accuracy of Information...................................................... 21
3. Representations and Warranties of Buyer.................................................. 22
3.1 Organization and Corporate Authority......................................... 22
3.2 No Conflict or Violation..................................................... 22
3.3 Capitalization............................................................... 22
3.4 Notes........................................................................ 23
3.5 Litigation................................................................... 23
3.6 No Undisclosed Debt.......................................................... 23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.7 Accuracy of Information...................................................... 23
4. Certain Understandings and Agreements of the Parties..................................... 23
4.1 Access....................................................................... 23
4.2 Confidentiality.............................................................. 24
4.3 Certain Changes and Conduct of Business...................................... 25
4.4 Restrictive Covenants........................................................ 27
4.5 Securities Restrictions...................................................... 30
4.6 Registration................................................................. 30
4.7 Cooperation in Litigation.................................................... 32
4.8 Tax Matters.................................................................. 32
4.9 Consolidation Transactions................................................... 35
4.10 Supplemental Disclosure...................................................... 35
4.11 HSR.......................................................................... 36
4.12 Competing Proposals.......................................................... 36
4.13 Bonus Plan................................................................... 36
4.14 Best Efforts................................................................. 37
4.15 Further Assurances........................................................... 37
4.16 Notice of Breach............................................................. 37
5. Survival; Indemnification................................................................ 37
5.1 Survival..................................................................... 37
5.2 Indemnification by the Members............................................... 38
5.3 Indemnification by Buyer..................................................... 38
5.4 Indemnification Procedure.................................................... 38
5.5 Payment...................................................................... 40
5.6 Limitations.................................................................. 40
6. Conditions to Closing.................................................................... 41
6.1 Conditions to Obligations of Each Party...................................... 41
6.2 Conditions to Obligations of Buyer........................................... 41
6.3 Conditions to Obligations of the Members..................................... 44
7. Miscellaneous............................................................................ 45
7.1 Termination.................................................................. 46
7.2 Notices...................................................................... 46
7.3 Assignability and Parties in Interest........................................ 47
7.4 Governing Law................................................................ 47
7.5 Counterparts................................................................. 48
7.6 Publicity.................................................................... 48
7.7 Complete Agreement........................................................... 48
7.8 Modifications, Amendments and Waivers........................................ 48
7.9 Headings; References......................................................... 48
7.10 Severability................................................................. 49
7.11 Investigation................................................................ 49
7.12 Expenses of Transactions..................................................... 49
7.13 Arbitration.................................................................. 49
7.14 Submission to Jurisdiction................................................... 51
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.15 Attorneys' Fees.............................................................. 52
7.16 Enforcement of the Agreement................................................. 52
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
A. Form of Assignment and Assumption Agreement
B. Form of Accredited Investor Questionnaire
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Summary of Certain Considerations
E. Form of Voting Agreement
F. Form of Subordination Agreement
G. Opinion of Counsel to the Company and the Members
H. Form of Employment Agreements
I. Opinion of Counsel to the Buyer
J. Form of Notes
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Leases of Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.17 Intercompany and Affiliate Transactions
2.18 Insurance
2.21(b) Tax Returns
2.21(i) 351 Information
2.22 Indebtedness
2.29 Brokers
3.5 Litigation
3.6 Liabilities
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
</TABLE>
iv
<PAGE> 6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of December 7, 1998 by and among National Revmax Consultants,
L.L.C., a Delaware limited liability company (the "COMPANY"), the members of the
Company listed on the signature page(s) hereof (each such individual a "MEMBER,"
and collectively, the "MEMBERS") and ProfitSource Corporation, a Delaware
corporation ("BUYER").
A. The Company is engaged in the business of cost recovery and
reduction (the "BUSINESS").
B. The Members own all of the ownership interests in the Company
(the "SELLER INTERESTS").
C. The Members desire to sell to Buyer, and Buyer desires to
purchase from the Members all of the Seller Interests on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) each Member shall sell to
Buyer, and Buyer shall purchase from each Member, the number of Seller Interests
set forth opposite such Member's name on Schedule 1.3, for the purchase price
set forth in Section 1.3.
1.2 Closing.
The closing of the sale and purchase of the Seller Interests (the "CLOSING")
will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza,
Irvine, California, on a date to be selected by Buyer after all the conditions
set forth in Article 6 have either been satisfied or, in the case of conditions
not satisfied, waived in writing by the party entitled to the benefit of such
conditions (the "CLOSING DATE"). At least five (5) days prior to the Closing
Date, Buyer shall provide written notice (the "CLOSING NOTICE") to the Company
and the Members informing the Company and the Members of the date selected as
the Closing Date. At the Closing, the Members shall deliver to Buyer or its
designees an Assignment and Assumption Agreement in the form of Exhibit A,
transferring the Seller Interests being sold by the Members and each other
instrument of transfer Buyer may reasonably request to vest effectively in Buyer
good and valid title to the Seller Interests, free and clear of any liens,
<PAGE> 7
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any person or entity, together with any taxes, direct or indirect,
attributable to such transfer of the Seller Interests, and Buyer shall thereupon
pay to each Member the Purchase Price described in part (b) of Section 1.3 for
such Member's Seller Interests.
1.3 Purchase Price.
The consideration to be paid by Buyer for the Seller Interests (the
"PURCHASE PRICE"), both in the aggregate and to each Member for such Member's
Seller Interests, is described in Schedule 1.3.
1.4 Certificates for Shares.
In order to facilitate replacement of certificates for the shares of
Series A Common Stock of Buyer constituting part of the Purchase Price (the
"SHARES") upon an IPO (as defined herein) with the transfer agent's form of
certificate, and to facilitate enforcement of the Stockholder Agreement (as
defined herein), Buyer will keep custody of the certificates representing the
Shares until the IPO and until the Shares are no longer subject to the
Stockholder Agreement, and recipients of Shares will execute and deliver blank
stock powers as described in Section 6.2(d)(i). This custody arrangement will
not affect the rights as a stockholder of any permitted recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Article 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. The Company and the
Members, jointly and severally, represent and warrant to Buyer that:
2.1 Organization and Good Standing.
The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to carry on the Business as it is now and has
since its organization been conducted and as proposed to be conducted, and to
own, lease or operate its assets and properties. The Company is duly qualified
to do business and is in good standing in every jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where failure to be
so qualified would not have a material adverse effect on the Business or its
prospects or the Company's assets or financial condition (a "MATERIAL ADVERSE
EFFECT"). Schedule 2.1 lists all of the jurisdictions in which the Company is
qualified to do business. Complete and accurate copies of the articles of
organization and operating agreement of the Company, with all amendments thereto
to the date hereof, have been furnished to Buyer or its representatives.
2
<PAGE> 8
2.2 Ownership of Seller Interests.
(a) The Seller Interests constitute all of the ownership interests of
the Company ("INTERESTS") and are validly issued and fully paid. The Seller
Interests, together with the Interests held by CENV, constitute all of the
ownership Interests. The Seller Interests owned by each Member are set forth in
part (b) of Schedule 1.3. Neither the Members nor the Company has granted,
issued or agreed to grant or issue any other equity interests in the Company and
there are no outstanding options, warrants, rights to acquire ownership
interests in the Company, subscription rights, securities that are convertible
into or exchangeable for, or any other commitments of any character relating to,
any equity interests of the Company.
(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests of the Company prior to the date
hereof were exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and were registered or qualified under
or exempt from all applicable state securities laws.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 Authorization of Agreement.
The Company and the Members have all requisite power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and all other agreements and instruments to be executed by the parties
hereto in connection herewith (together with all other documents to be delivered
in connection herewith or therewith, collectively the "TRANSACTION DOCUMENTS")
have (except for Transaction Documents to be executed and delivered solely by
Buyer) been duly and validly approved by the Members of the Company and no other
proceedings on the part of the Company or the Members are necessary to approve
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be delivered by the Company or
any Member have been (or upon execution will have been) duly executed and
delivered by the Company and each Member, have been effectively authorized by
all
3
<PAGE> 9
necessary action, and constitute (or upon execution will constitute) legal,
valid and binding obligations of the Company and each Member, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4 Title to Assets.
The Company is the lawful owner of each of its assets, whether real,
personal, mixed, tangible or intangible. All of the Company's assets are
sufficient and adequate to conduct the Business as presently conducted; and are
free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of any kind except any
of the following: (i) purchase money security interests in specific items of
equipment each having a value not in excess of $______; (ii) Personal Property
leased pursuant to Personal Property Leases; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Buyer; (v) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vi) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or any Member to
transfer any of the assets of the Company or rights or interests therein to any
party.
2.5 Financial Condition.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of September 30, 1998 and the related statements of income and
cash flow for the fiscal years then ended of the Company ("FINANCIAL
STATEMENTS"). The Financial Statements (i) were prepared in accordance with the
books and records of the Company; (ii) were prepared in accordance with
generally accepted accounting principles applicable to partnerships ("GAAP") and
were consistently applied; (iii) fairly present the financial condition and the
results of the operations of the Company as at the relevant dates thereof and
for the periods covered thereby; (iv) to the extent required by GAAP, contain
and reflect all necessary adjustments and accruals for a fair presentation of
the financial condition and the results of the operations of the Company for the
periods covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, contingent or otherwise, with respect to the period then ended and
all prior periods; and (vi) do not contain any items of a special or
nonrecurring nature, except as expressly stated therein. There have been no
changes or modifications of revenue
4
<PAGE> 10
recognition, cost allocation practices or method of, accounting or other
financial or operational practices or principles except for any such change
required by reason of a concurrent change in GAAP during the periods covered by
the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3. For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
2.6 Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or any Member each Real Property Lease is a
valid and binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor any Member
has any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and no event has
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company.
(iii) To the knowledge of the Company or any Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement,
5
<PAGE> 11
a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY LEASES").
Schedule 2.6(b) provides a description and the location of each item of Personal
Property of the Company, accurately identifies such Personal Property as owned
or leased, and lists each Personal Property Lease. The Company is not in
material breach of or default, and no event has occurred which, with due notice
or lapse of time or both, may constitute such a material breach or default,
under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names and other names and
slogans embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to sue and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof; (vi) customer lists; (vii) books and records describing or
used in connection with any of the foregoing; and (viii) claims or causes of
action arising out of or related to infringement or misappropriation of any of
the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the historical and anticipated uses of the Proprietary Rights in connection with
the conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court,
6
<PAGE> 12
arbitrator, federal, state, local or foreign government agency, regulatory body,
or other governmental authority (each a "Governmental Entity," and collectively
"Governmental Entities") with authority to bind the Company. There have not been
any actions or other judicial or adversary proceedings involving the Company
concerning any of the Proprietary Rights, nor to the knowledge of the Company or
any Member, is any such action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Member, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "Trade Secrets"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
Year 2000 Compliance.
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by the Company and material to the Business are Year 2000 Compliant. For
purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
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(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 No Conflict or Violation.
The execution, delivery and performance by the Company and the Members
of this Agreement and the other Transaction Documents to be delivered by the
Company or any Member and the consummation of the transactions contemplated
hereby and thereby do not and will not: (i) violate or conflict with any
provision of the charter documents or bylaws of the Company; (ii) violate in any
material respect any provision or requirement of any domestic or foreign,
national, state, or local law, statute, judgment, order, writ, injunction,
decree, award, rule, or regulation of any Governmental Entity applicable to the
Company or the Business; (iii) violate in any material respect, result in a
material breach of, constitute (with due notice or lapse of time or both) a
material default or cause any material obligation, penalty, premium or right of
termination to arise or accrue under any Contract (as hereinafter defined); (iv)
result in the creation or imposition of any material lien, charge or encumbrance
of any kind whatsoever upon any of the properties or assets of the Company; or
(v) result in the cancellation, modification, revocation or suspension of any
material license, permit, certificate, franchise, authorization or approval
issued or granted by any Governmental Entity (each a "LICENSE," and
collectively, the "LICENSES").
2.9
[Reserved.]
2.10 Labor and Employment Matters.
Schedule 2.10 lists all employees of the Company, including date of
retention, current title and compensation. There is no employment agreement,
collective bargaining agreement or other labor agreement to which the Company is
a party or by which it is bound. The Company has complied in all material
respects with all applicable laws, rules and regulations relating to the
employment of labor, including those related to wages, hours, collective
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<PAGE> 14
bargaining and the payment and withholding of taxes and other sums as required
by appropriate Governmental Entities and has withheld and paid to the
appropriate Governmental Entities or is holding for payment not yet due to such
Governmental Entities, all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing. There is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any state or local agency; pending labor strike or other
material labor trouble affecting the Company; material labor grievance pending
against the Company; pending representation question respecting the employees of
the Company; pending arbitration proceedings arising out of or under any
collective bargaining agreement to which the Company is a party. For purposes of
this Agreement, "EMPLOYEES" includes employees, independent contractors and
other persons filling similar functions.
2.11 Employee Plans.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, option, security purchase,
benefit, welfare, profit-sharing, deferred compensation, retainer, consulting,
retirement, welfare, disability, vacation, severance, hospitalization,
insurance, incentive, deferred compensation and other similar fringe or employee
benefit plans, funds, programs or arrangements, whether written or oral, in each
of the foregoing cases which cover, are maintained for the benefit of, or relate
to any or all current or former employees, members, officers or directors of the
Company, and any other entity ("ERISA AFFILIATE") related to the Company under
Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such Employee Plans. With respect to each Employee Plan, the
Company has made available to Buyer, to the extent applicable, true and complete
copies of (i) all plan documents, (ii) the most recent determination letter
received from the Internal Revenue Service (the "IRS"), (iii) the most recent
application for determination filed with the IRS, (iv) the latest actuarial
valuations, (v) the latest financial statements, (vi) the three (3) most recent
Form 5500 Annual Reports,
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including Schedule A and Schedule B thereto, (vii) all related trust agreements,
insurance contracts or other funding arrangements which implement any of such
Employee Plans, (viii) all Summary Plan Descriptions and summaries of material
modifications and all modifications thereto communicated to employees, and (ix)
in the case of stock options or stock appreciation rights issued under any
Employee Plan, a list of holders, dates of grant, number of shares, exercise
price per share and dates exercisable. Neither the Company nor any ERISA
Affiliate of the Company has any liability or contingent liability with respect
to the Employee Plans, nor will any of the Company's assets be subject to any
lien, charge or claim relating to the obligations of the Company with respect to
employees or Employee Plans. No party to any Employee Plan is in default with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in compliance with the requirements provided by any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code. Each of the Company and its ERISA
Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which
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<PAGE> 16
is an accurate description of the terms of such plans or policies. The Company
has no affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
Neither the Company nor any of its ERISA Affiliates has incurred any liability
under the Worker Adjustment Retraining and Notification Act or any similar state
law relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12 Litigation.
There are no claims, actions, suits, proceedings, labor disputes or
investigations of any nature pending or, to the knowledge of the Company or any
Member, threatened by or against the Members, the Company, the officers,
directors, employees, agents of the Company, or any of their respective
Affiliates involving, affecting or relating to the Business or any assets,
properties or operations of the Company or the transactions contemplated by this
Agreement. Neither the Company nor any of the Company's assets is subject to any
order, writ, judgment, award, injunction or decree of any Governmental Entity.
For purposes of this Agreement, "AFFILIATE" shall have the meaning ascribed to
such term in Rule 405 under the Securities Act.
2.13 Certain Agreements.
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(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all written, or oral, (i) contracts, agreements
and commitments not made in the ordinary course of business, (ii) agency and
brokerage agreements, (iii) service and other customer contracts, (iv)
contracts, loan agreements, letters of credit, repurchase agreements, mortgages,
security agreements, guarantees, pledge agreements, trust indentures, promissory
notes and other documents or arrangements relating to the borrowing of money or
for lines of credit, (v) tax sharing agreements, real property leases or any
subleases relating thereto, personal property leases, any material agreement
relating to Proprietary Rights (including service agreements relating thereto)
and insurance contracts, (vi) agreements and other arrangements for the sale of
any assets, property or rights other than in the ordinary course of business or
for the grant of any options or preferential rights to purchase any assets,
property or rights, (vii) documents granting any power of attorney with respect
to the affairs of the Company, (viii) suretyship contracts, performance bonds,
working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
agreements relating to the issuance of any securities of the Company or the
granting of any registration rights with respect thereto, and (xii) all
amendments, modifications, extensions or renewals of any of the foregoing (each
a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or any Member since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
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(f) To the knowledge of the Company or any Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 Compliance with Applicable Law.
The operations of the Company are, and have been, conducted in all
material respects in accordance with all applicable laws, regulations, orders
and other requirements of all Governmental Entities having jurisdiction over it
and its assets, properties and operations, including, without limitation, all
such laws, regulations, orders and requirements relating to the Business except
in any case where the failure to so conduct its operations would not have a
Material Adverse Effect. The Company has not received any notice of any material
violation of any such law, regulation, order or other legal requirement, and is
not in material default with respect to any order, writ, judgment, award,
injunction or decree of any Governmental Entity, applicable to the Company or
any of its assets, properties or operations. To the knowledge of the Company or
any Member, there are no proposed changes in any such laws, rules or regulations
(other than laws of general applicability) that would adversely affect the
transactions contemplated by this Agreement or reasonably be expected to have a
Material Adverse Effect.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Members of this Agreement and the other Transaction Documents. The Licenses are
sufficient and adequate in all material respects to permit the continued lawful
conduct of the Business in the manner now conducted and the ownership, occupancy
and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested that it qualify or become licensed as a foreign corporation. The
Company has delivered to Buyer or its representatives true and complete copies
of all the material Licenses together with all amendments and modifications
thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
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2.16 Accounts Receivable.
Accounts receivable of the Company (the "ACCOUNTS RECEIVABLE") as of the
date hereof are reflected in Schedule 2.5. Schedule 2.5 will be updated at the
Closing Date to reflect all Accounts Receivable as of the Closing Date,
including their aging. All Accounts Receivable as of the date hereof represent,
and all Accounts Receivable as of the Closing Date will represent, valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business that are current and collectible in amounts not
less than the aggregate amount thereof (net of reserves established in
accordance with GAAP applied consistently with prior practice) carried (or to be
carried) on the books of the Company and reflected in the Financial Statements,
and are not and will not be subject to any valid counterclaims or set-offs,
disputes or contingencies.
2.17 Intercompany and Affiliate Transactions; Insider Interests.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, Member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
(b) Except as set forth on Schedule 2.17, no officer, director or Member
of the Company, or any Affiliate of any such person, now has, or within the last
three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18 Insurance.
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Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company at any time during the three (3) years prior to the
date of this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity that require or recommend any changes in the conduct of the
Business, or any repairs or other work to be done on or with respect to any of
the properties or assets of the Company. The Company has not received any notice
or other communication from any such insurance company within the three (3)
years preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of the Company or any Member, no such
cancellation, amendment or increase of premiums is threatened.
2.19
[Reserved.]
2.20 No Undisclosed Liabilities.
Except as and to the extent specifically reflected or reserved against
in the Interim Financial Statements and except as incurred in the ordinary
course of business since the date of the Interim Financial Statements, the
Company has no material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due
(including, without limitation, any liability for taxes and interest, penalties
and other charges payable with respect to any such liability or obligation) and
no facts or circumstances exist which, with notice or the passage of time or
both, could reasonably be expected to result in any material claims against or
obligations or liabilities of the Company.
2.21 Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the Company
for or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any
Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on the Closing Date.
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(iv) "TAX" OR "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to be
filed with respect to Taxes including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not reflected on such
Tax Returns). All such previously-filed Tax Returns were complete and accurate
in all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which the Company has received a
written and/or oral notice from a Tax authority that such Tax authority intends
to commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which the Company has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. The Company has either delivered to Buyer or
made available for inspection by Buyer or its representatives or agents complete
and correct copies of all Tax audit reports and statements of Tax deficiencies
with respect to any delinquent Tax assessed against or agreed to by the Company
for all taxable periods commencing on or after January 1, 1993, for which audit
reports or statements of deficiencies have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Interim Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (excluding book reserves for deferred Taxes established to reflect
timing differences between book and Tax income ) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
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(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for federal and state income tax purposes, and neither the Company
nor any Member has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(l) Section 351. The transfer of the Seller Interests by the Members to
Buyer pursuant to this Agreement is intended to qualify (i) as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of applicable state income tax law, and (ii) under
Code Section 351 as part of a transfer by the Members and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's business) in the Company (including, without limitation,
any indebtedness for borrowed money, whether
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or not evidenced by a note or other written instrument) and a description of
each such debt interest.
2.23 Environmental Matters.
Notwithstanding anything to the contrary contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under the common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in violation of any
Environmental Laws such that the Company could be subject to material liability
under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
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(g) There are no pending or, to the knowledge of the Company or any
Member, threatened administrative, judicial or regulatory proceedings, or, to
the knowledge of the Company or any Member, any threatened actions or claims, or
any consent decrees or other agreements in effect that relate to environmental
conditions in, on, under, about or related to the Company, its operations or the
real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24 Securities Matters.
(a) The Members understand that (i) neither the Shares nor any notes
issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Members' representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members have had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the offering of
the Securities and the business, properties, plans, prospects, and financial
condition of Buyer and to obtain additional information as the Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members have adequate means of providing
for
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current needs and personal contingencies, and have no need for liquidity and can
sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Members' own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) The Members understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Each Member is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has each documented his or her accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit B hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
any Member aware of any such solicitation or advertising.
2.25 Buyer and the Consolidation Transactions.
(a) The Members are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.9) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Member would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
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(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents concerning the potential value or the Shares issued as
part of the Purchase Price or the prospects of Buyer, except as set forth
herein.
2.26 Minute Books and Records.
The Company has made available to Buyer true, complete and correct
copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its Members;
and
(b) all record books of the Company setting forth all transfers of
interests in the Company.
2.27
[Reserved.]
2.28 Powers of Attorneys and Suretyships.
The Company does not have any general or special powers of attorney
outstanding (whether as grantor or grantee thereof) or any obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person or entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.29 Brokers.
Except as set forth on Schedule 2.29, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company or any of the
Members.
2.30 EACH MEMBER ACKNOWLEDGES RECEIPT AND UNDERSTANDING OF THE SUMMARY
OF CERTAIN CONSIDERATIONS ATTACHED HERETO AS EXHIBIT D.
2.31 Accuracy of Information.
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None of the representations or warranties or information provided and to
be provided by the Company or any Member to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to the Members that:
3.1 Organization and Corporate Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
No Conflict or Violation.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby, do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 Capitalization.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
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3.4 Notes.
Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
3.5 Litigation.
Except as set forth on Schedule 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or
proceedings, including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.6 No Undisclosed Debt.
Since its date of incorporation, Buyer has had no operations except in
connection with effecting the Consolidation Transactions and preparing for
operation of its business after the Closing. Buyer has no material tangible
assets, and except as set forth on Schedule 3.6, Buyer has no material
liabilities or obligations for borrowed money or payment for services rendered
to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.7 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by Buyer to the Members in this Agreement, the schedules or exhibits
hereto, or in any of the other Transaction Documents delivered by Buyer contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements and facts
contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
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The Company shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of the Company (including,
without limitation, the Company's accounting records, the workpapers of the
Company's independent accountants, and all environmental studies, reports and
other environmental records) and, during such period, shall furnish promptly to
Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2 Confidentiality.
For purposes hereof, the Company and the Members will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including,
without limitation, Deloitte & Touche, LLP, confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Buyer will
keep the matters contemplated herein and all information provided by the Company
and the Members related to the Company and the Business confidential, and will
not provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and the Company shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby. The Company
and the Members acknowledge that Buyer may provide information about the Company
and the Business to other participants in the Consolidation Transactions to the
extent necessary to facilitate the Consolidation Transactions. If this Agreement
terminates without consummation of the Closing, the Company, the Members and
Buyer shall, and shall cause their Affiliates to, each maintain the
confidentiality of any information obtained from the other in connection with
the transactions contemplated hereby, the Consolidation Transactions, and
Buyer's business plans (the "INFORMATION"), other than Information that (i) was
in the public domain before the date of this Agreement or subsequently came into
the public domain other than as a result of disclosure by the party to whom the
Information was delivered; or (ii) was lawfully received by a party from a third
party free of any obligation of confidence of or to such third party; or (iii)
was already in the possession of the party prior to receipt thereof, directly or
indirectly, from the other party; or (iv) is required to be disclosed in a
judicial or administrative proceeding after giving the other party as much
advance notice of the possibility of such disclosure as practicable so that the
other party may attempt to stop such disclosure; or (v) is subsequently and
independently developed by employees of the party to whom the Information was
delivered without reference to the Information. If this Agreement terminates
without consummation of the Closing, Buyer, on the one hand, and the Members and
the Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such
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material from all other parties with whom it has been shared, and shall
thereafter refrain from using the Information and shall maintain its
confidentiality pursuant to this Agreement.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Members
shall cause the Company to, conduct the Company's business solely in the
ordinary course consistent with past practices. Without limiting the generality
of the preceding sentence, except as required or permitted pursuant to the terms
hereof, the Company shall not, and the Members shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts described in Schedule
4.3(a)(i), in any case calling for payments to or by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests, or make any change in other ownership interests or
in the capitalization, whether by reason of a reclassification,
recapitalization, exchange, distribution or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
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(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to
equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Member herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Members shall cause
it to:
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(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all Environmental Laws, and upon receipt of
notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing;
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof; and
(viii) preserve its business organization.
4.4 Restrictive Covenants.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement and the other Transaction Documents and that
but for the agreement of each Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights and that irreparable harm and damage will be done to Buyer if
any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
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(i) either on its, his, hers or their own account or for any
other person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or whom the Company was engaged
in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"), to
modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to make any such
statement or to perform any such act; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited, with respect to any
Member, to any county or any other political subdivision of any state of the
United States of America, or of any other country in the world, where such
Member generated revenue or established goodwill at any time during the two (2)
year period preceding the Closing Date. This Covenant Not to Compete shall bind
the Members until the fifth anniversary of the Closing Date, provided, however,
that if the employment of any Member is terminated by Buyer without Cause or by
such Member for Good Reason (each as defined in such Member's Employment
Agreement delivered pursuant to Section 6.3(c)(iv), and if an IPO of Buyer's
securities has not been consummated by December 31, 1999, then from and after
the later of January 1, 2000 or termination of such Member's employment, such
Member will no longer be subject to the covenant contained in Section
4.4(a)(ii). The parties hereto agree that the duration and area for which the
Covenant Not to Compete set forth in this Section 4.4(a) is to be effective are
reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Member shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
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(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the Members
become aware as the result of their affiliation with the Business or their
relationship with Buyer or its Affiliates and which relate specifically to the
Business, or any part thereof. This Section 4.4(c) is in addition to and not by
way of limitation of any other duties the Members may have to Buyer or its
Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, hire away, or cause any other
person to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by Seller before the
Closing Date), or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their employment or
engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Members in light of the activities and business of
the Company and future plans of Buyer. The Members acknowledge that if they
violate any of the covenants contained in this Section 4.4 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, (i)
Buyer shall be entitled to temporary injunctive relief without being required to
post a bond and permanent injunctive relief without the necessity of proving
actual damages, and (ii) Buyer shall have the right to offset any payment
obligations to the Members, to the extent of any money damages incurred or
suffered by Buyer. The Members shall be liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants, whether or not
litigation is actually commenced and including litigation of any appeal defended
by Buyer where such party succeeds in enforcing any of the Restrictive
Covenants. Buyer may elect to seek one or more remedies at its discretion on a
case by case basis. Failure to seek any or all remedies in one case shall not
restrict Buyer from seeking any remedies in another situation. Such action by
Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and
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every country outside the United States of America where the Covenant Not to
Compete is intended to be effective.
4.5 Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
4.6 Registration.
(a) No Member will have any rights to demand registration of any of the
Shares, or to participate in any registration undertaken by Buyer except as set
forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission for an IPO of its equity securities or any
subsequent public offering within twenty-four (24)
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months of the closing of the IPO (not including a registration statement filed
in connection with an acquisition or employee benefit plan), and if the managing
underwriter of such offering believes that the market will accommodate selling
stockholders in the offering, then the Members in the aggregate shall have the
right to include in such registration statement and offering up to that number
of Shares and other Common Stock not subject to any performance-related
restrictions listed on Schedule 4.6. Other stockholders (including but not
limited to stockholders who acquired Common Stock in the Consolidation
Transactions and stockholders who acquired Common Stock in connection with the
formation, or work on behalf of, Buyer) will have rights to include shares of
Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in the
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock they originally sought to include. In general, in such
offerings, no Selling Stockholder will be permitted to include in the aggregate
more than half of the shares of Common Stock held by such Selling Member, or any
shares subject to performance-related restrictions.
(b) If any Member acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Member from and against any claims, costs and liabilities incurred by such
Member as a result of any untrue, or alleged untrue, statement of a material
fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by a Member or underwriter expressly
for use therein.
(c) Shares of Common Stock may only be included pursuant to the
underwriting agreement negotiated between Buyer and the underwriters, and
Selling Stockholders must enter into the underwriting agreement with respect to
any shares held by them to be included in the offering. Each Selling Stockholder
shall pay (i) all underwriting discounts and commissions applicable to such
Selling Stockholder's sale of shares of Common Stock, (ii) such Selling
Stockholder's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
Selling Stockholders (or affiliated stockholder groups) selling the most shares
of Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all
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conditions applicable to a registrant as are necessary to enable selling
security holders of Buyer to make sales pursuant to Rule 144 under the
Securities Act.
4.7 Cooperation in Litigation.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and the Company or any Member and/or their Affiliates or assignees, on the
other, arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payments by each party of its costs and
payments or attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8 Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of the Company's business activities on the Closing Date, and, in the case
of Pre-Acquisition Taxable Periods ending on the Closing Date, all of the
Company's income, gains and other Tax items attributable to the Closing Date
shall be included and reported by the Company in Tax Returns (including federal
Form 1065 and any similar state return) of the Company for such Pre-Acquisition
Taxable Periods to be filed following the Closing and all Taxes attributable to
the Company's income, gains or other taxable items for the Closing Date shall be
reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in
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the Straddle Period; and provided further, if as of the Closing Date the Company
is a partner in any partnership which has a Tax year that does not end as of the
Closing Date, any tax liability attributable to such partnership's activities
shall be allocated between the Pre-Closing Period and the Post-Closing Period in
the same manner based upon the number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax Returns
required to be filed by the Company for Pre-Acquisition Taxable Periods which
are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Members shall be responsible for and shall pay (A) all reasonable
costs and expenses related to the preparation and filing of the Company's Tax
Returns for Pre-Acquisition Taxable Periods described in Section 4.8(c)(i), and
(B) all Taxes shown or reported to be due and payable on such Tax Returns. Each
Member shall pay his or her proportionate share of such costs, expenses and Tax
Liabilities of the Company promptly following receipt by such Member of a notice
from Buyer of Buyer's calculation of such Member's payment obligation hereunder
together with copies of the relevant Tax Returns and other information
supporting Buyer's calculation. If a Member disputes all or any portion of the
payment obligation hereunder as calculated by Buyer, such Member shall
nevertheless promptly pay to Buyer the amount specified in the notice and any
dispute related thereto shall be resolved pursuant to the arbitration provisions
of Section 7.13. Any additional Taxes attributable to the periods covered by
such Tax Returns, whether pursuant to an amended return or any Tax Proceeding,
shall be paid by Members promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be required,
with respect to certain Taxes for Straddle Periods, to file a full year return
(herein a "STRADDLE PERIOD RETURN") reporting and accounting for such Taxes on
an aggregate basis covering both the Pre-Closing Period and the Post-Closing
Period. The Buyer, at its expense, shall cause the Company to prepare and file
such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns.
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Each Member shall pay his or her proportionate share of Pre-Closing Taxes
promptly following receipt by such Member of a notice from Buyer of Buyer's
calculation of such Member's payment obligation hereunder together with copies
of the relevant Tax Returns and other information supporting Buyer's
calculation. If a Member disputes all or any portion of the payment obligation
hereunder as calculated by Buyer, such Member shall nevertheless promptly pay to
Buyer the amount specified in the notice and any dispute related thereto shall
be resolved pursuant to the arbitration provisions of Section 7.13. Any
additional Taxes attributable to the Pre-Closing Periods covered by such Tax
Returns, whether pursuant to an amended return or any Tax Proceeding, shall be
paid by Members promptly upon demand therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify the
Members of any written communication from a Tax authority with respect to any
pending Tax Proceeding involving a Pre-Acquisition Tax Liability. Buyer shall
include with such notification a copy of the written communication so received
by Company.
(ii) The Buyer shall have responsibility and authority to represent the
interests of the Company in any Tax Proceeding relating to Pre-Acquisition
Taxable Periods and Straddle Periods and to employ counsel of its choice in
connection therewith; provided, however, that Members shall be permitted to
participate in any such Tax Proceedings and all hearings related thereto at the
expense of the Members; and provided further, that, without the prior written
consent of the Members, which shall not be unreasonably withheld, the Buyer
shall not agree to settle or compromise any such Tax Proceeding and/or any
Pre-Acquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which the Members are responsible hereunder, provided,
however, the consent of the Members to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Members, promptly upon demand
from the Buyer, shall pay the reasonable costs and expenses, including attorney
fees, incurred by Buyer in connection with any such Tax Proceedings, provided,
however, in any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Members are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Members are not responsible,
the Buyer, on the one hand, and the Members, on the other hand, shall jointly
bear the costs and expenses thereof as allocated between them on an equitable
basis.
(iii) All notices to Members provided for hereunder shall be deemed
delivered to each Member upon receipt thereof either directly by the Member. The
Members shall proportionately pay all Tax Liabilities and costs and expenses for
which the Members are responsible hereunder; provided, however, the Members
shall be jointly and severally liable for all such Tax Liabilities, costs and
expenses.
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(iv) The Member shall furnish to Buyer such information and documents as
may be reasonably requested by Buyer, and shall otherwise reasonably cooperate
with Buyer, in connection with Buyer's conduct of any Tax Proceedings described
herein.
(f) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Members shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute of
limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests in a manner consistent with its qualification as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of state income tax law, and (ii) file such Tax
Returns and Tax information reports related to the transfer as may be required
or otherwise appropriate under the Tax laws and regulations applicable to
transfers of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9 Consolidation Transactions.
Concurrent with the transaction contemplated hereby, Buyer is acquiring
in a series of transactions various other companies engaged in the business of
cost reduction, cost recovery and profit enhancement services by means of
mergers into Buyer, or acquisitions by Buyer of all or substantially all of the
assets or stock or other equity interests of such companies (collectively, the
"CONSOLIDATION TRANSACTIONS"). The Company and the Members acknowledge that as a
result of the complexity of the transactions contemplated hereby and the
Consolidation Transactions, the Closing contemplated hereby and the closing of
the Consolidation Transactions must be concurrent at a time designated by Buyer.
Accordingly, the Company and the Members shall upon receipt of the Closing
Notice but prior to the Closing Date (i) provide any outstanding documentation
required to effect the Closing pursuant to this Agreement in escrow pending
release upon authorization of the Members at the Closing, (ii) complete
performance of their respective obligations hereunder and under the other
Transaction Documents to be performed by the Closing, and (iii) update the
schedules hereto and any other documentation or information provided to Buyer
during the course of this transaction such that all such disclosures shall be
accurate and current as of the Closing Date.
4.10 Supplemental Disclosure.
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At the Closing, the Company and the Members shall supplement or amend
each of the schedules hereto with respect to any matter hereafter arising which,
if existing or occurring at or prior to the date hereof, would have been
required to be set forth or listed in the schedules or which is necessary to
complete or correct any information in the schedules.
4.11 HSR.
Buyer and the Company shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.12 Competing Proposals.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.13 Bonus Plan.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
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4.14 Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.15 Further Assurances.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
effectuate the purposes of this Agreement.
4.16 Notice of Breach.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1 Survival.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Seller Interests), 2.4 (Title to Assets) and 2.22 (Indebtedness)
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder.
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Completion of the transactions contemplated hereby shall not be deemed or
construed to be a waiver of any right or remedy of any of the parties.
5.2 Indemnification by the Members.
Subject to the limits set forth in this Article 5, the Members and, if
the transactions contemplated hereby are not consummated, the Company, and their
successors and assigns shall jointly and severally indemnify, defend, reimburse
and hold harmless Buyer and its Affiliates and their successors and assigns, and
the officers, directors, employees and agents of any of them, from and against
any and all claims, losses, damages, liabilities, obligations, assessments,
penalties and interest, demands, actions and expenses, whether direct or
indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by the Company or the Members in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document.
5.3 Indemnification by Buyer.
Subject to the limits set forth in this Article 5, Buyer and its
successors and assigns shall indemnify, defend, reimburse and hold harmless the
Members and their successors and assigns from and against any and all Losses
reasonably incurred by any such Members arising out of or in connection with any
of the following:
(a) the ownership and operation of the Company after the Closing;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Buyer in this Agreement or any other
Transaction Document; and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 Indemnification Procedure.
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(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
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reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 Payment.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract claims arising
under this Agreement or any other Transaction Document unless the persons so
entitled to indemnity or recovery thereunder have suffered Losses in an
aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Members to Buyer on the one
hand, and Buyer, on the other hand to the Members, for all claims arising under
this Agreement
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and the other Transaction Documents shall equal the aggregate Purchase Price.
For purposes of this Section 5.6(b), the value of Shares received shall be (i)
prior to the IPO, the per share Agreed Price (as defined in the Stockholder
Agreement) then prevailing; and (ii) after the IPO, the per share closing price
on the primary exchange or market on which the Common Stock is traded on the
date such indemnifiable Losses become payable, except that the value of any
Shares sold in bona fide third party transactions will be the gross proceeds to
the Members of such sale.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of Each Party.
The obligations of the Members, on the one hand, and Buyer, on the other
hand, to consummate the transactions contemplated hereby are subject to the
fulfillment, at or before the Closing Date, of the conditions set forth in this
Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that the Members will be required to
perform their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Members from and against, any obligations that
the Members would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of the Company, is in effect; and no action or proceeding
has been instituted or threatened by any Governmental Entity, other person, or
entity which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 Conditions to Obligations of Buyer.
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The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Members contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date, and at the Closing the Company and
the Members' Representative shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Members.
(b) Performance of the Company and the Members. The Company and the
Members shall have performed in all material respects all obligations required
to be performed by each of them under this Agreement on or before the Closing
Date, and at the Closing the Company and the Members, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Members, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Members authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents to be
delivered by the Company and the Members and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by each Member and the spouse of each
Member, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24;
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<PAGE> 48
(iii) A Voting Agreement substantially in the form of Exhibit E,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit F, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least One Hundred Thirty Seven
Thousand Dollars ($137,000), and (ii) sufficient working capital to operate the
Company; and at the Closing the Company shall have delivered to Buyer a
certificate dated the Closing Date to such effect with supporting financial
information, signed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Members in
substantially the form of Exhibit G. In giving such opinion, such counsel may
rely upon certificates of public
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<PAGE> 49
officials, upon opinions of local counsel and, as to matters of fact, upon a
certificate of the Company, or its officers, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by Buyer.
(l) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
(m) Books. The Company shall have delivered to Buyer the record books,
ledgers, minute books, corporate seals of the Company and documents relating to
the transfer of ownership interests in the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit H (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 Conditions to Obligations of the Members.
The obligations of the Members to consummate the transactions
contemplated hereby are subject to the fulfillment, at or before the Closing
Date, of the conditions set forth in this Section 6.3, any one or more of which
may be waived by the Members in writing in their discretion; provided however,
such waiver will not waive or diminish the right of the Members to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate
44
<PAGE> 50
to such effect dated the Closing Date signed by the President or any Vice
President and the Secretary or any Assistant Secretary of Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Members authorizing the execution and delivery
of this Agreement and the other Transaction Documents to be delivered by Buyer
and the consummation of the transactions contemplated hereby;
(ii) The Notes;
(iii) A photocopy of the certificates representing the Shares
issued in the name of each Member as set forth in Schedule 1.3; and
(iv) Employment Agreements substantially in the form of Exhibit H
(with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3).
(e) Opinion of Counsel. The Members shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit I. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Members.
(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million.
For these purposes, "PRE-TAX INCOME" of any particular company means that
company's projected 1998 pre-tax income, as adjusted pursuant to agreement
between Buyer and that company to reflect certain cost reductions and modified
business practices and accounting methods expected to take effect after the
closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Member.
7. MISCELLANEOUS.
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<PAGE> 51
7.1 Termination.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Members fail to comply in any
material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of the Company or the
Members is breached or is inaccurate in any material way; (b) by the Company or
the Members if (i) Buyer fails to comply in any material respect with any of its
covenants or agreements contained herein, or (ii) any of the representations and
warranties of Buyer is breached or is inaccurate in any material way; or (c) by
the Company or Buyer if (i) a Governmental Entity has issued a non-appealable
order, decree or ruling or taken any other action (which order, decree or ruling
the parties hereto have used their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits the transactions contemplated by this
Agreement; or (ii) a condition to its performance hereunder has not been
satisfied or waived prior to November 30, 1998; provided however, that if the
board of directors of Buyer should, in good faith, determine that it is
necessary to extend the Closing for the purpose of facilitating the financing of
the Consolidation Transactions, it may extend such date by thirty-two (32) days.
Notwithstanding the foregoing, a party may not terminate this Agreement if the
event giving rise to the termination right results from the willful failure of
such party to perform or observe any of the covenants or agreements set forth
herein to be performed or observed by such party or if such party is, at such
time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.29 (Brokers), 4.2 (Confidentiality), 5
(Survival; Indemnification), 7.12 (Expenses), 7.13 (Arbitration), 7.14
(Submission to Jurisdiction), and 7.15 (Attorneys' Fees), and except that
termination of this Agreement will not affect any liability of any party for any
breach of this Agreement prior to termination, or any breach at any time of the
provisions hereof surviving termination.
7.2 Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile, to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
46
<PAGE> 52
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Member: Erik R. Watts
695 Town Center Dr., Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Leonard J. McGill, Esq.
Day, Campbell & McGill
3070 Bristol, Suite 650
Costa Mesa, California 92626
Telephone No.: (714) 429-2919
Facsimile No.: (714) 429-2901
7.3 Assignability and Parties in Interest.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and the Company and their respective permitted successors and
assigns and upon each Member and his or her executors, administrators, heirs,
legal representatives and permitted successors and assigns. Nothing in this
Agreement will confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
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7.5 Counterparts.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 Publicity.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and the Company, except that
Buyer may disclose details of this Agreement to other participants in, or as
necessary to effect, the Consolidation Transactions. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 Complete Agreement.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 Modifications, Amendments and Waivers.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 Headings; References.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
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<PAGE> 54
7.10 Severability.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 Investigation.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of the
Company shall be deemed made to the knowledge of the Members only and no other
person.
7.12 Expenses of Transactions.
All fees, costs and expenses incurred by Buyer, in connection with the
transactions contemplated by this Agreement shall be borne Buyer, and all fees,
costs and expenses incurred by the Company or the Members in connection with the
transactions contemplated by this Agreement shall be borne by the Members
jointly and severally.
7.13 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the
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<PAGE> 55
aggregate, together with other arbitrations that are consolidated pursuant to
Section 7.13(f), exceed Five Hundred Thousand Dollars ($500,000) (the
"ARBITRATION THRESHOLD"), exclusive of interest and attorney's fees, the dispute
shall be heard and determined by three (3) arbitrators as provided herein (such
arbitrator or arbitrators are hereinafter referred to as the "ARBITRATOR"). The
judgment of the award rendered by the Arbitrator may be entered in any court
having jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the
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<PAGE> 56
deponent, and must be concluded within eight (8) hours and all depositions must
be taken within forty-five (45) days following the pre-hearing conference. Any
party deposing an opponent's expert must pay the expert's fee for attending the
deposition. All discovery disputes shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 Submission to Jurisdiction.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return
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<PAGE> 57
receipt requested, postage prepaid, to its address for the giving of notices as
set forth in Section 7.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
7.15 Attorneys' Fees.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against the Company or any of its Affiliates, successors or assigns
or any Member, or if the Company or any of its Affiliates, successors or assigns
or any Member brings any action, suit, counterclaim, cross-claim, appeal,
arbitration, or mediation for any relief against Buyer or any of its Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16 Enforcement of the Agreement.
The Company, the Members and Buyer acknowledge that irreparable damage
would occur if any of the obligations of the Company and the Members under this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Buyer will be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the Company or the Members and to enforce
specifically the terms and provisions hereto, this being in addition to any
other remedy to which Buyer is entitled at law or in equity.
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<PAGE> 58
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ MARK C. COLEMAN
-----------------------------------
Name: Mark C. Coleman
Title: SVP
NATIONAL REVMAX CONSULTANTS, L.L.C.
BY: IM COMET, LLC
Its: Manager
By COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK R. WATTS
-------------------------
Name: Erik R. Watts
Title: Manager
MEMBER(S):
IM COMET, LLC
By: COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK R. WATTS
-------------------------------
Name: Erik R. Watts
Title: Manager
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SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Five-Hundred Thousand Dollars ($500,000) (the
"CASH PAYMENT").
(ii) Promissory notes of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate principal amount of no
Dollars ($0) (the "NOTES")
(iii) An aggregate of 507,714 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer pending
release pursuant to Section 1.4.
(b) Consideration per Member.
<TABLE>
<CAPTION>
Seller Interests Common
Name of Owned and to Cash Note Stock
Member be sold to Buyer Consideration Consideration Consideration
------ ---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
IM Comet LLC 100% $500,000 $0 507,714
</TABLE>
<PAGE> 1
EXHIBIT 10.36
RESCISSION AGREEMENT
BY AND AMONG
NATIONAL HEALTHCARE RECOVERY SERVICES, LLC
IM COMET, LLC
EPS SOLUTIONS CORPORATION
AND
ENTERPRISE PROFIT SOLUTIONS CORPORATION
NOVEMBER 24, 1999
EXECUTION COPY
<PAGE> 2
RESCISSION AGREEMENT
THIS RESCISSION AGREEMENT (this "AGREEMENT") is entered into as of
November 24, 1999 by and among EPS Solutions Corporation, a Delaware corporation
("EPS"), Enterprise Profit Solutions Corporation, a Delaware corporation
("EPSC"), National HealthCare Recovery Services, LLC, a Delaware limited
liability company ("NHRS"), and IM Comet, LLC, a Nevada limited liability
company ("IM COMET"). Dennis Nystrom, an individual ("NYSTROM"), Debra Law, an
individual ("LAW") and IM Comet are each hereinafter referred to as a "MEMBER,"
and collectively, the "MEMBERS."
A. Pursuant to that certain Securities Purchase Agreement, dated March
1, 1999, by and among EPS, NHRS and the Members (the "SECURITIES PURCHASE
AGREEMENT"), EPS purchased from the Members 100% of the outstanding membership
units of NHRS (the "MEMBERSHIP INTERESTS").
B. Pursuant to the Securities Purchase Agreement, EPS paid an aggregate
purchase price of $9,350,000 (the "PURCHASE PRICE") for the Membership Interests
as follows: $1,000,000 cash to Nystrom, $67,427.26 cash to Law and the
cancellation of indebtedness of Law in favor of EPS of $532,572.74, the issuance
by EPS of a promissory note in the amount of $6,400,000 to IM Comet (the "EPS
NOTE"), and the payment of $1,350,000 pre-acquisition indebtedness of NHRS.
C. EPS purchased the membership units of NHRS from the Members based
upon anticipated profitable performance of the NHRS business (the "BUSINESS")
and the Business has not performed as anticipated. EPS desires to discontinue
funding the operating losses of NHRS.
D. To settle all matters between the parties hereto with respect to the
sale and purchase of the Membership Interests acquired by EPS from IM Comet the
parties agree that the appropriate remedy is to rescind the purchase by EPS of
Membership Interests from IM Comet contemplated by the Securities Purchase
Agreement upon the terms and conditions set forth herein.
E. The parties hereto desire to rescind the purchase by EPS of
Membership Interests from IM Comet in its entirety such that such purchase is
void ab initio, and return the parties to the same legal and economic positions
that they would have occupied had the purchase by EPS of Membership Interests
from IM Comet never been effected.
F. Concurrent herewith, EPSC, EPS, Christopher Massey, Erik Watts, 1758
Primary Properties, Limited Partnership, 1910 Properties, Ltd., and IM Comet are
entering into a Settlement Agreement (the "SETTLEMENT AGREEMENT").
G. It is a condition to the Settlement Agreement that the parties enter
into this Agreement.
<PAGE> 3
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. RESCISSION.
1.1 RESCISSION OF SECURITIES PURCHASE AGREEMENT.
(a) Subject to the terms and conditions set forth in this Agreement, on
or as soon as practicable after the date on which EPSC obtains the Bank Release
(as defined in Section 4.4) and with at least two business day's prior written
notice to IM Comet, EPS and EPSC shall execute and deliver to IM Comet the
Assignment Agreement in the form of Exhibit A (the "ASSIGNMENT AGREEMENT"),
which is being executed and delivered by IM Comet to EPS and EPSC concurrently
herewith. The date EPS and EPSC deliver the Assignment Agreement will be the
"ASSIGNMENT DATE." The effect of the execution and delivery by EPS and EPSC of
the Assignment Agreement will be to return to IM Comet the Membership Interests
in NHRS that it sold to EPS pursuant to the Securities Purchase Agreement and to
rescind the purchase by EPS of NHRS Membership Interests from IM Comet pursuant
to the Securities Purchase Agreement in its entirety such that the purchase is
void ab initio, and each of the rights, interests, obligations or liabilities of
the parties set forth in or arising pursuant to the Securities Purchase
Agreement shall be deemed to be of no force and effect.
(b) IM Comet will be entitled to revoke its execution and delivery of
the Assignment Agreement only before the Assignment Date and only (i) if IM
Comet is not in material breach of this Agreement or the Settlement Agreement or
any Separation Documents referred to therein and EPS or EPSC breaches this
Agreement or the Settlement Agreement or any Separation Documents referred to
therein in any material respect and fails to cure the breach within 15 days of
receipt of notice from IM Comet demanding cure, or (ii) pursuant to Section 4.4
hereof. In the event of the revocation of the Assignment Agreement or the
termination of this Agreement as provided in Section 4.4 hereof, (A) subject to
obtaining any necessary bank consents (which EPS agrees to use commercially
reasonable efforts to obtain), EPS and EPSC shall promptly take all action
necessary to cause NHRS to cease the conduct of Business and EPS and EPSC shall
refrain from conducting the Business in the future, either directly or
indirectly through Affiliates or otherwise; (B) all obligations of the parties
hereunder, including, without limitation, the obligations set forth in Sections
1.2, 1.3, 4.4 and 4.5 hereof, shall cease and be of no further force and effect;
(C) the subordinated promissory note payable to IM Comet in the principal amount
of $6.4 million issued in connection with the purchase of NHRS by EPS (and
accrued interest thereon) will be canceled; (D) the repurchase pursuant to the
Settlement Agreement by EPS from IM Comet of 290,000 of the Repurchased Shares
(as defined in the Settlement Agreement) will be rescinded and IM Comet will pay
to EPS $5,800, representing return to EPS of $.02 per share for such 290,000
shares from the amount paid by EPS pursuant to Section 2.1 of the Settlement
Agreement (which shares shall be certificated in the same manner as other shares
of EPS common stock held by IM Comet as of November 1, 1999); and (E) IM Comet
will, as maker, issue to EPS promissory notes in the form, on the terms and in
the amounts of the First NHRS Note (as defined in Section 1.2), the Second NHRS
Note (as defined in Section 1.3) and, if Nystrom and Law have not entered into
an Additional
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Rescission (as defined in Section 4.7), the Third NHRS Note (as defined in
Section 4.7).
1.2 REPAYMENT OF PURCHASE PRICE; LOAN TO NHRS. Concurrently with receipt
from EPS and EPSC of the Assignment Agreement as described in Section 1.1: (i)
IM Comet shall deliver to EPS the EPS Note, marked "canceled" and all
obligations on the EPS Note shall be canceled and terminated as of such date and
any interest paid on the EPS Note shall be returned to EPS; and (ii) IM Comet
shall pay EPS by wire transfer $1,350,000 to reimburse EPS for its payment of
the pre-acquisition indebtedness obligation of NHRS to Comet Capital Corporation
NV and IM Investments, Inc., paid by EPS at the closing of the transactions
contemplated by the Securities Purchase Agreement. Concurrently with the
delivery of EPS and EPSC of the Assignment Agreement as provided in Section 1.1
and upon receipt of the amounts to be paid pursuant to the preceding sentence,
EPS, either directly or through EPSC, shall make a cash advance to NHRS in the
principal amount of $1,350,000 and NHRS shall execute and deliver to EPS a
promissory note (the "FIRST NHRS NOTE") in the principal amount of $1,350,000 in
the form of Exhibit B to evidence the obligation of NHRS to repay the advance to
EPS. All cash transactions described in this Section 1.2 shall be effected by
wire transfer through appropriate accounts established by the respective
parties.
1.3 REPAYMENT OF THE NHRS OBLIGATIONS. From March 1, 1999 through
November 15, 1999, NHRS had a negative cash flow from operations, and in
operating the business of NHRS, EPS, through EPSC has made cash advances to or
paid expenses on behalf of NHRS in the aggregate amount of approximately
$7,054,166.45. These amounts, together with any other advances made by EPS or
EPSC to fund the operations of NHRS from November 16, 1999 until the Assignment
Date pursuant to Section 4.4 or Section 4.5 or termination of this Agreement
pursuant to Section 4.4, will be evidenced by a note payable by NHRS to EPSC in
the form of Exhibit C that will be executed and delivered by NHRS to EPSC on the
Assignment Date (the "SECOND NHRS NOTE"). On the Assignment Date or the date on
which this Agreement is terminated pursuant to Section 4.4 hereof, IM Comet
shall deliver to EPS a guaranty in the form of Exhibit D hereto guaranteeing the
obligations of NHRS under the First NHRS Note, the Second NHRS Note and (if
applicable) the Third NHRS Note and a Stock Pledge Agreement in the form of
Exhibit E attached hereto, securing the payment and performance of the First
NHRS Note, the Second NHRS Note and (if applicable) the Third NHRS Note.
2. REPRESENTATIONS AND WARRANTIES OF EPS AND EPSC.
The business of NHRS has been managed primarily by Nystrom and Law under
the supervision of the Employees (as such term is defined in the Settlement
Agreement) acting in their capacities as employees of EPS or NHRS. Accordingly,
although EPS has participated in the business of NHRS, IM Comet (which is
controlled by the Employees) and the other Employee Parties (as such term is
defined in the Settlement Agreement) have more knowledge regarding the matters
addressed in the representations and warranties of EPS set forth in Section 2.1
than EPS itself. The representations and warranties set forth in Section 2.1
shall be deemed to be qualified in all respects by such facts as IM Comet and
the Employee Parties know or should know as a result of their participation in
the business of NHRS prior to the date hereof. All such facts known to IM Comet
and the Employee Parties shall be deemed to be known by IM Comet and the
Employee Parties prior to the date hereof and to have been disclosed by EPS
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to NHRS as if set forth in this Agreement. Notwithstanding any provision of this
Agreement to the contrary (and except for any claim or action for breach of any
representation and warranty of EPSC or EPS set forth in this Article 2, neither
EPSC nor EPS will be liable on the basis of any claim or action that disclosure
provided by EPSC and EPS in connection with the transactions contemplated hereby
was incomplete. Subject to the foregoing, EPS and EPSC represent and warrant to
IM Comet that:
2.1 NO ENCUMBRANCES. Neither EPS nor EPSC has encumbered the Membership
Interests or the assets of NHRS or conveyed any interest in the Membership
Interests or assets of NHRS to any party except any of the following: (i)
actions that may have been taken by or with the knowledge of IM Comet or the
Employee Parties or taken by EPS or EPSC at the direction of the Employee
Parties or in performance of and consistent with duties known by one or more of
the Employee Parties to be performed by EPS or EPSC on behalf of the Business,
as to which EPS and EPSC make no representation or warranty; (ii) purchase money
security interests in specific items of equipment used in the Business and
interests of lessors and licensors of equipment acquired by EPS or EPSC or their
Affiliates pursuant to leases or licenses, which interests, leases and licenses
will remain in place and be handled pursuant to Section 4.5; (iii) liens for
taxes not yet payable; (iv) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (v) liens incurred in connection
with the extension, renewal or refinancing of the indebtedness secured by liens
of the type described above; and (vi) the Bank Liens defined in, and being
handled pursuant to Section 4.4 of this Agreement.
2.2 AUTHORITY. EPS and EPSC have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby and to perform their respective obligations hereunder. This
Agreement and all other agreements and instruments to be executed by the parties
hereto in connection herewith (together with all other documents to be delivered
in connection herewith or therewith, collectively, the "TRANSACTION DOCUMENTS")
have (except for Transaction Documents to be executed and delivered solely by
parties other than EPS or EPSC) been duly and validly approved by the Board of
Directors of EPS and EPSC (the "BOARD OF DIRECTORS") and no other proceedings on
the part of EPS or EPSC are necessary to approve this Agreement, consummate the
transactions contemplated hereby, or perform hereunder. This Agreement and the
other Transaction Documents executed or to be executed by EPS or EPSC have been
duly executed and delivered by EPS and EPSC or will, when executed and delivered
by or on behalf of EPS or EPSC, as the case may be, be duly executed and
delivered on behalf of EPS or EPSC, as the case may be, and constitute and will
constitute legal, valid and binding obligations of EPS and EPSC, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION").
3. REPRESENTATIONS AND WARRANTIES OF IM COMET.
IM Comet represents and warrants to EPS and EPSC that:
3.1 ORGANIZATION AND AUTHORITY. IM Comet has all requisite limited
liability company authority to enter into this Agreement and the Transaction
Documents and to consummate the transactions contemplated hereby and to perform
their obligations hereunder.
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No other proceedings on the part of IM Comet are necessary to approve this
Agreement, consummate the transactions contemplated hereby, or perform
hereunder. This Agreement has been duly executed and delivered by IM Comet and
constitutes legal, valid and binding obligations of IM Comet, except as such
enforceability may be limited by the Bankruptcy Exception.
3.2 OPERATION OF BUSINESS. Since March 1, 1999, no Member or Employee
Party has made any material commitments or entered into any material
obligations, as such commitments or obligations relate to NHRS, which are
binding upon EPS or any of its Affiliates other than NHRS and which (a) have not
been fulfilled or satisfied in full or (b) are not being assumed by the Members
or any of their Affiliates. The Business has been conducted at all times by the
Members and the Employees in accordance with applicable laws and regulations,
and there are no pending, or to the knowledge of IM Comet and the Employee
Parties, threatened, claims, actions or proceedings relating to the operation of
the Business other than (x) the litigation with Anthem pending as of the date
hereof and (y) certain unwritten claims made by EPS stockholders towards the
Employee Parties and their Affiliates.
4. CERTAIN AGREEMENTS OF THE PARTIES.
4.1 EFFECT OF RESCISSION. It is the intent of the parties to the
Securities Purchase Agreement that this Agreement return them as nearly as
possible to the same legal and economic position that they would have occupied
had the transactions contemplated by the Securities Purchase Agreement never
been effected.
4.2 OPERATION OF THE BUSINESS.
(a) The parties acknowledge that since March 1, 1999, through the date
hereof, while NHRS was managed on behalf and in the name of EPS or its
Affiliates, the business and operations of NHRS have changed. The parties
further acknowledge that during such period the business of NHRS has been
managed and operated primarily by Nystrom and Law under the supervision of the
Employee Parties (who control IM Comet) in their capacities as employees of EPS
or NHRS, together with persons acting under such persons' direction, control or
supervision. IM Comet and NHRS agree that all actions taken or obligations or
liabilities assumed by EPS or its Affiliates in managing and operating NHRS
shall be deemed to have been taken on behalf and in the name of NHRS and the
Members, and NHRS and the Members shall have no claim against EPS, or its
Affiliates for such actions, obligations or liabilities, and NHRS and IM Comet
(as the managing member of NHRS), on behalf of itself, its members and their
respective successors and assigns, hereby forever releases, discharges and
acquits EPS, its Affiliates, and their respective members, principals,
stockholders, directors, officers, agents, employees, attorneys and
representatives, and the successors and assigns of each of them, from any and
all Losses (as hereinafter defined), of every type, kind, nature, description or
character, whether known or unknown, suspected or unsuspected, liquidated or
unliquidated arising from, under or related to the management and operations of
NHRS in the name of and on behalf of EPS and its Affiliates.
(b) From March 1, 1999 through the date hereof, certain aspects of the
business of NHRS have been operated in conjunction with other business
operations of EPS and its Affiliates. Subject to the provisions of Sections 4.4
and 4.5 hereof, from and after the date
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hereof the business and operations of NHRS shall be separated in all respects
from those of EPS and its Affiliates and except as set forth herein will not be
subsidized or supported in any way by EPS and its Affiliates. The parties shall
in good faith take any and all actions reasonably necessary or advisable to give
effect to the separation of the business and operations of NHRS from the
operations of EPS and its Affiliates or otherwise give effect to this Section
4.2. Without limiting the generality of the foregoing, the parties agree that:
(i) To the extent employees of NHRS or employees of EPSC involved
primarily in the business of NHRS (collectively, "EMPLOYEES") were active
participants or accrued benefits under any "employee benefit plans", as such
term is defined in Section 3(3) of the Employee Retirement Income Savings Act of
1974, as amended or other benefits programs or arrangements, which were
maintained, contributed to or sponsored on behalf of the employees of EPS or its
Affiliates ("BENEFIT PLANS"), such participation shall cease and be terminated
as of the Assignment Date.
(ii) Promptly following the execution and delivery of this
Agreement, EPSC and IM Comet shall cooperate and attempt in good faith to agree
upon a list of contracts, leases or other agreements of EPS or its Affiliates or
of both NHRS and EPS and/or its Affiliates under which NHRS has, prior to the
date hereof, received benefits and under which benefits are to be extended to
NHRS after the date hereof (the "CONTINUING CONTRACTS"). The Continuing
Contracts shall be retained by EPS or its Affiliates, and NHRS and IM Comet
shall use commercially reasonable efforts to enter into a separate agreement,
contract, lease or other arrangement with the provider or an alternative
provider of the services or assets provided under the Continuing Contracts, for
the provision of such services or assets directly to NHRS. Until such time as a
new contract, lease, agreement or arrangement is obtained from the provider or
an alternative provider of such services or assets, NHRS shall make payments to
EPS, and not directly to the provider, for its pro rata share of such assets or
services, whether received prior to or after the date hereof, no later than five
(5) business days prior to the due date of any payment for such services and
assets, so that EPS can process the payment in a timely manner. EPS shall apply
the payment so received from NHRS to the timely payment of amounts due to the
provider under the Continuing Contract for the services or assets so provided
for the benefit of NHRS. Notwithstanding anything contained herein to the
contrary, from and after the date hereof, NHRS shall be solely responsible for
all insurance of the assets, business and operations of NHRS, and any claims
arising or made with respect to such activities shall be the sole responsibility
of NHRS.
(iii) Notwithstanding the foregoing provisions, the parties have
agreed that EPSC, as an administrative convenience to NHRS, will pay, on behalf
of NHRS, the salaries and other benefits to which the Employees shall be
entitled for the period from the Assignment Date through December 31, 1999, but
only if and only to the extent that NHRS advances the funds to EPSC to make such
payments at least one business day prior to the day on which such payment is
due. To facilitate this arrangement, NHRS shall provide EPSC a schedule setting
forth all amounts to be paid in writing at least four business days before any
such payment is due with the amount of the payment in such detail as EPSC and
NHRS may reasonably agree. NHRS will indemnify, defend, and hold harmless EPSC
from and against any claims, liabilities and costs incurred by EPSC as a result
of or in connection with EPSC's actions pursuant to this subsection (b)(iii),
including without limitation arising as a result of any assertion that EPSC is
the employer
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of or has any duties to any of the Employees on account of EPSC's actions
pursuant to this subsection (b)(iii).
(c) Notwithstanding anything contained herein to the contrary, NHRS
shall retain and/or assume all payment obligations arising pursuant to
contracts, commitments, agreements, or other arrangements, whether in the name
of EPS, its Affiliates or NHRS, which provide for the payment of referral fees,
commissions and other amounts to parties other than EPS, EPSC, and their
Affiliates and employees in respect of revenues, income or other earnings
arising from the operation of the Business. In addition, NHRS shall retain
and/or assume all payment obligations to EPS, EPSC, and their Affiliates and
employees pursuant to the contracts listed on the schedule attached hereto as
Schedule 4(c). For purposes of this Agreement, "AFFILIATE" shall have the
meaning ascribed to such term in Rule 405 of the Securities Act of 1933, as
amended.
4.3 DISCLAIMER.
(a) THE NHRS MEMBERSHIP INTEREST BEING TRANSFERRED PURSUANT HERETO,
TOGETHER WITH BUSINESS OF NHRS (INCLUDING ITS ASSETS AND LIABILITIES), ARE BEING
TRANSFERRED TO IM COMET "AS IS" AND "WHERE IS" AND ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR USE OR A PARTICULAR PURPOSE, ARE EXCLUDED AND DISCLAIMED (EXCEPT AS
EXPRESSLY SET FORTH IN ARTICLE 2). IM COMET, FOR ITSELF AND FOR NHRS (AS ITS
MANAGING MEMBER), HEREBY WAIVES ALL RIGHTS IT MAY HAVE TO ASSERT ON ITS OWN
BEHALF OR ON BEHALF OF NHRS ACTING UNDER ITS CONTROL THAT EPS, EPSC, OR ANY OF
THEIR AFFILIATES OR ANY PARTY ACTING ON BEHALF OF EPS, EPSC, OR ANY OF THEIR
AFFILIATES HAS MADE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO NHRS (EXCEPT
AS EXPRESSLY SET FORTH IN ARTICLE 2 OF THIS AGREEMENT), INCLUDING, WITHOUT
LIMITATION, ANY REPRESENTATION OR WARRANTY CONCERNING THE FINANCIAL CONDITION,
SALES, PROFITABILITY, INCOME OR FUTURE VALUE OR PROSPECTS OF NHRS AND HEREBY
FURTHER WAIVE ALL RIGHTS THEY MAY HAVE TO SEEK DAMAGES, RIGHTS OF OFFSET OR ANY
OTHER RELIEF BASED UPON AN ALLEGED BREACH OR INACCURACY OF ANY REPRESENTATION OR
WARRANTY CONCERNING NHRS (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN THIS
AGREEMENT FOR A BREACH OF THE REPRESENTATIONS AND WARRANTIES SET FORTH IN
ARTICLE 2 OF THIS AGREEMENT).
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(b) Except as expressly set forth in this Agreement, each party hereto
hereby confirms that no other party hereto (or any third person acting on behalf
of another party hereto) has made any representation or warranty concerning NHRS
or the Business, including, without limitation, the financial condition, sales,
profitability, income or future value or prospects of NHRS or the Business. Each
party hereto represents and warrants that it has had ample opportunity to
conduct a full investigation and evaluation of NHRS and the Business and its
present and future prospects and value and that it has completed the
investigation and evaluation to its satisfaction and it has made an independent
determination of the desirability of entering into this Agreement and
consummating the transactions provided for herein for the consideration and upon
the terms set forth in this Agreement without relying in any manner upon any
representation or warranty of any other party hereto (or any third person acting
on behalf of another party hereto).
(c) EPS AND EPSC HEREBY WAIVE ALL RIGHTS THEY MAY HAVE TO ASSERT THAT
NHRS OR IM COMET OR ANY PARTY ACTING ON BEHALF OF NHRS OR IM COMET HAS MADE ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO NHRS (EXCEPT AS EXPRESSLY SET FORTH
IN ARTICLE 3 OF THIS AGREEMENT), INCLUDING, WITHOUT LIMITATION, ANY
REPRESENTATION OR WARRANTY CONCERNING THE FINANCIAL CONDITION, SALES,
PROFITABILITY, INCOME OR FUTURE VALUE OR PROSPECTS OF NHRS AND HEREBY FURTHER
WAIVE ALL RIGHTS THEY MAY HAVE TO SEEK DAMAGES, RIGHTS OF OFFSET OR ANY OTHER
RELIEF BASED UPON AN ALLEGED BREACH OR INACCURACY OF ANY REPRESENTATION OR
WARRANTY CONCERNING NHRS (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN THIS
AGREEMENT FOR A BREACH OF THE REPRESENTATION AND WARRANTY SET FORTH IN ARTICLE 3
OF THIS AGREEMENT).
4.4 LIEN RELEASE; INTERIM OPERATIONS. The Membership Interests are
subject to liens in favor of EPSC's lenders (the "BANK LIENS"). EPSC shall use
commercially reasonable efforts to obtain the following in writing
(collectively, the "BANK RELEASE") by December 20, 1999: (a) the termination of
the Bank Liens and associated financing statements, (b) the termination of the
guaranties made by NHRS in favor of the holders of the Bank Liens (the
"GUARANTIES"), (c) the consent from EPSC's lenders to the payment of any portion
or all of any amount payable by NHRS or IM Comet to EPS or EPSC pursuant to the
First NHRS Note, the Second NHRS Note, the Third NHRS Note (if applicable) and
the "Note" (as that term is defined in the Asset Purchase Agreement (as defined
below)) by the cancellation of a comparable amount of the $18.276 million
subordinated note of EPS held by IM Comet (the "SUBORDINATED NOTE") and (d) the
consent to the asset transfers contemplated by that certain Asset Purchase
Agreement, dated as of the date hereof, between IM Comet, EPS and EPSC (the
"ASSET PURCHASE AGREEMENT") and termination of the related liens on the assets
transferred. The date on which the Bank Release is obtained is referred to in
this Agreement as the "LIEN RELEASE DATE". If the Bank Release is not obtained
by December 23, 1999, either EPS (if neither EPS nor EPSC is in material breach
of this Agreement or the Settlement Agreement or any Separation Document
referred to therein), or IM Comet (if IM Comet is not in material breach of this
Agreement or the Settlement Agreement or any Separation Document referred to
therein), may terminate this Agreement. Until the Assignment Date, the Business
shall be operated under the
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management and direction and for the account of IM Comet, and IM Comet and EPS
and EPSC will cause the Business to be operated in all respects in the ordinary
course consistent with past practices and in the best interests of the owners of
the Business, provided, however, that neither EPS nor EPSC shall make any
advances to NHRS or take any action to incur any obligations on behalf of NHRS
or cause NHRS to incur any obligations or make any payments to subsidize or
finance the operation of the Business, in each case without obtaining the prior
written consent of IM Comet. Any amounts paid by EPS or EPSC pursuant to Section
4.4 to subsidize or finance the operation of the Business from and after
November 16, 1999 until the Assignment Date or the termination of this Agreement
will be repaid to EPS or EPSC by NHRS through an increase in the amount of the
Second NHRS Note as described in Section 1.3. The parties will use commercially
reasonable efforts to obtain the Bank Release.
4.5 LEASES AND LICENSES. EPSC and EPS will continue to make all payments
due to third parties under leases, licenses, installment sale contracts, or
other forms of financing (and renewals or refinancing thereof) pursuant to which
assets used solely in the Business were acquired by EPSC or EPS before the
Assignment Date (including without limitation amounts payable to Wareforce or
LaSalle National Leasing in respect of computer equipment used solely in the
Business) (collectively, the "FINANCED ASSETS"). All amounts paid by EPS or EPSC
from and after November 16, 1999 under this Section 4.5 will (provided the Bank
Release is obtained and the Assignment Agreement is delivered) be repaid to EPS
or EPSC by NHRS through an increase in the amount of the Second NHRS Note as
described in Section 1.3 for amounts paid before the Assignment Date, or, after
the Assignment Date, by offset reduction of any amounts otherwise payable by EPS
or EPSC or any of their Affiliates to IM Comet or any of its successors or
permitted assignees or any holder of the Subordinated Note (provided that no
offset may be made against the Subordinated Note prior to January 5, 2000). NHRS
will hold and operate the Financed Assets according to the terms of the leases,
licenses or other financing arrangements pursuant to which the Financed Assets
were acquired by EPSC or EPS. Without limiting the foregoing, NHRS will not
transfer or relocate any Financed Assets and will keep them free of any liens
and encumbrances other than those created by EPS or EPSC.
4.6 FURTHER ASSURANCES. IM Comet shall not take any action that would
cause NHRS to be unable to fulfill its obligations under this Agreement and the
agreements entered into by NHRS in connection with this Agreement. EPS and EPSC
acknowledge that the agreement in the foregoing sentence is not a guarantee or
any obligation on IM Comet to provide additional funds to NHRS. Upon the
reasonable request of a party or parties hereto at any time after the date
hereof, the other party or parties shall forthwith execute and deliver such
further instruments of assignment, transfer, conveyance, endorsement, direction
or authorization and other documents as the requesting party or parties or its
or their counsel may reasonably request in order to effectuate the purposes of
this Agreement.
4.7 PURCHASE OF MEMBERSHIP INTERESTS. IM Comet may cause Nystrom and Law
to enter into a Rescission Agreement in substantially the form of this Agreement
(or to enter into an amendment and joinder to this Agreement) prior to the
Assignment Date (an "ADDITIONAL RESCISSION") pursuant to which the acquisition
by EPS from them of NHRS Membership Interests pursuant to the Securities
Purchase Agreement would be rescinded and the aggregate payment to them of $1.6
million would be repaid to EPS and loaned back to NHRS pursuant to a promissory
note guaranteed by IM Comet and secured by the IM Comet pledge agreement
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referenced in Section 1.3. In the event that Nystrom and Law do not enter into
an Additional Rescission by the Assignment Date (or the date of any termination
pursuant to Section 4.4), IM Comet will issue to EPS or EPSC on the Assignment
Date (or the date of any termination pursuant to Section 4.4) a promissory note
(the "THIRD NHRS NOTE") in the principal amount of $1,600,000 in substantially
the form of Exhibit B in exchange for transfer by EPS or EPSC (as the case may
be) to IM Comet of the membership interests of NHRS not owned by IM Comet as a
result of the rescission described in Article 1.
4.8 TRANSFER OF LOCKBOX. EPS and EPSC shall transfer to the control of
NHRS as of the Assignment Date any lockbox used exclusively for the Business
that is currently held in the name of EPS or EPSC or their respective
Affiliates.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION BY NHRS AND IM COMET. If the Bank Release shall have
been obtained and the Assignment Date shall have occurred, NHRS and IM Comet
shall and shall cause their successors and assigns to, jointly and severally
indemnify, defend, reimburse and hold harmless EPS and its Affiliates and their
successors and assigns, and the officers, directors, employees and agents of any
of them, from and against any and all claims, losses, damages, liabilities,
obligations, assessments, penalties and interest, demands, actions and expenses,
whether direct or indirect, known or unknown, absolute or contingent (including,
without limitation, settlement costs and any legal, accounting and other
expenses for investigating or defending any actions or threatened actions)
("LOSSES") reasonably incurred by any such indemnitee, arising out of or in
connection with any of the following:
(a) the operation of NHRS at any time or the holding of the Membership
Interests by EPS or EPSC, including without limitation, for all net income,
gross receipts, sales, use, withholding, payroll, employment, social security,
unemployment, excise and property taxes, plus applicable penalties and interest
thereon arising relating to NHRS; Employee severance obligations, including WARN
Act liabilities; claims by Employees to equity of EPS, other than as
specifically provided to the Members or Employees by EPS or EPSC pursuant to
written agreement; and leasehold obligations of NHRS;
(b) any untruth or inaccuracy of any representation or warranty made by
NHRS or IM Comet in this Agreement; or
(c) the breach of any covenant, agreement or obligation of NHRS or IM
Comet contained in this Agreement.
5.2 INDEMNIFICATION BY EPS AND EPSC. If the Bank Release shall have been
obtained and the Assignment Date shall have occurred, EPS and EPSC shall jointly
and severally indemnify, defend, reimburse and hold harmless NHRS, its
Affiliates and IM Comet and its successors and assigns and their respective
officers, directors, employees and agents from and against any and all Losses
reasonably incurred by any such indemnitee arising out of or in connection with
any of the following:
(a) the operation of the EPS businesses other than NHRS (subject to the
obligations of IM Comet under the Asset Purchase Agreement);
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(b) any untruth or inaccuracy of any representation, warranty or
certification made by EPS or EPSC in this Agreement; or
(c) the breach of any covenant, agreement or obligation of EPS or EPSC
contained in this Agreement.
5.3 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate (at
its sole expense) in any such investigation, trial, defense and any appeal
arising in connection with the Claim. Notwithstanding the foregoing, if both the
Indemnitor and the Indemnitee are named parties in any action or proceeding and
the Indemnitee shall have concluded in its reasonable judgment, based upon an
opinion of counsel, that there may be one or more legal defenses available to it
that are materially different from or in addition to those available to the
Indemnitor, and if the Indemnitee reasonably believes based upon an opinion of
counsel that the Indemnitee's interests will be adversely and materially
affected if such legal position or defense is not pursued in such action or
proceeding, the Indemnitor shall bear the expense of the Indemnitee's separate
participation, including the reasonable fees, costs and expenses of one separate
counsel for the Indemnitee (or multiple Indemnitees). It is understood that the
Indemnitor shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys at any time for all
Indemnitees. If the Indemnitee elects to so participate, the Indemnitor shall
cooperate with the Indemnitee, and the Indemnitor shall deliver to the
Indemnitee or its counsel copies of all pleadings and other information within
the Indemnitor's knowledge or possession reasonably requested by the Indemnitee
or its counsel that is relevant to the defense of such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee and its
counsel shall maintain confidentiality with respect to all such information
consistent with the conduct of a defense hereunder. The Indemnitor shall have
the right to elect to settle any claim for monetary damages only without the
Indemnitee's consent, if the settlement includes a complete release of the
Indemnitee. If the settlement does not include such a release, it will be
subject to the consent of the Indemnitee, which will not be unreasonably
withheld. The Indemnitor may not admit any liability of the Indemnitee or waive
any of the Indemnitee's rights without the Indemnitee's prior
11
<PAGE> 13
written consent, which will not be unreasonably withheld. If the subject of any
Claim results in a judgment or settlement, the Indemnitor shall promptly pay
such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 4.5(b), or if the Indemnitor fails
diligently to prosecute such defense, the Indemnitee may defend against the
subject of the Claim, at the Indemnitor's sole cost, risk and expense, in such
manner and on such terms as the Indemnitee deems appropriate, provided, however,
that the Indemnitee shall not be entitled to settle the Claim without the
Indemnitor's consent, which consent shall not be unreasonably withheld. If the
Indemnitee defends the subject of a Claim in accordance with this Section, the
Indemnitor shall cooperate with the Indemnitee and its counsel, at the
Indemnitor's sole cost, risk and expense, in all reasonable respects, and shall
deliver to the Indemnitee or its counsel copies of all pleadings and other
information within the Indemnitor's knowledge or possession reasonably requested
by the Indemnitee or its counsel that are relevant to the defense of the subject
of any such Claim and that will not prejudice the Indemnitor's position, claims
or defenses. The Indemnitee shall maintain confidentiality with respect to all
such information consistent with the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.4 PAYMENT. All payments owing under Section 5.3 will be made promptly
as indemnifiable Losses are incurred. If the Indemnitee defends the subject
matter of any Claim in accordance with Section 5.3(c) or proceeds with separate
counsel in accordance with Section 5.3(b), the expenses (including attorneys'
fees) incurred by the Indemnitee shall be paid by the Indemnitor in advance of
the final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law. In addition to any rights
of offset or other rights that an Indemnitee may have at common law, by statute
or otherwise, each Indemnitee shall have the right to offset any payment
obligations of such Indemnitee to any Indemnitor.
6. MISCELLANEOUS.
6.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 6.1:
12
<PAGE> 14
If to NHRS:
IM Comet
435 North Oakhurst Drive
Beverly Hills, CA 90210
Tel: (310) 858-5830
Fax: (310) 858-5840
Attn: Chris Massey
With a copy to: Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, California 94111
Tel: (415) 391-0600
Fax: (415) 395-8095
Attn: Jeffrey T. Pero, Esq.
If to EPS or EPSC: EPS Solutions Corporation
695 Town Center Drive, Suite 700
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-4800
Attn: General Counsel
With a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3800
Fax: (949) 451-4220
Attn: Thomas D. Magill, Esq.
6.2 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement shall inure to
the benefit of and be binding upon EPS, EPSC, IM Comet and NHRS and their
respective permitted successors and assigns. Except as specifically set forth in
Sections 5.1 and 5.2, nothing in this Agreement will confer upon any person or
entity not a party to this Agreement, or the legal representatives of such
person or entity, any rights or remedies of any nature or kind whatsoever under
or by reason of this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.4 COUNTERPARTS. Facsimile transmission of any signed original document
and/or retransmission of any signed facsimile transmission will be deemed the
same as delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
13
<PAGE> 15
6.5 COMPLETE AGREEMENT. This Agreement and the exhibits hereto contain
the entire agreement between the parties hereto with respect to the transactions
contemplated herein and therein and shall supersede all previous oral and
written and all contemporaneous oral representations, negotiations, commitments,
and understandings.
6.6 MODIFICATIONS, AMENDMENTS AND WAIVERS. No amendment of this
Agreement will be effective unless in writing signed by the parties hereto. The
parties hereto shall not be deemed to have waived any of their respective rights
hereunder unless such waiver be in writing and signed by the party so waiving
its right. No delay or omission on the part of either party in exercising its
rights hereunder shall operate as a waiver of such right or any other right. A
waiver on one occasion shall not be construed as a bar to, or waiver of, that
right or any other right or remedy on a future occasion.
6.7 HEADINGS; REFERENCES. The headings contained in this Agreement are
for reference purposes only and do not affect he meaning hereof.
6.8 SEVERABILITY. If any provision of this Agreement is found, held,
declared, determined, or deemed by any court of competent jurisdiction to be
void, illegal, invalid or unenforceable in that jurisdiction under any
applicable statute or controlling law, the illegal, invalid, or unenforceable
provision will be deemed not to be a part of the Agreement in that jurisdiction
unless without such provision, the purposes and intent of this Agreement cannot
fairly be carried out, and the legality, validity, and enforceability in that
jurisdiction of the remaining provisions and the legality, validity and
enforceability of this entire Agreement in other jurisdictions will not be
affected.
6.9 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
NHRS or IM Comet in connection with the transactions contemplated by this
Agreement shall be borne by NHRS and IM Comet, and all fees, costs, and expenses
incurred by EPS or EPSC in connection with the transactions contemplated by this
Agreement shall be borne by EPS.
6.10 DISPUTES.
(a) Reference. Subject to the provisions of Section 6.11 hereof,
any controversy or dispute between either EPS or EPSC and NHRS or IM Comet
involving the construction, interpretation, application or performance of the
terms, covenants or conditions of this Agreement or in any way arising under or
relating to this Agreement shall, on demand of any of the parties by written
notice hereto served on the others in the manner prescribed in Section 6.1
hereof, be determined pursuant to the general reference provisions of California
Code of Civil Procedure ("CCP") Section 638(1), et seq., by a retired or former
judge of the Superior Court for the County of Orange, State of California. The
parties intend this general reference provision to be specifically enforceable
in accordance with said Section 638(1).
(b) Commencement. The reference may be commenced by any party
hereto by the filing in the Superior Court of the State of California for the
County of Orange of a petition or a motion for a general reference. The petition
and any opposition or response thereto shall recite in a clear and meaningful
manner the factual basis of the controversy between the parties and identify the
issues to be submitted to the referee for decision.
14
<PAGE> 16
(c) Referee. The petition or motion shall designate as a sole
referee a retired judge from the Orange County, California, Judicial Arbitration
& Mediation Services ("JAMS") panel acceptable to that party (the "Referee"). If
the parties to the reference proceeding are unable to agree upon a Referee, the
Presiding Judge or any judge of the Orange County Superior Court to whom the
matter is assigned shall appoint a retired or former Orange County Superior
Court Judge from the JAMS panel as the Referee.
(d) Specific Enforcement. The parties acknowledge that the terms
of this Section 6.10 are specifically enforceable and that the decision by the
Referee is tantamount to a judgment by a trial court (CCP Section 644) and is
subject to review in accordance with CCP Section 645, and that any judgment
rendered in the trial court is appealable in the same manner as any other trial
court judgment.
6.11 REMEDIES. Each of the parties acknowledges and agrees that the
legal remedies available to each party in the event any party violates or
breaches any of the provisions of Article 1 or Section 4.2, 4.4, 4.5, 4.6 or 4.7
of this Agreement would be inadequate and that EPS and EPSC (if the breach is by
IM Comet or NHRS acting under the control of IM Comet), or IM Comet or NHRS
acting under the control of IM Comet (if the breach is by EPS or EPSC), shall be
entitled to institute and prosecute proceedings in accordance with Section 6.10,
to enjoin such breaching party from violating any of such provisions and to
enforce the specific performance by such breaching party of any of such
provisions, but nothing herein contained shall be construed to prevent such
remedy or combination of remedies as the non-breaching party may elect to
invoke. All applicable actions may be taken by such non-breaching party without
bond and without prejudice to any other rights and remedies available for a
breach of this Agreement. The failure of any party to promptly institute legal
action upon any breach of this Agreement shall not constitute a waiver of that
or any other breach hereof.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for injunctive relief or matters (if any) not
subject to general reference, shall be tried and litigated exclusively in the
state or federal courts located in the County of Orange, State of California.
The aforementioned choice of venue is intended by the parties to be mandatory
and not permissive in nature, thereby precluding the possibility of litigation
between the parties with respect to or arising out of his Agreement in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph , and stipulates that the state and federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.1. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If NHRS or IM Comet, or any of their Affiliates,
successors or assigns brings any action, suit, counterclaim, cross-claim,
appeal, arbitration, or mediation for any relief against EPS or any of its
Affiliates, successors or assigns, or if EPS or any of its Affiliates,
successors or assigns brings any action, suit, counterclaim, cross-claim,
appeal,
15
<PAGE> 17
arbitration, or mediation for any relief against NHRS or IM Comet or any of
their Affiliates, successors or assigns, declaratory or otherwise, to enforce
the terms hereof or to declare rights hereunder (collectively, an "ACTION"), in
addition to any damages and costs which the prevailing party otherwise would be
entitled, the non-prevailing party shall pay to the prevailing party a
reasonable sum for attorneys' fees and costs (at the prevailing party's
attorneys' then-prevailing rates) incurred in bringing and prosecuting such
Action and/or enforcing any judgment, order, ruling, or award (collectively, a
"DECISION") granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any Decision entered in such Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party. Any dispute with respect to
the existence or identity of the prevailing party shall be resolved by the
Referee.
6.14 INTENDED THIRD PARTY BENEFICIARIES. All Indemnitees under Article 5
are intended third party beneficiaries of Article 5 of this Agreement and shall
be entitled to enforce the provisions of Article 5 as if they were parties to
this Agreement.
[Signature page follows.]
16
<PAGE> 18
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION
By: _____________________________________
Name:____________________________________
Title:___________________________________
ENTERPRISE PROFIT SOLUTIONS CORPORATION
By: _____________________________________
Name:____________________________________
Title:___________________________________
S-1
<PAGE> 19
NATIONAL HEALTHCARE RECOVERY SERVICES, LLC
By: /s/ DAVID H. HOFFMAN
-------------------------------------
Name: David H. Hoffman
-----------------------------------
Title: CEO
-------------------------------------
IM COMET LLC, a Nevada limited liability company
By: Comet Capital Corp. NV
Its: Manager
By: /s/ ERIK WATTS
-------------------------------
Name: Erik Watts
Title: Manager
----------------------------
S-1
<PAGE> 1
EXHIBIT 10.37
CENV OPTION PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
IM COMET LLC
"SELLER"
AND
COMET CAPITAL CORP. NV AND
1758 NEVADA PROPERTIES, LTD.
"OPTIONORS"
AND THE OTHER PARTIES NAMED HEREIN
NOVEMBER 16, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.Sale and Transfer of Option...............................................................1
1.1 Transfer of Option...........................................................1
1.2 Closing......................................................................1
1.3 Purchase Price...............................................................2
1.4 Certificates for Shares......................................................2
2.Representations and Warranties of Seller..................................................2
2.1 Organization and Good Standing...............................................2
2.2 Authorization of Agreement...................................................2
2.3 Good Title, etc..............................................................2
2.4 Consents.....................................................................3
2.5 Securities Matters...........................................................3
2.6 Buyer and the Consolidation Transactions.....................................4
2.7 Section 351..................................................................4
2.8 Brokers......................................................................5
2.9 Accuracy of Information......................................................5
2.10 Ownership of CENV............................................................5
2.11 No Operations................................................................6
3.Representations and Warranties of Buyer...................................................6
3.1 Organization and Corporate Authority.........................................6
3.2 No Conflict or Violation.....................................................6
3.3 Capitalization...............................................................6
3.4 Notes........................................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.5 Accuracy of Information......................................................7
4.Certain Understandings and Agreements of the Parties......................................7
4.1 Securities Restrictions......................................................7
4.2 Consolidation Transactions...................................................8
4.3 Best Efforts.................................................................8
4.4 Further Assurances...........................................................8
4.5 Notice of Breach.............................................................8
4.6 Registration.................................................................9
4.7 Transfer and Exercise of Option; Transfer of Interests.......................9
4.8 Confidentiality.............................................................10
5.Survival; Indemnification................................................................10
5.1 Survival....................................................................10
5.2 Indemnification by Seller and Massey........................................11
5.3 Indemnification by Buyer....................................................12
5.4 Indemnification Procedure...................................................12
5.5 Payment.....................................................................13
5.6 Limitations.................................................................14
5.7 Contribution................................................................14
6.Conditions to Closing....................................................................15
6.1 Conditions to Obligations of Each Party.....................................15
6.2 Conditions to Obligations of Buyer..........................................16
6.3 Conditions to Obligations of Seller.........................................17
7.Miscellaneous............................................................................18
7.1 Termination.................................................................18
7.2 Notices.....................................................................18
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.3 Assignability and Parties in Interest.......................................19
7.4 Governing Law...............................................................19
7.5 Counterparts................................................................19
7.6 Publicity...................................................................20
7.7 Complete Agreement..........................................................20
7.8 Modifications, Amendments and Waivers.......................................20
7.9 Headings; References........................................................20
7.10 Severability................................................................20
7.11 Investigation...............................................................21
7.12 Expenses of Transactions....................................................21
7.13 Arbitration.................................................................21
7.14 Submission to Jurisdiction..................................................23
7.15 Attorneys' Fees.............................................................23
7.16 Enforcement of the Agreement................................................24
</TABLE>
iii
<PAGE> 5
EXHIBITS
A. Form of Assignment and Assumption Agreement
B. Form of Accredited Investor Questionnaire
C. Form of Acknowledgments and Representations
D. Form of Stockholder Agreement
D-1 Form of Stock Power
E. Form of Voting Agreement
F. Form of Subordination Agreement
G. Form of Note
SCHEDULES
1.3 Purchase Price
1.4 Allocation of Purchase Price
2 Disclosure Schedule
2.4 Consents
2.7 351 Information
iv
<PAGE> 6
OPTION PURCHASE AGREEMENT
THIS OPTION PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 16, 1998 by and among ProfitSource Corporation, a
Delaware corporation ("BUYER"), IM Comet LLC, a Delaware limited liability
company ("SELLER"), I.M. Investments, Inc., a California corporation ("IMI"),
Comet Capital Corp. NV, a Nevada corporation ("COMET"), 1758 Nevada Properties,
a Nevada limited partnership (together with Comet, the "OPTIONORS"), Christopher
Massey ("MASSEY"), CENV, LLC, a Nevada limited liability company ("CENV"), 1758
Primary Properties Limited Partnership, a Nevada limited partnership and 401K
BFS, LLC, a California limited liability company.
A. The Optionors granted IMI an option (the "OPTION") to purchase
all of their interest in CENV pursuant to the CENV/IM Option Agreement, by and
among the Optionors, IMI and Erik R. Watts, dated as of January 31, 1997 (the
"OPTION AGREEMENT").
B. IMI conveyed the Option to Seller pursuant to an Option
Assignment Agreement, dated as of _______________.
C. The Optionors possess all of the ownership interest in CENV.
D. Seller wishes to convey all of its interest in the Option to
Buyer, including the right to exercise the Option.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER OF OPTION.
1.1 TRANSFER OF OPTION.
On the terms and subject to the conditions set forth in this Agreement,
contingent on and effective as of the Closing (as hereinafter defined) Seller,
pursuant to this Agreement, shall convey, transfer, assign, sell and deliver to
Buyer, and Buyer shall acquire, accept and purchase the Option.
1.2 CLOSING.
1.3 The closing of the sale and purchase of the Option (the "CLOSING")
will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza,
Irvine, California, on a date to be selected by Buyer after all the conditions
set forth in Article 6 have either been satisfied or, in the case of conditions
not satisfied, waived in writing by the party entitled to the benefit of such
conditions (the "CLOSING DATE"). At least five (5) days prior to the Closing
Date, Buyer shall provide written notice (the "CLOSING NOTICE") to Seller
informing Seller of the date
<PAGE> 7
selected as the Closing Date. At the Closing, Buyer shall pay (i) to Seller the
Purchase Price as provided in Section 1.3 and (ii) to the Optionors in cash the
amount of $_____________.
1.4 OLD NUMBER: [1.3.] PURCHASE PRICE.
The consideration to be paid by Buyer for the Option (the "PURCHASE
PRICE") is described in Schedule 1.3. The Purchase Price represents the
negotiated value of CENV less the put in amount of the Option.
1.5 OLD NUMBER: [1.4.] CERTIFICATES FOR SHARES.
In order to facilitate replacement of certificates for shares of Common
Stock (as defined herein) constituting part of the Purchase Price upon an IPO
(as defined herein) with the transfer agent's form of certificate, and to
facilitate enforcement of the Stockholder Agreement (as defined herein), Buyer
will keep custody of the certificates representing such shares until the IPO and
until such shares are no longer subject to the Stockholder Agreement and
recipients of shares will execute and deliver blank stock powers as described in
Section 6.2(c)(iv). This custody arrangement will not affect the rights as a
stockholder of any permitted recipient of such shares.
2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Schedule 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. Seller and Massey
jointly and severally represent and warrant to Buyer that:
2.1 ORGANIZATION AND GOOD STANDING.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.
2.2 AUTHORIZATION OF AGREEMENT.
Seller has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other documents to be delivered in connection herewith by
Seller have been (or upon execution will have been) duly executed and delivered
by Seller, have been effectively authorized by all necessary action, corporate
or otherwise, and constitute (or upon execution will constitute) legal, valid
and binding obligations of Seller, except as such enforceability may be limited
by general principles of equity and bankruptcy, insolvency, reorganization and
moratorium and other similar laws relating to creditors' rights (the "BANKRUPTCY
EXCEPTION.")
2.3 GOOD TITLE, ETC.
Seller is the lawful owner of and has the right to use and transfer the
Option pursuant hereto. The Option is free and clear of all liens, mortgages,
pledges, security interests, restrictions, prior assignments, encumbrances and
claims of any kind. The delivery to Buyer of the Assumption Agreement will vest
good title to the Option in Buyer, free and clear of all liens,
2
<PAGE> 8
mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind. There are no outstanding agreements,
options or commitments of any nature obligating Seller to transfer any of the
Option or rights or interests therein to any party.
2.4 CONSENTS.
Schedule 2.4 lists all consents and notices required to be obtained or
given by or on behalf of Seller before consummation of the transactions
contemplated by this Agreement in compliance with all applicable laws, rules,
regulations, or orders of any Governmental Entity, or the provisions of any
material Contract, and all such consents have been duly obtained and are in full
force and effect, except where the failure to obtain such consent will not have
a Material Adverse Effect.
2.5 SECURITIES MATTERS.
(a) Seller and Massey understand that (i) neither the Shares (as defined
in Schedule 1.3) nor any notes issued by Buyer, or the offer and sale thereof
have been registered or qualified under the Securities Act or any state
securities or "Blue Sky" laws, on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
and qualification under Sections 4(2) and 18 of the Securities Act, and (ii)
Buyer's reliance on such exemptions is predicated on Seller's and the
Stockholders' representations set forth herein.
(b) Seller and Massey acknowledge that an investment in Buyer involves
an extremely high degree of risk, lack of liquidity and substantial restrictions
on transferability and that Seller and the Stockholders may lose their entire
investment in the Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to Seller and Massey or Seller's and
Massey's advisors the opportunity to obtain information to evaluate the merits
and risks of the investment in the Securities, and Seller and Massey have
received all information requested from Buyer. Seller and Massey have had an
opportunity to ask questions and receive answers from Buyer regarding the terms
and conditions of the offering of the Securities and the business, properties,
plans, prospects, and financial condition of Buyer and to obtain additional
information as Seller and Massey have deemed appropriate for purposes of
investing in the Securities pursuant to this Agreement.
(d) Seller and Massey, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, Seller and Massey have relied solely upon
independent investigations made by Seller and Massey, and have consulted their
own investment advisors, counsel and accountants. Seller and Massey have
adequate means of providing for current needs and personal contingencies, and
have no need for liquidity and can sustain a complete loss of the investment in
the Securities.
3
<PAGE> 9
(e) The Securities to be issued by Buyer hereunder will be acquired for
the recipient's own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) Seller and Massey understand that no federal or state agency has
passed upon the Securities or made any finding or determination as to the
fairness of the investment in the Securities.
(g) Seller is an "Accredited Investor" as defined in Rule 501(a) under
the Securities Act and have each documented his, her or its accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit B
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE.")
(h) Seller has not received any general solicitation or general
advertising concerning the Securities, nor is Seller aware of any such
solicitation or advertising.
2.6 BUYER AND THE CONSOLIDATION TRANSACTIONS.
(a) Seller and Massey are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.3) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether Seller or any Stockholder would be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(b) Seller and Massey acknowledge that no assurances have been made to
Seller or Massey with respect to any of the foregoing and no representations,
oral or written, have been made to Seller or Massey by Buyer or any of its
employees, representatives or agents concerning the potential value of the
Shares issued as part of the Purchase Price or the prospects of Buyer, except as
set forth herein.
2.7 SECTION 351.
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The transfer of the Option by Seller to Buyer is intended to qualify as
(i) a transfer of property to a controlled corporation pursuant to the
provisions of Code Section 351 and comparable provisions of applicable state
income tax law, and (ii) under Code Section 351 as part of a transfer by Seller
and other persons transferring property to Buyer who collectively will be in
control (as defined in Section 368(c) of the Code) of Buyer following such
transfers. The information set forth on Schedule 2.7 is accurate and may be used
by Buyer for tax filing purposes.
2.8 BROKERS.
No broker, finder, investment banker, or other person is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement, based upon arrangements made by or
on behalf of Seller or any of the Stockholders.
2.9 ACCURACY OF INFORMATION.
None of the representations or warranties or information provided and to
be provided by Seller to Buyer in this Agreement, the Disclosure Schedule,
schedules or exhibits hereto, or in any of the other documents to be delivered
in connection herewith contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not false or
misleading. The descriptions set forth in the Disclosure Schedule are accurate
descriptions of the matters disclosed therein. Copies of all documents
heretofore or hereafter delivered or made available to Buyer pursuant hereto
were or will be complete and accurate records of such documents.
2.10 OWNERSHIP OF CENV.
(a) The Optionors hold all of ownership interests of CENV ("INTERESTS").
Except for the Option and the Optionors' Interests, neither the Optionors nor
CENV has granted, issued or agreed to grant or issue any equity interests in
CENV and there are no outstanding options, warrants, rights to acquire ownership
interests in CENV, securities that are convertible into or exchangeable for, or
any other commitments of any character relating to, any Interests.
(b) Each of the Optionors has good and valid title to, and sole record
and beneficial ownership of, the Interests owned by such Optionors, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Optionor has the absolute and unrestricted right, power and authority and
capacity to enter into this Agreement.
(c) All distributions and redemptions made or to be made by CENV with
respect to Interests have complied or will comply with applicable law.
(d) All offers and sales of Interests prior to the date hereof were
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES Act"), and were registered or qualified under or exempt
from all applicable state securities laws.
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(e) CENV does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.11 NO OPERATIONS.
CENV does not have and never has had operations other than holding
interests (the "Holdings") in BFSG, DRS, NRS and NBC (each as defined below).
CENV has no liabilities. Except for the Holdings, CENV has no assets.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other documents to be
executed and delivered in connection herewith have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION.
The execution, delivery and performance by Buyer of this Agreement and
the other documents to be executed and delivered by Buyer in connection herewith
and the consummation of the transactions contemplated hereby and thereby do not
and will not: (i) violate or conflict with any provision of the charter
documents or bylaws of Buyer; or (ii) violate in any material respect any
provision or requirement of any domestic or foreign, national, state or local
law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to Buyer.
3.3 CAPITALIZATION.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 NOTES.
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Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION.
None of the representations or warranties or information provided and to
be provided by Buyer to Seller in this Agreement, the schedules or exhibits
hereto, or in any of the other documents delivered in connection herewith by
Buyer contains or will contain any untrue statement of a material fact or omits
or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(c)(iv), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
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(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(c)(iv) and the Voting
Agreement described in Section 6.2(c)(v), provided that, with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
4.2 CONSOLIDATION TRANSACTIONS.
Concurrent with the acquisition of the Acquired Assets, Buyer is
acquiring in a series of transactions various other companies engaged in the
business of cost reduction, cost recovery and profit enhancement services by
means of mergers into Buyer, or acquisitions by Buyer of all or substantially
all of the assets or stock or other equity interests of such companies
(collectively, the "CONSOLIDATION TRANSACTIONS"). Seller acknowledges that as a
result of the complexity of the transactions contemplated hereby and the
Consolidation Transactions, the Closing contemplated hereby and the closing of
the Consolidation Transactions must be concurrent at a time designated by Buyer.
Accordingly, Seller shall upon receipt of the Closing Notice but prior to the
Closing Date (i) provide any outstanding documentation required to effect the
Closing pursuant to this Agreement in escrow pending release upon authorization
by Seller at the Closing, (ii) complete performance of their respective
obligations hereunder and under the other Transaction Documents to be performed
by the Closing, and (iii) update the schedules hereto and any other
documentation or information provided to Buyer during the course of this
transaction such that all such disclosures shall be accurate and current as of
the Closing Date.
4.3 BEST EFFORTS.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to cause the fulfillment of the
conditions to Closing set forth herein and to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
4.4 FURTHER ASSURANCES.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
perfect title of Buyer and its successors and assigns to the Acquired Assets or
otherwise to effectuate the purposes of this Agreement.
4.5 NOTICE OF BREACH.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other document delivered in connection herewith to the parties to whom
or which such representation, warranty or covenant was made.
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4.6 REGISTRATION.
Neither Seller will not have any rights to demand registration of any of
the Shares, or to participate in any registration undertaken by Buyer except as
set forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission for in IPO of its equity securities or any
subsequent public offering within twelve (12) months of the closing of the IPO
(not including a registration statement filed in connection with an acquisition
or employee benefit plan), and if the managing underwriter of such offering
believes that the market will accommodate selling stockholders in the offering,
then Seller shall have the right to include in such registration statement and
offering up to that number of Shares and other Common Stock not subject to any
performance-related restrictions listed on Schedule 4.6. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in
connection with the formation of, or work on behalf of, Buyer) will have rights
to include shares of Common Stock in such offering, and if the aggregate amount
of shares that all stockholders with such rights (collectively, the "SELLING
STOCKHOLDERS") desire to include exceeds the number of shares of Common Stock
that can be sold by all Selling Stockholders, then all Selling Stockholders
desiring to sell in the offering will participate pro-rata on the basis of the
relative numbers of shares of Common Stock they originally sought to include. In
general, in such offerings, no Selling Stockholder will be permitted to include
in the aggregate more than half of the shares of Common Stock held by such
Selling Stockholder, or any shares subject to performance-related restrictions.
Shares of Common Stock may only be included pursuant to the underwriting
agreement negotiated between Buyer and the underwriters, and Selling
Stockholders must enter into the underwriting agreement with respect to any
shares held by them to be included in the offering. Each Selling Stockholder
shall pay (i) all underwriting discounts and commissions applicable to such
Selling Stockholder's sale of shares of Common Stock, (ii) such Selling
Stockholder's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
Selling Stockholders (or affiliated stockholder groups) selling the most shares
of Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
4.7 TRANSFER AND EXERCISE OF OPTION; TRANSFER OF INTERESTS.
(a) CONSENT. The Optionors hereby waive Seller's compliance with Section
3.7 of the Option Agreement and agree that Seller's transfer of the Option
hereunder shall not constitute a breach of the Option Agreement. The Optionors
hereby consent to the assignment of Seller's rights under the Option Agreement
to the Buyer and exercise of the Option by Buyer according to the terms of the
Option Agreement.
(b) EXERCISE OF OPTION. Contingent upon and effective as of the Closing,
pursuant to Section 1.3.1 of the Option Agreement, Buyer hereby exercises its
right under the Option Agreement to acquire all of the Interests. The Effective
Date (as defined in the Option Agreement) shall be the Closing Date.
(c) TRANSFER OF INTERESTS. Contingent on and effective as of the
Closing, and in consideration of the exercise of the Option described in Section
4.7(b) and Optionors' receipt of
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the exercise price pursuant to Section 1.2, the Optionors hereby assign,
transfer and contribute all of their right, title and interests in the Interests
to Buyer.
(d) PURCHASE AGREEMENT CONTROLS. In the event of any conflict or
inconsistency between the Option Agreement and this Agreement, the provisions of
this Agreement control.
4.8 CONFIDENTIALITY.
For purposes hereof, Seller and Massey will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including,
without limitation, Deloitte & Touche LLP, confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Buyer will
keep the matters contemplated herein and all information provided by Seller and
Massey related to Seller and CENV confidential, and will not provide information
about such matters to any party or use such information except to the extent
necessary to effect the transactions contemplated hereby. Buyer and Seller shall
each cause their respective Affiliates, officers, directors, employees, agents,
and advisors to keep confidential all information received in connection with
the transactions contemplated hereby. Seller and Massey acknowledge that Buyer
may provide information about Seller and CENV to other participants in the
Consolidation Transactions to the extent necessary to facilitate the
Consolidation Transactions. If this Agreement terminates without consummation of
the Closing, Seller, Massey and Buyer shall, and shall cause their Affiliates
to, each maintain the confidentiality of any information obtained from the other
in connection with the transactions contemplated hereby, the Consolidation
Transactions, and Buyer's business plans (the "INFORMATION"), other than
Information that (i) was in the public domain before the date of this Agreement
or subsequently came into the public domain other than as a result of disclosure
by the party to whom the Information was delivered; or (ii) was lawfully
received by a party from a third party free of any obligation of confidence of
or to such third party; or (iii) was already in the possession of the party
prior to receipt thereof, directly or indirectly, from the other party; or (iv)
is required to be disclosed in a judicial or administrative proceeding after
giving the other party as much advance notice of the possibility of such
disclosure as practicable so that the other party may attempt to stop such
disclosure; or (v) is subsequently and independently developed by employees of
the party to whom the Information was delivered without reference to the
Information. If this Agreement terminates without consummation of the Closing,
Buyer, on the one hand, and Massey and Seller, on the other, shall return to the
other all material containing or reflecting the Information provided by the
other, shall not retain any copies, extracts, or other reproductions thereof or
derived therefrom, and Buyer shall ensure the return of all such material from
all other parties with whom it has been shared, and shall thereafter refrain
from using the Information and shall maintain its confidentiality pursuant to
this Agreement.
5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL.
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The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other document delivered in connection herewith or
certificate shall survive any investigation made by any party hereto and the
Closing of the transactions contemplated hereby until the second anniversary of
the Closing Date, except those representations and warranties contained in
Section 2.8 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations and Section 2.3 (Good
Title) which will survive indefinitely. As to any matter or claim which is based
upon fraud by the indemnifying party, the representations and warranties set
forth in this Agreement shall expire only upon expiration of the applicable
statute of limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2 INDEMNIFICATION BY SELLER AND MASSEY.
Subject to the limits set forth in this Article 5, Seller, Massey and
their successors and assigns shall jointly and severally indemnify, defend,
reimburse and hold harmless Buyer and its Affiliates and their successors and
assigns, and the officers, directors, employees and agents of any of them, from
and against any and all claims, losses, damages, liabilities, obligations,
assessments, penalties and interest, demands, actions and expenses, whether
direct or indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and any exercise of the Option before the Closing;
(b) any untruth, inaccuracy or material omission of any representation
or warranty made by Seller in this Agreement or any other document delivered in
connection herewith;
(c) the breach of any covenant, agreement or obligation of Seller
contained in this Agreement or any other document delivered in connection
herewith;
(d) any claims against, or liabilities or obligations of, Seller arising
in connection with this Agreement not specifically assumed by Buyer pursuant to
this Agreement, including without limitation tax obligations;
(e) any amounts owed to Buyer pursuant to Article 5 of the Securities
Purchase Agreement (the "DRS AGREEMENT"), dated as of November 18, 1998, by and
among Buyer, Comet, the other Members named therein and Disbursement Recovery
Services, L.L.C., a Delaware limited liability company ("DRS") relating to the
purchase of ownership interests in DRS;
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(f) any amounts owed to Buyer pursuant to Article 5 of the Securities
Purchase Agreement (the "BFSG AGREEMENT"), dated as of November 18, 1998, by and
among Buyer, 1758 Properties Limited Partnership, a Nevada limited partnership,
Benefit Funding Services Group, L.L.C., a Nevada limited liability company
("BFSG") and the other Members named therein, relating to the purchase of
ownership interests in BFSG;
(g) any amounts owed to Buyer pursuant to Article 5 of the Securities
Purchase Agreement (the "NRS AGREEMENT"), dated as of November 18, 1998, by and
among Buyer, National Recovery Services, L.L.C., a Delaware limited liability
company ("NRS") and the other sellers named therein, relating to the purchase of
ownership interests in NRS; and
(h) any amounts owed to Buyer pursuant to Article 5 of the Securities
Purchase Agreement (the "NBC AGREEMENT"), dated as of November 18, 1998, by and
among Buyer, the Members named therein and National Benefit Consultants, L.L.C.,
a Delaware limited liability company ("NBC"), relating to the purchase of
ownership interests in NBC.
5.3 INDEMNIFICATION BY BUYER.
Subject to the limits set forth in this Article 5, Buyer shall
indemnify, defend and hold harmless Seller and its successors and assigns and
their officers, directors, employees and agents from and against any and all
Losses reasonably incurred by any such indemnitee arising out of or in
connection with any of the following:
(a) the ownership and any exercise of the Option after the Closing;
(b) any untruth, inaccuracy or material omission of any representation
or warranty made by Buyer in this Agreement or any other document delivered in
connection herewith;
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other document delivered in connection
herewith; and
(d) any claims against, or liabilities or obligations of, Seller
specifically assumed by Buyer pursuant to this Agreement.
5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to
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defend the Indemnitee against the matter from which the Claim arose, at the
Indemnitor's sole cost, risk and expense. The Indemnitee shall cooperate in all
reasonable respects, at the Indemnitor's sole cost, risk and expense, with the
Indemnitor in the investigation, trial, defense and any appeal arising from the
matter from which the Claim arose; provided, however, that the Indemnitee may
(but shall not be obligated to) participate in any such investigation, trial,
defense and any appeal arising in connection with the Claim. If the Indemnitee's
participation in any such investigation, trial, defense and any appeal arising
from such Claim relates to a legal position or defense that varies materially
from the legal positions or defenses pursued by the Indemnitor, and if the
Indemnitee reasonably believes that the Indemnitee's interests will be adversely
and materially affected if such legal position or defense is not pursued, the
Indemnitor shall bear the sole cost, risk and expense of the Indemnitee's
separate participation, including all fees, costs and expenses of one separate
counsel for the Indemnitee (or multiple Indemnitees). If the Indemnitee elects
to so participate, the Indemnitor shall cooperate with the Indemnitee, and the
Indemnitor shall deliver to the Indemnitee or its counsel copies of all
pleadings and other information within the Indemnitor's knowledge or possession
reasonably requested by the Indemnitee or its counsel that is relevant to the
defense of such Claim and that will not prejudice the Indemnitor's position,
claims or defenses. The Indemnitee and its counsel shall maintain
confidentiality with respect to all such information consistent with the conduct
of a defense hereunder. The Indemnitor shall have the right to elect to settle
any claim for monetary damages only without the Indemnitee's consent, if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 PAYMENT.
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All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract claims arising
under this Agreement or any other Transaction Document unless the persons so
entitled to indemnity or recovery thereunder have suffered Losses in an
aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising under
Sections 5.2(e) through (h) shall not be subject to the Threshold. Once the
aggregate amount of Losses exceeds the Threshold, persons entitled to recovery
shall be entitled to recover the full amount of all Losses, including any
amounts which constituted the Threshold. No person shall be entitled to
indemnification under this Article 5 for Losses directly or indirectly caused by
a breach by such person of any representation, warranty, covenant or other
agreement set forth in this Agreement or any duty to the potential Indemnitor.
(b) The maximum aggregate liability of Seller to Buyer for all claims
arising under this Agreement and the other documents delivered in connection
herewith shall equal the aggregate Purchase Price, except claims arising from
any breach of the representations and warranties contained in Section 2.3 (Good
Title) shall not be subject to the limits set forth in this Section 5.6(b). For
purposes of this Section 5.6(b), the value of Shares received shall be $1 per
share. The maximum aggregate liability of Buyer to Seller for all claims arising
under this Agreement and the other documents delivered in connection herewith
shall equal the portions, if any, of the aggregate Purchase Price not paid or
delivered.
5.7 CONTRIBUTION.
The parties hereto, other than Buyer (the "CONTRIBUTING PARTIES") agree
that if any of them makes any payment (a "PAYMENT") to Buyer under Article 5 of
the DRS Agreement, the BFSG Agreement, the NRS Agreement or the NBC Agreement
(collectively, the "PURCHASE AGREEMENTS"), then the party making such Payment
(the "RECOVERING PARTY"), shall have the right to collect from the other
Contributing Parties which are parties to the particular Purchase Agreement
under which liability for such Payments arose, and such other Contributing
Parties shall have the obligation to contribute to the Recovering Party, such
Contributing Parties' Pro-Rata Share of the Payment. In addition, Massey agrees
to contribute his Pro-Rata Share to any person who is party to a Purchase
Agreement and who is not party to this Agreement in the event
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such person makes a payment to Buyer in connection with such Purchase Agreement.
"PRO-RATA SHARE" means
(a) with respect to Massey
(i) 40% of any Payment pursuant to the DRS Agreement;
(ii) 16.67% of any Payment pursuant to the BFSG Agreement;
(iii) 30% of any Payment pursuant to the NRS Agreement;
(iv) 50% of any Payment pursuant to the NBC Agreement;
(b) with respect to any party other than Massey, the percentage
ownership interest held in DRS, BFSG, NRS or NBC, as the case may be, by the
Contributing Party immediately prior to the Buyer's purchase of such ownership
interest pursuant to the Purchase Agreement under which liability for the
Payment arose.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The obligations of Buyer, on the one hand, and the Seller, on the other
hand, to consummate the transactions contemplated hereby are subject to the
fulfillment, at or before the Closing Date, of the conditions set forth in this
Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that Seller will be required to perform
their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify Seller from and against, any obligations that
Seller would incur as a result of consummating the transactions contemplated
hereby notwithstanding the fact that the conditions in this Section 6.1 have not
been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of Seller, is in effect; and no action or proceeding has
been instituted or threatened by any Governmental Entity, other person, or
entity which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for Seller may reasonably deem necessary or appropriate so that consummation of
the transactions contemplated by this
15
<PAGE> 21
Agreement will be in compliance with applicable laws, including, without
limitation, expiration or termination of the waiting period prescribed by the
HSR Act.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of Seller, Massey, and Optionors contained in this Agreement or in
any other document delivered in connection herewith shall be true and correct in
all material respects as of the date hereof and on the Closing Date.
(b) Performance of Seller. Seller shall have performed in all material
respects all obligations required to be performed by it under this Agreement on
or before the Closing Date.
(c) Additional Closing Documents of Seller. Buyer has received, or is
receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Such further instruments of sale, transfer, conveyance,
assignment or delivery covering the Option, or any part thereof, as Buyer may
reasonably require to assure the full and effective sale, transfer, conveyance,
assignment or delivery to it of the Option to be transferred pursuant to this
Agreement;
(ii) Acknowledgments and representations signed by Seller and
Massey substantially in the form of Exhibit C, together with such additional
acknowledgments and representations as Buyer may reasonably require;
(iii) A Stockholder Agreement substantially in the form of
Exhibit D, executed and delivered by each recipient of Shares, together with a
stock power in the form of Exhibit D-1 executed by each recipient of Shares and
the spouse of each such recipient, if applicable;
(iv) A Voting Agreement substantially in the form of Exhibit E,
executed and delivered by each recipient of Shares;
(v) The Accredited Investor Questionnaire described in Section
2.23(g);
(vi) A Subordination Agreement substantially in the form of
Exhibit F, executed and delivered by each holder of the Note (as defined in
Schedule 1.3); and
(vii) Such other documents as Buyer may reasonably request.
16
<PAGE> 22
(d) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement shall be in full force and
effect on the Closing Date and the original executed copies shall have been
delivered to Buyer on or before the Closing Date.
(e) Financing. Buyer shall have available, on commercially reasonable
terms, reasonably satisfactory to Buyer, debt financing sufficient to finance
the Cash Payment (as defined in Schedule 1.3), the cash portion of the purchase
price being paid by Buyer pursuant to each of the Consolidation Transactions and
to provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(f) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the Option and the business, operations, financial condition
and prospects of CENV.
(g) No Default. Seller shall not be in default of any material
obligation.
(h) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of Seller in furtherance of the transactions
contemplated by this Agreement as Buyer or its counsel may reasonably request.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER.
The obligations of Seller to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.3, any one or more of which may be waived
by Seller in writing in its discretion; provided however, such waiver will not
waive or diminish the right of Seller to indemnification pursuant to Article 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other document
delivered in connection herewith shall be true and correct in all material
respects on the date hereof and on the Closing Date.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) The Cash Payment;
(ii) The Note;
(iii) A photocopy of the certificates evidencing the Shares;
(iv) Such other closing documents as Seller may reasonably
request.
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<PAGE> 23
7. MISCELLANEOUS.
7.1 TERMINATION.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) Seller or Massey fails to comply in any material
respect with any of its or their covenants or agreements contained herein, or
(ii) any of the representations and warranties of Seller or Massey is breached
or is inaccurate in any material way; (b) by Seller if (i) Buyer fails to comply
in any material respect with any of its covenants or agreements contained
herein, or (ii) any of the representations and warranties of Buyer is breached
or is inaccurate in any material way; or (c) by Seller or Buyer if (i) a
Governmental Entity has issued a non-appealable order, decree or ruling or taken
any other action (which order, decree or ruling the parties hereto have used
their best efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the transactions contemplated by this Agreement; or (ii) a condition
to its performance hereunder has not been satisfied or waived prior to November
30, 1998. Notwithstanding the foregoing, a party may not terminate this
Agreement if the event giving rise to the termination right results from the
willful failure of such party to perform or observe any of the covenants or
agreements set forth herein to be performed or observed by such party or if such
party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.8 (Brokers), 4.2 (Confidentiality), 5
(Survival, Indemnification), 7.12 (Expenses), 7.13 (Arbitration), 7.14
(Submission to Jurisdiction) and 7.15 (Attorney's Fees), and except that
termination of this Agreement will not affect any liability of any party for any
breach of this Agreement prior to termination, or any breach at any time of the
provisions hereof surviving termination.
7.2 NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
18
<PAGE> 24
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3874
Fax: (949) 451-4220
If to Seller or Massey: Christopher Massey
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5559
With a copy to: Alan W. Pettis, Esq.
Latham & Watkins
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626
Tel: (714) 540-1235
Fax: (714) 755-8290
7.3 ASSIGNABILITY AND PARTIES IN INTEREST.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective permitted successors,
assigns, executors, administrators, heirs, and legal representatives as the case
may be. Nothing in this Agreement will confer upon any person or entity not a
party to this Agreement, or the legal representatives of such person or entity,
any rights or remedies of any nature or kind whatsoever under or by reason of
this Agreement.
7.4 GOVERNING LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 COUNTERPARTS.
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<PAGE> 25
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 PUBLICITY.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and Seller, except that Buyer
may disclose details of this Agreement to other participants in, or as necessary
to effect, the Consolidation Transactions. Notwithstanding the foregoing, in the
event any such press release or announcement is required by law to be made by
the party proposing to issue the same, such party shall consult in good faith
with the other party as far in advance as practicable to the issuance of any
such press release or announcement.
7.7 COMPLETE AGREEMENT.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 MODIFICATIONS, AMENDMENTS AND WAIVERS.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 HEADINGS; REFERENCES.
The headings contained in this Agreement and the other documents
delivered in connection herewith are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. References
herein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof unless otherwise specified.
7.10 SEVERABILITY.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such
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<PAGE> 26
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11 INVESTIGATION.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of Seller
shall be deemed made to the knowledge of Massey only and no other person.
7.12 EXPENSES OF TRANSACTIONS.
All fees, costs and expenses incurred by Buyer in connection with the
transactions contemplated by this Agreement shall be borne by Buyer, and all
fees, costs, and expenses incurred by Seller or Massey in connection with the
transactions contemplated by this Agreement shall be borne by Seller and Massey
jointly and severally.
7.13 ARBITRATION.
(a) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder. The arbitration shall be conducted by
one independent and impartial arbitrator, appointed by the AAA; provided
however, if the claim and any counterclaim, in the aggregate, together with
other arbitrations that are consolidated pursuant to Section 7.13(f), exceed
Five Hundred Thousand Dollars ($500,000) (the "ARBITRATION THRESHOLD"),
exclusive of interest and attorneys' fees, the dispute shall be heard and
determined by three (3) arbitrators as provided herein (such arbitrator or
arbitrators are hereinafter referred to as the "ARBITRATOR"). The judgment of
the award rendered by the Arbitrator may be entered in any court having
jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with
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reasonable detail, of the dispute. A copy of the Notice of Counterclaim shall be
concurrently provided to the AAA. If the claim set forth in the Notice of
Counterclaim causes the aggregate amount in dispute to exceed the Arbitration
Threshold, the Notice of Counterclaim shall so state. If pursuant to Section
7.13(a) three (3) Arbitrators are to be appointed, within fifteen (15) days
after receipt of the Arbitration Notice or the Notice of Counterclaim as
applicable, each party shall select one person to act as Arbitrator and the two
(2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
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(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 SUBMISSION TO JURISDICTION.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in Section 7.2. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
7.15 ATTORNEYS' FEES.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against Seller or any of its Affiliates, successors or assigns or any
Stockholder, or if Seller or any of its Affiliates, successors or assigns or any
Stockholder brings any action, suit, counterclaim, cross-claim, appeal,
arbitration, or mediation for any relief against Buyer or any of its Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
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For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party.
7.16 ENFORCEMENT OF THE AGREEMENT.
Seller, Massey and Buyer acknowledge that irreparable damage would occur
if any of the obligations of Seller and the Stockholders under this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Buyer will be entitled to an injunction or injunctions to prevent
breaches of this Agreement by Seller or Massey and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
Buyer is entitled at law or in equity.
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<PAGE> 30
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ MARK C. COLEMAN
----------------------------------
Name: Mark C. Coleman
Title: SVP
IM COMET LLC
By: /s/ ERIK WATTS
----------------------------------
Name: Erik Watts
Title: Manager
I.M. INVESTMENTS, INC.
By: /s/ CHRISTOPHER P. MASSEY
----------------------------------
Name: Christopher Massey
Title: President
COMET CAPITAL CORP. NV
By: /s/ ERIK WATTS
----------------------------------
Name: Erik Watts
Title: Manager
1758 NEVADA PROPERTIES LTD.
By: /s/ ERIK WATTS
----------------------------------
Name: Erik Watts
Title: Manager
25
<PAGE> 31
/s/ CHRISTOPHER P. MASSEY
----------------------------------
CHRISTOPHER MASSEY
CENV, LLC
By: /s/ ERIK WATTS
----------------------------------
Name: Erik Watts
Title: Manager
1758 PRIMARY PROPERTIES LIMITED PARTNERSHIP
By: /s/ ERIK WATTS
----------------------------------
Name: Erik Watts
Title:____________________________
401K BFS, LLC
By: /s/ ERIK WATTS
----------------------------------
Name: Erik Watts
Title:_____________________________
26
<PAGE> 32
SCHEDULE 1.3
PURCHASE PRICE
(i) Nine Hundred Sixty-three Thousand One Hundred Ten Dollars
($963,110) (the "CASH PAYMENT").
(ii) A promissory note of Buyer, dated as of the Closing Date
substantially in the form of Exhibit G in the principal amount of Nine Million
One Hundred Thirty-three Thousand Five Hundred Dollars ($9,133,500) (the
"NOTE").
(iii) An aggregate of 976,312 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer pending
release pursuant to Section 1.4.
<PAGE> 1
EXHIBIT 10.38
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
DISBURSEMENT RECOVERY SERVICES, L.L.C.
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
DECEMBER 7, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale and Purchase. .......................................................................1
1.1. Agreements to Sell and Purchase. ..............................................1
1.2. Closing. ......................................................................1
1.3. Purchase Price. ...............................................................2
1.4. Certificates for Shares. ......................................................2
2. Representations and Warranties of the Company and the Members. ..........................2
2.1. Organization and Good Standing. ...............................................2
2.2. Ownership of Seller Interests. ................................................2
2.3. Authorization of Agreement. ...................................................3
2.4. Title to Assets. ..............................................................3
2.5. Financial Condition. ..........................................................4
2.6. Certain Property of the Company. ..............................................5
2.7. Year 2000 Compliance. .........................................................7
2.8. No Conflict or Violation. .....................................................8
2.9. Consents. .....................................................................8
2.10. Labor and Employment Matters. ................................................8
2.11. Employee Plans. ..............................................................9
2.12. Litigation. .................................................................11
2.13. Certain Agreements. .........................................................11
2.14. Compliance With Applicable Law. .............................................12
2.15. Licenses. ...................................................................13
2.16. Accounts Receivable. ........................................................13
2.17. Intercompany and Affiliate Transactions; Insider Interests. .................13
2.18. Insurance. ..................................................................14
2.19. [Reserved.]...................................................................14
2.20. No Undisclosed Liabilities. .................................................14
2.21. Taxes. ......................................................................15
2.22. Indebtedness. ...............................................................17
2.23. Environmental Matters. ......................................................17
2.24. Securities Matters. .........................................................18
2.25. Buyer and the Consolidation Transactions. ...................................19
2.26. Minute Books and Records. ...................................................20
2.27. [Reserved.] .................................................................20
2.28. Powers of Attorneys and Suretyships. ........................................20
2.29. Brokers. ....................................................................20
2.30. Accuracy of Information. ....................................................21
3. Representations and Warranties of Buyer. ...............................................21
3.1. Organization and Corporate Authority. ........................................21
3.2. No Conflict or Violation. ....................................................21
3.3. Capitalization. ..............................................................21
3.4. Notes. .......................................................................22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.5. Litigation. ..................................................................22
3.6. No Undisclosed Debt. .........................................................22
3.7. Accuracy of Information. .....................................................22
4. Certain Understandings and Agreements of the Parties. ..................................22
4.1. Access. ......................................................................22
4.2. Confidentiality. .............................................................23
4.3. Certain Changes and Conduct of Business. .....................................23
4.4. Restrictive Covenants. .......................................................26
4.5. Securities Restrictions. .....................................................28
4.6. Registration. ................................................................29
4.7. Cooperation in Litigation. ...................................................30
4.8. Tax Matters. .................................................................31
4.9. Consolidation Transactions. ..................................................34
4.10. Supplemental Disclosure. ....................................................34
4.11. HSR. ........................................................................34
4.12. Competing Proposals. ........................................................35
4.13. Bonus Plan. .................................................................35
4.14. Best Efforts. ...............................................................35
4.15. Further Assurances. .........................................................35
4.16. Notice of Breach. ...........................................................35
5. Survival; Indemnification. .............................................................36
5.1. Survival. ....................................................................36
5.2. Indemnification by the Members. ..............................................36
5.3. Indemnification by Buyer. ....................................................37
5.4. Indemnification Procedure. ...................................................37
5.5. Payment. .....................................................................38
5.6. Limitations. .................................................................38
6. Conditions to Closing. .................................................................39
6.1. Conditions to Obligations of Each Party. .....................................39
6.2. Conditions to Obligations of Buyer. ..........................................40
6.3. Conditions to Obligations of the Members. ....................................42
7. Miscellaneous. .........................................................................44
7.1. Termination. .................................................................44
7.2. Notices. .....................................................................45
7.3. Assignability and Parties in Interest. .......................................45
7.4. Governing Law. ...............................................................46
7.5. Counterparts. ................................................................46
7.6. Publicity. ...................................................................46
7.7. Complete Agreement. ..........................................................46
7.8. Modifications, Amendments and Waivers. .......................................46
7.9. Headings; References. ........................................................46
7.10. Severability. ...............................................................47
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
7.11. Investigation. ..............................................................47
7.12. Expenses of Transactions. ...................................................47
7.13. Arbitration. ................................................................47
7.14. Submission to Jurisdiction. .................................................49
7.15. Attorneys' Fees. ............................................................50
7.16. Enforcement of the Agreement. ...............................................50
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
A. Form of Assignment and Assumption Agreement
B. Summary of Certain Considerations
C. Form of Accredited Investor Questionnaire
D. Form of Stockholder Agreement
D-1 Form of Stock Power
E. Form of Voting Agreement
F. Form of Subordination Agreement
G. Opinion of Counsel to the Company and the Members
H. Form of Employment Agreements
I. Opinion of Counsel to the Buyer
J. Form of Notes
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.18 Insurance
2.21(b) Tax Returns
2.21(j) 351 Information
2.22 Indebtedness
2.29 Brokers
3.7 Debt
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
</TABLE>
iv
<PAGE> 6
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of December 7, 1998 by and among Disbursement Recovery Services,
L.L.C., a Delaware limited liability company (the "COMPANY"), the members of the
Company listed on the signature page(s) hereof (each such individual a "MEMBER,"
and collectively, the "MEMBERS") and ProfitSource Corporation, a Delaware
corporation ("BUYER").
A. The Company is engaged in the business of disbursement
management services (the "BUSINESS").
B. The Members own 40% of the ownership interests in the Company
(the "SELLER INTERESTS").
C. The Members desire to sell to Buyer, and Buyer desires to
purchase from the Members all of the Seller Interests on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1. AGREEMENTS TO SELL AND PURCHASE. On the Closing Date (as hereinafter
defined) each Member shall sell to Buyer, and Buyer shall purchase from each
Member, the Seller Interests set forth opposite such Member's name on Schedule
1.3, for the purchase price set forth in Section 1.3.
1.2. CLOSING. The closing of the sale and purchase of the Seller
Interests (the "CLOSING") will take place at the offices of Gibson, Dunn &
Crutcher LLP, 4 Park Plaza, Irvine, California, on a date to be selected by
Buyer after all the conditions set forth in Article 6 have either been satisfied
or, in the case of conditions not satisfied, waived in writing by the party
entitled to the benefit of such conditions (the "CLOSING DATE"). At least five
(5) days prior to the Closing Date, Buyer shall provide written notice (the
"CLOSING NOTICE") to the Company and the Members informing the Company and the
Members of the date selected as the Closing Date. At the Closing, the Members
shall deliver to Buyer or its designees an Assignment and Assumption Agreement
in the form of Exhibit A, transferring the Seller Interests being sold by the
Members and each other instrument of transfer Buyer may reasonably request to
vest effectively in Buyer good and valid title to the Seller Interests, free and
clear of any liens, pledges, options, security interest, trusts, encumbrances or
other rights or interests of any person or entity, together with any taxes,
direct or indirect,
<PAGE> 7
attributable to such transfer of the Seller Interests, and Buyer shall thereupon
pay to each Member the Purchase Price described in part (b) of Section 1.3 for
such Member's Seller Interests.
1.3. PURCHASE PRICE. The consideration to be paid by Buyer for the Seller
Interests (the "PURCHASE PRICE"), both in the aggregate and to each Member for
such Member's Seller Interests, is described in Schedule 1.3.
1.4. CERTIFICATES FOR SHARES. In order to facilitate replacement of
certificates for the shares of Series A Common Stock of Buyer constituting part
of the Purchase Price (the "SHARES") upon an IPO (as defined herein) with the
transfer agent's form of certificate, and to facilitate enforcement of the
Stockholder Agreement (as defined herein), Buyer will keep custody of the
certificates representing the Shares until the IPO and until the Shares are no
longer subject to the Stockholder Agreement, and recipients of Shares will
execute and deliver blank stock powers as described in Section 6.2(d)(i). This
custody arrangement will not affect the rights as a stockholder of any permitted
recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS. Each
representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Article 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Members, jointly and
severally, represent and warrant to Buyer that:
2.1. ORGANIZATION AND GOOD STANDING. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware, with full corporate power and authority to carry on the
Business as it is now and has since its organization been conducted and as
proposed to be conducted, and to own, lease or operate its assets and
properties. The Company is duly qualified to do business and is in good standing
in every jurisdiction in which the character of the properties owned or leased
by it or the nature of the business conducted by it makes such qualification
necessary, except where failure to be so qualified would not have a material
adverse effect on the Business or its prospects or the Company's assets or
financial condition (a "MATERIAL ADVERSE EFFECT"). Schedule 2.1 lists all of the
jurisdictions in which the Company is qualified to do business. Complete and
accurate copies of the articles of organization and operating agreement of the
Company, with all amendments thereto to the date hereof, have been furnished to
Buyer or its representatives.
2.2. OWNERSHIP OF SELLER INTERESTS.
(a) The Seller Interests constitute 40% of the ownership interests of
the Company ("INTERESTS") and are validly issued and fully paid. The Seller
Interests, together with the Interests held by Buyer and CENV, LLC ("CENV"),
constitute all of the ownership Interests. The Seller Interests owned by each
Member are set forth in part (b) of Schedule 1.3. Neither the Members nor the
Company has granted, issued or agreed to grant or issue any other
2
<PAGE> 8
equity interests in the Company and there are no outstanding options, warrants,
rights to acquire ownership interests in the Company, subscription rights,
securities that are convertible into or exchangeable for, or any other
commitments of any character relating to, any equity interests of the Company.
(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests of the Company prior to the date
hereof were exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and were registered or qualified under
or exempt from all applicable state securities laws.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3. AUTHORIZATION OF AGREEMENT. The Company and the Members have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the "TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Members of the Company and no other proceedings on
the part of the Company or the Members are necessary to approve this Agreement
and to consummate the transactions contemplated hereby. This Agreement and the
other Transaction Documents to be delivered by the Company or any Member have
been (or upon execution will have been) duly executed and delivered by the
Company and each Member, have been effectively authorized by all necessary
action, and constitute (or upon execution will constitute) legal, valid and
binding obligations of the Company and each Member, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4. TITLE TO ASSETS. The Company is the lawful owner of each of its
assets, whether real, personal, mixed, tangible or intangible. All of the
Company's assets are sufficient and adequate to conduct the Business as
presently conducted; and are free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and
3
<PAGE> 9
claims of any kind except any of the following: (i) purchase money security
interests in specific items of equipment each having a value not in excess of
$100; (ii) Personal Property leased pursuant to Personal Property Leases; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
consented to in writing by Buyer; (v) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vi) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase. There are
no outstanding agreements, options or commitments of any nature obligating the
Company or any Member to transfer any of the assets of the Company or rights or
interests therein to any party.
2.5. FINANCIAL CONDITION.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of September 30, 1998 and the related statements of income and
cash flow for the fiscal years then ended (the "FINANCIAL STATEMENTS"). The
Financial Statements (i) were prepared in accordance with the books and records
of the Company; (ii) were prepared in accordance with generally accepted
accounting principles applicable to partnerships ("GAAP") and were consistently
applied; (iii) fairly present the financial condition and the results of the
operations of the Company as at the relevant dates thereof and for the periods
covered thereby; (iv) to the extent required by GAAP, contain and reflect all
necessary adjustments and accruals for a fair presentation of the financial
condition and the results of the operations of the Company for the periods
covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, contingent or otherwise, with respect to the period then ended and
all prior periods; and (vi) do not contain any items of a special or
nonrecurring nature, except as expressly stated therein. There have been no
changes or modifications of revenue recognition, cost allocation practices or
method of, accounting or other financial or operational practices or principles
except for any such change required by reason of a concurrent change in GAAP
during the periods covered by the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3. For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
4
<PAGE> 10
2.6. CERTAIN PROPERTY OF THE COMPANY.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties shown
in Schedule 2.6(a) under written leases (each lease being referred to herein as
a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES") and to the
knowledge of the Company or any Member each Real Property Lease is a valid and
binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor any Member has
any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and no event has
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company.
(iii) To the knowledge of the Company or any Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property of the Company, accurately identifies such Personal
Property as owned or leased, and lists each Personal Property Lease. The Company
is not in material breach of or default, and no event has occurred which, with
due notice or lapse of time or both, may constitute such a material breach or
default, under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by
5
<PAGE> 11
the Company that are material to the Business. For purposes of this Agreement
"PROPRIETARY RIGHTS" means trademarks and service marks (registered or
unregistered), trade dress, trade names and other names and slogans embodying
business or product goodwill or indications of origin, all applications or
registrations in any jurisdiction pertaining to the foregoing and all goodwill
associated therewith, as well as the following: (i) patents, patentable
inventions, discoveries, improvements, ideas, know-how, formula, methodology,
processes, technology and computer programs, software and databases (including
source code, object code, development documentation, programming tools,
drawings, specifications and data), and all applications or registrations in any
jurisdiction pertaining to the foregoing, including all reissues, continuations,
divisions, continuations-in-part, renewals or extensions thereof; (ii) trade
secrets, know-how, including confidential and other non-public information, and
the right in any jurisdiction to limit the use or disclosure thereof; (iii)
copyrights in writings, designs, mask works or other works, and registrations or
applications for registration of copyrights in any jurisdiction; (iv) licenses,
including, without limitation, software licenses, immunities, covenants not to
sue and the like relating to any of the foregoing; (v) Internet Web sites,
domain names and registrations or applications for registration thereof; (vi)
customer lists; (vii) books and records describing or used in connection with
any of the foregoing; and (viii) claims or causes of action arising out of or
related to infringement or misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the historical and anticipated uses of the Proprietary Rights in connection with
the conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "Governmental Entity," and collectively "Governmental Entities") with
authority to bind the Company. There have not been any actions or other judicial
or adversary proceedings involving the Company concerning any of the Proprietary
Rights, nor to the knowledge of the Company or any Member, is any such action or
proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the
6
<PAGE> 12
knowledge of the Company or any Member, there are no conflicts with or
infringements of any of the Proprietary Rights by any third party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "Trade Secrets"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectable and
are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable precautions
necessary to ensure that all Proprietary Rights have been properly protected and
have been kept secret.
2.7. YEAR 2000 COMPLIANCE. All date-related output, calculations or
results before, during or after the calendar year 2000 that are produced or used
by any hardware, software (other than software that is generally available upon
payment of a "shrink-wrap" type license and that has not been customized for use
in connection with the Business), firmware or facilities systems (the "COMPUTER
SYSTEMS") owned or used by the Company and material to the Business are Year
2000 Compliant. For purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
7
<PAGE> 13
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8. NO CONFLICT OR VIOLATION. The execution, delivery and performance by
the Company and the Members of this Agreement and the other Transaction
Documents to be delivered by the Company or any Member and the consummation of
the transactions contemplated hereby and thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; (ii) violate in any material respect any provision or requirement of
any domestic or foreign, national, state, or local law, statute, judgment,
order, writ, injunction, decree, award, rule, or regulation of any Governmental
Entity applicable to the Company or the Business; (iii) violate in any material
respect, result in a material breach of, constitute (with due notice or lapse of
time or both) a material default or cause any material obligation, penalty,
premium or right of termination to arise or accrue under any Contract (as
hereinafter defined); (iv) result in the creation or imposition of any material
lien, charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Company; or (v) result in the cancellation, modification,
revocation or suspension of any material license, permit, certificate,
franchise, authorization or approval issued or granted by any Governmental
Entity (each a "LICENSE," and collectively, the "LICENSES").
2.9. CONSENTS. Schedule 2.9 lists all consents and notices required to be
obtained or given by or on behalf of the Company or any Member before
consummation of the transactions contemplated by this Agreement in compliance
with all applicable laws, rules, regulations, or orders of any Governmental
Entity, or the provisions of any material Contract, and all such consents have
been duly obtained and are in full force and effect except where the failure to
obtain such consent will not have a Material Adverse Effect.
2.10. LABOR AND EMPLOYMENT MATTERS. Schedule 2.10 lists all employees of
the Company, including date of retention, current title and compensation. There
is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate Governmental Entities and has withheld and
paid to the appropriate Governmental Entities or is holding for payment not yet
due to such Governmental Entities, all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no unfair labor practice complaint against the Company pending before the
National Labor Relations Board or any state or local
8
<PAGE> 14
agency; pending labor strike or other material labor trouble affecting the
Company; material labor grievance pending against the Company; pending
representation question respecting the employees of the Company; pending
arbitration proceedings arising out of or under any collective bargaining
agreement to which the Company is a party. For purposes of this Agreement,
"EMPLOYEES" includes employees, independent contractors and other persons
filling similar functions.
2.11. EMPLOYEE PLANS.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, option, security purchase,
benefit, welfare, profit-sharing, deferred compensation, retainer, consulting,
retirement, welfare, disability, vacation, severance, hospitalization,
insurance, incentive, deferred compensation and other similar fringe or employee
benefit plans, funds, programs or arrangements, whether written or oral, in each
of the foregoing cases which cover, are maintained for the benefit of, or relate
to any or all current or former employees, members, officers or directors of the
Company, and any other entity ("ERISA AFFILIATE") related to the Company under
Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such Employee Plans. With respect to each Employee Plan, the
Company has made available to Buyer, to the extent applicable, true and complete
copies of (i) all plan documents, (ii) the most recent determination letter
received from the Internal Revenue Service (the "IRS"), (iii) the most recent
application for determination filed with the IRS, (iv) the latest actuarial
valuations, (v) the latest financial statements, (vi) the three (3) most recent
Form 5500 Annual Reports, including Schedule A and Schedule B thereto, (vii) all
related trust agreements, insurance contracts or other funding arrangements
which implement any of such Employee Plans, (viii) all Summary Plan Descriptions
and summaries of material modifications and all modifications thereto
communicated to employees, and (ix) in the case of stock options or stock
appreciation rights issued under any Employee Plan, a list of holders, dates of
grant, number of shares, exercise price per share and dates exercisable. Neither
the Company nor any ERISA Affiliate of the Company has any liability or
contingent liability with respect to
9
<PAGE> 15
the Employee Plans, nor will any of the Company's assets be subject to any lien,
charge or claim relating to the obligations of the Company with respect to
employees or Employee Plans. No party to any Employee Plan is in default with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in compliance with the requirements provided by any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code. Each of the Company and its ERISA
Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
Neither the Company nor any of its ERISA Affiliates has incurred any liability
under the Worker Adjustment Retraining and Notification Act or any similar state
law relating to employment termination
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in connection with a mass layoff, plant closing or similar event, and the
transactions contemplated by this Agreement will not give rise to any such
liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12. LITIGATION. There are no claims, actions, suits, proceedings, labor
disputes or investigations of any nature pending or, to the knowledge of the
Company or any Member, threatened by or against the Members, the Company, the
officers, directors, employees, agents of the Company, or any of their
respective Affiliates involving, affecting or relating to the Business or any
assets, properties or operations of the Company or the transactions contemplated
by this Agreement. Neither the Company nor any of the Company's assets is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have the
meaning ascribed to such term in Rule 405 under the Securities Act.
2.13. CERTAIN AGREEMENTS.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all written, or oral, (i) contracts, agreements
and commitments not made in the ordinary course of business, (ii) agency and
brokerage agreements, (iii) service and other customer contracts, (iv)
contracts, loan agreements, letters of credit, repurchase agreements, mortgages,
security agreements, guarantees, pledge agreements, trust indentures, promissory
notes and other documents or arrangements relating to the borrowing of money or
for lines of credit, (v) tax sharing agreements, real property leases or any
subleases relating thereto, personal property leases, any material agreement
relating to Proprietary Rights (including service agreements relating thereto)
and insurance contracts, (vi) agreements and other arrangements for the sale
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<PAGE> 17
of any assets, property or rights other than in the ordinary course of business
or for the grant of any options or preferential rights to purchase any assets,
property or rights, (vii) documents granting any power of attorney with respect
to the affairs of the Company, (viii) suretyship contracts, performance bonds,
working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
agreements relating to the issuance of any securities of the Company or the
granting of any registration rights with respect thereto, and (xii) all
amendments, modifications, extensions or renewals of any of the foregoing (each
a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or any Member since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of the Company or any Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14. COMPLIANCE WITH APPLICABLE LAW. The operations of the Company are,
and have been, conducted in all material respects in accordance with all
applicable laws, regulations, orders and other requirements of all Governmental
Entities having jurisdiction over it and its assets, properties and operations,
including, without limitation, all such laws, regulations, orders and
requirements relating to the Business except in any case where the failure to so
conduct its operations would not have a Material Adverse Effect. The Company has
not received any notice of any material violation of any such law, regulation,
order or
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other legal requirement, and is not in material default with respect to any
order, writ, judgment, award, injunction or decree of any Governmental Entity,
applicable to the Company or any of its assets, properties or operations. To the
knowledge of the Company or any Member, there are no proposed changes in any
such laws, rules or regulations (other than laws of general applicability) that
would adversely affect the transactions contemplated by this Agreement or
reasonably be expected to have a Material Adverse Effect.
2.15. LICENSES.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Members of this Agreement and the other Transaction Documents. The Licenses are
sufficient and adequate in all material respects to permit the continued lawful
conduct of the Business in the manner now conducted and the ownership, occupancy
and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested that it qualify or become licensed as a foreign corporation. The
Company has delivered to Buyer or its representatives true and complete copies
of all the material Licenses together with all amendments and modifications
thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16. ACCOUNTS RECEIVABLE. All accounts receivable of the Company (the
"ACCOUNTS RECEIVABLE") as of the date hereof are accurately reflected in
Schedule 2.5, which will be updated at the Closing Date to reflect all Accounts
Receivable as of the Closing Date, including their aging. All Accounts
Receivable as of the date hereof represent, and all Accounts Receivable as of
the Closing Date will represent, valid obligations arising from sales actually
made or services actually performed in the ordinary course of business that are
current and collectible in amounts not less than the aggregate amount thereof
(net of reserves established in accordance with GAAP applied consistently with
prior practice) carried (or to be carried) on the books of the Company and
reflected in the Financial Statements, and are not and will not be subject to
any valid counterclaims or set-offs, disputes or contingencies.
2.17. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
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(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, Member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
(b) Except as set forth on Schedule 2.17, no officer, director or Member
of the Company, or any Affiliate of any such person, now has, or within the last
three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or agreement
to which the Company is or was a party or under which it was obligated or bound
or to which its properties may be or may have been subject, other than stock
options and other contracts, commitments or agreements between the Company and
such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18. INSURANCE. Schedule 2.18 lists all insurance policies of any nature
whatsoever maintained by the Company at any time during the three (3) years
prior to the date of this Agreement and the annual or other premiums payable
from the time thereunder. There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or by any
Board of Fire Underwriters or other similar body exercising similar functions or
by any Governmental Entity that require or recommend any changes in the conduct
of the Business, or any repairs or other work to be done on or with respect to
any of the properties or assets of the Company. The Company has not received any
notice or other communication from any such insurance company within the three
(3) years preceding the date hereof canceling or materially amending or
materially increasing the annual or other premiums payable under any of such
insurance policies, and to the knowledge of the Company or any Member, no such
cancellation, amendment or increase of premiums is threatened.
2.19. [RESERVED.]
2.20. NO UNDISCLOSED LIABILITIES. Except as and to the extent specifically
reflected or reserved against in the Interim Financial Statements and except as
incurred in the ordinary
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course of business since the date of the Interim Financial Statements, the
Company has no material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due
(including, without limitation, any liability for taxes and interest, penalties
and other charges payable with respect to any such liability or obligation) and
no facts or circumstances exist which, with notice or the passage of time or
both, could reasonably be expected to result in any material claims against or
obligations or liabilities of the Company.
2.21. TAXES.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the
Company for or with respect to (A) any Pre-Acquisition Taxable Period, or (B)
any Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to be
filed with respect to Taxes including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not reflected on such
Tax Returns). All such previously-filed Tax Returns were complete and accurate
in all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a
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Tax authority, or (2) as to which the Company has received a written and/or oral
notice from a Tax authority that such Tax authority intends to commence an audit
or examination of such Tax Return, and (B) each such Tax Return as to which the
Company has given its consent to waive or extend the applicable statute of
limitations for such Tax Return or the assessment of Taxes required to be
reported thereon. The Company has either delivered to Buyer or made available
for inspection by Buyer or its representatives or agents complete and correct
copies of all Tax audit reports and statements of Tax deficiencies with respect
to any delinquent Tax assessed against or agreed to by the Company for all
taxable periods commencing on or after January 1, 1993, for which audit reports
or statements of deficiencies have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Interim Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (excluding book reserves for deferred Taxes established to reflect
timing differences between book and Tax income ) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for
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federal and state income tax purposes, and neither the Company nor any Member
has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(l) Section 351. The transfer of the Seller Interests by the Members to
Buyer pursuant to this Agreement is intended to qualify (i) as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of applicable state income tax law, and (ii) under
Code Section 351 as part of a transfer by the Members and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
2.22. INDEBTEDNESS. Schedule 2.22 lists each person or entity that owns
any direct or indirect debt interest (other than accounts payable incurred in
the ordinary course of the Company's business) in the Company (including,
without limitation, any indebtedness for borrowed money, whether or not
evidenced by a note or other written instrument) and a description of each such
debt interest.
2.23. ENVIRONMENTAL MATTERS. Notwithstanding anything to the contrary
contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under the common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous
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substance, hazardous waste, contaminant, pollutant or toxic substance (as such
terms are defined in or otherwise subject to any applicable Environmental Law
and collectively referred to herein as "HAZARDOUS MATERIALS") has been released,
placed, disposed of or otherwise come to be located on, at, beneath or near any
of the assets or properties owned or leased by the Company at any time or any
other property in violation of any Environmental Laws such that the Company
could be subject to material liability under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or any
Member, threatened administrative, judicial or regulatory proceedings, or, to
the knowledge of the Company or any Member, any threatened actions or claims, or
any consent decrees or other agreements in effect that relate to environmental
conditions in, on, under, about or related to the Company, its operations or the
real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24. SECURITIES MATTERS.
(a) The Members understand that (i) neither the Shares nor any notes
issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Members' representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
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(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members have had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the offering of
the Securities and the business, properties, plans, prospects, and financial
condition of Buyer and to obtain additional information as the Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members have adequate means of providing
for current needs and personal contingencies, and have no need for liquidity and
can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Members' own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) The Members understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Each Member is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has each documented his or her accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit B hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
any Member aware of any such solicitation or advertising.
2.25. BUYER AND THE CONSOLIDATION TRANSACTIONS.
(a) The Members are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
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(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.9) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Member would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the Common
Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents concerning the potential value or the Shares issued as
part of the Purchase Price or the prospects of Buyer, except as set forth
herein.
2.26. MINUTE BOOKS AND RECORDS. The Company has made available to Buyer
true, complete and correct copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its Members;
and
(b) all record books of the Company setting forth all transfers of
interests in the Company.
2.27. [RESERVED.]
2.28. POWERS OF ATTORNEYS AND SURETYSHIPS. The Company does not have any
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.29. BROKERS. Except as set forth on Schedule 2.29, no broker, finder,
investment banker, or other person is entitled to any brokerage, finder's or
other fee or commission in
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connection with the transactions contemplated by this Agreement, based upon
arrangements made by or on behalf of the Company or any of the Members.
2.30. ACCURACY OF INFORMATION. None of the representations or warranties
or information provided and to be provided by the Company or any Member to Buyer
in this Agreement, the Disclosure Schedule, schedules or exhibits hereto, or in
any Accredited Investor Questionnaire contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements and facts contained herein or therein
not false or misleading. The descriptions set forth in the Disclosure Schedule
are accurate descriptions of the matters disclosed therein. Copies of all
documents heretofore or hereafter delivered or made available to Buyer pursuant
hereto were or will be complete and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
the Members that:
3.1. ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and the other Transaction Documents to be executed and delivered by Buyer have
been (or upon execution by Buyer will have been) duly executed and delivered by
Buyer, have been effectively authorized by all necessary action of Buyer,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer, except as such enforceability may
be limited by the Bankruptcy Exception.
3.2. NO CONFLICT OR VIOLATION. The execution, delivery and performance by
Buyer of this Agreement and the other Transaction Documents to be executed and
delivered by Buyer and the consummation of the transactions contemplated hereby
and thereby, do not and will not: (i) violate or conflict with any provision of
the charter documents or bylaws of Buyer; or (ii) violate in any material
respect any provision or requirement of any domestic or foreign, national, state
or local law, statute, judgment, order, writ, injunction, decree, award, rule,
or regulation of any Governmental Entity applicable to Buyer.
3.3. CAPITALIZATION. The authorized capital stock of Buyer consists of
240,000,000 shares of common stock, par value $0.001 per share (the "COMMON
STOCK") of which 200,000,000 are Series A Common Stock and 40,000,000 are Series
B Common Stock, and 10,000,000 shares of undesignated preferred stock. The
Shares, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable. Holders of Series B Common Stock are
entitled to elect all the directors in one of the Buyer's three (3) classes of
directors, with the holders of Series A Common Stock entitled to elect the
remaining directors. In all other respects the Series A and Series B Common
Stock are identical.
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3.4. NOTES. Any note to be delivered by Buyer as part of the Purchase
Price, when delivered in accordance with the terms of this Agreement, will be
duly executed, and will constitute a legal, valid and binding obligation of
Buyer, except as such enforceability may be limited by the Bankruptcy Exception.
3.5. LITIGATION. Except as set forth on Schedule 3.5, there are no
claims, actions, suits, or proceedings of any nature pending or, to the
knowledge of Buyer, threatened by or against Buyer, the officers, directors,
employees, agents of Buyer, or any of their respective Affiliates involving,
affecting or relating to any assets, properties or operations of Buyer or the
transactions contemplated by this Agreement. Buyer is not subject to any order,
writ, judgment, award, injunction or decree of any Governmental Entity. From and
after the Closing, Buyer or its Affiliates may be subject to claims, actions,
suits, or proceedings, including as a result of acquisitions by Buyer in the
Consolidation Transactions, and Buyer makes no representations or warranties
about any such claims, actions, suits or proceedings or the absence thereof.
3.6. NO UNDISCLOSED DEBT. Since its date of incorporation, Buyer has had
no operations except operations in connection with effecting the Consolidation
Transactions and preparing for operation of its business after the Closing.
Buyer has no material, and except as set forth on Schedule 3.6, Buyer has no
material liabilities or obligations for borrowed money or payment for services
rendered to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.7. ACCURACY OF INFORMATION. None of the representations or warranties
or information provided and to be provided by Buyer to the Members in this
Agreement, the schedules or exhibits hereto, or in any of the other Transaction
Documents delivered by Buyer contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not false or
misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1. ACCESS. The Company shall afford, to Buyer and Buyer's accountants,
counsel and representatives, full access during normal business hours throughout
the period prior to the Closing Date (or the earlier termination of this
Agreement) to all of the properties, books, Contracts and records of the Company
(including, without limitation, the Company's accounting records, the workpapers
of the Company's independent accountants, and all environmental studies, reports
and other environmental records) and, during such period, shall furnish promptly
to Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
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4.2. CONFIDENTIALITY. For purposes hereof, the Company and the Members
will keep the matters contemplated herein and all information provided by Buyer
related to Buyer and the Consolidation Transactions and potential participants
therein, including, without limitation, Deloitte & Touche, LLP, confidential,
and will not provide information about such matters to any party or use such
information except to the extent necessary to effect the transactions
contemplated hereby. Buyer will keep the matters contemplated herein and all
information provided by the Company and the Members related to the Company and
the Business confidential, and will not provide information about such matters
to any party or use such information except to the extent necessary to effect
the transactions contemplated hereby. Buyer and the Company shall each cause
their respective Affiliates, officers, directors, employees, agents, and
advisors to keep confidential all information received in connection with the
transactions contemplated hereby. The Company and the Members acknowledge that
Buyer may provide information about the Company and the Business to other
participants in the Consolidation Transactions to the extent necessary to
facilitate the Consolidation Transactions. If this Agreement terminates without
consummation of the Closing, the Company, the Members and Buyer shall, and shall
cause their Affiliates to, each maintain the confidentiality of any information
obtained from the other in connection with the transactions contemplated hereby,
the Consolidation Transactions, and Buyer's business plans (the "INFORMATION"),
other than Information that (i) was in the public domain before the date of this
Agreement or subsequently came into the public domain other than as a result of
disclosure by the party to whom the Information was delivered; or (ii) was
lawfully received by a party from a third party free of any obligation of
confidence of or to such third party; or (iii) was already in the possession of
the party prior to receipt thereof, directly or indirectly, from the other
party; or (iv) is required to be disclosed in a judicial or administrative
proceeding after giving the other party as much advance notice of the
possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Members and the
Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
4.3. CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Members
shall cause the Company to, conduct the Company's business solely in the
ordinary course consistent with past practices. Without limiting the generality
of the preceding sentence, except as required or permitted pursuant to the terms
hereof, the Company shall not, and the Members shall cause the Company not to:
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(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts described in Schedule
4.3(a)(i), in any case calling for payments to or by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests, or make any change in other ownership interests or
in the capitalization, whether by reason of a reclassification,
recapitalization, exchange, distribution or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money, issue
any notes, bonds, debentures or other corporate securities or grant any option,
warrant or right to purchase any of the foregoing, (B) issue any securities
convertible or exchangeable for debt securities of the Company, or (C) issue any
options or other rights to acquire directly or indirectly any debt securities of
the Company or any security convertible into or exchangeable for such debt
securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part thereof,
to any lien, security interest, charge, interest or other encumbrance, or suffer
such to be imposed other than such liens, security interests, charges, interests
or other encumbrances as may arise in the ordinary course of business consistent
with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
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(viii) make or commit to make any capital expenditure in excess of
$25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to equity
holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost allocation
practices or method of accounting or accounting principle, method, estimate or
practice (except for any such change required by reason of a concurrent change
in GAAP), or write down the value of any assets or write-off as uncollectible
any Accounts Receivable except in the ordinary course of business consistent
with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Member herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Members shall cause
it to:
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and other
Tax Returns and other reports required to be filed and pay when due all Taxes,
assessments, fees and other charges lawfully levied or assessed against it,
unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
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(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all Environmental Laws, and upon receipt of
notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing;
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof; and
(viii) preserve its business organization.
4.4. RESTRICTIVE COVENANTS.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement and the other Transaction Documents and that
but for the agreement of each Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights and that irreparable harm and damage will be done to Buyer if
any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
(i) either on its, his, hers or their own account or for any
other person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or whom the Company was engaged
in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"), to
modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
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(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to make any such
statement or to perform any such act; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited, with respect to any Member,
to any county or any other political subdivision of any state of the United
States of America, or of any other country in the world, where such Member
generated revenue or established goodwill at any time during the two (2) year
period preceding the Closing Date. This Covenant Not to Compete shall bind the
Members until the fifth anniversary of the Closing Date, provided, however, that
if the employment of any Member is terminated by Buyer without Cause or by such
Member for Good Reason (each as defined in such Member's Employment Agreement
delivered pursuant to Section 6.3(c)(iv), and if an IPO of Buyer's securities
has not been consummated by December 31, 1999, then from and after the later of
January 1, 2000 or termination of such Member's employment, such Member will no
longer be subject to the covenant contained in Section 4.4(a)(ii). The parties
hereto agree that the duration and area for which the Covenant Not to Compete
set forth in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Member shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the Members
become aware as the result of their affiliation with the Business or their
relationship with Buyer or its Affiliates and which relate specifically to the
Business, or any part thereof. This Section 4.4(c) is in addition to and not by
way of limitation of any other duties the Members may have to Buyer or its
Affiliates.
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(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, hire away, or cause any other
person to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by Seller before the
Closing Date), or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their employment or
engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Members in light of the activities and business of
the Company and future plans of Buyer. The Members acknowledge that if they
violate any of the covenants contained in this Section 4.4 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, (i)
Buyer shall be entitled to temporary injunctive relief without being required to
post a bond and permanent injunctive relief without the necessity of proving
actual damages, and (ii) Buyer shall have the right to offset any payment
obligations to the Members, to the extent of any money damages incurred or
suffered by Buyer. The Members shall be liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants, whether or not
litigation is actually commenced and including litigation of any appeal defended
by Buyer where such party succeeds in enforcing any of the Restrictive
Covenants. Buyer may elect to seek one or more remedies at its discretion on a
case by case basis. Failure to seek any or all remedies in one case shall not
restrict Buyer from seeking any remedies in another situation. Such action by
Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
4.5. SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the
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Securities Act and applicable state securities laws or exemptions from such
registration and qualification requirements are available, or such registration
and qualification requirements are inapplicable, as reflected in an opinion of
counsel to any transferring stockholders in form and substance reasonably
satisfactory to Buyer. In the absence of an effective registration statement
covering the Shares or an available exemption from registration under the
Securities Act, the Shares must be held indefinitely, and may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
4.6. REGISTRATION. (a) No Member will have any rights to demand
registration of any of the Shares, or to participate in any registration
undertaken by Buyer except as set forth in this Section 4.6. If Buyer files a
registration statement with the Securities and Exchange Commission for an IPO of
its equity securities or any subsequent public offering within twenty-four (24)
months of the closing of the IPO (not including a registration statement filed
in connection with an acquisition or employee benefit plan), and if the managing
underwriter of such offering believes that the market will accommodate selling
stockholders in the offering, then the Members in the aggregate shall have the
right to include in such registration statement and offering up to that number
of Shares and other Common Stock not subject to any performance-related
restrictions listed on Schedule 4.6. Other stockholders (including but not
limited to stockholders who acquired Common Stock in the Consolidation
Transactions and stockholders who acquired Common Stock in connection with the
formation, or work on behalf of, Buyer) will have rights to include shares of
Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the
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number of shares of Common Stock that can be sold by all Selling Stockholders,
then all Selling Stockholders desiring to sell in the offering will participate
pro-rata on the basis of the relative numbers of shares of Common Stock they
originally sought to include. In general, in such offerings, no Selling
Stockholder will be permitted to include in the aggregate more than half of the
shares of Common Stock held by such Selling Stockholder, or any shares subject
to performance-related restrictions.
(b) If any Member acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Member from and against any claims, costs and liabilities incurred by such
Member as a result of any untrue, or alleged untrue, statement of a material
fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by a Member or underwriter expressly
for use therein.
(c) Shares of Common Stock may only be included pursuant to the
underwriting agreement negotiated between Buyer and the underwriters, and
Selling Stockholders must enter into the underwriting agreement with respect to
any shares held by them to be included in the offering. Each Selling Stockholder
shall pay (i) all underwriting discounts and commissions applicable to such
Selling Stockholder's sale of shares of Common Stock, (ii) such Selling
Stockholder's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
Selling Stockholders (or affiliated stockholder groups) selling the most shares
of Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7. COOPERATION IN LITIGATION. Each party will fully cooperate with the
others in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business prior to or after the
Closing Date (other than litigation between Buyer and/or its Affiliates or
assignees, on the one hand, and the Company or any Member and/or their
Affiliates or assignees, on the other, arising out of the transactions
contemplated by this Agreement). Subject to the provisions hereof regarding
payments by each party of its costs and payments or attorneys' fees and costs,
the party requesting such cooperation shall pay the
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out-of-pocket expenses (including reasonable legal fees and disbursements) of
the party providing such cooperation and of its officers, directors, employees
and agents reasonably incurred in connection with providing such cooperation,
but shall not be responsible to reimburse the party providing such cooperation
for such party's time spent in such cooperation or the salaries or costs of
fringe benefits or other similar expenses paid by the party providing such
cooperation to its officers, directors, employees and agents while assisting in
the defense or prosecution of any such litigation or proceeding.
4.8. TAX MATTERS.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as
of the close of the Company's business activities on the Closing Date, and, in
the case of Pre-Acquisition Taxable Periods ending on the Closing Date, all of
the Company's income, gains and other Tax items attributable to the Closing Date
shall be included and reported by the Company in Tax Returns (including federal
Form 1065 and any similar state return) of the Company for such Pre-Acquisition
Taxable Periods to be filed following the Closing and all Taxes attributable to
the Company's income, gains or other taxable items for the Closing Date shall be
reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated between the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
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(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods
which are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Members shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes shown or reported to be due and payable on such Tax
Returns. Each Member shall pay his or her proportionate share of such costs,
expenses and Tax Liabilities of the Company promptly following receipt by such
Member of a notice from Buyer of Buyer's calculation of such Member's payment
obligation hereunder together with copies of the relevant Tax Returns and other
information supporting Buyer's calculation. If a Member disputes all or any
portion of the payment obligation hereunder as calculated by Buyer, such Member
shall nevertheless promptly pay to Buyer the amount specified in the notice and
any dispute related thereto shall be resolved pursuant to the arbitration
provisions of Section 7.13. Any additional Taxes attributable to the periods
covered by such Tax Returns, whether pursuant to an amended return or any Tax
Proceeding, shall be paid by Members promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE PERIOD RETURN") reporting and accounting for
such Taxes on an aggregate basis covering both the Pre-Closing Period and the
Post-Closing Period. The Buyer, at its expense, shall cause the Company to
prepare and file such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns. Each Member shall pay his
or her proportionate share of Pre-Closing Taxes promptly following receipt by
such Member of a notice from Buyer of Buyer's calculation of such Member's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If a Member disputes all
or any portion of the payment obligation hereunder as calculated by Buyer, such
Member shall nevertheless promptly pay to Buyer the amount specified in the
notice and any dispute related thereto shall be resolved pursuant to the
arbitration provisions of Section 7.13. Any additional Taxes attributable to the
Pre-Closing Periods covered by such Tax Returns, whether pursuant to an amended
return or any Tax Proceeding, shall be paid by Members promptly upon demand
therefor by Buyer.
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(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify
the Members of any written communication from a Tax authority with respect to
any pending Tax Proceeding involving a Pre-Acquisition Tax Liability. Buyer
shall include with such notification a copy of the written communication so
received by Company.
(ii) The Buyer shall have responsibility and authority to represent
the interests of the Company in any Tax Proceeding relating to Pre-Acquisition
Taxable Periods and Straddle Periods and to employ counsel of its choice in
connection therewith; provided, however, that Members shall be permitted to
participate in any such Tax Proceedings and all hearings related thereto at the
expense of the Members; and provided further, that, without the prior written
consent of the Members, which shall not be unreasonably withheld, the Buyer
shall not agree to settle or compromise any such Tax Proceeding and/or any
Pre-Acquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which the Members are responsible hereunder, provided,
however, the consent of the Members to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Members, promptly upon demand
from the Buyer, shall pay the reasonable costs and expenses, including attorney
fees, incurred by Buyer in connection with any such Tax Proceedings, provided,
however, in any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Members are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Members are not responsible,
the Buyer, on the one hand, and the Members, on the other hand, shall jointly
bear the costs and expenses thereof as allocated between them on an equitable
basis.
(iii) All notices to Members provided for hereunder shall be deemed
delivered to each Member upon receipt thereof either directly by the Member. The
Members shall proportionately pay all Tax Liabilities and costs and expenses for
which the Members are responsible hereunder; provided, however, the Members
shall be jointly and severally liable for all such Tax Liabilities, costs and
expenses.
(iv) The Member shall furnish to Buyer such information and
documents as may be reasonably requested by Buyer, and shall otherwise
reasonably cooperate with Buyer, in connection with Buyer's conduct of any Tax
Proceedings described herein.
(f) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Members shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute
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of limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests in a manner consistent with its qualification as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of state income tax law, and (ii) file such Tax
Returns and Tax information reports related to the transfer as may be required
or otherwise appropriate under the Tax laws and regulations applicable to
transfers of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9. CONSOLIDATION TRANSACTIONS. Concurrent with the transaction
contemplated hereby, Buyer is acquiring in a series of transactions various
other companies engaged in the business of cost reduction, cost recovery and
profit enhancement services by means of mergers into Buyer, or acquisitions by
Buyer of all or substantially all of the assets or stock or other equity
interests of such companies (collectively, the "CONSOLIDATION TRANSACTIONS").
The Company and the Members acknowledge that as a result of the complexity of
the transactions contemplated hereby and the Consolidation Transactions, the
Closing contemplated hereby and the closing of the Consolidation Transactions
must be concurrent at a time designated by Buyer. Accordingly, the Company and
the Members shall upon receipt of the Closing Notice but prior to the Closing
Date (i) provide any outstanding documentation required to effect the Closing
pursuant to this Agreement in escrow pending release upon authorization of the
Members at the Closing, (ii) complete performance of their respective
obligations hereunder and under the other Transaction Documents to be performed
by the Closing, and (iii) update the schedules hereto and any other
documentation or information provided to Buyer during the course of this
transaction such that all such disclosures shall be accurate and current as of
the Closing Date.
4.10. SUPPLEMENTAL DISCLOSURE. At the Closing, the Company and the Members
shall supplement or amend each of the schedules hereto with respect to any
matter hereafter arising which, if existing or occurring at or prior to the date
hereof, would have been required to be set forth or listed in the schedules or
which is necessary to complete or correct any information in the schedules.
4.11. HSR. Buyer and the Company shall cooperate in preparing and
delivering to the Department of Justice and the Federal Trade Commission
notification of the transactions contemplated hereby pursuant to, and shall use
their commercially reasonable best efforts to obtain early termination of the
waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR ACT"), if applicable. Buyer and the Company shall each pay half of all
filing fees payable under the HSR Act in connection with the transactions
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contemplated hereby, and each of Buyer and the Company shall pay its own costs
incurred in preparation of all reports and notifications required under the HSR
Act.
4.12. COMPETING PROPOSALS.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.13. BONUS PLAN. If Buyer does not close the IPO of its equity securities
by June 30, 1999, Buyer will implement a cash bonus plan designed to reward
employees on the basis of the performance of the divisions or subsidiaries of
Buyer in which they work. Amounts payable under, and other terms of, any such
plan will be subject to restrictions imposed by Buyer's lenders, Buyer's capital
investment requirements, and preservation of adequate working capital.
4.14. BEST EFFORTS. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts (other than the
payment of money unreimbursed by the other party) to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to cause the fulfillment of the
conditions to Closing set forth herein and to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
4.15. FURTHER ASSURANCES. Upon the reasonable request of a party or
parties hereto at any time after the Closing Date, the other party or parties
shall forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its or their counsel may
reasonably request in order to effectuate the purposes of this Agreement.
4.16. NOTICE OF BREACH. At all times before the Closing, and thereafter
until the second anniversary of the Closing Date, each of the parties hereto
shall promptly give written notice with particularity of any breach or
inaccuracy of any representation, warranty,
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agreement or covenant of such party contained herein or in any other Transaction
Document to the parties to whom or which such representation, warranty or
covenant was made.
5. Survival; Indemnification.
5.1. SURVIVAL. The representations and warranties made in this Agreement
or in any exhibit, schedule, or any other Transaction Document or certificate
shall survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Seller Interests), 2.4 (Title to Assets) and 2.22 (Indebtedness)
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2. INDEMNIFICATION BY THE MEMBERS. Subject to the limits set forth in
this Article 5, the Members and, if the transactions contemplated hereby are not
consummated, the Company, and their successors and assigns shall jointly and
severally indemnify, defend, reimburse and hold harmless Buyer and its
Affiliates and their successors and assigns, and the officers, directors,
employees and agents of any of them, from and against any and all claims,
losses, damages, liabilities, obligations, assessments, penalties and interest,
demands, actions and expenses, whether direct or indirect, known or unknown,
absolute or contingent (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any actions
or threatened actions) ("LOSSES") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company before the Closing,
provided that such Loss is not an obligation for payment of money in an amount
reflected as a liability of the Company in the Interim Financial Statements;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by the Company or the Members in this Agreement
or any other Transaction Document; and
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(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document.
5.3. INDEMNIFICATION BY BUYER. Subject to the limits set forth in this
Article 5, Buyer and its successors and assigns shall indemnify, defend,
reimburse and hold harmless the Members and their successors and assigns from
and against any and all Losses reasonably incurred by any such Members arising
out of or in connection with any of the following:
(a) the ownership and operation of the Company after the Closing;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Buyer in this Agreement or any other
Transaction Document; and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4. INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"Claim"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel
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that is relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5. PAYMENT. All payments owing under this Article 5 will be made
promptly as indemnifiable Losses are incurred. If the Indemnitee defends the
subject matter of any Claim in accordance with Section 5.4(c) or proceeds with
separate counsel in accordance with Section 5.4(b), the expenses (including
attorneys' fees) incurred by the Indemnitee shall be paid by the Indemnitor in
advance of the final disposition of such matter as incurred by the Indemnitee,
if the Indemnitee undertakes in writing to repay any such advances in the event
that it is ultimately determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement or applicable law.
5.6. LIMITATIONS.
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(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract claims arising
under this Agreement or any other Transaction Document unless the persons so
entitled to indemnity or recovery thereunder have suffered Losses in an
aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Members to Buyer on the one
hand, and Buyer, on the other hand to the Members, for all claims arising under
this Agreement and the other Transaction Documents shall equal the aggregate
Purchase Price. For purposes of this Section 5.6(b), the value of Shares
received shall be (i) prior to the IPO, the per share Agreed Price (as defined
in the Stockholder Agreement) then prevailing; and (ii) after the IPO, the per
share closing price on the primary exchange or market on which the Common Stock
is traded on the date such indemnifiable Losses become payable, except that the
value of any Shares sold in bona fide third party transactions will be the gross
proceeds to the Members of such sale.
6. CONDITIONS TO CLOSING.
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of the
Members, on the one hand, and Buyer, on the other hand, to consummate the
transactions contemplated hereby are subject to the fulfillment, at or before
the Closing Date, of the conditions set forth in this Section 6.1, any one or
more of which may be waived in writing by the party entitled to the benefit of
such condition; provided, however, that such waiver will not diminish such
party's right to indemnification pursuant to Article 5, unless so stated, and
provided further that the Members will be required to perform their obligations
hereunder, notwithstanding lack of fulfillment of the conditions set forth in
this Section 6.1, if Buyer agrees in writing to be liable for, and to indemnify
the Members from and against, any obligations that the Members would incur as a
result of consummating the transactions contemplated hereby notwithstanding the
fact that the conditions in this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of the Company, is in effect; and no action or
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proceeding has been instituted or threatened by any Governmental Entity, other
person, or entity which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transactions contemplated hereby are subject to the fulfillment,
at or before the Closing Date, of the conditions set forth in this Section 6.2,
any one or more of which may be waived by Buyer in writing in its discretion;
provided however, such waiver will not waive or diminish Buyer's right to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Members contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date, and at the Closing the Company and
the Members' Representative shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Members.
(b) Performance of the Company and the Members. The Company and the
Members shall have performed in all material respects all obligations required
to be performed by each of them under this Agreement on or before the Closing
Date, and at the Closing the Company and the Members, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Members, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Members authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents to be
delivered by the Company and the Members and the consummation of the
transactions contemplated hereby and thereby;
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(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by each Member and the spouse of each
Member, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24;
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares;
(iv) The acknowledgments and representations attached hereto as
Exhibit E, together with such additional acknowledgments and representations as
Buyer may reasonably require;
(v) A Subordination Agreement substantially in the form of Exhibit
F, executed and delivered by each recipient of the Notes (as defined in Schedule
1.3); and
(vi) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least Four Hundred Eighty-Three
Thousand
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Dollars ($483,000), and (ii) sufficient working capital to operate the Company;
and at the Closing the Company shall have delivered to Buyer a certificate dated
the Closing Date to such effect with supporting financial information, signed by
the President or any Vice President and the Secretary or any Assistant Secretary
of the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Members in
substantially the form of Exhibit G. In giving such opinion, such counsel may
rely upon certificates of public officials, upon opinions of local counsel and,
as to matters of fact, upon a certificate of the Company, or its officers, and
such counsel may assume that this Agreement has been duly authorized, executed
and delivered by Buyer.
(l) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
(m) Books. The Company shall have delivered to Buyer the record books,
ledgers, minute books, corporate seals of the Company and documents relating to
the transfer of ownership interests in the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit H (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3. CONDITIONS TO OBLIGATIONS OF THE MEMBERS. The obligations of the
Members to consummate the transactions contemplated hereby are subject to the
fulfillment, at or
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before the Closing Date, of the conditions set forth in this Section 6.3, any
one or more of which may be waived by the Members in writing in their
discretion; provided however, such waiver will not waive or diminish the right
of the Members to indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Members authorizing the execution and delivery
of this Agreement and the other Transaction Documents to be delivered by Buyer
and the consummation of the transactions contemplated hereby;
(ii) The Notes;
(iii) A photocopy of the certificates representing the Shares issued
in the name of each Member as set forth in Schedule 1.3; and
(iv) Employment Agreements substantially in the form of Exhibit H
(with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3).
(e) Opinion of Counsel. The Members shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit I. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Members.
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(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million.
For these purposes, "PRE-TAX INCOME" of any particular company means that
company's projected 1998 pre-tax income, as adjusted pursuant to agreement
between Buyer and that company to reflect certain cost reductions and modified
business practices and accounting methods expected to take effect after the
closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Member.
7. Miscellaneous.
7.1. TERMINATION. This Agreement and the transactions contemplated hereby
may be terminated (a) by Buyer, if (i) the Company or the Members fail to comply
in any material respect with any of its or their covenants or agreements
contained herein, or (ii) any of the representations and warranties of the
Company or the Members is breached or is inaccurate in any material way; (b) by
the Company or the Members if (i) Buyer fails to comply in any material respect
with any of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of Buyer is breached or is inaccurate in any
material way; or (c) by the Company or Buyer if (i) a Governmental Entity has
issued a non-appealable order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto have used their best efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to November 30,
1998; provided however, that if the board of directors of Buyer should, in good
faith, determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Consolidation Transactions, it may extend such
date by thirty-two (32) days. Notwithstanding the foregoing, a party may not
terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of the
covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.29 (Brokers), 4.2 (Confidentiality), 5
(Survival; Indemnification), 7.12 (Expenses), 7.13 (Arbitration), 7.14
(Submission to Jurisdiction), and 7.15 (Attorneys' Fees), and except that
termination of this Agreement will not affect any
44
<PAGE> 50
liability of any party for any breach of this Agreement prior to termination, or
any breach at any time of the provisions hereof surviving termination.
7.2. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Member: Erik R. Watts
695 Town Center Dr., Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Leonard J. McGill, Esq.
Day, Campbell & McGill
3070 Bristol, Suite 650
Costa Mesa, California 92626
Telephone No.: (714) 429-2919
Facsimile No.: (714) 429-2901
7.3. ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto, except that Buyer may assign its rights and obligations under
this Agreement in whole or in part to any Affiliate or Affiliates of Buyer or
any successor to all or substantially all of the business or assets of Buyer.
This Agreement shall inure to the benefit of and be binding upon Buyer and
45
<PAGE> 51
the Company and their respective permitted successors and assigns and upon each
Member and his or her executors, administrators, heirs, legal representatives
and permitted successors and assigns. Nothing in this Agreement will confer upon
any person or entity not a party to this Agreement, or the legal representatives
of such person or entity, any rights or remedies of any nature or kind
whatsoever under or by reason of this Agreement.
7.4. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
7.5. COUNTERPARTS. Facsimile transmission of any signed original document
and/or retransmission of any signed facsimile transmission will be deemed the
same as delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
7.6. PUBLICITY. Prior to the Closing Date, no party may, or may it permit
its Affiliates to, issue or cause the publication of any press release or other
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer and the Company,
except that Buyer may disclose details of this Agreement to other participants
in, or as necessary to effect, the Consolidation Transactions. Notwithstanding
the foregoing, in the event any such press release or announcement is required
by law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7. COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain or will contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and therein and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments, and
understandings.
7.8. MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time prior to the
Closing Date or termination of this Agreement, any party may, (a) waive any
inaccuracies in the representations and warranties of any other party contained
in this Agreement or in any other Transaction Document; and (b) waive compliance
by any other party with any of the covenants or agreements contained in this
Agreement. No waiver of any of the provisions of this Agreement will be
considered, or will constitute, a waiver of any of the rights of remedies, at
law or equity, of the party entitled to the benefit of such provisions unless
made in writing and executed by the party entitled to the benefit of such
provision.
7.9. HEADINGS; REFERENCES. The headings contained in this Agreement and
the other Transaction Documents are for reference purposes only and shall not
affect in any way the
46
<PAGE> 52
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10. SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11. INVESTIGATION. All representations and warranties contained herein
which are made to the knowledge of a party shall require that such party make
reasonable investigation and inquiry with respect thereto to ascertain the
correctness and validity thereof. Representations and warranties made to the
knowledge of the Company shall be deemed made to the knowledge of the Members
only and no other person.
7.12. EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
Buyer, in connection with the transactions contemplated by this Agreement shall
be borne Buyer, and all fees, costs and expenses incurred by the Company or the
Members in connection with the transactions contemplated by this Agreement shall
be borne by the Members jointly and severally.
7.13. ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"),
47
<PAGE> 53
exclusive of interest and attorney's fees, the dispute shall be heard and
determined by three (3) arbitrators as provided herein (such arbitrator or
arbitrators are hereinafter referred to as the "ARBITRATOR"). The judgment of
the award rendered by the Arbitrator may be entered in any court having
jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the
48
<PAGE> 54
pre-hearing conference. Any party deposing an opponent's expert must pay the
expert's fee for attending the deposition. All discovery disputes shall be
decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14. SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any, shall be tried and litigated exclusively in
the state or federal courts located in the County of Orange, State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this paragraph. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 7.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
49
<PAGE> 55
7.15. ATTORNEYS' FEES. If Buyer or any of its Affiliates, successors or
assigns brings any action, suit, counterclaim, cross-claim, appeal, arbitration,
or mediation for any relief against the Company or any of its Affiliates,
successors or assigns or any Member, or if the Company or any of its Affiliates,
successors or assigns or any Member brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against Buyer or
any of its Affiliates, successors or assigns, declaratory or otherwise, to
enforce the terms hereof or to declare rights hereunder (collectively, an
"ACTION"), in addition to any damages and costs which the prevailing party
otherwise would be entitled, the non-prevailing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16. ENFORCEMENT OF THE AGREEMENT. The Company, the Members and Buyer
acknowledge that irreparable damage would occur if any of the obligations of the
Company and the Members under this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Buyer will be entitled to
an injunction or injunctions to prevent breaches of this Agreement by the
Company or the Members and to enforce specifically the terms and provisions
hereto, this being in addition to any other remedy to which Buyer is entitled at
law or in equity.
50
<PAGE> 56
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ MARK C. COLEMAN
------------------------------------
Name: Mark C. Coleman
Title: SVP
DISBURSEMENT RECOVERY SERVICES, L.L.C.
By: IM COMET, LLC
Its: Manager
By: COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK WATTS
--------------------------
Name: Erik Watts
Title: Manager
MEMBER(S):
IM COMET, LLC
By: COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK WATTS
-------------------------------
Name: Erik Watts
Title: Manager
51
<PAGE> 57
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of One Hundred Twelve Thousand Five Hundred
Dollars ($112,500) (the "CASH PAYMENT").
(ii) Promissory notes of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate principal amount
of no Dollars ($0) (the "NOTES")
(iii) An aggregate of 133,555 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer
pending release pursuant to Section 1.4.
(b) Consideration per Member.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Seller Interests
Name of Owned and to Cash Note Common Stock
Member be sold to Buyer Consideration Consideration Consideration
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IM COMET, LLC 40% $112,500 0 133,555
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.39
STOCK PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
FFR HOLDING CO., INC.
"COMPANY"
AND
THE STOCKHOLDERS NAMED HEREIN
"STOCKHOLDERS"
NOVEMBER 20, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale and Purchase....................................................................... 1
1.1 Agreements to Sell and Purchase............................................. 1
1.2 Closing..................................................................... 1
1.3 Purchase Price.............................................................. 2
1.4 Certificates for Shares..................................................... 2
2. Representations and Warranties of the Company and the Stockholders...................... 2
2.1 Organization and Good Standing.............................................. 3
2.2 Ownership of Capital Stock.................................................. 3
2.3 Authorization of Agreement.................................................. 5
2.4 Title to Assets............................................................. 5
2.5 Financial Condition and Accounting.......................................... 6
2.6 Certain Property of the Company............................................. 7
2.7 Year 2000 Compliance........................................................ 9
2.8 No Conflict or Violation.................................................... 10
2.9 Consents.................................................................... 10
2.10 Labor and Employment Matters................................................ 11
2.11 Employee Plans.............................................................. 11
2.12 Litigation.................................................................. 14
2.13 Certain Agreements.......................................................... 14
2.14 Compliance with Applicable Law.............................................. 15
2.15 Licenses.................................................................... 16
2.16 Accounts Receivable......................................................... 17
2.17 Intercompany and Affiliate Transactions; Insider Interests.................. 17
2.18 Insurance................................................................... 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
2.19 Customers................................................................... 18
2.20 No Undisclosed Liabilities.................................................. 18
2.21 Taxes....................................................................... 19
2.22 Indebtedness................................................................ 21
2.23 Environmental Matters....................................................... 21
2.24 Securities Matters.......................................................... 22
2.25 Buyer and the Consolidation Transactions.................................... 23
2.26 Minute Books and Stock Records.............................................. 24
2.27 Banks....................................................................... 24
2.28 Powers of Attorneys and Suretyships......................................... 24
2.29 Brokers..................................................................... 25
2.30 Summary of Certain Considerations........................................... 25
2.31 Accuracy of Information..................................................... 25
3. Representations and Warranties of Buyer.................................................. 25
3.1 Organization and Corporate Authority........................................ 25
3.2 No Conflict or Violation.................................................... 25
3.3 Capitalization.............................................................. 26
3.4 Litigation.................................................................. 26
3.5 Buyer's Operations and Financial Condition.................................. 26
3.6 Accuracy of Information..................................................... 26
4. Certain Understandings and Agreements of the Parties.................................... 27
4.1 Access...................................................................... 27
4.2 Confidentiality............................................................. 27
4.3 Certain Changes and Conduct of Business..................................... 28
4.4 Restrictive Covenants....................................................... 30
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
4.5 Securities Restrictions..................................................... 33
4.6 Registration................................................................ 34
4.7 Cooperation in Litigation................................................... 36
4.8 Tax Matters................................................................. 36
4.9 Stockholder Representative.................................................. 39
4.10 Consolidation Transactions.................................................. 40
4.11 Supplemental Disclosure..................................................... 40
4.12 HSR......................................................................... 40
4.13 Competing Proposals......................................................... 41
4.14 Bonus Plan.................................................................. 41
4.15 Best Efforts................................................................ 41
4.16 Further Assurances.......................................................... 41
4.17 Notice of Breach............................................................ 42
4.18 Put Right................................................................... 42
5. Survival; Indemnification............................................................... 43
5.1 Survival.................................................................... 43
5.2 Indemnification by the Stockholders......................................... 43
5.3 Indemnification by Buyer.................................................... 44
5.4 Indemnification Procedure................................................... 45
5.5 Payment..................................................................... 46
5.6 Limitations................................................................. 46
6. Conditions to Closing................................................................... 47
6.1 Conditions to Obligations of Each Party..................................... 47
6.2 Conditions to Obligations of Buyer.......................................... 48
6.3 Conditions to Obligations of the Stockholders............................... 51
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
7. Miscellaneous........................................................................... 52
7.1 Termination................................................................. 52
7.2 Notices..................................................................... 53
7.3 Assignability and Parties in Interest....................................... 54
7.4 Governing Law............................................................... 54
7.5 Counterparts................................................................ 54
7.6 Publicity................................................................... 54
7.7 Complete Agreement.......................................................... 54
7.8 Modifications, Amendments and Waivers....................................... 55
7.9 Headings; References........................................................ 55
7.10 Severability................................................................ 55
7.11 Investigation............................................................... 55
7.12 Expenses of Transactions.................................................... 55
7.13 Arbitration................................................................. 56
7.14 Submission to Jurisdiction.................................................. 58
7.15 Attorneys' Fees............................................................. 58
7.16 Enforcement of the Agreement................................................ 59
</TABLE>
iv
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
A. Form of Accredited Investor Questionnaire
B. Summary of Certain Considerations
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Form of Voting Agreement
E. Form of Opinion of Counsel to the Company and the Stockholders
F. Form of Opinion of Counsel to the Buyer
G. Form of Officer's Certificate
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
1.3 Purchase Price
2 Disclosure Schedule
2.1(a) Qualifications to do Business
2.1(b)(i) Certificate of Incorporation
2.1(b)(ii) Form of Certificate of Amendment of the Certificate of Incorporation
2.2(e) Q and E Plan Shareholders
2.2(g) Subsidiaries
2.5(a) Financial Statements
2.5(b) Certain Changes
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10(a)(i) Employees
2.10(a)(ii) Employment Agreements
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.21(j) 351 Information
2.22 Indebtedness
2.27 Banks
2.29 Brokers
3.4 Buyer Litigation
3.5 Buyer Liabilities
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
</TABLE>
v
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 20, 1998 by and among FFR Holding Co., Inc., a
Delaware corporation (the "Company"), the stockholders (and the beneficial
owners) of the Company listed on the signature pages hereof (each such
individual a "STOCKHOLDER," and collectively, the "STOCKHOLDERS"), George W.
Imhoff ("IMHOFF"), acting for and on behalf of the Stockholders as their
representative pursuant to Section 4.9 (the "STOCKHOLDER REPRESENTATIVE"), and
ProfitSource Corporation, a Delaware corporation ("BUYER").
A. The Company and its Subsidiaries (as hereinafter defined) are
engaged in the business of distributing products of various insurance carriers
and financial institutions through principals located throughout the United
States who contract to use the Company's products and services (the "BUSINESS").
B. Each Stockholder owns the number of the issued and outstanding
shares of common stock of the Company (collectively, the "SELLER SHARES") and
the Series A Preferred Stock (as hereinafter defined) set forth opposite such
Stockholder's name in part (b) of Schedule 1.3.
C. The Stockholders desire to sell to Buyer, and Buyer desires to
purchase from the Stockholders all their respective Seller Shares on the terms
and conditions set forth in this Agreement, while the outstanding Series A
Preferred Stock will be retained by the holders thereof.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) each Stockholder shall sell
to Buyer, and Buyer shall purchase from each Stockholder, the number of Seller
Shares set forth opposite such Stockholder's name in part (b) of Schedule 1.3,
for the purchase price set forth in part (b) of Section 1.3.
1.2 Closing.
The closing of the sale and purchase of the Seller Shares (the "CLOSING") will
take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Irvine,
California, on a
<PAGE> 8
date to be selected by Buyer after all the conditions set forth in Article 6
have either been satisfied or, in the case of conditions not satisfied, waived
in writing by the party entitled to the benefit of such conditions (the "CLOSING
DATE"). Prior to the Closing Date, Buyer shall provide written notice (the
"CLOSING NOTICE") to the Company and the Stockholder Representative informing
the Company and the Stockholders of the anticipated Closing Date. At the
Closing, the Stockholder Representative shall deliver to Buyer or its designees
stock certificates, duly endorsed in blank (or accompanied by duly executed
stock powers), representing the Seller Shares being sold by the Stockholders and
each other instrument of transfer Buyer may reasonably request to vest
effectively in Buyer good and valid title to the Seller Shares, free and clear
of any liens, pledges, options, security interests, trusts, encumbrances or
other rights or interests of any person or entity, together with any taxes,
direct or indirect, attributable to such transfer of the Seller Shares, and
Buyer shall thereupon pay to each Stockholder the Purchase Price described in
part (b) of Section 1.3 for such Stockholder's Seller Shares.
1.3 Purchase Price.
The consideration to be paid by Buyer for each Stockholder's respective
Seller Shares is described in part (b) of Schedule 1.3 (collectively, the
"PURCHASE PRICE").
1.4 Certificates for Shares.
In order to facilitate replacement of certificates for the shares of
Series A Common Stock of Buyer constituting part of the Purchase Price (the
"SHARES") upon an IPO (as defined herein) with the transfer agent's form of
certificate, and to facilitate enforcement of the Stockholder Agreement (as
defined herein), Buyer will keep custody of the certificates representing the
Shares until the IPO and until the Shares are no longer subject to the
Stockholder Agreement, and recipients of Shares will execute and deliver blank
stock powers as described in Section 6.2(d)(i). This custody arrangement will
not affect the rights as a stockholder of any permitted recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Schedule 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. The Company and
Stockholders (i) Erik R. Watts ("WATTS"), (ii) Imhoff, (iii) Walter C. Duemer
and Joan Harriet Duemer, trustees under Trust Agreement dated January 10, 1994
(Walter C. Duemer and Joan Harriet Duemer, settlors), (iv) Joan Harriet Duemer,
trustee under the Trust Agreement dated January 10, 1994 (Walter C. Duemer,
settlor), and (v) Walter C. Duemer ("W. DUEMER") and Joan Harriet Duemer ("J.
DUEMER") (collectively the "DUEMERS") as beneficial owners of (x) both such
trusts, (y) the Walter C. Duemer Roth IRA (the "W. DUEMER IRA") (Community Trust
Company, successor in interest to Pennsylvania Fiduciary and Estate Services,
Inc. ("COMMUNITY
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TRUST"), Custodian) and (z) the Joan H. Duemer Spousal Roth IRA (the "J. DUEMER
IRA") (Community Trust, Custodian) (collectively, the "MAJORITY STOCKHOLDERS"),
jointly and severally, represent and warrant to Buyer as follows in this Article
2 and each of the Stockholders other than the Majority Stockholders and
Community Trust (collectively, the "MINORITY STOCKHOLDERS") severally represents
and warrants to Buyer with regard to themselves and their ownership of Seller
Shares as set forth in Sections 2.2(b) & (c), 2.3, 2.21(j), 2.24, 2.25, 2.29 and
2.30:
2.1 Organization and Good Standing.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full corporate power
and authority to carry on the Business as it is now and has since its
organization been conducted and as proposed to be conducted, and to own, lease
or operate its assets and properties. The Company and its Subsidiaries are duly
qualified to do business and in good standing in every jurisdiction in which the
character of the properties owned or leased by them or the nature of the
business conducted by them makes such qualification necessary, except where
failure to be so qualified would not have a material adverse effect on the
Business or the Company's or any Subsidiary's assets or financial condition (a
"MATERIAL ADVERSE EFFECT"). Schedule 2.1(a) lists all of the jurisdictions in
which the Company and each Subsidiary is qualified to do business.
(b) Complete and accurate copies of the charter documents and bylaws, if
applicable, and articles of organization and operating agreements, if
applicable, of the Company and each Subsidiary, with all amendments thereto to
the date hereof, have been furnished to Buyer or its representatives. Schedule
2.1(b)(i) sets forth the Certificate of Incorporation for the Company (the
"CERTIFICATE") as amended and in effect on the date hereof. Schedule 2.1(b)(ii)
sets forth the form of Certificate of Amendment of the Certificate of
Incorporation to be filed by the Company concurrently with the Closing
("CERTIFICATE OF AMENDMENT"). All amendments to the Certificate have been duly
adopted in accordance with the General Corporation Law of the State of Delaware.
The Company gave notice of the Amendments in accordance with the General
Corporation Law of the State of Delaware.
2.2 Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 50,000,000
shares of common stock of the Company, $0.001 par value per share, and 2,000,000
shares of preferred stock, $0.001 par value per share, of which 1,500,000 shares
are designated Series A Preferred Stock (the "SERIES A PREFERRED STOCK").
44,395,612 shares of common stock are issued and outstanding on the date hereof,
of which 37,626,042 are unvested shares issued pursuant to the Company's 1998
Qualified Stock Purchase Plan (the "Q PLAN") or issued
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pursuant to the Company's 1998 Equity Stock Purchase Plan (the "E PLAN").
1,470,895 shares of Series A Preferred Stock are issued and outstanding. There
is no other issued and outstanding capital stock of the Company.
(b) The Seller Shares and the Series A Preferred Stock are validly
issued and outstanding, fully paid and non-assessable. The Seller Shares and the
Series A Preferred Stock owned by each Stockholder and the Q Shares and E Shares
(as defined below) outstanding as of immediately after the Closing owned by each
holder thereof are set forth in part (b) of Schedule 1.3. Except as set forth in
Schedule 1.3 and Schedule 2.2(e), neither the Stockholders nor the Company has
granted, issued or agreed to grant or issue any other equity interests in the
Company and there are no outstanding options, warrants, subscription rights,
securities that are convertible into or exchangeable for, or any other
commitments of any character relating to, any equity interests of the Company.
(c) (i) Each of the Stockholders, except W. Duemer and J. Duemer, has
good and valid title to, and sole record and beneficial ownership of, the Seller
Shares and the Series A Preferred Stock indicated in part (b) of Schedule 1.3 as
owned by such Stockholder, free and clear of any claims, liens, pledges,
options, security interests, trusts encumbrances or other rights or interests of
any person or entity and each Stockholder has the absolute and unrestricted
right, power and authority and capacity to enter into this Agreement.
(ii) W. Duemer and J. Duemer are the beneficial owners of the
Seller Shares indicated in part (b) of Schedule 1.3 owned by the W. Duemer IRA
and the J. Duemer IRA (individually the "IRA" and collectively the "IRAS") and,
as such, have the sole power to authorize and instruct Community Trust to sell
or otherwise transfer such Seller Shares pursuant to this Agreement and to
dispose of any other securities held in any IRA and to direct the exercise of or
obtain a proxy right to exercise any voting rights related to any securities
held in any IRA.
(d) All dividends, distributions and securities repurchases made or to
be made by the Company with respect to its equity interests have complied or
will as of the Closing comply with applicable law.
(e) Schedule 2.2(e) lists all purchasers of the Company's common stock
issued pursuant to the Q Plan (the "Q SHARES") or issued pursuant to the E Plan
(the "E SHARES") together with the number of Q Shares and E Shares owned by each
as of the date hereof, the number of Q Shares and E Shares being repurchased by
the Company immediately prior to the Closing and the number of Q Shares and E
Shares, if any, remaining held by each of the immediately after the Closing.
(f) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws, and all repurchases
by the Company of Q Shares and E Shares will comply with applicable law and
regulations.
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(g) Schedule 2.2(g) sets forth all equity interests in any entity the
Company owns, directly or indirectly, either of record or beneficially (each
such entity a "SUBSIDIARY" and collectively the "SUBSIDIARIES") and neither the
Company nor any Subsidiary has the right to acquire any equity interest in any
entity. Each Subsidiary is duly organized, validly existing, and in good
standing under the laws of the state in which it is incorporated or formed, with
full power and authority to carry on its business as it is now and has since its
organization been conducted and as proposed to be conducted, and to own lease or
operate its assets or properties. All of the issued and outstanding shares of
capital stock or any membership interests of each Subsidiary are validly issued,
fully paid, and nonassessable, and are owned by the Company or a Subsidiary free
and clear of any claims, liens, pledges, options, security interests, trusts,
encumbrances or other rights or interests of any person or entity. Neither the
Company nor any Subsidiary has granted, issued or agreed to grant or issue any
other equity interests in any Subsidiary and there are no outstanding options,
warrants, subscription rights, securities that are convertible into or
exchangeable for, or any other commitments of any character relating to, any
equity interests of any Subsidiary.
2.3 Authorization of Agreement.
The Company and the Stockholders have all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement and all other agreements and instruments to be executed
by the parties hereto in connection herewith (together with all other documents
to be delivered in connection herewith or therewith, collectively the
"TRANSACTION DOCUMENTS") have (except for Transaction Documents to be executed
and delivered solely by Buyer) been duly and validly approved and no other
proceedings are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be delivered by the Company or any Stockholder have been (or upon
execution will have been) duly executed and delivered by the Company and each
Stockholder or the Stockholder Representative, have been effectively authorized
by all necessary action, corporate or otherwise, and constitute (or upon
execution will constitute) legal, valid and binding obligations of the Company
and each Stockholder, except as such enforceability may be limited by general
principles of equity and bankruptcy, insolvency, reorganization and moratorium
and other similar laws relating to creditors' rights (the "BANKRUPTCY
EXCEPTION").
2.4 Title to Assets.
The Company and each Subsidiary are the lawful owners of each of their assets,
whether real, personal, mixed, tangible or intangible. All of the assets of the
Company and any Subsidiaries assets are sufficient and adequate to conduct the
Business as presently conducted; and are free and clear of all liens, mortgages,
pledges, security interests, restrictions, prior assignments, encumbrances and
claims of any kind except any of the following: (i) purchase money security
interests in specific items of equipment each having a value not in excess of
$5,000; (ii) Personal Property leased pursuant to Personal Property Leases;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens
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consented to in writing by Buyer; (v) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vi) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase. There are
no outstanding agreements, options or commitments of any nature obligating the
Company, any Subsidiary or any Stockholder to transfer any of the assets of the
Company or any Subsidiary or rights or interests therein to any party.
2.5 Financial Condition and Accounting.
(a) Financial Statements. Schedule 2.5(a) sets forth the consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1995,
December 31, 1996 and December 31, 1997 and the related consolidated statements
of income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the consolidated balance sheet, and the related consolidated
statements of income and cash flow of the Company and each Subsidiary for the
nine-month period ended September 30, 1998 or the most recent interim date
available (the "INTERIM FINANCIAL STATEMENTS," and with the Year-End Financial
Statements, the "FINANCIAL STATEMENTS"). The Financial Statements (i) were
prepared in accordance with the books and records of the Company and the
Subsidiaries; (ii) were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied; (iii) fairly present the
financial condition and the results of the operations of the Company and the
Subsidiaries as at the relevant dates thereof and for the periods covered
thereby; (iv) to the extent required by GAAP, contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
the results of the operations of the Company and the Subsidiaries for the
periods covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, including without limitation, for all taxes, federal, state, local
or foreign, with respect to the period then ended and all prior periods; and
(vi) do not contain any items of a special or nonrecurring nature, except as
expressly stated therein. The Interim Financial Statements accurately reflect
all information normally reported to the independent public accountants of the
Company and the Subsidiaries for the preparation of their financial statements.
There have been no changes or modifications of revenue recognition, cost
allocation practices or method of, accounting or other financial or operational
practices or principles except for any such change required by reason of a
concurrent change in GAAP during the periods covered by the Financial
Statements.
(b) Absence of Certain Changes. Other than as set forth in Schedule
2.5(b), since December 31, 1997 there has not been any Material Adverse Change,
or any event, action, or
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circumstance of the kind described in Section 4.3(a). For purposes of this
Agreement, a "MATERIAL ADVERSE CHANGE" means any event, circumstance, condition,
development or occurrence causing, resulting in, having, or that could
reasonably be expected to have, a Material Adverse Effect.
2.6 Certain Property of the Company.
(a) Real Property. Neither the Company nor any Subsidiary has ever owned
nor currently owns any real property. Schedule 2.6(a) lists all real properties
leased by the Company and each Subsidiary, including a brief description of the
operating facilities located thereon, the annual rent payable thereon, the
length of the term, any option to renew with respect thereto and the notice and
other provisions with respect to termination of rights to the use thereof.
(i) The Company or its Subsidiaries have a valid leasehold in the
real properties shown in Schedule 2.6(a) under written leases (each lease being
referred to herein as a "REAL PROPERTY LEASE," and collectively the "REAL
PROPERTY LEASES") and to the knowledge of the Company or any Majority
Stockholder, each Real Property Lease is a valid and binding obligation of each
of the other parties thereto, except as enforceability may be limited by the
Bankruptcy Exception.
(ii) The Company or its Subsidiaries are not, and none of the
Company, any Subsidiary, nor any Majority Stockholder has any knowledge that any
other party to any Real Property Lease is, in default with respect to any
material term or condition thereof, and no event has occurred which through the
passage of time or the giving of notice, or both, would constitute a default
thereunder or would cause the acceleration of any obligation of any party
thereto or the creation of a lien or encumbrance upon any asset of the Company
or any Subsidiary.
(iii) To the knowledge of the Company or any Majority Stockholder
all of the buildings, fixtures and other improvements to which the Real Property
Leases relate are in good operating condition and repair, and the operation
thereof as presently conducted is not in violation of any applicable building
code, zoning ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company and the Subsidiaries (the "PERSONAL PROPERTY"). All items
of Personal Property are in good operating condition and repair sufficient to
enable the Company to operate the Business as presently conducted. The Company
and its Subsidiaries hold valid leases in all of the Personal Property leased by
them, and none of such Personal Property is subject to any sublease, license or
other agreement granting to any person any right to use such property (each such
lease, sublease, license or other agreement, a "PERSONAL PROPERTY LEASE," and
collectively the "PERSONAL PROPERTY LEASES"). Schedule 2.6(b) provides a
description and
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the location of each item of Personal Property, accurately identifies such
Personal Property as owned or leased, and lists each Personal Property Lease.
Neither the Company nor its Subsidiaries are in material breach of or default,
and no event has occurred which, with due notice or lapse of time or both, may
constitute such a material breach or default, under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company or any Subsidiary that are
material to the Business. For purposes of this Agreement "PROPRIETARY RIGHTS"
means trademarks and service marks (registered or unregistered), trade dress,
trade names including, without limitation, the names First Financial
Resources(R), Global Brain(R) and Megaflex(R) and other names and slogans
embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to sue and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof; (vi) customer lists; (vii) books and records describing or
used in connection with any of the foregoing; and (viii) claims or causes of
action arising out of or related to infringement or misappropriation of any of
the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company or its Subsidiaries free and clear of any and
all liens, security interests, claims, charges and encumbrances or are used by
the Company or its Subsidiaries pursuant to a valid and enforceable license
granting rights sufficiently broad to permit the historical and anticipated uses
of the Proprietary Rights in connection with the conduct of the Business in the
manner presently conducted and to convey such right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company or any Subsidiary grants a license to
any person to use the Proprietary Rights or is a licensee of any of the
Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned
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and no application or registration thereof is the subject of any proceeding
before any court, arbitrator, federal, state, local or foreign government
agency, regulatory body, or other governmental authority (each a "GOVERNMENTAL
ENTITY," and collectively "GOVERNMENTAL ENTITIES") with authority to bind the
Company or any Subsidiary. There have not been any actions or other judicial or
adversary proceedings involving the Company or any Subsidiary concerning any of
the Proprietary Rights, nor to the knowledge of the Company or any Majority
Stockholder, is any such action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Majority Stockholder,
there are no conflicts with or infringements of any of the Proprietary Rights by
any third party.
(vi) Either the Company or a Subsidiary is the sole owner of its
trade secrets, including, without limitation, customer lists, formulas,
inventions, processes, know-how, computer programs and routines associated,
developed or used in connection with the Business (the "TRADE SECRETS"), free
and clear of any liens, encumbrances, restrictions, or legal or equitable claims
of others, and has taken all reasonable security measures to protect the
secrecy, confidentiality, and value of the Trade Secrets. Any of the employees
of the Company and its Subsidiaries and any other persons who, either alone or
in concert with others, developed, invented, discovered, derived, programmed or
designed the Trade Secrets, or who have knowledge of or access to information
relating to them, have been put on notice and have entered into agreements that
the Trade Secrets are proprietary to the Company or a Subsidiary and not to be
divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company, any Subsidiary or the
Business.
(viii) The Company and its Subsidiaries have taken all
commercially reasonable precautions necessary to ensure that all Proprietary
Rights have been properly protected and have been kept secret.
2.7 Year 2000 Compliance.
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by the Company or any Subsidiary and material to the Business are Year 2000
Compliant. For purposes of this Section, "YEAR 2000 COMPLIANT" means:
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(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 No Conflict or Violation.
The execution, delivery and performance by the Company and the
Stockholders of this Agreement and the other Transaction Documents to be
delivered by the Company or any Stockholder and the consummation of the
transactions contemplated hereby and thereby do not and will not: (i) violate or
conflict with any provision of the charter documents or bylaws of the Company;
(ii) violate in any material respect any provision or requirement of any
domestic or foreign, federal, state, or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any Governmental Entity
or insurance or brokerage industry regulatory body or authority, including
without limitation the National Association of Securities Dealers, Inc. (the
"NASD") and the insurance commissions of the various states in which the Company
and the Subsidiaries do business (collectively the "INSURANCE AND BROKERAGE
REGULATORS") applicable to the Company and any Subsidiary or the Business; (iii)
violate in any material respect, result in a material breach of, constitute
(with due notice or lapse of time or both) a material default or cause any
material obligation, penalty, premium or right of termination to arise or accrue
under any Contract (as hereinafter defined); (iv) result in the creation or
imposition of any material lien, charge or encumbrance of any kind whatsoever
upon any of the properties or assets of the Company or any Subsidiary; or (v)
result in the cancellation, modification, revocation or suspension of any
material license, permit, certificate, franchise, authorization or approval
issued or granted by any Governmental Entity (each a "LICENSE," and
collectively, the "LICENSES").
2.9 Consents.
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Schedule 2.9 lists all consents and notices required to be obtained or
given by or on behalf of the Company, any Subsidiary or any Majority Stockholder
before consummation of the transactions contemplated by this Agreement in
compliance with all applicable laws, rules, regulations, or orders of any
Governmental Entity the provisions of any material Contract, and all such
consents have been duly obtained and are in full force and effect, except where
the failure to obtain such consent will not have a Material Adverse Effect.
2.10 Labor and Employment Matters.
(a) Schedule 2.10(a)(i) lists all employees of the Company and each
Subsidiary, including date of retention, current title and compensation. There
is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company or any Subsidiary is a party or by which it is
bound other than as set forth on Schedule 2.10(a)(ii). The Company and each
Subsidiary have complied in all material respects with all applicable laws,
rules and regulations relating to the employment of labor, including those
related to wages, hours, collective bargaining and the payment and withholding
of taxes and other sums as required by appropriate Governmental Entities and
have withheld and paid to the appropriate Governmental Entities or are holding
for payment not yet due to such Governmental Entities, all amounts required to
be withheld from employees of the Company or any Subsidiary and are not liable
for any arrears of wages, taxes, penalties or other sums for failure to comply
with any of the foregoing. There is no unfair labor practice complaint against
the Company or any Subsidiary pending before the National Labor Relations Board
or any state or local agency; pending labor strike or other material labor
trouble affecting the Company or any Subsidiary; material labor grievance
pending against the Company or any Subsidiary; pending representation question
respecting the employees of the Company or any Subsidiary; pending arbitration
proceedings arising out of or under any collective bargaining agreement to which
the Company or any Subsidiary is a party. For purposes of this Agreement,
"EMPLOYEES" includes employees, independent contractors and other persons
filling similar functions.
(b) Any employees employed by the Company or any Subsidiary are either
at-will employees and their employment may be terminated by the Company or the
Subsidiary at any time for any reason or no reason without payment, penalty or
further obligation on the part of the Company or the Subsidiary or are employees
with employment agreements which will be terminated by mutual agreement of the
parties thereto concurrently with the Closing without payment, penalty or
further obligation on the part of the Company or the Subsidiary. Neither the
Company nor any Subsidiary has or will have any severance obligations for
termination of engagement of any employees of the Company or any Subsidiary.
2.11 Employee Plans.
(a) All accrued obligations of the Company or any Subsidiary, whether
arising by operation of law, by contract or past custom, or otherwise, for
payments by the Company or
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any Subsidiary to trusts or other funds or to any Governmental Entity, with
respect to unemployment compensation benefits, social security benefits or any
other benefits or obligations, with respect to employment of employees through
the date hereof have been paid or adequate accruals therefor have been made in
the Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company or the Subsidiary with respect to employees, whether arising by
operation of law, by contract, by past custom, or otherwise, for salaries,
vacation and holiday pay, sick pay, bonuses and other forms of compensation
payable to employees in respect of the services rendered by any of them prior to
the date hereof have been or will be paid by the Company or any Subsidiary prior
to the Closing Date or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, members, officers or directors of the Company, any Subsidiary, and
any other entity ("ERISA AFFILIATE") related to the Company or any Subsidiary
under Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such Employee Plans. With respect to each Employee Plan, the
Company has made available to Buyer, to the extent applicable, true and complete
copies of (i) all plan documents, (ii) the most recent determination letter
received from the Internal Revenue Service (the "IRS"), (iii) the most recent
application for determination filed with the IRS, (iv) the latest actuarial
valuations, (v) the latest financial statements, (vi) the three (3) most recent
Form 5500 Annual Reports, including Schedule A and Schedule B thereto, (vii) all
related trust agreements, insurance contracts or other funding arrangements
which implement any of such Employee Plans, (viii) all Summary Plan Descriptions
and summaries of material modifications and all modifications thereto
communicated to employees, and (ix) in the case of stock options or stock
appreciation rights issued under any Employee Plan, a list of holders, dates of
grant, number of shares, exercise price per share and dates exercisable. None of
the Company, any Subsidiary nor any ERISA Affiliate of the Company has any
liability or contingent liability with respect to the Employee Plans, nor will
any of the Company's or any Subsidiary's assets be subject to any lien, charge
or claim relating to the obligations of the Company or any Subsidiary with
respect to employees or Employee Plans. No party to any Employee Plan is in
default with respect to any material term or condition thereof, nor has any
event occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in material compliance with the requirements provided by any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, without limitation, the
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Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code. The Company and its Subsidiaries and each of their ERISA Affiliates has
made full and timely payment of all amounts required to be contributed under the
terms of each Employee Plan and applicable law or required to be paid as
expenses or benefits under such Employee Plan, and has made adequate provision
for reserve to satisfy contributions and payments not yet made because they are
not yet due under the terms of such Employee Plan. Each Employee Plan that is
intended to be qualified under Section 401(a) of the Code is and has always been
so qualified, and each trust established in connection with any Employee Plan
which is intended to be exempt from federal income taxation under Section 501(a)
of the Code is and has always been so exempt, and either has received a
favorable determination letter with respect to such qualified status from the
IRS or has filed a request for such determination letter with the IRS within the
remedial amendment period. Such determination or qualified status will apply
from and after the effective date of any such Employee Plan. No act or omission
has occurred since the date of the last favorable determination issued with
respect to an Employee Plan which could result in a revocation of the Plan's
qualified status.
(d) None of the Company, any Subsidiary nor any ERISA Affiliate sponsors
or has sponsored, maintained, contributed to, incurred an obligation to
contribute to or withdrawn from, any Multi-Employer Plan (as defined in Section
4000(a)(3) of ERISA) or any Multiple Employer Plan (as defined in ERISA Sections
4063 or 4064 or Code Section 413), whether or not terminated, for which any
withdrawal or partial withdrawal liability has been or could be incurred,
whether or not any such liability has been asserted by or on behalf of any such
plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company and each Subsidiary regarding
office administration, personnel matters and hiring, evaluation, supervision,
training, termination and promotion of employees, including, without limitation,
all communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. Neither the Company
nor any Subsidiary has any affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's or any Subsidiary's employees with "change of control" or
similar provisions. There is no contract, agreement, plan or arrangement
covering the Company, any Subsidiary or any employee, that individually or
collectively could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code. None of the
Company, any Subsidiary, nor any of their ERISA Affiliates has incurred any
liability under the Worker Adjustment Retraining and Notification Act or any
similar state law relating to employment termination in connection with a mass
layoff, plant closing or similar event, and the transactions contemplated by
this Agreement will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and
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which is not exempt under Section 4975 of the Code or Section 408 of ERISA) and
none of the Company, any Subsidiary, nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Majority Stockholder, is there any basis for any such claim. No officer,
director or employee of the Company, and Subsidiary or any of their ERISA
Affiliates has committed a material breach of any responsibilities or
obligations imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company, any Subsidiary or any of
their ERISA Affiliates, each of the Company, the Subsidiaries and the ERISA
Affiliates have complied in all material respects to the provisions of Part 6 of
Title I of ERISA and Sections 4980B, 9801 and 9802 of the Code. Neither the
Company nor any Subsidiary is obligated to provide health care or other welfare
benefits of any kind to its retired or former employees or their dependents, or
to any person not actively employed by it, pursuant to any agreement or
understanding.
2.12 Litigation.
There are no claims, actions, suits or proceedings of any nature pending
or, to the knowledge of the Company or any Majority Stockholder, threatened by
or against the Stockholders, the Company, any Subsidiary or the officers,
directors, employees, agents of the Company or any Subsidiary, or any of their
respective Affiliates involving, affecting or relating to the Business or any
assets, properties or operations of the Company or any Subsidiary or the
transactions contemplated by this Agreement. None of the Company, any Subsidiary
nor any of the Company's or any Subsidiary's assets is subject to any order,
writ, judgment, award, injunction or decree of any Governmental Entity. For
purposes of this Agreement, "AFFILIATE" shall have the meaning ascribed to such
term in Rule 405 under the Securities Act.
2.13 Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company or any
Subsidiary is a party or otherwise relating to or affecting any of its assets,
properties or operations, including, without limitation, all material written,
or oral, (i) contracts, agreements and commitments not made in the ordinary
course of business, (ii) agency and brokerage agreements, (iii) service and
other customer contracts, (iv) contracts, loan agreements, letters of credit,
repurchase agreements, mortgages, security agreements, guarantees, pledge
agreements, trust indentures, promissory notes and other documents or
arrangements relating to the borrowing of money or for lines of credit, (v) tax
sharing agreements, real property leases or any subleases relating thereto,
personal property leases, any material agreement relating to Proprietary Rights
(including service agreements relating thereto) and insurance contracts,
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(vi) agreements and other arrangements for the sale of any assets, property or
rights other than in the ordinary course of business or for the grant of any
options or preferential rights to purchase any assets, property or rights, (vii)
documents granting any power of attorney with respect to the affairs of the
Company or any Subsidiary, (viii) suretyship contracts, performance bonds,
working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any Subsidiary
or any of their employees or Affiliates from engaging or competing in any lines
of business or with any person or entity, (x) partnership or joint venture
agreements, (xi) stockholder agreements or agreements relating to the issuance
of any securities of the Company or any Subsidiary or the granting of any
registration rights with respect thereto, and (xii) all amendments,
modifications, extensions or renewals of any of the foregoing (each a
"CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company or its Subsidiaries have performed all material obligations
required to be performed by it under, and is not in material default or breach
of, any Contract, and no event has occurred which, with due notice or lapse of
time or both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Majority Stockholder, no
other party to any Contract is in material default or breach in respect thereof,
and no event has occurred which, with due notice or lapse of time or both, would
constitute such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Majority Stockholder, no party to any
Contract has credibly threatened to cancel or terminate any such agreement,
whether as a result of the transactions contemplated by this Agreement or
otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company, any Subsidiary or any Stockholder since January
1, 1996, with respect to any of the Contracts. For purposes hereof, "MATERIAL
NOTICE" means those notices alleging a material breach of a Contract or
intention to terminate or materially modify a Contract, but does not include
routine correspondence.
(f) To the knowledge of the Company or any Majority Stockholder, no
party to any Contract has assigned any of its rights or delegated any of its
duties under such Contract.
2.14 Compliance with Applicable Law.
(a) The operations of the Company and each of its Subsidiaries are, and
have been, conducted in all material respects in accordance with all applicable
laws, regulations,
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orders and other requirements of all Governmental Entities having jurisdiction
over it and its assets, properties and operations, including, without
limitation, all such laws, regulations, orders and requirements relating to the
Business except in any case where the failure to so conduct its operations would
not have a Material Adverse Effect. Neither the Company nor any Subsidiary has
received any notice of any material violation of any such law, regulation, order
or other legal requirement, and is not in material default with respect to any
order, writ, judgment, award, injunction or decree of any Governmental Entity or
any Insurance and Brokerage Regulator, applicable to the Company, any Subsidiary
or any of their assets, properties or operations. To the knowledge of the
Company or any Majority Stockholder, there are no proposed changes in any such
laws, rules or regulations (other than laws of general applicability) that would
adversely affect the transactions contemplated by this Agreement or reasonably
be expected to have a Material Adverse Effect.
(b) The Company and its Subsidiaries are, and have been, in compliance
with all laws, regulations, orders and requirements relating to the registration
and operation of Benefit Funding Services, LLC as a Broker-Dealer and the
related registration and activities of the Company's or its Subsidiaries'
employees, including but not limited to all rules, regulations, orders and
requirements of the NASD, the Securities Act, the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder. The
Company and its Subsidiaries have not received any notice of any violation of
any such law, regulation, order or requirement nor would the transaction
contemplated by this Agreement constitute such a violation.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company or any Subsidiary and all pending applications therefor. The Licenses
constitute all material Licenses required, and consents, approvals,
authorizations and other requirements prescribed, by any law, rule or regulation
which must be obtained or satisfied by the Company or any Subsidiary, in
connection with the Business or that are necessary for the execution, delivery
and performance by the Company and the Stockholders of this Agreement and the
other Transaction Documents. The Licenses are sufficient and adequate in all
material respects to permit the continued lawful conduct of the Business in the
manner now conducted and the ownership, occupancy and operation of the Company's
or any Subsidiaries' properties for its present uses and the execution, delivery
and performance of this Agreement. No jurisdiction in which the Company or any
Subsidiary is not qualified or licensed as a foreign corporation has demanded or
requested in writing that it qualify or become licensed as a foreign
corporation. The Company has delivered to Buyer or its representatives true and
complete copies of all the material Licenses together with all amendments and
modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company or its Subsidiaries and is valid, in full force and effect,
and not subject to any pending or known threatened administrative or judicial
proceeding to suspend, revoke,
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cancel or declare such License invalid in any respect. The Company and its
Subsidiaries are not in violation in any material respect of any of the
Licenses. The Licenses have never been suspended, revoked or otherwise
terminated, subject to any fine or penalty, or subject to judicial or
administrative review, for any reason other than the renewal or expiration
thereof, nor has any application of the Company or any Subsidiary for any
License ever been denied.
2.16 Accounts Receivable.
Schedule 2.16 lists all accounts receivable of the Company or any
Subsidiary (the "ACCOUNTS RECEIVABLE") as of the date set forth thereon,
including their aging. Schedule 2.16 will be updated at the Closing Date to
reflect all Accounts Receivable as of the Closing Date, including their aging.
All Accounts Receivable as of the date set forth on Schedule 2.16 represent, and
all Accounts Receivable as of the Closing Date will represent, valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business that are current and collectible in amounts not less than the
aggregate amount thereof (net of reserves established in accordance with GAAP
applied consistently with prior practice) carried (or to be carried) on the
books of the Company and reflected in the Financial Statements, and are not
subject to any valid counterclaims or set-offs, disputes or contingencies.
2.17 Intercompany and Affiliate Transactions; Insider Interests.
(a) There are no material transactions, agreements or arrangements of
any kind, direct or indirect, between the Company, any Subsidiary and any
director, officer, employee, stockholder, relative or Affiliate of the Company,
any Subsidiary, or the Stockholders, including, without limitation, loans,
guarantees or pledges to, by or for the Company or any Subsidiary or from, to,
by or for any of such persons, that are either (i) currently in effect, or (ii)
reflected in the Company's financial results.
(b) No officer, director or Stockholder of the Company, nor officer,
director, manager, stockholder or member of any Subsidiary, or any Affiliate of
any such person, now has, or within the last three (3) years had, either
directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company or any Subsidiary, or purchased, or during such period
purchased from the Company or any Subsidiary, any goods or services, or
otherwise does, or during such period did, business with the Company or any
Subsidiary;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company or any Subsidiary is or was a party or under
which it was obligated or bound or to which its properties may be or may have
been subject, other than stock options and other contracts, commitments or
agreements between the Company or any Subsidiary
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and such persons in their capacities as employees, officers, directors or
managers of the Company or any Subsidiary; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company or any Subsidiary in the ordinary course of business.
2.18 Insurance.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company or any Subsidiary at any time during the three (3)
years prior to the date of this Agreement and the annual or other premiums
payable from the time thereunder. There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or by any
Board of Fire Underwriters or other similar body exercising similar functions or
by any Governmental Entity that require or recommend any changes in the conduct
of the Business, or any repairs or other work to be done on or with respect to
any of the properties or assets of the Company or any Subsidiary. Neither the
Company nor any Subsidiary has received any notice or other communication from
any such insurance company within the three (3) years preceding the date hereof
canceling or materially amending or materially increasing the annual or other
premiums payable under any of such insurance policies, and to the knowledge of
the Company or any Majority Stockholder, no such cancellation, amendment or
increase of premiums is threatened.
2.19 Customers.
Schedule 2.19 lists the ten (10) largest customers of the Company and
its Subsidiaries, taken as a whole, together with revenues to the Company and
any Subsidiary from each such customer during the most recent complete fiscal
year and the current fiscal year to the date hereof, and the scheduled
termination dates of their current contracts with the Company or any Subsidiary.
None of such customers has given written notice to the Company or any Subsidiary
of an intention to terminate or materially impair its business relationship with
the Company or any Subsidiary and neither the Company nor any Majority
Stockholder has any knowledge of any event that would precipitate the
impairment, or termination of, or the failure to renew, or entitle any such
customer to terminate, such business relationship.
2.20 No Undisclosed Liabilities.
Except as and to the extent specifically reflected or reserved against in the
Interim Financial Statements and except as incurred in the ordinary course of
business since the date of the Interim Financial Statements, neither the Company
nor any Subsidiary has material liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due (including, without limitation, any liability for taxes and interest,
penalties and other charges payable with respect to any such liability or
obligation) and no facts or circumstances exist which, with notice or the
passage of time or both, could
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reasonably be expected to result in any material claims against or obligations
or liabilities of the Company or any Subsidiary.
2.21 Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the Company
or any Subsidiary for or with respect to (A) any Pre-Acquisition Taxable Period,
or (B) any Straddle Period to the extent allocable to the period ending on the
Closing Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company or any Subsidiary that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company or any
Subsidiary that includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company and its
Subsidiaries have (i) timely filed or caused to be timely filed all Tax Returns
of the Company and its Subsidiaries required to be filed as of the date hereof
(after giving effect to any extension of time to file such Tax Returns) and (ii)
paid, when due, all Taxes due and payable for the tax periods relating to such
Tax Returns (whether or not shown on such Tax Returns). All such
previously-filed Tax Returns were complete and accurate in all material respects
when filed, and as of the date hereof no additional Tax Liabilities for periods
covered by such previously-filed Tax Returns have been assessed on or proposed
to the Company or its Subsidiaries. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which the Company or any Subsidiary has
received a written and/or oral notice from a Tax authority that such Tax
authority intends to commence an audit or examination of such Tax Return, and
(B) each such Tax Return as to which the Company or any Subsidiary has
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given its consent to waive or extend the applicable statute of limitations for
such Tax Return or the assessment of Taxes required to be reported thereon. The
Company and its Subsidiaries have either delivered to Buyer or made available
for inspection by Buyer or its representatives or agents complete and correct
copies of all Tax audit reports and statements of Tax deficiencies with respect
to any delinquent Tax assessed against or agreed to by the Company or any
Subsidiary for all taxable periods commencing on or after January 1, 1993, for
which audit reports or statements of deficiencies have been received by the
Company or any Subsidiary.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company or
any Subsidiary (whether imposed before or after Closing and whether imposed upon
filing of a Tax Return or as a result of an audit or examination) which are
unpaid as of the close of business on the Closing Date will not exceed the
reserves for Tax Liabilities (not including any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) as set
forth in the account for accrued taxes payable account included in the Interim
Financial Statements.
(d) Tax Sharing Agreements. Neither the Company nor any Subsidiary is a
party to any tax-sharing or tax-indemnity agreement or has otherwise assumed by
contract or otherwise the Tax Liability of any other person.
(e) Section 481 Adjustments. Neither the Company nor any Subsidiary has
agreed, or is required to make, any adjustment under Code Section 481(a) by
reason of a change in accounting method or otherwise.
(f) Foreign Tax Matters. Neither the Company nor any Subsidiary is or
has ever been a United States real property holding corporation as defined in
Section 897(c)(2) of the Code.
(g) No Liens. None of the assets of the Company or any Subsidiary are
subject to any liens in respect of Taxes (other than for current Taxes not yet
due and payable).
(h) No Closing Agreements. Neither the Company nor any Subsidiary has
executed or entered into any closing agreement pursuant to Section 7121 of the
Code, or any predecessor provisions thereof, or any similar provision of state
Tax law.
(i) S Corporation Status. Neither the Company nor any Subsidiary has or
has ever had in effect for any taxable period an election under Code Section
1362(a), or any predecessor thereto, to be an S corporation or a comparable
election under state income tax laws.
(j) Section 351. It is acknowledged that Buyer, the Company and
Stockholders intend that the transfer of the Seller Shares by the Stockholders
to Buyer pursuant to this Agreement qualify (i) as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of applicable state income tax law, and (ii) under Code
Section 351 as part of a transfer by the Stockholders and other
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persons transferring property to Buyer who collectively will be in control (as
defined in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's or any Subsidiary's business) in the Company or any
Subsidiary (including, without limitation, any indebtedness for borrowed money,
whether or not evidenced by a note or other written instrument) and a
description of each such debt interest.
2.23 Environmental Matters.
Notwithstanding anything to the contrary contained in this Agreement:
(a) The Company, its Subsidiaries and their operations comply and have
at all times complied in all material respects with all applicable laws,
regulations and other requirements of Governmental Entities or duties under the
common law relating to toxic or hazardous substances, wastes, pollution or to
the protection of health, safety or the environment (collectively,
"ENVIRONMENTAL LAWS") and have obtained and maintained in effect all licenses,
permits and other authorizations or registrations (collectively "ENVIRONMENTAL
PERMITS") required under all Environmental Laws and are in material compliance
with all such Environmental Permits.
(b) Neither the Company nor its Subsidiaries has performed, failed to
perform or suffered any act which could reasonably be expected to give rise to,
or has otherwise incurred, material liability to any person (governmental or
not) under the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq. ("CERCLA"), or any other Environmental Laws,
nor have they received notice of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company or any Subsidiary at any time or any other property in material
violation of any Environmental Laws such that the Company could be subject to
material liability under any Environmental Laws.
(d) Neither the Company nor its Subsidiaries has exposed any employee or
third party to any Hazardous Materials or conditions that could subject it to
any material liability under any Environmental Laws.
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(e) Neither the Company nor its Subsidiaries now own or operate, and has
never owned or operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Majority Stockholder, with
respect to any or all of the real properties leased at any time by the Company
or any Subsidiary, there are no asbestos-containing materials, urea formaldehyde
insulation, polychlorinated biphenyls or lead-based paints present at any such
properties.
(g) There are no pending or, to the knowledge of the Company or any
Majority Stockholder, threatened administrative, judicial or regulatory
proceedings, or, to the knowledge of the Company or any Majority Stockholder,
any threatened actions or claims, or any consent decrees or other agreements in
effect that relate to environmental conditions in, on, under, about or related
to the Company or any Subsidiary, their operations or the real properties leased
or owned by the Company or any Subsidiary at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or any Subsidiary or their operations.
2.24 Securities Matters.
(a) The Stockholders understand that (i) neither the Shares nor any
notes issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Stockholders' representations set forth herein.
(b) The Stockholders acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Stockholders may lose their entire investment in
the Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Stockholders or the Stockholders'
advisors the opportunity to obtain information to evaluate the merits and risks
of the investment in the Securities, and the Stockholders have received all
information requested from Buyer. The Stockholders have had an opportunity to
ask questions and receive answers from Buyer regarding the terms and conditions
of the offering of the Securities and the business, properties, plans,
prospects, and financial condition of Buyer and to obtain additional information
as the Stockholders have deemed appropriate for purposes of investing in the
Securities pursuant to this Agreement.
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(d) The Stockholders, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Stockholders have relied solely upon independent
investigations made by the Stockholders, and have consulted their own investment
advisors, counsel and accountants. The Stockholders have adequate means of
providing for current needs and personal contingencies, and have no need for
liquidity and can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Stockholders' own account, for investment purposes, not as a nominee or
agent, and not with a view to or for sale in connection with any distribution of
the Securities in violation of applicable securities laws.
(f) The Stockholders understand that no federal or state agency has
passed upon the Securities or made any finding or determination as to the
fairness of the investment in the Securities.
(g) Each Stockholder is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and have each documented his or her accredited
status by delivery to Buyer of a completed questionnaire in the form of Exhibit
A hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Stockholder has received any general
solicitation or general advertising concerning the Securities, nor is the
Company or any Stockholder aware of any such solicitation or advertising.
2.25 Buyer and the Consolidation Transactions.
(a) The Stockholders are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.10) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing
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of the IPO, whether any Stockholder would be able to participate, or the price
at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Stockholders acknowledge that no assurances have been made to
any Stockholder with respect to any of the foregoing and no representations,
oral or written, have been made to any Stockholder by Buyer or any of its
employees, representatives or agents concerning the potential value of the
Shares issued as part of the Purchase Price or the prospects of Buyer, except as
set forth herein.
2.26 Minute Books and Stock Records.
The Company has made available to Buyer true, complete and correct
copies of:
(a) the minute books of the Company and its Subsidiaries, containing all
records required to be set forth of all proceedings, consents, actions, and
meetings of its stockholders or member and the Board of Directors or managing
members of the Company and any Subsidiary; and
(b) all record books of the Company and any Subsidiary setting forth all
transfers of capital stock or membership interests.
2.27 Banks.
Schedule 2.27 lists the account information at each bank or other
institution at which the Company or any Subsidiary has a line of credit, check,
savings or other account, certificate of deposit or safe deposit box and the
names of each person authorized to draw thereon or have access thereto.
2.28 Powers of Attorneys and Suretyships.
Neither the Company nor any Subsidiary has any general or special powers
of attorney outstanding (whether as grantor or grantee thereof) or any
obligation or liability (whether actual, accrued, accruing, contingent or
otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any person or entity, except as
endorser or maker of checks or letters of credit, respectively, endorsed or made
in the ordinary course of business.
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2.29 Brokers.
Except as set forth on Schedule 2.29, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company, any Subsidiary or
any of the Stockholders.
2.30 Summary of Certain Considerations.
Each Stockholder acknowledges receipt and understanding of the Summary
of Certain Considerations attached hereto as Exhibit B.
2.31 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by the Company or any Stockholder to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to the Stockholders that:
3.1 Organization and Corporate Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
3.2 No Conflict or Violation.
The execution, delivery and performance by Buyer of this Agreement and the other
Transaction Documents to be executed and delivered by Buyer and the consummation
of the transactions contemplated hereby and thereby, do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of
Buyer; or (ii) violate in any material respect any provision or requirement of
any domestic or foreign, national, state or
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local law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to Buyer.
3.3 Capitalization.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 Litigation.
Except as set forth on Schedule 3.4, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or proceedings
including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.5 Buyer's Operations and Financial Condition.
Since its date of incorporation Buyer has had no operations except
operations in connection with effecting the Consolidation Transactions and
preparing for operation of its business after the Closing. Buyer has no material
tangible assets, and except as set forth on Schedule 3.5, Buyer has no material
liabilities or obligations for borrowed money or payment for services rendered
to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.6 Accuracy of Information.
None of the representations or warranties or information provided and to be
provided by Buyer to the Stockholders in this Agreement, the schedules or
exhibits hereto, or in any of the other Transaction Documents delivered by Buyer
contains or will contain any untrue
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statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements and facts contained herein or therein
not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
The Company shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of the Company and the
Subsidiaries (including, without limitation, the Company's and the Subsidiaries'
accounting records, the workpapers of the Company's and the Subsidiaries'
independent accountants, and all environmental studies, reports and other
environmental records) and, during such period, shall furnish promptly to Buyer
all information concerning the Company, the Business, the Company's and each
Subsidiary's properties, liabilities and personnel as Buyer may reasonably
request.
4.2 Confidentiality.
For purposes hereof, the Company and the Stockholders will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including
without limitation Deloitte & Touche LLP, confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Buyer will
keep the matters contemplated herein and all information provided by the Company
and the Stockholders related to the Company and the Business confidential, and
will not provide information about such matters to any party or use such
information except to the extent necessary to effect the transactions
contemplated hereby. Buyer and the Company shall each cause their respective
Affiliates, officers, directors, managers, employees, agents, and advisors to
keep confidential all information received in connection with the transactions
contemplated hereby. The Company and the Stockholders acknowledge that Buyer may
provide information about the Company and its Subsidiaries and the Business to
other participants in the Consolidation Transactions to the extent necessary to
facilitate the Consolidation Transactions. If this Agreement terminates without
consummation of the Closing, the Company, the Stockholders and Buyer shall, and
shall cause their Affiliates to, each maintain the confidentiality of any
information obtained from the other in connection with the transactions
contemplated hereby, the Consolidation Transactions, and Buyer's business plans
(the "INFORMATION"), other than Information that (i) was in the public domain
before the date of this Agreement or subsequently came into the public domain
other than as a result of disclosure by the party to whom the Information was
delivered; or (ii) was lawfully received by a party from a third party free of
any obligation of confidence of or to such third party; or (iii) was already in
the possession of the party prior to receipt thereof, directly or indirectly,
from the other party; or (iv) is required to be disclosed
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in a judicial or administrative proceeding after giving the other party as much
advance notice of the possibility of such disclosure as practicable so that the
other party may attempt to stop such disclosure; or (v) is subsequently and
independently developed by employees of the party to whom the Information was
delivered without reference to the Information. If this Agreement terminates
without consummation of the Closing, Buyer, on the one hand, and the
Stockholders and the Company, on the other, shall return to the other all
material containing or reflecting the Information provided by the other, shall
not retain any copies, extracts, or other reproductions thereof or derived
therefrom, and Buyer shall ensure the return of all such material from all other
parties with whom it has been shared, and shall thereafter refrain from using
the Information and shall maintain its confidentiality pursuant to this
Agreement.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Majority
Stockholders shall cause the Company to, conduct the Company's and all
Subsidiaries' business solely in the ordinary course consistent with past
practices. Without limiting the generality of the preceding sentence, except as
required or permitted pursuant to the terms hereof, the Company shall not, and
the Majority Stockholders shall cause the Company or the Subsidiary not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts of the type described in
Schedule 4.3(a)(i), in any case calling for payments to or by the Company and/or
any Subsidiary in excess of $20,000 in the aggregate over the life of the
contract or series of related contracts, without the prior written consent of
Buyer, which may not be unreasonably withheld;
(ii) make any change in the charter documents or bylaws, if
applicable, or to the articles of formation or operating agreement, if
applicable, of the Company or any Subsidiary, other than the changes to the
Company's Certificate of Incorporation set forth in Schedule 2.(b)(ii), issue
any additional shares of capital stock or equity securities or grant any option,
warrant or right to acquire any capital stock or equity securities or issue any
security convertible into or exchangeable for the capital stock of the Company
or the capital stock or membership interest of any Subsidiary, alter any term of
any of the outstanding securities of the Company or any Subsidiary, or make any
change in the outstanding shares of capital stock or other ownership interests
or in the capitalization, whether by reason of a reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, stock dividend or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company or any
Subsidiary, or (C) issue any options or other rights to
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acquire directly or indirectly any debt securities of the Company or any
Subsidiary or any security convertible into or exchangeable for such debt
securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any Subsidiary or any
part thereof, except transactions required pursuant to existing contracts of the
Company or any Subsidiary and dispositions of inventory or worn out or obsolete
equipment for fair or reasonable value in the ordinary course of business
consistent with past practices;
(v) subject any of the assets of the Company or any Subsidiary,
or any part thereof, to any lien, security interest, charge, interest or other
encumbrance, or suffer such to be imposed other than such liens, security
interests, charges, interests or other encumbrances as may arise in the ordinary
course of business consistent with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Stockholder or any Affiliate of the Company
or any Stockholder;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's and the Subsidiaries' historical practices
regarding the timing of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
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(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Stockholder herein not
to remain true and correct in all material respects, or that would cause any of
the conditions to the parties' respective obligations to consummate the
transactions contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not
to be met; or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company and any Subsidiary shall, and the
Majority Stockholders shall cause them to:
(i) maintain, in all material respects, the assets and properties
of the Company and each Subsidiary in accordance with present practices and in a
condition suitable for their current use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
them, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company and each
Subsidiary in the ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company or and each
Subsidiary (or on behalf of them) on the date hereof.
4.4 Restrictive Covenants.
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(a) Non-Competition. Watts, Imhoff and W. Duemer recognize that the
covenants of Watts, Imhoff and W. Duemer contained in this Section 4.4(a) (the
"COVENANT NOT TO COMPETE") are an essential part of this Agreement and the other
Transaction Documents and that but for the agreement of each Watts, Imhoff and
W. Duemer to comply with such covenants Buyer would not enter into this
Agreement or the other Transaction Documents. Watts, Imhoff and W. Duemer
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights, and that irreparable harm and damage will be done to Buyer
if either Watts, Imhoff or W. Duemer competes with Buyer in any way prohibited
by the Covenant Not to Compete. In addition, Watts, Imhoff and W. Duemer
acknowledge that the Purchase Price is consideration for professional
relationships and market place reputation developed by the Company and Watts,
Imhoff and W. Duemer and the Covenant Not to Compete is necessary for Buyer to
receive the full benefit of this Agreement. After the Closing, each of Watts,
Imhoff or W. Duemer shall not individually, or in concert, directly or
indirectly:
(i) either on his own account or for any other person or entity,
solicit, induce, attempt to induce, interfere with, or endeavor to cause (in
each case in such a manner that could have a material adverse effect on the
financial condition, prospects or operation of the Business, the assets of the
Company or any Subsidiary or Buyer or any of its Affiliates) any customer, which
has utilized the services of the Company or any Subsidiary at any time during
the two (2) year period preceding the Closing Date or with whom the Company or
any Subsidiary was engaged in meaningful negotiations as of the Closing Date
(each, a "CUSTOMER"), to modify, amend, terminate or otherwise alter the terms
upon which it acquires services from Buyer or Buyer's Affiliates, or to acquire
from any party other than Buyer or its Affiliates any services of the kind
available from Buyer or its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company or any Subsidiary at any time during the two (2) year period preceding
the Closing Date or under development by the Company or any Subsidiary on the
Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the
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world, where the Company or any Subsidiary generated revenue or established
goodwill at any time during the two (2) year period preceding the Closing Date.
This Covenant Not to Compete shall bind each of Watts, Imhoff and W. Duemer
until December 31, 2002, provided however, that if either (i) a registration
statement for an underwritten IPO of Buyer's equity securities has not been
filed by December 31, 1999; or (ii) Buyer fails to consummate a public offering
that results in a public trading market of equity securities of Buyer on a
national securities exchange or Nasdaq Stock Market by May 15, 2000; and (iii)
in the case of Watts or Imhoff, his employment is terminated by Buyer without
Cause or by him for Good Reason (each as defined in his Employment Agreement
delivered pursuant to Section 6.3(c)(iv)), then after termination of such
Majority Stockholder's employment with the Company or any of its Affiliates such
Majority Stockholder will no longer be subject to the covenants contained in
Sections 4.4(a)(ii) and (iii) and the covenants in Section 4.4(a)(iv) will not
be breached by any general marketing efforts with which such Majority
Stockholder may be involved that are not targeted specifically at any Customer.
The parties hereto agree that the duration and area for which the Covenant Not
to Compete set forth in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Stockholder shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds Watts, Imhoff and W. Duemer pursuant to Section 4.4(a) each of the
Stockholders shall not, and shall cause their Affiliates not to, divert or
attempt to divert or take advantage of or attempt to take advantage of any
actual or potential business or opportunities of Buyer or its Affiliates of
which any of the Stockholders become aware as the result of their affiliation
with the Business or their relationship with Buyer or its Affiliates and which
relate specifically to the Business, or any part thereof. This Section 4.4(c) is
in addition to and not by way of limitation of any other duties the Stockholders
may have to Buyer or its Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds Watts, Imhoff and W. Duemer pursuant to Section 4.4(a) each of the
Stockholders shall not, and shall cause their Affiliates not to, hire away, or
cause any other person to hire away, any employee of or consultant to Buyer or
its Affiliates (including without limitation persons employed or engaged by the
Company or any Subsidiary before the Closing Date), or directly or indirectly
entice or solicit or seek to induce or influence any of such employees or
consultants to leave their employment or engagement with Buyer or its
Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 (collectively,
the "RESTRICTIVE COVENANTS") impose a reasonable restraint on the Stockholders
in light of the activities and business of the Company and its Subsidiaries and
future plans of Buyer. The Majority Stockholders acknowledge that if they
violate any of the Restrictive Covenants and the Minority Stockholders
acknowledge that if they violate any of the covenants contains in Sections
4.4(b), it will be difficult to determine the resulting damages to Buyer and, in
addition
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to any other remedies Buyer may have, Buyer shall be entitled to temporary
injunctive relief without being required to post a bond and permanent injunctive
relief without the necessity of proving actual damages. Each Stockholder shall
be severally liable to pay all costs, including reasonable attorneys' fees and
expenses, that Buyer may incur in enforcing or defending, to any extent, any of
the Restrictive Covenants breached by such Stockholder, whether or not
litigation is actually commenced and including litigation of any appeal defended
by Buyer where such party succeeds in enforcing any of the Restrictive
Covenants. Buyer may elect to seek one or more remedies at its discretion on a
case by case basis. Failure to seek any or all remedies in one case shall not
restrict Buyer from seeking any remedies in another situation. Such action by
Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
4.5 Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
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"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein, including W. Duemer
and J. Duemer as beneficial owners of shares held by the IRAs, shall, as a
condition to transfer of any Shares or interests therein, cause the transferee
to enter into the Stockholder Agreement described in Section 6.2(d)(i) and the
Voting Agreement described in Section 6.2(d)(iii), provided that with respect to
each such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholders will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period, (ii) such lock up provision will be contingent upon
the officers and directors of the registrant entering into similar lock up
agreements, and (iii) no Stockholder will be required to comply with this lock
up provision if any other stockholder owning more shares of Common Stock than
such Stockholder and who is subject to a contractual lock up provision similar
to this one has been released from such lock up obligation.
4.6 Registration.
(a) No Stockholder will have any rights to demand registration of any of
the Shares, or to participate in any registration undertaken by Buyer except as
set forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission for an underwritten IPO of its equity
securities or any subsequent underwritten public offering within twenty-four
(24) months of the closing of the IPO (not including a registration statement
filed in connection with an acquisition or employee benefit plan), and if the
managing underwriter of such offering believes that the market will accommodate
selling stockholders in the offering, then each Stockholder, shall have the
right, subject to the
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limitations set forth in this Section 4.6(a), to include in such registration
statement or statements and offering or offerings Shares and other Common Stock
owned by such Stockholder. Other stockholders (including but not limited to
stockholders who acquired Common Stock in the Consolidation Transactions and
stockholders who acquired Common Stock in connection with the formation, or work
on behalf of, Buyer) will have rights to include shares of Common Stock in such
offering, and if the aggregate amount of shares that all stockholders with such
rights (collectively, the "SELLING STOCKHOLDERS") desire to include exceeds the
number of shares of Common Stock that can be sold by all Selling Stockholders,
then all Selling Stockholders desiring to sell in any such offering will
participate pro-rata on the basis of the relative numbers of shares of Common
Stock eligible for inclusion that they originally sought to include. However,
notwithstanding the foregoing no Selling Stockholder will be permitted to
include in any such registration and offering (i) any Shares subject to
performance-related restrictions at the time of filing of the registration
statement for such offering or (ii) more than, in the aggregate for all such
registrations and offerings, half of the shares of Common Stock held by such
Selling Stockholder as of the date hereof. Furthermore, in no case will the
Stockholders hereunder be permitted to include in the IPO registration and
offering, in the aggregate, more than the number of Shares listed on Schedule
4.6 under the item "Maximum IPO Shares" (such Shares will be allocated among
Stockholders hereunder desiring to participate in any such registration and
offering ratably on the basis of their relative ownership of Shares and other
Common Stock).
(b) If any Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by such Stockholder expressly for use
therein, for which the Stockholder will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
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(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7 Cooperation in Litigation.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and the Company, its Subsidiaries or any Stockholder and/or their Affiliates or
assignees, on the other, arising out of the transactions contemplated by this
Agreement). Subject to the provisions hereof regarding payments by each party of
its costs and payments or attorneys' fees and costs, the party requesting such
cooperation shall pay the out-of-pocket expenses (including reasonable legal
fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or other similar expenses paid by the
party providing such cooperation to its officers, directors, employees `and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8 Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of the Company's business activities on the Closing Date, and, in the case
of Pre-Acquisition Taxable Periods ending on the Closing Date, all of the
Company's and its Subsidiaries' income, gains and other Tax items attributable
to the Closing Date shall be included and reported by the Company and its
Subsidiaries in Tax Returns of the Company and its Subsidiaries for such
Pre-Acquisition Taxable Periods to be filed following the Closing and that all
Taxes attributable to the Company's or its Subsidiaries income, gains or other
taxable items for the Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company and its Subsidiaries as of the close of business on the
Closing Date as if a taxable period ended as of the close of such date;
provided, however, that exemptions, allowances or deductions that are calculated
on an annual basis (including, but not limited to, depreciation and amortization
deductions) shall be allocated between the period ending on and inclusive of the
Closing Date (the "PRE-
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CLOSING PERIOD") and the period following the Closing Date (the "POST-CLOSING
Period") in the proportion which the number of days in each such period bears to
the total number of days in the Straddle Period; and provided further, if as of
the Closing Date the Company or its Subsidiaries is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated between the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company and its Subsidiaries (i) shall prepare and file, or
cause to be prepared and filed, all Tax Returns of the Company and its
Subsidiaries required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions), and (ii) shall pay or cause to be paid all
Taxes shown or reported to be due and payable by the Company and its
Subsidiaries on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax Returns
required to be filed by the Company and its Subsidiaries for Pre-Acquisition
Taxable Periods which are not required to be filed on or prior to the Closing
Date (after giving effect to any valid extensions).
(ii) Stockholders shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's and its Subsidiaries' Tax Returns for Pre-Acquisition Taxable Periods
described in Section 4.8(c)(i), and (B) all Taxes shown or reported to be due
and payable on such Tax Returns to the extent not specifically reserved
(excluding reserves for deferred taxes) against in the Interim Financial
Statements. Each Stockholder shall pay his or her proportionate share of such
costs, expenses and Tax liabilities promptly following receipt by such
Stockholder (either directly or through the Stockholder Representative) of a
notice from Buyer of Buyer's calculation of such Stockholder's payment
obligation hereunder together with copies of the relevant Tax Returns and other
information supporting Buyer's calculation. If a Stockholder disputes all or any
portion of the payment obligation hereunder as calculated by Buyer, such
Stockholder shall nevertheless promptly pay to Buyer the amount specified in the
notice and any dispute related thereto shall be resolved pursuant to the
arbitration provisions of Section 7.13. Any additional Taxes attributable to the
periods covered by such Tax returns, whether pursuant to an amended return or
any Tax Proceeding, shall be paid by Stockholders promptly upon demand therefor
by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company and its
Subsidiaries may be required, with respect to certain Taxes for Straddle
Periods, to file a full year return (herein a "STRADDLE PERIOD RETURN")
reporting and accounting for such Taxes on an aggregate basis covering both the
Pre-Closing Period and the Post-Closing Period. The
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Buyer, at its expense, shall cause the Company and its Subsidiaries to prepare
and file such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The
Stockholders shall be responsible for and shall pay all Pre-Closing Taxes shown
or reported to be due and payable on such Straddle Period Returns to the extent
not specifically reserved (excluding reserves for deferred taxes) against in the
Interim Financial Statements. Each Stockholder shall pay his or her
proportionate share of such Pre-Closing Taxes promptly following receipt by such
Stockholder (either directly or through the Stockholder Representative) of a
notice from Buyer of Buyer's calculation of such Stockholder's payment
obligation hereunder together with copies of the relevant Tax Returns and other
information supporting Buyer's calculation. If a Stockholder disputes all or any
portion of the payment obligation hereunder as calculated by Buyer, such
Stockholder shall nevertheless promptly pay to Buyer the amount specified in the
notice and any dispute related thereto shall be resolved pursuant to the
arbitration provisions of Section 7.13. Any additional Taxes attributable to the
Pre-Closing Periods covered by such Tax Returns, whether pursuant to an amended
return or any Tax Proceeding, shall be paid by Stockholders promptly upon demand
therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company and its
Subsidiaries, notify the Stockholder Representative of any written communication
from a Tax authority with respect to any pending Tax Proceeding involving a
Pre-Acquisition Tax Liability. Buyer shall include with such notification a copy
of the written communication so received by Company or its Subsidiaries.
(ii) The Buyer shall have responsibility and authority to represent the
interests of the Company and its Subsidiaries in any Tax Proceeding relating to
Pre-Acquisition Taxable Periods and Straddle Periods and to employ counsel of
its choice in connection therewith; provided, however, that Stockholder
Representative shall be permitted to participate in any such Tax Proceedings and
all hearings related thereto at the expense of the Stockholders; and provided
further, that, without the prior written consent of the Stockholder
Representative, which shall not be unreasonably withheld, the Buyer shall not
agree to settle or compromise any such Tax Proceeding and/or any Pre-Acquisition
Tax Liability issue arising therein if such settlement can reasonably be
expected to result in a material increase in the Pre-Acquisition Tax Liabilities
for which the Stockholders are responsible hereunder, provided, however, the
consent of the Stockholder Representative to such settlement or compromise shall
not be required hereunder if the failure to settle or compromise the Tax
Proceeding or an issue arising therein can reasonably be expected to result in
an adverse effect on the Company or any Subsidiary following the Closing. The
Stockholders, promptly upon demand from the Buyer, shall pay the reasonable
costs and expenses, including attorney fees, incurred by Buyer in connection
with any such Tax Proceedings, provided, however, in any Tax Proceeding related
to a Straddle Period which involves Tax Liabilities for which
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Stockholders are responsible hereunder and Tax Liabilities attributable to the
Post-Closing Period for which Stockholders are not responsible, the Buyer, on
the one hand, and the Stockholders, on the other hand, shall jointly bear the
costs and expenses thereof as allocated between them on an equitable basis.
(iii) All notices to Stockholders provided for hereunder shall be deemed
delivered to each Stockholder upon receipt thereof either directly by the
Stockholder or by the Stockholder Representative. The Stockholders shall
proportionately pay all Tax Liabilities and costs and expenses for which the
Stockholders are responsible hereunder; provided, however, the Majority
Stockholders shall be jointly and severally liable for all such Tax Liabilities,
costs and expenses.
(iv) The Stockholder and the Stockholder Representative shall furnish to
Buyer such information and documents as may be reasonably requested by Buyer,
and shall otherwise reasonably cooperate with Buyer, in connection with Buyer's
conduct of any Tax Proceedings described herein.
(f) Books and Records. Prior to the Closing Date the Company and each
Subsidiary shall properly maintain its books and records necessary or
appropriate to the filing of the Tax Returns described in this Section 4.8, and
on or before the Closing the Stockholders shall cause all such books and records
and all other books and records related to the Company's and each Subsidiary's
Tax Returns and Tax matters to be delivered to the Buyer. Buyer shall cause the
Company and each Subsidiary to retain all such books and records delivered to
Buyer as provided hereunder until the expiration of the statute of limitations
(including any waivers or extensions thereof) with respect to the taxable
periods to which the Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Stockholders and Buyer shall (i) treat and report the transfer of the Seller
Shares in a manner consistent with its qualification as a transfer of property
to a controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of state income tax law, and (ii) file such Tax Returns
and Tax information reports related to the transfer as may be required or
otherwise appropriate under the Tax laws and regulations applicable to transfers
of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9 Stockholder Representative.
The Stockholders shall at all times maintain a representative (the
"STOCKHOLDER REPRESENTATIVE") for purposes of taking certain actions and giving
certain consents on behalf of the Stockholders as specified herein. The
Stockholder Representative will be Imhoff unless and until the Stockholders,
each having voting power in proportion to such
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Stockholder's ownership of voting securities of the Company, elect his
replacement by majority vote of such shares and notify Buyer thereof. Actions
taken, consents given and representations made by the Stockholder Representative
on behalf of the Stockholders pursuant hereto shall be binding upon the
Stockholders. Before the Closing, the Stockholder Representative is authorized
by the Stockholders to take any action on behalf of the Stockholders to
facilitate the transactions contemplated hereby which such Stockholder
Representative is directed to take by the Company acting through a majority of
the members of the Board of Directors in office prior to the Closing, including,
without limitation, amending this Agreement, and executing documents or
instruments. After the Closing, the Stockholder Representative is authorized by
the Stockholders to take any action on behalf of the Stockholders to facilitate
or administer the transactions contemplated hereby as the Stockholder
Representative deems appropriate.
4.10 Consolidation Transactions.
Concurrent with the transaction contemplated hereby, Buyer is acquiring
in a series of transactions various other companies engaged in the business of
cost reduction, cost recovery and profit enhancement services by means of
mergers into Buyer, or acquisitions by Buyer of all or substantially all of the
assets or stock or other equity interests of such companies (collectively, the
"CONSOLIDATION TRANSACTIONS"). The Company and the Stockholders acknowledge that
as a result of the complexity of the transactions contemplated hereby and the
Consolidation Transactions, the Closing contemplated hereby and the closing of
the Consolidation Transactions must be concurrent at a time designated by Buyer.
Accordingly, the Company and the Stockholders shall at any time upon or after
execution of this Agreement but prior to the Closing Date (i) provide any
outstanding documentation required to effect the Closing pursuant to this
Agreement in escrow pending release upon authorization of the Stockholder
Representative at the Closing, (ii) complete performance of their respective
obligations hereunder and under the other Transaction Documents to be performed
by the Closing, and (iii) update the schedules hereto and any other
documentation or information provided to Buyer during the course of this
transaction such that all such disclosures shall be accurate and current as of
the Closing Date.
4.11 Supplemental Disclosure.
At the Closing, the Company and the Stockholders shall supplement or
amend each of the schedules hereto with respect to any matter hereafter arising
which, if existing or occurring at or prior to the date hereof, would have been
required to be set forth or listed in the schedules or which is necessary to
complete or correct any information in the schedules.
4.12 HSR.
Buyer and the Company shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust
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Improvements Act of 1976 (the "HSR ACT"), if applicable. Buyer and the Company
shall each pay half of all filing fees payable under the HSR Act in connection
with the transactions contemplated hereby, and each of Buyer and the Company
shall pay its own costs incurred in preparation of all reports and notifications
required under the HSR Act.
4.13 Competing Proposals.
(a) Neither the Company nor any Stockholder shall directly or
indirectly, initiate, solicit, encourage or participate in any discussions or
negotiations with, or provide any nonpublic information to, any person or entity
concerning any potential offer (other than as described herein) to acquire the
Company, the Business or any Subsidiary or any assets thereof or interests
therein, or any other transaction or arrangement that would interfere with the
transactions contemplated hereby (a "COMPETING PROPOSAL").
(b) The Company and the Stockholders shall promptly communicate to Buyer
the existence or occurrence and terms of any Competing Proposal or contact
related thereto which the Stockholders, the Company, or its Subsidiaries or any
of their employees, directors, or agents may receive in respect of any such
proposed transaction and the identity of the person, entity or group from whom
such proposal or contact was received.
(c) The Company and the Stockholders shall not transfer or hypothecate
the Business or any Subsidiary or any assets thereof or interests therein except
to Buyer, or enter into any agreement with any person other than Buyer in
connection with any of the foregoing.
4.14 Bonus Plan.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
4.15 Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.16 Further Assurances.
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Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
effectuate the purposes of this Agreement.
4.17 Notice of Breach.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
4.18 Put Right.
In the event the Company fails to redeem the Series A Preferred Stock in
accordance with the Company's Certificate of Incorporation, as amended by the
Certificate of Amendment to be filed by the Company concurrently with the
Closing, a copy of which is attached as Schedule 2.1(b)(ii), each holder of
Series A Preferred Stock ("PREFERRED STOCKHOLDER") shall have the right to sell
to Buyer (the "PUT RIGHT") and Buyer shall be obligated to purchase from such
Preferred Stockholder all of the outstanding shares of the Series A Preferred
Stock owned by such Preferred Stockholder as listed in part (b) of Schedule 1.3.
The Purchase Price of the Series A Preferred Stock shall be the Redemption Price
as defined in the Certificate of Amendment. For purposes of this Agreement, the
date fixed for redemption shall be the date of purchase. The Put Right shall be
exercisable at any time after the Company or its assignee or
successor-in-interest has failed to redeem all of the Series A Preferred Stock
as required by the Certificate of Amendment. The Put Right may be exercised by
the Stockholder Representative or by a Preferred Stockholder by giving written
notice of exercise of the Put Right (the "NOTICE") to the Buyer in the manner
set forth in Section 7.2 below. Buyer shall purchase the outstanding Series A
Preferred Stock from the Preferred Stockholder exercising the Put Right and pay
the entire purchase price thereof in immediately available funds no later than
10 business days after receiving the Notice. Payment shall be made to each
Preferred Stockholder at the address of such Preferred Stockholder appearing on
the books of the Company or given by the Preferred Stockholder to the Company or
Buyer for the purpose of Notice, or if no such address appears or is given, at
the place where the principal executive office of Buyer is located. The Buyer's
obligation to purchase the Series A Preferred Stock under this Section 4.18
shall be absolute and unconditional, and Buyer waives any right to require or
compel any Preferred Stockholder to proceed against the Company and any right of
offset, or to pursue any other remedy legal or equitable. A Preferred
Stockholder may bring and prosecute a separate action against Buyer to enforce
the Preferred Stockholder's rights hereunder, whether or not any action is
brought against the Company or any other person or whether or not the Company or
any other person is joined in any such action. Buyer shall be liable for all
attorneys' fees and costs, whether or not legal action shall be instituted,
incurred or paid by any Preferred Stockholder in
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enforcing Buyer's obligations hereunder. The benefit of this Section 4.18 shall
automatically pass with a transfer or assignment of the shares of Series A
Preferred Stock to any subsequent owner or holder thereof. All references in
this Section 4.18 to the Preferred Stockholder shall be deemed to include any
successors or assignees or any subsequent owners or holders of the Series A
Preferred Stock (or any portion thereof), or any of them. All of the provisions
of this Section 4.18 shall be binding upon the successors and assigns of the
Buyer.
5. SURVIVAL; INDEMNIFICATION.
5.1 Survival.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Capital Stock); 2.4 (Title to Assets) and 2.22 (Indebtedness),
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2 Indemnification by the Stockholders.
Subject to the limits set forth in this Article 5, the Majority
Stockholders and, if the transactions contemplated hereby are not consummated,
the Company, and their successors and assigns shall jointly and severally
indemnify, defend, reimburse and hold harmless Buyer and its Affiliates and
their successors and assigns, and the officers, directors, employees and agents
of any of them, from and against any and all claims, losses, damages,
liabilities, obligations, assessments, penalties and interest, demands, actions
and expenses, whether direct or indirect, known or unknown, absolute or
contingent (including, without limitation, settlement costs and any legal,
accounting and other expenses for investigating or defending any actions or
threatened actions) ("LOSSES") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
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(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements or a trade payable incurred in the ordinary course of business since
the date of the Interim Financial Statements;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by the Company or the Stockholders in this Agreement or any
other Transaction Document;
(c) the breach of any covenant, agreement or obligation of the
Company or the Stockholders contained in this Agreement or any other Transaction
Document;
(d) any claim by a Minority Stockholder that he or she was not
fully informed regarding the transactions contemplated hereby; or did not
consent to, or is entitled to challenge, any action by the Stockholder
Representative on his or her behalf; or was not treated fairly by the Majority
Stockholders; and
(e) any claim under the Q Plan or the E Plan of the Company or
any assertion of rights by any person as holder of Q Shares or E Shares, and any
cost to the Company of repurchasing the Q Shares and E Shares outstanding
immediately after the Closing in excess of the Purchase Price allocated to the
holders thereof in part (b) of Schedule 1.3.
In addition, the Minority Stockholders and their successors and
assigns shall severally indemnify, defend, reimburse and hold harmless the Buyer
Indemnitees from and against all Losses reasonably incurred by any such Buyer
Indemnitee, arising out of or in connection with any untruth or inaccuracy of
any representation or warranty, or the breach of any covenant, agreement or
obligation made by such Minority Stockholder in this Agreement or any other
Transaction Document.
5.3 Indemnification by Buyer.
Subject to the limits set forth in this Article 5, Buyer and its
successors and assigns shall indemnify, defend, reimburse and hold harmless the
Stockholders and their successors and assigns from and against any and all
Losses reasonably incurred by any such Stockholders arising out of or in
connection with any of the following:
(a) the ownership and operation of the Company and its
Subsidiaries after the Closing (except that Buyer, to the extent permitted by
applicable law, and its successors and assigns will not be required to
indemnify, defend, reimburse or hold harmless any Stockholder in respect of any
Losses arising as a result of acts or omissions of that Stockholder, including
in such Stockholder's capacity as an employee of or consultant to Buyer or its
Affiliates after Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
and
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(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
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(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 Payment.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this
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Article 5 for Losses directly or indirectly caused by a breach by such person of
any representation, warranty, covenant or other agreement set forth in this
Agreement or any duty to the potential Indemnitor.
(b) The maximum aggregate liability of the Majority Stockholders, on the
one hand, to Buyer, and Buyer, on the other hand to the Majority Stockholders,
for all claims arising under this Agreement and the other Transaction Documents
shall equal the aggregate Purchase Price. W. Duemer and J. Duemer shall be
liable to this same extent as if they owned the Seller Shares directly rather
than being the beneficial owners of the Seller Shares held by the IRAs. The
maximum liability of each Minority Stockholder on the one hand, to Buyer, and
Buyer on the other hand to each Minority Stockholder, for all claims under this
Agreement and the other Transaction Documents shall equal the purchase price
paid to such Minority Stockholder. For purposes of this Section 5.6(b), the
value of Shares received shall be (i) prior to the IPO, the per share Agreed
Price (as defined in the Stockholder Agreement) then prevailing; and (ii) after
the IPO, the per share closing price on the primary exchange or market on which
the Common Stock is traded on the date such indemnifiable Losses become payable,
except that the value of any Shares sold in bona fide third party transactions
will be the gross proceeds to the Stockholders of such sale.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of Each Party.
The obligations of the Stockholders, on the one hand, and Buyer, on the
other hand, to consummate the transactions contemplated hereby are subject to
the fulfillment, at or before the Closing Date, of the conditions set forth in
this Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that the Stockholders will be required to
perform their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Stockholders from and against, any obligations
that the Stockholders would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, net income or financial
condition of the Company and its Subsidiaries, is in effect; and no action or
proceeding has been instituted or threatened by any Governmental Entity, other
person, or entity which seeks to prevent or delay the consummation of the
transactions
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contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Stockholders contained in this Agreement or in
any other Transaction Document shall be true and correct in all material
respects as of the date hereof and on the Closing Date, and at the Closing the
Company and the Stockholder Representative shall each have delivered to Buyer a
certificate dated the Closing Date to such effect signed by the President or any
Vice President and the Secretary or any Assistant Secretary of the Company and
by the Stockholder Representative.
(b) Performance of the Company and the Stockholders. The Company and the
Stockholders shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement on or before the
Closing Date, and at the Closing the Company and the Stockholders, as the case
may be, shall each have delivered to Buyer a certificate to such effect dated
the Closing Date and signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company or the Stockholders, as
applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Board of Directors authorizing the
execution, delivery and performance of this Agreement and the other Transaction
Documents to be delivered by the Company and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
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(d) Additional Closing Documents of Each Stockholder. Buyer has
received, or is receiving at the Closing, all of the following, each duly
executed by each Stockholder and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by each Stockholder and the spouse of
each Stockholder, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24(g);
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares; and
(iv) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth, exclusive of assets attributable to revenues assigned to Benefit
Funding Services, LLC by Randall C. Long and John Campbell, calculated according
to GAAP of at least Three Million Five Hundred and Thirty-Three Thousand, Six
Hundred Dollars ($3,533,600.00), and (ii) sufficient working capital to operate
the Company and the Subsidiaries; and at the Closing the Company shall have
delivered to Buyer a certificate dated the Closing Date to such effect with
supporting financial information, signed by the President or any Vice President
and the Secretary or any Assistant Secretary of the Company.
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(i) Stockholder Consent. Stockholders representing at least 90% of the
outstanding shares of common stock of the Company have executed this Agreement
and all applicable Transaction Documents referenced in this Agreement.
(j) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(k) No Default. The Company shall not be in default of any material
obligation.
(l) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Stockholders
in substantially the form of Exhibit E and addressing such additional matters as
may be reasonably requested by Buyer in light of the facts and circumstances
related to the Company as of the Closing Date. In giving such opinion, such
counsel may rely upon certificates of public officials, upon opinions of local
counsel and, as to matters of fact, upon a certificate of the Company, or its
officers, and such counsel may assume that this Agreement has been duly
authorized, executed and delivered by Buyer.
(m) Certificates. The Stockholders shall have delivered to Buyer the
certificates representing the Seller Shares and the stock certificates or stock
powers as described in Section 1.2.
(n) Stock Books. The Company shall have delivered the stock books, stock
ledgers, membership interest ledgers, minute books and corporate seals of the
Company and each Subsidiary.
(o) Employee Matters. Buyer shall be reasonably assured that employees
of the Company and each Subsidiary of a quantity and having the skills
sufficient for the operation of the Business are continuing their employment or
affiliation with Buyer or Buyer's Affiliates after the Closing. Buyer shall have
received Employment Agreements mutually agreed upon by the parties thereto, duly
executed and delivered by the persons named on Schedule 6.2.
(p) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(q) Q Shares and E Shares. Buyer shall be satisfied in its discretion
that the Q Shares and E Shares remaining outstanding immediately after the
Closing can be acquired by the Company at an expense not in excess of the
portion of the Purchase Price allocable to the holders thereof as listed in part
(b) of Schedule 1.3.
(r) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and
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warranties of the Company or the Stockholders or in furtherance of the
transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 Conditions to Obligations of the Stockholders.
The obligations of the Stockholders to consummate the transactions
contemplated hereby are subject to the fulfillment, at or before the Closing
Date, of the conditions set forth in this Section 6.3, any one or more of which
may be waived by the Stockholders in writing in their discretion; provided
however, such waiver will not waive or diminish the right of the Stockholders to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby;
(ii) A photocopy of the certificates representing the Shares
issued in the name of each Stockholder as set forth in Schedule 1.3; and
(iii) Employment Agreements mutually agreed upon by the parties
thereto, with each of the persons named on Schedule 6.2.
(d) The Cash Payment. The Stockholders shall have received the Cash
Payment (as described in Schedule 1.3).
(e) Opinion of Counsel. The Stockholders shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of
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Buyer, and such counsel may assume that this Agreement has been duly authorized,
executed and delivered by the Company and the Stockholders.
(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million
and at the Closing Buyer shall have delivered to the Stockholders a certificate
to such effect in substantially the form of Exhibit H, dated the Closing Date,
signed by the President or any Vice President and the Secretary or any Assistant
Secretary of Buyer. For these purposes, "PRE-TAX INCOME" of any particular
company means that company's projected 1998 pre-tax income, as adjusted pursuant
to agreement between Buyer and that company to reflect certain cost reductions
and modified business practices and accounting methods expected to take effect
after the closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Stockholders.
7. MISCELLANEOUS.
7.1 Termination.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Stockholders fail to comply
in any material respect with any of its or their covenants or agreements
contained herein, or (ii) any of the representations and warranties of the
Company or the Stockholders is breached or is inaccurate in any material way;
(b) by the Company or the Stockholders if (i) Buyer fails to comply in any
material respect with any of its covenants or agreements contained herein, or
(ii) any of the representations and warranties of Buyer is breached or is
inaccurate in any material way; or (c) by the Company or Buyer if (i) a
Governmental Entity has issued a non-appealable order, decree or ruling or taken
any other action (which order, decree or ruling the parties hereto have used
their best efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the transactions contemplated by this Agreement; or (ii) a condition
to its performance hereunder has not been satisfied or waived prior to November
30, 1998, provided however, that if the board of directors of Buyer should, in
good faith, determine that it is necessary to extend the Closing for the purpose
of facilitating the financing of the Consolidation Transactions, it may extend
such date by thirty-five (35) days. Notwithstanding the foregoing, a party may
not terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of the
covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this
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Agreement will terminate and the transactions contemplated hereby will be
abandoned, without further action by any party. If this Agreement is terminated
as provided herein, no party to this Agreement will have any liability or
further obligation to any other party to this Agreement except as provided in
Sections 2.29 (Brokers), 4.2 (Confidentiality), 7.12 (Expenses), 7.13
(Arbitration), 7.14 (Submission to Jurisdiction), and 7.15 (Attorneys' Fees),
and except that termination of this Agreement will not affect any liability of
any party for any breach of this Agreement prior to termination, or any breach
at any time of the provisions hereof surviving termination.
7.2 Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile, to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Stockholder: George W. Imhoff
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 4295-559
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With a copy to: Caldwell Campbell, Esq.
3070 Bristol, Suite 450
Costa Mesa, California 92626
Telephone No.: (714) 429-2900
Facsimile No.: (714) 429-2901
7.3 Assignability and Parties in Interest.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and the Company and their respective permitted successors and
assigns and upon each Stockholder and his or her executors, administrators,
heirs, legal representatives and permitted successors and assigns. Nothing in
this Agreement will confer upon any person or entity not a party to this
Agreement, or the legal representatives of such person or entity, any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 Counterparts.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 Publicity.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and the Company, except that
Buyer may disclose details of this Agreement to other participants in, or as
necessary to effect, the Consolidation Transactions. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 Complete Agreement.
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This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 Modifications, Amendments and Waivers.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 Headings; References.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10 Severability.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 Investigation.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of the
Company shall be deemed made to the knowledge of the Stockholders only and no
other person.
7.12 Expenses of Transactions.
All fees, costs and expenses incurred by Buyer, in connection with the
transactions contemplated by this Agreement shall be borne by Buyer, and all
fees, costs and expenses incurred by the Company or the Stockholders in
connection with the transactions
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contemplated by this Agreement shall be borne by the Majority Stockholders
jointly and severally and by the Minority Stockholders severally.
7.13 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to
this Agreement or any other Transaction Document also arises out of or relates
to the employment of any Stockholder by Buyer or any Affiliate of Buyer, the
provisions of this Agreement governing dispute resolution shall govern
resolution of such controversy or claim. The provisions of this Agreement
governing dispute resolution supersede any provisions relating to such matters
in any employment agreement between any Stockholder and Buyer or any Affiliate
of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION Threshold"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A
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copy of the Notice of Counterclaim shall be concurrently provided to the AAA. If
the claim set forth in the Notice of Counterclaim causes the aggregate amount in
dispute to exceed the Arbitration Threshold, the Notice of Counterclaim shall so
state. If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed,
within fifteen (15) days after receipt of the Arbitration Notice or the Notice
of Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one
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proceeding, the Arbitrator selected in the first-filed of such proceedings shall
determine whether, in the interests of justice and efficiency, the proceedings
should be consolidated before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 Submission to Jurisdiction.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in Section 7.2. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
7.15 Attorneys' Fees.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against the Company or any of its Affiliates, successors or assigns
or any Stockholder, or if the Company or any of its Affiliates, successors or
assigns or any Stockholder brings any action, suit, counterclaim, cross-claim,
appeal, arbitration, or mediation for any relief against Buyer or any of its
Affiliates, successors or assigns, declaratory or otherwise, to enforce the
terms hereof or to declare rights hereunder (collectively, an "ACTION"), in
addition to any damages and costs which the prevailing party otherwise would be
entitled, the non-prevailing party shall pay to the prevailing party a
reasonable sum for attorneys' fees and costs (at the prevailing party's
attorneys' then-prevailing rates) incurred in bringing and prosecuting such
Action and/or enforcing any judgment, order, ruling, or award (collectively, a
"DECISION") granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any
58
<PAGE> 65
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16 Enforcement of the Agreement.
The Company, the Stockholders and Buyer acknowledge that irreparable
damage would occur if any of the obligations of the Company and the Stockholders
under this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Buyer will be entitled to an injunction or
injunctions to prevent breaches of this Agreement by the Company or the
Stockholders and to enforce specifically the terms and provisions hereto, this
being in addition to any other remedy to which Buyer is entitled at law or in
equity.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
"BUYER"
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
FFR HOLDING CO., INC.
"COMPANY"
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
59
<PAGE> 66
____________________________________________
GEORGE W. IMHOFF,
executing and delivering this Stock Purchase Agreement (i ) in his capacity as
Stockholder Representative, (ii) in his individual capacity as a Stockholder,
and (iii) as attorney in fact for the Stockholders whose signatures lines are
marked with an asterisk below
____________________________________________
ERIK R. WATTS
____________________________________________
WALTER C. DUEMER
____________________________________________
JOAN HARRIET. DUEMER
WALTER C. DUEMER AND JOAN HARRIET DUEMER,
TRUSTEES UNDER TRUST AGREEMENT DATED JANUARY 10,1994
(WALTER C. DUEMER AND JOAN HARRIET DUEMER SETTLORS)
____________________________________________
BY:_________________________________________
ITS:________________________________________
JOAN HARRIET DUEMER, TRUSTEE
UNDER THE TRUST AGREEMENT DATED JANUARY 10, 1994
(WALTER C. DUEMER SETTLOR)
____________________________________________
BY:_________________________________________
ITS:________________________________________
60
<PAGE> 67
COMMUNITY TRUST COMPANY, SUCCESSOR IN INTEREST TO
PENNSYLVANIA FIDUCIARY AND ESTATE SERVICES, INC.,
CUSTODIAN FOR JOAN H. DUEMER SPOUSAL ROTH IRA
____________________________________________
BY:_________________________________________
ITS:________________________________________
COMMUNITY TRUST COMPANY, SUCCESSOR IN INTEREST TO
PENNSYLVANIA FIDUCIARY AND ESTATE SERVICES, INC.,
CUSTODIAN FOR WALTER C. DUEMER ROTH IRA
____________________________________________
BY:_________________________________________
ITS:________________________________________
____________________________________________
DAVID P. AKERS
____________________________________________
HARVEY ALTHOLTZ
FFR FINANCIAL & INSURANCE SERVICES, L.L.C.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
LEMUEL M. BARGERON
____________________________________________
DANA E. BERNARD
____________________________________________
RICHARD S. BERNSTEIN
____________________________________________
NORMAN BEVAN
____________________________________________
61
<PAGE> 68
____________________________________________
DAVID M. BREEDLOVE, SR.
WESTPORT MANAGEMENT SERVICES, INC.
____________________________________________
BY:_________________________________________
ITS:________________________________________
THE LEE M. BOWER REVOCABLE TRUST DTD 9/24/93,
LEE M. BROWER, TRUSTEE
____________________________________________
BY:_________________________________________
ITS:________________________________________
____________________________________________
THOMAS J. BROWN
____________________________________________
STEVEN J. BURMEISTER
____________________________________________
WILLIAM J. CHRISTIE
____________________________________________
ALAN D. COHEN
____________________________________________
RICHARD L. COLE
____________________________________________
MICHAEL P. CORADO
____________________________________________
WILLIAM P. CORRY
____________________________________________
J. DAVID CRAIG
62
<PAGE> 69
____________________________________________
DENNIS C. CRAWFORD
____________________________________________
MICHAEL A. DICKTER
____________________________________________
GAIL DICKTER
____________________________________________
GERALD L. DILORENZO
____________________________________________
WILLIAM J. DUNGAN, JR.
____________________________________________
JAMES DYER
____________________________________________
GERALD F. EASTMAN
EISENBERG FINANCIAL GROUP, INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
GLENN M. EISENBERG
____________________________________________
ROGER N. ENNIS
____________________________________________
JEFFREY W. EVANS
____________________________________________
SAUL F. FEINGOLD
____________________________________________
CHARLES J. FELDMAN
63
<PAGE> 70
FREMAR CORPORATION
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
WILLIAM FERGUSSON
____________________________________________
TIMOTHY FOSTER
____________________________________________
ROBERT A. FRISCH
____________________________________________
RAO K. GARUDA
____________________________________________
TODD GIVENS
____________________________________________
SCOTT GIVENS
____________________________________________
MARK S. GOODMAN
____________________________________________
JOHN GOOTT
THE CAPITAL CREATION COMPANY
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
RANDI K. GOTTLIEB
____________________________________________
L. CLARK GOULD
____________________________________________
MICHAEL P. HANLEY
64
<PAGE> 71
MICHAEL P. HANLEY, TRUSTEE UNDER THE MICHAEL P.
HANLEY REVOCABLE TRUST
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
SANFORD H. HARMELIN
____________________________________________
DANIEL J. HECHT
A/T OF INGRAM & ASSOC. PROFIT SHARING PLAN
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
PHILLIP C. INGRAM
____________________________________________
DAVID M. ISAACSON
FFR ADVISORY, LLC
____________________________________________
BY:_________________________________________
ITS:_______________________________________
JANE KLUCZKOWSKI FAMILY INVESTMENT CO. LTD.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
MAL S. KLUGMAN
65
<PAGE> 72
____________________________________________
JEFF KNOX
THE LIVING TRUST OF DAVID A. KOSSAK
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
JOHN LANDER
WESTSIDE PARTNERS
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
WILLIAM F. LEISMAN, III
____________________________________________
RICHARD H. LINSDAY
ROBERT R. LOFTUS, TRUSTEE OF THE LOFTUS FAMILY
TRUST DTD 10/13/78
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
ROBERT LOFTUS
____________________________________________
RANDALL C. LONG
66
<PAGE> 73
____________________________________________
WILLIAM J. MANBY
____________________________________________
DOUGLAS W. MCCALLUM
WESTFIELD-FFR PARTNERSHIP
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
DONALD H. MEHLIG, TRUSTEE OF THE MEHLIG FAMILY
TRUST DATED MAY 9, 1973
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
JAMES P. MENIGHAN
____________________________________________
DAVID F.MICKELSON
____________________________________________
LON MORTON
____________________________________________
BURT MOSS
____________________________________________
RON OWNBEY
67
<PAGE> 74
PLANNING CONCEPTS INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
ALLAN S. OXMAN
____________________________________________
NORMAN PAPPAS
NORMAN A. PAPPAS, TRUSTEE, NORMAN A. PAPPAS
TRUST AGREEMENT DATED 9/4/74, AS AMENDED
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
A. T. PRICE
____________________________________________
LARRY J. PRIES
RENNER AND FLAUT, INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
RANDALL E. RIGGINS
68
<PAGE> 75
ROBERTS FAMILY REVOCABLE TRUST DATED
OCTOBER 15, 1996
____________________________________________
BY:_________________________________________
ITS:_______________________________________
TRUSTEE FOR THE J. MICHAEL RONEY TRUST DTD
3-16-89
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
MICHAEL J. RONEY
____________________________________________
JOHN C. ROSANIA
____________________________________________
MARVIN ROTH
ROTHSTEIN FAMILY TRUST,
DATED 2-03-89
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
EMANUEL L. SARRIS, SR.
____________________________________________
KAREN L. SCHMIDT
____________________________________________
HILARY J. SCHNEIDER
69
<PAGE> 76
____________________________________________
ROBERT C. SCHWARTZ
____________________________________________
KENNETH N. SCOPP
____________________________________________
JOHN SCOTT
____________________________________________
WILLIAM A. SENNO
SENNO FINANCIAL GROUP
____________________________________________
BY:_________________________________________
ITS:_______________________________________
ROBERT C. SHADUR, TRUSTEE SHADUR FAMILY TRUST
7/30/75 AMENDED
____________________________________________
BY:_________________________________________
ITS:_______________________________________
ROBERT C. SHADUR, TRUSTEE OF THE ROBERT SHADUR
LIVING TRUST 7/1/97
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
DONALD W. SIGMUND
____________________________________________
E. BRIAN SINGER
____________________________________________
SIMON SINGER
____________________________________________
GREGORY K. SMITH
70
<PAGE> 77
____________________________________________
ROBERT E. SOWERWINE
____________________________________________
MANUEL N. STAMATAKIS
____________________________________________
MARVIN TARNOL
MARVIN TARNOL AND LAURIE TARNOL INTER VIVOS
TRUSTEE DATED 8/29/95
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
STEPHEN M. THALER
____________________________________________
MICHAEL D. THAXTON
____________________________________________
GARY L. THORNHILL
TOW FINESTONE AND ASSOCIATES LLC
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
STEPHAN TOW
____________________________________________
BRUCE S. UDELL
____________________________________________
WILLIAM H. VAN PELT, IV
71
<PAGE> 78
Comet Capital Corp., NV
____________________________________________
BY:_________________________________________
ITS:_______________________________________
1758 PRIMARY PROPERTIES LIMITED PARTNERSHIP
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
MICHAEL C. WEDGE
BERNARD WEINBERG & JANICE WEINBERG, TRUSTEES OF
THE J&B WILSHIRE TRUST #2, DATED OCTOBER 24,
1995
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
JAY M. WEINSTEIN
THE WHITELAW GROUP, INC.
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
L. BLAIR WHITING
____________________________________________
RICHARD J. WILCOX
72
<PAGE> 79
WILLCOX, GOOTT & PARTNERS
____________________________________________
BY:_________________________________________
ITS:_______________________________________
____________________________________________
HOWARD WINITSKY
____________________________________________
MICHAEL WINSTON
73
<PAGE> 80
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of One Hundred and Twenty Two Thousand Thirty
Five Dollars and 99/100 Cents ($122,035.99) (the "CASH PAYMENT").
(ii) An aggregate of 279,696 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer
pending release pursuant to Section 1.4.
(b) Consideration per Stockholder.
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Akers 10 1,000 0 0 14.64 0
Harvey Altholtz 32 3,181 0 0 11.85 1
FFR Financial 27 2,697 0 0 4.53 1
& Insurance
Services,
L.L.C
Lemuel M. 1 61 0 0 1.47 0
Bargeron
Dana E. Bernard 53 5,283 0 0 7.60 2
Richard S. 21 2,068 0 0 30.74 0
Bernstein
Norman Bevan 939 93,887 0 0 44.76 38
David M. 31 3,018 0 0 10.39 1
Breedlove
Westport 10 1,000 0 0 14.64 0
Management
Services, Inc.
Leslie M. 0 1,000 0 0 0 0
Brower
Lee M. Brower 0 295 0 0 0 0
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
The Lee M. 26 1,215 0 0 38.06 0
Bower
revocable
trust dtd.
9/24/93, Lee
M. Brower,
trustee
Thomas J. Brown 278 27,784 0 0 22.02 11
Stephen J. 33 3,287 0 0 13.31 1
Burmeister
William J. 10 1,000 0 0 14.64 0
Christie
Alan D. Cohen 10 1,000 0 0 14.64 0
Richard L. Cole 11 1,018 0 0 16.10 0
Michael P. 11 1,079 0 0 16.10 0
Corado
William P. 8 723 0 0 11.71 0
Corry
J. David Craig 144 14,363 0 0 35.82 5
Dennis C. 2 181 0 0 2.93 0
Crawford
Michael A. 107 10,649 0 0 16.66 4
Dickter & Gail
Dickter
Gerald L. 14 1,400 0 0 20.50 0
DiLorenzo
Walter C. 2,263 226,204 0 0 58.20 93
Duemer and
Joan Harriet
Duemer,
trustees under
Trust
Agreement dtd
1/10/94
(Walter C.
Deumer and
Joan Harriet
Duemer,
settlors)
Pennsylvania 666,666 0 666,666 0 11,834.66 27,549
Fiduciary and
Estate
Services, Inc.
Custodian for
Joan H.
Duemer,
spousal Roth
IRA
Joan Harriet 928,716 0 928,716 0 16,480.76 38,378
Duemer,
trustee under
Trust
Agreement
dated January
10, 1994
(Walter C.
Duemer,
settlor)
Pennsylvania 666,666 0 666,666 0 11,834.66 27,549
Fiduciary and
Estate
Services, Inc.
Custodian for
Walter C.
Duemer Roth IRA
William J. 6 531 0 0 8.79 0
Dungan, Jr.*
</TABLE>
2
<PAGE> 82
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James Dyer 10 1,000 0 0 14.64 0
Gerald F. 25 2,453 0 0 1.60 1
Eastman
Eisenberg 20 2,000 0 0 29.28 0
Financial
Group, Inc.
Glenn M. 97 9,666 0 0 2.02 4
Eisenberg
Roger N. Ennis 115 11,426 0 0 28.37 4
Jeffrey W. 52 5,103 0 0 6.13 2
Evans
Saul F. 25 2,437 0 0 1.60 1
Feingold
Charles J. 12 1,101 0 0 17.57 0
Feldman*
Fremar 11 1,091 0 0 16.10 0
Corporation
William 2 200 0 0 2.93 0
Fergusson
Timothy Foster 16 1,570 0 0 23.42 0
Robert A. 90 9,008 0 0 26.77 3
Frisch
Rao K. Garuda 95 9,441 0 0 34.08 3
Scott and Todd 4 367 0 0 5.86 0
Givens
Warren 4 361 0 0 5.86 0
Financial Group
Mark S. Goodman 20 1,903 0 0 29.28 0
John Goott 21 2,089 0 0 30.74 0
The Capital 147 14,667 0 0 5.22 6
Creation
Company
Randi K. 72 7,104 0 0 35.42 2
Gottlieb
L. Clark Gould 42 4,151 0 0 26.49 1
Michael P. 57 5,679 0 0 7.73 3
Hanley
</TABLE>
3
<PAGE> 83
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael P. 20 2,000 0 0 0 0
Hanley, an
Unmarried Man
Michael P. 100 9,968 0 0 6.40 4
Hanley,
trustee Under
The Michael P.
Hanley
Revocable
Trust dtd.
9/19/91
Sanford H 77 7,678 0 0 7.73 3
Harmelin
Daniel J. Hecht 61 6,073 0 0 19.31 2
George W 2,233,105 223,087 2230,874 0 39,600.33 92,281
Imhoff, III
A/T of Ingram 14 1,400 0 0 17.71 0
& Assoc.
Profit Sharing
Plan
Phillip C. 36 3,600 0 0 20.50 1
Ingram
David M. 11 1,016 0 0 16.10 0
Isaacson
FFR Advisory, 112 10,965 0 0 93.98 2
LLC
Jane 13 1,282 0 0 19.03 0
Kluczkowski
Family
Investment Co.
Ltd.
Mal S. 31 3,018 0 0 10.39 1
Klugman, a
single man
Jeff Knox* 1 18 0 0 1.47 0
The Living 17 1,661 0 0 24.89 0
Trust of David
A. Kossak
John S. Lander* 155 15,485 0 0 16.93 6
Westside 10 1,000 0 0 14.64 0
Partners*
William Leisman 25 2,426 0 0 1.60 1
Richard H. 31 3,049 0 0 10.39 1
Linsday
Robert R. 20 2,000 0 0 29.28 0
Loftus,
trustee of the
Loftus family
trust dated
10/13/78
Robert Loftus 5 467 0 0 7.32 0
Randall C. Long 44 4,334 0 0 29.42 1
</TABLE>
4
<PAGE> 84
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. 82 8,186 0 0 15.05 3
Manby
Regina 0 800 0 0 0 0
Marks-Lee
Douglas W. 28 2,757 0 0 6.00 1
McCallum
Westfield-FFR 11 1,082 0 0 16.10 0
Partnership
Donald H. 8 758 0 0 11.71 0
Mehlig,
Trustee of the
Mehlig Family
Trust dated
May 9, 1973
James P. 117 11,605 0 0 31.29 4
Menighan
David F. 26 2,555 0 0 3.07 1
Mickelson
Lon Morton 172 17,128 0 0 6.82 7
Burt Moss 5 430 0 0 7.32 0
Ron Ownbey 4 344 0 0 5.86 0
Planning 22 2,128 0 0 32.21 0
Concepts Inc.
Allan S. Oxman 169 16,844 0 0 37.43 6
Norman A. 45 6,946 0 0 30.89 1
Pappas,
Trustee,
Norman A.
Pappas Trust
Agreement dtd
9/4/74, as
amended
Norman Pappas 25 0 0 0 1.60 1
A. T. Price* 18 1,710 0 0 26.35 0
Larry J. Pries 10 925 0 0 14.64 0
Renner and 6 512 0 0 8.79 0
Flaut, Inc.
Randal E. 124 12,319 0 0 6.55 5
Riggins
Roberts Family 311 31,064 0 0 35.32 12
Revocable
Trust, dated
October 15,
1996
J. Michael 55 5,499 0 0 10.52 2
Roney
</TABLE>
5
<PAGE> 85
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Trustee for 85 8,456 0 0 19.45 3
the J. Michael
Roney Trust
dtd 3/16/89
John C. Rosania 12 1,155 0 0 17.57 0
Marvin Roth 111 11,038 0 0 22.51 4
Rothstein 61 6,086 0 0 19.31 2
Family Trust,
dtd 2/03/89
Emanuel L. 182 18,183 0 0 21.47 7
Sarris, Sr
Karen L. 15 1,472 0 0 21.97 0
Schmidt
Hilary J. 31 3,002 0 0 10.39 1
Schneider
Robert C. 67 6,633 0 0 28.10 2
Schwartz
Kenneth N. 24 2,320 0 0 35.14 0
Scopp
John Scott 3 279 0 0 4.39 0
William A. 101 10,003 0 0 7.87 4
Senno
Senno 114 11,370 0 0 26.90 4
Financial Group
Robert C. 125 12,446 0 0 8.01 5
Shadur,
Trustee Shadur
Family Trust
7/30/75 amended
Robert C. 86 8,513 0 0 20.91 3
Shadur,
Trustee of the
Robert Shadur
Living Trust
7/1/97
S. James 180 17,987 0 0 18.53 7
Showalter III
Donald W. 12 1,167 0 0 17.57 0
Sigmund
E. Brian 0 697 0 0 0 0
Singer
Simon Singer 71 7,022 0 0 33.95 2
Gregory K. 33 3,292 0 0 13.31 1
Smith
Robert E. 16 1,575 0 0 23.42 0
Sowerwine*
</TABLE>
6
<PAGE> 86
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Manuel N. 975 97,451 0 0 27.47 40
Stamatakis*
Marvin Tarnol 16 1,575 0 0 23.42 0
Marvin Tarnol 4 316 0 0 5.86 0
& Laurie
Tarnol Inter
Vivos trustee
dtd 8/29/95
Stephen M. 32 3,147 0 0 11.85 1
Thaler*
Michael D. 9 868 0 0 13.18 0
Thaxton
Gary L. 49 4,808 0 0 1.74 2
Thornhill
Tow Finestone 4 339 0 0 5.86 0
and Associates
LLC
Stephan Tow 112 11,164 0 0 23.98 4
Bruce S. Udell 69 6,822 0 0 31.02 2
William H. Van 19 1,815 0 0 27.82 0
Pelt, IV
Erik R. Watts 2,263,857 180,824 2262,048 0 40,138.60 93,552
Comet Capital 423 42,263 0 0 24.31 17
Corp., NV
1758 Primary 32 3,117 0 0 11.85 1
Properties
Limited
Partnership
Michael C. 73 7,220 0 0 1.87 3
Wedge
Bernard 150 14,959 0 0 9.61 6
Weinberg &
Janice
Weinberg,
Trustees of
the J&B
Wilshire Trust
#2, dated
October 24,
1995
Jay M. 27 2,619 0 0 4.53 1
Weinstein
The Whitelaw 39 3,815 0 0 22.10 1
Group, Inc.*
L. Blair 183 18,230 0 0 22.92 7
Whiting
Richard J. 77 7,699 0 0 7.73 3
Wilcox
Willcox, Goott 10 1,000 0 0 14.64 0
& Partners
</TABLE>
7
<PAGE> 87
<TABLE>
<CAPTION>
Shares Outstanding Immediately
After Closing Purchase Price
-------------------------------------------- -------------------------------
Seller Shares Series A
Name of Owned and to Preferred Cash Common Stock
holder be sold to Buyer Stock Q Shares E Shares Consideration Consideration
------ ---------------- ----- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard 0 2,000 0 0 0 0
Winitsky and
Associates,
Inc.
Howard Winitsky 79 5,160 0 0 45.66 2
Michael 2 127 0 0 2.93 0
WINSTON*
</TABLE>
* Did not sell their common stock to ProfitSource Corporation.
8
<PAGE> 1
EXHIBIT 10.40
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
NATIONAL BENEFITS CONSULTANTS, L.L.C.
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
DECEMBER 7, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Sale and Purchase........................................................................1
1.1 Agreements to Sell and Purchase..............................................1
1.2 Closing......................................................................1
1.3 Purchase Price...............................................................2
1.4 Certificates for Shares......................................................2
2. Representations and Warranties of the Company and the Members............................2
2.1 Organization and Good Standing...............................................2
2.2 Ownership of Seller Interests................................................3
2.3 Authorization of Agreement...................................................3
2.4 Title to Assets..............................................................4
2.5 Financial Condition..........................................................4
2.6 Certain Property of the Company..............................................5
2.7 Year 2000 Compliance.........................................................7
2.8 No Conflict or Violation.....................................................8
2.9 [Reserved.]..................................................................8
2.10 Labor and Employment Matters.................................................8
2.11 Employee Plans...............................................................9
2.12 Litigation..................................................................11
2.13 Certain Agreements..........................................................11
2.14 Compliance with Applicable Law..............................................12
2.15 Licenses....................................................................13
2.16 Accounts Receivable.........................................................13
2.17 Intercompany and Affiliate Transactions; Insider Interests..................14
2.18 Insurance...................................................................14
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
2.19 [Reserved.].................................................................15
2.20 No Undisclosed Liabilities..................................................15
2.21 Taxes.......................................................................15
2.22 Indebtedness................................................................17
2.23 Environmental Matters.......................................................17
2.24 Securities Matters..........................................................19
2.25 Buyer and the Consolidation Transactions....................................20
2.26 Minute Books and Records....................................................21
2.27 [Reserved.].................................................................21
2.28 Powers of Attorneys and Suretyships.........................................21
2.29 Brokers.....................................................................21
2.30 Summary of Considerations...................................................21
2.31 Accuracy of Information.....................................................21
3. Representations and Warranties of Buyer.................................................22
3.1 Organization and Corporate Authority........................................22
3.2 No Conflict or Violation....................................................22
3.3 Capitalization..............................................................22
3.4 Notes.......................................................................22
3.5 Litigation..................................................................23
3.6 No Undisclosed Debt.........................................................23
3.7 Accuracy of Information.....................................................23
4. Certain Understandings and Agreements of the Parties....................................23
4.1 Access......................................................................23
4.2 Confidentiality.............................................................24
4.3 Certain Changes and Conduct of Business.....................................24
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
4.4 Restrictive Covenants.......................................................27
4.5 Securities Restrictions.....................................................29
4.6 Registration................................................................30
4.7 Cooperation in Litigation...................................................31
4.8 Tax Matters.................................................................32
4.9 Consolidation Transactions..................................................35
4.10 Supplemental Disclosure.....................................................35
4.11 HSR.........................................................................36
4.12 Competing Proposals.........................................................36
4.13 Bonus Plan..................................................................36
4.14 Best Efforts................................................................36
4.15 Further Assurances..........................................................37
4.16 Notice of Breach............................................................37
5. Survival; Indemnification...............................................................37
5.1 Survival....................................................................37
5.2 Indemnification by the Members..............................................37
5.3 Indemnification by Buyer....................................................38
5.4 Indemnification Procedure...................................................38
5.5 Payment.....................................................................40
5.6 Limitations.................................................................40
6. Conditions to Closing...................................................................41
6.1 Conditions to Obligations of Each Party.....................................41
6.2 Conditions to Obligations of Buyer..........................................41
6.3 Conditions to Obligations of the Members....................................44
7. Miscellaneous...........................................................................46
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
7.1 Termination.................................................................46
7.2 Notices.....................................................................46
7.3 Assignability and Parties in Interest.......................................47
7.4 Governing Law...............................................................47
7.5 Counterparts................................................................48
7.6 Publicity...................................................................48
7.7 Complete Agreement..........................................................48
7.8 Modifications, Amendments and Waivers.......................................48
7.9 Headings; References........................................................48
7.10 Severability................................................................49
7.11 Investigation...............................................................49
7.12 Expenses of Transactions....................................................49
7.13 Arbitration.................................................................49
7.14 Submission to Jurisdiction..................................................51
7.15 Attorneys' Fees.............................................................52
7.16 Enforcement of the Agreement................................................52
</TABLE>
<PAGE> 6
EXHIBITS
A. Form of Assignment and Assumption Agreement
B. Form of Accredited Investor Questionnaire
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Summary of Certain Considerations
E. Form of Voting Agreement
F. Form of Subordination Agreement
G. Opinion of Counsel to the Company and the Members
H. Form of Employment Agreements
I. Opinion of Counsel to the Buyer
J. Form of Notes
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.17 Intercompany and Affiliate Transactions
2.18 Insurance
2.21(b) Tax Returns
2.21(i) 351 Information
2.22 Indebtedness
2.29 Brokers
3.5 Litigation
3.6 Liabilities
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
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<PAGE> 7
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of December 7, 1998 by and among National Benefits Consultants,
L.L.C., a Delaware limited liability company (the "COMPANY"), the members of the
Company listed on the signature page(s) hereof (each such individual a "MEMBER,"
and collectively, the "MEMBERS") and ProfitSource Corporation, a Delaware
corporation ("BUYER").
A. The Company is engaged in the business of cost recovery and
reduction (the "BUSINESS").
B. The Members own 50% of the ownership interests in the Company
(the "SELLER INTERESTS").
C. The Members desire to sell to Buyer, and Buyer desires to
purchase from the Members all of the Seller Interests on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) each Member shall sell to
Buyer, and Buyer shall purchase from each Member, the number of Seller Interests
set forth opposite such Member's name on Schedule 1.3, for the purchase price
set forth in Section 1.3.
1.2 Closing.
The closing of the sale and purchase of the Seller Interests (the "CLOSING")
will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza,
Irvine, California, on a date to be selected by Buyer after all the conditions
set forth in Article 6 have either been satisfied or, in the case of conditions
not satisfied, waived in writing by the party entitled to the benefit of such
conditions (the "CLOSING DATE"). At least five (5) days prior to the Closing
Date, Buyer shall provide written notice (the "CLOSING NOTICE") to the Company
and the Members informing the Company and the Members of the date selected as
the Closing Date. At the Closing, the Members shall deliver to Buyer or its
designees an Assignment and Assumption Agreement in the form of Exhibit A,
transferring the Seller Interests being sold by the Members and each other
instrument of transfer Buyer may reasonably request to vest effectively in Buyer
good and valid title to the Seller Interests, free and clear of any liens,
<PAGE> 8
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any person or entity, together with any taxes, direct or indirect,
attributable to such transfer of the Seller Interests, and Buyer shall thereupon
pay to each Member the Purchase Price described in part (b) of Section 1.3 for
such Member's Seller Interests.
1.3 Purchase Price.
The consideration to be paid by Buyer for the Seller Interests (the
"PURCHASE PRICE"), both in the aggregate and to each Member for such Member's
Seller Interests, is described in Schedule 1.3.
1.4 Certificates for Shares.
In order to facilitate replacement of certificates for the shares of
Series A Common Stock of Buyer constituting part of the Purchase Price (the
"SHARES") upon an IPO (as defined herein) with the transfer agent's form of
certificate, and to facilitate enforcement of the Stockholder Agreement (as
defined herein), Buyer will keep custody of the certificates representing the
Shares until the IPO and until the Shares are no longer subject to the
Stockholder Agreement, and recipients of Shares will execute and deliver blank
stock powers as described in Section 6.2(d)(i). This custody arrangement will
not affect the rights as a stockholder of any permitted recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Article 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. The Company and the
Members, jointly and severally, represent and warrant to Buyer that:
2.1 Organization and Good Standing.
The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to carry on the Business as it is now and has
since its organization been conducted and as proposed to be conducted, and to
own, lease or operate its assets and properties. The Company is duly qualified
to do business and is in good standing in every jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where failure to be
so qualified would not have a material adverse effect on the Business or its
prospects or the Company's assets or financial condition (a "MATERIAL ADVERSE
EFFECT"). Schedule 2.1 lists all of the jurisdictions in which the Company is
qualified to do business. Complete and accurate copies of the articles of
organization and operating agreement of the Company, with all amendments thereto
to the date hereof, have been furnished to Buyer or its representatives.
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<PAGE> 9
2.2 Ownership of Seller Interests.
(a) The Seller Interests constitute 50% of the ownership interests of
the Company ("INTERESTS") and are validly issued and fully paid. The Seller
Interests, together with the Interests held by CENV, constitute all of the
ownership Interests. The Seller Interests owned by each Member are set forth in
part (b) of Schedule 1.3. Neither the Members nor the Company has granted,
issued or agreed to grant or issue any other equity interests in the Company and
there are no outstanding options, warrants, rights to acquire ownership
interests in the Company, subscription rights, securities that are convertible
into or exchangeable for, or any other commitments of any character relating to,
any equity interests of the Company.
(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests of the Company prior to the date
hereof were exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and were registered or qualified under
or exempt from all applicable state securities laws.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 Authorization of Agreement.
The Company and the Members have all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement and all other agreements and instruments to be executed
by the parties hereto in connection herewith (together with all other documents
to be delivered in connection herewith or therewith, collectively the
"TRANSACTION DOCUMENTS") have (except for Transaction Documents to be executed
and delivered solely by Buyer) been duly and validly approved by the Members of
the Company and no other proceedings on the part of the Company or the Members
are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the other Transaction Documents to be
delivered by the Company or any Member have been (or upon execution will have
been) duly executed and delivered by the Company and each Member, have been
effectively authorized by all
3
<PAGE> 10
necessary action, and constitute (or upon execution will constitute) legal,
valid and binding obligations of the Company and each Member, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4 Title to Assets.
The Company is the lawful owner of each of its assets, whether real,
personal, mixed, tangible or intangible. All of the Company's assets are
sufficient and adequate to conduct the Business as presently conducted; and are
free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of any kind except any
of the following: (i) purchase money security interests in specific items of
equipment each having a value not in excess of $100; (ii) Personal Property
leased pursuant to Personal Property Leases; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Buyer; (v) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vi) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or any Member to
transfer any of the assets of the Company or rights or interests therein to any
party.
2.5 Financial Condition.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of September 30, 1998 and the related statements of income and
cash flow for the period then ended of the Company (the "FINANCIAL STATEMENTS").
The Financial Statements (i) were prepared in accordance with the books and
records of the Company; (ii) were prepared in accordance with generally accepted
accounting principles applicable to partnerships ("GAAP") and were consistently
applied; (iii) fairly present the financial condition and the results of the
operations of the Company as at the relevant dates thereof and for the periods
covered thereby; (iv) to the extent required by GAAP, contain and reflect all
necessary adjustments and accruals for a fair presentation of the financial
condition and the results of the operations of the Company for the periods
covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, contingent or otherwise, with respect to the period then ended and
all prior periods; and (vi) do not contain any items of a special or
nonrecurring nature, except as expressly stated therein. There have been no
changes or modifications of revenue
4
<PAGE> 11
recognition, cost allocation practices or method of, accounting or other
financial or operational practices or principles except for any such change
required by reason of a concurrent change in GAAP during the periods covered by
the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3. For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
2.6 Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or any Member each Real Property Lease is a
valid and binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor any Member
has any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and no event has
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company.
(iii) To the knowledge of the Company or any Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement,
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<PAGE> 12
a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY LEASES").
Schedule 2.6(b) provides a description and the location of each item of Personal
Property of the Company, accurately identifies such Personal Property as owned
or leased, and lists each Personal Property Lease. The Company is not in
material breach of or default, and no event has occurred which, with due notice
or lapse of time or both, may constitute such a material breach or default,
under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names and other names and
slogans embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to sue and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof; (vi) customer lists; (vii) books and records describing or
used in connection with any of the foregoing; and (viii) claims or causes of
action arising out of or related to infringement or misappropriation of any of
the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the historical and anticipated uses of the Proprietary Rights in connection with
the conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court,
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<PAGE> 13
arbitrator, federal, state, local or foreign government agency, regulatory body,
or other governmental authority (each a "Governmental Entity," and collectively
"Governmental Entities") with authority to bind the Company. There have not been
any actions or other judicial or adversary proceedings involving the Company
concerning any of the Proprietary Rights, nor to the knowledge of the Company or
any Member, is any such action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Member, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "Trade Secrets"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
Year 2000 Compliance.
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by the Company and material to the Business are Year 2000 Compliant. For
purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
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<PAGE> 14
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 No Conflict or Violation.
The execution, delivery and performance by the Company and the Members
of this Agreement and the other Transaction Documents to be delivered by the
Company or any Member and the consummation of the transactions contemplated
hereby and thereby do not and will not: (i) violate or conflict with any
provision of the charter documents or bylaws of the Company; (ii) violate in any
material respect any provision or requirement of any domestic or foreign,
national, state, or local law, statute, judgment, order, writ, injunction,
decree, award, rule, or regulation of any Governmental Entity applicable to the
Company or the Business; (iii) violate in any material respect, result in a
material breach of, constitute (with due notice or lapse of time or both) a
material default or cause any material obligation, penalty, premium or right of
termination to arise or accrue under any Contract (as hereinafter defined); (iv)
result in the creation or imposition of any material lien, charge or encumbrance
of any kind whatsoever upon any of the properties or assets of the Company; or
(v) result in the cancellation, modification, revocation or suspension of any
material license, permit, certificate, franchise, authorization or approval
issued or granted by any Governmental Entity (each a "LICENSE," and
collectively, the "LICENSES").
2.9 [RESERVED.]
2.10 Labor and Employment Matters.
Schedule 2.10 lists all employees of the Company, including date of
retention, current title and compensation. There is no employment agreement,
collective bargaining agreement or other labor agreement to which the Company is
a party or by which it is bound. The Company has complied in all material
respects with all applicable laws, rules and regulations relating to the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by appropriate Governmental Entities and has withheld and paid to the
appropriate
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<PAGE> 15
Governmental Entities or is holding for payment not yet due to such Governmental
Entities, all amounts required to be withheld from employees of the Company and
is not liable for any arrears of wages, taxes, penalties or other sums for
failure to comply with any of the foregoing. There is no unfair labor practice
complaint against the Company pending before the National Labor Relations Board
or any state or local agency; pending labor strike or other material labor
trouble affecting the Company; material labor grievance pending against the
Company; pending representation question respecting the employees of the
Company; pending arbitration proceedings arising out of or under any collective
bargaining agreement to which the Company is a party. For purposes of this
Agreement, "EMPLOYEES" includes employees, independent contractors and other
persons filling similar functions.
2.11 Employee Plans.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, option, security purchase,
benefit, welfare, profit-sharing, deferred compensation, retainer, consulting,
retirement, welfare, disability, vacation, severance, hospitalization,
insurance, incentive, deferred compensation and other similar fringe or employee
benefit plans, funds, programs or arrangements, whether written or oral, in each
of the foregoing cases which cover, are maintained for the benefit of, or relate
to any or all current or former employees, members, officers or directors of the
Company, and any other entity ("ERISA AFFILIATE") related to the Company under
Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such Employee Plans. With respect to each Employee Plan, the
Company has made available to Buyer, to the extent applicable, true and complete
copies of (i) all plan documents, (ii) the most recent determination letter
received from the Internal Revenue Service (the "IRS"), (iii) the most recent
application for determination filed with the IRS, (iv) the latest actuarial
valuations, (v) the latest financial statements, (vi) the three (3) most recent
Form 5500 Annual Reports, including Schedule A and Schedule B thereto, (vii) all
related trust agreements, insurance contracts or other funding arrangements
which implement any of such Employee Plans, (viii)
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all Summary Plan Descriptions and summaries of material modifications and all
modifications thereto communicated to employees, and (ix) in the case of stock
options or stock appreciation rights issued under any Employee Plan, a list of
holders, dates of grant, number of shares, exercise price per share and dates
exercisable. Neither the Company nor any ERISA Affiliate of the Company has any
liability or contingent liability with respect to the Employee Plans, nor will
any of the Company's assets be subject to any lien, charge or claim relating to
the obligations of the Company with respect to employees or Employee Plans. No
party to any Employee Plan is in default with respect to any material term or
condition thereof, nor has any event occurred which through the passage of time
or the giving of notice, or both, would constitute a default thereunder or would
cause the acceleration of any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in compliance with the requirements provided by any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code. Each of the Company and its ERISA
Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
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(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
Neither the Company nor any of its ERISA Affiliates has incurred any liability
under the Worker Adjustment Retraining and Notification Act or any similar state
law relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12 Litigation.
There are no claims, actions, suits, proceedings, labor disputes or
investigations of any nature pending or, to the knowledge of the Company or any
Member, threatened by or against the Members, the Company, the officers,
directors, employees, agents of the Company, or any of their respective
Affiliates involving, affecting or relating to the Business or any assets,
properties or operations of the Company or the transactions contemplated by this
Agreement. Neither the Company nor any of the Company's assets is subject to any
order, writ, judgment, award, injunction or decree of any Governmental Entity.
For purposes of this Agreement, "AFFILIATE" shall have the meaning ascribed to
such term in Rule 405 under the Securities Act.
2.13 Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all written, or oral, (i) contracts, agreements
and commitments not made in the ordinary course
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of business, (ii) agency and brokerage agreements, (iii) service and other
customer contracts, (iv) contracts, loan agreements, letters of credit,
repurchase agreements, mortgages, security agreements, guarantees, pledge
agreements, trust indentures, promissory notes and other documents or
arrangements relating to the borrowing of money or for lines of credit, (v) tax
sharing agreements, real property leases or any subleases relating thereto,
personal property leases, any material agreement relating to Proprietary Rights
(including service agreements relating thereto) and insurance contracts, (vi)
agreements and other arrangements for the sale of any assets, property or rights
other than in the ordinary course of business or for the grant of any options or
preferential rights to purchase any assets, property or rights, (vii) documents
granting any power of attorney with respect to the affairs of the Company,
(viii) suretyship contracts, performance bonds, working capital maintenance or
other forms of guaranty agreements, (ix) contracts or commitments limiting or
restraining the Company or any of its employees or Affiliates from engaging or
competing in any lines of business or with any person or entity, (x) partnership
or joint venture agreements, (xi) agreements relating to the issuance of any
securities of the Company or the granting of any registration rights with
respect thereto, and (xii) all amendments, modifications, extensions or renewals
of any of the foregoing (each a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or any Member since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of the Company or any Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 Compliance with Applicable Law.
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The operations of the Company are, and have been, conducted in all
material respects in accordance with all applicable laws, regulations, orders
and other requirements of all Governmental Entities having jurisdiction over it
and its assets, properties and operations, including, without limitation, all
such laws, regulations, orders and requirements relating to the Business except
in any case where the failure to so conduct its operations would not have a
Material Adverse Effect. The Company has not received any notice of any material
violation of any such law, regulation, order or other legal requirement, and is
not in material default with respect to any order, writ, judgment, award,
injunction or decree of any Governmental Entity, applicable to the Company or
any of its assets, properties or operations. To the knowledge of the Company or
any Member, there are no proposed changes in any such laws, rules or regulations
(other than laws of general applicability) that would adversely affect the
transactions contemplated by this Agreement or reasonably be expected to have a
Material Adverse Effect.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Members of this Agreement and the other Transaction Documents. The Licenses are
sufficient and adequate in all material respects to permit the continued lawful
conduct of the Business in the manner now conducted and the ownership, occupancy
and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested that it qualify or become licensed as a foreign corporation. The
Company has delivered to Buyer or its representatives true and complete copies
of all the material Licenses together with all amendments and modifications
thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16 Accounts Receivable.
Accounts receivable of the Company (the "ACCOUNTS RECEIVABLE") as of the
date hereof are accurately reflected in Schedule 2.5. Schedule 2.5 will be
updated at the Closing
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Date to reflect all Accounts Receivable as of the Closing Date, including their
aging. All Accounts Receivable as of the date hereof represent, and all Accounts
Receivable as of the Closing Date will represent, valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business that are current and collectible in amounts not less than the aggregate
amount thereof (net of reserves established in accordance with GAAP applied
consistently with prior practice) carried (or to be carried) on the books of the
Company and reflected in the Financial Statements, and are not and will not be
subject to any valid counterclaims or set-offs, disputes or contingencies.
2.17 Intercompany and Affiliate Transactions; Insider Interests.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, Member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
(b) Except as set forth on Schedule 2.17, no officer, director or Member
of the Company, or any Affiliate of any such person, now has, or within the last
three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18 Insurance.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company at any time during the three (3) years prior to the
date of this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or
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by any Board of Fire Underwriters or other similar body exercising similar
functions or by any Governmental Entity that require or recommend any changes in
the conduct of the Business, or any repairs or other work to be done on or with
respect to any of the properties or assets of the Company. The Company has not
received any notice or other communication from any such insurance company
within the three (3) years preceding the date hereof canceling or materially
amending or materially increasing the annual or other premiums payable under any
of such insurance policies, and to the knowledge of the Company or any Member,
no such cancellation, amendment or increase of premiums is threatened.
2.19 [RESERVED.]
2.20 No Undisclosed Liabilities.
Except as and to the extent specifically reflected or reserved against
in the Interim Financial Statements and except as incurred in the ordinary
course of business since the date of the Interim Financial Statements, the
Company has no material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due
(including, without limitation, any liability for taxes and interest, penalties
and other charges payable with respect to any such liability or obligation) and
no facts or circumstances exist which, with notice or the passage of time or
both, could reasonably be expected to result in any material claims against or
obligations or liabilities of the Company.
2.21 Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the Company
for or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any
Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
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(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not reflected on such
Tax Returns). All such previously-filed Tax Returns were complete and accurate
in all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which the Company has received a
written and/or oral notice from a Tax authority that such Tax authority intends
to commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which the Company has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. The Company has either delivered to Buyer or
made available for inspection by Buyer or its representatives or agents complete
and correct copies of all Tax audit reports and statements of Tax deficiencies
with respect to any delinquent Tax assessed against or agreed to by the Company
for all taxable periods commencing on or after January 1, 1993, for which audit
reports or statements of deficiencies have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Interim Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (excluding book reserves for deferred Taxes established to reflect
timing differences between book and Tax income ) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
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(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for federal and state income tax purposes, and neither the Company
nor any Member has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(l) Section 351. The transfer of the Seller Interests by the Members to
Buyer pursuant to this Agreement is intended to qualify (i) as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of applicable state income tax law, and (ii) under
Code Section 351 as part of a transfer by the Members and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's business) in the Company (including, without limitation,
any indebtedness for borrowed money, whether or not evidenced by a note or other
written instrument) and a description of each such debt interest.
2.23 Environmental Matters.
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Notwithstanding anything to the contrary contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under the common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in violation of any
Environmental Laws such that the Company could be subject to material liability
under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or any
Member, threatened administrative, judicial or regulatory proceedings, or, to
the knowledge of the Company or any Member, any threatened actions or claims, or
any consent decrees or other agreements in effect that relate to environmental
conditions in, on, under, about or related to the Company, its operations or the
real properties leased or owned by the Company at any time.
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(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24 Securities Matters.
(a) The Members understand that (i) neither the Shares nor any notes
issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Members' representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members have had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the offering of
the Securities and the business, properties, plans, prospects, and financial
condition of Buyer and to obtain additional information as the Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members have adequate means of providing
for current needs and personal contingencies, and have no need for liquidity and
can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Members' own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
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(f) The Members understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Each Member is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has each documented his or her accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit B hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
any Member aware of any such solicitation or advertising.
2.25 Buyer and the Consolidation Transactions.
(a) The Members are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.9) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Member would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents
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concerning the potential value or the Shares issued as part of the Purchase
Price or the prospects of Buyer, except as set forth herein.
2.26 Minute Books and Records.
The Company has made available to Buyer true, complete and correct
copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its Members;
and
(b) all record books of the Company setting forth all transfers of
interests in the Company.
2.27 [RESERVED.]
2.28 Powers of Attorneys and Suretyships.
The Company does not have any general or special powers of attorney
outstanding (whether as grantor or grantee thereof) or any obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person or entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.29 Brokers.
Except as set forth on Schedule 2.29, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company or any of the
Members.
2.30 Summary of Considerations.
Each Member acknowledges receipt and understanding of the Summary of
Certain Considerations attached hereto as Exhibit D.
2.31 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by the Company or any Member to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or
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made available to Buyer pursuant hereto were or will be complete and accurate
records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to the Members that:
3.1 Organization and Corporate Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
No Conflict or Violation.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby, do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 Capitalization.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 Notes.
Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
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3.5 Litigation.
Except as set forth on Schedule 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or
proceedings, including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.6 No Undisclosed Debt.
Since its date of incorporation, Buyer has had no operations except in
connection with effecting the Consideration Transactions and preparing for
operation of its business after the Closing. Buyer has no material tangible
assets, and except as set forth on Schedule 3.6, Buyer has no material
liabilities or obligations for borrowed money or payment for services rendered
to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.7 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by Buyer to the Members in this Agreement, the schedules or exhibits
hereto, or in any of the other Transaction Documents delivered by Buyer contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements and facts
contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
The Company shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of the Company (including,
without limitation, the Company's accounting records, the workpapers of the
Company's independent accountants, and all environmental studies, reports and
other environmental records) and, during such period,
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shall furnish promptly to Buyer all information concerning the Company, the
Business, the Company's properties, liabilities and personnel as Buyer may
reasonably request.
4.2 Confidentiality.
For purposes hereof, the Company and the Members will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including,
without limitation, Deloitte & Touche, LLP, confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Buyer will
keep the matters contemplated herein and all information provided by the Company
and the Members related to the Company and the Business confidential, and will
not provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and the Company shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby. The Company
and the Members acknowledge that Buyer may provide information about the Company
and the Business to other participants in the Consolidation Transactions to the
extent necessary to facilitate the Consolidation Transactions. If this Agreement
terminates without consummation of the Closing, the Company, the Members and
Buyer shall, and shall cause their Affiliates to, each maintain the
confidentiality of any information obtained from the other in connection with
the transactions contemplated hereby, the Consolidation Transactions, and
Buyer's business plans (the "INFORMATION"), other than Information that (i) was
in the public domain before the date of this Agreement or subsequently came into
the public domain other than as a result of disclosure by the party to whom the
Information was delivered; or (ii) was lawfully received by a party from a third
party free of any obligation of confidence of or to such third party; or (iii)
was already in the possession of the party prior to receipt thereof, directly or
indirectly, from the other party; or (iv) is required to be disclosed in a
judicial or administrative proceeding after giving the other party as much
advance notice of the possibility of such disclosure as practicable so that the
other party may attempt to stop such disclosure; or (v) is subsequently and
independently developed by employees of the party to whom the Information was
delivered without reference to the Information. If this Agreement terminates
without consummation of the Closing, Buyer, on the one hand, and the Members and
the Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Members
shall cause the Company to, conduct the Company's business solely in the
ordinary course consistent with
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past practices. Without limiting the generality of the preceding sentence,
except as required or permitted pursuant to the terms hereof, the Company shall
not, and the Members shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts described in Schedule
4.3(a)(i), in any case calling for payments to or by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests, or make any change in other ownership interests or
in the capitalization, whether by reason of a reclassification,
recapitalization, exchange, distribution or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
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(viii) make or commit to make any capital expenditure in excess
of $25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to
equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Member herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Members shall cause
it to:
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
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(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all Environmental Laws, and upon receipt of
notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing;
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof; and
(viii) preserve its business organization.
4.4 Restrictive Covenants.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement and the other Transaction Documents and that
but for the agreement of each Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights and that irreparable harm and damage will be done to Buyer if
any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
(i) either on its, his, hers or their own account or for any
other person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or whom the Company was engaged
in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"), to
modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or
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to acquire from any party other than Buyer or its Affiliates any services of the
kind available from Buyer or its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to make any such
statement or to perform any such act; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited, with respect to any
Member, to any county or any other political subdivision of any state of the
United States of America, or of any other country in the world, where such
Member generated revenue or established goodwill at any time during the two (2)
year period preceding the Closing Date. This Covenant Not to Compete shall bind
the Members until the fifth anniversary of the Closing Date, provided, however,
that if the employment of any Member is terminated by Buyer without Cause or by
such Member for Good Reason (each as defined in such Member's Employment
Agreement delivered pursuant to Section 6.3(c)(iv), and if an IPO of Buyer's
securities has not been consummated by December 31, 1999, then from and after
the later of January 1, 2000 or termination of such Member's employment, such
Member will no longer be subject to the covenant contained in Section
4.4(a)(ii). The parties hereto agree that the duration and area for which the
Covenant Not to Compete set forth in this Section 4.4(a) is to be effective are
reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Member shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the Members
become aware as the result of their affiliation with the Business or their
relationship with Buyer or its Affiliates and which relate specifically to the
Business, or any part
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thereof. This Section 4.4(c) is in addition to and not by way of limitation of
any other duties the Members may have to Buyer or its Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, hire away, or cause any other
person to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by Seller before the
Closing Date), or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their employment or
engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Members in light of the activities and business of
the Company and future plans of Buyer. The Members acknowledge that if they
violate any of the covenants contained in this Section 4.4 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, (i)
Buyer shall be entitled to temporary injunctive relief without being required to
post a bond and permanent injunctive relief without the necessity of proving
actual damages, and (ii) Buyer shall have the right to offset any payment
obligations to the Members, to the extent of any money damages incurred or
suffered by Buyer. The Members shall be liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants, whether or not
litigation is actually commenced and including litigation of any appeal defended
by Buyer where such party succeeds in enforcing any of the Restrictive
Covenants. Buyer may elect to seek one or more remedies at its discretion on a
case by case basis. Failure to seek any or all remedies in one case shall not
restrict Buyer from seeking any remedies in another situation. Such action by
Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
4.5 Securities Restrictions.
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(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
4.6 Registration.
(a) No Member will have any rights to demand registration of any of the
Shares, or to participate in any registration undertaken by Buyer except as set
forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission for an IPO of its equity securities or any
subsequent public offering within twenty-four (24) months of the closing of the
IPO (not including a registration statement filed in connection with an
acquisition or employee benefit plan), and if the managing underwriter of such
offering believes that the market will accommodate selling stockholders in the
offering, then the Members in the aggregate shall have the right to include in
such registration statement and offering up to that number of Shares and other
Common Stock not subject to any performance-related restrictions listed on
Schedule 4.6. Other stockholders (including but not limited to stockholders who
acquired Common Stock in the Consolidation Transactions
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and stockholders who acquired Common Stock in connection with the formation, or
work on behalf of, Buyer) will have rights to include shares of Common Stock in
such offering, and if the aggregate amount of shares that all stockholders with
such rights (collectively, the "SELLING STOCKHOLDERS") desire to include exceeds
the number of shares of Common Stock that can be sold by all Selling
Stockholders, then all Selling Stockholders desiring to sell in the offering
will participate pro-rata on the basis of the relative numbers of shares of
Common Stock they originally sought to include. In general, in such offerings,
no Selling Stockholder will be permitted to include in the aggregate more than
half of the shares of Common Stock held by such Selling Member, or any shares
subject to performance-related restrictions.
(b) If any Member acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Member from and against any claims, costs and liabilities incurred by such
Member as a result of any untrue, or alleged untrue, statement of a material
fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by a Member or underwriter expressly
for use therein.
(c) Shares of Common Stock may only be included pursuant to the
underwriting agreement negotiated between Buyer and the underwriters, and
Selling Stockholders must enter into the underwriting agreement with respect to
any shares held by them to be included in the offering. Each Selling Stockholder
shall pay (i) all underwriting discounts and commissions applicable to such
Selling Stockholder's sale of shares of Common Stock, (ii) such Selling
Stockholder's ratable share (based on the relative number of shares of Common
Stock included in the offering) of any fees and disbursements of a single
counsel for all Selling Stockholders, which counsel shall be selected by the two
Selling Stockholders (or affiliated stockholder groups) selling the most shares
of Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7 Cooperation in Litigation.
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Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and the Company or any Member and/or their Affiliates or assignees, on the
other, arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payments by each party of its costs and
payments or attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8 Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of the Company's business activities on the Closing Date, and, in the case
of Pre-Acquisition Taxable Periods ending on the Closing Date, all of the
Company's income, gains and other Tax items attributable to the Closing Date
shall be included and reported by the Company in Tax Returns (including federal
Form 1065 and any similar state return) of the Company for such Pre-Acquisition
Taxable Periods to be filed following the Closing and all Taxes attributable to
the Company's income, gains or other taxable items for the Closing Date shall be
reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated between the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
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(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax Returns
required to be filed by the Company for Pre-Acquisition Taxable Periods which
are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Members shall be responsible for and shall pay (A) all reasonable
costs and expenses related to the preparation and filing of the Company's Tax
Returns for Pre-Acquisition Taxable Periods described in Section 4.8(c)(i), and
(B) all Taxes shown or reported to be due and payable on such Tax Returns. Each
Member shall pay his or her proportionate share of such costs, expenses and Tax
Liabilities of the Company promptly following receipt by such Member of a notice
from Buyer of Buyer's calculation of such Member's payment obligation hereunder
together with copies of the relevant Tax Returns and other information
supporting Buyer's calculation. If a Member disputes all or any portion of the
payment obligation hereunder as calculated by Buyer, such Member shall
nevertheless promptly pay to Buyer the amount specified in the notice and any
dispute related thereto shall be resolved pursuant to the arbitration provisions
of Section 7.13. Any additional Taxes attributable to the periods covered by
such Tax Returns, whether pursuant to an amended return or any Tax Proceeding,
shall be paid by Members promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be required,
with respect to certain Taxes for Straddle Periods, to file a full year return
(herein a "STRADDLE PERIOD RETURN") reporting and accounting for such Taxes on
an aggregate basis covering both the Pre-Closing Period and the Post-Closing
Period. The Buyer, at its expense, shall cause the Company to prepare and file
such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns. Each Member shall pay his
or her proportionate share of Pre-Closing Taxes promptly following receipt by
such Member of a notice from Buyer of Buyer's calculation of such Member's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If a Member disputes all
or any portion of the payment obligation hereunder as calculated by Buyer, such
Member shall nevertheless promptly pay to Buyer the amount specified in the
notice and any dispute
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related thereto shall be resolved pursuant to the arbitration provisions of
Section 7.13. Any additional Taxes attributable to the Pre-Closing Periods
covered by such Tax Returns, whether pursuant to an amended return or any Tax
Proceeding, shall be paid by Members promptly upon demand therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify the
Members of any written communication from a Tax authority with respect to any
pending Tax Proceeding involving a Pre-Acquisition Tax Liability. Buyer shall
include with such notification a copy of the written communication so received
by Company.
(ii) The Buyer shall have responsibility and authority to represent the
interests of the Company in any Tax Proceeding relating to Pre-Acquisition
Taxable Periods and Straddle Periods and to employ counsel of its choice in
connection therewith; provided, however, that Members shall be permitted to
participate in any such Tax Proceedings and all hearings related thereto at the
expense of the Members; and provided further, that, without the prior written
consent of the Members, which shall not be unreasonably withheld, the Buyer
shall not agree to settle or compromise any such Tax Proceeding and/or any
Pre-Acquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which the Members are responsible hereunder, provided,
however, the consent of the Members to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Members, promptly upon demand
from the Buyer, shall pay the reasonable costs and expenses, including attorney
fees, incurred by Buyer in connection with any such Tax Proceedings, provided,
however, in any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Members are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Members are not responsible,
the Buyer, on the one hand, and the Members, on the other hand, shall jointly
bear the costs and expenses thereof as allocated between them on an equitable
basis.
(iii) All notices to Members provided for hereunder shall be deemed
delivered to each Member upon receipt thereof either directly by the Member. The
Members shall proportionately pay all Tax Liabilities and costs and expenses for
which the Members are responsible hereunder; provided, however, the Members
shall be jointly and severally liable for all such Tax Liabilities, costs and
expenses.
(iv) The Member shall furnish to Buyer such information and documents as
may be reasonably requested by Buyer, and shall otherwise reasonably cooperate
with Buyer, in connection with Buyer's conduct of any Tax Proceedings described
herein.
(f) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns
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described in this Section 4.8, and on or before the Closing the Members shall
cause all such books and records and all other books and records related to the
Company's Tax Returns and Tax matters to be delivered to the Buyer. Buyer shall
cause the Company to retain all such books and records delivered to Buyer as
provided hereunder until the expiration of the statute of limitations (including
any waivers or extensions thereof) with respect to the taxable periods to which
the Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests in a manner consistent with its qualification as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of state income tax law, and (ii) file such Tax
Returns and Tax information reports related to the transfer as may be required
or otherwise appropriate under the Tax laws and regulations applicable to
transfers of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9 Consolidation Transactions.
Concurrent with the transaction contemplated hereby, Buyer is acquiring
in a series of transactions various other companies engaged in the business of
cost reduction, cost recovery and profit enhancement services by means of
mergers into Buyer, or acquisitions by Buyer of all or substantially all of the
assets or stock or other equity interests of such companies (collectively, the
"CONSOLIDATION TRANSACTIONS"). The Company and the Members acknowledge that as a
result of the complexity of the transactions contemplated hereby and the
Consolidation Transactions, the Closing contemplated hereby and the closing of
the Consolidation Transactions must be concurrent at a time designated by Buyer.
Accordingly, the Company and the Members shall upon receipt of the Closing
Notice but prior to the Closing Date (i) provide any outstanding documentation
required to effect the Closing pursuant to this Agreement in escrow pending
release upon authorization of the Members at the Closing, (ii) complete
performance of their respective obligations hereunder and under the other
Transaction Documents to be performed by the Closing, and (iii) update the
schedules hereto and any other documentation or information provided to Buyer
during the course of this transaction such that all such disclosures shall be
accurate and current as of the Closing Date.
4.10 Supplemental Disclosure.
At the Closing, the Company and the Members shall supplement or amend
each of the schedules hereto with respect to any matter hereafter arising which,
if existing or occurring at or prior to the date hereof, would have been
required to be set forth or listed in the schedules or which is necessary to
complete or correct any information in the schedules.
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4.11 HSR.
Buyer and the Company shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.12 Competing Proposals.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.13 Bonus Plan.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
4.14 Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things
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necessary, proper or advisable consistent with applicable law to cause the
fulfillment of the conditions to Closing set forth herein and to consummate and
make effective in the most expeditious manner practicable the transactions
contemplated hereby.
4.15 Further Assurances.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
effectuate the purposes of this Agreement.
4.16 Notice of Breach.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1 Survival.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Seller Interests), 2.4 (Title to Assets) and 2.22 (Indebtedness)
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2 Indemnification by the Members.
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Subject to the limits set forth in this Article 5, the Members and, if
the transactions contemplated hereby are not consummated, the Company, and their
successors and assigns shall jointly and severally indemnify, defend, reimburse
and hold harmless Buyer and its Affiliates and their successors and assigns, and
the officers, directors, employees and agents of any of them, from and against
any and all claims, losses, damages, liabilities, obligations, assessments,
penalties and interest, demands, actions and expenses, whether direct or
indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by the Company or the Members in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document.
5.3 Indemnification by Buyer.
Subject to the limits set forth in this Article 5, Buyer and its
successors and assigns shall indemnify, defend, reimburse and hold harmless the
Members and their successors and assigns from and against any and all Losses
reasonably incurred by any such Members arising out of or in connection with any
of the following:
(a) the ownership and operation of the Company after the Closing;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Buyer in this Agreement or any other
Transaction Document; and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
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obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its
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counsel that are relevant to the defense of the subject of any such Claim and
that will not prejudice the Indemnitor's position, claims or defenses. The
Indemnitee shall maintain confidentiality with respect to all such information
consistent with the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 Payment.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract claims arising
under this Agreement or any other Transaction Document unless the persons so
entitled to indemnity or recovery thereunder have suffered Losses in an
aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Members to Buyer on the one
hand, and Buyer, on the other hand to the Members, for all claims arising under
this Agreement and the other Transaction Documents shall equal the aggregate
Purchase Price. For purposes of this Section 5.6(b), the value of Shares
received shall be (i) prior to the IPO, the per share Agreed Price (as defined
in the Stockholder Agreement) then prevailing; and (ii) after the IPO, the per
share closing price on the primary exchange or market on which the Common Stock
is traded on the date such indemnifiable Losses become payable, except that the
value
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of any Shares sold in bona fide third party transactions will be the gross
proceeds to the Members of such sale.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of Each Party.
The obligations of the Members, on the one hand, and Buyer, on the other
hand, to consummate the transactions contemplated hereby are subject to the
fulfillment, at or before the Closing Date, of the conditions set forth in this
Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that the Members will be required to
perform their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Members from and against, any obligations that
the Members would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of the Company, is in effect; and no action or proceeding
has been instituted or threatened by any Governmental Entity, other person, or
entity which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
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(a) Representations and Warranties True. The representations and
warranties of the Company and the Members contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date, and at the Closing the Company and
the Members' Representative shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Members.
(b) Performance of the Company and the Members. The Company and the
Members shall have performed in all material respects all obligations required
to be performed by each of them under this Agreement on or before the Closing
Date, and at the Closing the Company and the Members, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Members, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Members authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents to be
delivered by the Company and the Members and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by each Member and the spouse of each
Member, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24;
(iii) A Voting Agreement substantially in the form of Exhibit E,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit F, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
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(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least Seven Hundred Thirty Eight
Thousand Dollars ($738,000), and (ii) sufficient working capital to operate the
Company; and at the Closing the Company shall have delivered to Buyer a
certificate dated the Closing Date to such effect with supporting financial
information, signed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Members in
substantially the form of Exhibit G. In giving such opinion, such counsel may
rely upon certificates of public officials, upon opinions of local counsel and,
as to matters of fact, upon a certificate of the Company, or its officers, and
such counsel may assume that this Agreement has been duly authorized, executed
and delivered by Buyer.
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(l) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
(m) Books. The Company shall have delivered to Buyer the record books,
ledgers, minute books, corporate seals of the Company and documents relating to
the transfer of ownership interests in the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit H (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 Conditions to Obligations of the Members.
The obligations of the Members to consummate the transactions
contemplated hereby are subject to the fulfillment, at or before the Closing
Date, of the conditions set forth in this Section 6.3, any one or more of which
may be waived by the Members in writing in their discretion; provided however,
such waiver will not waive or diminish the right of the Members to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
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(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Members authorizing the execution and delivery
of this Agreement and the other Transaction Documents to be delivered by Buyer
and the consummation of the transactions contemplated hereby;
(ii) The Notes;
(iii) A photocopy of the certificates representing the Shares
issued in the name of each Member as set forth in Schedule 1.3; and
(iv) Employment Agreements substantially in the form of Exhibit H
(with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3).
(e) Opinion of Counsel. The Members shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit I. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Members.
(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million.
For these purposes, "PRE-TAX Income" of any particular company means that
company's projected 1998 pre-tax income, as adjusted pursuant to agreement
between Buyer and that company to reflect certain cost reductions and modified
business practices and accounting methods expected to take effect after the
closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Member.
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7. MISCELLANEOUS.
7.1 Termination.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Members fail to comply in any
material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of the Company or the
Members is breached or is inaccurate in any material way; (b) by the Company or
the Members if (i) Buyer fails to comply in any material respect with any of its
covenants or agreements contained herein, or (ii) any of the representations and
warranties of Buyer is breached or is inaccurate in any material way; or (c) by
the Company or Buyer if (i) a Governmental Entity has issued a non-appealable
order, decree or ruling or taken any other action (which order, decree or ruling
the parties hereto have used their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits the transactions contemplated by this
Agreement; or (ii) a condition to its performance hereunder has not been
satisfied or waived prior to November 30, 1998; provided however, that if the
board of directors of Buyer should, in good faith, determine that it is
necessary to extend the Closing for the purpose of facilitating the financing of
the Consolidation Transactions, it may extend such date by thirty-two (32) days.
Notwithstanding the foregoing, a party may not terminate this Agreement if the
event giving rise to the termination right results from the willful failure of
such party to perform or observe any of the covenants or agreements set forth
herein to be performed or observed by such party or if such party is, at such
time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.29 (Brokers), 4.2 (Confidentiality), 5
(Survival; Indemnification), 7.12 (Expenses), 7.13 (Arbitration), 7.14
(Submission to Jurisdiction), and 7.15 (Attorneys' Fees), and except that
termination of this Agreement will not affect any liability of any party for any
breach of this Agreement prior to termination, or any breach at any time of the
provisions hereof surviving termination.
7.2 Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile, to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses
46
<PAGE> 53
or telephone numbers as the parties may designate by written notice in
accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Member: Erik R. Watts
695 Town Center Dr., Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Leonard J. McGill, Esq.
Day, Campbell & McGill
3070 Bristol, Suite 650
Costa Mesa, California 92626
Telephone No.: (714) 429-2919
Facsimile No.: (714) 429-2901
7.3 Assignability and Parties in Interest.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and the Company and their respective permitted successors and
assigns and upon each Member and his or her executors, administrators, heirs,
legal representatives and permitted successors and assigns. Nothing in this
Agreement will confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
7.4 Governing Law.
47
<PAGE> 54
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 Counterparts.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 Publicity.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and the Company, except that
Buyer may disclose details of this Agreement to other participants in, or as
necessary to effect, the Consolidation Transactions. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 Complete Agreement.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 Modifications, Amendments and Waivers.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 Headings; References.
48
<PAGE> 55
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10 Severability.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 Investigation.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of the
Company shall be deemed made to the knowledge of the Members only and no other
person.
7.12 Expenses of Transactions.
All fees, costs and expenses incurred by Buyer, in connection with the
transactions contemplated by this Agreement shall be borne Buyer, and all fees,
costs and expenses incurred by the Company or the Members in connection with the
transactions contemplated by this Agreement shall be borne by the Members
jointly and severally.
7.13 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such
49
<PAGE> 56
matters in any employment agreement between any Stockholder and Buyer or any
affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"), exclusive of interest and attorney's
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for
50
<PAGE> 57
the arbitration hearing except for objections based on privilege and proprietary
or confidential information. The responses to the document demand, the documents
to be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 Submission to Jurisdiction.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding
51
<PAGE> 58
brought in accordance with this paragraph, and stipulates that the State and
Federal courts located in the County of Orange, State of California shall have
in personam jurisdiction over each of them for the purpose of litigating any
such dispute, controversy, or proceeding. Each party hereby authorizes and
accepts service of process sufficient for personal jurisdiction in any action
against it as contemplated by this Section by registered or certified mail,
return receipt requested, postage prepaid, to its address for the giving of
notices as set forth in Section 7.2. Nothing herein shall affect the right of
any party to serve process in any other manner permitted by law.
7.15 Attorneys' Fees.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against the Company or any of its Affiliates, successors or assigns
or any Member, or if the Company or any of its Affiliates, successors or assigns
or any Member brings any action, suit, counterclaim, cross-claim, appeal,
arbitration, or mediation for any relief against Buyer or any of its Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16 Enforcement of the Agreement.
The Company, the Members and Buyer acknowledge that irreparable damage
would occur if any of the obligations of the Company and the Members under this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Buyer
52
<PAGE> 59
will be entitled to an injunction or injunctions to prevent breaches of this
Agreement by the Company or the Members and to enforce specifically the terms
and provisions hereto, this being in addition to any other remedy to which Buyer
is entitled at law or in equity.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ MARK C. COLEMAN
----------------------------------------
Name: Mark C. Coleman
-----------------------------------
Title: SVP
----------------------------------
NATIONAL BENEFITS CONSULTANTS, L.L.C.
By: IM COMET, LLC
Its: Manager
By: COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK R. WATTS
--------------------------
Name: Erik R. Watts
Title: Manager
-----------------
MEMBER(S):
IM COMET, LLC
By: COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK R. WATTS
--------------------------
Name: Erik R. Watts
Title: Manager
-----------------
53
<PAGE> 60
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Seven Hundred Fifty Thousand Dollars
($750,000) (the "CASH PAYMENT").
(ii) Promissory notes of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate principal amount
of Nine Million One Hundred Thirty-three Thousand Five Hundred Dollars
($9,133,500) (the "NOTES")
(iii) An aggregate of 693,957 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer
pending release pursuant to Section 1.4.
(b) Consideration per Member.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Seller Interests Common Stock
Name of Owned and to Cash Note Consideration
Member be sold to Buyer Consideration Consideration
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IM Comet, LLC 50% $750,000 $9,133,500 693,957
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.41
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
NATIONAL RECOVERY SERVICES, L.L.C.
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
DECEMBER 7, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale and Purchase........................................................1
1.1. Agreements to Sell and Purchase.....................................1
1.2. Closing.............................................................1
1.3. Purchase Price......................................................2
1.4. Certificates for Shares.............................................2
2. Representations and Warranties of the Company and the Members............2
2.1. Organization and Good Standing......................................2
2.2. Ownership of Seller Interests.......................................2
2.3. Authorization of Agreement..........................................3
2.4. Title to Assets.....................................................3
2.5. Financial Condition.................................................4
2.6. Certain Property of the Company.....................................5
2.7. Year 2000 Compliance................................................7
2.8. No Conflict or Violation............................................8
2.9. [Reserved.].........................................................8
2.10.Labor and Employment Matters........................................8
2.11.Employee Plans......................................................8
2.12.Litigation.........................................................11
2.13.Certain Agreements.................................................11
2.14.Compliance with Applicable Law.....................................12
2.15.Licenses...........................................................12
2.16.Accounts Receivable................................................13
2.17.Intercompany and Affiliate Transactions; Insider Interests.........13
2.18.Insurance..........................................................14
2.19.[Reserved.]........................................................14
2.20.No Undisclosed Liabilities.........................................14
2.21.Taxes..............................................................14
2.22.Indebtedness.......................................................17
2.23.Environmental Matters..............................................17
2.24.Securities Matters.................................................18
2.25.Buyer and the Consolidation Transactions...........................19
2.26.Minute Books and Records...........................................20
2.27.[Reserved.]........................................................20
2.28.Powers of Attorneys and Suretyships................................20
2.29.Brokers............................................................20
2.30.Summary of Certain Considerations..................................20
2.31.Accuracy of Information............................................20
3. Representations and Warranties of Buyer.................................21
3.1. Organization and Corporate Authority...............................21
3.2. No Conflict or Violation...........................................21
3.3. Capitalization.....................................................21
3.4. Notes..............................................................21
3.5. Litigation.........................................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.6. No Undisclosed Debt................................................22
3.7. Accuracy of Information............................................22
4. Certain Understandings and Agreements of the Parties....................22
4.1. Access.............................................................22
4.2. Confidentiality....................................................22
4.3. Certain Changes and Conduct of Business............................23
4.4. Restrictive Covenants..............................................25
4.5. Securities Restrictions............................................28
4.6. Registration.......................................................29
4.7. Cooperation in Litigation..........................................30
4.8. Tax Matters........................................................31
4.9. Consolidation Transactions.........................................34
4.10.Supplemental Disclosure............................................34
4.11.HSR................................................................34
4.12.Competing Proposals................................................35
4.13.Bonus Plan.........................................................35
4.14.Best Efforts.......................................................35
4.15.Further Assurances.................................................35
4.16.Notice of Breach...................................................35
5. Survival; Indemnification...............................................36
5.1. Survival...........................................................36
5.2. Indemnification by the Members.....................................36
5.3. Indemnification by Buyer...........................................37
5.4. Indemnification Procedure..........................................37
5.5. Payment............................................................38
5.6. Limitations........................................................38
6. Conditions to Closing...................................................39
6.1. Conditions to Obligations of Each Party............................39
6.2. Conditions to Obligations of Buyer.................................40
6.3. Conditions to Obligations of the Members...........................42
7. Miscellaneous...........................................................44
7.1. Termination........................................................44
7.2. Notices............................................................44
7.3. Assignability and Parties in Interest..............................45
7.4. Governing Law......................................................45
7.5. Counterparts.......................................................45
7.6. Publicity..........................................................46
7.7. Complete Agreement.................................................46
7.8. Modifications, Amendments and Waivers..............................46
7.9. Headings; References...............................................46
7.10. Severability......................................................46
7.11. Investigation ....................................................46
7.12. Expenses of Transactions..........................................47
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.13. Arbitration.......................................................47
7.14. Submission to Jurisdiction........................................49
7.15. Attorneys' Fees...................................................49
7.16. Enforcement of the Agreement .....................................50
</TABLE>
iii
<PAGE> 5
A. Form of Assignment and Assumption Agreement
B. Summary of Certain Considerations
C. Form of Accredited Investor Questionnaire
D. Form of Stockholder Agreement
D-l Form of Stock Power
F. Form of Voting Agreement
F. Form of Subordination Agreement
G. Opinion of Counsel to the Company and the Members
H. Form of Employment Agreements
I. Opinion of Counsel to the Buyer
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.4 Title to Assets
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.17 Intercompany and Affiliate Transactions; Insider Interests
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.2 1(1) 351 Information
2.22 Indebtedness
2.29 Brokers
3.5 Litigation
3.6 Liabilities
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
iv
<PAGE> 6
THIS SECURITIES PURCHASE AGREEMENT (this AGREEMENT) is made and entered
into as of December 7, 1998 by and among National Recovery Services. L.L.C., a
Nevada limited liability company (the "COMPANY"), the members of the Company
listed on the signature page(s) hereof (each such individual a "MEMBER," and
collectively, the "MEMBERS") and ProfitSource Corporation, a Delaware
corporation ("Buyer").
A. The Company is engaged in the business of health care cost recovery
(the "Business").
B. The Members own 7000 of the ownership interests in the Company (the
"SELLER INTERESTS").
C. The Members desire to sell to Buyer. and Buyer desires to purchase
from the Members all of the Seller Interests on the terms and conditions set
forth in this Agreement.
Now, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1. AGREEMENTS TO SELL AND PURCHASE. On the Closing Date (as
hereinafter defined) each Member shall sell to Buyer, and Buyer shall purchase
from each Member, the number of Seller Interests set forth opposite such
Member's name on Schedule 1 .3. for the purchase price set forth in Section 1.3.
1.2. CLOSING. The closing of the sale and purchase of the Seller
Interests (the "CLOSING") will take place at the offices of Gibson. Dunn &
Crutcher LLP, 4 Park Plaza, Irvine, California, on a date to be selected by
Buyer after all the conditions set forth in Article 6 have either been satisfied
or, in the case of conditions not satisfied, waived in writing by the party
entitled to the benefit of such conditions (the "CLOSING DATE"). Prior to the
Closing Date. Buyer shall provide written notice (the "Closing Notice") to the
Company and the Members informing the Company and the Members of the date
selected as the Closing Date. At the Closing, the Members shall deliver to Buyer
or its designees an Assignment and Assumption Agreement in the form of Exhibit
A. transferring the Seller Interests being sold by the Members and each other
instrument of transfer Buyer may reasonably request to vest effectively in Buyer
good and valid title to the Seller Interests, free and clear of any liens,
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any person or entity, together with any taxes, direct or indirect,
attributable to
<PAGE> 7
attributable to such transfer of the Seller Interests, and Buyer shall thereupon
pay to each Member the Purchase Price described in part (b) of Section 1.3 for
such Member's Seller Interests.
1.3. PURCHASE PRICE. The consideration to be paid by Buyer for the
Seller Interests (the "PURCHASE PRICE"), both in the aggregate and to each
Member for such Member's Seller Interests, is described in Schedule 1.3.
1.4. CERTIFICATES FOR SHARES. In order to facilitate replacement of
certificates for the shares of Series A Common Stock of Buyer constituting part
of the Purchase Price (the "SHARES") upon an IPO (as defined herein) with the
transfer agent's form of certificate, and to facilitate enforcement of the
Stockholder Agreement (as defined herein), Buyer will keep custody of the
certificates representing the Shares until the IPO and until the Shares are no
longer subject to the Stockholder Agreement, and recipients of Shares will
execute and deliver blank stock powers as described in Section 6.2(d)(i). This
custody arrangement will not affect the rights as a stockholder of any permitted
recipient of Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS. Each
representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Article 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Members, jointly and
severally, represent and warrant to Buyer that:
2.1. ORGANIZATION AND GOOD STANDING. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware, with full corporate power and authority to carry on the
Business as it is now and has since its organization been conducted and as
proposed to be conducted, and to own, lease or operate its assets and
properties. The Company is duly qualified to do business and is in good standing
in every jurisdiction in which the character of the properties owned or leased
by it or the nature of the business conducted by it makes such qualification
necessary, except where failure to be so qualified would not have a material
adverse effect on the Business or its prospects or the Company's assets or
financial condition (a "MATERIAL ADVERSE EFFECT"). Schedule 2.1 lists all of the
jurisdictions in which the Company is qualified to do business. Complete and
accurate copies of the articles of organization and operating agreement of the
Company, with all amendments thereto to the date hereof, have been furnished to
Buyer or its representatives.
2.2. OWNERSHIP OF SELLER INTERESTS.
(a) The Seller Interests constitute 70% of the ownership interests of
the Company ("INTERESTS") and are validly issued and fully paid. The Seller
Interests owned by each Member are set forth in part (b) of Schedule 1.3.
Neither the Members nor the Company has granted, issued or agreed to grant or
issue any other equity interests in the Company and there are no outstanding
options, warrants, rights to acquire ownership interests in the Company,
securities that are convertible into or exchangeable for, or any other
commitments of any character relating to, any equity interests of the Company.
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(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests of the Company prior to the date
hereof were exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and were registered or qualified under
or exempt from all applicable state securities laws.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3. AUTHORIZATION OF AGREEMENT. The Company and the Members have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the ("TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Members of the Company and no other proceedings on
the part of the Company or the Members are necessary to approve this Agreement
and to consummate the transactions contemplated hereby. This Agreement and the
other Transaction Documents to be delivered by the Company or any Member have
been (or upon execution will have been) duly executed and delivered by the
Company and each Member, have been effectively authorized by all necessary
action, and constitute (or upon execution will constitute) legal, valid and
binding obligations of the Company and each Member, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4. TITLE TO ASSETS. The Company is the lawful owner of each of its
assets, whether real, personal, mixed, tangible or intangible. Except as set
forth on Schedule 2.4, all of the Company's assets are sufficient and adequate
to conduct the Business as presently conducted; and are free and clear of all
liens, mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind except any of the following: (i) purchase
money security interests in specific items of equipment each having a value not
in excess of $1,000; (ii) Personal Property leased pursuant to Personal Property
Leases; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Buyer, (v) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not delinquent;
(vi) liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by liens of the type described above in clauses (i) or
(ii) above, provided that any extension, renewal or replacement lien is limited
to the property encumbered by the existing lien and the principal
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amount of the indebtedness being extended, renewed or refinanced does not
increase. There are no outstanding agreements, options or commitments of any
nature obligating the Company or any Member to transfer any of the assets of the
Company or rights or interests therein to any party.
2.5. FINANCIAL CONDITION.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of September 30, 1998 and the related statements of income and
cash flow for the fiscal years then ended (the "FINANCIAL STATEMENTS"). The
Financial Statements (i) were prepared in accordance with the books and records
of the Company; (ii) were prepared in accordance with generally accepted
accounting principles applicable to partnerships ("GAAP") and were consistently
applied; (iii) fairly present the financial condition and the results of the
operations of the Company as at the relevant dates thereof and for the periods
covered thereby; (iv) to the extent required by GAAP, contain and reflect all
necessary adjustments and accruals for a fair presentation of the financial
condition and the results of the operations of the Company for the periods
covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, contingent or otherwise, with respect to the period then ended and
all prior periods; and (vi) do not contain any items of a special or
nonrecurring nature, except as expressly stated therein. There have been no
changes or modifications of revenue recognition, cost allocation practices or
method of, accounting or other financial or operational practices or principles
except for any such change required by reason of a concurrent change in GAAP
during the periods covered by the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3. For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
(a) Real Property. The Company has never and does not currently own any
real property. Schedule 2.6(a) lists all real properties leased by the Company,
including a brief description of the operating facilities located thereon, the
annual rent payable thereon, the length of the term, any option to renew with
respect thereto and the notice and other provisions with respect to termination
of rights to the use thereof
(i) The Company has a valid leasehold in the real properties shown in
Schedule 2.6(a) under written leases (each lease being referred to herein as a
"REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES") and to the
knowledge of the Company or any Member each Real Property Lease is a valid and
binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor any Member has any
knowledge that any other party to any Real Property Lease is, in default with
respect to any material term or condition thereof, and no event has occurred
which through the passage of time
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or the giving of notice, or both, would constitute a default thereunder or would
cause the acceleration of any obligation of any party thereto or the creation of
a lien or encumbrance upon any asset of the Company.
(iii) To the knowledge of the Company or any Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business. The Company holds valid leases in all of the Personal
Property leased by it, and none of such Personal Property is subject to any
sublease, license or other agreement granting to any person any right to use
such property (each such lease, sublease, license or other agreement, a
"PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY LEASES").
Schedule 2.6(b) provides a description and the location of each item of Personal
Property of the Company, accurately identifies such Personal Property as owned
or leased, and lists each Personal Property Lease. The Company is not in
material breach of or default, and no event has occurred which, with due notice
or lapse of time or both, may constitute such a material breach or default,
under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company. For (purposes of this Agreement
"PROPRIETARY RIGHTS" means trademarks and service marks (registered or
unregistered), trade dress, trade names, other names and slogans embodying
business or product goodwill or indications of origin, all applications or
registrations in any jurisdiction pertaining to the foregoing and all goodwill
associated therewith, as well as the following: (i) patents, patentable
inventions, discoveries, improvements, ideas, know-how, formula, methodology,
processes, technology and computer programs, software and databases (including
source code, object code, development documentation, programming tools,
drawings, specifications and data), and all applications or registrations in any
jurisdiction pertaining to the foregoing, including all reissues, continuations,
divisions, continuations-in-part, renewals or extensions thereof; (ii) trade
secrets, know-how, including confidential and other non-public information, and
the right in any jurisdiction to limit the use or disclosure thereof; (iii)
copyrights in writings, designs, mask works or other works, and registrations or
applications for registration of copyrights in any jurisdiction; (iv) licenses,
including, without limitation, software licenses, immunities, covenants not to
sue and the like relating to any of the foregoing; (v) Internet Web sites,
domain names and registrations or applications for registration thereof; (vi)
customer lists; (vii) books and records describing or used in connection with
any of the foregoing; and (viii) claims or causes of action arising out of or
related to infringement or misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights are owned by the Company free
and clear of any and all liens, security interests, claims, charges and
encumbrances or are used by the
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Company pursuant to a valid and enforceable license granting rights sufficiently
broad to permit the historical and anticipated uses of the Proprietary Rights in
connection with the conduct of the Business in the manner presently conducted
and to convey such right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights have not lapsed, expired or been abandoned
and no application or registration thereof is the subject of any proceeding
before any court, arbitrator, state, local or foreign government agency,
regulatory body, or other governmental authority or any department, agency,
board, commission, bureau or instrumentality of any of the foregoing (each a
"Governmental Entity," and collectively "Governmental Entities"). There have not
been any actions or other judicial or adversary proceedings involving the
Company concerning any of the Proprietary Rights, nor to the knowledge of the
Company or any Member, is any such action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or any Member, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "Trade Secrets"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
2.7. YEAR 2000 COMPLIANCE. All date-related output, calculations or
results before, during or after the calendar year 2000 that are produced or used
by any hardware, software, firmware or facilities systems (the "COMPUTER
SYSTEMS") owned or used by the Company and
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material to the Business are Year 2000 Compliant. For purposes of this Section,
"YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data,
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8. NO CONFLICT OR VIOLATION. The execution, delivery and performance
by the Company and the Members of this Agreement and the other Transaction
Documents to be delivered by the Company or any Member and the consummation of
the transactions contemplated hereby and thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; (ii) violate in any material respect any provision or requirement of
any domestic or foreign, national, state, or local law, statute, judgment,
order, writ, injunction, decree, award, rule, or regulation of any Governmental
Entity applicable to the Company or the Business; (iii) violate in any material
respect, result in a material breach of, constitute (with due notice or lapse of
time or both) a material default or cause any material obligation, penalty,
premium or right of termination to arise or accrue under any Contract (as
hereinafter defined); (iv) result in the creation or imposition of any material
lien, charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Company; or (v) result in the cancellation, modification,
revocation or suspension of any material license, permit, certificate,
franchise, authorization or approval issued or granted by any Governmental
Entity (each a "LICENSE," and collectively, the "LICENSES").
2.9. [RESERVED.]
2.10. LABOR AND EMPLOYMENT MATTERS. Schedule 2.10 lists all employees of
the Company, including date of retention, current title and compensation. There
is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate Governmental Entities and has withheld and
paid to the
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appropriate Governmental Entities or is holding for payment not yet due to such
Governmental Entities, all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing. There is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any state or local agency; pending labor strike or other
material labor trouble affecting the Company; material labor grievance pending
against the Company; pending representation question respecting the employees of
the Company; pending arbitration proceedings arising out of or under any
collective bargaining agreement to which the Company is a party; or any basis
for which a claim may be made under any collective bargaining agreement to which
the Company is a party. For purposes of this Agreement, "employees" includes
employees, independent contractors and other persons filling similar functions.
2.11. EMPLOYEE PLANS.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, benefit, welfare,
profit-sharing, deferred compensation, retainer, consulting, retirement,
welfare, disability, vacation, severance, hospitalization, insurance, incentive,
deferred compensation and other similar fringe or employee benefit plans, funds,
programs or arrangements, whether written or oral, in each of the foregoing
cases which cover, are maintained for the benefit of, or relate to any or all
current or former employees, members, officers or directors of the Company, and
any other entity ("ERISA AFFILIATE") related to the Company under Section 4
14(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as amended (the
"CODE") (the "EMPLOYEE PLANS"). With respect to each Employee Plan, the Company
has made available to Buyer, to the extent applicable, true and complete copies
of (i) all plan documents, (ii) the most recent determination letter received
from the Internal Revenue Service (the "IRS"), (iii) the most recent application
for determination filed with the IRS, (iv) the latest actuarial valuations, (v)
the latest financial statements, (vi) the three (3) most recent Form S500 Annual
Reports, including Schedule A and Schedule B thereto, (vii) all related trust
agreements, insurance contracts or other funding arrangements which implement
any of such Employee Plans, (viii) all Summary Plan Descriptions and summaries
of material modifications and all modifications thereto communicated to
employees, and (ix) in the case of stock options or stock appreciation rights
issued under any Employee Plan, a list of holders, dates of grant, number of
shares, exercise price per share and dates exercisable. Neither the Company nor
any ERISA Affiliate of the Company has any liability or contingent liability
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<PAGE> 14
with respect to the Employee Plans, nor will any of the Company's assets be
subject to any lien, charge or claim relating to the obligations of the Company
with respect to employees or Employee Plans. No party to any Employee Plan is in
default with respect to any material term or condition thereof, nor has any
event occurred which through the passage of time or the giving of notice, Or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in compliance with the requirements provided by any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code. Each of the Company and its ERISA
Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 40 1(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section SO 1(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
Neither the Company nor any of its ERISA Affiliates has incurred any liability
under the Worker Adjustment Retraining and Notification Act or any similar state
law relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
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(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, is there any basis for any such
claim. No officer, director or employee of the Company or any of its ERISA
Affiliates has committed a material breach of any responsibilities or
obligations imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12. LITIGATION. There are no claims, actions, suits, proceedings,
labor disputes or investigations of any nature pending or, to the knowledge of
the Company or any Member, threatened by or against the Members, the Company,
the officers, directors, employees, agents of the Company, or any of their
respective Affiliates involving, affecting or relating to the Business or any
assets, properties or operations of the Company or the transactions contemplated
by this Agreement. Neither the Company nor any of the Company's assets is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. For purposes of this Agreement, "Affiliate" shall have the
meaning ascribed to such term in Rule 405 under the Securities Act.
2.13. CERTAIN AGREEMENTS.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all written, or oral, (i) contracts, agreements
and commitments not made in the ordinary course of business, (ii) agency and
brokerage agreements, (iii) service and other customer contracts, (iv)
contracts, loan agreements, letters of credit, repurchase agreements, mortgages,
security agreements, guarantees, pledge agreements, trust indentures, promissory
notes and other documents or arrangements relating to the borrowing of money or
for lines of credit, (v) tax sharing agreements, real property leases or any
subleases relating thereto, personal property leases, any material agreement
relating to Proprietary Rights (including service agreements relating thereto)
and insurance contracts, (vi) agreements and other arrangements for the sale of
any assets, property or rights other than in the ordinary course of business or
for the grant of any options or preferential rights to purchase any assets,
property or rights, (vii) documents granting any power of attorney with respect
to the affairs of the Company, (viii) suretyship contracts, performance bonds,
working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
agreements relating to the issuance of any securities of the
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Company or the granting of any registration rights with respect thereto, and
(xii) all amendments, modifications, extensions or renewals of any of the
foregoing (each a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or any Member since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of the Company or any Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14. COMPLIANCE WITH APPLICABLE LAW. The operations of the Company are,
and have been, conducted in all material respects in accordance with all
applicable laws, regulations, orders and other requirements of all Governmental
Entities having jurisdiction over it and its assets, properties and operations,
including, without limitation, all such laws, regulations, orders and
requirements relating to the Business except in any case where the failure to so
conduct its operations would not have a Material Adverse Effect. The Company has
not received any notice of any material violation of any such law, regulation,
order or other legal requirement, and is not in material default with respect to
any order, writ, judgment, award, injunction or decree of any Governmental
Entity, applicable to the Company or any of its assets, properties or
operations. To the knowledge of the Company or any Member, there are no proposed
changes in any such laws, rules or regulations (other than laws of general
applicability) that would adversely affect the transactions contemplated by this
Agreement or reasonably be expected to have a Material Adverse Effect.
2.15. LICENSES.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and
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consents, approvals, authorizations and other requirements prescribed, by any
law, rule or regulation which must be obtained or satisfied by the Company, in
connection with the Business or that are necessary for the execution, delivery
and performance by the Company and the Members of this Agreement and the other
Transaction Documents. The Licenses are sufficient and adequate in all material
respects to permit the continued lawful conduct of the Business in the manner
now conducted and the ownership, occupancy and operation of the Company's
properties for its present uses and the execution, delivery and performance of
this Agreement. No jurisdiction in which the Company is not qualified or
licensed as a foreign corporation has demanded or requested that it qualify or
become licensed as a foreign corporation. The Company has delivered to Buyer or
its representatives true and complete copies of all the material Licenses
together with all amendments and modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16. ACCOUNTS RECEIVABLE. All accounts receivable of the Company (the
"ACCOUNTS RECEIVABLE") as of the date hereof are accurately reflected on
Schedule 2.5. All Accounts Receivable as of the date hereof represent, and all
Accounts Receivable as of the Closing Date will represent, valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business that are current and collectible in amounts not less than the
aggregate amount thereof (net of reserves established in accordance with GAAP
applied consistently with prior practice) carried (or to be carried) on the
books of the Company and reflected in the Financial Statements, and are not and
will not be subject to any valid counterclaims or set-offs, disputes or
contingencies.
2.17. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, Member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
(b) Except as set forth on Schedule 2.17, no officer, director or Member
of the Company, or any Affiliate of any such person, now has, or within the last
three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period
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purchased from the Company, any goods or services, or otherwise does, or during
such period did, business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18. INSURANCE. Schedule 2.18 lists all insurance policies of any
nature whatsoever maintained by the Company at any time during the three (3)
years prior to the date of this Agreement and the annual or other premiums
payable from the time thereunder. There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or by any
Board of Fire Underwriters or other similar body exercising similar functions or
by any Governmental Entity that require or recommend any changes in the conduct
of the Business, or any repairs or other work to be done on or with respect to
any of the properties or assets of the Company. The Company has not received any
notice or other communication from any such insurance company within the three
(3) years preceding the date hereof canceling or materially amending or
materially increasing the annual or other premiums payable under any of such
insurance policies, and to the knowledge of the Company or any Member, no such
cancellation, amendment or increase of premiums is threatened.
2.19. [RESERVED.]
2.20. NO UNDISCLOSED LIABILITIES. Except as and to the extent
specifically reflected or reserved against in the Interim Financial Statements
and except as incurred in the ordinary course of business since the date of the
Interim Financial Statements, the Company has no material liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due (including, without limitation, any liability
for taxes and interest, penalties and other charges payable with respect to any
such liability or obligation) and no facts or circumstances exist which, with
notice or the passage of time or both, could reasonably be expected to result in
any material claims against or obligations or liabilities of the Company.
2.21. TAXES.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of
the Company for or with respect to (A) any Pre-Acquisition Taxable Period, or
(B) any Straddle Period to the extent allocable to the period ending on the
Closing Date:
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of
the Company that ends on any day on or before the Closing Date.
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(iii) "STRADDLE PERIOD" means a taxable period of the Company
that includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or
any judicial or administrative proceeding, relating to liability for or refunds
or adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required
to be filed with respect to Taxes including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes associated with the
tax periods covered by such Tax Returns (whether or not reflected on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (I) is currently being
audited by a Tax authority, or (2) as to which the Company has received a
written and/or oral notice from a Tax authority that such Tax authority intends
to commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which the Company has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. The Company has either delivered to Buyer or
made available for inspection by Buyer or its representatives or agents complete
and correct copies of all Tax audit reports and statements of Tax deficiencies
with respect to any delinquent Tax assessed against or agreed to by the Company
for all taxable periods commencing on or after January 1, 1993, for which audit
reports or statements of deficiencies have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Interim Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (excluding book reserves for deferred Taxes established to reflect
timing differences between book and Tax income) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
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(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for federal and state income tax purposes, and neither the Company
nor any Member has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(1) Section 351. The transfer of the Seller Interests by the Members to
Buyer pursuant to this Agreement is intended to qualify (i) as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of applicable state income tax law, and (ii) under
Code Section 351 as part of a transfer by the Members and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
2.22. INDEBTEDNESS. Schedule 2.22 lists each person or entity that owns
any direct or indirect debt interest (other than accounts payable incurred in
the ordinary course of the Company's business) in the Company (including,
without limitation, any indebtedness for borrowed money, whether or not
evidenced by a note or other written instrument) and a description of each such
debt interest.
2.23. ENVIRONMENTAL MATTERS. Notwithstanding anything to the contrary
contained in this Agreement:
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(a) The Company and its operations comply and have at all times complied
with all applicable laws, regulations and other requirements of Governmental
Entities or duties under the common law relating to toxic or hazardous
substances, wastes, pollution or to the protection of health, safety or the
environment (collectively, "ENVIRONMENTAL LAWS") and have obtained and
maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in compliance with all such Environmental Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could give rise to, or has otherwise incurred, liability to any person
(governmental or not) under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. ("CERCLA"), or
any other Environmental Laws, nor has it received notice of any such liability
or any claim therefor.
(c) No hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in violation of any
Environmental Laws or that could subject it to liability under any Environmental
Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no ongoing investigations or negotiations, pending or
threatened administrative, judicial or regulatory proceedings, any threatened
actions or claims, or consent decrees or other agreements in effect that relate
to environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24. SECURITIES MATTERS.
(a) The Members understand that (i) neither the Shares nor any notes
issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or
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<PAGE> 22
any state securities or "Blue Sky" laws, on the ground that the sale provided
for in this Agreement and the issuance of securities hereunder is exempt from
registration and qualification under Sections 4(2) and 18 of the Securities Act,
and (ii) Buyer's reliance on such exemptions is predicated on the Members'
representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members have had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the offering of
the Securities and the business, properties, plans, prospects, and financial
condition of Buyer and to obtain additional information as the Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members have adequate means of providing
for current needs and personal contingencies, and have no need for liquidity and
can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Members' own account, for investment purposes, not as a nominee or agent,
and not with a review to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) The Members understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Each Member is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and have each documented his or her accredited status
by delivery to Buyer of a completed questionnaire in the form of Exhibit C
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
any Member aware of any such solicitation or advertising.
2.25. BUYER AND THE CONSOLIDATION TRANSACTIONS.
(a) The Members are aware that:
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(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.9 will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") OF Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether any Member would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions,
any IPO, and Buyer's management and operations will be made by Buyer's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the business of Buyer will have the right to vote the
Shares pursuant to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents concerning the potential value or the Shares issued as
part of the Purchase Price or the prospects of Buyer, except as set forth
herein.
2.26. MINUTE BOOKS AND RECORDS. The Company has made available to Buyer
true, complete and correct copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its Members;
and
(b) all record books of the Company setting forth all transfers of
interests in the Company.
2.27. [RESERVED.]
2.28. POWERS OF ATTORNEYS AND SURETYSHIPS. The Company does not have any
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
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2.29. BROKERS. Except as set forth on Schedule 2.29, no broker, finder,
investment banker, or other person is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of the Company or any of
the Members.
2.30. SUMMARY OF CERTAIN CONSIDERATIONS. Each Stockholder acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit B.
2.31. ACCURACY OF INFORMATION. None of the representations or warranties
or information provided and to be provided by the Company or any Member to Buyer
in this Agreement, the Disclosure Schedule, schedules or exhibits hereto, or in
any of the other Transaction Documents contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements and facts contained herein or therein
not false or misleading. The descriptions set forth in the Disclosure Schedule
are accurate descriptions of the matters disclosed therein. Copies of all
documents heretofore or hereafter delivered or made available to Buyer pursuant
hereto were or will be complete and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to the
Members that:
3.1. ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and the other Transaction Documents to be executed and delivered by Buyer have
been (or upon execution by Buyer will have been) duly executed and delivered by
Buyer, have been effectively authorized by all necessary action of Buyer,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer, except as such enforceability may
be limited by the Bankruptcy Exception.
3.2. NO CONFLICT OR VIOLATION. The execution, delivery and performance
by Buyer of this Agreement and the other Transaction Documents to be executed
and delivered by Buyer and the consummation of the transactions contemplated
hereby and thereby, do not and will not: (i) violate or conflict with any
provision of the charter documents or bylaws of Buyer, or (ii) violate in any
material respect any provision or requirement of any domestic or foreign,
national, state or local law, statute, judgment, order, writ, injunction,
decree, award, rule, or regulation of any Governmental Entity applicable to
Buyer.
3.3. CAPITALIZATION. The authorized capital stock of Buyer consists of
240,000,000 shares of common stock, par value $0.00 1 per share (the "COMMON
STOCK") of which 200,000,000 are Series A Common Stock and 40,000,000 are Series
B Common Stock, and 10,000,000 shares of undesignated preferred stock. The
Shares, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable. Holders of Series B Common Stock are
entitled to elect all the directors in one of the Buyer's three (3) classes of
directors, with the
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holders of Series A Common Stock entitled to elect the remaining directors. In
all other respects the Series A and Series B Common Stock are identical.
3.4. [RESERVED.]
3.5. LITIGATION. Except as set forth on Schedule 3.5, there are no
claims, actions, suits, or proceedings of any nature pending or, to the
knowledge of Buyer, threatened by or against Buyer, the officers, directors,
employees, agents of Buyer, or any of their respective Affiliates involving,
affecting or relating to any assets, properties or operations of Buyer or the
transactions contemplated by this Agreement. Buyer is not subject to any order,
writ, judgment, award, injunction or decree of any Governmental Entity. From and
after the Closing, Buyer or its Affiliates may be subject to claims, actions,
suits, or proceedings, including as a result of acquisitions by Buyer in the
Consolidation Transactions, and Buyer makes no representations or warranties
about any such claims, actions, suits or proceedings or the absence thereof
3.6. NO UNDISCLOSED DEBT. Since its date of incorporation Buyer has had
no operations except operations in connection with effecting the Consolidation
Transactions and preparing for operation of its business after the Closing.
Buyer has no material tangible assets, and except as set forth on Schedule 3.6,
Buyer has no material liabilities or obligations for borrowed money or payment
for services rendered to Buyer. From and after the Closing, Buyer or its
Affiliates may have liabilities or obligations for money borrowed to effect the
Consolidation Transactions and as a result of acquisitions by Buyer in the
Consolidation Transactions, and Buyer makes no representations or warranties
about any such liabilities or obligations or the absence thereof.
3.7. ACCURACY OF INFORMATION. NONE OF the representations or warranties
or information provided and to be provided by Buyer to the Members in this
Agreement, the schedules or exhibits hereto, or in any of the other Transaction
Documents delivered by Buyer contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not false or
misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1. ACCESS. The Company shall afford, to Buyer and Buyer's accountants,
counsel and representatives, full access during normal business hours throughout
the period prior to the Closing Date (or the earlier termination of this
Agreement) to all of the properties, books, Contracts and records of the Company
(including, without limitation, the Company's accounting records, the workpapers
of the Company's independent accountants, and all environmental studies, reports
and other environmental records) and, during such period, shall furnish promptly
to Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2. CONFIDENTIALITY. For purposes hereof, the Company and the Members
will keep the matters contemplated herein and all information provided by Buyer
related to Buyer and the Consolidation Transactions confidential, and will not
provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions
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contemplated hereby. Buyer will keep the matters contemplated herein and all
information provided by the Company and the Members related to the Company and
the Business confidential, and will not provide information about such matters
to any party or use such information except to the extent necessary to effect
the transactions contemplated hereby. Buyer and the Company shall each cause
their respective Affiliates, officers, directors, employees, agents, and
advisors to keep confidential all information received in connection with the
transactions contemplated hereby. The Company and the Members acknowledge that
Buyer may provide information about the Company and the Business to other
participants in the Consolidation Transactions. If this Agreement terminates
without consummation of the Closing, the Company, the Members and Buyer shall,
and shall cause their Affiliates to, each maintain the confidentiality of any
information obtained from the other in connection with the transactions
contemplated hereby, the Consolidation Transactions, and Buyer's business plans
(the "INFORMATION"), other than Information that (i) was in the public domain
before the date of this Agreement or subsequently came into the public domain
other than as a result of disclosure by the party to whom the Information was
delivered; or (ii) was lawfully received by a party from a third party free of
any obligation of confidence of or to such third party; or (iii) was already in
the possession of the party prior to receipt thereof, directly or indirectly,
from the other party; or (iv) is required to be disclosed in a judicial or
administrative proceeding after giving the other party as much advance notice of
the possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Members and the
Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and shall
thereafter refrain from using the Information and shall maintain its
confidentiality pursuant to this Agreement.
4.3. CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Members
shall cause the Company to, conduct the Company's business solely in the
ordinary course consistent with past practices. Without limiting the generality
of the preceding sentence, except as required or permitted pursuant to the terms
hereof, the Company shall not, and the Members shall cause the Company not to:
(i) make any material change in the conduct of its business
and operations or enter into any transaction other than in the ordinary course
of business consistent with past practices; or terminate or amend any Contract;
or enter into any new contract other than contracts described in Schedule
4.3(a)(i), in any case calling for payments to or by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests;
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(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing Contracts set forth in Schedule 2.13
and dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member, obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to
equity holders, except as set forth on Schedule 4.3(a)(xii)
(xiii) except as necessary to comply with Section 4.3(b)(iv),
make any change in any revenue recognition or cost allocation practices or
method of accounting or accounting principle, method, estimate or practice
(except for any such change required by reason of a concurrent change in GAAP),
or write down the value of any assets or write-off as uncollectible any Accounts
Receivable except in the ordinary course of business consistent with past
practices;
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(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Member herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Members shall cause
it to:
(i) maintain, in all material respects, the assets and
properties of the Company in accordance with present practices and in a
condition suitable for their current use;
(ii) file, when due or required, federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all Environmental Laws, and upon receipt of
notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing;
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof; and
(viii) preserve its business organization.
4.4. RESTRICTIVE COVENANTS.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement and the other Transaction Documents and that
but for the agreement of each Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights and that irreparable harm and damage will be done to Buyer
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if any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
(i) either on its, his, hers or their own account or for any
other person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or was being pursued as a
prospect by the Company as of the Closing Date (each, a "CUSTOMER"), to modify,
amend, terminate or otherwise alter the terms upon which it acquires services
from Buyer or Buyer's Affiliates, or to acquire from any party other than Buyer
or its Affiliates any services of the kind available from Buyer or its
Affiliates;
(ii) engage or become interested in, as owner, employee,
partner, through equity ownership (not including up to a 1% passive equity
interest in a public company), investment of capital, lending of money or
property, rendering of services, or otherwise, Securities Act and applicable
state securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Member Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
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(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Members will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 36S day period, (ii) such lock up provision will be contingent upon
the officers and directors of the registrant entering into similar lock up
agreements, and (iii) no Member will be required to comply with this lock up
provision if any other stockholder owning more shares of Common Stock than such
Member and who is subject to a contractual lock up provision similar to this one
has been released from such lock up obligation.
4.6. REGISTRATION.
(a) No Member will have any rights to demand registration of any of the
Shares, or to participate in any registration undertaken by Buyer except as set
forth in this Section 4.6. If Buyer files a registration statement with the
Securities and Exchange Commission for an underwritten IPO of its equity
securities or any subsequent underwritten public offering within twenty-four
(24) months of the closing of the IPO (not including a registration statement
filed in connection with an acquisition or employee benefit plan), and if the
managing underwriter of such offering believes that the market will accommodate
selling stockholders in the offering, then each Member, shall have the right,
subject to the limitations set forth in this Section 4.6(a), to include in such
registration statement or statements and offering or offerings Shares and other
Common Stock owned by such Stockholder. Other stockholders (including but not
limited to stockholders who acquired Common Stock in the Consolidation
Transactions and stockholders who acquired Common Stock in connection with the
formation, or work on behalf of, Buyer) will have rights to include shares of
Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing no Selling Stockholder will be
permitted to include in any such registration and offering (i) any Shares
subject to performance-related restrictions at the time of filing of the
registration statement for such offering or (ii) more than, in the aggregate for
all such registrations and offerings, half of the shares of Common Stock held by
such Selling Stockholder as of the date hereof. Furthermore, in no case will the
Stockholders hereunder be permitted to include in all such registrations and
offerings, in the aggregate, more than the number of Shares listed on Schedule
4.6 under the item "Maximum IPO Shares" (such Shares will be allocated among
Stockholders hereunder desiring to participate in any such registration and
offering ratably on the basis of their relative ownership of Shares and other
Common Stock).
(b) If any Member acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Member from and against any claims,
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<PAGE> 31
costs and liabilities incurred by such Member as a result of any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement, preliminary prospectus or prospectus (as amended or supplemented if
Buyer shall have furnished any amendments or supplements thereto) or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to Buyer by such Member
expressly for use therein, for which the Member will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7. COOPERATION IN LITIGATION. EACH PARTY WILL fully cooperate with the
others in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the BUSINESS PRIOR TO OR AFTER THE
CLOSING DATE (OTHER THAN LITIGATION BETWEEN BUYER AND/OR ITS Affiliates or
assignees, on the one hand, and the Company or any Member and/or their
Affiliates or assignees, on the other, arising out of the transactions
contemplated by this Agreement). Subject to the provisions hereof regarding
payments by each party of its costs and payments or attorneys' fees and costs,
the party requesting such cooperation shall pay the out-of-pocket expenses
(including reasonable legal fees and disbursements) of the party providing such
cooperation and of its officers, directors, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for such party's
time spent in such cooperation or the salaries or costs of fringe benefits or
other similar expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
4.8. TAX MATTERS.
(a) Certain Operating Conventions and Procedures.
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(i) For all Tax purposes the Closing shall be deemed to occur
as of the close of the Company's business activities on the Closing Date, and
that, in the case of PreAcquisition Taxable Periods ending on the Closing Date,
all of the Company's income, gains and other Tax items attributable to the
Closing Date shall be included and reported by the Company in Tax Returns
(including federal Form 1065 and any similar state return) of the Company for
such Pre-Acquisition Taxable Periods to be filed following the Closing and that
all Taxes attributable to the Company's income, gains or other taxable items for
the Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of
any Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods
which are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Members shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes shown or reported to be due and payable on such Tax
Returns. Each Member shall pay his or her proportionate share of such costs,
expenses and Tax Liabilities of the Company promptly following receipt by such
Member of a notice from Buyer of Buyers calculation of such Member's payment
obligation hereunder together with copies of the relevant Tax Returns and other
information supporting Buyer's calculation. If a Member disputes all or any
portion of the payment obligation hereunder as calculated by Buyer, such Member
shall nevertheless promptly pay to Buyer the amount specified in the notice and
any dispute related thereto shall be resolved pursuant to the arbitration
provisions of Section 7.13. Any additional Taxes attributable to the periods
covered by such Tax Returns, whether pursuant to an amended return or any Tax
Proceeding, shall be paid by Members promptly upon demand therefor by Buyer.
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(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE PERIOD RETURN") reporting and accounting for
such Taxes on an aggregate basis covering both the Pre-Closing Period and the
Post-Closing Period. The Buyer, at its expense, shall cause the Company to
prepare and file such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that
are attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns. Each Member shall pay his
or her proportionate share of PreClosing Taxes promptly following receipt by
such Member of a notice from Buyer of Buyer's calculation of such Member's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If a Member disputes all
or any portion of the payment obligation hereunder as calculated by Buyer, such
Member shall nevertheless promptly pay to Buyer the amount specified in the
notice and any dispute related thereto shall be resolved pursuant to the
arbitration provisions of Section 7.13. Any additional Taxes attributable to the
Pre-Closing Periods covered by such Tax Returns, whether pursuant to an amended
return or any Tax Proceeding, shall be paid by Members promptly upon demand
therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company,
notify the Members of any written communication from a 'I ax authority with
respect to any pending Tax Proceeding involving a Pre-Acquisition Tax Liability.
Buyer shall include with such notification a copy of the written communication
so received by Company.
(ii) The Buyer shall have responsibility and authority to
represent the interests of the Company in any Tax Proceeding relating to
Pre-Acquisition Taxable Periods and Straddle Periods and to employ counsel of
its choice in connection therewith; provided, however, that Members shall be
permitted to participate in any such Tax Proceedings and all hearings related
thereto at the expense of the Members; and provided further, that, without the
prior written consent of the Members, which shall not be unreasonably withheld,
the Buyer shall not agree to settle or compromise any such Tax Proceeding and/or
any PreAcquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which the Members are responsible hereunder, provided,
however, the consent of the Members to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Members, promptly upon demand
from the Buyer, shall pay the reasonable costs and expenses, including attorney
fees, incurred by Buyer in connection with any such Tax Proceedings, provided,
however, in any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Members are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Members are not responsible,
the Buyer, on the
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one hand, and the Members, on the other hand, shall jointly bear the costs and
expenses thereof as allocated between them on an equitable basis.
(iii) All notices to Members provided for hereunder shall be
deemed delivered to each Member upon receipt thereof either directly by the
Member. The Members shall proportionately pay all Tax Liabilities and costs and
expenses for which the Members are responsible hereunder, provided, however, the
Members shall be jointly and severally liable for all such Tax Liabilities,
costs and expenses.
(iv) The Member shall furnish to Buyer such information and
documents as may be reasonably requested by Buyer, and shall otherwise
reasonably cooperate with Buyer, in connection with Buyer's conduct of any Tax
Proceedings described herein.
(f) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Members shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute of
limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests in a manner consistent with its qualification as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of state income tax law, and (ii) file such Tax
Returns and Tax information reports related to the transfer as may be required
or otherwise appropriate under the Tax laws and regulations applicable to
transfers of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9. CONSOLIDATION TRANSACTIONS. Concurrent with the transaction
contemplated hereby, Buyer is acquiring in a series of transactions various
other companies engaged in the business of cost reduction, cost recovery and
profit enhancement services by means of mergers into Buyer, or acquisitions by
Buyer of all or substantially all of the assets or stock or other equity
interests of such companies (collectively, the "Consolidation Transactions").
The Company and the Members acknowledge that as a result of the complexity of
the transactions contemplated hereby and the Consolidation Transactions, the
Closing contemplated hereby and the closing of the Consolidation Transactions
must be concurrent at a time designated by Buyer. Accordingly, the Company and
the Members shall upon receipt of the Closing Notice but prior to the Closing
Date (i) provide any outstanding documentation required to effect the Closing
pursuant to this Agreement in escrow pending release upon authorization of the
Members at the Closing, (ii) complete performance of their respective
obligations hereunder and under the other Transaction Documents to be performed
by the Closing, and (iii) update the schedules hereto and
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any other documentation or information provided to Buyer during the course of
this transaction such that all such disclosures shall be accurate and current as
of the Closing Date.
4.10. SUPPLEMENTAL DISCLOSURE. At the Closing, the Company and the
Members shall supplement or amend each of the schedules hereto with respect to
any matter hereafter arising which, if existing or occurring at or prior to the
date hereof, would have been required to be set forth or listed in the schedules
or which is necessary to complete or correct any information in the schedules.
4.11. HSR. Buyer and the Company shall cooperate m preparing and
delivering to the Department of Justice and the Federal Trade Commission
notification of the transactions contemplated hereby pursuant to, and shall use
their commercially reasonable best efforts to obtain early termination of the
waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), if applicable. Buyer and the Company shall each pay half of all
filing fees payable under the HSR Act in connection with the transactions
contemplated hereby, and each of Buyer and the Company shall pay its own costs
incurred in preparation of all reports and notifications required under the HSR
Act.
4.12. COMPETING PROPOSALS.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.13. BONUS PLAN. If Buyer does not close the IP0 of its equity
securities by June 30, 1999, Buyer will implement a cash bonus plan designed to
reward employees on the basis of the performance of the divisions or
subsidiaries of Buyer in which they work. Amounts payable under, and other terms
of, any such plan will be subject to restrictions imposed by Buyer's lenders,
Buyer's capital investment requirements, and preservation of adequate working
capital.
4.14. BEST EFFORTS. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to cause the
fulfillment of the conditions to Closing set forth herein and to consummate and
make effective in the most expeditious manner practicable the transactions
contemplated hereby.
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4.15. FURTHER ASSURANCES. Upon the reasonable request of a party or
parties hereto at any time after the Closing Date, the other party or parties
shall forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its or their counsel may
reasonably request in order to effectuate the purposes of this Agreement.
4.16. NOTICE OF BREACH. At all times before the Closing, and thereafter
until the second anniversary of the Closing Date, each of the parties hereto
shall promptly give written notice with particularity of any breach or
inaccuracy of any representation, warranty, agreement or covenant of such party
contained herein or in any other Transaction Document to the parties to whom or
which such representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1. SURVIVAL. The representations and warranties made in this Agreement
or in any exhibit, schedule, or any other Transaction Document or certificate
shall survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.29 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Seller Interests), 2.4 (Title to Assets) and 2.22 (Indebtedness)
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2. INDEMNIFICATION BY THE MEMBERS. Subject to the limits set forth in
this Article 5, the Members and, if the transactions contemplated hereby are not
consummated, the Company, and their successors and assigns shall jointly and
severally indemnify, defend, reimburse and hold harmless Buyer and its
Affiliates and their successors and assigns, and the officers, directors,
employees and agents of any of them, from and against any and all claims,
losses, damages, liabilities, obligations, assessments, penalties and interest,
demands, actions and expenses, whether direct or indirect, known or unknown,
absolute or contingent (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any actions
or threatened actions) ("Losses") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements;
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(b) any untruth, inaccuracy or material omission of any
representation or warranty made by the Company or the Members in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document.
5.3. INDEMNIFICATION BY BUYER. Subject to the limits set forth in this
Article 5, Buyer and its successors and assigns shall indemnify, defend,
reimburse and hold harmless the Members and their successors and assigns from
and against any and all Losses reasonably incurred by any such Members arising
out of or in connection with any of the following:
(a) the ownership and operation of the Company after the Closing;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Buyer in this Agreement or any other
Transaction Document; and
(c) the breach of any covenant, agreement or obligation of
Buyer contained in this Agreement or any other Transaction Document.
5.4. INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position,
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claims or defenses. The Indemnitee and its counsel shall maintain
confidentiality with respect to all such information consistent with the conduct
of a defense hereunder. The Indemnitor shall have the right to elect to settle
any claim for monetary damages only without the Indemnitee's consent, if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section S.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5. PAYMENT. All payments owing under this Article 5 will be made
promptly as indemnifiable Losses are incurred. If the Indemnitee defends the
subject matter of any Claim in accordance with Section 5.4(c) or proceeds with
separate counsel in accordance with Section 5.4(b), the expenses (including
attorneys' fees) incurred by the Indemnitee shall be paid by the Indemnitor in
advance of the final disposition of such matter as incurred by the Indemnitee,
if the Indemnitee undertakes in writing to repay any such advances in the event
that it is ultimately determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement or applicable law.
5.6. LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract claims arising
under this Agreement or any other Transaction Document unless the persons so
entitled to indemnity or recovery thereunder have suffered Losses in an
aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "Threshold"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the
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Threshold. Once the aggregate amount of Losses exceeds the Threshold, persons
entitled to recovery shall be entitled to recover the full amount of all Losses,
including any amounts which constituted the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Members to Buyer for all
claims arising under this Agreement and the other Transaction Documents shall
equal the aggregate Purchase Price, except claims arising from any breach of the
representations and warranties contained in Sections 2.2 (Ownership of Seller
Interests), 2.4 (Title to Assets), 2.11 (Employee Plans), 2.21 (Taxes), 2.22
(Indebtedness) and 2.23 (Environmental Matters) shall not be subject to the
limits set forth in this Section 5.6(b). For purposes of this Section 5.6(b),
the value of Shares received shall be (i) prior to the IPO, the per share Agreed
Price (as defined in the Stockholder Agreement) then prevailing; and (ii) after
the IPO, the per share closing price on the primary exchange or market on which
the Common Stock is traded on the date such indemnifiable Losses become payable,
except that the value of any Shares sold in bona fide third party transactions
will be the gross proceeds to the Members of such sale. The maximum aggregate
liability of Buyer to the Members for all claims arising under this Agreement
and the other Transaction Documents shall equal the portions, if any, of the
aggregate Purchase Price not paid or delivered.
6. CONDITIONS TO CLOSING.
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of the
Members, on the one hand, and Buyer, on the other hand, to consummate the
transactions contemplated hereby are subject to the fulfillment, at or before
the Closing Date, of the conditions set forth in this Section 6.1, any one or
more of which may be waived in writing by the party entitled to the benefit of
such condition; provided, however, that such waiver will not diminish such
party's right to indemnification pursuant to Article 5, unless so stated, and
provided further that the Members will be required to perform their obligations
hereunder, notwithstanding lack of fulfillment of the conditions set forth in
this Section 6.1, if Buyer agrees in writing to be liable for, and to indemnify
the Members from and against, any obligations that the Members would incur as a
result of consummating the transactions contemplated hereby notwithstanding the
fact that the conditions in this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of the Company, is in effect; and no action or proceeding
has been instituted or threatened by any Governmental Entity, other person, or
entity which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this
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Agreement will be in compliance with applicable laws, including, without
limitation, expiration or termination of the waiting period prescribed by the
HSR Act.
6.2. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transactions contemplated hereby are subject to the fulfillment,
at or before the Closing Date, of the conditions set forth in this Section 6.2,
any one or more of which may be waived by Buyer in writing in its discretion;
provided however, such waiver will not waive or diminish Buyer's right to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Members contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date, and at the Closing the Company and
the Members shall each have delivered to Buyer a certificate dated the Closing
Date to such effect signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company and by the Members.
(b) Performance of the Company and the Members. The Company and the
Members shall have performed in all material respects all obligations required
to be performed by each of them under this Agreement on or before the Closing
Date, and at the Closing the Company and the Members, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Members, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant
Secretary of the Company of resolutions of the Members authorizing the
execution, delivery and performance of this Agreement and the other Transaction
Documents to be delivered by the Company and the Members and the consummation of
the transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of
Exhibit D, executed and delivered by each recipient of Shares, together with a
stock power in the form of Exhibit D- 1 executed by each Member and the spouse
of each Member, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24
(iii) A Voting Agreement substantially in the form of Exhibit E,
executed and delivered by each recipient of Shares;
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(iv) A Subordination Agreement substantially in the form of
Exhibit F, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3) and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at Two Hundred Eighteen Thousand Two
Hundred Thirty Dollars ($218,230), and (ii) sufficient working capital to
operate the Company; and at the Closing the Company shall have delivered to
Buyer a certificate dated the Closing Date to such effect with supporting
financial information, signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Members in
substantially the form of Exhibit G. In giving such opinion, such counsel may
rely upon certificates of public officials, upon opinions of local counsel and,
as to matters of fact, upon a certificate of the Company, or its officers, and
such counsel may assume that this Agreement has been duly authorized, executed
and delivered by Buyer.
(l) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
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(m) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit H (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3. CONDITIONS TO OBLIGATIONS OF THE MEMBERS. The obligations of the
Members to consummate the transactions contemplated hereby are subject to the
fulfillment, at or before the Closing Date, of the conditions set forth in this
Section 6.3, any one or more of which may be waived by the Members in writing in
their discretion; provided however, such waiver will not waive or diminish the
right of the Members to indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant
Secretary of Buyer, of resolutions of its Members authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby;
(ii) [Reserved.]
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(iii) A photocopy of the certificates representing the Shares
issued in the name of each Member as set forth in Schedule 1.3 and
(iv) Employment Agreements substantially in the form of Exhibit
H (with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3
(e) Opinion of Counsel. The Members shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit I. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Members.
(t) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million.
For these purposes, "PRE-TAX Income" of any particular company means that
company's projected 1998 pre-tax income, as adjusted pursuant to agreement
between Buyer and that company to reflect certain cost reductions and modified
business practices and accounting methods expected to take effect after the
closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Member.
7. MISCELLANEOUS.
7.1. TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated (a) by Buyer, if (i) the Company or the Members fail to
comply in any material respect with any of its or their covenants or agreements
contained herein, or (ii) any of the representations and warranties of the
Company or the Members is breached or is inaccurate in any material way; (b) by
the Company or the Members if (i) Buyer fails to comply in any material respect
with any of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of Buyer is breached or is inaccurate in any
material way; or (c) by the Company or Buyer if (i) a Governmental Entity has
issued a non-appealable order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto have used their best efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to November 30,
1998. Notwithstanding the foregoing, a party may not terminate this Agreement if
the event giving rise to the termination right results from the willful failure
of such party to perform or observe any of the covenants or agreements set forth
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herein to be performed or observed by such party or if such party is, at such
time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.29 (Brokers), 4.2 (Confidentiality), 5
(Survival; Indemnification), 7.12 (Expenses), 7.13 (Arbitration), 7.14
(Submission to Jurisdiction), and 7.15 (Attorneys' Fees), and except that
termination of this Agreement will not affect any liability of any party for any
breach of this Agreement prior to termination, or any breach at any time of the
provisions hereof surviving termination.
7.2. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5S59
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Member: Erik R. Watts
695 Town Center Dr., Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
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With a copy to: Leonard J. McGill, Esq.
Day, Campbell & McGill
3070 Bristol, Suite 650
Costa Mesa, California 92626
Telephone No.: (714) 429-2919
Facsimile No.: (714) 429-2901
7.3. ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto, except that Buyer may assign its rights and obligations under
this Agreement in whole or in part to any Affiliate or Affiliates of Buyer or
any successor to all or substantially all of the business or assets of Buyer.
This Agreement shall inure to the benefit of and be binding upon Buyer and the
Company and their respective permitted successors and assigns and upon each
Member and his or her executors, administrators, heirs, legal representatives
and permitted successors and assigns. Nothing in this Agreement will confer upon
any person or entity not a party to this Agreement, or the legal representatives
of such person or entity, any rights or remedies of any nature or kind
whatsoever under or by reason of this Agreement.
7.4. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
7.5. COUNTERPARTS. Facsimile transmission of any signed original
document and/or retransmission of any signed facsimile transmission will be
deemed the same as delivery of an original. At the request of any party, the
parties will confirm facsimile transmission by signing a duplicate original
document. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute but one and the same
instrument.
7.6. PUBLICITY. Prior to the Closing Date, no party may, or may it
permit its Affiliates to, issue or cause the publication of any press release or
other public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer and the Company,
except that Buyer may disclose details of this Agreement to other participants
in, or as necessary to effect, the Consolidation Transactions. Notwithstanding
the foregoing, in the event any such press release or announcement is required
by law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7. COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain or will contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and therein and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments, and
understandings.
7.8. MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time prior to the
Closing Date or termination of this Agreement, any party may, (a) waive any
inaccuracies in the representations and warranties of any other party contained
in this Agreement or in any other Transaction Document; and (b) waive compliance
by any other party with any of the covenants
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or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9. HEADINGS; REFERENCES. The headings contained in this Agreement and
the other Transaction Documents are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. References
herein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof unless otherwise specified.
7.10. SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11. INVESTIGATION. All representations and warranties contained herein
which are made to the knowledge of a party shall require that such party make
reasonable investigation and inquiry with respect thereto to ascertain the
correctness and validity thereof Representations and warranties made to the
knowledge of the Company shall be deemed made to the knowledge of the Members
only and no other person.
7.12. EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
Buyer, in connection with the transactions contemplated by this Agreement shall
be borne Buyer, and all fees, costs and expenses incurred by the Company or the
Members in connection with the transactions contemplated by this Agreement shall
be borne by the Members jointly and severally.
7.13. ARBITRATION.
(a) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder. The arbitration shall be conducted by
one independent and impartial arbitrator, appointed by the AAA; provided
however, if the claim and any counterclaim, in the aggregate, together with
other arbitrations that are consolidated pursuant to Section 7.13(f), exceed
Five Hundred Thousand Dollars ($500,000) (the "ARBITRATION THRESHOLD"),
exclusive of interest and attorney's fees, the dispute shall be heard and
determined by three (3) arbitrators as provided herein (such arbitrator or
arbitrators are hereinafter referred to as the "ARBITRATOR"). The judgment of
the award rendered by the Arbitrator may be entered in any court having
jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
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(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the
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arbitration proceedings. The party requesting the court reporter must notify the
other parties and the Arbitrator of the arrangement in advance of the hearing,
and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) to the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14. SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any, shall be tried and litigated exclusively in
the state or federal courts located in the County of Orange, State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this paragraph. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 7.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
7.15. ATTORNEYS' FEES. If Buyer or any of its Affiliates, successors or
assigns brings any action, suit, counterclaim, cross-claim, appeal, arbitration,
or mediation for any relief against the Company or any of its Affiliates,
successors or assigns or any Member, or if the Company or any of its Affiliates,
successors and assigns or any Member brings any action, suit, counterclaim,
cross-claim, appeal. arbitration, or mediation for any relief against Buyer or
any of its Affiliates, successors or assigns, declaratory or otherwise, to
enforce the terms hereof or to declare rights hereunder (collectively, an
"ACTION"), in addition to any damages and costs which the prevailing party
otherwise would be entitled, the non-prevailing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "DECISION") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific
43
<PAGE> 49
provision providing for the recovery of attorneys' fees and costs incurred in
enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16. ENFORCEMENT OF THE AGREEMENT. The Company, the Members and Buyer
acknowledge that irreparable damage would occur if any of the obligations of the
Company and the Members under this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Buyer will be entitled to
an injunction or injunctions to prevent breaches of this Agreement by the
Company or the Members and to enforce specifically the terms and provisions
hereto, this being in addition to any other remedy to which Buyer is entitled at
law or in equity.
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<PAGE> 50
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
By: /s/ MARK C. COLEMAN
---------------------------------
Name: Mark C. Coleman
----------------------------
Title: SVP
---------------------------
NATIONAL RECOVERY SERVICES, L.L.C.
By: /s/ ERIK R. WATTS
---------------------------------
Name: Erik R. Watts
----------------------------
Title:
---------------------------
IM COMET LLC
BY: COMET CAPITAL CORP. NV
ITS: MANAGER
BY: /s/ ERIK R. WATTS
-------------------
Name: Erik R. Watts
Title: Manager
---------------
/s/ MOSES CHEUNG
- ----------------------------------
MOSES CHEUNG
/s/ GREGORY P. LINDSTROM
- ----------------------------------
GREGORY P. LINDSTROM
45
<PAGE> 51
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Two Hundred Thousand Dollars ($200,000) (the
"CASH PAYMENT").
(ii) An aggregate of 262,452 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer pending
release pursuant to Section 1.4.
(b) Consideration per Member.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Seller Interests
Name of Owned and to be sold Cash Common Stock
Member to Buyer Consideration Consideration
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
IM Comet LLC 30% $60,000 112,480
Moses Cheung 30% $60,000 112,480
Gregory P. Lindstrom 10% $20,000 37,492
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.42
EXECUTION COPY
SETTLEMENT AGREEMENT
This Settlement Agreement (this "AGREEMENT") is entered into as of November 24
1999 (the "EFFECTIVE DATE"), by and among EPS Solutions Corporation ("EPS"),
Enterprise Profit Solutions Corporation (formerly ProfitSource Corporation) (the
"COMPANY" and collectively with EPS, the "EPS PARTIES"), and Christopher P.
Massey ("MASSEY") Erik Watts ("WATTS" and collectively with Massey, the
"EMPLOYEES"), 1758 Primary Properties, Limited Partnership ("1758 PROPERTIES"),
1910 Properties, Ltd. ("1910 PROPERTIES"), and IM Comet LLC ("IM COMET" and,
collectively with Massey, Watts, 1758 Properties and 1910 Properties, the
"EMPLOYEE PARTIES"). For purposes of this Agreement, an "AFFILIATE" of any
entity is any entity controlling, controlled by, or under common control with
such entity and an "Affiliate" of any person is any relative of such person or
any entity controlled by or under common control with such person or any trust
of which such person or such person's Affiliate is a trustee or beneficiary.
A. Pursuant to employment agreements each dated as of August 28, 1998,
and superseded by employment agreements each dated as of December 14, 1998 (the
"EMPLOYMENT AGREEMENTS"), each of the Employees was employed by the Company
beginning in August 1998.
B. EPS entered into Subscription Agreements, each dated as of August
28, 1998, with each of Watts, 1758 Properties, 1910 Properties and the Massey
Family Trust U/D/T (the "MASSEY TRUST") of which Massey is a Co-Trustee
(collectively, the "SUBSCRIPTION AGREEMENTS") pursuant to which such parties
purchased the number of shares of Series B Common Stock of EPS set forth
opposite his or its name on Schedule A under the column heading "Total
Subscription Shares" (collectively the "TOTAL SUBSCRIPTION SHARES"). Each of the
Employees or his Affiliates then gifted directly or indirectly to family members
and friends the number of his or its Total Subscription Shares listed opposite
his or its name on Schedule A under the column heading "Gifted Shares" and as
detailed separately on Schedule A (collectively, the "GIFTED SHARES"). After
transferring the Gifted Shares and certain other transfers, each Employee and
his Affiliates was left with the number of subscription shares set forth
opposite his or its name on Schedule A under the column heading "Net
Subscription Shares" (collectively the "NET SUBSCRIPTION SHARES").
C. Pursuant to each Employee's terms of employment, EPS entered into
Restricted Stock Purchase Agreements, each dated as of August 28, 1998, and each
amended as of December 14, 1998 (the "RESTRICTED STOCK PURCHASE AGREEMENTS"),
with each of the Employee Parties pursuant to which each Employee Party
purchased the number of shares of restricted Series B Common Stock of EPS set
forth opposite his or its name on Schedule A under the heading "August
Employment Shares" on August 28, 1998 (the "AUGUST EMPLOYMENT SHARES") and the
number of shares of Series B Common Stock of EPS set forth opposite his or its
name on Schedule A under the heading "December Employment Shares" on December
14, 1998 (the "DECEMBER EMPLOYMENT SHARES" and collectively with the August
Employment
<PAGE> 2
Shares, the "EMPLOYMENT SHARES"). The Employment Shares were to vest upon the
satisfaction of certain conditions set forth in each Employee's Restricted Stock
Purchase Agreement.
D. In connection with the purchase of the Total Subscription Shares and
the August Employment Shares, each of the Employees paid cash for such shares in
the amount of $.02 per share. In connection with the purchase of the December
Employment Shares, each of the Employees paid cash for such shares in the amount
of $.001 per share and entered into a Promissory Note, each dated as of December
14, 1998 in the principal amount of $1.199 per share purchased thereby (each a
"NOTE"). In connection with the purchase of the Total Subscription Shares, the
Employment Shares and the Transaction Shares (as defined below), each of the
Employees and their Affiliates purchasing shares entered into Stockholder
Agreements, each dated as of August 28, 1998 and/or December 14, 1998,
respectively (collectively, the "STOCKHOLDER AGREEMENTS") providing for certain
restrictions as to voting, transfer and other disposition of the Shares.
E. In connection with the sale of certain businesses to EPS by the
Employee Parties pursuant to those certain securities purchase agreements
described on Schedule A (the "TRANSACTION AGREEMENTS"), each of the Employee
Parties received the number of shares of unrestricted Series A Common Stock (the
"TRANSACTION SHARES" and together with the Subscription Shares and the
Employment Shares, the "SHARES") set forth opposite his or its name on Schedule
A under the heading "Transaction Shares."
F. After consultation with the EPS Parties' investment bankers and
lenders and the managers of several of the Company's business units, the parties
desire to return to EPS certain shares previously issued to the Employee
Parties, reduce indebtedness of EPS to the Employee Parties, rescind EPS's
purchase of National Health Care Recovery Services, LLC ("NHRS"), transfer
certain healthcare-business and other assets from the Company to the Employee
Parties, and effect a transition of management responsibility for the Company
and its Affiliates and an amicable termination of the Employee Parties'
employment, directorships, and officerships with the EPS Parties and their
Affiliates, all as provided by this Agreement, all of which are expected to
benefit EPS and its stockholders in the manner described on Schedule A under the
heading "Transaction Impact."
G. The Employee Parties remain enthusiastic about the pending contracts
and future profit potential of NHRS and the businesses to be acquired by the
Employee Parties or their Affiliates as contemplated by this Agreement and thus
have determined that it is in their best interests to enter into the
transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. TERMINATION OF EMPLOYMENT. The employment of each of the Employees
with the Company and its Affiliates terminates as of the date hereof. Each
Employee acknowledges that he has received all compensation, including without
limitation salary, bonuses and contributions to plans, due to him for his work
through the date hereof. Each Employee
2
<PAGE> 3
acknowledges that he has used all personal time off, which includes vacation,
that accrued through the date hereof and that he therefore is not entitled to
any payment in respect of vacation or other personal time off. Simultaneously
with his execution and delivery of this Agreement, each Employee is submitting a
formal letter of resignation in the form of Exhibit 1 attached hereto effecting
such Employee's resignation from the board of directors and all offices of the
Company, EPS and their Affiliates as of the date hereof.
2. EMPLOYEE PARTIES' SHARES.
2.1 Repurchase.
(a) In consideration, and subject to the terms and conditions, of
this Agreement, (i) each of the Employee Parties hereby is selling, and EPS
hereby is repurchasing, all of the Employment Shares of each Employee; and (ii)
each Employee Party hereby is selling, and EPS hereby is repurchasing, the
number of Net Subscription Shares set forth next to his or its name on Schedule
A under the column heading "Net Subscription Shares Repurchased" (the
"REPURCHASED SUBSCRIPTION SHARES" and together with the Employment Shares, the
"REPURCHASED SHARES"). After giving effect to the repurchase of Repurchased
Shares as of the date hereof, each Employee (together with his donees as listed
on Schedule A) will own (directly or indirectly) free of restrictions (other
than those imposed under applicable securities laws or under the Stockholder
Agreement as modified pursuant to Section 4.13) the number of shares stated on
Schedule A under the heading "TOTAL RETAINED SHARES" (the "TOTAL RETAINED
SHARES"), which for each Employee consist of (i) his or his Affiliates' Gifted
Shares, (ii) his or his Affiliates' Transaction Shares, (iii) his or his
Affiliates' remaining Subscription Shares net of gifts, transfers, and
repurchase of the Repurchased Subscription Shares, as listed on Schedule A under
the column heading "Retained Subscription Shares," and (iv) with respect to
Watts, 93,552 shares of EPS common stock issued with respect to his ownership in
First Financial Resources, Inc. None of the Shares included in the Total
Retained Shares were purchased under, and such shares are not subject to, the
Restricted Stock Purchase Agreements. Except as specifically set forth in this
Agreement, each Employee Party and the donees of the Employee Parties will
continue to have the rights and be subject to the obligations associated with
their Retained Shares as set forth in the Subscription Agreement or Transaction
Agreement, as the case may be, pursuant to which such shares were purchased, as
well as the Stockholder Agreements as modified pursuant to Section 4.13.
(b)(i) As consideration for the repurchase of the December
Employment Shares, EPS shall cancel all outstanding Notes, thereby relieving the
Employee Parties of all obligations under the Notes, including the obligations
to pay the principal amount of and all accrued interest on the Notes.
Concurrently with the execution of this Agreement, EPS is delivering to each
Employee Party who executed a Note the original executed copy of the Note marked
"canceled."
(ii) As consideration for the repurchase of the Repurchased Shares
other than the December Employment Shares, EPS shall pay to the Employee
Parties, in cash, concurrently with the execution of this Agreement, an amount
equal to $.02 per share ($133,563.04 in the aggregate).
3
<PAGE> 4
2.2 Termination of Rights. Each of the Employee Parties (i)
terminates and releases all rights, title and interest in and to all outstanding
securities of EPS, the Company or their Affiliates and any right such party may
have had to acquire any securities of EPS or the Company, other than (A) the
Total Retained Shares and (B) with respect to IM Comet only, any subordinated
notes of EPS outstanding after the consummation of the transactions contemplated
herein and in the documents delivered pursuant to this Agreement (collectively,
the "SEPARATION DOCUMENTS"); and (ii) acknowledges that such party is not
entitled to any securities of EPS or the Company or any of their Affiliates or
interest therein other than such party's Total Retained Shares.
2.3 Designated Employee Shares. The Total Retained Shares include
108,000 shares (the "DESIGNATED EMPLOYEE SHARES") that the Employee Parties have
agreed to use for purposes of compensation to employees of their business
(including businesses they may acquire after the date hereof), other than
themselves. Any portion of the Designated Employee Shares that have not, as of
March 25, 2000, been transferred by the Employee Parties to employees in
connection with their employment in businesses owned by the Employee Parties may
be repurchased by EPS in its discretion at any time until May 31, 2000. The
repurchase price payable by EPS will be $.02 per share and will be payable by
offset reduction of amounts payable by the Employee Parties pursuant to this
Agreement or any other Separation Document.
3. TRANSFER OF ASSETS.
3.1 Sale of Assets. Concurrently with the execution and delivery
of this Agreement, EPS, the Company, the Employees, and the Employees' designee
(the "DESIGNEE") will enter into an Asset Purchase Agreement in the form
attached hereto as Exhibit 2 (the "ASSET PURCHASE AGREEMENT") pursuant to which
EPS and the Company will convey, transfer, assign, sell and deliver to the
Designee all of EPS's and the Company's right, title and interest in and to (i)
the assets of National Recovery Services, LLC ("NRS"), (ii) the assets acquired
by EPS from Oxxford Group, Inc., ("OGI") and used primarily in OGI's health care
claims payment audit and recovery business, (iii) the assets acquired by EPS
from Medco Review, Inc. ("MEDCO"), and (iv) certain additional assets, and the
Designee will assume certain specified liabilities associated with the
transferred assets.
3.2 Rescission of National Healthcare Recovery Services
Transaction. Concurrently with the execution and delivery of this Agreement,
EPS, the Company, NHRS and IM Comet will enter into a Rescission Agreement in
the form attached hereto as Exhibit 3 (the "RESCISSION AGREEMENT") providing for
the rescission as to IM Comet (the "RESCISSION") of that certain Securities
Purchase Agreement, dated as of March 1, 1999 (the "NHRS PURCHASE AGREEMENT"),
by and among EPS, the Company, NHRS, IM Comet, Dennis Nystrom ("NYSTROM") and
Debra Law ("LAW") and the transactions contemplated thereby.
3.3 Employee Releases.
(a) Following the date of this Agreement, the Employee Parties
will use reasonable commercial efforts to secure from each of the persons among
those listed on Schedule B who would, but for such release, be entitled to
receive vested shares of common stock of EPS, and from Nystrom and Law, if they
have not already executed and delivered a
4
<PAGE> 5
Severance Agreement substantially in the form of Exhibit 4 (collectively, the
"ADDITIONAL EMPLOYEES"), an Employee General Release substantially in the form
of Exhibit 5 (or Exhibit 4 for Nystrom and Law) (the "ADDITIONAL RELEASE"), with
appropriate modifications and reflecting the vesting, if any, described on
Schedule C of shares of Common Stock of EPS. The determination as to whether to
seek releases substantially in the form of Exhibit 5 (the "NON-VESTING EMPLOYEE
RELEASES") from those employees listed on Schedule B who are not Additional
Employees (the "NON-VESTING EMPLOYEES") shall be in the reasonable discretion of
the Employee Parties. Each of the Employee Parties acknowledges that employees
of NHRS are not being terminated but that as a result of the Rescission
Agreement, none of the employees of NHRS shall be entitled to vest in any shares
of common stock of EPS other than as reflected on Schedule C.
(b) In the event that the Employee Parties do not obtain an
Additional Release from an Additional Employee, IM Comet shall return to EPS for
cancellation without further consideration a number of shares of common stock of
EPS equal to the number of shares, if any, that such Additional Employee is or
becomes entitled to receive in excess of the number of shares earned by that
Additional Employee as of the date hereof under the terms of the agreement under
which he or she acquired the subject shares. Additionally, IM Comet agrees that
it will, and it will cause its successors and assigns to, indemnify, defend and
hold harmless the EPS Parties, their Affiliates, the successors and assigns of
the EPS Parties and their Affiliates, and the employees, officers, and directors
of any of them (collectively, the "INDEMNITEES") from and against all claims,
liabilities, damages, and costs (including without limitation attorneys' fees
and costs) incurred by any Indemnitee in excess of those for which any
Indemnitee would have been ultimately liable if such Additional Employee had
executed the Additional Release. In the event EPS does not obtain the Bank
Release (as defined in the Rescission Agreement), the provisions of this Section
3.3(b) shall not apply with respect to any Additional Employee (other than
Nystrom and Law) who is not or does not become an employee of one of the
Employee Parties or any of their respective Affiliates on or after the date
hereof.
(c) In the event that the Employee Parties do not obtain a
Non-vesting Employee Release from any Non-vesting Employee, IM Comet will, and
will cause its successors and assigns to, indemnify, defend and hold harmless
the Indemnitees from and against all claims, liabilities, damages, and costs
(including without limitation attorneys' fees and costs) incurred by any
Indemnitee in excess of those for which any Indemnitee would have been
ultimately liable if such Non-vesting Employee had executed the Non-vesting
Employee Release. In the event EPS does not obtain the Bank Release, the
provisions of this Section 3.3(c) shall not apply with respect to any
Non-vesting Employee who is not or does not become an employee of one of the
Employee Parties or any of their respective Affiliates on or after the date
hereof.
(d) In addition to the foregoing, concurrently herewith or
immediately after the execution of this Agreement, the Employee Parties will use
reasonable commercial efforts to secure from Moses Cheung an Employee Release
substantially in the form attached hereto as Exhibit 5A (the "CHEUNG RELEASE").
In the event that the Employee Parties do not obtain the Cheung Release prior to
the Closing Date as defined in the Asset Purchase Agreement, EPS shall
repurchase and the Employee Parties shall sell (for $.02 per share in cash), on
the Closing Date,
5
<PAGE> 6
229,109 of the Total Retained Shares. If the Cheung Release is obtained after
the EPS repurchase described in the preceding sentence, that EPS repurchase will
be rescinded.
(e) Nothing contained herein shall limit in any way the right of
EPS to enter into a release in substantially the form of Exhibit 4 hereto with
Nystrom and Law.
3.4 Further Assurances. Upon the reasonable request of a party or
parties hereto at any time after the date of this Agreement, the other party or
parties shall forthwith execute and deliver such further instruments of
assignment, transfer, conveyance, endorsement, direction or authorization and
other documents as the requesting party or parties or its or their counsel may
reasonably request in order to effectuate the transactions contemplated by this
Article 3 or the Separation Documents, or otherwise to effectuate the purposes
of this Agreement or the Separation Documents.
3.5 Representations. The Employee Parties represent and warrant to
the EPS Parties that they have not, (a) except for actions in the ordinary
course, consistent with past practice and reasonably believed to be in the best
interest of the EPS Parties, since October 6, 1999, taken any actions that would
bind any of the EPS Parties or their Affiliates to any legal or contractual
commitments or obligations that have not been fully performed or fulfilled; or
(b) at any time after the closing of the EPS consolidation on December 14, 1998
taken any actions that would bind any of the EPS Parties or their Affiliates to
any legal or contractual commitments or obligations to the Employee Parties or
any of their Affiliates (including without limitation Integrated Financial
Solutions).
4. CERTAIN AGREEMENTS.
4.1 Payments. If the Employee Parties are not in material breach
of their respective obligations set forth herein and in the Separation Documents
(which breach is not cured within 15 days after receipt by the Employee Parties
of written notice from EPS demanding cure), each of the Employees will receive
separation pay of $62,500 less gross payroll disbursements for the period from
November 1, 1999 through the date hereof (subject to appropriate income tax
withholding) (the "SEPARATION PAYMENT"). This Separation Payment will be paid in
accordance with the Company's regular schedule until the total is paid in full.
6
<PAGE> 7
4.2 Approval by Disinterested Directors.
(a) Concurrently with the execution and delivery of this
Agreement, the Employees have executed the forms of written consent attached
hereto as Exhibit 6 appointing Early Price Pritchett III and Michael G.
Goldstein to the Board of Directors of EPS and the Board of Directors of the
Company to fill two vacancies on each of those Boards of Directors. Messrs.
Pritchett and Goldstein (together with David Hoffmann, the "INDEPENDENT
DIRECTORS") are signing this Agreement solely for the purpose of making the
following representations to the Employee Parties:
(i) the Independent Directors have consulted with legal counsel
concerning their fiduciary duties with respect to the transactions contemplated
by this Agreement and the provisions of Section 144 of the Delaware General
Corporation Law (the "DGCL");
(ii) all of the Independent Directors have in good faith authorized
this Agreement and the consummation of the transactions contemplated by this
Agreement; and
(iii) None of the Independent Directors is receiving any personal
benefit from the transactions contemplated by this Agreement, other than
benefits that accrue to EPS Stockholders in general and any compensation or
other benefits accruing as a result of service on the boards of directors of EPS
and the Company.
(b) David Hoffmann, as a director, also makes to the Employee
Parties the representations listed in items (i), (ii) and (iii) above, and, in
his individual capacity, also represents and warrants to the Employee Parties
and the EPS Parties that the acquisition of the business of DHR International,
Inc. by EPS has been completed.
4.3 Reimbursement. EPS acknowledges that Massey and Watts advanced
funds on behalf of EPS ($100,000 for Massey and $100,000 for Watts) to finance
the payment to Deloitte & Touche LLP ("D&T") of interest accrued under
subordinated promissory notes payable by EPS to D&T (the "D&T NOTES"), even
though such payment was not due and payable under the terms of the D&T Notes at
the time it was paid. EPS will repay such advances to Massey and Watts at the
time and on the terms that the interest payment financed with the Massey and
Watts advances would otherwise have become payable pursuant to the D&T Notes,
including interest accrued thereon at the rate of 10% per annum from the date of
the advance through the date of repayment.
4.4 Compliance. Except as otherwise specifically provided in this
Agreement, each Employee will comply with the Confidential Information and
Employee Invention Agreement he entered into in connection with his employment
with the Company (except to the extent applicable to information relating to
NHRS in the event the "Assignment Date" occurs under the Rescission Agreement,
and to information relating to NRS, OGI and Medco in the event the "Closing
Date" occurs under the Asset Purchase Agreement), as well as his obligations
under his Subscription Agreements, Transaction Agreements, and Restricted Stock
Purchase Agreements (as modified by this Agreement ) that are not Released
Matters under Article 5, and each Employee Party will comply with the
Stockholder Agreement (subject to Section 4.13) he or it entered into in
connection with his ownership of the Total Shares. However,
7
<PAGE> 8
notwithstanding the foregoing, subject to the provisions of Sections 4.6 and
4.12(b) hereof, in the conduct of the Business, neither the Employee Parties nor
any of their Affiliates shall be bound by any covenants not to compete,
confidentiality agreements or non-solicitation agreements contained in any
agreement to which any EPS Party or any Affiliate of any EPS Party is a party,
but this provision will not affect covenants not to compete, confidentiality
agreements or non-solicitation agreements that would be applicable to activities
outside the scope (other than geographic scope) of the Business as conducted as
of the date hereof. For the purposes of the foregoing sentence, the term
"Business" shall mean the Business as defined in the Rescission Agreement and
the Medco Business, the NRS Business and the OGI Healthcare Business as those
terms are defined in the Asset Purchase Agreement, and the resale of
long-distance telephone service, and corporate travel and supplies procurement
services.
4.5 Corporate Governance.
(a) Each of the Employees hereby acknowledges that immediately
prior to the execution and delivery of this Agreement, he executed the forms of
written board and stockholder consents attached hereto as Exhibits 7 and 8,
approving as board members, and voting all proxies held by the Employees
pursuant to those certain Voting Agreements and Irrevocable Proxies between each
of the Employees and other stockholders of EPS (the "STOCKHOLDER VOTING
AGREEMENTS") in favor of, the adoption and filing of the Amended and Restated
Certificate of Incorporation attached to Exhibits 7 and 8.
(b) Concurrently with the execution of this Agreement, each of the
Employees has terminated all of the Stockholder Voting Agreements by executing
and delivering the Termination Agreement in the form attached hereto as Exhibit
9.
4.6 Conduct.
(a) No Employee Party shall, or shall permit his or its Affiliates
to, (i) act or purport to act on behalf of any of the EPS Parties or any of
their Affiliates, or (ii) represent himself or itself as an employee, officer,
director, agent, or representative of, or as being otherwise affiliated (other
than as may be specifically permitted by any written agreement referred to in
Section 4.10, or any other written agreement between any Employee Party and any
EPS Party including any participating consultant agreement) with, any EPS Party
in any capacity other than as a stockholder of EPS.
(b) No Employee Party shall, or shall permit his or its Affiliates
to, use as a company or trade name or any "dba" name or otherwise in commerce
"EPS" or "EPS Solutions" or "Enterprise Profit Solutions" or "ProfitSource" or
any other trade name of any EPS Party or its subsidiaries previously used or
currently in use, or any name confusingly similar with any of such names.
Without limiting the foregoing, no Employee Party shall, or shall permit his or
its Affiliates to, use any name that (i) includes more than one of the following
three words: Enterprise, Profit, Solutions; (ii) includes the word "solutions"
preceded by any sequence of letters; or (iii) includes any sequence of letters
including "EP" or "PS." The EPS Parties will not object to any use by the
Employee Parties or their Affiliates of, and the EPS Parties hereby convey to IM
Comet all right, title and interest in, the names "Integrated Healthcare
Solutions," "IHS," "Integrated Financial Solutions," "IFS" and "Integrated
Procurement Solutions."
8
<PAGE> 9
(c) Until the third anniversary of the Effective Date, the
Employee Parties will not, and will cause the Designee, their Affiliates and the
employees of each of them not to, (i) solicit for employment or retention any
person who is at the time of solicitation an employee of any of the EPS Parties
or any of their Affiliates (other than NHRS employees and persons listed on
Schedule B); or (ii) tortiously interfere with any relationship between any EPS
Party or an Affiliate of an EPS Party and any of its clients that was a client
or targeted client with whom EPS or any of its Affiliates were engaged in
substantive negotiations regarding the provision of services on the Effective
Date.
(d) Until the third anniversary of the Effective Date, the EPS
Parties will not, and will cause their Affiliates and the employees of each of
them not to, (i) solicit for employment or retention any person who is at the
time of solicitation an employee of any of the Employee Parties or any of their
Affiliates; or (ii) tortiously interfere with any relationship between any
Employee Party or an Affiliate of an Employee Party and any of its clients that
was a client or targeted client as of the Effective Date.
(e) Until the earlier of the completion of an underwritten initial
public offering of EPS common stock (the "IPO") or the third anniversary of the
Effective Date, if any of the Employee Parties or any of their Affiliates
(including without limitation the Designee) directly or indirectly, provides, or
owns an interest in any entity (other than an EPS Party and other than an
interest of 1% or less of a publicly traded entity) that provides, services in
the areas of executive search, relocation or performance learning/corporate
training, the EPS Parties may refuse to include in the IPO registration
statement any common stock owned by the Employee Parties or any of their
Affiliates, notwithstanding any agreements to the contrary.
4.7 Indemnity. Each of EPS and the Company agree to keep in full
force and effect and abide by the terms of those certain indemnification
agreements between EPS and each of the Employees and the Company and each of the
Employees, each dated as of July 1, 1999, as well as the indemnification
provisions of the Certificate of Incorporation and bylaws of EPS and the
Certificate of Incorporation and bylaws of the Company.
4.8 Office Space. The Employee Parties may use the office space of
the Company specified on Schedule D in exchange for the payment specified on
Schedule D. This payment will be paid by including such amount in the note
payable by IM Comet to EPS pursuant to the Asset Purchase Agreement. The
Employee Parties shall, and shall cause their Affiliates to, vacate all of the
Company's premises by January 31, 2000.
4.9 Insurance. For a period of six years from the Effective Date,
the EPS Parties shall use their best efforts (subject to prevailing insurance
market conditions and availability to the EPS Parties of coverage as
contemplated hereby on commercially reasonable terms) to maintain directors' and
officers' liability insurance covering the Employees and containing coverage and
terms and conditions that are within the scope of and in all material respects
no less advantageous than the coverage provided by the directors' and officers'
liability insurance in effect as of the Effective Date. The EPS Parties shall
notify the Employees promptly as soon as the EPS Parties have reason to believe
that the Employees will cease to be
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covered, and will notify the Employees promptly in the event the Employees have
ceased to be covered, by the foregoing insurance.
4.10 Alliance Agreement. The Company and each of the Employee
Parties agree to negotiate in good faith towards the execution and delivery,
within 30 days of the Effective Date or as soon thereafter as is practicable, of
a non-exclusive alliance agreement or similar arrangement between the parties
providing for fees to be paid in connection with the referral after the
Effective Date of services by each of the parties, provided, however, that after
the Effective Date the Employee Parties will not be required to refer business
to the EPS Parties or accept business referrals from the EPS Parties, and the
EPS Parties will not be required to refer business to the Employee Parties or
accept business referrals from the Employee Parties. If no such agreement has
been reached within 60 days of the Effective Date, the parties will have no
further obligation to negotiate such an agreement.
4.11 Implementation. Implementation and administration of this
Agreement shall be effected, to the extent possible, through interaction between
Massey on behalf of the Employee Parties and David Hoffmann (or his successor as
CEO of EPS) on behalf of the EPS Parties.
4.12 Certain Acquisitions.
(a) The EPS Parties, following consultation with their financial
advisors, have determined not to pursue the acquisition of Hi Mark Software,
Integrated Financial Solutions, AFMS or Jim Durkin & Associates, Inc. and
affiliated companies and the EPS Parties hereby consent to the acquisition of
any or all of those entities or their assets or businesses by the Employee
Parties or any designee or designees of the Employee Parties.
(b) Except for the companies listed in Section 4.12(a), prior to
June 30, 2000, the Employee Parties will not, and will not permit their
Affiliates to, (i) acquire or invest in any party that was under consideration
as an acquisition or strategic investment candidate by any EPS Party or any
Affiliate of an EPS Party before the Effective Date, or (ii) enter into any
relationship (except for client specific and task specific engagements) with JBA
Consulting, Schmidt-Long Associates, IAML, Neumann, Forward Mobility, or The
Meehan Group. In the event that EPS discontinues its negotiations with JBA
Consulting, Inc., EPS will promptly notify the Employee Parties and the Employee
Parties shall thereafter have the right to acquire JBA Consulting, Inc.
4.13 Stockholder Agreements.
(a) If any of the Employee Parties desires to sell or gift any
shares of Common Stock of EPS and provides to EPS the notice required under the
Stockholder Agreement, EPS will waive its right under the Stockholder Agreement
to purchase the shares proposed to be sold or gifted, if (i) after giving effect
to the sale or gift, the Employee Parties continue to own beneficially at least
3,400,000 shares of Common Stock of EPS in the aggregate, less any shares sold
or transferred upon foreclosure of a Permitted Pledge (as defined in Section
4.13(b) below); (ii) if the sale of the shares is not covered by an effective
registration statement under the Securities Act of 1933 (the "Act"), EPS
receives an opinion of counsel to the
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transferor of the shares in form and substance reasonably acceptable to EPS
regarding compliance with the Act or the applicability to the transfer of an
exemption thereunder; (iii) the proposed transferee of the shares is not, prior
to the transfer, a holder of EPS shares and is not a direct competitor of EPS or
any of its Affiliates; (iv) the transferee agrees in writing, in form reasonably
satisfactory to EPS, to be subject to the Stockholder Agreement and any lock-up
or standstill provisions applicable to the shares in the hands of the Employee
Parties and makes investor representations substantially similar to the investor
representations set forth in the agreement pursuant to which the shares were
acquired; and (v) the transferee receives no registration rights in connection
with the shares transferred, other than registration rights that are no greater
than the registration rights applicable to the shares in the hands of the
Employee Parties that do not result in an increase in the total number of shares
originally held by the Employee Parties or their Affiliates that may be included
in any registration.
(b) If any of the Employee Parties desires to pledge or otherwise
grant a security interest in or a lien upon any shares of Common Stock of EPS
and provides to EPS notice in accordance with the terms of the Stockholder
Agreement, EPS will waive its right under the Stockholder Agreement to purchase
the shares proposed to be pledged (including the right to purchase the shares
upon a foreclosure of the pledge and the sale of the shares in connection with
such foreclosure), if such pledge is made (i) to EPS or (ii) to secure loans
made by financial institutions for the purpose of funding the operations,
including acquisitions, of the businesses transferred to the Designee pursuant
to the provisions of Article 3 of this Agreement. Notwithstanding the provisions
of this Section 4.13(b), until such time as the promissory notes listed on
Schedule E (the "TRANSACTION NOTES") have been paid in full, at least 2,000,000
shares of EPS Common Stock beneficially owned by the Employee Parties shall be
pledged to EPS on a first priority basis (which pledged shares shall be released
on a pro rata basis with partial payments of the Transaction Notes in the event
the Transaction Notes are not fully paid off by offset in one lump sum in
accordance with their terms due to the refusal of EPS's lenders to allow the
offset).
(c) The Employee Parties shall jointly and severally indemnify,
defend and hold harmless the Company Released Parties (as defined in Section 5)
from and against all claims, liabilities, damages, and other costs and expenses
(including without limitation reasonable attorneys' fees and costs) arising as a
result of or in connection with the transfer by any Employee Party of any Common
Stock of EPS as contemplated by this Section 4.13, or any representations,
warranties, covenants and/or promises made by any Employee Party to the
transferee of any Common Stock of EPS transferred by any Employee Party.
However, notwithstanding the foregoing, the Employee parties will not be
obligated to provide indemnity pursuant to this Section 4.13 to the extent that
any subject claims, liabilities, damages, and other costs and expenses arise as
a result of misrepresentations or breaches of law, regulation or contract by
EPS. Except as specifically provided for above, this Section 4.13 does not
constitute a waiver by EPS of, and will not obligate EPS to waive, the rights of
EPS to purchase shares pursuant to the Stockholder Agreement or any other
written agreement.
4.14 IFS. No EPS Party owns any capital stock in Integrated
Financial Solutions ("IFS"), and the EPS Parties hereby quitclaim to the
Employee Parties any rights the EPS Parties may have to any equity interests in
IFS.
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4.15 Offset.(a) Each EPS Party may (i) satisfy any payment
obligations to any Employee Party by offset reduction of any amount that any EPS
Party or any Affiliate of any EPS Party is entitled to receive from any Employee
Party or any Affiliate of any Employee Party; or (ii) receive payment of any
obligation payable by any Employee Party by offset reduction of any amount that
any EPS Party or any Affiliate of any EPS Party is obligated to pay to any
Employee Party or any Affiliate of any Employee Party; provided, however, that
no offset of the IM Comet Sub Notes (as defined in Section 4.18 below) may occur
prior to January 5, 2000. Concurrently with the execution of this Agreement,
each of the Employee Parties holding promissory notes previously issued by EPS
shall exchange such promissory notes for replacement promissory notes that
contain a legend with respect to the offset reduction contained in this Section
4.15(a).
(b) Each Employee Party may (i) satisfy any payment obligations to
any EPS Party by offset reduction of any amount that any Employee Party or any
Affiliate of any Employee Party is entitled to receive from any EPS Party or any
Affiliate of any EPS Party; or (ii) receive payment of any obligation payable by
any EPS Party by offset reduction of any amount that any Employee Party or any
Affiliate of any Employee Party is obligated to pay to any EPS Party or any
Affiliate of any EPS Party.
4.16 Issuance of "Arbitrage Shares". Without the approval of a
majority of the members of the Board of Directors of EPS other than David
Hoffmann, EPS will not enter into any acquisition transaction or any other
transaction that would entitle any current or former employee of EPS or of any
Affiliate of EPS to receive so-called "arbitrage shares" within the meaning of
that term as it has been used by EPS in connection with prior acquisitions,
provided that this restriction will not limit receipt or retention by David
Ehlen of any shares.
4.17 EPS Foundation. Massey shall (i) concurrently with the
execution of this Agreement, resign from his position as a member of the board
of directors of the EPS Solutions Foundation (the "FOUNDATION BOARD") and from
all other positions associated with the EPS Solutions Foundation, (ii) within 30
days following the date of execution of this Agreement, cause the other members
of the Foundation Board to resign from each of their director positions on the
Foundation Board, and (iii) cause the Foundation Board prior to such
resignations to appoint Mark Coleman and certain other individuals to the
Foundation Board as designated by EPS in a manner consistent with the charter
and bylaws of EPS Solutions Foundation, all of which such actions shall be taken
pursuant to the form of resolutions attached hereto as Exhibit 10. Massey
represents that, as of the date hereof, the EPS Solutions Foundation holds
approximately $915,000 in cash (the "FOUNDATION PROPERTY") and that the EPS
Solutions Foundation has not made any commitments to gift or otherwise transfer
the Foundation Property except for commitments made prior to the date of
execution of this Agreement to contribute an aggregate of $414,154 to the
organizations and in the respective amounts set forth in Schedule F hereto (the
"PRIOR COMMITMENTS"). EPS agrees that (i) it will cause the Foundation to fund
the Prior Commitments to the organizations and in the respective amounts set
forth in Schedule F hereof, and (ii) it shall not directly or indirectly
(through its designees or otherwise) take any action to cause the EPS Solutions
Foundation to divert the Foundation Property from charitable or educational
works and causes.
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4.18 Right to Make Certain Transfers. (a) Subject to obtaining any
necessary bank consents, EPS agrees that IM Comet may, on not less than two
business days' notice to EPS, (i) transfer to IM Investments and/or Comet
Capital any portion of the Total Retained Shares held by IM Comet and (ii)
transfer to IM Investments and/or Comet Capital the $18.276 million principal
amount subordinated note payable to IM Comet by EPS (the "IM COMET SUB NOTE")
provided that each such transferee delivers to EPS, concurrently with any such
transfer, guaranties and stock pledge agreements in substantially the forms
entered into by IM Comet in connection with the transactions contemplated hereby
and agrees in writing to hold the transferred securities subject to the same
restrictions as are applicable to the securities in the hands of the transferor.
(b) Subject to obtaining any necessary bank consents, IM
Comet hereby consents to the transfer of (i) the Note (as defined in the Asset
Purchase Agreement) from the Company to EPS or (ii) a portion of the IM Comet
Sub Note in the amount of the Note from EPS to the Company.
5. RELEASE. Each Employee Party, on behalf of himself or itself and his
or its successors and assigns, hereby forever releases, discharges and acquits
EPS, the Company, their Affiliates, and their respective members, partners,
principals, shareholders, directors, officers, agents, employees, attorneys and
representatives, and the successors and assigns of each of them ("COMPANY
RELEASED PARTIES"), and each EPS Party, on behalf of itself and its subsidiaries
and their respective successors and assigns, hereby forever releases, discharges
and acquits each of the Employee Parties and their respective members, partners,
principals, shareholders, directors, officers, agents, employees, attorneys and
representatives, and the successors and assigns of each of them ("EMPLOYEE
RELEASED PARTIES"), from any and all charges, complaints, claims, demands,
obligations, promises, agreements, damages, actions, causes of action, suits,
rights, costs, losses, debts, expenses (including without limitation attorneys'
fees and costs), liabilities, and indebtedness, of every type, kind, nature,
description or character, whether known or unknown, suspected or unsuspected,
liquidated or unliquidated arising from, under or related to (A) the employment
of each Employee by the Company or its Affiliates; (B) the termination of that
employment; (C) each Employee's actions as a director, officer, employee or
representative of the Company and its Affiliates; (D) the resignation of each
Employee as a director or officer of the Company and its Affiliates; (E) any
securities of the Company or EPS or any of their Affiliates or rights thereto
other than the Total Retained Shares of each of the Employee Parties; (F) the
status of each Employee as a stockholder of EPS, or any claims arising or
accruing as a result of that status, on or before the Effective Date; and (G)
any other event, act or omission arising on or before the Effective Date (the
"RELEASED MATTERS"). Without limiting the foregoing, the Released Matters
include any claim of fraud in the inducement, defamation, or emotional distress.
Each Employee Party and each EPS Party specifically agrees that it or he will
not claim, and has waived any right to claim, that it or he was under duress in
connection with the review, negotiation, execution and delivery of this
Agreement. However, notwithstanding the foregoing, the Released Matters shall
not include (i) any claims arising under this Agreement or any Separation
Document, (ii) any obligations under the Stockholder Agreement (subject to
Section 4.13), (iii) any obligations under the Transaction Agreements or
Subscription Agreements that, by their nature, were to be performed after the
closing of the transactions contemplated thereby and that are not inconsistent
with the provisions of or
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transactions contemplated by this Agreement or the Separation Documents, and
(iv) any claims under promissory notes as contemplated by the Separation
Documents.
Each Employee Party and each EPS Party acknowledges and agrees that his or
its releases made in this Agreement constitute final and complete releases of
the Company Released Parties and the Employee Released Parties, respectively,
with respect to all Released Matters, and that by signing this Agreement, the
Employee Party or EPS Party is forever giving up the right to sue or attempt to
recover money, damages or any other relief from the Company Released Parties or
the Employee Released Parties, respectively, for all claims he or it has or may
have with respect to the Released Matters (even if any such claim is unforeseen
as of the date hereof).
Each Employee Party and each EPS Party represents and warrants that such
Employee Party and such EPS Party understands California Civil Code Section
1542, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Each Employee Party and each EPS Party, being aware of Section 1542, hereby
expressly waives any and all rights he or it may have thereunder as well as
under any other statute or common law principles of similar effect under the
laws of any state or the United States. This Agreement shall act as a release of
all future claims that may arise from the Released Matters, whether such claims
are currently known or unknown, foreseen or unforeseen including, without
limitation, any claims for damages incurred at any time after the date of this
Agreement resulting from the acts or omissions which occurred on or before the
date of this Agreement.
Thus, notwithstanding the provisions of Section 1542, and for the purpose
of implementing a full and complete release and discharge of the Company
Released Parties and Employee Released Parties, each Employee Party and each EPS
Party expressly acknowledges that this Agreement is intended to include in its
effect, without limitation, all Released Matters which he or it does not know or
suspect to exist in his or its favor at the time of execution hereof, and that
this Agreement contemplates the extinguishment of all such Released Matters.
The foregoing release includes any and all claims, rights and/or remedies
arising under the Age Discrimination in Employment Act and the Older Workers
Benefit Protection Act. Each of the Employees acknowledges that he and his
attorneys specifically waived any right he may have under law to consider this
Agreement before entering into it or to revoke it after he enters into it.
6. NO CLAIMS.
6.1 Employee Party Claims. Each Employee Party represents and
warrants that such Employee Party has not instituted any complaints, charges,
lawsuits or other proceedings against any Company Released Parties with any
governmental agency, court, arbitration agency or tribunal. Each Employee Party
further agrees that he or it will not, directly
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or indirectly, except as may be required by applicable law, (i) file, bring,
cause to be brought, join or participate in, or provide any assistance in
connection with, any complaint, charge, lawsuit or other proceeding or action
against any Company Released Parties at any time hereafter for any Released
Matters, (ii) assist, encourage, or support employees or former employees or
stockholders or former stockholders of the Company, EPS or any of their
Affiliates in connection with any lawsuit, charge, claim or action they may
initiate against any Company Released Party, unless compelled to testify by
appropriate civil processes, or (iii) defend any action, proceeding or suit in
whole or in part on the grounds that any or all of the terms or provisions of
this Agreement are illegal, invalid, not binding, unenforceable or against
public policy. If any agency or court assumes jurisdiction of any complaint,
charge, or lawsuit against the Company or any Company Released Party, on any
Employee Party's behalf, such Employee Party agrees to immediately notify such
agency or court, in writing, of the existence of this Agreement, including
providing a copy of it and to request, in writing, that such agency or court
dismiss the matter with prejudice.
6.2 EPS Party Claims. Each EPS Party represents and warrants that
neither such EPS Party nor any subsidiary of such EPS Party has instituted any
complaints, charges, lawsuits or other proceedings against any Employee Released
Parties with any governmental agency, court, arbitration agency or tribunal.
Each EPS Party on behalf of itself and all of its subsidiaries further agrees
that he or it will not, directly or indirectly, except as may be required by
applicable law, (i) file, bring, cause to be brought, join or participate in, or
provide any assistance in connection with, any complaint, charge, lawsuit or
other proceeding or action against any Employee Released Parties at any time
hereafter for any Released Matters, (ii) assist, encourage, or support employees
or former employees or stockholders or former stockholders of the Company, EPS,
the Employee Parties or any of their Affiliates in connection with any lawsuit,
charge, claim or action they may initiate against any Employee Released Parties,
unless compelled to testify by appropriate civil processes, or (iii) defend any
action, proceeding or suit in whole or in part on the grounds that any or all of
the terms or provisions of this Agreement are illegal, invalid, not binding,
unenforceable or against public policy. If any agency or court assumes
jurisdiction of any complaint, charge, or lawsuit against any Employee Released
Party, on any EPS Party's behalf or on behalf of any subsidiary of an EPS Party,
such EPS Party agrees to immediately notify such agency or court, in writing, of
the existence of this Agreement, including providing a copy of it and to
request, in writing, that such agency or court dismiss the matter with
prejudice.
7. OTHER PERQUISITES AND BENEFITS. Each Employee acknowledges that all
other perquisites and employee benefits and each Employee's participation in all
other employee benefit programs of the Company which are not described herein
are terminated as of the date hereof (except that Erik R. Watts shall be allowed
to participate in EPS's health plan in accordance with the terms of Section
4.2(b)(iii) of the Rescission Agreement).
8. WITHHOLDING AND TAXES. All consideration provided by the Company or
EPS hereunder shall be subject to any and all applicable withholdings for any
related federal, state or local law or regulation. No EPS Party makes any
representations to any Employee Party and no Employee Party makes any
representations to any EPS Party regarding the tax consequences to the Employee
Party or the EPS Party, respectively, of any of the matters contemplated by this
Agreement, the Separation Documents or the Transaction Agreements or the
ownership of or
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rights associated with the Total Retained Shares. Each Employee Party shall be
responsible for, and hold the Company, EPS and their Affiliates harmless from,
any and all income taxes and other taxes incurred by him or it as a result of
any of the matters contemplated by or transactions provided for in this
Agreement, the Separation Documents or any of the Transaction Agreements
(whatever its nature or kind), and his or its ownership of or rights associated
with his Total Retained Shares.
9. COMPANY PROPERTY. The privileges of each Employee under all Company
credit cards are terminated as of the date hereof, and each Employee represents
that he has returned all such credit cards. Upon execution of this Agreement,
each Employee will return to the Company all property of the Company pursuant to
the Employee's Confidential Information and Employee Invention Agreement,
including without limitation keys (other than keys required for entrance to the
office space occupied by the Employee Parties as provided in Section 4.8)
parking card (unless the parking fee is paid by the Employee), documents, books,
records, reports, contracts, lists, computer disks (or other computer-generated
files or data), or copies thereof, created on any medium, prepared or obtained
by him or the Company in the course of or incident to his employment with or
engagement by the Company, other than any of the foregoing relating to NHRS or
to the assets or businesses acquired by the Designee pursuant to the Asset
Purchase Agreement. Any other information stored in the computer used by each
Employee may be saved or discarded by the Company as it deems appropriate at any
time after November 30, 1999.
10. CONFIDENTIALITY; NON-DISPARAGEMENT.
10.1 Confidentiality. Except as otherwise required by applicable
law or regulation, the Employee Parties and the EPS Parties and their Affiliates
and the directors and officers of the Company and EPS will keep the terms of
this Agreement and the Separation Agreement strictly confidential and not
disclose the terms thereof to anyone other than advisors who need to know their
contents to discharge their duties to an Employee Party or the Company or EPS,
as the case may be, provided that the EPS Parties may disclose the terms of this
Agreement and the Separation Documents to officers of the EPS Parties and
managers of the Company's business units.
10.2 Non-Disparagement. Each Employee Party will not make to any
third party any disparaging or otherwise negative comments of any kind about any
Company Released Parties and the EPS Parties will not make to any third party
any disparaging or otherwise negative comments of any kind about any of the
Employee Released Parties. However, this Section 10.2 will not limit or prohibit
truthful testimony in any dispute resolution proceeding.
10.3 Public Statements. Except as otherwise required by applicable
law or regulation, no EPS Party will make any statement about any Employee
Released Party to the press or in any other public forum without the prior
written consent of the subject Employee Released Party, and no Employee Party
will make any statement about any Company Released Party to the press or in any
other public forum without the prior written consent of the subject Company
Released Party. Notwithstanding the foregoing, however, public statements by any
Employee Party or EPS Party that are entirely consistent with Schedule G may be
made publicly without further consent.
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10.4 Inquiries. All requests for references regarding any of the
Employees by future employers shall be directed to Mark Coleman.
11. ADVICE OF COUNSEL. Each Employee Party represents and agrees that
such Employee Party has discussed this Agreement with such Employee Party's
private attorney, that such Employee Party has participated fully in the
drafting of this Agreement, and that such Employee Party has carefully read and
fully understands all the provisions of this Agreement, that such Employee Party
understands its final and binding effect, that such Employee Party is competent
to sign this Agreement, and that such Employee Party is voluntarily entering
into this Agreement.
12. ACKNOWLEDGMENT. Each Employee Party represents and agrees that in
executing this Agreement such Employee Party relies solely upon such Employee
Party's own judgment, belief and knowledge, and the advice and recommendations
of his or its independently selected counsel, concerning the nature, extent and
duration of such Employee's rights and claims. Each Employee Party acknowledges
that no other individual has made any promise, representation or warranty,
express or implied, not contained in this Agreement or the Separation Documents,
to induce such Employee Party to execute this Agreement and the Separation
Documents. Each Employee Party further acknowledges that he or it is not
executing this Agreement and the Separation Documents in reliance on any
promise, representation, or warranty not contained in this Agreement or the
Separation Documents and that all previous discussions are now merged into this
Agreement and the Separation Documents. The parties acknowledge that there have
been discussions between Denny Nystrom and Debra Law, and/or persons on their
behalf, and the Employees, and/or persons on their behalf, regarding their
future relationship, including as it relates to NHRS and any direct or indirect
ownership interests therein, and that these discussions are not being conducted
in any such party's capacity as an officer or agent of the Company, that any
promises made by any party in such discussions are not binding upon the Company
or any of its Affiliates, and that such discussions are not an inducement to
entering into this Agreement or the Separation Documents.
13. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the EPS Parties and the Employee Parties and
their respective successors and assigns, and in the case of the Employees, their
heirs, executors and administrators.
14. REMEDIES. Each of the parties acknowledges and agrees that the legal
remedies available to it in the event any party violates or breaches any of the
provisions of Article 2, Article 3, Sections 4.1, 4.3, 4.4, 4.6, 4.7, 4.12,
4.13, 4.14, 4.15, 4.16, 4.17, and 4.18, Article 6, Article 10 and Article 15 of
this Agreement would be inadequate and that the EPS Parties (if the breach is by
any Employee Party) or the Employee Parties (if the breach is by any EPS Party)
shall be entitled to institute and prosecute proceedings in accordance with
Section 16 to enjoin such breaching party from violating any of such provisions
and to enforce the specific performance by such breaching party of any of such
provisions, but nothing herein contained shall be construed to prevent such
remedy or combination of remedies as the non-breaching party may elect to
invoke. All applicable actions may be taken by such non-breaching party without
bond and without prejudice to any other rights and remedies available for a
breach of this Agreement. The failure of any party to promptly institute legal
action upon any breach of this Agreement shall not constitute a waiver of that
or any other breach hereof.
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15. DISPUTES.
15.1 Reference. Except as otherwise specifically provided herein,
any controversy or dispute between any of the Employee Parties and any of the
EPS Parties involving the construction, interpretation, application or
performance of the terms, covenants or conditions of this Agreement or in any
way arising under or relating to this Agreement shall, on demand of any of the
parties by written notice hereto served on the others in the manner prescribed
in Section 20 hereof, be determined pursuant to the general reference provisions
of California Code of Civil Procedure ("CCP") Section 638(1), et seq., by a
retired or former judge of the Superior Court for the County of Orange, State of
California. The parties intend this general reference provision to be
specifically enforceable in accordance with said Section 638(1).
15.2 Commencement. The reference may be commenced by any party
hereto by the filing in the Superior Court of the State of California for the
County of Orange of a petition or a motion for a general reference. The petition
and any opposition or response thereto shall recite in a clear and meaningful
manner the factual basis of the controversy between the parties and identify the
issues to be submitted to the referee for decision.
15.3 Referee. The petition or motion shall designate as a sole
referee a retired judge from the Orange County, California, Judicial Arbitration
& Mediation Services ("JAMS") panel acceptable to that party (the "REFEREE"). If
the parties to the reference proceeding are unable to agree upon a Referee, the
Presiding Judge or any judge of the Orange County Superior Court to whom the
matter is assigned shall appoint a retired or former Orange County Superior
Court Judge from the JAMS panel as the Referee.
15.4 Specific Enforcement. The parties acknowledge that the terms
of this Section 15 are specifically enforceable and that the decision by the
Referee is tantamount to a judgment by a trial court (CCP Section 644) and is
subject to review in accordance with CCP Section 645, and that any judgment
rendered in the trial court is appealable in the same manner as any other trial
court judgment.
16. SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for injunctive relief or matters (if any) not
subject to general reference, shall be tried and litigated exclusively in the
state or federal courts located in the County of Orange, State of California.
The aforementioned choice of venue is intended by the parties to be mandatory
and not permissive in nature, thereby precluding the possibility of litigation
between the parties with respect to or arising out of his Agreement in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph , and stipulates that the state and federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 20. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
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17. SEVERABILITY. If any provision of this Agreement is found, held,
declared, determined, or deemed by any court of competent jurisdiction to be
void, illegal, invalid or unenforceable in that jurisdiction under any
applicable statute or controlling law, the illegal, invalid, or unenforceable
provision will be deemed not to be a part of the Agreement in that jurisdiction
unless without such provision, the purposes and intent of this Agreement cannot
fairly be carried out, and the legality, validity, and enforceability in that
jurisdiction of the remaining provisions and the legality, validity and
enforceability of this entire Agreement in other jurisdictions will not be
affected. In the event the Rescission Agreement or the Asset Purchase Agreement
and the transactions contemplated thereby are not consummated or such agreements
terminate pursuant to their terms, the provisions of this Agreement (other than
Article 3) shall nonetheless survive and shall remain in full force and effect.
18. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts of laws principles.
19. ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement and the
Separation Documents contain the entire agreement and understanding between the
parties hereto regarding the matters set forth herein and replace all prior
agreements, arrangements and understandings, written or oral, regarding the
matters set forth herein. Neither the Employee Parties nor the EPS Parties shall
be bound or liable for any representation, promise or inducement not contained
in either this Agreement or the Separation Documents. This Agreement cannot be
amended, modified, supplemented, or altered, except by written amendment or
supplement signed by the Employee Parties and the EPS Parties. No delay or
omission on the part of any party in exercising its rights under this Agreement
or any Separation Documents shall operate as a waiver of such right or any other
right. A waiver on one occasion shall not be construed as a bar to, or a waiver
of, that right or any other right or remedy on a future occasion.
20. NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed given upon personal
delivery or three (3) business days after being mailed by certified or
registered mail, postage prepaid, return receipt requested, or one (1) business
day after being sent via a nationally recognized overnight courier service if
overnight courier service is requested from such service or upon receipt of
electronic or other confirmation of transmission if sent via facsimile to the
parties, their successors in interest or their assignees. Notices to any of the
EPS Parties will be sent to the Company's headquarters, attention General
Counsel, and notices to any of the Employee Parties will be sent to the address
set forth with his or its signature below, or at such other addresses or
telephone numbers as the parties may designate by written notice in accordance
with this Section 20.
21. HEADINGS; COUNTERPARTS. The headings contained in this Agreement are
for reference purposes only and do not affect the meaning hereof. Facsimile
transmission of any signed original document and/or retransmission of any signed
facsimile transmission will be deemed the same as delivery of an original. At
the request of any party, the parties will confirm facsimile transmission by
signing a duplicate original document. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same instrument.
19
<PAGE> 20
22. INTENDED THIRD PARTY BENEFICIARIES. The Company Released Parties and
the Employee Released Parties are intended third party beneficiaries of Section
5 of this Agreement and shall be entitled to enforce the provisions of Section 5
as if they were parties to this Agreement.
23. EXPENSES. All fees, costs and expenses incurred by the parties in
connection with the transactions contemplated by this Agreement and the
Separation Documents will be borne by the party incurring such expenses.
24. ATTORNEYS' FEES. If any EPS Party, or any Affiliate, successor or
assign of an EPS Party brings any action, suit, counterclaim, cross-claim,
appeal, arbitration, or mediation for any relief against any Employee Party or
any Affiliate, successor or assign of an Employee Party or if any Employee Party
or any Affiliate, successor or assign of an Employee Party brings any action,
suit, counterclaim, cross-claim, appeal, arbitration, or mediation for any
relief against any EPS Party, or any Affiliate, successor or assign of an EPS
Party, declaratory or otherwise, to enforce the terms hereof or to declare
rights hereunder (collectively, an "ACTION"), in addition to any damages and
costs which the prevailing party otherwise would be entitled, the non-prevailing
party shall pay to the prevailing party a reasonable sum for attorneys' fees and
costs (at the prevailing party's attorneys' then-prevailing rates) incurred in
bringing and prosecuting such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party. Any dispute with respect to
the existence or identity of the prevailing party shall be resolved by the
Referee.
25. SIGNATORIES. The persons executing this Agreement on behalf of the
EPS Parties and the Employee Parties represent and warrant that they have read
and approved this Agreement and are knowledgeable about the underlying facts.
[Signature page follows.]
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<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EPS SOLUTIONS CORPORATION
By: /s/ DAVID H. HOFFMANN
----------------------------------
Name: David H. Hoffmann
--------------------------------
Title: CEO
-------------------------------
By: /s/ MARK C. COLEMAN
----------------------------------
Name: Mark C. Coleman
--------------------------------
Title: EVP/CFO
-------------------------------
ENTERPRISE PROFIT SOLUTIONS
CORPORATION
By: /s/ DAVID H. HOFFMANN
----------------------------------
Name: David H. Hoffmann
--------------------------------
Title: CEO
-------------------------------
By: /s/ MARK C. COLEMAN
----------------------------------
Name: Mark C. Coleman
--------------------------------
Title: EVP/CFO
-------------------------------
S-1
<PAGE> 22
/s/ CHRISTOPHER P. MASSEY
-------------------------------------
Christopher P. Massey
Address:
-----------------------------
-------------------------------------
/s/ ERIK R. WATTS
-------------------------------------
Erik R. Watts
Address:
-----------------------------
-------------------------------------
IM COMET LLC
COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK R. WATTS
----------------------------------
Erik R. Watts
Title:
-------------------------------
Address:
-----------------------------
-------------------------------------
1758 PRIMARY PROPERTIES, LIMITED
PARTNERSHIP
By: /s/ ERIK R. WATTS
----------------------------------
Erik R. Watts
Title:
-------------------------------
Address:
-----------------------------
1910 PROPERTIES, LTD.
By: /s/ ERIK R. WATTS
----------------------------------
Erik R. Watts
Title:
-------------------------------
Address:
-----------------------------
S-2
<PAGE> 23
The following parties are signing this Agreement solely for the purposes
specified in Section 4.2(a) of this Agreement:
/s/ DAVID H. HOFFMAN
- ------------------------------
David H. Hoffmann
/s/ MICHAEL G. GOLDSTEIN
- ------------------------------
Michael G. Goldstein
/s/ EARLY PRICE PRITCHETT III
- ------------------------------
Early Price Pritchett III
S-3
<PAGE> 1
EXHIBIT 10.43
ASSET PURCHASE AGREEMENT
BY AND AMONG
IM COMET, LLC
"BUYER"
AND
ENTERPRISE PROFIT SOLUTIONS CORPORATION
"SELLER"
AND
EPS SOLUTIONS CORPORATION
DATED AS OF
DECEMBER 23, 1999
EXECUTION COPY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TAB
<S> <C>
1. SALE AND TRANSFER OF ASSETS ............................................. 1
1.1 Assets ............................................................. 1
1.2 Assumed Liabilities ................................................ 2
1.3 Closing ............................................................ 2
1.4 Purchase Price ..................................................... 2
1.5 Allocation of Purchase Price ....................................... 2
2. REPRESENTATIONS AND WARRANTIES OF SELLER ................................ 3
2.1 Organization and Corporate Authority ............................... 3
2.2 Acquired Assets .................................................... 3
3. REPRESENTATIONS AND WARRANTIES OF BUYER ................................. 4
3.1 Organization and Corporate Authority ............................... 4
3.2 Operation of Business .............................................. 4
4.1 Taxes .............................................................. 4
4.2 Employment ......................................................... 4
4.3 Transition of the Business ......................................... 6
4.4 Seller and EPSCovenants ............................................ 6
4.5 Disclaimer ......................................................... 7
4.6 Merck Medco Managed Care Settlement Agreement ...................... 8
4.7 Contracts, leases or Other Agreements Constituting An Acquired Asset 8
4.8 [Reserved.] ........................................................ 9
4.9 Assistance in Asserting Third Party Acquisition Claims ............. 9
4.10 Liens Release; Interim Operations ................................. 9
4.11 Leases and Licenses ............................................... 10
4.12 Further Assurances ................................................ 10
5. SURVIVAL; INDEMNIFICATION ............................................... 10
5.1 Survival ........................................................... 10
5.2 Indemnification by Buyer ........................................... 10
5.3 Indemnification by Seller .......................................... 11
5.4 Indemnification Procedure .......................................... 11
5.5 Payment ............................................................ 13
6. MISCELLANEOUS ........................................................... 13
6.1 Notices ............................................................ 14
6.2 Assignability and Parties in Interest .............................. 14
6.3 Governing Law ...................................................... 14
6.4 Counterparts ....................................................... 14
6.5 Complete Agreement ................................................. 14
6.6 Modifications, Amendments and Waivers .............................. 14
6.7 Headings; References ............................................... 14
6.8 Severability ....................................................... 15
6.9 Expenses of Transactions ........................................... 15
6.10 Disputes .......................................................... 15
6.11 Remedies .......................................................... 16
6.12 Submission to Jurisdiction ........................................ 16
6.13 Attorneys' Fees ................................................... 16
</TABLE>
i
<PAGE> 3
6.14 Intended Third Party Beneficiaries .................................... 17
ii
<PAGE> 4
EXHIBITS
A. Form of Bill of Sale
B. Form of Assignment and Assumption Agreement
C. Form of Note
D. Stock Pledge Agreement
SCHEDULES
1.1(a) Acquired Assets
Annex A-1 - Medco Trial Balance Sheet Annex A-2 - NRS Trial
Balance Sheet Annex A-3 - OGI Trial Balance Sheet Annex A-4 -
EPS Travel Solutions Trial Balance Sheet Annex B - - NRS
Computer Software and Hardware Annex C - - Telecom Receivables
Annex D - - Other Assets Annex E - - Contracts
1.1(b) Excluded Assets
1.2 Assumed Liabilities
1.5 Allocation of Purchase Price
4.2 Employees
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of
December 23, 1999 by and among Enterprise Profit Solutions Corporation, a
Delaware corporation ("SELLER"), EPS Solutions Corporation (f.k.a. ProfitSource
Corporation), a Delaware corporation and parent of Seller ("EPS"), and IM Comet
LLC, a Nevada limited liability company ("BUYER").
A. Through its healthcare division Seller operates the healthcare
related business (the "MEDCO BUSINESS") acquired by EPS pursuant to that certain
Asset Purchase Agreement by and among eps, Medco Review, Inc., a Florida
corporation, International Cost Containment Network, Inc. (d.b.a. Medco Value
Plus), a Florida corporation ("ICCN"), Tammy SeRine-Richardson, Lance A. SeRine
and Dennis W. Reineke, dated November 23, 1998 (the "MEDCO ASSET PURCHASE
AGREEMENT"), the healthcare cost recovery business (the "NRS BUSINESS") acquired
by EPS pursuant to that certain Securities Purchase Agreement dated as of
December 7, 1998 among National Recovery Services, LLC, its members and EPS and
related option acquisition agreements (the "NRS ACQUISITION AGREEMENT"), and the
healthcare claims payment audit and recovery portion of the business acquired by
EPS pursuant to that certain Asset Purchase Agreement (the "OXXFORD GROUP ASSET
PURCHASE AGREEMENT") by and among EPS, Oxxford Group, Inc., a Delaware
corporation and Moses K. Cheung, dated November 18, 1998 (the "OGI HEALTHCARE
BUSINESS" and collectively with the Medco Business and the NRS Business, the
"BUSINESS").
B. Concurrent herewith, Seller, EPS, 1758 Primary Properties, Limited
Partnership, 1910 Properties, Ltd., Buyer, Chris Massey and Erik Watts (Massey
and Watts being referred to herein as the "MEMBERS") are entering into a
Settlement Agreement (the "SETTLEMENT AGREEMENT").
C. It is a condition to the Settlement Agreement that the parties enter
into this Agreement.
D. Seller and EPS desire to sell and assign to Buyer, and Buyer desires
to purchase and assume from Seller, certain assets, rights and obligations of
Seller on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER OF ASSETS.
1.1 ASSETS.
(a) Acquired Assets. Pursuant to the terms and conditions set forth
herein, on the Closing Date (as defined below) Seller and EPS shall execute and
deliver to Buyer a Bill of Sale
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substantially in the form of Exhibit A (the "BILL OF SALE"), and pursuant to the
Bill of Sale shall convey, transfer, assign, sell and deliver to Buyer, and
Buyer shall acquire, accept and purchase, all of Seller's and EPS's right, title
and interest in and to the assets, properties and rights of Seller listed on
Schedule 1.1(a) (the "ACQUIRED ASSETS"). Legal title and the risk of loss with
respect to the Acquired Assets shall pass to Buyer from and after the Closing
Date.
(b) Excluded Assets. Notwithstanding anything contained in Section
1.1(a) to the contrary, the Acquired Assets do not include the assets listed on
Schedule 1.1(b) (the "EXCLUDED ASSETS"), all of which shall be retained by
Seller.
1.2 ASSUMED LIABILITIES. Pursuant to the terms and conditions set forth
herein, effective as of the Closing Date Buyer shall assume those certain
liabilities and obligations of Seller identified on Schedule 1.2 (the "ASSUMED
LIABILITIES") pursuant to an Assignment and Assumption Agreement substantially
in the form of Exhibit B (the "ASSUMPTION AGREEMENT"), which will be executed
and delivered by Buyer concurrently with this Agreement, but not effective until
the Bill of Sale is executed and delivered. Buyer will be entitled to revoke the
Assumption Agreement only before the Lien Release Date and only (i) if Buyer is
not in material breach of this Agreement or the Settlement Agreement or any
Separation Document (as defined in the Settlement Agreement) referred to therein
and Seller or EPS breaches this Agreement or the Settlement Agreement or any
Separation Document referred to therein in any material respect and fails to
cure such breach within 15 days of receipt of notice from Buyer demanding cure
or (ii) pursuant to Section 4.10 hereof. In the event of the revocation of the
Assumption Agreement or the termination of this Agreement as provided in Section
4.10 hereof, all obligations of the parties hereunder shall terminate.
1.3 CLOSING. The closing of the transfer of the Acquired Assets to Buyer
and Buyer's assumption of the Assumed Liabilities (the "CLOSING") will take
place on a date specified by Seller as soon as practicable after the date on
which Seller obtains the Bank Release (as defined in Section 4.10) and with at
least two business days prior written notice to Buyer (the date of the Closing
being referred to herein as the "CLOSING DATE"). On the Closing Date Buyer shall
deliver to EPS a Stock Pledge Agreement in the form of Exhibit D hereto securing
the payment and performance of the Note (as defined in Section 1.4 below).
1.4 PURCHASE PRICE. At the Closing and concurrently with Seller's
delivery of the Bill of Sale pursuant to Section 1.1(a), Buyer shall deliver to
Seller a promissory note of Buyer in the form of Exhibit C in the principal
amount of $2,693,000, as adjusted pursuant to Sections 4.10 and 4.11 hereof and
Section 4.8 of the Settlement Agreement (the "NOTE"). The Note and the
assumption by Buyer of the Assumed Liabilities constitute the "PURCHASE PRICE"
for the Acquired Assets.
1.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price will be allocated
for tax purposes (the "ALLOCATION") in the manner set forth on Schedule 1.5. The
Allocation will be used by the parties in preparing all applicable tax returns
and shall be binding upon the parties and upon each of their successors and
assigns, and the parties shall report the transaction herein for tax purposes in
accordance with the Allocation and shall not take any position or action
inconsistent with the Allocation.
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<PAGE> 7
2. REPRESENTATIONS AND WARRANTIES OF SELLER AND EPS.
The Members, Buyer (which is controlled by the Members) and the other
Employee Parties (as defined in the Settlement Agreement) know at least as much
about the Business, the Acquired Assets and Assumed Liabilities and the matters
addressed in the representations and warranties of Seller and EPS set forth in
Section 2.2 hereof as Seller or EPS. Accordingly, although EPS has participated
in the Business, the Members, Buyer and the other Employee Parties have more
knowledge regarding the matters addressed in the representations and warranties
set forth in Section 2.2 than Seller or EPS. All facts known to the Members
shall be deemed to be known by Buyer prior to the Closing Date and to have been
disclosed by Seller and EPS to Buyer as if set forth in this Agreement or in a
Schedule hereto or in any other Transaction Document (as hereinafter defined).
Notwithstanding any provision of this Agreement to the contrary (and except for
any claim or action for breach of any representation and warranty of Seller or
EPS set forth in this Article 2), neither Seller nor EPS will be liable on the
basis of any claim or action that disclosure provided by Seller and EPS in
connection with the transactions contemplated hereby was incomplete. Subject to
the foregoing, Seller and EPS represent and warrant to Buyer that:
2.1 ORGANIZATION AND CORPORATE AUTHORITY. Seller and EPS are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware. Seller and EPS have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby and to perform its obligations hereunder. This Agreement and
all other agreements and instruments to be executed by the parties hereto in
connection herewith (collectively, the "TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Board of Directors of Seller and EPS (the "BOARD OF
DIRECTORS") and no other proceedings on the part of Seller or EPS are necessary
to approve this Agreement, consummate the transactions contemplated hereby, or
perform hereunder. This Agreement and the other Transaction Documents to be
delivered by Seller and EPS have been or as of the Closing will have been duly
executed and delivered by Seller and EPS and constitute or will as of the
Closing constitute legal, valid and binding obligations of Seller and EPS,
except as such enforceability may be limited by general principles of equity and
bankruptcy, insolvency, reorganization and moratorium and other similar laws
relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.2 ACQUIRED ASSETS. Seller is the lawful owner of or has the right to
use and transfer to Buyer each of the Acquired Assets. The delivery to Buyer of
the Bill of Sale will vest good title to the Acquired Assets in Buyer free and
clear of all liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances and claims of any kind except any of the following:
(i) actions that have been taken by or with the knowledge of a Member or taken
by Seller at the direction of a Member or in performance of and consistent with
duties known by one or more Members to be performed by Seller on behalf of the
Business, as to which Seller makes no representation or warranty; (ii) purchase
money security interests in specific items of equipment included in the Acquired
Assets and interests of lessors and licensors of Acquired Assets that are leased
or licensed property and were acquired by EPS or the Company or their Affiliates
pursuant to leases or licenses, which interests, leases and licenses will remain
in place and be handled pursuant to Section 4.11; (v) liens for taxes not yet
payable; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary
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<PAGE> 8
course of business and securing obligations which are not delinquent; and (vii)
liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Nevada and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby and
to perform its obligations hereunder. This Agreement and the other Transaction
Documents (including, without limitation, the Note) to be executed and delivered
by Buyer have been or as of the Closing will have been duly executed and
delivered by Buyer, have been effectively authorized by all necessary limited
liability company action, and constitute or will as of the Closing constitute
legal, valid and binding obligations of Buyer, except as such enforceability may
be limited by the Bankruptcy Exception.
3.2 OPERATION OF BUSINESS. Since Seller's inception, no Member has made
any material commitments or entered into any material obligations relating to
the Business which are binding upon Seller or any of its Affiliates and (a) have
not been fulfilled or satisfied in full prior to the date of this Agreement or
(b) are not Assumed Liabilities. The Business has been conducted at all times by
the Members and the Employees in accordance with applicable laws and
regulations, and there are no pending, or to the knowledge of any Member,
threatened claims, actions or proceedings relating to the operation of the
Business.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 TAXES.
(a) Taxes. Seller and EPS represent and warrant to Buyer that Seller and
EPS have filed all tax returns required to be filed on or prior to the Closing
Date by Seller or EPS relating to the Acquired Assets and have paid or remitted
to the proper governmental authority all taxes and assessments including,
without limitation, all excise taxes, sales and use taxes, payroll withholding
taxes, FICA taxes, unemployment taxes, business taxes, and real and personal
property taxes which are required to be paid or remitted by Seller or EPS on or
prior to the Closing Date; provided, however, that the representations and
warranties set forth in this section 4.1(a) are made only to the extent that
taxes (i) are or may become liens on the Acquired Assets or (ii) for which the
Buyer is or may be liable in the capacity of transferee of the Acquired Assets.
(b) Tax Dispute or Claim. Seller or EPS represent and warrant to Buyer
that there is no material dispute or claim concerning any tax liability relating
to the Acquired Assets either (i) claimed or raised by any governmental
authority in writing or (ii) as to which any of the directors or officers of
Seller or EPS (other than Members or Employees) has actual knowledge based upon
personal contact with any agent of such authority.
4.2 EMPLOYMENT.
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<PAGE> 9
(a) As of the Closing Date, the employment with Seller of each of the
employees of Seller listed on Schedule 4.2 (the "EMPLOYEES") is terminating.
Buyer shall offer all of the Employees employment with Buyer initially on
substantially the same terms and conditions under which such employees are
employed by Seller immediately prior to the Closing, including without
limitation employee benefits. Buyer shall recognize for purposes of its paid
time off policies any accrued and unused paid time off of each Employee accrued
during such Employee's employment with Seller or its Affiliates, or assumed by
Seller or its Affiliates pursuant to this Agreement. For purposes of this
Agreement, "AFFILIATE" shall have the meaning ascribed to such term in Rule 405
of the Securities Act of 1933, as amended. Any severance liabilities incurred by
Seller with respect to the Employees as a result of the transactions
contemplated the Settlement Agreement or by this Agreement or the Transaction
Documents shall be the sole responsibility of Buyer, and Seller shall be
reimbursed by Buyer for any such costs incurred by Seller. Seller shall have no
liability with respect to any employees hired by Buyer after the Closing Date.
(b) Except as set forth herein, as of the Closing Date, (i) the
Employees shall cease to be active participants or accrue benefits under all
"employee benefit plans", as such term is defined in Section 3(3) of the
Employee Retirement Income Savings Act of 1974, as amended or other benefits
programs or arrangements, which were maintained, contributed to or sponsored on
behalf of the employees of Seller prior to the Closing Date ("BENEFIT PLANS");
and (ii) Seller shall retain all liabilities and obligations resulting from or
arising out of the Benefit Plans, and Buyer shall not assume any Benefit Plan or
liability or obligation related thereto.
(c) Notwithstanding the provisions of Sections 4.2(a) and (b) hereof,
Seller and Buyer have agreed that Seller, as an administrative convenience to
Buyer, will pay, on behalf of Buyer, the salaries and other benefits to which
the Employees shall be entitled for the period from the Closing Date through
December 31, 1999, but only if and only to the extent that Buyer advances the
funds to Seller to make such payments at least one business day prior to the day
on which such payment is due. To facilitate this arrangement, Buyer shall
provide Seller a schedule setting forth all amounts to be paid in writing at
least four business days before any such payment is due with the amount of the
payment in such detail as Seller and Buyer may reasonably agree. Buyer will
indemnify, defend, and hold harmless Seller from and against any claims,
liabilities and costs incurred by Seller as a result of or in connection with
Seller's actions pursuant to this subsection (c), including without limitation
arising as a result of any assertion that Seller is the employer of or has any
duties to any of the Employees.
(d) With respect to any Employee, any Employee who is not hired by Buyer
will be treated for purposes of rights under section 4980B of the Internal
Revenue Code and Part 6 of Title I of the Employee Retirement Income Security
Act of 1974 (collectively, "COBRA") as an employee of Buyer that would be
entitled to COBRA rights as though they had separated from service from Buyer.
(e) Buyer shall indemnify and hold Seller and its group health plan
harmless in the event (i) Seller or its group health plan shall be liable for
any COBRA continuation coverage for any of the Employees, and/or (ii) Seller or
its group health plan shall be liable for any claim or liability with respect to
COBRA continuation coverage relating to any of the Employees.
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<PAGE> 10
(f) Seller, EPS and Buyer shall comply in all material respects with all
applicable laws, rules and regulation of any state, local or federal
governmental agency relating to employees in connection with the transactions
contemplated herein.
(g) The understandings set forth in this Section 4.2 are solely for the
purposes of delineating the obligations between Buyer and Seller with respect to
the Employees employed by Seller as of the Closing Date. Nothing herein shall be
deemed to create or grant to any Employees third party beneficiary rights or
claims or causes of action of any kind or nature.
4.3 TRANSITION OF THE BUSINESS. Prior to the Closing Date the Business
has been operated with other business operations of Seller, which has resulted
in intermingling of the operations of such businesses. From and after the
Closing Date, the Business and the Acquired Assets will be separated in all
respects from and not subsidized or supported in any way by Seller and its
Affiliates, and the Business, the Acquired Assets and their operations will be
owned and operated exclusively by Buyer. The parties shall in good faith take
any and all actions reasonably necessary or advisable to give effect to the
separation of the Acquired Assets and Business from the operations of Seller and
its Affiliates or otherwise give effect to this Section 4.3.
4.4 SELLER AND EPS COVENANTS.
(a) Promptly after the Closing Date Seller and EPS will discontinue the
use of the names National Recovery Services, NRS, International Cost Containment
Network, and Medco Value Plus, or such other names confusingly similar with any
of them, provided that Seller may continue to use such names for historical
reporting and informational purposes, including, without limitation, for
Seller's or its Affiliates' annual reports, regulatory and other filings and tax
returns.
(b) Subject to EPS's contractual commitments on the date hereof, EPS
agrees that for up to three years from November 1, 1999, it will use Buyer or an
Affiliate of Buyer as its exclusive agent for the provision of Covered Services
(as defined below) provided that (i) the arrangements offered by Buyer or its
affiliate are high quality services with a major long-distance
telecommunications carrier and (ii) such arrangements are offered at the best
rate and on the best terms otherwise available to EPS. If EPS enters into an
agreement to receive Covered Services from a third party with prices or terms
better than those available from Buyer or its Affiliates, Buyer's rights under
this Section 4.4(b) will terminate. For purposes of this Section 4.4(b),
"COVERED SERVICES" mean the services provided by Qwest to EPS as of the date of
this Agreement pursuant to the existing Qwest contract. Except as set forth in
this Section 4.4(b), Seller, EPS and their Affiliates shall have no obligation
to utilize services or products of Buyer or any of its Affiliates.
(c) Seller and EPS will provide reasonable access and use of shared
servers used in connection with the operation of the Business, including,
without limitation, e-mail and voice mail systems and tape back-up, until
December 1, 1999, provided, however, that reasonable access to the telephone
system will be provided to Buyer for the period of time in which Buyer uses the
Seller's office space after December 1, 1999 if the phones relating to the
Business are separated from Seller's and EPS's voice mail systems.
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4.5 DISCLAIMER.
(a) ALL OF THE ACQUIRED ASSETS AND ASSUMED LIABILITIES ARE BEING SOLD
AND TRANSFERRED TO BUYER "AS IS" AND "WHERE IS" AND ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR USE OR A PARTICULAR PURPOSE, ARE EXCLUDED FROM THE SALE AND TRANSFER OF THE
ACQUIRED ASSETS AND ASSUMED LIABILITIES (EXCEPT AS EXPRESSLY SET FORTH IN
ARTICLE 2 AND IN SECTION 4.5(c), BUT SUBJECT TO ARTICLE 5). SELLER MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY NATURE WITH RESPECT TO THE ACQUIRED ASSETS
OR ASSUMED LIABILITIES (EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 2 AND IN
SECTION 4.5(c), BUT SUBJECT TO ARTICLE 5) OR THE FINANCIAL CONDITION OF THE
BUSINESS, INCLUDING BUT NOT LIMITED TO THE LEVEL OF SALES, PROFITABILITY, INCOME
OR FUTURE PROSPECTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER
DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE TRANSFERABILITY,
ENFORCEABILITY, VALIDITY OR OTHER STATUS OF ANY CONTRACTS. BUYER ACKNOWLEDGES
SELLER AND ITS AFFILIATES HAVE NO RESPONSIBILITY TO BUYER WITH RESPECT TO ANY
SUCH FINANCIAL OR OPERATING INFORMATION OR DATA REGARDING THE BUSINESS OR
SELLER'S OPERATION THEREOF.
(b) Except as expressly set forth in this Agreement, each party hereto
hereby confirms that no other party hereto (or any third person acting on behalf
of another party hereto) has made any representation or warranty concerning the
Business or the Acquired Assets or Assumed Liabilities, including, without
limitation, the financial condition, sales, profitability, income or future
value or prospects of the Business. Each party hereto represents and warrants
that it has had ample opportunity to conduct a full investigation and evaluation
of the Business and its present and future prospects and value and that it has
completed the investigation and evaluation to its satisfaction and it has made
an independent determination of the desirability of entering into this Agreement
and consummating the transactions provided for herein for the consideration and
upon the terms set forth in this Agreement without relying in any manner upon
any representation or warranty of any other party hereto (or any third person
acting on behalf of another party hereto.
(c) SELLER AND EPS HEREBY WAIVE ALL RIGHTS THEY MAY HAVE TO ASSERT THAT
BUYER OR ANY PARTY ACTING ON BEHALF OF BUYER HAS MADE ANY REPRESENTATION OR
WARRANTY WITH RESPECT TO THE BUSINESS, THE ACQUIRED ASSETS OR THE ASSUMED
LIABILITIES OTHER THAN AS SPECIFICALLY SET FORTH IN ARTICLE 3, INCLUDING,
WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY CONCERNING THE FINANCIAL
CONDITION, SALES, PROFITABILITY, INCOME OR FUTURE VALUE OR PROSPECTS OF THE
BUSINESS OR THE ACQUIRED ASSETS AND HEREBY FURTHER WAIVE ALL RIGHTS THEY MAY
HAVE TO SEEK DAMAGES, RIGHTS OF OFFSET OR ANY OTHER RELIEF BASED UPON AN ALLEGED
BREACH OR INACCURACY OF ANY REPRESENTATION OR WARRANTY CONCERNING THE BUSINESS,
THE ACQUIRED ASSETS OR THE ASSUMED LIABILITIES OTHER THAN AS SPECIFICALLY SET
FORTH IN ARTICLE 3.
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4.6 MERCK-MEDCO MANAGED CARE SETTLEMENT AGREEMENT. Buyer shall assume
and observe all of the obligations, restrictions and covenants of Seller and its
Affiliates set forth in that certain Settlement Agreement dated September 10,
1999, by and among EPS, Merck-Medco Managed Care, LLC, Medco Review, Inc., and
ICCN.
4.7 CONTRACTS, LEASES OR OTHER AGREEMENTS CONSTITUTING AN ACQUIRED
ASSET.
(a) This Agreement shall not constitute an agreement to assign or
transfer any rights or assume any obligations under any contract, lease or other
agreement comprising an Acquired Asset, or any claim, right, benefit or
obligation arising thereunder or resulting therefrom, if an attempted
assignment, transfer or assumption thereof, without the required consent of any
third party, would constitute a breach or default thereof or would have a
material adverse effect on the rights or privileges of Seller or Buyer
thereunder. Any such assignment, transfer or assumption where a third party's
consent is required shall be made subject to such consent being obtained
(without any modification of the Purchase Price), the acquisition of which shall
be the sole responsibility of Buyer provided that Seller shall provide
reasonable assistance and cooperation in connection with the acquisition of such
consents. Pending receipt of such consent, (i) Seller will hold such rights in
trust for, and for the benefit of, Buyer, and will cooperate with Buyer in any
reasonable arrangement necessary to provide that Buyer shall receive
substantially all beneficial interest and benefits in, to and under such
Acquired Asset; and (ii) pursuant to a mutually satisfactory written agreement,
Seller will engage Buyer to act as Seller's independent contractor to perform,
and Buyer will so perform, Seller's obligations under such contract, lease or
other agreement comprising an Acquired Asset. Each agreement specified in clause
(ii) of the preceding sentence will contain such terms and provisions as to
provide for a de facto assignment, transfer and assumption of all of the
liabilities, obligations and risks of Seller to and by Buyer under such
contract, lease or other agreement without violating contractual obligations of
EPS or Seller. In the event that, pursuant to a contract, lease or other
agreement comprising an Acquired Asset (i) payment for the account of Buyer is
made to Seller, such payments shall be forthwith delivered by Seller to Buyer;
and (ii) payment or satisfaction of any liability or obligation is required,
Seller shall, at the request of Buyer, pay or satisfy such liability or
obligation subject to Seller's contemporaneous receipt from Buyer of
reimbursement therefor and any costs or expenses related thereto.
(b) Except as specifically set forth herein, Buyer is not receiving or
assuming any contract, lease, or other agreement (or portion thereof) pursuant
to which any business or operations of Seller or its Affiliates, other than the
Business, have acquired or are acquiring assets, or provide or receive services,
income or other benefits. Promptly following the execution and delivery of this
Agreement, Buyer and Seller shall cooperate and attempt in good faith to agree
upon a list of all contracts, leases or other agreements of the Seller or its
Affiliates, under which Seller or its Affiliates, prior to the date hereof,
received benefits not related to the Business as well as benefits related to the
Business and under which benefits related to the Business are to be extended to
Buyer and/or its Affiliates after the Closing Date (the "CONTINUING CONTRACTS").
Buyer shall use commercially reasonable efforts to enter into a separate
agreement, contract or arrangement with the provider or an alternative provider
of such services or assets, for the provision of such services or assets
provided under the Continuing Contracts directly to Buyer. Until such time as a
new contract, agreement or arrangement is obtained from the provider or an
alternative provider of such services or assets, following the
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Closing Date Buyer shall make cash payments to EPS, and not directly to the
supplier, for its pro rata share of such assets or services no later than five
(5) business days prior to the due date of any payment for such services and
assets, so that EPS can process the payment in a timely manner. Seller shall
apply the payment so received from Buyer to the timely payment of amounts due to
the provider under the Continuing Contract for the services or assets so
provided for the benefit of Buyer.
4.8 [RESERVED]
4.9 ASSISTANCE IN ASSERTING THIRD PARTY ACQUISITION CLAIMS. Seller and
EPS shall take such action as the Buyer may reasonably request, including the
commencement of litigation, to assist Buyer in asserting and obtaining the full
benefits of the Third Party Acquisition Claims (as defined on Schedule 1.1(a)).
The Buyer shall pay the reasonable out-of-pocket expenses incurred by Seller and
EPS in providing such assistance (including reasonable legal fees) but shall not
be required to reimburse Seller or EPS for the salaries or costs of fringe
benefits or other similar expense paid by Seller or EPS to its officers,
directors, employees or agents while providing such assistance.
4.10 LIENS RELEASE; INTERIM OPERATIONS. The Acquired Assets are subject
to liens in favor of Seller's lenders (the "BANK LIENS"). Seller and EPS shall
use commercially reasonable efforts to obtain the following in writing
(collectively, the "BANK RELEASE") by December 21, 1999: (a) the termination of
the Bank Liens and associated financing statements, (b) the termination of the
guaranties made by National HealthCare Recovery Services ("NHRS") in favor of
the holders of the Bank Liens (the "GUARANTIES"), (c) the consent from Seller's
lenders to the payment of any portion or all of any amount payable by NHRS or
Buyer to Seller or EPS pursuant to the Note or the "First NHRS Note," the
"Second NHRS Note" and the "Third NHRS Note" (as those terms are defined in the
Rescission Agreement (as defined below)) by the cancellation of a comparable
amount of the $18.276 million subordinated note of EPS held by IM Comet (the
"SUBORDINATED NOTE") and (d) the consent to the rescission contemplated by that
certain Rescission Agreement, dated as of the date hereof, between Buyer,
Seller, EPS and NHRS (the "RESCISSION AGREEMENT") and termination of the related
liens on the assets transferred. The date on which the Bank Release is obtained
is referred to in this Agreement as the "LIEN RELEASE DATE". If the Bank Release
is not obtained by December 23, 1999, either EPS (if neither Seller nor EPS is
in material breach of this Agreement or the Settlement Agreement or any
Separation Document referred to therein), or IM Comet (if IM Comet is not in
material breach of this Agreement or the Settlement Agreement or any Separation
Document referred to therein), may terminate this Agreement. Until the Closing
Date, the Business shall be operated under the management and direction and for
the account of Buyer, and Buyer, Seller and EPS will cause the Business to be
operated in all respects in the ordinary course consistent with past practices
and in the best interests of the owners of the Business, provided, however, that
neither Seller nor EPS shall take any actions to incur any obligations that will
become assumed liabilities or make any expenditures that Buyer will be obligated
to repay to Seller or EPS pursuant to this Agreement without obtaining the prior
written consent of the Buyer. Any amounts paid by Seller or EPS to subsidize or
finance the operation of the Business pursuant to this Section 4.4 from and
after November 1, 1999 and through the Closing Date will (provided the Bank
Release is obtained and the Bill of Sale is delivered) be repaid to Seller or
EPS by
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Buyer through an increase in the amount of the Note as described in Section 1.4.
The parties will use commercially reasonable efforts to obtain the Bank Release.
4.11 LEASES AND LICENSES. Seller and EPS will continue to make all
payments due to third parties under leases, licenses, installment sale
contracts, or other forms of financing (and renewals or refinancing thereof)
pursuant to which Acquired Assets were acquired by Seller or EPS before the
Closing Date (including without limitation amounts payable to Wareforce or
LaSalle National Leasing in respect of computer equipment included in the
Acquired Assets) (collectively, the "FINANCED ASSETS"). All amounts paid by EPS
or Seller from and after November 1, 1999 under this Section 4.11 will (provided
the Bank Liens and associated financing statements are released and the Bill of
Sale is delivered) be repaid to EPS or Seller by Buyer through an increase in
the amount of the Note for amounts paid before the Closing Date or, after the
Closing Date, by offset reduction of any amounts otherwise payable by Seller or
EPS or any of their Affiliates to IM Comet or any of its successors or permitted
assignees or any holder of the Subordinated Note (provided that no such offset
may be made against the Subordinated Note prior to January 5, 2000). Buyer will
hold and operate the Financed Assets according to the terms of the leases,
licenses or other financing arrangements pursuant to which the Financed Assets
were acquired by Seller or EPS. Without limiting the foregoing, Buyer will not
transfer or relocate any Financed Assets and will keep them free of any liens
and encumbrances other than those created by EPS or Seller.
4.12 FURTHER ASSURANCES. Upon the reasonable request of a party or
parties hereto at any time after the Closing Date, the other party or parties
shall execute and deliver such further documents as the requesting party or
parties or its or their counsel may reasonably request in order to effectuate
the purposes of this Agreement.
5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL. The representations and warranties made in this Agreement
or in any exhibit, schedule, or any other Transaction Document or certificate
shall survive any investigation made by any party hereto and the closing of the
transactions contemplated hereby and shall (except for the representations and
warranties set forth in Section 4.5 which shall have no expiration date)
continue until the second anniversary of the Closing Date. As to any matter or
claim which is based upon fraud by the indemnifying party, the representations
and warranties set forth in this Agreement shall expire only upon expiration of
the applicable statute of limitations. No party will be liable to another under
any warranty or representation after the applicable expiration of such warranty
or representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2 INDEMNIFICATION BY BUYER. If the Bank Release shall have been
obtained and the Closing shall have occurred, Buyer shall, and shall cause
transferees of any of the Business or Acquired Assets to, indemnify, defend,
reimburse and hold harmless Seller and its Affiliates and
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their successors and assigns, and their respective officers, directors,
employees and agents, from and against any and all claims, losses, damages,
liabilities, obligations, assessments, penalties and interest, demands, actions
and expenses, whether direct or indirect, known or unknown, absolute or
contingent (including, without limitation, settlement costs and any legal,
accounting and other expenses for investigating or defending any actions or
threatened actions) ("LOSSES") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership or operation of the Business and the Acquired Assets
from and after November 1, 1999 (including without limitation the interim
operations as described in Section 4.10 and the Financed Assets as described in
Section 4.11).
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document; and
(d) any Assumed Liabilities.
5.3 INDEMNIFICATION BY SELLER AND EPS. If the Bank Release shall have
been obtained and the Closing shall have occurred, Seller and EPS shall
indemnify, defend, reimburse and hold harmless Buyer and its Affiliates and
their successors and assigns, and their respective officers, directors,
employees and agents of any of them, from and against any and all Losses
reasonably incurred by any such indemnitee arising out of or in connection with
any of the following:
(a) the ownership or operation of the Business and the Acquired Assets
before November 1, 1999 other than the Assumed Liabilities and other than those
losses for which Buyer is obligated to indemnify Seller and EPS;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Seller or EPS in this Agreement or any other Transaction
Document;
(c) the breach of any covenant, agreement or obligation of Seller or EPS
contained in this Agreement or any other Transaction Document; and
(d) any claims against, or liabilities or obligations of, Seller or EPS
which are not Assumed Liabilities.
5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation
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under this Agreement, except to the extent, if any, that the Indemnitor is
materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate (at
its sole expense) in any such investigation, trial, defense and any appeal
arising in connection with the Claim. Notwithstanding the foregoing, if both
Indemnitor and the Indemnitee are named parties in any action or proceeding and
if the Indemnitee shall have concluded in its reasonable judgment, based upon an
opinion of counsel, that there may be one or more legal defenses available to it
that are materially different from or in addition to those available to the
Indemnitor, and if the Indemnitee reasonably believes, based upon an opinion of
counsel, that the Indemnitee's interests will be adversely and materially
affected if such legal position or defense is not pursued in such action or
proceeding, the Indemnitor shall bear the expense of the Indemnitee's separate
participation, including the reasonable fees, costs and expenses of one separate
counsel for the Indemnitee (or multiple Indemnitees). It is understood that the
Indemnitor shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees or
expenses of more than one separate counsel at any time for all Indemnitees. If
the Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate;
provided, however, that the Indemnitee shall not be entitled to settle the claim
without Indemnitor's consent, which consent shall not be unreasonably withheld.
If the Indemnitee defends the subject of a Claim in accordance with this
Section, the Indemnitor shall cooperate with the Indemnitee and its counsel, at
the Indemnitor's sole cost, risk and expense, in all reasonable respects, and
shall deliver to the Indemnitee or its counsel copies of all pleadings and other
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information within the Indemnitor's knowledge or possession reasonably requested
by the Indemnitee or its counsel that are relevant to the defense of the subject
of any such Claim and that will not prejudice the Indemnitor's position, claims
or defenses. The Indemnitee shall maintain confidentiality with respect to all
such information consistent with the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 PAYMENT. All payments owing under Section 5.4 will be made promptly
as indemnifiable Losses are incurred. If the Indemnitee defends the subject
matter of any Claim in accordance with Section 5.4(c) or proceeds with separate
counsel in accordance with Section 5.4(b), the expenses (including attorneys'
fees) incurred by the Indemnitee shall be paid by the Indemnitor in advance of
the final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law. In addition to any rights
of offset or other rights that an Indemnitee may have at common law, by statute
or otherwise, each Indemnitee shall have the right to offset any payment
obligations of such Indemnitee to any Indemnitor.
6. MISCELLANEOUS.
6.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) business days after being mailed by certified or registered mail,
postage prepaid, return receipt requested, or one (1) business day after being
sent via a nationally recognized overnight courier service if overnight courier
service is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 6.1:
If to Buyer: With a copy to:
IM Comet Latham & Watkins
435 North Oakhurst Drive 505 Montgomery Street, Suite 1900
Beverly Hills, California 90210 San Francisco, California 94111
Tel: (310) 858-5830 Tel: (415) 391-0600
Fax: (310) 858-5840 Fax: (415) 395-8095
Attn: Christopher P. Massey Attn: Jeffrey T. Pero, Esq.
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If to Seller or EPS: With a copy to:
Enterprise Profit Solutions Corporation Gibson, Dunn & Crutcher LLP
695 Town Center Drive, Suite 700 4 Park Plaza, Jamboree Center
Costa Mesa, California 92626 Irvine, California 92614
Tel: (714) 429-5500 Tel: (949) 451-3800
Fax: (714) 429-4800 Fax: (949) 451-4220
Attn: General Counsel Attn: Thomas D. Magill, Esq.
6.2 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement shall inure to
the benefit of and be binding upon Buyer and Seller and EPS and their respective
permitted successors and assigns. Other than as specifically set forth in
Section 5.2 and 5.3, nothing in this Agreement will confer upon any person or
entity not a party to this Agreement, or the legal representatives of such
person or entity, any rights or remedies of any nature or kind whatsoever under
or by reason of this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
6.4 COUNTERPARTS. Facsimile transmission of any signed original document
and/or retransmission of any signed facsimile transmission will be deemed the
same as delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
6.5 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the transactions contemplated herein and
therein and shall supersede all previous oral and written and all
contemporaneous oral representations, negotiations, commitments, and
understandings.
6.6 MODIFICATIONS, AMENDMENTS AND WAIVERS. No amendment of this
Agreement will be effective unless in writing signed by the parties hereto. The
parties hereto shall not be deemed to have waived any of their respective rights
hereunder unless such waiver be in writing and signed by the party so waiving
its right. No delay or omission on the part of either party in exercising its
rights hereunder shall operate as a waiver of such right or any other right. A
waiver on one occasion shall not be construed as a bar to, or waiver of, that
right or any other right or remedy on a future occasion.
6.7 HEADINGS; REFERENCES. The headings contained in this Agreement and
the other Transaction Documents are for reference purposes only and do not
affect the meaning hereof or thereof.
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6.8 SEVERABILITY. If any provision of this Agreement is found, held,
declared, determined, or deemed by any court of competent jurisdiction to be
void, illegal, invalid or unenforceable in that jurisdiction under any
applicable statute or controlling law, the illegal, invalid, or unenforceable
provision will be deemed not to be a part of the Agreement in that jurisdiction
unless without such provision, the purposes and intent of this Agreement cannot
fairly be carried out, and the legality, validity, and enforceability in that
jurisdiction of the remaining provisions and the legality, validity and
enforceability of this entire Agreement in other jurisdictions will not be
affected.
6.9 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
any party in connection with the transactions contemplated by this Agreement
shall be borne by such party incurring such expenses.
6.10 DISPUTES.
(a) Reference. Subject to the provisions of Section 6.11 hereof,
any controversy or dispute between either EPS or Seller and any of the
Stockholders or Buyer involving the construction, interpretation, application or
performance of the terms, covenants or conditions of this Agreement or in any
way arising under or relating to this Agreement shall, on demand of any of the
parties by written notice hereto served on the others in the manner prescribed
in Section 6.1 hereof, be determined pursuant to the general reference
provisions of California Code of Civil Procedure ("CCP") Section 638(1), et
seq., by a retired or former judge of the Superior Court for the County of
Orange, State of California. The parties intend this general reference provision
to be specifically enforceable in accordance with said Section 638(1).
(b) Commencement. The reference may be commenced by any party
hereto by the filing in the Superior Court of the State of California for the
County of Orange of a petition or a motion for a general reference. The petition
and any opposition or response thereto shall recite in a clear and meaningful
manner the factual basis of the controversy between the parties and identify the
issues to be submitted to the referee for decision.
(c) Referee. The petition or motion shall designate as a sole
referee a retired judge from the Orange County, California, Judicial Arbitration
& Mediation Services ("JAMS") panel acceptable to that party (the "REFEREE"). If
the parties to the reference proceeding are unable to agree upon a Referee, the
Presiding Judge or any judge of the Orange County Superior Court to whom the
matter is assigned shall appoint a retired or former Orange County Superior
Court Judge from the JAMS panel as the Referee.
(d) Specific Enforcement. The parties acknowledge that the terms
of this Section 6.10 are specifically enforceable and that the decision by the
Referee is tantamount to a judgment by a trial court (CCP Section 644) and is
subject to review in accordance with CCP Section 645, and that any judgment
rendered in the trial court is appealable in the same manner as any other trial
court judgment.
6.11 REMEDIES. Each of the parties acknowledges and agrees that the
legal remedies available to each party in the event any party violates or
breaches any of the provisions of Article 1 or Section 4.2, 4.3, 4.4, 4.6, 4.7,
4.9, 4.10, 4.11 and 4.12 of this Agreement, would be
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inadequate and that EPS and Seller (if the breach is by Buyer), or Buyer (if the
breach is by EPS or Seller), shall be entitled to institute and prosecute
proceedings in accordance with Section 6.12, to enjoin such breaching party from
violating any of such provisions and to enforce the specific performance by such
breaching party of any of such provisions, but nothing herein contained shall be
construed to prevent such remedy or combination of remedies as the non-breaching
party may elect to invoke. All applicable actions may be taken by such
non-breaching party without bond and without prejudice to any other rights and
remedies available for a breach of this Agreement. The failure of any party to
promptly institute legal action upon any breach of this Agreement shall not
constitute a waiver of that or any other breach hereof.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for injunctive relief or matters (if any) not
subject to general reference, shall be tried and litigated exclusively in the
state or federal courts located in the County of Orange, State of California.
The aforementioned choice of venue is intended by the parties to be mandatory
and not permissive in nature, thereby precluding the possibility of litigation
between the parties with respect to or arising out of his Agreement in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non coveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph , and stipulates that the state and federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.1. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
6.13 ATTORNEYS' FEES. If Buyer or any of its Affiliates, successors or
assigns brings any action, suit, counterclaim, cross-claim, appeal, arbitration,
or mediation for any relief against Seller or any of its Affiliates, successors
or assigns, or if Seller or any of its Affiliates, successors or assigns brings
any action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation
for any relief against Buyer or any Stockholder or any of their Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
16
<PAGE> 21
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party. Any dispute with respect to
the existence or identity of the prevailing party shall be resolved by the
Referee.
6.14 INTENDED THIRD PARTY BENEFICIARIES. All Indemnitees under Article 5
are intended third party beneficiaries of Article 5 of this Agreement and shall
be entitled to enforce the provisions of Article 5 as if they were parties to
this Agreement.
[Signature page follows.]
17
<PAGE> 22
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION
By: /s/ DAVID H. HOFFMAN
-----------------------------------------
Name: David H. Hoffman
---------------------------------------
Title: CEO
--------------------------------------
ENTERPRISE PROFIT SOLUTIONS CORPORATION
By: /s/ DAVID H. HOFFMAN
-----------------------------------------
Name: David H. Hoffman
---------------------------------------
Title: CEO
--------------------------------------
S-1
<PAGE> 23
IM COMET LLC, a Nevada limited liability
company
By: Comet Capital Corp. NV
Its: Manager
By: /s/ ERIK WATTS
-----------------------------
Erik Watts
Title: Manager
Asset Purchase Agmt-NRS-OGI-Medco.doc
S-1
<PAGE> 24
SCHEDULE 1.1(a)
TO ASSET PURCHASE AGREEMENT
ACQUIRED ASSETS
MEDCO
All assets, other than any Excluded Assets, that were acquired by EPS
from Medco Review, Inc. and International Cost Containment Network, Inc.
pursuant to the Medco Asset Purchase Agreement and that are owned by EPS or
Seller as of the Closing Date.
All assets, other than any Excluded Assets, if any, acquired by EPS or
Seller since December 14, 1998 and used solely in connection with the Medco
Business that are owned by EPS or Seller as of the Closing Date.
All right, title and interest of EPS and Seller in and under all
contracts, leases and other agreements, not included in the foregoing
description, other than Excluded Assets, if any, that relate solely to the Medco
Business and that are owned by EPS or Seller as of the Closing Date, including
without limitation, but subject to Section 4.7, the contracts, leases and
agreements listed on Annex E to this Schedule 1.1(a).
All assets, other than any Excluded Assets, not included in the
foregoing description that are owned by Seller or EPS as of the Closing Date and
included in the assets listed on the Medco trial balance sheet attached as Annex
A-1 to this Schedule 1.1(a) under the heading "Acquired Assets."
NRS
All assets, other than any Excluded Assets, owned by NRS at the time of
the closing of those transactions contemplated by the NRS Acquisition Agreement
and that are owned by EPS or Seller or NRS as of the Closing Date.
All assets, other than any Excluded Assets, acquired by EPS or Seller or
NRS since December 14, 1998 and used solely in connection with the NRS Business
that are owned by EPS or Seller or NRS as of the Closing Date.
To the extent not included in the foregoing and to the extent not a
Financed Asset, computer hardware and software as described on Annex B to this
Schedule 1.1(a).
All right, title and interest of EPS, Seller and NRS in and under all
contracts, leases and other agreements, not included in the foregoing
description, other than Excluded Assets, if any, that relate solely to the NRS
Business and that are owned by EPS or Seller or NRS as of the Closing Date
including without limitation, but subject to Section 4.7, the contracts, leases
and agreements listed on Annex E to this Schedule 1.1(a).
<PAGE> 25
All assets, other than any Excluded Assets, not included in the
foregoing description that are owned by EPS or Seller or NRS as of the Closing
Date and included in the assets listed on the NRS trial balance sheet attached
as Annex A-2 to this Schedule 1.1(a) under the heading "Acquired Assets."
OGI HEALTHCARE
All assets, other than any Excluded Assets, that were acquired by EPS
from The Oxxford Group, Inc. pursuant to the Oxxford Group Asset Purchase
Agreement that relate solely to the OGI Healthcare Business and that are owned
by EPS or Seller as of the Closing Date.
All assets, other than any Excluded Assets, acquired by EPS or Seller
since December 14, 1998 and use solely in connection with the OGI Healthcare
Business that are owned by EPS or Seller as of the Closing Date.
All right, title and interest of EPS and Seller in and under all
contracts, leases and other agreements, not included in the foregoing
description, other than Excluded Assets, if any, that relate solely to the OGI
Healthcare Business and that are owned by EPS or Seller as of the Closing Date,
including without limitation, but subject to Section 4.7, the contracts, leases
and agreements listed on Annex E to this Schedule 1.1(a).
All assets, other than any Excluded Assets, not included in the
foregoing description that are owned by EPS or Seller as of the Closing Date and
included in the assets listed on the OGI Healthcare trial balance sheet attached
as Annex A-3 to this Schedule 1.1(a) under the heading "Healthcare Related
Acquired Assets."
To the extent not included in the foregoing description, the following
assets:
Customer contracts:
Teamsters Local 560 Benefits Fund - Health Claims Audit &
Recovery Support
Software contracts:
HBOC ClaimsCheck software license
First Databank Drug Database software license
Microeconomics Redbook database software license
Various Microsoft desktop software license (Windows, Words,
Excel, etc.)
Commitments to/Contracts with third party sales agents for sales
activities in progress
Capital Resources (active case: Beverly Industries)
Carver Group (active cases: Horizon BCBS, State of Illinois)
Other vendor contracts/agreements:
2
<PAGE> 26
Healthcare Financial Analytics (subcontractor)
Office lease for 4257 US Hwy 9 North, Ste 6C, Freehold NJ 07728
Pitney Bowes copier lease
Other assets:
Desk top PCs at above office location
PC at George Miller's home office
Mobile Laptops assigned to John Malley, Gail Musto and Tom Veal
Telephone handsets at above office location
Office furniture at above office location
Healthcare related prepaid expenses
Proprietary healthcare audit software/computer programs
Security deposit for lease of above office location
OTHER
The accounts receivable listed on Annex C to this Schedule 1.1(a).
The assets that are owned by Seller or EPS as of the Closing Date and
included in the assets listed on the EPS Travel Solutions trial balance sheet
attached hereto as Annex A-4 to Schedule 1.1(a) under the heading "Acquired
Assets."
To the extent not included in the foregoing descriptions, all of EPS's,
Seller's and NRS's right, title and interest in and to the names "National
Recovery Services", "NRS", "International Cost Containment Network" and "Medco
Value Plus", "Integrated Healthcare Solutions," "IHS", "Integrated Financial
Solutions", "IFS" and "Integrated Procurement Solutions."
All cash (less cash used to pay expenses of the Business) and
receivables resulting from the operation of the Business from November 1, 1999
through the Closing Date.
Contracts providing for provision by EPS or Seller to third party
clients of services covered by the existing Qwest telecommunications resale
contract and travel and procurement related services and all rights to complete
contracts under negotiation with third parties regarding the provision to third
party clients of services covered by the existing Qwest contract and travel and
procurement related services; provided, however, that Seller and its Affiliates
shall have no obligation to utilize or otherwise purchase such services or
products under such contracts except as otherwise provided in Section 4.4(b).
3
<PAGE> 27
The Acquired Assets shall include all rights and claims, including,
without limitation, all claims for breach of representations and warranties
(either express or implied) and all claims for indemnification, which Seller or
EPS or NRS may be entitled to assert (and all recoveries therefrom) against any
party from which Seller or EPS or NRS acquired the Acquired Assets or any
portion of the Business (collectively, the "THIRD PARTY ACQUISITION CLAIMS").
Use of Financed Assets pursuant to the terms of the leases, licenses, or
other financing arrangements pursuant to which the Financed Assets were acquired
by Seller or EPS (but no ownership of or lien upon Financed Assets.)
All of EPS's Seller's and NRS's right, title and interest in and to the
Proprietary Rights (as defined herein).
For purposes of this Agreement, "PROPRIETARY RIGHTS" means all
trademarks and service marks (registered or unregistered), trade dress, trade
names pertaining solely to the Business, as well as the following to the extent
they pertain solely to the Business: (i) patents, patentable inventions,
discoveries, improvements, ideas, know-how, formula, methodology, processes,
technology and computer programs, software and databases (including source code,
object code, development documentation, programming tools, drawings,
specifications and data), and all applications or registrations in any
jurisdiction pertaining to the foregoing, including all reissues, continuations,
divisions, continuations-in-part, renewals or extensions thereof; (ii) trade
secrets, know-how, including confidential and other non-public information, and
the right in any jurisdiction to limit the use or disclosure thereof; (iii)
copyrights in writings, designs, mask works or other works, and registrations or
applications for registration of copyrights in any jurisdiction; (iv) licenses,
including, without limitation, software licenses, immunities, covenants not to
sue and the like relating to any of the foregoing; (v) Internet Web sites,
domain names and registrations or applications for registration thereof; (vi)
customer lists; (vii) books and records describing or used in connection with
any of the foregoing; and (viii) claims or causes of action arising out of or
related to infringement or misappropriation of any of the foregoing.
4
<PAGE> 1
EXHIBIT 10.44
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
EPS SOLUTIONS CORPORATION
"BUYER"
NATIONAL HEALTH CARE RECOVERY SERVICES, L.L.C.
"COMPANY"
AND
THE MEMBERS NAMED HEREIN
"MEMBERS"
MARCH 1, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. Sale and Purchase........................................................................1
1.1 Agreements to Sell and Purchase..............................................1
1.2 Closing......................................................................1
1.3 Purchase Price...............................................................2
2. Representations and Warranties of the Company and the Members............................2
2.1 Organization and Good Standing...............................................2
2.2 Ownership of Seller Interests................................................2
2.3 Authorization of Agreement...................................................3
2.4 Title to Assets..............................................................3
2.5 Financial Condition..........................................................4
2.6 Certain Property of the Company..............................................5
2.7 Year 2000 Compliance.........................................................7
2.8 No Conflict or Violation.....................................................8
2.9 Consents.....................................................................8
2.10 Labor and Employment Matters.................................................8
2.11 Employee Plans...............................................................9
2.12 Litigation..................................................................12
2.13 Certain Agreements..........................................................12
2.14 Compliance with Applicable Law..............................................13
2.15 Licenses....................................................................13
2.16 Accounts Receivable.........................................................14
2.17 Intercompany and Affiliate Transactions; Insider Interests..................14
2.18 Insurance...................................................................15
2.19 Customers...................................................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
2.20 No Undisclosed Liabilities..................................................16
2.21 Taxes.......................................................................16
2.22 Indebtedness................................................................18
2.23 Environmental Matters.......................................................18
2.24 Securities Matters..........................................................19
2.25 Buyer and the Consolidation Transactions....................................21
2.26 Banks.......................................................................21
2.27 Powers of Attorneys and Suretyships.........................................22
2.28 Brokers.....................................................................22
2.29 Summary of Certain Considerations...........................................22
2.30 Acknowledgment Regarding Deloitte & Touche LLP..............................22
2.31 Accuracy of Information.....................................................22
3. Representations and Warranties of Buyer.................................................23
3.1 Organization and Corporate Authority........................................23
3.2 No Conflict or Violation....................................................23
3.3 Capitalization..............................................................23
3.4 Notes.......................................................................23
3.5 Litigation..................................................................24
3.6 Accuracy of Information.....................................................24
4. Certain Understandings and Agreements of the Parties....................................24
4.1 Access......................................................................24
4.2 Confidentiality.............................................................24
4.3 Certain Changes and Conduct of Business.....................................25
4.4 Restrictive Covenants.......................................................28
4.5 Cooperation in Litigation...................................................30
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
4.6 Tax Matters.................................................................31
4.7 Consolidation Transactions..................................................34
4.8 Supplemental Disclosure.....................................................34
4.9 HSR.........................................................................35
4.10 Competing Proposals.........................................................35
4.11 Bonus Plan..................................................................35
4.12 Best Efforts................................................................36
4.13 Further Assurances..........................................................36
4.14 Notice of Breach............................................................36
5. Survival; Indemnification...............................................................36
5.1 Survival....................................................................36
5.2 Indemnification by the Members..............................................37
5.3 Indemnification by Buyer....................................................37
5.4 Indemnification Procedure...................................................38
5.5 Payment.....................................................................39
5.6 Limitations.................................................................39
6. Conditions to Closing...................................................................40
6.1 Conditions to Obligations of Each Party.....................................40
6.2 Conditions to Obligations of Buyer..........................................41
6.3 Conditions to Obligations of the Members....................................43
7.Miscellaneous............................................................................45
7.1 Termination.................................................................45
7.2 Notices.....................................................................45
7.3 Assignability and Parties in Interest.......................................46
7.4 Governing Law...............................................................46
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
7.5 Counterparts................................................................46
7.6 Publicity...................................................................47
7.7 Complete Agreement..........................................................47
7.8 Modifications, Amendments and Waivers.......................................47
7.9 Headings; References........................................................47
7.10 Severability................................................................47
7.11 Investigation...............................................................48
7.12 Expenses of Transactions....................................................48
7.13 Arbitration.................................................................48
7.14 Submission to Jurisdiction..................................................50
7.15 Attorneys' Fees.............................................................51
7.16 Enforcement of the Agreement................................................51
</TABLE>
iv
<PAGE> 6
EXHIBITS
A. Form of Assignment and Assumption Agreement
B. Summary of Certain Considerations
C. Form of Accredited Investor Questionnaire
D. Form of Subordination Agreement
E. Form of Employment Agreement
F. Form of Note
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Schedules
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.12 Litigation
2.13 Contracts
2.15 Licenses
2.18 Insurance
2.21(b) Tax Returns
2.21(i) 351 Information
2.22 Indebtedness
2.26 Banks
2.28 Brokers
3.5 Litigation
4.3(a)(i) Permitted Contracts
4.3(a)(xii) Stockholder Distributions
6.2 Employees Signing Employment Agreements
v
<PAGE> 7
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of March 1, 1999 by and among National Health Care Recovery
Services, L.L.C., a Delaware limited liability company (the "COMPANY"), the
members of the Company listed on the signature page(s) hereof (each such
individual a "MEMBER," and collectively, the "MEMBERS") and EPS Solutions
Corporation, f/k/a ProfitSource Corporation, a Delaware corporation ("Buyer").
A. The Company is engaged in the business of health care cost
recovery services (the "BUSINESS").
B. The Members own 100% of the ownership interests in the Company
(the "SELLER INTERESTS").
C. The Members desire to sell to Buyer, and Buyer desires to
purchase from the Members all of the Seller Interests on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) each Member shall sell to
Buyer, and Buyer shall purchase from each Member, the Seller Interests set forth
opposite such Member's name on Schedule 1.3, for the purchase price set forth in
Section 1.3. Each Member hereby consents to the transfer of the Seller Interests
to Buyer and to Buyer becoming the sole member of the Company.
1.2 Closing.
The closing of the sale and purchase of the Seller Interests (the "CLOSING")
will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza,
Irvine, California, on a date to be selected by Buyer after all the conditions
set forth in Article 6 have either been satisfied or, in the case of conditions
not satisfied, waived in writing by the party entitled to the benefit of such
conditions (the "CLOSING DATE"). Prior to the Closing Date, Buyer shall provide
written notice (the "CLOSING NOTICE") to the Company and the Members informing
the Company and the Members of the date selected as the anticipated Closing
Date. At the Closing, the Members shall deliver to Buyer or its designees an
Assignment and Assumption
<PAGE> 8
Agreement in the form of Exhibit A, transferring the Seller Interests being sold
by the Members and each other instrument of transfer Buyer may reasonably
request to vest effectively in Buyer good and valid title to the Seller
Interests, free and clear of any liens, pledges, options, security interest,
trusts, encumbrances or other rights or interests of any person or entity,
together with any taxes, direct or indirect, attributable to such transfer of
the Seller Interests, and Buyer shall thereupon pay to each Member the Purchase
Price described in part (b) of Section 1.3 for such Member's Seller Interests.
Irrespective of the actual Closing Date, the Closing of the transactions
contemplated by this Agreement shall be deemed to have occurred as of March 1,
1999.
1.3 Purchase Price.
The consideration to be paid by Buyer for the Seller Interests (the
"PURCHASE PRICE"), both in the aggregate and to each Member for such Member's
Seller Interests, is described in Schedule 1.3.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Schedule 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. The Company and the
Members, jointly and severally, represent and warrant to Buyer that:
2.1 Organization and Good Standing.
The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to carry on the Business as it is now and has
since its organization been conducted and as proposed to be conducted, and to
own, lease or operate its assets and properties. The Company is duly qualified
to do business and is in good standing in every jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where failure to be
so qualified would not have a material adverse effect on the Business or its
prospects or the Company's assets or financial condition (a "MATERIAL ADVERSE
EFFECT"). Schedule 2.1 lists all of the jurisdictions in which the Company is
qualified to do business. Complete and accurate copies of the articles of
organization and operating agreement of the Company, with all amendments thereto
to the date hereof, have been furnished to Buyer or its representatives.
2.2 Ownership of Seller Interests.
(a) The Seller Interests constitute 100% of the ownership interests of
the Company ("INTERESTS") and are validly issued and fully paid. The Seller
Interests, constitute
2
<PAGE> 9
all of the ownership interests of the Company. The Seller Interests owned by
each Member are set forth in part (b) of Schedule 1.3. Neither the Members nor
the Company has granted, issued or agreed to grant or issue any other equity
interests in the Company and there are no outstanding options, warrants, rights
to acquire ownership interests in the Company, subscription rights, securities
that are convertible into or exchangeable for, or any other commitments of any
character relating to, any equity interests of the Company.
(b) Each of the Members has good and valid title to, and sole record and
beneficial ownership of, the Seller Interests owned by such Member, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and each
Member has the absolute and unrestricted right, power and authority and capacity
to enter into this Agreement.
(c) All distributions and redemptions made or to be made by the Company
with respect to its equity interests have complied or will comply with
applicable law.
(d) All offers and sales of interests of the Company prior to the date
hereof were exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and were registered or qualified under
or exempt from all applicable state securities laws.
(e) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 Authorization of Agreement.
The Company and the Members have all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement and all other agreements and instruments to be executed
by the parties hereto in connection herewith (together with all other documents
to be delivered in connection herewith or therewith, collectively the
"TRANSACTION DOCUMENTS") have (except for Transaction Documents to be executed
and delivered solely by Buyer) been duly and validly approved by the Members of
the Company and no other proceedings on the part of the Company or the Members
are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the other Transaction Documents to be
delivered by the Company or any Member have been (or upon execution will have
been) duly executed and delivered by the Company and each Member, have been
effectively authorized by all necessary action, and constitute (or upon
execution will constitute) legal, valid and binding obligations of the Company
and each Member, except as such enforceability may be limited by general
principles of equity and bankruptcy, insolvency, reorganization and moratorium
and other similar laws relating to creditors' rights (the "BANKRUPTCY
EXCEPTION.")
2.4 Title to Assets.
3
<PAGE> 10
The Company is the lawful owner of each of its assets, whether real,
personal, mixed, tangible or intangible. All of the Company's assets are
sufficient and adequate to conduct the Business as presently conducted; and are
free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of any kind except any
of the following: (i) purchase money security interests in specific items of
equipment each having a value not in excess of $100; (ii) Personal Property
leased pursuant to Personal Property Leases; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Buyer; (v) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vi) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or any Member to
transfer any of the assets of the Company or rights or interests therein to any
party.
2.5 Financial Condition.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheet of
the Company as of December 31, 1998 and the related statement of operations for
the fiscal year then ended (the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of the
Company; (ii) were prepared in accordance with generally accepted accounting
principles applicable to partnerships ("GAAP") and were consistently applied;
(iii) fairly present the financial condition and the results of the operations
of the Company as at the relevant dates thereof and for the periods covered
thereby; (iv) to the extent required by GAAP, contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
the results of the operations of the Company for the periods covered by the
Financial Statements (except that the Financial Statements are subject to
year-end adjustments, the net effect of which will not represent a Material
Adverse Change); (v) to the extent required by GAAP, contain and reflect
adequate provisions for all reasonably anticipated liabilities, contingent or
otherwise, with respect to the period then ended and all prior periods; and (vi)
do not contain any items of a special or nonrecurring nature, except as
expressly stated therein. There have been no changes or modifications of revenue
recognition, cost allocation practices or method of, accounting or other
financial or operational practices or principles except for any such change
required by reason of a concurrent change in GAAP during the periods covered by
the Financial Statements.
(b) Absence of Certain Changes. Since the date of the Financial
Statements there has not been any Material Adverse Change, or any event, action,
or circumstance of the kind described in Section 4.3. For purposes of this
Agreement, a "MATERIAL ADVERSE CHANGE"
4
<PAGE> 11
means any event, circumstance, condition, development or occurrence causing,
resulting in, having, or that could reasonably be expected to have, a Material
Adverse Effect.
2.6 Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or any Member each Real Property Lease is a
valid and binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor any Member
has any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and no event has
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company.
(iii) To the knowledge of the Company or any Member all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property of the Company, accurately identifies such Personal
Property as owned or leased, and lists each Personal Property Lease. The Company
is not in material breach of or default, and no event has occurred which, with
due notice or lapse of time or both, may constitute such a material breach or
default, under any Personal Property Lease.
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(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names and other names and
slogans embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, formula, methodology,
processes, technology and computer programs, software and databases (including
source code, object code, development documentation, programming tools,
drawings, specifications and data), and all applications or registrations in any
jurisdiction pertaining to the foregoing, including all reissues, continuations,
divisions, continuations-in-part, renewals or extensions thereof; (ii) trade
secrets, including confidential and other non-public information, and the right
in any jurisdiction to limit the use or disclosure thereof; (iii) copyrights in
writings, designs, mask works or other works, and registrations or applications
for registration of copyrights in any jurisdiction; (iv) licenses, including,
without limitation, software licenses, immunities, covenants not to sue and the
like relating to any of the foregoing; (v) Internet Web sites, domain names and
registrations or applications for registration thereof; (vi) customer lists;
(vii) books and records describing or used in connection with any of the
foregoing; and (viii) claims or causes of action arising out of or related to
infringement or misappropriation of any of the foregoing.
(ii) The Proprietary Rights, together with the Company's other
assets, are sufficient to operate the Business as presently conducted and
contemplated to be conducted after the Closing. All of the Proprietary Rights
that are material to the Business are owned by the Company free and clear of any
and all liens, security interests, claims, charges and encumbrances or are used
by the Company pursuant to a valid and enforceable license granting rights
sufficiently broad to permit the historical and anticipated uses of the
Proprietary Rights in connection with the conduct of the Business in the manner
presently conducted and to convey such right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "Governmental Entity," and collectively "Governmental Entities") with
authority to bind the Company. There have not been any actions or other judicial
or adversary proceedings involving the Company concerning any of the Proprietary
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Rights, nor to the knowledge of any of the Members, is any such action or
proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of any of the Members, there are no conflicts
with or infringements of any of the Proprietary Rights by any third party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
computer programs and routines associated, developed or used in connection with
the Business (the "Trade Secrets"), free and clear of any liens, encumbrances,
restrictions, or legal or equitable claims of others, and has taken all
reasonable security measures to protect the secrecy, confidentiality, and value
of the Trade Secrets. Any of the employees of the Company and any other persons
who, either alone or in concert with others, developed, invented, discovered,
derived, programmed or designed the Trade Secrets, or who have knowledge of or
access to information relating to them, have been put on notice and have entered
into agreements that the Trade Secrets are proprietary to the Company and not to
be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectable
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
Year 2000 Compliance.
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by the Company and material to the Business are Year 2000 Compliant. For
purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
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(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 No Conflict or Violation.
The execution, delivery and performance by the Company and the Members
of this Agreement and the other Transaction Documents to be delivered by the
Company or any Member and the consummation of the transactions contemplated
hereby and thereby do not and will not: (i) violate or conflict with any
provision of the charter documents or bylaws of the Company; (ii) violate in any
material respect any provision or requirement of any domestic or foreign,
national, state, or local law, statute, judgment, order, writ, injunction,
decree, award, rule, or regulation of any Governmental Entity applicable to the
Company or the Business; (iii) violate in any material respect, result in a
material breach of, constitute (with due notice or lapse of time or both) a
material default or cause any material obligation, penalty, premium or right of
termination to arise or accrue under any Contract (as hereinafter defined); (iv)
result in the creation or imposition of any material lien, charge or encumbrance
of any kind whatsoever upon any of the properties or assets of the Company; or
(v) result in the cancellation, modification, revocation or suspension of any
material license, permit, certificate, franchise, authorization or approval
issued or granted by any Governmental Entity (each a "LICENSE," and
collectively, the "LICENSES").
2.9 Consents.
Schedule 2.9 lists all consents and notices required to be obtained or
given by or on behalf of the Company or any Member before consummation of the
transactions contemplated by this Agreement in compliance with all applicable
laws, rules, regulations, or orders of any Governmental Entity, or the
provisions of any material Contract, and all such consents have been duly
obtained and are in full force and effect except where the failure to obtain
such consent will not have a Material Adverse Effect.
2.10 Labor and Employment Matters.
Schedule 2.10 lists all employees of the Company, including date of
retention, current title and compensation. There is no employment agreement,
collective bargaining agreement or other labor agreement to which the Company is
a party or by which it is bound. The Company has complied in all material
respects with all applicable laws, rules and regulations
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relating to the employment of labor, including those related to wages, hours,
collective bargaining and the payment and withholding of taxes and other sums as
required by appropriate Governmental Entities and has withheld and paid to the
appropriate Governmental Entities or is holding for payment not yet due to such
Governmental Entities, all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing. There is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any state or local agency; pending labor strike or other
material labor trouble affecting the Company; material labor grievance pending
against the Company; pending representation question respecting the employees of
the Company; pending arbitration proceedings arising out of or under any
collective bargaining agreement to which the Company is a party. For purposes of
this Agreement, "EMPLOYEES" includes employees, independent contractors and
other persons filling similar functions.
2.11 Employee Plans.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or adequate
accruals therefor have been made in the Financial Statements, and adequate
accruals for all such obligations will be made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, option, security purchase,
benefit, welfare, profit-sharing, deferred compensation, retainer, consulting,
retirement, welfare, disability, vacation, severance, hospitalization,
insurance, incentive, deferred compensation and other similar fringe or employee
benefit plans, funds, programs or arrangements, whether written or oral, in each
of the foregoing cases which cover, are maintained for the benefit of, or relate
to any or all current or former employees, members, officers or directors of the
Company, and any other entity ("ERISA AFFILIATE") related to the Company under
Section 414(b), (c), (m) and (o) of the Internal Revenue Code of 1986, as
amended (the "CODE") (the "EMPLOYEE PLANS"), together with all accrued
liabilities under such Employee Plans. With respect to each Employee Plan, the
Company has made available to Buyer, to the extent applicable, true and complete
copies of (i) all plan documents, including in the case of any Employee Plan not
set forth in writing, a written description thereof, (ii) the most recent
determination letter received from the Internal Revenue Service (the "IRS"),
(iii) the
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most recent application for determination filed with the IRS, (iv) the latest
actuarial valuations, (v) the latest financial statements, (vi) the three (3)
most recent Form 5500 Annual Reports, including Schedule A and Schedule B
thereto, (vii) all related trust agreements, insurance contracts or other
funding arrangements which implement any of such Employee Plans, (viii) all
Summary Plan Descriptions and summaries of material modifications and all
modifications thereto communicated to employees, and (ix) in the case of stock
options or stock appreciation rights issued under any Employee Plan, a list of
holders, dates of grant, number of shares, exercise price per share and dates
exercisable. Neither the Company nor any ERISA Affiliate of the Company has any
liability or contingent liability with respect to the Employee Plans, nor will
any of the Company's assets be subject to any lien, charge or claim relating to
the obligations of the Company with respect to employees or Employee Plans. No
party to any Employee Plan is in default with respect to any material term or
condition thereof, nor has any event occurred which through the passage of time
or the giving of notice, or both, would constitute a default thereunder or would
cause the acceleration of any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in compliance with the requirements provided by any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code, and, with respect to each Employee
Plan, there is no violation of any reporting or disclosure requirement imposed
by ERISA or the Code. Each of the Company and its ERISA Affiliates has made full
and timely payment of all amounts required to be contributed under the terms of
each Employee Plan and applicable law or required to be paid as expenses or
benefits under such Employee Plan, and has made adequate provision for reserve
to satisfy contributions and payments not yet made because they are not yet due
under the terms of such Employee Plan. Each Employee Plan that is intended to be
qualified under Section 401(a) of the Code is and has always been so qualified,
and each trust established in connection with any Employee Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code is and has always been so exempt, and either has received a favorable
determination letter with respect to such qualified status from the IRS or has
filed a request for such determination letter with the IRS within the remedial
amendment period. Such determination or qualified status will apply from and
after the effective date of any such Employee Plan. No act or omission has
occurred since the date of the last favorable determination issued with respect
to an Employee Plan which could result in a revocation of the Plan's qualified
status. In accordance with applicable law, each Employee Plan can be amended or
terminated at any time, without consent from any other party and without
liability other than for benefits accrued as of the date of such amendment or
termination.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be
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<PAGE> 17
incurred, whether or not any such liability has been asserted by or on behalf of
any such plan. Neither the Company nor any ERISA Affiliate sponsors or has ever
sponsored, maintained, contributed to or incurred an obligation to contribute to
any Employee Plan subject to the provisions of Title IV of ERISA.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code. Neither the Company nor any of its ERISA Affiliates has incurred any
liability under the Worker Adjustment Retraining and Notification Act or any
similar state law relating to employment termination in connection with a mass
layoff, plant closing or similar event, and the transactions contemplated by
this Agreement will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to the
terms of any Employee Plan or pursuant to any agreement or understanding, other
than as required by applicable law.
(i) Other than routine claims for benefits, there is no claim pending or
to the knowledge of the Company or any Member, threatened, involving any
Employee Plan by any person against such Employee Plan, the Company or any of
its ERISA Affiliates. There is no pending or, to the knowledge of the Company or
any Member, threatened, proceeding
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involving any Employee Plan before the IRS, the United States Department of
Labor or any other governmental authority.
2.12 Litigation.
Except as provided in Schedule 2.12, there are no claims, actions,
suits, proceedings, labor disputes or investigations of any nature pending or,
to the knowledge of the Company or any Member, threatened by or against the
Members, the Company, the officers, directors, employees, agents of the Company,
or any of their respective Affiliates involving, affecting or relating to the
Business or any assets, properties or operations of the Company or the
transactions contemplated by this Agreement. Neither the Company nor any of the
Company's assets is subject to any order, writ, judgment, award, injunction or
decree of any Governmental Entity. For purposes of this Agreement, "AFFILIATE"
shall have the meaning ascribed to such term in Rule 405 under the Securities
Act.
2.13 Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all written, or oral, (i) contracts, agreements
and commitments not made in the ordinary course of business, (ii) agency and
brokerage agreements, (iii) service and other customer contracts, (iv)
contracts, loan agreements, letters of credit, repurchase agreements, mortgages,
security agreements, guarantees, pledge agreements, trust indentures, promissory
notes and other documents or arrangements relating to the borrowing of money or
for lines of credit, (v) tax sharing agreements, real property leases or any
subleases relating thereto, personal property leases, any material agreement
relating to Proprietary Rights (including service agreements relating thereto)
and insurance contracts, (vi) agreements and other arrangements for the sale of
any assets, property or rights other than in the ordinary course of business or
for the grant of any options or preferential rights to purchase any assets,
property or rights, (vii) documents granting any power of attorney with respect
to the affairs of the Company, (viii) suretyship contracts, performance bonds,
working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
agreements relating to the issuance of any securities of the Company or the
granting of any registration rights with respect thereto, and (xii) all
amendments, modifications, extensions or renewals of any of the foregoing (each
a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or
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breach of, any Contract, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a material default or breach.
(c) To the knowledge of the Company or any Member, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or any Member, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or any Member since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of the Company or any Member, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 Compliance with Applicable Law.
The operations of the Company are, and have been, conducted in all
material respects in accordance with all applicable laws, regulations, orders
and other requirements of all Governmental Entities having jurisdiction over it
and its assets, properties and operations, including, without limitation, all
such laws, regulations, orders and requirements relating to the Business except
in any case where the failure to so conduct its operations would not have a
Material Adverse Effect. The Company has not received any notice of any material
violation of any such law, regulation, order or other legal requirement, and is
not in material default with respect to any order, writ, judgment, award,
injunction or decree of any Governmental Entity, applicable to the Company or
any of its assets, properties or operations. To the knowledge of the Company or
any Member, there are no proposed changes in any such laws, rules or regulations
(other than laws of general applicability) that would adversely affect the
transactions contemplated by this Agreement or reasonably be expected to have a
Material Adverse Effect.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule
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or regulation which must be obtained or satisfied by the Company, in connection
with the Business or that are necessary for the execution, delivery and
performance by the Company and the Members of this Agreement and the other
Transaction Documents. The Licenses are sufficient and adequate in all material
respects to permit the continued lawful conduct of the Business in the manner
now conducted and the ownership, occupancy and operation of the Company's
properties for its present uses and the execution, delivery and performance of
this Agreement. No jurisdiction in which the Company is not qualified or
licensed as a foreign corporation has demanded or requested that it qualify or
become licensed as a foreign corporation. The Company has delivered to Buyer or
its representatives true and complete copies of all the material Licenses
together with all amendments and modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16 Accounts Receivable.
All accounts receivable of the Company (the "ACCOUNTS RECEIVABLE") as of
the date hereof are accurately reflected in Schedule 2.5, which will be updated
at the Closing Date to reflect all Accounts Receivable as of March 1, 1999,
including their aging. All Accounts Receivable as of the date hereof represent,
and all Accounts Receivable as of the Closing Date will represent, valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business that are current and collectible in amounts not
less than the aggregate amount thereof (net of reserves established in
accordance with GAAP applied consistently with prior practice) carried (or to be
carried) on the books of the Company and reflected in the Financial Statements,
and are not and will not be subject to any valid counterclaims or set-offs,
disputes or contingencies.
2.17 Intercompany and Affiliate Transactions; Insider Interests.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, Member, relative or
Affiliate of the Company or the Members, including, without limitation, loans,
guarantees or pledges to, by or for the Company or from, to, by or for any of
such persons, that are either (i) currently in effect, or (ii) reflected in the
Company's financial results.
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(b) Except as set forth on Schedule 2.17, no officer, director or Member
of the Company, or any Affiliate of any such person, now has, or within the last
three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18 Insurance.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company at any time during the three (3) years prior to the
date of this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity that require or recommend any changes in the conduct of the
Business, or any repairs or other work to be done on or with respect to any of
the properties or assets of the Company. The Company has not received any notice
or other communication from any such insurance company within the three (3)
years preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of the Company or any Member, no such
cancellation, amendment or increase of premiums is threatened.
2.19 Customers.
Schedule 2.19 lists the ten (10) largest customers of the Company,
together with revenues to the Company from each such customer during the most
recent complete fiscal year and the current fiscal year to the date hereof, and
the scheduled termination dates of their current contracts with the Company.
None of such customers has given written notice to the Company of an intention
to terminate or materially impair its business relationship with the Company and
neither the Company nor any Stockholder has any knowledge of any event that
would precipitate the impairment, or termination of, or the failure to renew, or
entitle any such customer to terminate, such business relationship.
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2.20 No Undisclosed Liabilities.
Except as and to the extent specifically reflected or reserved against
in the Financial Statements and except as incurred in the ordinary course of
business since the date of the Financial Statements, the Company has no material
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise, and whether due or to become due (including, without limitation,
any liability for taxes and interest, penalties and other charges payable with
respect to any such liability or obligation) and no facts or circumstances exist
which, with notice or the passage of time or both, could reasonably be expected
to result in any material claims against or obligations or liabilities of the
Company.
2.21 Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified herein:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the Company
for or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any
Straddle Period to the extent allocable to the period ending on March 1, 1998.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of the
Company that ends on any day on or before March 1, 1999.
(iii) "STRADDLE PERIOD" means a taxable period of the Company that
includes but does not end on March 1, 1999.
(iv) "TAX" OR "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes including, but not limited to, Form 1065.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not reflected on such
Tax Returns). All such previously-filed Tax Returns were
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complete and accurate in all material respects when filed, and as of the date
hereof no additional Tax Liabilities for periods covered by such
previously-filed Tax Returns have been assessed on or proposed to the Company.
With respect to each such Tax Return, Schedule 2.21(b) specifies (A) each such
Tax Return that (1) is currently being audited by a Tax authority, or (2) as to
which the Company has received a written and/or oral notice from a Tax authority
that such Tax authority intends to commence an audit or examination of such Tax
Return, and (B) each such Tax Return as to which the Company has given its
consent to waive or extend the applicable statute of limitations for such Tax
Return or the assessment of Taxes required to be reported thereon. The Company
has either delivered to Buyer or made available for inspection by Buyer or its
representatives or agents complete and correct copies of all Tax audit reports
and statements of Tax deficiencies with respect to any delinquent Tax assessed
against or agreed to by the Company for all taxable periods commencing on or
after January 1, 1993, for which audit reports or statements of deficiencies
have been received by the Company.
(c) All Taxes required to be withheld by the Company, including, but not
limited to, Taxes arising as a result of payments (or amounts allocable) to
foreign or non-resident partners, foreign persons or to employees of the
Company, have been collected and withheld, and have been either paid to the
respective governmental agencies, set aside for such purpose or accrued on the
Company Financial Statements.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on March 1, 1999 will not exceed the reserves for Tax
Liabilities (excluding book reserves for deferred Taxes established to reflect
timing differences between book and Tax income ) as set forth in the account for
accrued taxes payable account included in the Financial Statements.
(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Seller Interests have not and have never
been United States real property interests as defined in Section 897(g) of the
Code and the regulations thereunder.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
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(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) Partnership Status. The Company qualifies (and has since the date of
its Formation qualified) and will qualify immediately before the Closing as a
partnership for federal and state income tax purposes, and neither the Company
nor any Member has taken a position contrary to such treatment.
(k) The sum of cash and fair market value of marketable securities (as
defined in Code Section 731(c)) of the Company at the Closing will not exceed
the Members' aggregate tax basis in the Seller Interests.
(l) Section 351. The transfer of the Seller Interests by the Members to
Buyer pursuant to this Agreement is intended to qualify (i) as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of applicable state income tax law, and (ii) under
Code Section 351 as part of a transfer by the Members and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(m) The Company has (or will have) a valid Code Section 754 election in
effect for the Pre-Acquisition Taxable Period.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's business) in the Company (including, without limitation,
any indebtedness for borrowed money, whether or not evidenced by a note or other
written instrument) and a description of each such debt interest.
2.23 Environmental Matters.
Notwithstanding anything to the contrary contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under the common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
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(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in violation of any
Environmental Laws such that the Company could be subject to material liability
under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Member, with respect to any
or all of the real properties leased at any time by the Company, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or any
Member, threatened administrative, judicial or regulatory proceedings, or, to
the knowledge of the Company or any Member, any threatened actions or claims, or
any consent decrees or other agreements in effect that relate to environmental
conditions in, on, under, about or related to the Company, its operations or the
real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24 Securities Matters.
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(a) The Members understand that (i) the notes issued by Buyer, and the
offer and sale thereof, have not been registered or qualified under the
Securities Act or any state securities or "Blue Sky" laws, on the ground that
the sale provided for in this Agreement and the issuance of securities hereunder
is exempt from registration and qualification under Sections 4(2) and 18 of the
Securities Act, and (ii) Buyer's reliance on such exemptions is predicated on
the Members' representations set forth herein.
(b) The Members acknowledge that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Members may lose their entire investment in the
notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Members or the Members' advisors the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Members have received all information
requested from Buyer. The Members have had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the offering of
the Securities and the business, properties, plans, prospects, and financial
condition of Buyer and to obtain additional information as the Members have
deemed appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) The Members, personally or through advisors, have expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Members have relied solely upon independent
investigations made by the Members, and have consulted their own investment
advisors, counsel and accountants. The Members have adequate means of providing
for current needs and personal contingencies, and have no need for liquidity and
can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Members' own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) The Members understand that no federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
the investment in the Securities.
(g) Each Member is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act and has each documented his or her accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit B hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
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(h) Neither the Company nor any Member has received any general
solicitation or general advertising concerning the Securities, nor is the
Company or any Member aware of any such solicitation or advertising.
2.25 Buyer and the Consolidation Transactions.
(a) The Members are aware that:
(i) Buyer has recently been organized and has a limited financial
operating history.
(ii) There can be no assurance that any of the Additional
Consolidation Transactions or Further Consolidation Transactions (as defined in
Section 4.7) will occur, that Buyer will be successful in accomplishing the
purpose for which it was formed or that it will ever be profitable. No assurance
can be given regarding (A) whether the companies acquired by Buyer in the
Initial Consolidation Transactions can be successfully integrated and operated,
or (B) what companies, if any, will ultimately be acquired by Buyer. No company
is obligated to participate in the Additional Consolidation Transactions or
Further Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO or the price at which any shares of Common
Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock .
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer.
(b) The Members acknowledge that no assurances have been made to any
Member with respect to any of the foregoing and no representations, oral or
written, have been made to any Member by Buyer or any of its employees,
representatives or agents concerning the potential value or the Shares issued as
part of the Purchase Price or the prospects of Buyer, except as set forth
herein.
2.26 Banks.
Schedule 2.26 lists the account information at each bank or other
institution at which the Company has a line of credit, check, savings or other
account, certificate of deposit or
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safe deposit box and the names of each person authorized to draw thereon or have
access thereto.
2.27 Powers of Attorneys and Suretyships.
The Company does not have any general or special powers of attorney
outstanding (whether as grantor or grantee thereof) or any obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person or entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.28 Brokers.
Except as set forth on Schedule 2.28, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company or any of the
Members.
2.29 Summary of Certain Considerations.
Each Stockholder acknowledges receipt and understanding of the Summary
of Certain Considerations attached hereto as Exhibit B.
2.30 Acknowledgment Regarding Deloitte & Touche LLP.
As part of the Initial Consolidation Transactions, Buyer purchased the
Integrated Cost Reduction Strategies ("ICRS") business unit of Deloitte & Touche
LLP ("DELOITTE"). The Company and the Members acknowledge, for the benefit of
Deloitte and its Affiliates, that Deloitte is not related to Buyer, that Buyer
and the individuals related to Buyer with whom the Company and the Members have
dealt in connection with the transactions contemplated by the various agreements
of the Company and the Members with Buyer have acted and will act on behalf of
Buyer and not Deloitte or any of Deloitte's Affiliates (as partners, principals,
employees, agents, associates or otherwise). For these purposes, "Affiliates" of
Deloitte include persons controlling, controlled by, or under common control
with Deloitte, including without limitation partners of Deloitte.
2.31 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by the Company or any Member to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions
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<PAGE> 29
of the matters disclosed therein. Copies of all documents heretofore or
hereafter delivered or made available to Buyer pursuant hereto were or will be
complete and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to the Members that:
3.1 Organization and Corporate Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
3.2 No Conflict or Violation.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby, do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 Capitalization.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 Notes.
Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a
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legal, valid and binding obligation of Buyer, except as such enforceability may
be limited by the Bankruptcy Exception.
3.5 Litigation.
Except as set forth on Schedule 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or any of its Affiliates or the
transactions contemplated by this Agreement. Buyer is not subject to any order,
writ, judgment, award, injunction or decree of any Governmental Entity. From and
after the Closing, Buyer or its Affiliates may be subject to claims, actions,
suits, or proceedings, including as a result of acquisitions by Buyer in the
Additional Consolidation Transactions or Further Consolidation Transactions, and
Buyer makes no representations or warranties about any such claims, actions,
suits or proceedings or the absence thereof.
3.6. Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by Buyer to the Members in this Agreement, the schedules or exhibits
hereto, or in any of the other Transaction Documents delivered by Buyer contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements and facts
contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
The Company shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of the Company (including,
without limitation, the Company's accounting records, the workpapers of the
Company's independent accountants, and all environmental studies, reports and
other environmental records) and, during such period, shall furnish promptly to
Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2 Confidentiality.
For purposes hereof, the Company and the Members will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including,
without limitation, Deloitte & Touche, LLP, confidential, and will not provide
information about such matters to
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<PAGE> 31
any party or use such information except to the extent necessary to effect the
transactions contemplated hereby. Buyer will keep the matters contemplated
herein and all information provided by the Company and the Members related to
the Company and the Business confidential, and will not provide information
about such matters to any party or use such information except to the extent
necessary to effect the transactions contemplated hereby. Buyer and the Company
shall each cause their respective Affiliates, officers, directors, employees,
agents, and advisors to keep confidential all information received in connection
with the transactions contemplated hereby. The Company and the Members
acknowledge that Buyer may provide information about the Company and the
Business to other participants in the Additional or Further Consolidation
Transactions to the extent necessary to facilitate the Consolidation
Transactions. If this Agreement terminates without consummation of the Closing,
the Company, the Members and Buyer shall, and shall cause their Affiliates to,
each maintain the confidentiality of any information obtained from the other in
connection with the transactions contemplated hereby, the Additional or Further
Consolidation Transactions, and Buyer's business plans (the "INFORMATION"),
other than Information that (i) was in the public domain before the date of this
Agreement or subsequently came into the public domain other than as a result of
disclosure by the party to whom the Information was delivered; or (ii) was
lawfully received by a party from a third party free of any obligation of
confidence of or to such third party; or (iii) was already in the possession of
the party prior to receipt thereof, directly or indirectly, from the other
party; or (iv) is required to be disclosed in a judicial or administrative
proceeding after giving the other party as much advance notice of the
possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Members and the
Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the Members
shall cause the Company to, conduct the Company's business solely in the
ordinary course consistent with past practices. Without limiting the generality
of the preceding sentence, except as required or permitted pursuant to the terms
hereof, the Company shall not, and the Members shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts described in Schedule
4.3(a)(i), in any case calling for payments to or by the
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Company in excess of $20,000 over the life of the contract or series of related
contracts, without the prior written consent of Buyer, which may not be
unreasonably withheld;
(ii) make any change in the articles of organization, operating
agreement or other similar documents of the Company, issue any additional
Interests or grant any option, warrant or right to acquire any Interests or
issue any security convertible into or exchangeable for Interests, alter any
term of any of the Interests, or make any change in other ownership interests or
in the capitalization, whether by reason of a reclassification,
recapitalization, exchange, distribution or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Member or any Affiliate of the Company or any
Member;
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(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any distributions or other payments to
equity holders, except as set forth on Schedule 4.3(a)(xii);
(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice (except for any such change required by reason of a
concurrent change in GAAP), or write down the value of any assets or write-off
as uncollectible any Accounts Receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or any Member herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Members shall cause
it to:
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and
other Tax Returns and other reports required to be filed and pay when due all
Taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
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(v) maintain and comply with all material Licenses;
(vi) comply with all Environmental Laws, and upon receipt of
notice that there exists a violation of any Environmental Law, immediately
notify Buyer in writing;
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof; and
(viii) preserve its business organization.
4.4 Restrictive Covenants.
(a) Non-Competition. The Members recognize that the covenants of each
Member contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE") are an
essential part of this Agreement and the other Transaction Documents and that
but for the agreement of each Member to comply with such covenants Buyer would
not enter into this Agreement or the other Transaction Documents. The Members
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Business acquired by Buyer, including without limitation, goodwill and the
Proprietary Rights and that irreparable harm and damage will be done to Buyer if
any Member competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, the Members acknowledge that the Purchase Price is
consideration for professional relationships and market place reputation
developed by the Company and the Members and the Covenant Not to Compete is
necessary for Buyer to receive the full benefit of this Agreement. After the
Closing, each Member shall not individually, or in concert, directly or
indirectly:
(i) either on its, his, hers or their own account or for any
other person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or whom the Company was engaged
in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"), to
modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type
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or types conducted by the Company at any time during the two (2) year period
preceding the Closing Date or under development by the Company on the Closing
Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to make any such
statement or to perform any such act; or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited, with respect to any
Member, to any county or any other political subdivision of any state of the
United States of America, or of any other country in the world, where such
Member generated revenue or established goodwill at any time during the two (2)
year period preceding the Closing Date. This Covenant Not to Compete shall bind
the Members until December 31, 2002, provided, however, that if the employment
of any Member is terminated by Buyer without Cause or by such Member for Good
Reason (each as defined in such Member's Employment Agreement delivered pursuant
to Section 6.3(c)(iv), and if either (i) a registration statement for an
underwritten IPO of Buyer's equity securities has not been filed by December 31,
1999, or (ii) Buyer fails to consummate a public offering that results in a
public trading market of equity securities of Buyer on a national securities
exchange or the Nasdaq Stock Market by May 15, 2000, then after termination of
such Stockholder's employment with the Company or any of its Affiliates, such
Stockholder will no longer be subject to the covenants contained in Sections
4.4(a)(ii) and (iii), and the covenants in Section 4.4(a)(iv) will not be
breached by any general marketing efforts with which such Stockholder may be
involved that are not targeted specifically at any Customer. The parties hereto
agree that the duration and area for which the Covenant Not to Compete set forth
in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) each Member shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, divert or attempt to divert or
take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Buyer or its Affiliates of which any of the Members
become aware as the result of their affiliation with the Business or their
relationship with Buyer or its Affiliates and which relate specifically to the
Business, or any part thereof. This Section 4.4(c) is in addition to and not by
way of limitation of any other duties the Members may have to Buyer or its
Affiliates.
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(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Members pursuant to Section 4.4(a) each of the Members shall
not, and shall cause their Affiliates not to, hire away, or cause any other
person to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by Seller before the
Closing Date), or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their employment or
engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Members in light of the activities and business of
the Company and future plans of Buyer. The Members acknowledge that if they
violate any of the covenants contained in this Section 4.4 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, Buyer
shall be entitled to temporary injunctive relief without being required to post
a bond and permanent injunctive relief without the necessity of proving actual
damages. Each Member shall be severally liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants breached by such
Member, whether or not litigation is actually commenced and including litigation
of any appeal defended by Buyer where such party succeeds in enforcing any of
the Restrictive Covenants. Buyer may elect to seek one or more remedies at its
discretion on a case by case basis. Failure to seek any or all remedies in one
case shall not restrict Buyer from seeking any remedies in another situation.
Such action by Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
4.5 Cooperation in Litigation.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and the Company or any Member and/or their Affiliates or assignees, on the
other,
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arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payments by each party of its costs and
payments or attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.6 Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of the Company's business activities on March 1, 1999, and, in the case of
Pre-Acquisition Taxable Periods ending on March 1, 1999, all of the Company's
income, gains and other Tax items attributable to March 1, 1999 shall be
included and reported by the Company in Tax Returns (including federal Form 1065
and any similar state return) of the Company for such Pre-Acquisition Taxable
Periods to be filed following the Closing and all Taxes attributable to the
Company's income, gains or other taxable items for March 1, 1999 shall be
reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on March 1, 1999 and the portion of such Straddle Period
after such date shall be made by means of a closing of the books and records of
the Company as of the close of business on March 1, 1999 as if a taxable period
ended as of the close of such date; provided, however, that exemptions,
allowances or deductions that are calculated on an annual basis (including, but
not limited to, depreciation and amortization deductions) shall be allocated
between the period ending on and inclusive of March 1, 1999 (the "PRE-CLOSING
PERIOD") and the period following March 1, 1999 (the "POST-CLOSING PERIOD") in
the proportion which the number of days in each such period bears to the total
number of days in the Straddle Period; and provided further, if as of March 1,
1999 the Company is a partner in any partnership which has a Tax year that does
not end as of March 1, 1999, any tax liability attributable to such
partnership's activities shall be allocated between the Pre-Closing Period and
the Post-Closing Period in the same manner based upon the number of days in each
such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the March 1, 1999 the Company (i) shall prepare and file, or cause to be
prepared and filed, all Tax Returns of the Company required to be filed on or
prior to the March 1, 1999 (after
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giving effect to any valid extensions), and (ii) shall pay or cause to be paid
all Taxes shown or reported to be due and payable by the Company on such Tax
Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax Returns
required to be filed by the Company for Pre-Acquisition Taxable Periods which
are not required to be filed on or prior to March 1, 1999 (after giving effect
to any valid extensions).
(ii) Members shall be responsible for and shall pay (A) all reasonable
costs and expenses related to the preparation and filing of the Company's Tax
Returns for Pre-Acquisition Taxable Periods described in Section 4.6(c)(i), and
(B) all Taxes shown or reported to be due and payable on such Tax Returns to the
extent not specifically reserved (excluding reserves for deferred taxes) against
in the Financial Statements. Each Member shall pay his or her proportionate
share of such costs, expenses and Tax Liabilities of the Company promptly
following receipt by such Member of a notice from Buyer of Buyer's calculation
of such Member's payment obligation hereunder together with copies of the
relevant Tax Returns and other information supporting Buyer's calculation. If a
Member disputes all or any portion of the payment obligation hereunder as
calculated by Buyer, such Member shall nevertheless promptly pay to Buyer the
amount specified in the notice and any dispute related thereto shall be resolved
pursuant to the arbitration provisions of Section 7.13. Any additional Taxes
attributable to the periods covered by such Tax Returns, whether pursuant to an
amended return or any Tax Proceeding, shall be paid by Members promptly upon
demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be required,
with respect to certain Taxes for Straddle Periods, to file a full year return
(herein a "STRADDLE PERIOD RETURN") reporting and accounting for such Taxes on
an aggregate basis covering both the Pre-Closing Period and the Post-Closing
Period. The Buyer, at its expense, shall cause the Company to prepare and file
such Straddle Period Returns.
(ii) The Taxes reportable on such Straddle Period Returns that are
attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.6(a)(ii). The Members
shall be responsible for and shall pay all Pre-Closing Taxes shown or reported
to be due and payable on such Straddle Period Returns to the extent not
specifically reserved (excluding reserves for deferred taxes) against in the
Financial Statements. Each Member shall pay his or her proportionate share of
Pre-Closing Taxes promptly following receipt by such Member of a notice from
Buyer of Buyer's calculation of such Member's payment obligation hereunder
together with copies of the relevant Tax Returns and other information
supporting Buyer's calculation. If a Member disputes all or any portion of the
payment obligation hereunder as calculated by Buyer, such Member shall
nevertheless promptly pay to Buyer the amount specified in the notice and any
dispute related thereto shall be resolved pursuant to the arbitration provisions
of
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Section 7.13. Any additional Taxes attributable to the Pre-Closing Periods
covered by such Tax Returns, whether pursuant to an amended return or any Tax
Proceeding, shall be paid by Members promptly upon demand therefor by Buyer.
(e) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company, notify the
Members of any written communication from a Tax authority with respect to any
pending Tax Proceeding involving a Pre-Acquisition Tax Liability. Buyer shall
include with such notification a copy of the written communication so received
by Company.
(ii) The Buyer shall have responsibility and authority to represent the
interests of the Company in any Tax Proceeding relating to Pre-Acquisition
Taxable Periods and Straddle Periods and to employ counsel of its choice in
connection therewith; provided, however, that Members shall be permitted to
participate in any such Tax Proceedings and all hearings related thereto at the
expense of the Members; and provided further, that, without the prior written
consent of the Members, which shall not be unreasonably withheld, the Buyer
shall not agree to settle or compromise any such Tax Proceeding and/or any
Pre-Acquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which the Members are responsible hereunder, provided,
however, the consent of the Members to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Members, promptly upon demand
from the Buyer, shall pay the reasonable costs and expenses, including attorney
fees, incurred by Buyer in connection with any such Tax Proceedings, provided,
however, in any Tax Proceeding related to a Straddle Period which involves Tax
Liabilities for which Members are responsible hereunder and Tax Liabilities
attributable to the Post-Closing Period for which Members are not responsible,
the Buyer, on the one hand, and the Members, on the other hand, shall jointly
bear the costs and expenses thereof as allocated between them on an equitable
basis.
(iii) All notices to Members provided for hereunder shall be deemed
delivered to each Member upon receipt thereof either directly by the Member. The
Members shall proportionately pay all Tax Liabilities and costs and expenses for
which the Members are responsible hereunder; provided, however, the Members
shall be jointly and severally liable for all such Tax Liabilities, costs and
expenses.
(iv) The Member shall furnish to Buyer such information and documents as
may be reasonably requested by Buyer, and shall otherwise reasonably cooperate
with Buyer, in connection with Buyer's conduct of any Tax Proceedings described
herein.
(f) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Members shall cause all such
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books and records and all other books and records related to the Company's Tax
Returns and Tax matters to be delivered to the Buyer. Buyer shall cause the
Company to retain all such books and records delivered to Buyer as provided
hereunder until the expiration of the statute of limitations (including any
waivers or extensions thereof) with respect to the taxable periods to which the
Tax Returns relate.
(g) Section 351. For all federal and state income tax purposes the
Members and Buyer shall (i) treat and report the transfer of the Seller
Interests in a manner consistent with its qualification as a transfer of
property to a controlled corporation pursuant to the provisions of Code Section
351 and comparable provisions of state income tax law, and (ii) file such Tax
Returns and Tax information reports related to the transfer as may be required
or otherwise appropriate under the Tax laws and regulations applicable to
transfers of property pursuant to Code Section 351.
(h) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.7 Consolidation Transactions.
Effective as of December 14, 1998, the Buyer acquired approximately 38
companies engaged in the business of cost reduction, cost recovery and profit
enhancement services by means of mergers into Buyer, or acquisitions by Buyer of
all or substantially all of the assets or stock or other equity interests of
such companies (collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
Contemporaneously with the transaction contemplated hereby, Buyer is attempting
to acquire various other companies (with the transaction contemplated hereby,
the "ADDITIONAL CONSOLIDATION TRANSACTIONS"), and following closing or
abandonment of the Additional Consolidation Transactions, Buyer intends to
pursue still more acquisitions (the "FURTHER CONSOLIDATION TRANSACTIONS"). The
Company and the Members acknowledge that as a result of the complexity of the
transactions contemplated hereby and the other Additional Consolidation
Transactions, and for valuation and other reasons, the Closing contemplated
hereby and the closing of the other Additional Consolidation Transactions may
need to be concurrent or sequenced as designated by Buyer. Accordingly, the
Company and the Members shall at any time upon or after execution of this
Agreement but prior to the Closing Date (i) provide any outstanding
documentation required to effect the Closing pursuant to this Agreement in
escrow pending release upon authorization of the Members at the Closing, (ii)
complete performance of their respective obligations hereunder and under the
other Transaction Documents to be performed by the Closing, and (iii) update the
schedules hereto and any other documentation or information provided to Buyer
during the course of this transaction such that all such disclosures shall be
accurate and current as of the Closing Date.
4.8 Supplemental Disclosure.
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At the Closing, the Company and the Members shall supplement or amend
each of the schedules hereto with respect to any matter hereafter arising which,
if existing or occurring at or prior to the date hereof, would have been
required to be set forth or listed in the schedules or which is necessary to
complete or correct any information in the schedules.
4.9 HSR.
Buyer and the Company shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.10 Competing Proposals.
(a) Neither the Company nor any Member shall directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire the Company, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) The Company and the Members shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Members or the Company or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company and the Members shall not transfer or hypothecate the
Business or any assets thereof or interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
4.11 Bonus Plan.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
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4.12 Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.13 Further Assurances.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
effectuate the purposes of this Agreement.
4.14 Notice of Breach.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1 Survival.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.28 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Seller Interests), 2.4 (Title to Assets) and 2.22 (Indebtedness)
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder.
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Completion of the transactions contemplated hereby shall not be deemed or
construed to be a waiver of any right or remedy of any of the parties.
5.2 Indemnification by the Members.
Subject to the limits set forth in this Article 5, the Members and, if
the transactions contemplated hereby are not consummated, the Company, and their
successors and assigns shall jointly and severally indemnify, defend, reimburse
and hold harmless Buyer and its Affiliates and their successors and assigns, and
the officers, directors, employees and agents of any of them, from and against
any and all claims, losses, damages, liabilities, obligations, assessments,
penalties and interest, demands, actions and expenses, whether direct or
indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Financial Statements or a
trade payable incurred in the ordinary course of business since the date of the
Financial Statements;
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by the Company or the Members in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company or the Members contained in this Agreement or any other Transaction
Document.
5.3 Indemnification by Buyer.
Subject to the limits set forth in this Article 5, Buyer and its
successors and assigns shall indemnify, defend, reimburse and hold harmless the
Members and their successors and assigns from and against any and all Losses
reasonably incurred by any such Members arising out of or in connection with any
of the following:
(a) the ownership and operation of the Company after the Closing
(except that, to the extent permitted by law, Buyer and its successors and
assigns will not be required to indemnify, defend, reimburse or hold harmless
any Stockholder in respect of any Losses arising as a result of acts or
omissions of that Stockholder, including without limitation in such
Stockholder's capacity as an employee of or consultant to Buyer or its
Affiliates after the Closing);
(b) any untruth, inaccuracy or material omission of any
representation or warranty made by Buyer in this Agreement or any other
Transaction Document; and
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(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
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(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 Payment.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract claims arising
under this Agreement or any other Transaction Document unless the persons so
entitled to indemnity or recovery thereunder have suffered Losses in an
aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5
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for Losses directly or indirectly caused by a breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement or any duty to the potential Indemnitor.
(b) The maximum aggregate liability of the Members to Buyer on the one
hand, and Buyer, on the other hand to the Members, for all claims arising under
this Agreement and the other Transaction Documents shall equal the aggregate
Purchase Price. For purposes of this Section 5.6(b), the value of Shares
received shall be (i) prior to the IPO, the per share Agreed Price (as defined
in the Stockholder Agreement) then prevailing; and (ii) after the IPO, the per
share closing price on the primary exchange or market on which the Common Stock
is traded on the date such indemnifiable Losses become payable, except that the
value of any Shares sold in bona fide third party transactions will be the gross
proceeds to the Members of such sale.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of Each Party.
The obligations of the Members, on the one hand, and Buyer, on the other
hand, to consummate the transactions contemplated hereby are subject to the
fulfillment, at or before the Closing Date, of the conditions set forth in this
Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that the Members will be required to
perform their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Members from and against, any obligations that
the Members would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of the Company, is in effect; and no action or proceeding
has been instituted or threatened by any Governmental Entity, other person, or
entity which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the
40
<PAGE> 47
transactions contemplated by this Agreement will be in compliance with
applicable laws, including, without limitation, expiration or termination of the
waiting period prescribed by the HSR Act.
6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Members contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date, and at the Closing the Company and
the Members' Representative shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Members.
(b) Performance of the Company and the Members. The Company and the
Members shall have performed in all material respects all obligations required
to be performed by each of them under this Agreement on or before the Closing
Date, and at the Closing the Company and the Members, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Members, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Members authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents to be
delivered by the Company and the Members and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Member. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by each
Member and dated the Closing Date:
(i) The Accredited Investor Questionnaire described in Section
2.24;
41
<PAGE> 48
(ii) A Subordination Agreement substantially in the form of
Exhibit D, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(iii) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least _____________________ Dollars
($_______), and (ii) sufficient working capital to operate the Company; and at
the Closing the Company shall have delivered to Buyer a certificate dated the
Closing Date to such effect with supporting financial information, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to the senior lenders of Buyer, debt financing
sufficient to finance the cash portion of the Purchase Price and the cash
portion of the purchase price being paid by Buyer pursuant to each of the
Consolidation Transactions, and to provide Buyer with adequate working capital
following the transactions contemplated hereby and the Consolidation
Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Certificates. The Members shall have delivered to Buyer the
certificates representing the Seller Interests and the stock certificates or
stock powers as described in Section 1.2.
42
<PAGE> 49
(l) Books. The Company shall have delivered to Buyer the record books,
ledgers, minute books, corporate seals of the Company and documents relating to
the transfer of ownership interests in the Company.
(m) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received Employment
Agreements substantially in the form attached hereto as Exhibit E (with
conforming changes as appropriate for each employee), duly executed and
delivered by the persons named on Schedule 6.2.
(n) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Members or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 Conditions to Obligations of the Members.
The obligations of the Members to consummate the transactions
contemplated hereby are subject to the fulfillment, at or before the Closing
Date, of the conditions set forth in this Section 6.3, any one or more of which
may be waived by the Members in writing in their discretion; provided however,
such waiver will not waive or diminish the right of the Members to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Members authorizing the execution and delivery
of this Agreement and the other Transaction Documents to be delivered by Buyer
and the consummation of the transactions contemplated hereby;
43
<PAGE> 50
(ii) The Notes;
(iii) Employment Agreements substantially in the form of Exhibit
E (with conforming changes as appropriate for each employee), with each of the
persons named on Schedule 6.2.
(d) The Cash Payment. The Members shall have received the Cash Payment
(as described in Schedule 1.3).
(e) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Member.
44
<PAGE> 51
7. MISCELLANEOUS.
7.1 Termination.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Members fail to comply in any
material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of the Company or the
Members is breached or is inaccurate in any material way; (b) by the Company or
the Members if (i) Buyer fails to comply in any material respect with any of its
covenants or agreements contained herein, or (ii) any of the representations and
warranties of Buyer is breached or is inaccurate in any material way; or (c) by
the Company or Buyer if (i) a Governmental Entity has issued a non-appealable
order, decree or ruling or taken any other action (which order, decree or ruling
the parties hereto have used their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits the transactions contemplated by this
Agreement; or (ii) a condition to its performance hereunder has not been
satisfied or waived prior to March 31, 1999; provided however, that if the board
of directors of Buyer should, in good faith, determine that it is necessary to
extend the Closing for the purpose of facilitating the financing of the
Additional Consolidation Transactions, it may extend such date by thirty-two
(32) days. Notwithstanding the foregoing, a party may not terminate this
Agreement if the event giving rise to the termination right results from the
willful failure of such party to perform or observe any of the covenants or
agreements set forth herein to be performed or observed by such party or if such
party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.29 (Brokers), 4.2 (Confidentiality), 5
(Survival; Indemnification), 7.12 (Expenses), 7.13 (Arbitration), 7.14
(Submission to Jurisdiction), and 7.15 (Attorneys' Fees), and except that
termination of this Agreement will not affect any liability of any party for any
breach of this Agreement prior to termination, or any breach at any time of the
provisions hereof surviving termination.
7.2 Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile, to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses
45
<PAGE> 52
or telephone numbers as the parties may designate by written notice in
accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
EPS Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or any Member:Dennis Nystrom
c/o EPS Solutions Corporation
695 Town Center Dr., Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
7.3 Assignability and Parties in Interest.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and the Company and their respective permitted successors and
assigns and upon each Member and his or her executors, administrators, heirs,
legal representatives and permitted successors and assigns. Nothing in this
Agreement will confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 Counterparts.
46
<PAGE> 53
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 Publicity.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and the Company, except that
Buyer may disclose details of this Agreement to other participants in, or as
necessary to effect, the Consolidation Transactions. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 Complete Agreement.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 Modifications, Amendments and Waivers.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 Headings; References.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10 Severability.
47
<PAGE> 54
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 Investigation.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of the
Company shall be deemed made to the knowledge of the Members only and no other
person.
7.12 Expenses of Transactions.
All fees, costs and expenses incurred by Buyer, in connection with the
transactions contemplated by this Agreement shall be borne Buyer, and all fees,
costs and expenses incurred by the Company or the Members in connection with the
transactions contemplated by this Agreement shall be borne by the Members
jointly and severally.
7.13 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and impartial
arbitrator, appointed by the AAA; provided however, if the claim and any
counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"),
48
<PAGE> 55
exclusive of interest and attorney's fees, the dispute shall be heard and
determined by three (3) arbitrators as provided herein (such arbitrator or
arbitrators are hereinafter referred to as the "ARBITRATOR"). The judgment of
the award rendered by the Arbitrator may be entered in any court having
jurisdiction thereof. The arbitration proceedings shall be held in Orange
County, California unless the parties to the arbitration agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an
49
<PAGE> 56
opponent's expert must pay the expert's fee for attending the deposition. All
discovery disputes shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 Submission to Jurisdiction.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in
<PAGE> 57
Section 7.2. Nothing herein shall affect the right of any party to serve process
in any other manner permitted by law.
7.15 Attorneys' Fees.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against the Company or any of its Affiliates, successors or assigns
or any Member, or if the Company or any of its Affiliates, successors or assigns
or any Member brings any action, suit, counterclaim, cross-claim, appeal,
arbitration, or mediation for any relief against Buyer or any of its Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no PREVAILING PARTY.
7.16 Enforcement of the Agreement.
The Company, the Members and Buyer acknowledge that irreparable damage
would occur if any of the obligations of the Company and the Members under this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Buyer will be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the Company or the Members and to enforce
specifically the terms and provisions hereto, this being in addition to any
other remedy to which Buyer is entitled at law or in equity.
<PAGE> 58
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION
By: /s/ MARK C. COLEMAN
-----------------------------------------
Name: Mark C. Coleman
------------------------------------
Title: SVP
-----------------------------------
NATIONAL HEALTH CARE RECOVERY SERVICES, L.L.C.
By: IM COMET LLC
Its: Manager
By: COMET CAPITAL CORP. NV
Its: Manager
By: /s/ ERIK R. WATTS
--------------------------
Name: Erik R. Watts
Title: Manager
--------------------
MEMBER(S):
IM COMET LLC
By: COMET CAPITAL CORP. NV
Its: Manager
By: ERIK R. WATTS
--------------------------
Name: Erik R. Watts
Title: Manager
--------------------
/s/ DENNIS NYSTROM
- --------------------------------------------
DENNIS NYSTROM
/s/ DEBRA LAW
- --------------------------------------------
DEBRA LAW
<PAGE> 59
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of One Million Sixty Seven Thousand Four Hundred
Twenty Seven Dollars and Twenty-Six Cents ($1,067,427.26) (the "CASH
PAYMENT").
(ii) Cancellation of that certain Promissory Note and Pledge
Agreement made by Debra J. Law in favor of Buyer in the principal amount
of Five Hundred Thirty-Two Thousand Five Hundred Seventy Two Dollars and
Seventy-Four Cents ($532,572.74).
(iii) Promissory notes of Buyer, dated as of the Closing Date
substantially in the form of Exhibit F for an aggregate principal amount
of Six Million Four Hundred Thousand Dollars ($6,400,000) (the "NOTE").
(iv) Repayment of Sellers Indebtedness as described on Schedule
2.22 in the aggregate amount of $1,350,000 via cash payments at closing
in the principal amount of $675,000 to each of Comet Capital Corporation
NV and IM Investments, Inc.
(b) Consideration per Member.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Seller Interests
Name of Owned and to Cash Note Debt
Member be sold to Buyer Consideration Consideration Forgiveness
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IM COMET LLC 80% 0 $6,400,000
- -----------------------------------------------------------------------------------------------------------
DENNIS NYSTROM 12 1/2% $1,000,000
- -----------------------------------------------------------------------------------------------------------
DEBRA LAW 7 1/2% $67,427.26 $532,572.74
- -----------------------------------------------------------------------------------------------------------
COMET CAPITAL CORPORATION 0 $675,000
NV (DEBT REPAYMENT)
- -----------------------------------------------------------------------------------------------------------
IM INVESTMENTS, INC. 0 $675,000
(DEBT REPAYMENT)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.45
STOCK PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
PRITCHETT PUBLISHING COMPANY
"COMPANY"
AND
EARLY PRICE PRITCHETT III
"STOCKHOLDER"
NOVEMBER 11, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale and Purchase......................................................................... 1
1.1. Agreements to Sell and Purchase. ............................................ 1
1.2. Closing. .................................................................... 1
1.3. Purchase Price. ............................................................. 2
1.4. Certificates for Shares. .................................................... 2
2. Representations and Warranties of the Company and the Stockholder......................... 2
2.1. Organization and Good Standing. ............................................. 2
2.2. Ownership of Capital Stock. ................................................. 3
2.3. Authorization of Agreement. ................................................. 3
2.4. Title to Assets. ............................................................ 4
2.5. Financial Condition. ........................................................ 4
2.6. Certain Property of the Company. ............................................ 5
2.7. Year 2000 Compliance. ....................................................... 7
2.8. No Conflict or Violation. ................................................... 8
2.9. Consents. ................................................................... 9
2.10. Labor and Employment Matters. ............................................... 9
2.11. Employee Plans. ............................................................. 9
2.12. Litigation. ................................................................. 12
2.13. Certain Agreements. ......................................................... 12
2.14. Compliance with Applicable Law. ............................................. 13
2.15. Licenses. ................................................................... 13
2.16. Accounts Receivable. ........................................................ 14
2.17. Intercompany and Affiliate Transactions; Insider Interests. ................. 14
2.18. Insurance. .................................................................. 15
</TABLE>
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<TABLE>
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2.19. Customers. .................................................................. 15
2.20. No Undisclosed Liabilities. ................................................. 16
2.21. Taxes. ...................................................................... 16
2.22. Indebtedness. ............................................................... 18
2.23. Environmental Matters. ...................................................... 18
2.24. Securities Matters. ......................................................... 19
2.25. Buyer and the Consolidation Transactions. ................................... 20
2.26. Minute Books and Stock Records. ............................................. 21
2.27. Banks. ...................................................................... 21
2.28. Powers of Attorneys and Suretyships. ........................................ 21
2.29. Brokers. .................................................................... 22
2.30. Summary of Certain Conditions. .............................................. 22
2.31. Accuracy of Information. .................................................... 22
3. Representations and Warranties of Buyer................................................... 22
3.1. Organization and Corporate Authority. ....................................... 22
3.2. No Conflict or Violation. ................................................... 23
3.3. Capitalization. ............................................................. 23
3.4. Notes. ...................................................................... 23
3.5. Litigation. ................................................................. 23
3.6. Buyer's Operations and Financial Condition. ................................. 23
3.7. Accuracy of Information. .................................................... 24
4. Certain Understandings and Agreements of the Parties...................................... 24
4.1. Access. ..................................................................... 24
4.2. Confidentiality. ............................................................ 24
4.3. Certain Changes and Conduct of Business. .................................... 25
</TABLE>
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<TABLE>
<S> <C>
4.4. Restrictive Covenants. ...................................................... 28
4.5. Securities Restrictions. .................................................... 30
4.6. Registration. ............................................................... 31
4.7. Cooperation in Litigation. .................................................. 33
4.8. Tax Matters. ................................................................ 33
4.9. Consolidation Transactions. ................................................. 36
4.10. Supplemental Disclosure. .................................................... 37
4.11. HSR. ........................................................................ 37
4.12. Competing Proposals. ........................................................ 37
4.13. Bonus Plan. ................................................................. 38
4.14. Best Efforts. ............................................................... 38
4.15. Further Assurances. ......................................................... 38
4.16. Notice of Breach. ........................................................... 38
5. Survival; Indemnification................................................................. 38
5.1. Survival. ................................................................... 38
5.2. Indemnification by the Stockholder. ......................................... 39
5.3. Indemnification by Buyer. ................................................... 39
5.4. Indemnification Procedure. .................................................. 40
5.5. Payment. .................................................................... 41
5.6. Limitations. ................................................................ 41
6. Conditions to Closing..................................................................... 42
6.1. Conditions to Obligations of Each Party. .................................... 42
6.2. Conditions to Obligations of Buyer. ......................................... 43
6.3. Conditions to Obligations of the Stockholder. ............................... 45
7. Miscellaneous............................................................................. 47
</TABLE>
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<TABLE>
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7.1. Termination. ................................................................ 47
7.2. Notices. .................................................................... 48
7.3. Assignability and Parties in Interest. ...................................... 48
7.4. Governing Law. .............................................................. 49
7.5. Counterparts. ............................................................... 49
7.6. Publicity. .................................................................. 49
7.7. Complete Agreement. ......................................................... 49
7.8. Modifications, Amendments and Waivers. ...................................... 49
7.9. Headings; References. ....................................................... 50
7.10. Severability. ............................................................... 50
7.11. Investigation. .............................................................. 50
7.12. Expenses of Transactions. ................................................... 50
7.13. Arbitration. ................................................................ 50
7.14. Submission to Jurisdiction. ................................................. 52
7.15. Attorneys' Fees. ............................................................ 53
7.16. Enforcement of the Agreement. ............................................... 54
</TABLE>
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EXHIBITS
A. Form of Accredited Investor Questionnaire
B. Summary of Certain Conditions
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Form of Voting Agreement
E. Form of Subordination Agreement
F. Form of Opinion of Counsel to the Company and the Stockholder
G Form of Employment Agreement For Key Employees
G-1 Form of Employment Agreement for Other Employees
H. Form of Opinion of Counsel to the Buyer
I. Form of Officer's Certificate
J. Form of Notes
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.12 Litigation
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.17 InterCompany and Affiliate Transactions; Insider Interests
2.18 Insurance
2.19 Customers
2.21(b) Tax Returns
2.21(j) 351 Information
2.22 Indebtedness
2.27 Banks
2.28 Powers of Attorney and Suretyships
2.29 Brokers
3.5 Buyer Litigation
3.6 Buyer Debt
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(xii) Stockholder Distributions
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4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
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<PAGE> 8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 11, 1998 by and among Pritchett Publishing Company,
a Texas corporation (the "COMPANY"), Early Price Pritchett III the sole
stockholder of the Company (the "STOCKHOLDER"), and ProfitSource Corporation, a
Delaware corporation ("BUYER").
A. The Company is engaged in the business of consulting,
training, and publishing on the organizational aspects of change management (the
"BUSINESS").
B. The Stockholder owns all of the issued and outstanding shares
of capital stock of the Company (the "SELLER SHARES").
C. The Stockholder desires to sell to Buyer, and Buyer desires to
purchase from the Stockholder all of the Seller Shares on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE.
1.1 Agreements to Sell and Purchase.
On the Closing Date (as hereinafter defined) the Stockholder shall sell
to Buyer, and Buyer shall purchase from the Stockholder, the number of Seller
Shares set forth opposite the Stockholder's name on Schedule 1.3, for the
purchase price set forth in Section 1.3.
1.2 Closing.
The closing of the sale and purchase of the Seller Shares (the
"CLOSING") will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park
Plaza, Irvine, California, on a date to be selected by Buyer after all the
conditions set forth in Article 6 have either been satisfied or, in the case of
conditions not satisfied, waived in writing by the party entitled to the benefit
of such conditions (the "CLOSING DATE"). Prior to the Closing Date, Buyer shall
provide written notice (the "CLOSING NOTICE") to the Company and the Stockholder
informing the Company and the Stockholder of the anticipated Closing Date. At
the Closing, the Stockholder shall deliver to Buyer or its designees stock
certificates, duly endorsed in blank (or accompanied by duly executed stock
powers), representing the Seller Shares being sold by the Stockholder and each
other instrument of transfer Buyer may reasonably request to vest effectively in
Buyer good and valid title to the Seller Shares, free and clear of any liens,
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any
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<PAGE> 9
person or entity, together with any taxes, direct or indirect, attributable to
such transfer of the Seller Shares, and Buyer shall thereupon pay to the
Stockholder the Purchase Price described in part (b) of Section 1.3 for the
Stockholder's Seller Shares.
1.3 Purchase Price.
The consideration to be paid by Buyer to the Stockholder for the Seller
Shares (the "PURCHASE PRICE") is described in Schedule 1.3.
1.4 Certificates for Shares.
In order to facilitate replacement of certificates for the shares of
Series A Common Stock of Buyer constituting part of the Purchase Price (the
"SHARES") upon an IPO (as defined herein) with the transfer agent's form of
certificate, and to facilitate enforcement of the Stockholder Agreement (as
defined herein), Buyer will keep custody of the certificates representing the
Shares until the IPO and until the Shares are no longer subject to the
Stockholder Agreement, and recipients of Shares will execute and deliver blank
stock powers as described in Section 6.2(c)(vi). This custody arrangement will
not affect the rights as a stockholder of any permitted recipient of Shares and
the Buyer shall deliver the certificates representing the Shares to the
Stockholder or his designee after the later of (i) the IPO or (ii) the Shares
are no longer subject to the Stockholder Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Schedule 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. The Company and the
Stockholder, jointly and severally, represent and warrant to Buyer that:
2.1 Organization and Good Standing.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, with full corporate power
and authority to carry on the Business as it is now and has since its
organization been conducted and as proposed to be conducted, and to own, lease
or operate its assets and properties. The Company is duly qualified to do
business and is in good standing in every jurisdiction in which the character of
the properties owned or leased by it or the nature of the business conducted by
it makes such qualification necessary, except where failure to be so qualified
would not have a material adverse effect on the Business or the Company's assets
or financial condition (a "MATERIAL ADVERSE EFFECT"). Schedule 2.1 lists all of
the jurisdictions in which the Company is qualified to do business. Complete and
accurate copies of the charter documents
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<PAGE> 10
and bylaws of the Company, with all amendments thereto to the date hereof, have
been furnished to Buyer or its representatives.
2.2 Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 1,000 shares
of common stock of the Company, $0.01 par value per share, of which 125.1228
shares are issued and outstanding. There is no other issued and outstanding
capital stock of the Company.
(b) The Seller Shares are all of the issued and outstanding capital
stock of the Company and are validly issued and outstanding, fully paid and
non-assessable. The Seller Shares owned by the Stockholder are set forth in part
(b) of Schedule 1.3. Neither the Stockholder nor the Company has granted, issued
or agreed to grant or issue any other equity interests in the Company and there
are no outstanding options, warrants, subscription rights, securities that are
convertible into or exchangeable for, or any other commitments of any character
relating to, any equity interests of the Company.
(c) The Stockholder has good and valid title to, and sole record and
beneficial ownership of, the Seller Shares owned by the Stockholder, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and the
Stockholder has the absolute and unrestricted right, power and authority and
capacity to enter into this Agreement.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 Authorization of Agreement.
The Company and the Stockholder have all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement and all other agreements and instruments to be executed
by the parties hereto in connection herewith (together with all other documents
to be delivered in connection herewith or therewith, collectively the
"TRANSACTION DOCUMENTS") have (except for Transaction
3
<PAGE> 11
Documents to be executed and delivered solely by Buyer) been duly and validly
approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") and
the Stockholder and no other proceedings on the part of the Company or the
Stockholder are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be delivered by the Company or the Stockholder have been (or upon
execution will have been) duly executed and delivered by the Company and the
Stockholder, have been effectively authorized by all necessary action, corporate
or otherwise, and constitute (or upon execution will constitute) legal, valid
and binding obligations of the Company and the Stockholder, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4 Title to Assets.
The Company is the lawful owner of each of its assets, whether real,
personal, mixed, tangible or intangible. All of the Company's assets are
sufficient and adequate to conduct the Business as presently conducted; and are
free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of any kind except any
of the following: (i) purchase money security interests in specific items of
equipment each having a value not in excess of $25,000; (ii) Personal Property
leased pursuant to Personal Property Leases; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Buyer; (v) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vi) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or the Stockholder
to transfer any of the assets of the Company or rights or interests therein to
any party.
2.5 Financial Condition.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
the Company as of December 1994, 1995, 1996 and 1997 and the related statements
of income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the balance sheet, and the related statements of income and
cash flow of the Company for the eight-month period ended August 31, 1998 or the
most recent interim date available (the "INTERIM FINANCIAL STATEMENTS," and with
the Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of the
Company; (ii) were prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied; (iii) fairly present the
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<PAGE> 12
financial condition and the results of the operations of the Company as at the
relevant dates thereof and for the periods covered thereby; (iv) to the extent
required by GAAP, contain and reflect all necessary adjustments and accruals for
a fair presentation of the financial condition and the results of the operations
of the Company for the periods covered by the Financial Statements (except that
the Interim Financial Statements are subject to year-end adjustments, the net
effect of which will not represent a Material Adverse Change); (v) to the extent
required by GAAP, contain and reflect adequate provisions for all reasonably
anticipated liabilities, including without limitation, for all taxes, federal,
state, local or foreign, with respect to the period then ended and all prior
periods; and (vi) do not contain any items of a special or nonrecurring nature,
except as expressly stated therein. The Interim Financial Statements accurately
reflect all information that would normally be reported to the independent
public accountants of the Company for the preparation of its financial
statements. There have been no changes or modifications of revenue recognition,
cost allocation practices or method of, accounting or other financial or
operational practices or principles except for any such change required by
reason of a concurrent change in GAAP during the periods covered by the
Financial Statements.
(b) Absence of Certain Changes. Except as set forth in the Interim
Financial Statements, since December 31, 1997 there has not been any Material
Adverse Change, or any event, action, or circumstance of the kind described in
Section 4.3. For purposes of this Agreement, a "MATERIAL ADVERSE CHANGE" means
any event, circumstance, condition, development or occurrence causing, resulting
in, having, or that could reasonably be expected to have, a Material Adverse
Effect.
2.6 Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or the Stockholder each Real Property Lease
is a valid and binding obligation of each of the other parties thereto, except
as enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor the
Stockholder has any knowledge that any other party to any Real Property Lease
is, in default with respect to any material term or condition thereof, and no
event has occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto or the creation of a lien or encumbrance
upon any asset of the Company.
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<PAGE> 13
(iii) To the knowledge of the Company or the Stockholder all of
the buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property of the Company, accurately identifies such Personal
Property as owned or leased, and lists each Personal Property Lease. The Company
is not in material breach of or default, and no event has occurred which, with
due notice or lapse of time or both, may constitute such a material breach or
default, under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names including, without
limitation, the names Pritchett, Pritchett & Associates and Audience Access and
other names and slogans embodying business or product goodwill or indications of
origin, all applications or registrations in any jurisdiction pertaining to the
foregoing and all goodwill associated therewith, as well as the following: (i)
patents, patentable inventions, discoveries, improvements, ideas, know-how,
formula, methodology, processes, technology and computer programs, software and
databases (including source code, object code, development documentation,
programming tools, drawings, specifications and data), and all applications or
registrations in any jurisdiction pertaining to the foregoing, including all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof; (ii) trade secrets, know-how, including confidential and
other non-public information, and the right in any jurisdiction to limit the use
or disclosure thereof; (iii) copyrights in writings, designs, mask works or
other works, and registrations or applications for registration of copyrights in
any jurisdiction; (iv) licenses, including, without limitation, software
licenses, immunities, covenants not to sue and the like relating to any of the
foregoing; (v) Internet Web sites, domain names and registrations or
applications for registration thereof; (vi) customer lists; (vii) books and
records describing or used in connection with any of the foregoing; and (viii)
claims or causes of action arising out of or related to infringement or
misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges
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<PAGE> 14
and encumbrances or are used by the Company pursuant to a valid and enforceable
license granting rights sufficiently broad to permit the historical and
anticipated uses of the Proprietary Rights in connection with the conduct of the
Business in the manner presently conducted and to convey such right and
authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company. There have not been any actions or other judicial
or adversary proceedings involving the Company concerning any of the Proprietary
Rights, nor to the knowledge of the Company or the Stockholder, is any such
action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or the Stockholder, there are
no conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "TRADE SECRETS"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
that the Trade Secrets are proprietary to the Company and not to be divulged or
misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
2.7 Year 2000 Compliance.
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<PAGE> 15
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by the Company and material to the Business are Year 2000 Compliant. For
purposes of this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 No Conflict or Violation.
The execution, delivery and performance by the Company and the
Stockholder of this Agreement and the other Transaction Documents to be
delivered by the Company or the Stockholder and the consummation of the
transactions contemplated hereby and thereby do not and will not: (i) violate or
conflict with any provision of the charter documents or bylaws of the Company;
(ii) violate in any material respect any provision or requirement of any
domestic or foreign, national, federal, state, or local law, statute, judgment,
order, writ, injunction, decree, award, rule, or regulation of any Governmental
Entity applicable to the Company or the Business; (iii) violate in any material
respect, result in a material breach of, constitute (with due notice or lapse of
time or both) a material default or cause any material obligation, penalty,
premium or right of termination to arise or accrue under any Contract (as
hereinafter defined); (iv) result in the creation or imposition of any material
lien, charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Company; or (v) result in the cancellation, modification,
revocation or suspension of any material license, permit, certificate,
franchise, authorization or approval issued or granted by any Governmental
Entity (each a "LICENSE," and collectively, the "LICENSES").
8
<PAGE> 16
2.9 Consents.
Schedule 2.9 lists all consents and notices required to be obtained or
given by or on behalf of the Company or the Stockholder before consummation of
the transactions contemplated by this Agreement in compliance with all
applicable laws, rules, regulations, or orders of any Governmental Entity, or
the provisions of any material Contract, and all such consents have been duly
obtained and are in full force and effect except where the failure to obtain
such consent will not have a Material Adverse Effect.
2.10 Labor and Employment Matters.
Schedule 2.10 lists all employees of the Company, including date of
retention, current title and compensation. Except as set forth on Schedule 2.10,
there is no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate Governmental Entities and has withheld and
paid to the appropriate Governmental Entities or is holding for payment not yet
due to such Governmental Entities, all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no unfair labor practice complaint against the Company pending before the
National Labor Relations Board or any state or local agency; pending labor
strike or other material labor trouble affecting the Company; material labor
grievance pending against the Company; pending representation question
respecting the employees of the Company; pending arbitration proceedings arising
out of or under any collective bargaining agreement to which the Company is a
party. For purposes of this Agreement, "EMPLOYEES" includes employees,
independent contractors and other persons filling similar functions.
2.11 Employee Plans.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of employees through the
date hereof have been paid or adequate accruals therefor have been made in the
Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date. All reasonably anticipated obligations of the
Company with respect to employees, whether arising by operation of law, by
contract, by past custom, or otherwise, for salaries, vacation and holiday pay,
sick pay, bonuses and other forms of compensation payable to employees in
respect of the services rendered by any of them prior to the date hereof have
been or will be paid by the Company prior to the Closing Date or
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adequate accruals therefor have been made in the Financial Statements, and
adequate accruals for all such obligations will be made through the Closing
Date.
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of the Company, and any other entity ("ERISA
AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS"),
together with all accrued liabilities under such Employee Plans. With respect to
each Employee Plan, the Company has made available to Buyer, to the extent
applicable, true and complete copies of (i) all plan documents, (ii) the most
recent determination letter received from the Internal Revenue Service (the
"IRS"), (iii) the most recent application for determination filed with the IRS,
(iv) the latest actuarial valuations, (v) the latest financial statements, (vi)
the three (3) most recent Form 5500 Annual Reports, including Schedule A and
Schedule B thereto, (vii) all related trust agreements, insurance contracts or
other funding arrangements which implement any of such Employee Plans, (viii)
all Summary Plan Descriptions and summaries of material modifications and all
modifications thereto communicated to employees, and (ix) in the case of stock
options or stock appreciation rights issued under any Employee Plan, a list of
holders, dates of grant, number of shares, exercise price per share and dates
exercisable. Neither the Company nor any ERISA Affiliate of the Company has any
liability or contingent liability with respect to the Employee Plans, nor will
any of the Company's assets be subject to any lien, charge or claim relating to
the obligations of the Company with respect to employees or Employee Plans. No
party to any Employee Plan is in default with respect to any material term or
condition thereof, nor has any event occurred which through the passage of time
or the giving of notice, or both, would constitute a default thereunder or would
cause the acceleration of any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in material compliance with the requirements provided by any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, without limitation, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Code. Each of the Company and its
ERISA Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with
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the IRS within the remedial amendment period. Such determination or qualified
status will apply from and after the effective date of any such Employee Plan.
No act or omission has occurred since the date of the last favorable
determination issued with respect to an Employee Plan which could result in a
revocation of the Plan's qualified status.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code. Neither the Company nor any of its ERISA Affiliates has incurred any
liability under the Worker Adjustment Retraining and Notification Act or any
similar state law relating to employment termination in connection with a mass
layoff, plant closing or similar event, and the transactions contemplated by
this Agreement will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
any Stockholder, is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects to the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
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2.12 Litigation.
Except as set forth on Schedule 2.12, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of the Company
or the Stockholder, threatened by or against the Stockholder, the Company, the
officers, directors, employees, agents of the Company, or any of their
respective Affiliates involving, affecting or relating to the Business or any
assets, properties or operations of the Company or the transactions contemplated
by this Agreement. Neither the Company nor any of the Company's assets is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have the
meaning ascribed to such term in Rule 405 under the Securities Act.
2.13 Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all material written, or oral, (i) contracts,
agreements and commitments not made in the ordinary course of business, (ii)
agency and brokerage agreements, (iii) service and other customer contracts,
(iv) contracts, loan agreements, letters of credit, repurchase agreements,
mortgages, security agreements, guarantees, pledge agreements, trust indentures,
promissory notes and other documents or arrangements relating to the borrowing
of money or for lines of credit, (v) tax sharing agreements, real property
leases or any subleases relating thereto, personal property leases, any material
agreement relating to Proprietary Rights (including service agreements relating
thereto) and insurance contracts, (vi) agreements and other arrangements for the
sale of any assets, property or rights other than in the ordinary course of
business or for the grant of any options or preferential rights to purchase any
assets, property or rights, (vii) documents granting any power of attorney with
respect to the affairs of the Company, (viii) suretyship contracts, performance
bonds, working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
stockholder agreements or agreements relating to the issuance of any securities
of the Company or the granting of any registration rights with respect thereto,
and (xii) all amendments, modifications, extensions or renewals of any of the
foregoing (each a "CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
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(c) To the knowledge of the Company or the Stockholder, no other party
to any Contract is in material default or breach in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or the Stockholder, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by the Company or the Stockholder since January 1, 1996, with
respect to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means
those notices alleging a material breach of a Contract or intention to terminate
or materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of the Company or the Stockholder, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 Compliance with Applicable Law.
The operations of the Company are, and have been, conducted in all
material respects in accordance with all applicable laws, regulations, orders
and other requirements of all Governmental Entities having jurisdiction over it
and its assets, properties and operations, including, without limitation, all
such laws, regulations, orders and requirements relating to the Business except
in any case where the failure to so conduct its operations would not have a
Material Adverse Effect. The Company has not received any notice of any material
violation of any such law, regulation, order or other legal requirement, and is
not in material default with respect to any order, writ, judgment, award,
injunction or decree of any Governmental Entity, applicable to the Company or
any of its assets, properties or operations. To the knowledge of the Company or
the Stockholder, there are no proposed changes in any such laws, rules or
regulations (other than laws of general applicability) that would adversely
affect the transactions contemplated by this Agreement or reasonably be expected
to have a Material Adverse Effect.
2.15 Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Stockholder of this Agreement and the other Transaction Documents. The Licenses
are sufficient and adequate in all material respects to permit the continued
lawful conduct of
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the Business in the manner now conducted and the ownership, occupancy and
operation of the Company's properties for its present uses and the execution,
delivery and performance of this Agreement. No jurisdiction in which the Company
is not qualified or licensed as a foreign corporation has demanded or requested
in writing that it qualify or become licensed as a foreign corporation. The
Company has delivered to Buyer or its representatives true and complete copies
of all the material Licenses together with all amendments and modifications
thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16 Accounts Receivable.
Schedule 2.16 lists all accounts receivable of the Company (the
"ACCOUNTS RECEIVABLE") as of the third business day prior to date hereof,
including their aging. Schedule 2.16 will be updated at the Closing Date to
reflect all Accounts Receivable as of the Closing Date, including their aging.
All Accounts Receivable as of the date hereof represent, and all Accounts
Receivable as of the Closing Date will represent, valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business that are current and collectible in amounts not less than the aggregate
amount thereof (net of reserves established in accordance with GAAP applied
consistently with prior practice) carried (or to be carried) on the books of the
Company and reflected in the Financial Statements, and are not and will not be
subject to any valid counterclaims or set-offs, disputes or contingencies. The
preceding sentence shall not be deemed or construed as a guarantee by the
Company or the Stockholder of the collection of any such Account Receivable.
2.17 Intercompany and Affiliate Transactions; Insider Interests.
(a) Except as set forth on Schedule 2.17, there are no material
transactions, agreements or arrangements of any kind, direct or indirect,
between the Company and any director, officer, employee, stockholder, relative
or Affiliate of the Company or the Stockholder, including, without limitation,
loans, guarantees or pledges to, by or for the Company or from, to, by or for
any of such persons, that are either (i) currently in effect, or (ii) reflected
in the Company's financial results.
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(b) Except as set forth on Schedule 2.17, no officer, director or
stockholder of the Company, or any Affiliate of any such person, now has, or
within the last three (3) years had, either directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.18 Insurance.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by the Company at any time during the three (3) years prior to the
date of this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity that require or recommend any changes in the conduct of the
Business, or any repairs or other work to be done on or with respect to any of
the properties or assets of the Company. The Company has not received any notice
or other communication from any such insurance company within the three (3)
years preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of the Company or the Stockholder, no such
cancellation, amendment or increase of premiums is threatened.
2.19 Customers.
Schedule 2.19 lists the ten (10) largest customers of the Company,
together with revenues to the Company from each such customer during the most
recent complete fiscal year and the current fiscal year to the date hereof, and
the scheduled termination dates of their current contracts with the Company.
None of such customers has given written notice to the Company of an intention
to terminate or materially impair its business relationship with the Company and
neither the Company nor the Stockholder has any knowledge of any event that
would precipitate the impairment, or termination of, or the failure to renew, or
entitle any such customer to terminate, such business relationship.
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2.20 No Undisclosed Liabilities.
Except as and to the extent specifically reflected or reserved against
in the Interim Financial Statements and except as incurred in the ordinary
course of business since the date of the Interim Financial Statements, the
Company has no material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due
(including, without limitation, any liability for taxes and interest, penalties
and other charges payable with respect to any such liability or obligation) and
no facts or circumstances exist which, with notice or the passage of time or
both, could reasonably be expected to result in any material claims against or
obligations or liabilities of the Company.
2.21 Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the
Company for or with respect to (A) any Pre-Acquisition Taxable Period, or (B)
any Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of
the Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company
that includes but does not end on the Closing Date.
(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or
any judicial or administrative proceeding, relating to liability for or refunds
or adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not shown on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no
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additional Tax Liabilities for periods covered by such previously-filed Tax
Returns have been assessed on or proposed to the Company. With respect to each
such Tax Return, Schedule 2.21(b) specifies (A) each such Tax Return that (1) is
currently being audited by a Tax authority, or (2) as to which the Company has
received a written and/or oral notice from a Tax authority that such Tax
authority intends to commence an audit or examination of such Tax Return, and
(B) each such Tax Return as to which the Company has given its consent to waive
or extend the applicable statute of limitations for such Tax Return or the
assessment of Taxes required to be reported thereon. The Company has either
delivered to Buyer or made available for inspection by Buyer or its
representatives or agents complete and correct copies of all Tax audit reports
and statements of Tax deficiencies with respect to any delinquent Tax assessed
against or agreed to by the Company for all taxable periods commencing on or
after January 1, 1993, for which audit reports or statements of deficiencies
have been received by the Company.
(c) Withholdings. The Company has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third-party.
(d) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (not including any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
(e) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(f) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(g) Foreign Tax Matters. The Company is not and has never been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(h) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(i) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(j) S Corporation Status. The Company (and any predecessor of the
Company) has been a validly electing S corporation within the meaning of Code
Sections 1361 and 1362 at all times since 1993, and the Company will be an S
corporation up to an including
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the day before the Closing Date. The Company will similarly qualify as an S
corporation for state or local income tax purposes.
(k) Section 351. It is acknowledged that the Buyer, the Company and
Stockholders intend that the transfer of the Seller Shares by the Stockholder to
Buyer pursuant to this Agreement qualify (i) as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of applicable state income tax law, and (ii) under Code
Section 351 as part of a transfer by the Stockholder and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.21(j) is accurate and may be used by Buyer
for tax filing purposes.
(l) Section 280G. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G.
2.22 Indebtedness.
Schedule 2.22 lists each person or entity that owns any direct or
indirect debt interest (other than accounts payable incurred in the ordinary
course of the Company's business) in the Company (including, without limitation,
any indebtedness for borrowed money, whether or not evidenced by a note or other
written instrument) and a description of each such debt interest.
2.23 Environmental Matters.
Notwithstanding anything to the contrary contained in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are
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defined in or otherwise subject to any applicable Environmental Law and
collectively referred to herein as "HAZARDOUS MATERIALS") has been released,
placed, disposed of or otherwise come to be located on, at, beneath or near any
of the assets or properties owned or leased by the Company at any time or any
other property in material violation of any Environmental Laws such that the
Company could be subject to material liability under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or any Stockholder, with respect to
any or all of the real properties leased at any time by the Company, there are
no asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or any
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of the Company or any Stockholder, any threatened actions or
claims, or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.24 Securities Matters.
(a) The Stockholder understands that (i) neither the Shares nor any
notes issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Stockholder's representations set forth herein.
(b) The Stockholder acknowledges that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Stockholder may lose his entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
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(c) Buyer has made available to the Stockholder or the Stockholder's
advisors the opportunity to obtain information to evaluate the merits and risks
of the investment in the Securities, and the Stockholder has received all
information requested from Buyer. The Stockholder has had an opportunity to ask
questions and receive answers from Buyer regarding the terms and conditions of
the offering of the Securities and the business, properties, plans, prospects,
and financial condition of Buyer and to obtain additional information as the
Stockholder has deemed appropriate for purposes of investing in the Securities
pursuant to this Agreement.
(d) The Stockholder, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and have sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Stockholder has relied solely upon independent
investigations made by the Stockholder, and has consulted his own investment
advisors, counsel and accountants. The Stockholder has adequate means of
providing for current needs and personal contingencies, and have no need for
liquidity and can sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Stockholder's own account, for investment purposes, not as a nominee or
agent, and not with a view to or for sale in connection with any distribution of
the Securities in violation of applicable securities laws.
(f) The Stockholder understands that no federal or state agency has
passed upon the Securities or made any finding or determination as to the
fairness of the investment in the Securities.
(g) The Stockholder is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit A hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor the Stockholder has received any general
solicitation or general advertising concerning the Shares, nor is the Company or
the Stockholder aware of any such solicitation or advertising.
2.25 Buyer and the Consolidation Transactions.
(a) The Stockholder is aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
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(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.9) will occur, that Buyer will be
successful in accomplishing the purpose for which it was formed or that it will
ever be profitable. No assurance can be given regarding what companies, if any,
will ultimately be acquired by Buyer. No company is obligated to participate in
the Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether the Stockholder would be able to
participate, or the price at which any shares of Common Stock would be sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Stockholder acknowledges that no assurances have been made to
the Stockholder with respect to any of the foregoing and no representations,
oral or written, have been made to the Stockholder by Buyer or any of its
employees, representatives or agents concerning the potential value or the
Shares issued as part of the Purchase Price or the prospects of Buyer, except as
set forth herein.
2.26 Minute Books and Stock Records.
The Company has made available to Buyer true, complete and correct
copies of:
(a) the minute books of the Company, containing all records required to
be set forth of all proceedings, consents, actions, and meetings of its
stockholders and the Board of Directors; and
(b) all stock record books of the Company setting forth all transfers of
capital stock.
2.27 Banks.
Schedule 2.27 lists the account information at each bank or other
institution at which the Company has a line of credit, check, savings or other
account, certificate of deposit or safe deposit box and the names of each person
authorized to draw thereon or have access thereto.
2.28 Powers of Attorneys and Suretyships.
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Except as set forth on SCHEDULE 2.28, the Company does not have any
general or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.29 Brokers.
Except as set forth on SCHEDULE 2.29, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company or the Stockholder.
2.30 Summary of Certain Conditions.
The Stockholder acknowledges receipt and understanding of the Summary of
Certain Considerations attached hereto as Exhibit B.
2.31 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by the Company or the Stockholder to Buyer in this Agreement, the
Disclosure Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER..
Buyer represents and warrants to the Stockholder that:
3.1 Organization and Corporate Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
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3.2 No Conflict or Violation.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby, do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 Capitalization.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 Notes.
Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
3.5 Litigation.
Except as set forth on SCHEDULE 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or proceedings
including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.6 Buyer's Operations and Financial Condition.
Since its date of incorporation Buyer has had no operations except
operations in connection with effecting the Consolidation Transactions and
preparing for operation of its
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business after Closing. Buyer has no material tangible assets, and except as set
forth on SCHEDULE 3.6, Buyer has no material liabilities or obligations for
borrowed money or payment for services rendered to Buyer. From and after the
Closing, Buyer or its Affiliates may have liabilities or obligations for money
borrowed to effect the Consolidation Transactions and as a result of
acquisitions by Buyer in the Consolidation Transactions, and Buyer makes no
representations or warranties about any such liabilities or obligations or the
absence thereof.
3.7 Accuracy of Information.
None of the representations or warranties or information provided and to
be provided by Buyer to the Stockholder in this Agreement, the schedules or
exhibits hereto, or in any of the other Transaction Documents delivered by Buyer
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary in order to make the statements
and facts contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 Access.
The Company shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of the Company (including,
without limitation, the Company's accounting records, the workpapers of the
Company's independent accountants, and all environmental studies, reports and
other environmental records) and, during such period, shall furnish promptly to
Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2 Confidentiality.
For purposes hereof, the Company and the Stockholder will keep the
matters contemplated herein and all information provided by Buyer related to
Buyer and the Consolidation Transactions and potential participants therein,
including without limitation, Deloitte & Touche LLP, confidential, and will not
provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer will keep the matters contemplated herein and all information provided by
the Company and the Stockholder related to the Company and the Business
confidential, and will not provide information about such matters to any party
or use such information except to the extent necessary to effect the
transactions contemplated hereby. Buyer and the Company shall each cause their
respective Affiliates, officers, directors, employees, agents, and advisors to
keep confidential all information received in connection with the transactions
contemplated hereby. The Company and the Stockholder acknowledge that Buyer may
provide information about the Company and the Business to other
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participants in the Consolidation Transactions to the extent necessary to
facilitate the Consolidation Transactions. If this Agreement terminates without
consummation of the Closing, the Company, the Stockholder and Buyer shall, and
shall cause their Affiliates to, each maintain the confidentiality of any
information obtained from the other in connection with the transactions
contemplated hereby, the Consolidation Transactions, and Buyer's business plans
(the "INFORMATION"), other than Information that (i) was in the public domain
before the date of this Agreement or subsequently came into the public domain
other than as a result of disclosure by the party to whom the Information was
delivered; or (ii) was lawfully received by a party from a third party free of
any obligation of confidence of or to such third party; or (iii) was already in
the possession of the party prior to receipt thereof, directly or indirectly,
from the other party; or (iv) is required to be disclosed in a judicial or
administrative proceeding after giving the other party as much advance notice of
the possibility of such disclosure as practicable so that the other party may
attempt to stop such disclosure; or (v) is subsequently and independently
developed by employees of the party to whom the Information was delivered
without reference to the Information. If this Agreement terminates without
consummation of the Closing, Buyer, on the one hand, and the Stockholder and the
Company, on the other, shall return to the other all material containing or
reflecting the Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and Buyer shall
ensure the return of all such material from all other parties with whom it has
been shared, and shall thereafter refrain from using the Information and shall
maintain its confidentiality pursuant to this Agreement.
4.3 Certain Changes and Conduct of Business.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), the Company shall, and the
Stockholder shall cause the Company to, conduct the Company's business solely in
the ordinary course consistent with past practices. Without limiting the
generality of the preceding sentence, except as required or permitted pursuant
to the terms hereof, the Company shall not, and the Stockholder shall cause the
Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts of the type described in
Schedule 4.3(a)(i), in any case calling for payments by the Company in excess of
$20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any change in the charter documents or bylaws of the
Company, issue any additional shares of capital stock or equity securities or
grant any option, warrant or right to acquire any capital stock or equity
securities or issue any security convertible into or exchangeable for the
capital stock of the Company, alter any term of any of the outstanding
securities of the Company, or make any change in the outstanding shares of
capital stock or other ownership interests or in the capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise;
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(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or indirectly any debt
securities of the Company or any security convertible into or exchangeable for
such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 per calendar month or to invest, advance, loan, pledge or donate any
monies to any customers or other persons or entities or to make any similar
commitments with respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, the Stockholder or any Affiliate of the Company
or the Stockholder;
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders, except as set forth on Schedule 4.3(a)(xii);
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(xiii) except as necessary to comply with Section 4.3(b)(iv),
make any change in any revenue recognition or cost allocation practices or
method of accounting or accounting principle, method, estimate or practice
(except for any such change required by reason of a concurrent change in GAAP),
or write down the value of any assets or write-off as uncollectible any Accounts
Receivable except in the ordinary course of business consistent with past
practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or the Stockholder herein not
to remain true and correct in all material respects, or that would cause any of
the conditions to the parties' respective obligations to consummate the
transactions contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not
to be met; or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Stockholder shall
cause it to:
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof.
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4.4 Restrictive Covenants.
(a) Non-Competition. The Stockholder recognizes that the covenants of
the Stockholder contained in this Section 4.4(a) (the "COVENANT NOT TO COMPETE")
are an essential part of this Agreement and the other Transaction Documents and
that but for the agreement of the Stockholder to comply with such covenants
Buyer would not enter into this Agreement or the other Transaction Documents.
The Stockholder acknowledges and agrees that the Covenant Not to Compete is
necessary to protect the Business acquired by Buyer, including without
limitation, goodwill and the Proprietary Rights and that irreparable harm and
damage will be done to Buyer if the Stockholder competes with Buyer in any way
prohibited by the Covenant Not to Compete. In addition, the Stockholder
acknowledges that the Purchase Price is consideration for professional
relationships and market place reputation developed by the Company and the
Stockholder and the Covenant Not to Compete is necessary for Buyer to receive
the full benefit of this Agreement. After the Closing, the Stockholder shall not
individually, or in concert, directly or indirectly:
(i) either on his own account or for any other person or entity,
solicit, induce, attempt to induce, interfere with, or endeavor to cause (in
each case in such a manner that could have a material adverse effect on the
financial condition, prospects or operation of the Business, the assets of the
Company or Buyer or any of its Affiliates) any customer, which has utilized the
services of the Company at any time during the two (2) year period preceding the
Closing Date or with whom the Company was engaged in meaningful negotiations as
of the Closing Date (each, a "CUSTOMER"), to modify, amend, terminate or
otherwise alter the terms upon which it acquires services from Buyer or Buyer's
Affiliates, or to acquire from any party other than Buyer or its Affiliates any
services of the kind available from Buyer or its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action;
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business; or
(v) use or authorize any third-party to use the name "Price
Pritchett" (or any variation thereof) in connection with (i) the promotion or
marketing of business or
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customer services in connection with the Business or (ii) any books, pamphlets
or promotional materials the content of which is in any way related to the
Business or the services provided by the Company at any time during the two (2)
year period preceding the Closing Date.
This Covenant Not to Compete shall be limited to any county or
any other political subdivision of any state of the United States of America, or
of any other country in the world, where the Company generated revenue or
established goodwill at any time during the two (2) year period preceding the
Closing Date. This Covenant Not to Compete shall bind the Stockholder until
December 31, 2002, provided however, that if the employment of any Stockholder
is terminated by Buyer without Cause or by such Stockholder for Good Reason
(each as defined in such Stockholder's Employment Agreement delivered pursuant
to Section 6.3(c)(iv)), and if either (i) a registration statement for an
underwritten IPO of Buyer's equity securities has not been filed by December 31,
1999, or (ii) Buyer fails to consummate a public offering that results in a
public trading market of equity securities of Buyer on a national securities
exchange or the Nasdaq Stock Market by May 15, 2000, then after termination of
such Stockholder's employment with the Company or any of its Affiliates, such
Stockholder will no longer be subject to the covenants contained in Sections
4.4(a)(ii) and (iii), and the covenants in Section 4.4(a)(iv) will not be
breached by any general marketing efforts with which such Stockholder may be
involved that are not targeted specifically at any Customer. The parties hereto
agree that the duration and area for which the Covenant Not to Compete set forth
in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) the Stockholder shall at all times keep
confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds the Stockholder pursuant to Section 4.4(a) the Stockholder shall
not, and shall cause his Affiliates not to, divert or attempt to divert or take
advantage of or attempt to take advantage of any actual or potential business or
opportunities of Buyer or its Affiliates of which the Stockholder becomes aware
as the result of his affiliation with the Business or his relationship with
Buyer or its Affiliates and which relate specifically to the Business, or any
part thereof. This Section 4.4(c) is in addition to and not by way of limitation
of any other duties the Stockholder may have to Buyer or its Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds the Stockholder pursuant to Section 4.4(a) the Stockholder shall
not, and shall cause his Affiliates not to, hire away, or cause any other person
to hire away, any employee of or consultant to Buyer or its Affiliates
(including without limitation persons employed or engaged by Seller before the
Closing Date), or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their employment or
engagement with Buyer or its Affiliates.
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(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Stockholder in light of the activities and business
of the Company and future plans of Buyer. The Stockholder acknowledges that if
he violates any of the covenants contained in this Section 4.4 (collectively,
the "RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to Buyer and, in addition to any other remedies Buyer may have, (i)
Buyer shall be entitled to temporary injunctive relief without being required to
post a bond and permanent injunctive relief without the necessity of proving
actual damages. The Stockholder shall be liable to pay all costs, including
reasonable attorneys' fees and expenses, that Buyer may incur in enforcing or
defending, to any extent, any of the Restrictive Covenants breached by the
Stockholder, whether or not litigation is actually commenced and including
litigation of any appeal defended by Buyer where such party succeeds in
enforcing any of the Restrictive Covenants. Buyer may elect to seek one or more
remedies at its discretion on a case by case basis. Failure to seek any or all
remedies in one case shall not restrict Buyer from seeking any remedies in
another situation. Such action by Buyer shall not constitute a waiver of any of
its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
4.5 Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
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(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholder will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period, (ii) such lock up provision will be contingent upon
the officers and directors of the registrant entering into similar lock up
agreements, and (iii) no Stockholder will be required to comply with this lock
up provision if any other stockholder owning more shares of Common Stock than
such Stockholder and who is subject to a contractual lock up provision similar
to this one has been released from such lock up obligation.
4.6 Registration.
(a) The Stockholder will not have any rights to demand registration of
any of the Shares, or to participate in any registration undertaken by Buyer
except as set forth in this Section 4.6. If Buyer files a registration statement
with the Securities and Exchange Commission for an underwritten IPO of its
equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
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if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Stockholder shall
have the right, subject to the limitations set forth in this Section 4.6(a), to
include in such registration statement or statements and offering or offerings
of Shares and other Common Stock owned by such Stockholder. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in
connection with the formation of, or work on behalf of, Buyer) will have rights
to include shares of Common Stock in such offering, and if the aggregate amount
of shares that all stockholders with such rights (collectively, the "SELLING
STOCKHOLDERS") desire to include exceeds the number of shares of Common Stock
that can be sold by all Selling Stockholders, then all Selling Stockholders
desiring to sell in any such offering will participate pro-rata on the basis of
the relative numbers of shares of Common Stock eligible for inclusion that they
originally sought to include. However, not withstanding the foregoing, no
Selling Stockholder will be permitted to include in any such registration and
offering (i) any Shares subject to performance-related restrictions at the time
of filing of the registration statement for such offering or (ii) more than, in
the aggregate for all such registrations and offerings, half of the shares of
Common Stock held by such Selling Stockholder as of the date hereof.
Furthermore, in no case will the Stockholder hereunder be permitted to include
in all such registrations and offerings, in the aggregate, more than the number
of Shares listed on Schedule 4.6 under the item "Maximum IPO Shares" (such
Shares will be allocated among Stockholders hereunder desiring to participate in
any such registration and offering ratably on the basis of their relative
ownership of Shares and other Common Stock).
(b) If any Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer such Stockholder expressly for use
therein for which the Stockholder will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6, pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated
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stockholder groups) selling the most shares of Common Stock in the offering, and
(iii) the fees and costs of any separate counsel retained by such Selling
Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7 Cooperation in Litigation.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and the Company or the Stockholder and/or their Affiliates or assignees, on the
other, arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payments by each party of its costs and
payments or attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8 Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as
of the close of the Company's business activities on the Closing Date, and that,
in the case of Pre-Acquisition Taxable Periods ending on the Closing Date, all
of the Company's income, gains and other Tax items attributable to the Closing
Date shall be included and reported by the Company in Tax Returns of the Company
for such Pre-Acquisition Taxable Periods to be filed following the Closing and
that all Taxes attributable to the Company's income, gains or other taxable
items for the Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of
any Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be
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allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated among the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods
which are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) Stockholder shall be responsible for and shall pay (A) all
reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes shown or reported to be due and payable on such Tax
Returns to the extent not specifically reserved (excluding reserves for deferred
taxes) against in the Interim Financial Statements. The Stockholder shall pay
such costs, expenses and Tax liabilities promptly following receipt by the
Stockholder of a notice from Buyer of Buyer's calculation of such Stockholder's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If the Stockholder
disputes all or any portion of the payment obligation hereunder as calculated by
Buyer, the Stockholder shall nevertheless promptly pay to Buyer the amount
specified in the notice and any dispute related thereto shall be resolved
pursuant to the arbitration provisions of Section 7.13. Any additional Taxes
attributable to the periods covered by such Tax returns, whether pursuant to an
amended return or any Tax Proceeding, shall be paid by Stockholder promptly upon
demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE PERIOD RETURN") reporting and accounting for
such Taxes on an aggregate basis covering both the Pre-Closing Period and the
Post-Closing Period. The Buyer, at its expense, shall cause the Company to
prepare and file such Straddle Period Returns.
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(ii) The Taxes reportable on such Straddle Period Returns that
are attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The
Stockholder shall be responsible for and shall pay all Pre-Closing Taxes shown
or reported to be due and payable on such Straddle Period Returns to the extent
not specifically reserved (excluding reserves for deferred taxes) against the
Interim Financial Statements. The Stockholder shall pay such Pre-Closing Taxes
promptly following receipt by the Stockholder of a notice from Buyer of Buyer's
calculation of the Stockholder's payment obligation hereunder together with
copies of the relevant Tax Returns and other information supporting Buyer's
calculation. If the Stockholder disputes all or any portion of the payment
obligation hereunder as calculated by Buyer, the Stockholder shall nevertheless
promptly pay to Buyer the amount specified in the notice and any dispute related
thereto shall be resolved pursuant to the arbitration provisions of Section
7.13. Any additional Taxes attributable to the Pre-Closing Periods covered by
such Tax Returns, whether pursuant to an amended return or any Tax Proceeding,
shall be paid by Stockholder promptly upon demand therefor by Buyer.
(e) Subsequent Tax Filings. Buyer and the Stockholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to Sections 4.8(c) and (d).
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to the filing of such Tax Returns.
(f) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company,
notify the Stockholder of any written communication from a Tax authority with
respect to any pending Tax Proceeding involving a Pre-Acquisition Tax Liability.
Buyer shall include with such notification a copy of the written communication
so received by Company.
(ii) Buyer shall have responsibility and authority to represent
the interests of the Company in any Tax Proceeding relating to Pre-Acquisition
Taxable Periods and Straddle Periods and to employ counsel of its choice in
connection therewith; provided, however, that Stockholder shall be permitted to
participate in any such Tax Proceedings and all hearings related thereto at the
expense of Stockholder; and provided further, that, without the prior written
consent of Stockholder, which shall not be unreasonably withheld, Buyer shall
not agree to settle or compromise any such Tax Proceeding and/or any
Pre-Acquisition Tax Liability issue arising therein if such settlement can
reasonably be expected to result in a material increase in the Pre-Acquisition
Tax Liabilities for which Stockholder is responsible hereunder, provided,
however, the consent of Stockholder to such settlement or compromise shall not
be required hereunder if the failure to settle or compromise the Tax Proceeding
or an issue arising therein can reasonably be expected to result in an adverse
effect on the Company following the Closing. The Stockholder, promptly upon
demand from the Buyer, shall pay the reasonable costs and expenses, including
attorney fees, incurred by Buyer in connection with any such Tax Proceedings,
provided, however, in any Tax Proceeding related to a Straddle Period which
involves Tax Liabilities for which Stockholder is responsible hereunder and Tax
Liabilities attributable to the Post-Closing Period for which
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Stockholder is not responsible, the Buyer, on the one hand, and the Stockholder,
on the other hand, shall jointly bear the costs and expenses thereof as
allocated between them on an equitable basis.
(iii) All notices to the Stockholder provided for hereunder shall
be deemed delivered to the Stockholder upon receipt thereof either directly by
the Stockholder. The Stockholder shall proportionately pay all Tax Liabilities
and costs and expenses for which the Stockholder is responsible hereunder.
(iv) The Stockholder shall furnish to Buyer such information and
documents as may be reasonably requested by Buyer, and shall otherwise
reasonably cooperate with Buyer, in connection with Buyer's conduct of any Tax
Proceedings described herein.
(g) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Stockholder shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute of
limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(h) Section 351. For all federal and state income tax purposes the
Stockholder and Buyer shall (i) treat and report the transfer of the Seller
Shares in a manner consistent with its qualification as a transfer of property
to a controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of state income tax law, and (ii) file such Tax returns
and Tax information reports related to the transfer as may be required or
otherwise appropriate under the Tax laws and regulations applicable to transfers
of property pursuant to Code Section 351.
(i) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(j) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9 Consolidation Transactions.
Concurrent with the transaction contemplated hereby, Buyer is acquiring
in a series of transactions various other companies engaged in the business of
cost reduction, cost recovery and profit enhancement services by means of
mergers into Buyer, or acquisitions by Buyer of all or substantially all of the
assets or stock or other equity interests of such
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companies (collectively, the "CONSOLIDATION TRANSACTIONS"). The Company and the
Stockholder acknowledge that as a result of the complexity of the transactions
contemplated hereby and the Consolidation Transactions, the Closing contemplated
hereby and the closing of the Consolidation Transactions must be concurrent at a
time designated by Buyer. Accordingly, the Company and the Stockholder shall at
any time upon or after execution of this Agreement, but prior to the Closing
Date (i) provide any outstanding documentation required to effect the Closing
pursuant to this Agreement in escrow pending release upon authorization of the
Stockholder at the Closing, (ii) complete performance of their respective
obligations hereunder and under the other Transaction Documents to be performed
by the Closing, and (iii) update the schedules hereto and any other
documentation or information provided to Buyer during the course of this
transaction such that all such disclosures shall be accurate and current as of
the Closing Date.
4.10 Supplemental Disclosure.
At the Closing, the Company and the Stockholder shall supplement or
amend each of the schedules hereto with respect to any matter hereafter arising
which, if existing or occurring at or prior to the date hereof, would have been
required to be set forth or listed in the schedules or which is necessary to
complete or correct any information in the schedules.
4.11 HSR.
Buyer and the Company shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.12 Competing Proposals.
(a) Neither the Company nor the Stockholder shall directly or
indirectly, initiate, solicit, encourage or participate in any discussions or
negotiations with, or provide any nonpublic information to, any person or entity
concerning any potential offer (other than as described herein) to acquire the
Company, the Business or any assets thereof or interests therein, or any other
transaction or arrangement that would interfere with the transactions
contemplated hereby (a "COMPETING PROPOSAL").
(b) The Company and the Stockholder shall promptly communicate to Buyer
the existence or occurrence and terms of any Competing Proposal or contact
related thereto which the Stockholder or the Company or any of its employees,
directors, or agents may
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receive in respect of any such proposed transaction and the identity of the
person, entity or group from whom such proposal or contact was received.
(c) The Company and the Stockholder shall not transfer or hypothecate
the Business or any assets thereof or interests therein except to Buyer, or
enter into any agreement with any person other than Buyer in connection with any
of the foregoing.
4.13 Bonus Plan.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
4.14 Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.15 Further Assurances.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
effectuate the purposes of this Agreement.
4.16 Notice of Breach.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party contained herein
or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1 Survival.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the
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second anniversary of the Closing Date, except those representations and
warranties contained in (i) Sections 2.21 (Taxes) and 2.29 (Brokers), which will
survive until the expiration (including extensions) of the applicable statute of
limitations; and (ii) Sections 2.2 (Ownership of Capital Stock), 2.4 (Title to
Assets) and 2.22 (Indebtedness) which will survive indefinitely. As to any
matter or claim which is based upon fraud by the indemnifying party, the
representations and warranties set forth in this Agreement shall expire only
upon expiration of the applicable statute of limitations. No party will be
liable to another under any warranty or representation after the applicable
expiration of such warranty or representation; provided however, if a claim or
notice is given under this Article 5 with respect to any representation or
warranty prior to the applicable expiration date, such claim may be pursued to
resolution notwithstanding expiration of the representation or warranty under
which the claim was brought. Any investigations made by or on behalf of any of
the parties prior to the date hereof shall not affect any of the parties'
obligations hereunder. Completion of the transactions contemplated hereby shall
not be deemed or construed to be a waiver of any right or remedy of any of the
parties.
5.2 Indemnification by the Stockholder.
Subject to the limits set forth in this Article 5, the Stockholder and,
if the transactions contemplated hereby are not consummated, the Company, and
their successors and assigns shall jointly and severally indemnify, defend,
reimburse and hold harmless Buyer and its Affiliates and their successors and
assigns, and the officers, directors, employees and agents of any of them, from
and against any and all claims, losses, damages, liabilities, obligations,
assessments, penalties and interest, demands, actions and expenses, whether
direct or indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and operation of the Company before the Closing,
provided that such Loss is not an obligation for payment of money in an amount
reflected as a liability of the Company in the Interim Financial Statements or a
trade payable incurred in the ordinary course of business since the date of the
Interim Financial Statements but prior to the Closing;
(b) any untruth or inaccuracy of any representation warranty or
certification made by the Company or the Stockholder in this Agreement or any
other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the Company
or the Stockholder contained in this Agreement or any other Transaction
Document.
5.3 Indemnification by Buyer.
Subject to the limits set forth in this Article 5, Buyer shall
indemnify, defend and hold harmless the Stockholder and his successors and
assigns from and against any and all
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Losses reasonably incurred by the Stockholder arising out of or in connection
with any of the following:
(a) the ownership and operation of the Company after the Closing (other
than Losses arising as a result of acts or omissions of any Stockholder,
including without limitation in such Stockholder's capacity as an employee of or
consultant to Buyer or its Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
and
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document.
5.4 Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality
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with respect to all such information consistent with the conduct of a defense
hereunder. The Indemnitor shall have the right to elect to settle any claim for
monetary damages only without the Indemnitee's consent, if the settlement
includes a complete release of the Indemnitee. If the settlement does not
include such a release, it will be subject to the consent of the Indemnitee,
which will not be unreasonably withheld. The Indemnitor may not admit any
liability of the Indemnitee or waive any of the Indemnitee's rights without the
Indemnitee's prior written consent, which will not be unreasonably withheld. If
the subject of any Claim results in a judgment or settlement, the Indemnitor
shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest , the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 Payment.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 Limitations.
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(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Stockholders on the one hand,
to Buyer, and Buyer, on the other hand to the Stockholders, for all claims
arising under this Agreement and the other Transaction Documents shall equal the
aggregate Purchase Price. For purposes of this Section 5.6(b), the value of
Shares received shall be (i) prior to the IPO, the per share Agreed Price (as
defined in the Stockholder Agreement) then prevailing; and (ii) after the IPO,
the per share closing price on the primary exchange or market on which the
Common Stock is traded on the date such indemnifiable Losses become payable,
except that the value of any Shares sold in bona fide third party transactions
will be the gross proceeds to the Stockholders of such sale.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of Each Party.
The obligations of the Stockholder, on the one hand, and Buyer, on the
other hand, to consummate the transactions contemplated hereby are subject to
the fulfillment, at or before the Closing Date, of the conditions set forth in
this Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Article 5,
unless so stated, and provided further that the Stockholder will be required to
perform his obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this Section 6.1, if Buyer agrees in writing to be
liable for, and to indemnify the Stockholder from and against, in any
obligations that the Stockholder would incur as a result of consummating the
transactions contemplated hereby notwithstanding the fact that the conditions in
this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations,
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net income or financial condition of the Company, is in effect; and no action or
proceeding has been instituted or threatened by any Governmental Entity, other
person, or entity which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Stockholder contained in this Agreement or in
any other Transaction Document shall be true and correct in all material
respects as of the date hereof and on the Closing Date, and at the Closing the
Company and the Stockholder shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Stockholder.
(b) Performance of the Company and the Stockholder. The Company and the
Stockholder shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement on or before the
Closing Date, and at the Closing the Company and the Stockholder, as the case
may be, shall each have delivered to Buyer a certificate to such effect dated
the Closing Date and signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company or the Stockholder, as
applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Board of Directors and the Stockholder
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents
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<PAGE> 51
to be delivered by the Company and the Stockholder and the consummation of the
transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of Each Stockholder. Buyer has
received, or is receiving at the Closing, all of the following, each duly
executed by the Stockholder and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by the Stockholder and the spouse of
the Stockholder, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.28;
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit E, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3);
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change, or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to GAAP of at least Six Million Nine Hundred and
Twenty-Six Thousand Dollars ($6,926,000), and (ii) sufficient working capital to
operate the Company and at the Closing the Company shall have delivered to Buyer
a certificate dated the Closing
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<PAGE> 52
Date to such effect with supporting financial information, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
the Company.
(i) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
cash portion of the Purchase Price and the cash portion of the purchase price
being paid by Buyer pursuant to each of the Consolidation Transactions, and to
provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company and the Stockholder in
substantially the form of Exhibit F. In giving such opinion, such counsel may
rely upon certificates of public officials, upon opinions of local counsel and,
as to matters of fact, upon a certificate of the Company, or its officers, and
such counsel may assume that this Agreement has been duly authorized, executed
and delivered by Buyer.
(l) Certificates. The Stockholder shall have delivered to Buyer the
certificates representing the Seller Shares and the stock certificates or stock
powers as described in Section 1.2.
(m) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received an Employment
Agreement substantially in the form attached hereto as Exhibit G for each key
employee designated by Buyer or Exhibit G-1 for other employees (each with
conforming changes as appropriate for the employee), duly executed and delivered
by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Stockholder or in
furtherance of the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
6.3 Conditions to Obligations of the Stockholder.
The obligations of the Stockholder to consummate the transactions
contemplated hereby are subject to the fulfillment, at or before the Closing
Date, of the conditions set forth in this Section 6.3, any one or more of which
may be waived by the Stockholder in writing in
45
<PAGE> 53
their discretion; provided however, such waiver will not waive or diminish the
right of the Stockholder to indemnification pursuant to Article 5, unless so
stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby;
(ii) The Note; and
(iii) A photocopy of the certificates representing the Shares
issued in the name of the Stockholder as set forth in Schedule 1.3 and
(iv) An Employment Agreement substantially in the form attached
hereto as Exhibit G for each key employee designated by Buyer or Exhibit G-1 for
other employees (each with conforming changes as appropriate for the employee),
with each of the persons named on Schedule 6.2.
(d) The Cash Payment. The Stockholder shall have received the Cash
Payment (as described in Schedule 1.3).
(e) Opinion of Counsel. The Stockholder shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Stockholder.
46
<PAGE> 54
(f) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including the Company, having aggregate Pre-tax Income of at least $20 million
and at the Closing Buyer shall have delivered to the Stockholders a certificate
to such effect in substantially the form of Exhibit I, dated the Closing Date,
signed by the President or any Vice President and the Secretary or any Assistant
Secretary of Buyer. For these purposes, "PRE-TAX INCOME" of any particular
company means that company's projected 1998 pre-tax income, as adjusted pursuant
to agreement between Buyer and that company to reflect certain cost reductions
and modified business practices and accounting methods expected to take effect
after the closing of the Consolidation Transactions.
(g) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller's shares
contemplated hereby should qualify for treatment under Section 351 of the Code
which opinion will permit reliance thereon by the Stockholders.
7. MISCELLANEOUS.
7.1 Termination.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Stockholder fail to comply in
any material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of the Company or the
Stockholder is breached or is inaccurate in any material way; (b) by the Company
or the Stockholder if (i) Buyer fails to comply in any material respect with any
of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of Buyer is breached or is inaccurate in any
material way; or (c) by the Company or Buyer if (i) a Governmental Entity has
issued a non-appealable order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto have used their best efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to November 30,
1998, provided however, that if the board of directors of Buyer should, in good
faith, determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Consolidation Transactions, it may extend such
date by thirty-five (35) days. Notwithstanding the foregoing, a party may not
terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of the
covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.27 (Brokers), 4.2 (Confidentiality), 7.12
47
<PAGE> 55
(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction), and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2 Notices.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile, to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Brian W. Copple
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
If to the Company
or the Stockholder: Price Pritchett
Pritchett Publishing Company
13155 Noel Road, Suite 1600
Dallas, Texas 75240
Telephone No.: 972-789-7999
Facsimile No.: 972-789-9100
With a copy to: David H. Segrest
(which shall not Gardere & Wynne, L.L.P.
constitute notice) Dallas, Texas 75201
Telephone No.: (214) 999-4705
Facsimile No.: (214) 999-4667
7.3 Assignability and Parties in Interest.
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<PAGE> 56
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and the Company and their respective permitted successors and
assigns and upon the Stockholder and his executors, administrators, heirs, legal
representatives and permitted successors and assigns. Nothing in this Agreement
will confer upon any person or entity not a party to this Agreement, or the
legal representatives of such person or entity, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 Counterparts.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 Publicity.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and the Company, except that
Buyer may disclose details of this Agreement to other participants in, or as
necessary to effect, the Consolidation Transactions. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7 Complete Agreement.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the transactions contemplated herein and therein
and shall supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
7.8 Modifications, Amendments and Waivers.
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<PAGE> 57
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 Headings; References.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10 Severability.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 Investigation.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of the
Company shall be deemed made to the knowledge of the Stockholder only and no
other person.
7.12 Expenses of Transactions.
All fees, costs and expenses incurred by Buyer, in connection with the
transactions contemplated by this Agreement shall be borne by Buyer, and all
fees, costs and expenses incurred by the Company or the Stockholder in
connection with the transactions contemplated by this Agreement shall be borne
by the Stockholder.
7.13 Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions.
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Notwithstanding the previous sentence, the parties hereto may seek provisional
remedies in courts of appropriate jurisdiction, and such request shall not be
deemed a waiver of the right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any Affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
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(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 Submission to Jurisdiction.
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All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated exclusively in the state or federal courts located
in the County of Orange, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this paragraph. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of Orange,
State of California shall have in personam jurisdiction over each of them for
the purpose of litigating any such dispute, controversy, or proceeding. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this Section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in Section 7.2. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
7.15 Attorneys' Fees.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against the Company or any of its Affiliates, successors or assigns
or the Stockholder, or if the Company or any of its Affiliates, successors and
assigns or the Stockholder brings any action, suit, counterclaim, cross-claim,
appeal, arbitration, or mediation for any relief against Buyer or any of its
Affiliates, successors or assigns, declaratory or otherwise, to enforce the
terms hereof or to declare rights hereunder (collectively, an "ACTION"), in
addition to any damages and costs which the prevailing party otherwise would be
entitled, the non-prevailing party shall pay to the prevailing party a
reasonable sum for attorneys' fees and costs (at the prevailing party's
attorneys' then-prevailing rates) incurred in bringing and prosecuting such
Action and/or enforcing any judgment, order, ruling, or award (collectively, a
"DECISION") granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any Decision entered in such Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained
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<PAGE> 61
the greater relief in connection with any particular claim, although, with
respect to any claim, it may be determined that there is no prevailing party.
7.16 Enforcement of the Agreement.
The Company, the Stockholder and Buyer acknowledge that irreparable
damage would occur if any of the obligations of the Company and the Stockholder
under this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Buyer will be entitled to an injunction or
injunctions to prevent breaches of this Agreement by the Company or the
Stockholder and to enforce specifically the terms and provisions hereto, this
being in addition to any other remedy to which Buyer is entitled at law or in
equity.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
"BUYER"
By: /s/ MARK C. COLEMAN
-----------------------------------
Name: Mark C. Coleman
-----------------------------------
Title: SVP
-----------------------------------
PRITCHETT PUBLISHING COMPANY
"COMPANY"
By: /s/ EARLY PRICE PRITCHETT III
-----------------------------------
Name: Early Price Pritchett III
-----------------------------------
Title: President
-----------------------------------
STOCKHOLDER
"STOCKHOLDER"
/s/ EARLY PRICE PRITCHETT III
- --------------------------------------------
EARLY PRICE PRITCHETT III
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SCHEDULE 1.3
PURCHASE PRICE
(i) Two Million Dollars ($2,000,000) (the "CASH PAYMENT").
(ii) Promissory note of Buyer, dated as of the Closing Date
substantially in the form of Exhibit J for an aggregate of Six Million Dollars
($6,000,000) (the "NOTE")
(iii) 117,500 shares of Series A Common Stock of Buyer (the
"SHARES"), certificates for which will be retained by Buyer pending release
pursuant to Section 1.4.
1
<PAGE> 1
EXHIBIT 10.46
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
PROFITSOURCE CORPORATION
"BUYER"
AND
DELOITTE & TOUCHE LLP
"SELLER"
DECEMBER 14, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Sale and Transfer of Assets..........................................................1
1.1. Assets........................................................................1
1.2. Liabilities...................................................................1
1.3. Closing.......................................................................2
1.4. Purchase Price................................................................2
1.5. Allocation of Purchase Price..................................................2
2. Representations and Warranties of Seller.............................................2
2.1. Organization and Authority....................................................2
2.2. Authorization of Agreement....................................................2
2.3. Acquired Assets and Assumed Liabilities......................................3
2.4. No Conflict or Violation......................................................3
2.5. Litigation....................................................................4
2.6. Brokers.......................................................................4
2.7. Operation of Business.........................................................4
3. Representations and Warranties of Buyer..............................................4
3.1. Organization and Corporate Authority..........................................4
3.2. No Conflict or Violation......................................................5
3.3. Notes.........................................................................5
3.4. Litigation....................................................................5
3.5. Brokers.......................................................................5
3.6. HSR...........................................................................5
4. Certain Understandings and Agreements of the Parties.................................6
4.1. Confidentiality...............................................................6
4.2. Restrictive Covenants.........................................................6
4.3. Taxes.........................................................................8
4.4. Access to Records and Files...................................................8
4.5. Cooperation in Litigation.....................................................8
4.6. Employment....................................................................9
4.7. Change of Name................................................................9
4.8. Further Assurances............................................................9
4.9. Services Agreement............................................................9
4.10. Termination Agreement.........................................................9
4.11. Sublease.....................................................................10
4.12. No Interest..................................................................10
4.13. Separation of Business.......................................................10
4.14. Terms of Notes...............................................................10
4.15. Association with Seller......................................................10
4.16. Acknowledgment from Participants in Consolidation Transactions...............11
4.17. Disclaimer...................................................................11
</TABLE>
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<TABLE>
<S> <C>
4.18. Third Party Consents and Acquired Assets.....................................11
4.19. Accounts Receivable..........................................................12
4.20 ProfitSource Amounts.........................................................13
5. Survival; Indemnification...........................................................13
5.1. Survival.....................................................................13
5.2. Indemnification by Seller....................................................13
5.3. Indemnification by Buyer.....................................................14
5.4. Indemnification Procedure....................................................15
5.5. Payment......................................................................16
5.6. Set-off......................................................................16
5.7. Limitations..................................................................17
6. Miscellaneous.......................................................................17
6.1. Notices......................................................................17
6.2. Assignability and Parties in Interest........................................18
6.3. Governing Law................................................................18
6.4. Counterparts.................................................................18
6.5. Publicity, Client Contracts..................................................18
6.6. Complete Agreement...........................................................19
6.7. Modifications, Amendments and Waivers........................................19
6.8. Headings; References.........................................................20
6.9. Severability.................................................................20
6.10. Expenses of Transactions.....................................................20
6.11. Designated Representatives...................................................20
6.12. Enforcement of the Agreement.................................................20
</TABLE>
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EXHIBITS
A. Form of Bill of Sale
B. Form of Assignment and Assumption Agreement
C. Form of Master Services Agreement
D. Form of Contract Rights Purchase Agreement
E. Sublease
F. Form of Note
SCHEDULES
1.1(a) Acquired Assets
Annex A Personal Property
1.1(b) Excluded Assets
1.2(a) Assumed Liabilities
1.2(b) Excluded Liabilities
1.4 Purchase Price
1.5 Allocation of Purchase Price
2 Disclosure Schedule
2.4 Disclosure Regarding Certain Material Contracts
3.4 Claims
4.19(a) Accounts Receivable
4.19(b) Transferred Accounts Receivable
4.20 ProfitSource Amounts
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of this 14th day of December, 1998 by and between Deloitte &
Touche LLP, a Delaware limited liability partnership ("SELLER"), and
ProfitSource Corporation, a Delaware corporation ("BUYER").
A. Seller, acting through its Integrated Cost Reduction
Strategies business unit ("ICRS"), is engaged in the business of disbursement
management services; account receivable management; performance learning
services; benefit funding services; and health care cost recovery services
(which business, as presently engaged in by Seller's ICRS business unit, is
referred to herein as the "BUSINESS").
B. Seller desires to sell and assign to Buyer, and Buyer desires
to purchase and assume from Seller, certain assets, rights and obligations
related to the Business on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER OF ASSETS
1.1. ASSETS.
(a) Acquired Assets. On the terms set forth in this Agreement, as of the
Closing Date (as hereinafter defined) Seller, pursuant to the Bill of Sale
substantially in the form of Exhibit A (the "BILL OF SALE") conveys, transfers,
assigns, sells and delivers to Buyer, and Buyer acquires, accepts and purchases,
all of the assets, properties and rights of Seller listed on Schedule 1.1(a)
(the "ACQUIRED ASSETS").
(b) Excluded Assets. Notwithstanding anything contained in Section
1.1(a) to the contrary, Seller is not selling, and Buyer is not purchasing, any
of the assets, properties or rights listed on Schedule 1.1(b) (the "EXCLUDED
ASSETS"), all of which are retained by Seller.
1.2 LIABILITIES.
(a) Assumed Liabilities. On the terms set forth in this Agreement, as of
the Closing Date, Buyer assumes those certain liabilities and obligations of
Seller identified on Schedule 1.2(a) (the "ASSUMED LIABILITIES") pursuant to an
Assignment and Assumption Agreement substantially in the form of Exhibit B (the
"ASSUMPTION AGREEMENT").
(b) Excluded Liabilities. Notwithstanding anything contained in Section
1.2(a) to the contrary, Buyer is not assuming, and is not obligated or liable
for, any liability of Seller listed on Schedule 1.2(b) (the "EXCLUDED
LIABILITIES").
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1.3 CLOSING. The closing of the sale and purchase of the Acquired Assets
and the assumption of the Assumed Liabilities (the "CLOSING") is taking place at
the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Irvine, California as
of the date hereof (the "CLOSING DATE"). From and after the Closing, Seller and
its Affiliates (as defined herein) have no interest in the Business (except for
the Excluded Assets and Excluded Liabilities) other than the right to receive
the Purchase Price (as defined herein) and the other rights provided to Seller
pursuant to this Agreement and the other Transaction Documents (as defined
herein).
1.4 PURCHASE PRICE. Concurrently herewith, Buyer is paying for the
Acquired Assets the consideration described on Schedule 1.4 (the "PURCHASE
PRICE"). Concurrently herewith, Buyer is also paying to Seller the amounts
specified on Schedule 4.20.
1.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price will be allocated
for tax purposes (the "ALLOCATION") in the manner set forth on Schedule 1.5. The
Allocation will be used by the parties in preparing all applicable tax returns
and shall be binding upon the parties and upon each of their successors and
assigns, and the parties shall report the transaction herein in accordance with
the Allocation and shall not take any position or action inconsistent with the
Allocation.
2. REPRESENTATIONS AND WARRANTIES OF SELLER. Each representation and warranty
contained in this Article 2 is qualified by the disclosures made in the
disclosure schedule attached hereto as Schedule 2 (the "DISCLOSURE SCHEDULE").
This Article 2 and the Disclosure Schedule shall be read together as an
integrated provision. The Business has been managed by persons affiliated with
Buyer acting in their capacities as partners or employees of Seller or ICRS,
which persons are expected to resign from Seller to work exclusively for Buyer
following the Closing (together with all persons acting under such persons'
direction, control or supervision, the "BUYER ASSOCIATED PERSONS"). Accordingly,
the Buyer Associated Persons may have more knowledge regarding the matters
addressed in the representations and warranties of Seller herein than Seller
itself. When representations and warranties set forth in this Article 2 are
qualified by the knowledge of Seller, such representations and warranties are
given by Seller only to the extent of Seller's actual knowledge without any
obligation of inquiry and shall be deemed to be qualified in all respects by
such facts as the Buyer Associated Persons know or should know as a result of
their participation in the Business prior to the Closing. All such facts known
to the Buyer Associated Persons shall be deemed to be known by Buyer prior to
the Closing Date and to have been disclosed by Seller to Buyer as if set forth
in this Agreement or in a Schedule hereto or in any other Transaction Document.
Notwithstanding any provision of this Agreement to the contrary, Seller will not
be liable on the basis of any claim or action that disclosure provided by Seller
in connection with the transactions contemplated hereby was incomplete. Subject
to the foregoing, Seller represents and warrants to Buyer that:
2.1 ORGANIZATION AND AUTHORITY. Seller is a limited liability
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware, with, to Seller's knowledge, full power and authority
to carry on the Business as it is now and has since its organization been
conducted, and to own, lease and operate the Acquired Assets.
2.2 AUTHORIZATION OF AGREEMENT. Seller has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This
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Agreement and all other agreements and instruments executed by the parties
hereto in connection herewith (together with the schedules delivered in
connection herewith and the agreements entered into by the parties hereto in the
forms of the Exhibits hereto, collectively, the "TRANSACTION DOCUMENTS") have
(except for Transaction Documents executed and delivered solely by Buyer) been
duly and validly approved in accordance with the partnership agreement or other
governing documents of Seller and no other proceedings on the part of Seller are
necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the other Transaction Documents
delivered by Seller have been duly executed and delivered by Seller, have been
effectively authorized by all necessary action by Seller and constitute legal,
valid and binding obligations of Seller, except as such enforceability may be
limited by general principles of equity and bankruptcy, insolvency,
reorganization and moratorium and other similar laws relating to creditors'
rights (the "BANKRUPTCY EXCEPTION.")
2.3 ACQUIRED ASSETS AND ASSUMED LIABILITIES. Seller has taken no actions
to subject any of the Acquired Assets to any liens, mortgages, pledges, security
interests, encumbrances, prior assignments or claims of any kind other than (i)
actions that may have been taken by or with the knowledge of a Buyer Associated
Person or taken by Seller at the direction of a Buyer Associated Person or in
the performance of and consistent with duties known by one or more Buyer
Associated Persons to be performed by Seller on behalf of the Business, as to
which Seller makes no representation or warranty, (ii) Permitted Liens (as
defined in Section 3.2), (iii) the interests of lessors and licensors with
respect to leased or licensed property, and (iv) liens, mortgages, pledges,
security interests, encumbrances, prior assignments and claims in the ordinary
course which are not material. Since January 1, 1998, Seller has not
compromised, liquidated or settled any material Assumed Liability other than any
such compromise, liquidation or settlement (x) by or with the knowledge of a
Buyer Associated Person or by Seller at the direction of a Buyer Associated
Person or in the performance of and consistent with duties known by one or more
Buyer Associated Persons to be performed by Seller on behalf of the Business, as
to which Seller makes no representation or warranty or (y) in the ordinary
course of business.
2.4 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
Seller of this Agreement and the other Transaction Documents delivered by Seller
and the consummation of the transactions contemplated hereby and thereby do not
and will not: (i) violate or conflict with any provision of the organizational
or governing documents of Seller; (ii) violate in any material respect any
provision or requirement of any domestic or foreign, national, state, or local
law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any governmental entity applicable to Seller or, to the knowledge
of Seller, the Business (except that Seller makes no representation or warranty
related to compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 in connection with the acquisition by Buyer of the Business); (iii) to the
knowledge of Seller, violate in any material respect, result in a material
breach of, constitute (with due notice or lapse of time or both) a material
default or cause any material obligation, penalty, premium or right of
termination to arise or accrue under any material contract constituting part of
the Acquired Assets, except as specified on Schedule 2.4; (iv) to the knowledge
of Seller, result in the creation or imposition of any material lien, charge or
encumbrance of any kind whatsoever upon any of the Acquired Assets, except for
Permitted Liens; or (v) to the knowledge of Seller, result in the cancellation,
modification, revocation or suspension of any material license, permit,
certificate, franchise, authorization or approval issued
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or granted by any governmental entity to Seller in relation to the Business
(each a "LICENSE," and collectively, the "LICENSES").
2.5 LITIGATION. Except as set forth on Schedule 3.4, to Seller's
knowledge, there are no material claims, actions, suits, proceedings, labor
disputes or investigations of any nature pending or threatened by or against the
Seller, the officers, partners, employees, agents of Seller, or any of its
Affiliates directly involving, affecting or relating to the transactions
contemplated by this Agreement or the Business or any Acquired Asset. To
Seller's knowledge, neither the Business nor any of the Acquired Assets is
subject to any material order, writ, judgment, award, injunction or decree of
any governmental entity. For purposes of this Agreement, "AFFILIATE" shall have
the meaning ascribed to such term in Rule 405 under the Securities Act of 1933.
2.6 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of Seller, provided that no representation is made
regarding any such broker, finder, investment banker or other person engaged or
retained by or at the direction of any Buyer Associated Person purportedly on
behalf of Seller.
2.7 OPERATION OF BUSINESS. To Seller's knowledge, prior to the Closing,
the Business has been managed by Buyer Associated Persons. Since January 1,
1998, no Seller Associated Person has made any material commitments or entered
into any material obligations that are part of the Assumed Liabilities, other
than commitments or obligations that (i) were made or entered into by a Seller
Associated Person with the knowledge of one or more Buyer Associated Persons or
in the performance of and consistent with duties known by one or more Buyer
Associated Persons to be performed by Seller on behalf of the Business or (ii)
were made or entered into in the ordinary course of business. For purposes
hereof, a "Seller Associated Person" is any officer, director, partner, employee
or agent of Seller who is not a Buyer Associated Person at the time of any
conduct, action or omission in question.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller as follows:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full power and authority to carry on its business as it is now
and has since its organization been conducted, and to own, lease and operate its
assets. Buyer has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. This Agreement and the
Transaction Documents have (except for Transaction Documents executed and
delivered solely by Seller) been duly and validly approved in accordance with
the governing documents of Buyer and no other proceedings on the part of Buyer
are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the other Transaction Documents
delivered by Buyer have been duly executed and delivered by Buyer, have been
effectively authorized by all necessary action by Buyer, and constitute legal,
valid and binding obligations of Buyer, except as such enforceability may be
limited by the Bankruptcy Exception.
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<PAGE> 9
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
Buyer of this Agreement and the other Transaction Documents delivered by Buyer
and the consummation of the transactions contemplated hereby and thereby do not
and will not: (i) violate or conflict with any provision of the organizational
or governing documents of Buyer; or (ii) violate in any material respect any
provision or requirement of any domestic or foreign, national, state or local
law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any governmental entity applicable to Buyer or its business or
assets, (iii) to the knowledge of Buyer, violate in any material respect, result
in a material breach of, constitute (with due notice or lapse of time or both) a
material default or cause any material obligation, penalty, premium or right of
termination to arise or accrue under any material contract of Buyer; (iv) to the
knowledge of Buyer, result in the creation or imposition of any material lien,
charge or encumbrance of any kind whatsoever upon any of the assets of Buyer
except for Permitted Liens; or (v) to the knowledge of Buyer, result in the
cancellation, modification, revocation or suspension of any material license,
permit, certificate, franchise, authorization, or approval issued or granted by
any governmental entity to Buyer in relation to the business of Buyer. As used
herein, "Permitted Liens" means (a) any lien or encumbrance for taxes which are
not yet due or which are being contested in good faith by appropriate
proceedings diligently prosecuted; (b) any carrier's, warehouseman's,
mechanic's, materialman's, repairman's, landlord's or any other statutory or
inchoate lien or encumbrance incidental to the ordinary conduct of the Business
which involves an obligation that is not past due or which is being contested in
good faith by appropriate proceedings diligently prosecuted; (c) any interest of
a governmental agency or instrumentality in any lawfully made pledge or deposit
under workers' compensation, unemployment insurance or other social security
statutes; (d) any interest of any person or entity with respect to a recoupment
of unearned revenues under a contingency-based engagement relating to the
Business; or (e) the Assumed Liabilities.
3.3 NOTES. Any note delivered by Buyer as part of the Purchase Price has
been duly authorized, executed and delivered, and constitutes a legal, valid and
binding obligation of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
3.4 LITIGATION. Except as set forth on Schedule 3.4, there are no
material claims, actions, suits, proceedings, labor disputes or investigations
of any nature pending or, to the knowledge of Buyer, threatened by or against
the Buyer, the officers, directors, partners, employees, agents of Buyer, or any
of its Affiliates directly involving, affecting or relating to the transactions
contemplated by this Agreement or its business or assets. Neither Buyer nor its
business or assets is subject to any order, writ, judgment, award, injunction or
decree of any governmental entity.
3.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of Buyer, except for obligations of National Benefits
Consultants LLC ("NBC") to Jefferies & Company, Inc. in connection with the
Consolidation Transactions (as defined below) and financing thereof, which
obligations are being assumed by Buyer.
3.6 HSR. No filing under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 is required to be made in connection with the acquisition by Buyer
of the Business.
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4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 CONFIDENTIALITY. Subject to Section 6.5, Buyer and Seller shall, and
shall each cause their respective Affiliates, officers, directors, employees,
agents, and advisors to keep confidential all information received in connection
with the transactions contemplated hereby, other than information that (i) was
in the public domain before the date of this Agreement or subsequently came into
the public domain other than as a result of disclosure by the party to whom the
information was delivered; or (ii) was lawfully received by a party from a third
party free of any obligation of confidence of or to such third party; or (iii)
was already in the possession of the party prior to receipt thereof, directly or
indirectly, from the other party; or (iv) is required to be disclosed in a
judicial or administrative proceeding or by law after giving the other party as
much advance notice of the possibility of such disclosure as practicable so that
the other party may attempt to protect against such disclosure; or (v) is
subsequently and independently developed by employees, consultants or agents of
the party to whom the information was delivered without reference to the
information (information of the type described in items (i), (ii), (iii), (iv)
and (v) being referred to herein as "NON-PROTECTED INFORMATION"). Seller
acknowledges that Buyer may provide information about the Business to other
participants in the Consolidation Transactions, provided that such recipients
shall agree to be bound by confidentiality restrictions as provided herein for
Seller's benefit. For purposes hereof, "CONSOLIDATION TRANSACTIONS" refers to
the acquisition by Buyer in a series of transactions, prior to or concurrent
with the Closing, of various other companies selected by Buyer in its discretion
and engaged in the business of cost reduction, cost recovery and profit
enhancement services, by means of mergers into Buyer, or acquisitions by Buyer
of all or substantially all of the assets or stock or other equity interests of
such companies.
4.2 RESTRICTIVE COVENANTS.
(a) Non-Competition. Seller recognizes that the covenants of Seller
contained in this Section 4.2(a) (the "COVENANT NOT TO COMPETE") are part of the
bargained-for consideration associated with the transactions contemplated by
this Agreement to protect the Acquired Assets acquired by Buyer, including
without limitation, the goodwill developed by Seller in the Business. Seller
shall not individually, or in concert, directly or indirectly, including without
limitation by or through any business unit or entity or third party, engage in
any business offering the services offered by ICRS at the Closing Date ("ICRS
SERVICES") for a commission or contingency-based fee, except that Seller may
continue services currently being performed by Seller other than as part of or
through the ICRS Services, and may charge for such services on a commission or
contingency basis to the extent that Seller currently charges for such services
on such a basis other than as part of or through the ICRS Services, or the laws
or regulations relating to performance of services on a commission or
contingency basis are amended, adopted or repealed to allow the provision of
such services on a commission or contingency basis.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, where Seller
conducts the Business as of the Closing Date. This Covenant Not to Compete shall
bind Seller until the third anniversary of the Closing Date (the period until
such date being the "NON-COMPETITION PERIOD" for purposes hereof). The parties
hereto agree that the duration and area for which the Covenant Not to Compete
set forth in this Section 4.2(a) is to be effective are reasonable. If Seller
intends to
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<PAGE> 11
acquire any entity which includes a business unit or entity that would compete
with Buyer by providing ICRS Services for a commission or contingency-based fee
in breach of this Covenant Not to Compete (a "COMPETING BUSINESS") within the
Non-Competition Period, Seller shall give Buyer written notice of such
acquisition. Seller shall have a period of 12 months to dispose of the Competing
Business. Notwithstanding the foregoing, however, (i) the restrictions set forth
in Section 4.2(a) will lapse and cease to bind Seller from and after any (A)
Event of Default under (and as defined in) the Note described in Schedule 1.4 or
the note payable by Buyer to Seller in connection with the transactions
contemplated by the agreement described in Section 4.10, or (B) material default
by Buyer (or any of its Affiliates) under the Sublease described in Section
4.11, which default is not cured within thirty (30) days of such default (or, if
longer, any applicable grace period under the Sublease) and (ii) inadvertent
violations by Seller of the Covenant Not to Compete will not constitute breach
of this Agreement unless such violation continues beyond six months following
Seller's receipt of written notice of such violation from Buyer, or if earlier,
six months following the date Seller's Office of the Chief Executive became
aware of such violation.
(b) Confidentiality. Seller acknowledges its intent that Seller shall
fully and effectively convey to Buyer all proprietary rights constituting
Acquired Assets to be transferred to Buyer pursuant hereto. Accordingly,
notwithstanding the expiration of the Covenant Not to Compete set forth in
Section 4.2(a), Seller shall at all times keep confidential and shall not
disclose to others any proprietary rights constituting Acquired Assets and shall
not use or permit to be used any proprietary rights constituting Acquired Assets
for any purpose other than performance of obligations to Buyer, provided that
the covenant in this Section 4.2(b) will not apply to Non-protected Information
(other than information of a type described in part (iv) of Section 4.1 that
does not become publicly available or disclosed notwithstanding disclosure in a
judicial or administrative proceeding).
(c) Non-Recruitment. For a period of five (5) years following the
Closing Date, Seller will not, directly or indirectly, solicit for employment by
Seller or its Affiliates any of Buyer's officers, directors or employees, and
Buyer and its subsidiaries will not, directly or indirectly, solicit for
employment by Buyer or its Affiliates any of Seller's partners, principals, or
employees other than Transferred Employees (as defined below). Concurrently with
the Closing, Seller has received from Enterprise Profit Solutions Corporation,
Buyer's subsidiary that will operate the Business after the Closing, a letter
acknowledging and agreeing to be bound by Sections 4.2(c) and (d).
(d) Remedies. The covenants contained in this Section 4.2 impose a
reasonable restraint on Buyer and its subsidiaries and Seller, and Buyer and
Seller each acknowledges that if it (or, in the case of Buyer, its subsidiaries)
violates any of the covenants contained in this Section 4.2 (collectively, the
"RESTRICTIVE COVENANTS"), it will be difficult to determine the resulting
damages to the other and, in addition to any other remedies the other may have,
the other shall be entitled to seek temporary injunctive relief as well as any
other remedies available to it in its discretion on a case by case basis.
Failure to seek any or all remedies in one case shall not restrict a party from
seeking any remedies in another situation, or constitute a waiver of any of its
rights.
(e) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by
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a court or arbitrator to be invalid, void or unenforceable, the remainder of the
provisions thereof shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. If a court should determine any of the
Restrictive Covenants are unenforceable because of over-breadth, then the court
shall modify such covenant so as to make it enforceable to the fullest extent
the court deems reasonable and enforceable under the prevailing circumstances.
The Covenant Not to Compete shall be deemed to be a series of separate
covenants, one for each and every county of each and every state of the United
States of America where the Covenant Not to Compete is intended to be effective.
4.3 TAXES.
All taxes attributable to the transfer of the Acquired Assets and Assumed
Liabilities by Seller to Buyer as contemplated by this Agreement will be paid
half by Buyer and half by Seller. Neither Buyer nor Seller makes any
representations regarding the tax consequences of the transaction contemplated
by this Agreement or the other Transaction Documents.
4.4 ACCESS TO RECORDS AND FILES. Seller shall have the right to retain
copies of financial books, records and information in its possession related to
the Business or the Acquired Assets, provided that the use by Seller of such
financial books, records and information shall be subject to Section 4.1 and
Section 4.2. Seller shall have the right for a period of three (3) years
following the Closing Date to have reasonable access to such books, records and
accounts, correspondence, production records, employment records and other
similar information as are transferred to Buyer pursuant to the terms of this
Agreement for the limited purpose of concluding its involvement in the Business
prior to the Closing Date. Buyer shall have the right for a period of three (3)
years following the Closing Date to have reasonable access to those books,
records and accounts, correspondence, and other records which are retained by
Seller pursuant to the terms of this Agreement to the extent that any of the
foregoing relate to the Business or the Acquired Assets and to the extent that
such access is required for any lawful purpose, provided that Seller shall not
be obligated to provide to Buyer any portion of any requested information or
materials not exclusively pertaining to the Business or the Acquired Assets.
4.5 COOPERATION IN LITIGATION. Each party will fully cooperate in all
reasonable respects with the other in the defense or prosecution of any
litigation or proceeding already instituted or which may be instituted hereafter
against or by such party relating to or arising out of the conduct of the
Business prior to or after the Closing Date (other than litigation between Buyer
and/or its Affiliates or assignees, on the one hand, and Seller and/or its
Affiliates or assignees, on the other hand, arising out of the transactions
contemplated by this Agreement). The party requesting such cooperation shall pay
the out-of-pocket expenses (including reasonable legal fees and disbursements)
of the party providing such cooperation and of its officers, directors,
partners, principals, employees and agents reasonably incurred in connection
with providing such cooperation, but shall not be responsible to reimburse the
party providing such cooperation for such party's time spent in such cooperation
or the salaries or costs of fringe benefits or other similar expenses paid by
the party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
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4.6 EMPLOYMENT.
(a) Buyer is offering employment to each employee of Seller in the Business on
the Closing Date, except for those employees identified by Chris Massey to Alan
S. Bernikow at least five days' prior to the Closing, initially on substantially
the same terms and conditions under which such employees are employed by Seller
immediately prior to the Closing. For purposes of this Agreement, each employee
of Seller in the Business on the Closing Date whose employment with Seller is
terminated on the Closing Date and who accepts employment with Buyer as a result
of the transactions contemplated by this Agreement shall be a "TRANSFERRED
EMPLOYEE," so long as such person is employed by Buyer. Subject to Section
4.6(c), all severance liabilities incurred in respect of Transferred Employees
as a result of the transactions contemplated by this Agreement or otherwise
shall be the sole responsibility of Buyer.
(b) Seller shall comply in all material respects with the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") with respect to the Transferred Employees.
Buyer shall take all necessary actions to adopt and put into effect a group
health care program for the benefit of the Transferred Employees as soon as
practicable following the Closing. Buyer shall not assume, and Seller agrees to
be solely responsible for, the costs of complying with COBRA for qualifying
events arising on or prior to the Closing. Seller shall not be responsible for
the costs associated with health care coverage for any Transferred Employee,
other than as required by COBRA.
(c) Concurrently with the Closing, Seller shall pay bonuses in the aggregate
amount of Two Million Two Hundred Thousand Dollars ($2,200,000) to the
Transferred Employees set forth on a schedule to be delivered by Chris Massey to
Alan S. Bernikow at least five days' prior to the Closing.
4.7 CHANGE OF NAME. Promptly after the Closing Date Seller will
discontinue the use of the names Integrated Cost Reduction Strategies, ICRS, or
such other names confusingly similar with either of them, provided that Seller
may continue to use such names for historical reporting and informational
purposes, including, without limitation, for Seller's or its Affiliates' annual
reports, regulatory and other filings and tax returns.
4.8 FURTHER ASSURANCES. Upon the reasonable request of a party hereto at
any time after the Closing Date, the other party shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or its counsel may reasonably request in order to perfect title of Buyer
and its successors and assigns to the Acquired Assets or otherwise to effectuate
the purposes of this Agreement.
4.9 SERVICES AGREEMENT. Concurrently with the Closing, Buyer and Seller
are entering into a master services agreement in the form of Exhibit C.
4.10 CONTRACT RIGHTS PURCHASE AGREEMENT. Concurrently with the Closing,
Buyer and Seller are entering into a contract rights purchase agreement in the
form of Exhibit D and Buyer is issuing to Seller a promissory note in connection
therewith.
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4.11 SUBLEASE. Concurrently with the Closing, Buyer (or its wholly owned
subsidiary Enterprise Profit Solutions Corporation) and Deloitte & Touche USA
LLP are entering into a sublease of the premises leased by Deloitte & Touche USA
LLP at 695 Town Center Drive, Costa Mesa, California, for use in the Business,
in the form of Exhibit E.
4.12 NO INTEREST. Buyer is a recently organized corporation formed for
the purpose of effecting the Consolidation Transactions, with the participation
of various individuals, some of whom are the Buyer Associated Persons. Seller
has no rights in or to Buyer, any equity interest therein, or debt thereof
(other than under promissory notes made by Buyer to Seller concurrently
herewith), in the business of Buyer, or the Consolidation Transactions, and the
only such rights in favor of Seller are the obligations undertaken by Buyer
pursuant to this Agreement and other Transaction Documents.
4.13 SEPARATION OF BUSINESS. Each party agrees that from and after the
Closing the Business (other than the Excluded Assets and Excluded Liabilities)
will be separated in all respects from Seller and its business and operations
and will be owned and operated exclusively by Buyer and its Affiliates. The
parties shall take any and all actions to give effect to this Section 4.13,
including, without limitation, Buyer shall return to Seller or, with Seller's
written consent, destroy all information and/or materials related to Seller or
its Affiliates or their respective businesses or operations not constituting
part of the Acquired Assets or Assumed Liabilities, which information and/or
materials is in the possession of Buyer or its Affiliates, directors, officers,
employees or agents of the Buyer Associated Persons in any form whatsoever,
whether printed, stored on computer hardware or software, diskettes or in any
other storage device or otherwise contained in or constituting part of any media
or other device.
4.14 TERMS OF NOTES. Buyer represents and warrants to and covenants with
Seller that any note delivered by Buyer as part of the Purchase Price does and
will contain economic and payment terms not less favorable to Seller than those
terms benefiting a holder of any other note issued by Buyer or its Affiliates in
connection with the Consolidation Transactions (or any of them) or any similar
transaction consummated prior to or on the Closing Date.
4.15 ASSOCIATION WITH SELLER.
(a) Buyer represents and warrants to and covenants with Seller that it has not
and will not hold itself, its Affiliates, directors, officers, employees or
agents or the Buyer Associated Persons out as partners, principals, employees,
agents or associates of Seller or any of its Affiliates, including, without
limitation, in connection with the transactions contemplated by this Agreement
or the other Transaction Documents or the Consolidation Transactions or any of
the transactions related thereto.
(b) Buyer acknowledges and agrees that the Buyer Associated Persons have not
acted and will not act on behalf of Seller or any of its Affiliates (as
partners, principals, employees, agents, associates or otherwise) in connection
with the transactions contemplated by this Agreement or the other Transaction
Documents or the Consolidation Transactions or any of the transactions related
thereto, and that the Buyer Associated Persons have acted and will act on behalf
of Buyer in connection with the foregoing transactions.
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4.16 ACKNOWLEDGMENT FROM PARTICIPANTS IN CONSOLIDATION TRANSACTIONS.
Buyer shall obtain a written acknowledgment from each person or entity
participating in any of the Consolidation Transactions or any of the
transactions related thereto substantially to the effect that such person or
entity acknowledges and agrees for the benefit of Seller and its Affiliates that
the Buyer Associated Persons have not acted and will not act on behalf of Seller
or any or its Affiliates (as partners, principals, employees, agents, associates
or otherwise) in connection with the Consolidation Transactions or any of the
transactions related thereto, and that the Buyer Associated Persons have acted
and will act on behalf of Buyer in connection with the foregoing transactions.
However, notwithstanding the foregoing, (i) the acknowledgment may be executed
on behalf of stockholders of companies, the equity interests or assets of which
are being acquired in Consolidation Transactions by their representatives
authorized to take actions on their behalf in connection with the Consolidation
Transactions pursuant to the agreements by which they are participating in the
Consolidation Transactions, and (ii) Buyer need not obtain such an
acknowledgment from minority shareholders of an entity participating in a
Consolidation Transaction who individually, directly or indirectly, own less
than ten percent (10%) of such entity's outstanding voting capital stock, and
from whom it would be impracticable to obtain such an acknowledgment, as long as
the total outstanding voting capital stock of Buyer owned by persons not
executing such an acknowledgment does not exceed ten percent (10%) of Buyer's
outstanding voting capital stock as of the Closing Date after giving effect to
the Consolidation Transactions closing concurrently with the transactions
contemplated hereby.
4.17 DISCLAIMER.
(a) ALL OF THE ACQUIRED ASSETS AND ASSUMED LIABILITIES ARE BEING SOLD
AND TRANSFERRED TO BUYER "AS IS" AND "WHERE IS" AND ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR USE OR A PARTICULAR PURPOSE, ARE EXCLUDED FROM THE SALE AND TRANSFER OF THE
ACQUIRED ASSETS AND ASSUMED LIABILITIES (EXCEPT AS EXPRESSLY SET FORTH IN
ARTICLE II, BUT SUBJECT TO SECTION 5.1). SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY NATURE WITH RESPECT TO THE ACQUIRED ASSETS OR ASSUMED
LIABILITIES (EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE II, BUT SUBJECT TO SECTION
5.1) OR THE FINANCIAL CONDITION OF THE BUSINESS, INCLUDING BUT NOT LIMITED TO
THE LEVEL OF SALES, PROFITABILITY, INCOME OR FUTURE PROSPECTS. BUYER
ACKNOWLEDGES THAT ANY FINANCIAL OR OPERATING INFORMATION OR DATA RELATING TO
SELLER'S OPERATION OF THE BUSINESS WERE PROVIDED SOLELY FOR INFORMATIONAL
PURPOSES AND THAT SELLER HAS NO RESPONSIBILITY TO BUYER WITH RESPECT TO SUCH
FINANCIAL OR OPERATING INFORMATION OR DATA.
(b) Buyer acknowledges that it has had ample opportunity to inspect,
investigate and review the Acquired Assets, the Business and Seller's books and
records relating thereto and that such inspection, investigation and review have
been completed to Buyer's satisfaction.
4.18 THIRD PARTY CONSENTS AND ACQUIRED ASSETS. This Agreement shall not
constitute an agreement to assign or transfer any rights or assume any
obligations under any
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contract, lease or other agreement comprising an Acquired Asset, or any claim,
right, benefit or obligation arising thereunder or resulting therefrom, if an
attempted assignment, transfer or assumption thereof, without the required
consent of any third party, would constitute a breach thereof or would have a
material adverse effect on the rights or privileges of Seller or Buyer
thereunder. Any such assignment, transfer or assumption where a third party's
consent is required shall be made subject to such consent being obtained. If
such consent is not obtained, (i) Seller will hold such rights in trust for, and
for the benefit of, Buyer, and will cooperate with Buyer in any reasonable
arrangement necessary to provide that Buyer shall receive substantially all
beneficial interest and benefits in, to and under such Acquired Asset; and (ii)
pursuant to a mutually satisfactory written agreement, Seller will engage Buyer
to act as Seller's independent contractor to perform, and Buyer will so perform,
Seller's obligations under such contract, lease or other agreement comprising an
Acquired Asset. Each agreement specified in clause (ii) of the preceding
sentence will contain such terms and provisions as to provide for a de facto
assignment, transfer and assumption of all of the liabilities, obligations and
risks of Seller to and by Buyer under such contract, lease or other agreement.
In the event that, pursuant to a contract, lease or other agreement comprising
an Acquired Asset (i) payment for the account of Buyer is made to Seller, such
payments shall be forthwith delivered by Seller to Buyer; and (ii) payment or
satisfaction of any liability or obligation is required, Seller shall, at the
request of Buyer, pay or satisfy such liability or obligation subject to
Seller's contemporaneous receipt from Buyer of reimbursement therefor and any
costs or expenses related thereto. Notwithstanding any provision of this
Agreement or any Transaction Document to the contrary, Seller's compliance with
this Section 4.18 shall not constitute a breach of any other covenant, including
but not limited to the restrictive covenants pertaining to Seller in Section
4.2.
4.19 ACCOUNTS RECEIVABLE.
(a) Buyer and Seller (to its knowledge) acknowledge and agree that
Schedule 4.19(a) hereto identifies all accounts receivable of the Business that
have been billed to clients as of the Closing Date ("ACCOUNTS RECEIVABLE") with
a brief description of the work performed as a basis for each such Account
Receivable.
(b) The Accounts Receivable identified in Schedule 4.19(b) hereto
constitute part of the Acquired Assets (the "TRANSFERRED ACCOUNTS RECEIVABLE").
With respect to the Transferred Accounts Receivable, the parties agree as
follows: (1) Seller shall notify each payor thereof to pay such amounts
constituting part of the Transferred Accounts Receivable to Buyer; (2) if Seller
receives a payment in respect of Transferred Accounts Receivable, Seller shall
forthwith notify Buyer thereof and deliver such payment to Buyer (in any event
within 30 days following Seller's actual receipt thereof); and (3) Seller does
not warrant or guaranty collection of any of the Transferred Accounts
Receivable.
(c) With respect to the Accounts Receivable, if any, other than the
Transferred Accounts Receivable and the ProfitSource Accounts Receivable (the
"EXCLUDED ACCOUNTS RECEIVABLE"), the parties agree as follows: (1) the Excluded
Accounts Receivable constitute part of the Excluded Assets; (2) if reasonably
requested by Seller, Buyer shall notify each payor thereof to pay such amounts
constituting part of the Excluded Accounts Receivable to Seller; and (3) if
Buyer receives a payment in respect of Excluded Accounts Receivable, Buyer shall
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forthwith notify Seller thereof and deliver such payment to Seller (in any event
within 30 days following Buyer's actual receipt thereof).
4.20 PROFITSOURCE AMOUNTS. Buyer and Seller (to its knowledge)
acknowledge and agree that Schedule 4.20 hereto identifies advances by Seller to
or on behalf of Buyer and accrued charges and expenses for services provided by
Seller (including through various subsidiaries and divisions) to Buyer prior to
the Closing, all of which are payable by Buyer to Seller or its subsidiaries
(the "PROFITSOURCE AMOUNTS"). Buyer is paying to Seller concurrently with the
Closing the full amount of such ProfitSource Amounts in full satisfaction
thereof.
4.21 INDEPENDENCE ISSUES. As soon as practicable following the Closing,
Buyer shall obtain a written representation and warranty from each of its
directors and/or officers and/or stockholders holding 10% or more of the
outstanding voting capital stock of Buyer as of the Closing Date upon Closing of
the Consolidation Transactions (each, a "Related Party" and, collectively, the
"Related Parties") to Seller providing that such Related Party was not as of the
Closing Date and is not as of the date of the representation and warranty a
director, officer or stockholder holding 10% or more of the outstanding voting
capital stock of any attest client of Seller (an "Independence Issue"). If such
Related Party cannot provide such a representation and warranty, Buyer shall
cooperate with Seller, and shall cause its Related Parties to take such actions
as reasonably requested by Seller, in order to satisfactorily address and
resolve such Independence Issue.
5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL. The representations and warranties made in this Agreement
or in any exhibit, schedule, certificate or any other Transaction Document shall
survive any investigation made by any party hereto (with respect to Seller's
representations and warranties, subject to the other terms of this Agreement)
and the Closing of the transactions contemplated hereby until the first
anniversary of the Closing Date. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall expire only upon expiration of the applicable statute of
limitations. No party will be liable to another under any warranty or
representation after the applicable expiration date of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
5.2 INDEMNIFICATION BY SELLER. Subject to the limits set forth in this
Article 5, Seller and its successors and assigns shall jointly and severally
indemnify, defend, reimburse and hold harmless Buyer and its Affiliates and
their successors and assigns, and the officers, directors, employees and agents
of any of them, from and against any and all claims, losses, damages,
liabilities, obligations, assessments, penalties and interest, demands, actions
and expenses, whether direct or indirect, known or unknown, absolute or
contingent (including, without limitation, settlement costs and any legal,
accounting and other expenses for investigating or defending any actions or
threatened actions) ("LOSSES") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
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(a) the operations of Seller other than the Business and the ownership or
operation of the Excluded Assets at any time before or after the Closing, except
for Assumed Liabilities;
(b) the ownership, operation or possession of the Acquired Assets or the
Business before the Closing, except for Assumed Liabilities;
(c) any material inaccuracy of any representation or warranty made by Seller in
this Agreement or any other Transaction Document delivered by Seller, subject to
the other terms of this Agreement;
(d) the material breach of any covenant, agreement or obligation of Seller
contained in this Agreement or any other Transaction Document delivered by
Seller;
(e) the Excluded Liabilities;
(f) employment or retention by Seller or its Affiliates of any persons and
termination of such employment or retention, (except for Assumed Liabilities,
including without limitation severance liabilities for which Buyer shall be
responsible pursuant to the last sentence in Section 4.6(a)); and
(g) any and all Seller Associated Persons' Conduct (as defined below) at any
time before or after the Closing.
Notwithstanding any provision of this Section 5.2 to the contrary, Seller and
its successors, assigns and Affiliates shall have no obligation or liability
with respect to any act, omission or conduct of any of the Buyer Associated
Persons in connection with the transactions contemplated by this Agreement or
the other Transaction Documents or the Consolidation Transactions or any of the
transactions related thereto ("BUYER ASSOCIATED PERSONS' CONDUCT").
5.3 INDEMNIFICATION BY BUYER. Subject to the limits set forth in this
Article 5, Buyer and its successors and assigns shall jointly and severally
indemnify, defend, reimburse and hold harmless Seller and its Affiliates and
their successors and assigns, and the officers, directors, partners, principals,
employees and agents of any of them, from and against any and all Losses
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership, operation or possession of the Acquired Assets or the
Business after the Closing;
(b) any material inaccuracy of any representation or warranty made by Buyer in
this Agreement or any other Transaction Document delivered by Buyer;
(c) the material breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document delivered by
Buyer;
(d) the Assumed Liabilities;
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(e) employment or retention by Buyer or its Affiliates of any persons and
termination of such employment or retention;
(f) the operations of Buyer other than the Business at any time before or after
the Closing;
(g) any and all Buyer Associated Persons' Conduct at any time before or after
the Closing; and
(h) the claims by Anthem Insurance Companies, Inc. described in Schedule 3.4.
Notwithstanding any provision of this Section 5.3 to the contrary, Buyer and its
successors, assigns and Affiliates shall have no obligation or liability with
respect to any act, omission or conduct of any Seller Associated Person in
connection with the transactions contemplated by this Agreement or the other
Transaction Documents or the Consolidation Transactions or any of the
transactions related thereto ("SELLER ASSOCIATED PERSONS' CONDUCT").
5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any third party claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall assume the defense of such Claim by providing counsel (such
counsel subject to the reasonable approval of the Indemnitee) to defend the
Indemnitee against the matter from which the Claim arose, at the Indemnitor's
sole cost, risk and expense. The Indemnitee shall cooperate in all reasonable
respects, at the Indemnitor's sole cost, risk and expense, with the Indemnitor
in the investigation, trial, defense and any appeal arising from the matter from
which the Claim arose; provided, however, that the Indemnitee may (but shall not
be obligated to) participate in (but not control) any such investigation, trial,
defense and any appeal arising in connection with the Claim at its sole cost,
risk and expense, subject to the following sentence. If the Indemnitee's
participation in any such investigation, trial, defense and any appeal arising
from such Claim relates to a legal position or defense that varies materially
from the legal positions or defenses pursued by the Indemnitor, and if the
Indemnitee reasonably believes upon the advice of counsel that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the sole cost, risk and
expense of the Indemnitee's separate participation, but limited to all fees,
costs and expenses of one separate counsel and appropriate local counsel for the
Indemnitee (or multiple Indemnitees). If the Indemnitee elects to so
participate, the Indemnitor shall cooperate with the Indemnitee, and the
Indemnitor shall deliver to the Indemnitee or its counsel copies of all
pleadings and other information within the Indemnitor's knowledge or possession
reasonably requested by the Indemnitee or its counsel that is relevant to the
defense of such Claim and that will not prejudice the Indemnitor's position,
claims or defenses. The Indemnitee and its counsel shall maintain
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confidentiality with respect to all such information consistent with the conduct
of a defense hereunder. The Indemnitor shall have the right to elect to settle
any claim for monetary damages only without the Indemnitee's consent, if the
settlement includes a complete release of the Indemnitee. If the settlement does
not include such a release, it will be subject to the consent of the Indemnitee.
The Indemnitor may not admit any liability of the Indemnitee or waive any of the
Indemnitee's rights without the Indemnitee's prior written consent. The
Indemnitor shall not be liable for any settlement effected without its prior
written consent. If the subject of any Claim results in a judgment or
settlement, the Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any Claim in
accordance with the terms of Section 5.4(b), if the Indemnitor fails diligently
to prosecute such defense, if the Indemnitor has, in the Indemnitee's good faith
judgment upon the advice of counsel, a conflict of interest, or if the
Indemnitor has, in the Indemnitee's good faith judgment, insufficient resources
with which to conduct an adequate defense, the Indemnitee may defend against the
subject of the Claim, at the Indemnitor's sole cost, risk and expense, in such
manner and on such terms as the Indemnitee deems reasonably appropriate,
including, without limitation (notwithstanding the penultimate sentence of
Section 5.4(b)) settling the subject of the Claim after giving reasonable notice
to the Indemnitor. If the Indemnitee defends the subject of a Claim in
accordance with this Section, the Indemnitor shall cooperate with the Indemnitee
and its counsel, at the Indemnitor's sole cost, risk and expense, in all
reasonable respects, and shall deliver to the Indemnitee or its counsel copies
of all pleadings and other information within the Indemnitor's knowledge or
possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against Losses
arising under this Agreement shall be in addition to any other obligations the
Indemnitor might otherwise have and any other rights the Indemnitee might
otherwise have.
5.5 PAYMENT. All payments owing under this Article 5 will be made
promptly as indemnifiable Losses are incurred. If the Indemnitee defends the
subject matter of any Claim in accordance with Section 5.4(c) or proceeds with
separate counsel on the Indemnitor's account in accordance with Section 5.4(b),
the expenses (including attorneys' fees) incurred by the Indemnitee shall be
paid by the Indemnitor in advance of the final disposition of such matter as
incurred by the Indemnitee, if the Indemnitee undertakes in writing to repay any
such advances in the event that it is ultimately determined by a court of
competent jurisdiction that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 SET-OFF. In addition to any rights of set off or other rights that
any of the Indemnitees may have at common law, by statute or otherwise, each
Indemnitee shall have the right to set off any amount that is owed by such
Indemnitee to an Indemnitor against any amount otherwise payable by the
Indemnitor to the Indemnitee. Notwithstanding any provision of this Agreement to
the contrary, any amounts payable by Seller to Buyer or any of its Affiliates or
related persons first shall be satisfied by reducing, on a dollar-for-dollar
basis, first, unpaid accrued interest and
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second, unpaid principal amounts in respect of debt instruments of Buyer held by
Seller, including, without limitation, the Buyer notes constituting part of the
Purchase Price and any other Buyer note to Seller. Any such reduction shall be
deemed to be a prepayment by Buyer of such amounts.
5.7 LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the contrary, no party
shall have any obligation to indemnify any person entitled to indemnity under
this Article 5 or to pay damages in respect of claims arising under this
Agreement or any other Transaction Document unless the persons so entitled to
indemnity or recovery thereunder have suffered Losses in an aggregate amount
attributable to all Claims and damages in excess of Fifty Thousand Dollars
($50,000) (the "THRESHOLD"). Once the aggregate amount of Losses exceeds the
Threshold, persons entitled to recovery shall be entitled to recover the full
amount of all Losses, including any amounts which constituted the Threshold. No
person shall be entitled to indemnification under this Article 5 for Losses
directly or indirectly caused by a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
(b) Notwithstanding any provision of this Agreement or any Transaction Document
to the contrary, Seller's Aggregate Liability shall not exceed $4 million. For
these purposes, "Seller's Aggregate Liability" means the aggregate liability of
Seller to Buyer and the indemnified persons specified in Section 5.2 for all
claims arising under this Agreement and the other Transaction Documents, plus
the aggregate liability of Seller to Buyer and the indemnified persons specified
in Section 5.2 of the Contract Rights Purchase Agreement described in Section
4.10 for all claims arising under the Contract Rights Purchase Agreement and the
other transaction documents defined in the Contract Rights Purchase Agreement.
1. MISCELLANEOUS.
1.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile to the parties, their
successors in interest or their assignees at the following addresses and
facsimile numbers, or at such other addresses or facsimile numbers as the
parties may designate by written notice in accordance with this Section 6.1:
If to Buyer: President
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5599
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With a copy to: Gibson, Dunn & Crutcher LLP
Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3874
Fax: (949) 451-4220
Attn: Brian W. Copple
If to Seller:
Deloitte & Touche LLP
1633 Broadway
New York, New York 10019
Tel: (212) 489-1600
Fax: (212) 492-4201
Attn: Office of the General Counsel
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Tel: (212) 715-9100
Fax: (212) 715-8000
Attn: Thomas E. Molner
1.2 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and the
rights, interests or obligations hereunder may not be assigned by any of the
parties hereto without the written consent of the other, which consent will not
be unreasonably withheld. This Agreement shall inure to the benefit of and be
binding upon Buyer and Seller and their respective permitted successors and
assigns. Nothing in this Agreement will confer upon any person or entity not a
party to this Agreement, or the legal representatives of such person or entity,
any rights or remedies of any nature or kind whatsoever under or by reason of
this Agreement, except as provided in Sections 5.2 and 5.3.
1.3 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its choice-of-law principles.
1.4 COUNTERPARTS. Facsimile transmission of any signed original document
and/or retransmission of any signed facsimile transmission will be deemed the
same as delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
1.5 PUBLICITY; CLIENT CONTRACTS.
(a) No party may, or may it permit its Affiliates to, issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of Buyer and Seller, except that, (i) Buyer may disclose details of this
Agreement to other participants in the Consolidation Transactions,
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provided that such recipients shall agree to be bound by confidentiality
restrictions as provided in Section 4.1 for Seller's benefit, (ii) Buyer and
Seller may each make such communications with employees, customers, suppliers,
lenders, lessors, shareholders, partners, principals and advisors to the extent
necessary to carry out the ordinary business of Buyer and Seller, respectively,
(iii) Buyer and Seller may each make such disclosures that are required by
applicable law, rule, regulation, professional standard or responsibility, court
order or other legal process, provided that, in any such case, the party
proposing to make such disclosure shall consult in good faith with the other
party as far in advance as practicable to such disclosure and (iv) Seller and
Buyer may advise their clients, prospective clients, vendors, suppliers and
lessors of this Agreement and the transactions contemplated hereby as required
by applicable law, rule, regulation, professional standard or responsibility or
contractual obligation or to avoid marketplace confusion.
(b) Without limiting the generality of Section 4.18, the parties acknowledge and
agree that: (i) Seller's contracts and agreements with its Business clients
constituting part of the Acquired Assets ("CLIENT CONTRACTS") are personal
service contracts; (ii) Seller's ability to assign and transfer the Client
Contracts to Buyer under this Agreement may be limited by applicable laws,
rules, regulations, professional standards or responsibilities, contractual
rights or otherwise, (iii) Seller will exercise its reasonable efforts to effect
the assignment and transfer of the Client Contracts to Buyer in accordance with
this Agreement by delivering a joint notice with Buyer to each such client
promptly following the Closing (but Seller shall not be obligated to make any
payment or concession to effect any assignment or transfer), subject to
applicable laws, rules, regulations, professional standards or responsibilities
and contractual obligations; provided, however, that Seller does not warranty or
guaranty that any Client Contract or any related Business client relationship
will be effectively assigned or transferred to Buyer and Seller will not be
liable for any failure to assign or transfer the Client Contracts (or any of
them) or the related Business client relationships (or any of them), which
failure or failures shall not constitute a breach of or default under this
Agreement or any other Transaction Document. However, failure of such transfer
will not relieve Seller of its obligations under the Covenant Not to Compete,
subject to Section 4.18.
(c) Buyer does not have the right to use the name "Deloitte", "Touche", or
"Deloitte & Touche" in any manner, except as approved in writing by Deloitte &
Touche LLP for each such use, provided that Buyer may use the name "Deloitte &
Touche LLP" to the extent necessary to carry out its legal and contractual
obligations in a public offering or private placement of Buyer's or its
Affiliates' securities or in connection with any other Buyer or Buyer Affiliate
financing transaction, in biographies of persons associated with Buyer or its
Affiliates who were formerly associated with Seller, or if agreed upon between
the parties' designated representatives pursuant to Section 6.11, in historical,
factual descriptions of the evolution of the Business.
1.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the transactions contemplated herein and
therein and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, and understandings.
1.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. No amendment of this
Agreement will be effective unless in writing signed by the parties hereto. The
parties hereto shall not be
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deemed to have waived any of their respective rights hereunder unless such
waiver be in writing and signed by the party so waiving its right. No delay or
omission on the part of either party in exercising its rights hereunder shall
operate as a waiver of such right or any other right. A waiver on one occasion
shall not be construed as a bar to, or waiver of, that right or any other right
or remedy on a future occasion.
1.8 HEADINGS; REFERENCES. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References herein to Articles, Sections,
Schedules and Exhibits refer to the referenced Articles, Sections, Schedules or
Exhibits hereof, unless otherwise specified.
1.9 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
1.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
Buyer in connection with the transactions contemplated by this Agreement and the
other Transaction Documents shall be borne by Buyer, and all fees, costs, and
expenses incurred by Seller in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by Seller.
1.11 DESIGNATED REPRESENTATIVES. As long as Alan S. Bernikow remains an
active partner of Seller, he, or another partner of Seller mutually acceptable
to both parties, will serve as the sole representative of Seller in any dispute
resolution discussion between the parties with respect to any disputes between
Seller and Buyer under this Agreement or any other Transaction Document. Buyer
shall appoint Chris Massey or another representative mutually acceptable to both
parties to serve as the sole representative of Buyer in any dispute resolution
discussion between the parties with respect to any disputes between Seller and
Buyer under this Agreement or any other Transaction Document.
1.12 ENFORCEMENT OF THE AGREEMENT. Seller and Buyer acknowledge that
irreparable damage may occur if any of the obligations of Seller or Buyer under
this Agreement are not performed in accordance with their specific terms or are
otherwise breached. Each of Buyer and Seller will be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement by the other and
to seek to enforce specifically the terms and provisions hereto, this being in
addition to any other remedy to which Buyer or Seller, as the case may be is
entitled at law or in equity or otherwise.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
"BUYER"
PROFITSOURCE CORPORATION,
A DELAWARE CORPORATION
By: /s/ ERIK WATTS
--------------------------------------
Name: Erik Watts
------------------------------------
Title: President
-----------------------------------
"SELLER"
DELOITTE & TOUCHE LLP,
A DELAWARE LIMITED LIABILITY PARTNERSHIP
By: /s/ ALAN S. BERNIKOW
--------------------------------------
Name: Alan S. Bernikow
------------------------------------
Title: Partner
-----------------------------------
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SCHEDULE 1.4
PURCHASE PRICE
In exchange for the Acquired Assets, (x) Buyer is paying at the
Closing an aggregate Purchase Price of Eleven Million Dollars ($11,000,000) as
described below:
(i) Buyer is delivering to Seller Seven Million U.S. Dollars
($7,000,000) in cash (the "CASH PAYMENT") by wire transfer of immediately
available funds to the account set forth below:
Bank: Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
ABA No.: 021000021
Account: Deloitte & Touche
Account No: 910-1-048362
Reference: B/O ProfitSource Corporation
Re: Asset Purchase Agreement
(ii) Buyer is delivering to Seller a promissory note of Buyer,
dated as of the Closing Date in the form of Exhibit F in the principal amount of
Four Million U.S. Dollars ($4,000,000) (the "NOTE"); and
(y) Buyer assumed from Seller the Assumed Liabilities by delivery
to Seller of the Assumption Agreement.
<PAGE> 1
EXHIBIT 10.47
CONTRACT RIGHTS PURCHASE AGREEMENT
BY AND BETWEEN
PROFITSOURCE CORPORATION
"BUYER"
AND
DELOITTE & TOUCHE LLP
"SELLER"
DECEMBER 14, 1998
<PAGE> 2
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Sale and Transfer of Rights and Liabilities.........................................1
1.1 Rights.......................................................................1
1.2 Liabilities..................................................................1
1.3 Closing......................................................................1
1.4 Purchase Price...............................................................1
1.5 Allocation of Purchase Price.................................................1
2. Representations and Warranties of Seller............................................2
2.1 Organization and Authority...................................................2
2.2 Authorization of Agreement...................................................2
2.3 Rights and Liabilities.......................................................2
2.4 No Conflict or Violation.....................................................3
2.5 Litigation...................................................................3
2.6 Brokers......................................................................3
2.7 Operations...................................................................4
3. Representations and Warranties of Buyer.............................................4
3.1 Organization and Corporate Authority.........................................4
3.2 No Conflict or Violation.....................................................4
3.3 Notes........................................................................5
3.4 Litigation...................................................................5
3.5 Brokers......................................................................5
4. Certain Understandings and Agreements of the Parties................................5
4.1 Confidentiality..............................................................5
4.2 Taxes........................................................................6
4.3 Access to Records and Files..................................................6
4.4 Cooperation in Litigation....................................................6
4.5 Further Assurances...........................................................6
4.6 No Interest..................................................................6
4.7 Terms of Notes...............................................................6
4.8 Disclaimer...................................................................7
5. Survival; Indemnification...........................................................7
5.1 Survival.....................................................................7
5.2 Indemnification by Seller....................................................7
5.3 Indemnification by Buyer.....................................................8
5.4 Indemnification Procedure....................................................8
5.5 Payment.....................................................................10
5.6 Set-off.....................................................................10
5.7 Limitations.................................................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6. Miscellaneous......................................................................11
6.1 Notices.....................................................................11
6.2 Assignability and Parties in Interest.......................................12
6.3 Governing Law...............................................................12
6.4 Counterparts................................................................12
6.5 Publicity...................................................................12
6.6 Complete Agreement..........................................................12
6.7 Modifications, Amendments and Waivers.......................................12
6.8 Headings; References........................................................13
6.9 Severability................................................................13
6.10 Expenses of Transactions....................................................13
6.11 Designated Representatives..................................................13
6.12 Enforcement of the Agreement................................................13
6.13 Interpretation with Asset Purchase Agreement................................13
6.14 Novation....................................................................13
6.15 Confidential Information....................................................14
SCHEDULES
1.4 Purchase Price
1.5 Allocation of Purchase Price
2 Disclosure Schedule
3.4 Claims
EXHIBIT
A Form of Note
</TABLE>
ii
<PAGE> 4
CONTRACT RIGHTS PURCHASE AGREEMENT
This Contract Rights Purchase Agreement (this "Agreement") is made and
entered unto as of December __, 1998 by and between Deloitte & Touche LLP, a
Delaware limited liability partnership ("Seller"), and ProfitSource Corporation,
a Delaware corporation ("Buyer").
A. Seller, acting through its Integrated Cost Reduction Strategies
business unit ("ICRS"), is engaged in the business of disbursement management
services; account receivable management; purchase learning services; benefits
funding services; and health care cost recovery services (which business, as
presently engaged in by Seller's ICRS business unit, is referred to herein as
the "Business").
B. Concurrently herewith, Buyer and Seller are entering into an Asset
Purchase Agreement (the "Asset Purchase Agreement") of even date herewith
pursuant to which Seller assets, rights and obligations related to the business
on the terms set forth therein.
C Seller desires to sell and assign to Buyer, and Buyer desires to
purchase and assume from Seller all of Seller's rights and obligations under the
Business Alliance Agreement dated September 30, 1996 between National Benefits
Consultants, LLC ("NBC") and Seller and all amendments and addenda thereto,
including and related letter agreement between NBC and Seller (collectively, the
"NBC Contract"), on the term set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties and agreements set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER OF RIGHTS AND LIABILITIES
1.1 RIGHTS. On the terms set forth in this Agreement, Seller hereby
conveys, transfers, assigns, sells and delivers Buyer, and Buyer hereby
acquires, accepts and purchases, all of Seller's rights, title and interest in,
to and under the NBC Contract (the "Rights").
1.2 LIABILITIES. On the terms set forth in this Agreement, Buyer hereby
assumes all of the liabilities and obligations of Seller arising prior to, on or
following the Closing in connection with or in relation to the NBC contract and
the "Liabilities").
1.3 CLOSING. The closing of the sale and purchase of the Rights and
assumption of the Liabilities (the "Closing") is taking place at the offices of
Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Irvine, California as of the date of
this Agreement (the "Closing Date").
1.4 PURCHASE PRICE. Concurrently herewith, Buyer is paying for the
Rights the consideration described on Schedule 1.4 (the "Purchase Price").
1.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price will be allocated
for tax purposes (the "Allocation") in the manner set forth on Schedule 1.5. The
Allocation will be used by the parties in preparing all applicable tax returns
and shall be binding upon the parties and
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<PAGE> 5
upon each of their successors and assigns, and the parties shall report the
transaction herein in accordance with the Allocation and shall not take any
position or action inconsistent with the Allocation.
2. REPRESENTATIONS AND WARRANTIES OF SELLER. Each representation and warranty
contained in this Article 2 is qualified by the disclosures made in the
disclosure schedule attached hereto as Schedule 2 (the "Disclosure Schedule").
This Article 2 and the Disclosure Schedule shall be read together as an
integrated provision. The Business has been managed by persons affiliated with
Buyer acting in their capacities as partners or employees or Sellers or ICRS,
which persons are expected to resign from Seller to work exclusively for Buyer
following the Closing (together with all persons acting under such person's
direction, control or supervision, the "Buyer Associated Persons"). Accordingly,
the Buyer Associated Persons may have more knowledge regarding the matters
addressed in the representations and warranties of Seller herein than Seller
itself. When representations and warranties have set forth in this Article 2 are
qualified by the knowledge of Seller, such representations and warranties are
given by the Seller only to the extent of Seller's actual knowledge without any
obligation of inquiry and shall be deemed to be qualified in all respects by
such facts as the Buyer Associated Persons know or should know as a result to
their participation in the Business prior to the Closing. All such facts known
to the Buyer Associate Persons shall be deemed to be known by Buyer prior to
Closing Date and to have been disclosed by Seller to Buyer as if set forth in
this Agreement or in a schedule to this Agreement or in any other Transaction
Document. Notwithstanding any provision of this Agreement to the contrary,
Seller will not be liable on the basis of any claim or action that disclosure
provided by Seller in connection with the transactions contemplated by this
Agreement was incomplete. Subject to the foregoing, Seller represents and
warrants to Buyer that:
2.1 ORGANIZATION AND AUTHORITY. Seller is a limited liability
partnership duly organized., validly existing and in good standing under the
laws of the State of Delaware, with to Seller's knowledge, full power and
authority to enter into the NBC Contract and to perform its obligation there
under.
2.2 AUTHORIZATION OF AGREEMENT. Seller has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. This Agreement, together with the schedules
delivered in connection herewith and the Note (as defined in Scheduled 1.4
hereto) (collectively, the "Transaction Documents"), have (except for
Transaction Documents executed and delivered solely by Buyer) been duly and
validly approved in accordance with the partnership agreement or other governing
documents of Seller and no other proceedings in the part of Seller are necessary
to approve this Agreement and to consummate the transactions contemplated this
Agreement. This Agreement and the other Transaction Documents delivered by
Seller have been duly executed and delivered by Seller, have been effectively
authorized by all necessary action by Seller and constitute legal, valid and
binding obligations of Seller, except as such enforceability may be limited by
general principles of equity and bankruptcy, insolvency, reorganization and
memorandum and other similar laws relating to creditors' rights (the "Bankruptcy
Exception").
2.3 RIGHTS AND LIABILITIES. Seller has taken no actions to subject any
of the Rights to any liens, mortgages, pledges, security interests,
encumbrances, prior assignments or claims of
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<PAGE> 6
any kind other than (i) actions that may have been taken by or with the
knowledge of a Buyer Associated Person taken by Seller at the direction of a
Buyer Associated Person or in the performance of and consistent with duties
known by one or more Buyer Associated persons to be performed by Seller on
behalf of the business, as to which Seller makes no representation or warranty,
(ii) Permitted Liens (as defined in Section 3.2) and (iii) liens, mortgages,
pledges, security interests, encumbrances, prior assignments and claims in the
ordinary course which are not material. Since January 1, 1998, Seller has not
compromised, liquidated or settled any material liability other than any such
compromise, liquidation or settlement (x) by or with the knowledge of the Buyer
Associated Person or by Seller at the direction of a Buyer Associated Person or
in the performance of and consistent with duties known by one or more Buyer
Associated Persons to be performed by Seller on behalf of the business, as to
which Seller makes no representation or warranty or (y) in the ordinary course
of business.
2.4 NO CONFLICT OR VIOLATION. The execution and performance by Seller of
this Agreement and the other Transaction Documents delivered by Seller and the
consummation of the transactions contemplated by this Agreement and by the other
Transaction Documents do not and will not: (i) violate or conflict with any
provision of the organizational or governing documents of Seller; (ii) violate
in any material respect any provision or requirement of any domestic or foreign,
national, state, or local law, statute, judgment, order , writ, injunction,
decree, award, rule, or regulation of any governmental entity applicable to
Seller or, to the knowledge of Seller, the NBC Contract; (iii) to the knowledge
of Seller, violate in any material respect, result in a material breach of,
constitute (with due notice or lapse of time or both) a material default or
cause any material obligation, penalty, premium or right of termination to arise
or accrue under the NBC Contract (assuming NBC's consent is obtained as
contemplated on the signature page hereto); (iv) to the knowledge of Seller,
result in the creation or imposition of any material lien, charge or encumbrance
or any kind whatsoever upon the Rights, except for Permitted Liens; or (v) to
the knowledge of Seller, result i n the cancellation, modification, revocation
or suspension of any material license, permit, certificate, franchise,
authorization or approval issued or granted by any governmental entity to Seller
in relation to the NBC Contract.
2.5 LITIGATION. Except asset forth in Schedule 3.4, to Seller's
knowledge there are no material claims, actions, suits, proceedings, labor
disputes or investigations of any nature pending or threatened by or against the
Seller, the officers, partners, employees, agents of Seller, or any of its
Affiliates directly involving, affecting or relating to the transactions
contemplated by this Agreement or the NBC Contract. To Seller's knowledge,
neither the NBC Contract nor any Rights is subject to any material order, writ,
judgment, award, injunction or decree of any governmental entity. For purposes
of this Agreement, "Affiliate" shall have the meaning ascribed to such term in
Rule 405 under the Securities Act of 1933.
2.6 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of Seller, provided that no representation is made
regarding any such broker, finder, investment banker or other person engaged or
retained by or at the direction of any Buyer Associated Person purportedly on
behalf of Seller.
3
<PAGE> 7
2.7 OPERATIONS. Since January 1, 1998, no Seller Associated Person has
made any material commitments or entered into any material obligations that are
part of the Liabilities, other than commitments or obligations that (i) were
made or entered into by Seller Associated Person with the knowledge of one or
more Buyer Associated Persons or in the performance of and consistent with
duties known by one or more Buyer Associated Persons to be performed by Seller
on behalf of the Business or (ii) were made or entered into the ordinary course
of business. For purposes hereof, a "Seller Associates Person" is any officer,
director, partner, employee or agent of Seller who is not a Buyer Associated
Person at the time of any conduct, action or omission in question.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller as follows:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full power and authority to carry on its business as it is now
and has since its organization been conducted, and to own, lease and operate its
assets. Buyer has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. This
Agreement and the Transaction Documents have (except for Transaction Documents
executed and delivered solely by Seller) been duly and validly approved in
accordance with the governing documents of Buyer and no other proceedings on the
part of Buyer are necessary to approve this Agreement and to consummate the
transactions contemplated by this Agreement. This Agreement and the other
Transaction Documents delivered by Buyer have been duly executed and delivered
by Buyer, have been effectively authorized by all necessary action by Buyer, and
constitute legal, valid and binding obligations of Buyer, except as such
enforceability may be limited by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance by
Buyer of this Agreement and the other Transaction Documents delivered by Buyer
and the consummation of the transactions contemplated by this Agreement and by
the other Transaction Documents do not and will not: (i) violate or conflict
with any provision of the organizational or governing documents of Buyer; or
(ii) violate in any material respect any provision or requirement of any
domestic or foreign, national, state or local law, statute, judgment, order,
writ, injunction, decree, award, rule, or regulation of any governmental entity
applicable to Buyer or its business or assets, (iii) to the knowledge of Buyer,
violate in any material respect, result in a material breach of, constitute
(with due notice or lapse of time or both) a material default or cause any
material obligation, penalty, premium or right of termination to arise or accrue
under any material contract of Buyer; (iv) to the knowledge of Buyer, result in
the creation or imposition of any material lien, charge or encumbrance of any
kind whatsoever upon any of the assets of Buyer except for Permitted Liens; or
(v) to the knowledge of Buyer, result in the cancellation, modification,
revocation or suspension of any material license, permit, certificate,
franchise, authorization, or approval issued or granted by any governmental
entity to Buyer in relation to the business of Buyer. As used herein, "Permitted
Liens" means (a) any lien or encumbrance for taxes which are not yet due or
which are being contested in good faith by appropriate proceedings diligently
prosecuted; (b) any carrier's, warehouseman's, mechanic's, materialman's,
repairman's, landlord's or any other statutory or inchoate lien or encumbrance
incidental to the ordinary conduct of the Business which involves an obligation
that is not past
4
<PAGE> 8
due or which is being contested in good faith by appropriate proceedings
diligently prosecuted; (c) any interest of a governmental agency or
instrumentality in any lawfully made pledge or deposit under workers'
compensation, unemployment insurance or other social security statutes; (d) any
interest of any person or entity with respect to a recoupment of unearned
revenues under a contingency-based engagement relating to the NBC Contract; or
(e) the Liabilities.
3.3 NOTES. Any note delivered by Buyer as part of the Purchase Price has
been duly authorized, executed and delivered, and constitutes a legal, valid and
binding obligation of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
3.4 LITIGATION. Except as set forth on Schedule 3.4, there are no
material claims, actions, suits, proceedings, labor disputes or investigations
of any nature pending or, to the knowledge of Buyer, threatened by or against
Buyer, the officers, directors, partners, employees, agents of Buyer, or any of
its Affiliates directly involving, affecting or relating to the transactions
contemplated by this Agreement or its business or assets. Neither Buyer nor its
business or assets is subject to any order, writ, judgment, award, injunction or
decree of any governmental entity.
3.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of Buyer, except for obligations of National Benefits
Consultants, LLC to Jefferies & Company, Inc. in connection with the
Consolidation Transactions (as defined below) and financing thereof, which
obligations are being assumed by Buyer.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES
4.1 CONFIDENTIALITY. Subject to Section 6.5, Buyer and Seller shall, and
shall each cause their respective Affiliates, officers, directors, employees,
agents, and advisors to, keep confidential all information received in
connection with the transactions contemplated by this Agreement, other than
information that (i) was in the public domain before the date of this Agreement
or subsequently came into the public domain other than as a result of disclosure
by the party to whom the information was delivered; or (ii) was lawfully
received by a party from a third party free of any obligation of confidence of
or to such third party; or (iii) was already in the possession of the party
prior to receipt of the information, directly or indirectly, from the other
party; or (iv) is required to be disclosed in a judicial or administrative
proceeding or by law after giving the other party as much advance notice of the
possibility of such disclosure as practicable so that the other party may
attempt to protect against such disclosure; or (v) is subsequently and
independently developed by employees, consultants or agents of the party to whom
the information was delivered without reference to the information. Seller
acknowledges that Buyer may provide information about the NBC Contract to other
participants in the Consolidation Transactions, provided that such recipients
shall agree to be bound by confidentiality restrictions as provided in this
Agreement for Seller's benefit. For purposes of this Agreement, "Consolidation
Transactions" refers to the acquisition by Buyer in a series of transactions,
prior to or concurrent with the Closing, of various companies selected by Buyer
in its discretion and engaged in the business of cost reduction, cost recovery
and profit
5
<PAGE> 9
enhancement services, by means of mergers into Buyer, or acquisitions by Buyer
of all or substantially all of the assets or stock or other equity interests of
such companies.
4.2 TAXES. All taxes attributable to the transfer of the Rights and
Liabilities by Seller to Buyer as contemplated by this Agreement will be paid
half by Buyer and half by Seller. Neither Buyer nor Seller makes any
representations regarding the tax consequences of the transaction contemplated
by this Agreement or the other Transaction Documents.
4.3 ACCESS TO RECORDS AND FILES. Seller shall have the right for a
period of three (3) years following the Closing Date to have reasonable access
to such books, records and accounts, correspondence, production records and
other similar information as are transferred to Buyer pursuant to the terms of
this Agreement for the limited purpose of concluding its involvement in the NBC
Contract prior to the Closing Date.
4.4 COOPERATION IN LITIGATION. Each party will fully cooperate in all
reasonable respects with the other in the defense or prosecution of any
litigation or proceeding already instituted or which may be instituted hereafter
against or by such party relating to or arising out of the NBC contract prior to
or after the Closing Date (other than litigation between Buyer and/or its
Affiliates or assignees, on the one hand, and Seller and/or its Affiliates or
assignees, on the other hand, arising out of the transactions contemplated by
this Agreement). The party requesting such cooperation shall pay the
out-of-pocket expenses (including reasonable legal fees and disbursements) of
the party providing such cooperation and of its officers, directors, partners,
principals, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or other similar expenses paid by the
party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
4.5 FURTHER ASSURANCES. Upon the reasonable request of a party to this
Agreement at any time after the Closing Date, the other party shall forthwith
execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as the
requesting party or its counsel may reasonably request in order to perfect title
of Buyer and its successors and assigns to the Rights or otherwise to effectuate
the purposes of this Agreement.
4.6 NO INTEREST. Buyer is a recently organized corporation formed for
the purpose of effecting the Consolidation Transactions, with the participation
of various individuals, some of whom are the Buyer Associated Persons. Seller
has no rights in or to buyer, any equity interest therein, or debt thereof
(other than under promissory notes made by Buyer to Seller concurrently
herewith), in the business of buyer, or the Consolidation Transactions, and the
only such rights in favor of Seller are the obligations undertaken by Buyer
pursuant to this Agreement and other Transaction documents and the Asset
Purchase Agreement and the agreements and documents related thereto.
4.7 TERMS OF NOTES. Buyer represents and warrants to and covenants with
Seller that any note delivered by Buyer as part of the Purchase Price does and
will contain economic and
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payment terms not less favorable to Seller than those terms benefiting a holder
of any other note issued by Buyer or its Affiliates in connection with the
Consolidation Transactions (or any of them) or any similar transaction
consummated prior to or on the Closing Date.
4.8 DISCLAIMER.
(a) ALL OF THE RIGHTS AND LIABILITIES ARE BEING SOLD AND
TRANSFERRED TO BUYER "AS IS" AND "WHERE IS" AND ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUY NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR USE OR A PARTICULAR PURPOSE, ARE EXCLUDED FROM THE SALE AND TRANSFER OF THE
RIGHTS AND LIABILITIES (EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 2, BUT SUBJECT
TO SECTION 5.1). SELLER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY NATURE
WITH RESPECT TO THE RIGHTS OR LIABILITIES (EXCEPT AS EXPRESSLY SET FORTH IN
ARTICLE 2, BUT SUBJECT TO SECTION 5.1).
(b) Buyer acknowledges that it has had ample opportunity to
investigate and review the NBC Contract, the Rights, the Liabilities and
Seller's books and records relating to the NBC Contract, the Rights and the
Liabilities and that such investigation and review have been completed to
Buyer's satisfaction.
5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL. The representations and warranties made in this Agreement
or in any exhibit, schedule, certificate or any other Transaction Document shall
survive any investigation made by any party to this Agreement (with respect to
Seller's representations and warranties, subject to the other terms of this
Agreement) and the Closing of the transactions contemplated by this Agreement
until the first anniversary of the Closing Date. As to any matter or claim which
is based upon fraud by the indemnifying party, the representations and
warranties set forth in this Agreement shall expire only upon expiration of the
applicable statute of limitations. No party will be liable to another under any
warranty or representation after the applicable expiration date of such warranty
or representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
5.2 INDEMNIFICATION BY SELLER. Subject to the limits set forth in this
Article 5, Seller and its successors and assigns shall jointly and severally
indemnify, defend, reimburse and hold harmless Buyer and its Affiliates and
their successors and assigns, and the officers, directors, employees and agents
of any of them, from and against any and all claims, losses, damages,
liabilities, obligations, assessments, penalties and interest, demands, actions
and expenses, whether direct or indirect, known or unknown, absolute or
contingent (including, without limitation, settlement costs and any legal,
accounting and other expenses for investigating or defending any actions or
threatened actions) ("Losses") reasonably incurred by any such indemnitee,
arising out of or in connection with any of the following:
(a) the ownership of the rights before the Closing, except for the
Liabilities;
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<PAGE> 11
(b) any material inaccuracy of any representation or warranty made
by Seller in this Agreement or any other Transaction Document delivered by
Seller, subject to the other terms of this Agreement;
(c) the material breach of any covenant, agreement or obligation
of seller contained in this Agreement or any other Transaction Document
delivered by Seller; and
(d) any and all Seller Associated Persons' conduct (as defined
below) at any time before or after the Closing.
Notwithstanding any provision of this section 5.2 to the contrary, Seller
and its successors, assigns and Affiliates shall have no obligation or liability
with respect to any act, omission or conduct of any of the Buyer Associated
Persons in connection with the transactions contemplated by this Agreement or
the other Transaction Documents or the Consolidation Transactions or any of the
transactions related thereto ("Buyer Associated Persons' Conduct").
5.3 INDEMNIFICATION BY BUYER. Subject to the limits set forth in this
Article 5, Buyer and its successors and assigns shall jointly and severally
indemnify, defend, reimburse and hold harmless Seller and its Affiliates and
their successors and assigns, and the officers, directors, partners, principals,
employees and agents of any of them, from and against any and all Losses
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership of the Rights after the Closing;
(b) any material inaccuracy of any representation or warranty made
by Buyer in this Agreement or any other Transaction Document delivered by Buyer;
(c) the material breach of any covenant, agreement or obligation
of Buyer contained in this Agreement or any other Transaction Document delivered
by Buyer;
(d) the Liabilities;
(e) any and all buyer Associated Persons' conduct at any time
before or after the Closing; and
(f) the claims by Anthem Insurance Companies, Inc. described in
Schedule 3.4.
Notwithstanding any provision of this section 5.3 to the contrary, Buyer
and its successors, assigns and Affiliates shall have no obligation or liability
with respect to any act, omission or conduct of any Seller Associated Person in
connection with the transactions contemplated by this Agreement or the other
Transaction Documents or the Consolidation Transactions or any of the
transactions related thereto ("Seller Associated Persons' Conduct").
5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any third party claim shall arise for indemnification
hereunder (a "Claim"), the party entitled to indemnification (the "Indemnitee")
shall promptly give written
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notice to the party obligated to provide indemnity (the "Indemnitor") with
respect to the Claim after the receipt by the Indemnitee of reliable information
of the facts constituting the basis for the Claim; but the failure to timely
give such notice shall not relieve the Indemnitor from any obligation under this
Agreement, except to the extent, if any, that the Indemnitor is materially
prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim,
the Indemnitor shall assume the defense of such Claim by providing counsel (such
counsel subject to the reasonable approval of the Indemnitee) to defend the
Indemnitee against the matter from which the Claim arose, at the Indemnitor's
sole cost, risk and expense. The Indemnitee shall cooperate in all reasonable
respects, at the Indemnitor's sole cost, risk and expense, with the Indemnitor
in the investigation, trial, defense and any appeal arising from the matter from
which the Claim arise; provided, however, that the Indemnitee may (but shall not
be obligated to) participate in (but not control) any such investigation, trial,
defense and any appeal arising in connection with the Claim at its sole cost,
risk and expense, subject to the following sentence. If the Indemnitee's
participation in any such investigation, trial, defense and any appeal arising
from such Claim relates to a legal position or defense that varies materially
from the legal positions or defenses pursued by the Indemnitor, and if the
Indemnitee reasonably believes upon the advice of counsel that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the sole cost, risk and
expense of the Indemnitee's separate participation, but limited to all fees,
costs and expenses of one separate counsel and appropriate local counsel for the
Indemnitee (or multiple Indemnitee). If the Indemnitee elects to so participate,
the Indemnitor shall cooperate with the Indemnitee, and the Indemnitor shall
deliver to the Indemnitee or its counsel copies of all pleadings and other
information within the Indemnitor's knowledge or possession reasonably requested
by the Indemnitee or its counsel that is relevant to the defense of such Claim
and that will not prejudice the Indemnitor's position, claims or defenses. The
Indemnitee and its counsel shall maintain confidentiality with respect to all
such information consistent with the conduct of a defense hereunder. The
Indemnitor shall have the right to elect to settle any claim for monetary
damages only without the Indemnitee's consent, if the settlement includes a
complete release of the Indemnitee. If the settlement does not include such a
release, it will be subject to the consent of the Indemnitee. The Indemnitor may
not admit any liability of the Indemnitee or waive any of the Indemnitee's
rights without the Indemnitee's prior written consent. The Indemnitor shall not
be liable for any settlement effected without its prior written consent. If the
subject of any Claim results in a judgment or settlement, the Indemnitor shall
promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject
of any Claim in accordance with the terms of Section 5.4(b), if the Indemnitor
fails diligently to prosecute such defense, if the Indemnitor has, in the
Indemnitee's good faith judgment upon the advise of counsel, a conflict of
interest, or if the Indemnitor has, in the Indemnitee's good faith judgment,
insufficient resources with which to conduct an adequate defense, the Indemnitee
may defend against the subject of the Claim, at the Indemnitor's sole cost, risk
and expense, in such manner and on such terms as the Indemnitee deems reasonably
appropriate, including, without limitation (notwithstanding the penultimate
sentence of Section 5.4(b)) settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and
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its counsel, at the Indemnitor's sole cost, risk and expense, in all reasonable
respects, and shall deliver to the Indemnitee or its counsel copies of all
pleadings and other information within the Indemnitor's knowledge or possession
reasonably requested by the Indemnitee or its counsel that are relevant to the
defense of the subject of any such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee shall maintain
confidentiality with respect to all such information consistent with the conduct
of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee
against Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 PAYMENT. All payments owing under this Article 5 will be made
promptly as indemnifiable Losses are incurred. If the indemnitee defends the
subject matter of any Claim in accordance with Section 5.4(c) or proceeds with
separate counsel on the Indemnitor's account in accordance with Section 5.4(b),
the expenses (including attorneys' fees) incurred by the Indemnitee shall be
paid by the Indemnitor in advance of the final disposition of such matter as
incurred by the Indemnitee, if the Indemnitee undertakes in writing to repay any
such advances in the event that it is ultimately determined by a court of
competent jurisdiction that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 SET-OFF. In addition to any rights of set off or other rights that
any of the Indemnitee may have at common law, by statute or otherwise, each
Indemnitee shall have the right to set off any amount that is owed by such
Indemnitee to an Indemnitor against any amount otherwise payable by the
Indemnitor to the Indemnitee. Notwithstanding any provision of this Agreement to
the contrary, any amounts payable by Seller to Buyer or any of its Affiliates or
related persons first shall be satisfied by reducing, on a dollar-for-dollar
basis, first, unpaid accrued interest and second, unpaid principal amounts in
respect of debt instruments of Buyer held by Seller, including, without
limitation, the Buyer notes constituting part of the Purchase Price and any
other Buyer note to Seller. Any such reduction shall be deemed to be a
prepayment by Buyer of such amounts.
5.7 LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the
contrary, no party shall have any obligation to indemnify any person entitled to
indemnity under this Article 5 or to pay damages in respect of claims arising
under this Agreement or any other Transaction document unless the persons so
entitled to indemnity or recovery hereunder have suffered Losses in an aggregate
amount attributable to all Claims and damages in excess of Fifty thousand
Dollars ($50,000) (the "Threshold"). Once the aggregate amount of Losses exceeds
the Threshold, persons entitled to recovery shall be entitled to recover the
full amount of all Losses, including any amounts which constituted the
Threshold. No person shall be entitled to indemnification under this Article 5
for Losses directly or indirectly caused by a breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement.
(b) Notwithstanding any provision of this Agreement or any
Transaction Document to the contrary, Seller's Aggregate Liability shall not
exceed $4 million. for these purposes,
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<PAGE> 14
"Seller's Aggregate Liability" means the aggregate liability of seller to Buyer
and the indemnified persons specified in Section 5.2 for all claims arising
under this Agreement and the other Transaction Documents, plus the aggregate
liability of Seller to Buyer and the indemnified persons specified in Section
5.2 of the Asset Purchase Agreement for all claims arising under the Asset
Purchase Agreement and the other transaction documents defined in the Asset
Purchase Agreement.
6. MISCELLANEOUS
6.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile to the parties, their
successors in interest or their assignees at the following addresses and
facsimile numbers, or at such other addresses or facsimile numbers as the
parties may designate by written notice in accordance with this Section 6.1:
<TABLE>
<S> <C>
If to Buyer: President
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5599
With a copy to: Gibson, Dunn & Crutcher LLP
Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3874
Fax: (949) 451-4220
Attn: Brian W. Copple
If to Seller: Deloitte & Touche LLP
1633 Broadway
New York, New York 10019
Tel: (212) 489-1600
Fax: (212) 492-4201
Attn: Office of the General Counsel
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Tel: (212) 715-9100
Fax: (212) 715-8000
Attn: Thomas E. Molner
</TABLE>
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6.2 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and the
rights, interests or obligations under this Agreement may not be assigned by any
of the parties to this Agreement without the written consent of the other, which
consent will not be unreasonably withheld. This Agreement shall inure to the
benefit of and be binding upon Buyer or Seller and their respective permitted
successors and assigns. Nothing in this Agreement will confer upon any person or
entity not a party to this Agreement, or the legal representatives of such
person or entity, any rights or remedies of any nature or kind whatsoever under
or by reason of this Agreement, except as provided in Sections 5.2 and 5.3.
6.3 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its choice-of-law principles.
6.4 COUNTERPARTS. Facsimile transmission of any signed original document
and/or retransmission of any signed facsimile transmission will be deemed the
same as delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the same instrument.
6.5 PUBLICITY. No party may, or may it permit its Affiliates to, issue
or cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated hereby without the
prior written consent of Buyer and Seller, except that, (i) Buyer may disclose
details of this Agreement to other participants in the Consolidation
Transactions, provided that such recipients shall agree to be bound by
confidentiality restrictions as provided in Section 4.1 for Seller's benefit,
(ii) Buyer and Seller may each make such communications with employees,
customers, suppliers, lenders, lessors, shareholders, partners, principals and
advisors to the extent necessary to carry out the ordinary business of Buyer and
Seller, respectively, (iii) Buyer and Seller may each make such disclosures that
are required by applicable law, rule, regulation, professional standard or
responsibility, court order or other legal process, provided that, in any such
case, the party proposing to make such disclosure shall consult in good faith
with the other party as far in advance as practicable to such disclosure and
(iv) Seller and Buyer may advise their clients, prospective clients, vendors,
suppliers and lessors of this Agreement and the transactions contemplated by
this Agreement as required by applicable law, rule, regulation, professional
standard or responsibility or contractual obligation or to avoid marketplace
confusion.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules to
this Agreement and the other Transaction Documents contain the entire agreement
between the parties to this Agreement with respect to the transactions
contemplated in this Agreement and in the other Transaction Documents and shall
supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings.
6.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. No amendment of this
Agreement will be effective unless in writing signed by the parties to this
Agreement. The parties to this Agreement shall not be deemed to have waived any
of their respective rights hereunder unless such waiver be in writing and signed
by the party so waiving its right. No delay or omission on the part of either
party in exercising its rights under this Agreement shall operate as a waiver of
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<PAGE> 16
such right or any other right. A waiver on one occasion shall not be construed
as a bar to, or waiver of, that right or any other right or remedy on a future
occasion.
6.8 HEADINGS; REFERENCES. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References herein to articles, sections,
schedules and exhibits refer to the referenced articles, sections, schedules or
exhibits of this Agreement, unless otherwise specified.
6.9 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
Buyer in connection with the transactions contemplated by this Agreement and the
other Transaction Documents shall be borne by Buyer, and all fees, costs, and
expenses incurred by Seller in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by Seller.
6.11 DESIGNATED REPRESENTATIVES. As long as Alan S. Bernikow remains an
active partner of Seller, he, or another partner of Seller mutually acceptable
to both parties, will serve as the sole representative of Seller in any dispute
resolution discussion between the parties with respect to any disputes between
Seller and Buyer under this Agreement or any other Transaction Document. Buyer
shall appoint Chris Massey or another representative mutually acceptable to both
parties to serve as the sole representative of Buyer in any dispute resolution
discussion between the parties with respect to any disputes between Seller and
Buyer under this Agreement or any other Transaction Document.
6.12 ENFORCEMENT OF THE AGREEMENT. Seller and Buyer acknowledge that
irreparable damage may occur if any of the obligations of Seller or Buyer under
this Agreement are not performed in accordance with their specific terms or are
otherwise breached. Each of Buyer and Seller will be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement by the other and
to seek to enforce specifically the terms and provisions to this Agreement, this
being in addition to any other remedy to which Buyer or Seller, as the case may
be is entitled at law or in equity or otherwise.
6.13 INTERPRETATION WITH ASSET PURCHASE AGREEMENT. If there is any
inconsistency between any provision of this Agreement and any provision of the
Asset Purchase Agreement that purports to affect the subject matter of this
Agreement, such provision of this Agreement shall prevail in each such instance.
Without limiting the generality of the foregoing, the parties agree that the
indemnification provisions set forth in Sections 5.2 and 5.3 hereof shall apply
with respect to the subject matter of this Agreement notwithstanding any
inconsistent provision in Section 5.2 or Section 5.3 of the Asset Purchase
Agreement.
6.14 NOVATION. NBC, Buyer and Seller agree that (i) this Agreement
constitutes a novation with respect to the NBC Contract, the Rights and the
Liabilities, (ii) Buyer is
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substituted for Seller for all purposes of the NBC Contract, the Rights and the
Liabilities, (iii) Seller and its Affiliates shall have no further obligation,
liability or duty with respect to the NBC Contract or the Liabilities (except
for those obligations of Seller specified in Section 5.2, subject to the terms
thereof), which obligations, liabilities and duties are extinguished, satisfied
and discharged, and (iv) Seller and its Affiliates shall have no interest in or
obligation under the NBC Contract or the Rights other than the right to receive
the Purchase Price and the other rights provided to Seller pursuant to this
Agreement and the other Transaction Documents. Without limiting the generality
of the foregoing, Seller specifically disclaims any interest in or right to (x)
advances in the aggregate amount of $1.05 million made by Seller to NBC pursuant
to the NBC Contract, which amounts NBC will treat as earned income at Closing
for financial reporting purposes, and (y) any and all rights described in the
letter agreement between NBC and Seller constituting part of the NBC Contract.
6.15 CONFIDENTIAL INFORMATION. Notwithstanding anything in this Agreement
to the contrary, Buyer and NBC, on the one hand, and Seller, on the other hand,
shall remain obligated to the other to fulfill its obligations with respect to
"Confidential Information" under Section 5 of the NBC Contract, except as set
forth below. NBC and Buyer shall return as soon as practicable to Seller all
proprietary or confidential information of Seller in the possession of NBC or
Buyer or their respective Affiliates, directors, officers, employees or agents;
provided, however, that Buyer may retain all such proprietary or confidential
information of Seller related exclusively to the NBC Contract, the Rights or the
Liabilities, and nothing in this Agreement will affect Buyer's right to
information sold to Buyer pursuant to the Asset Purchase Agreement.
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IN WITNESS WHEREOF, each of the parties to this Agreement has executed
this Agreement as of the date first above written.
"BUYER"
PROFITSOURCE CORPORATION,
A DELAWARE CORPORATION
By: /s/ ERIK WATTS
-----------------------------------
Name: Erik Watts
Title: President
"SELLER"
DELOITTE & TOUCHE LLP,
A DELAWARE LIMITED LIABILITY PARTNERSHIP
By: /s/ ALAN S. BERNIKOW
-----------------------------------
Name: Alan S. Bernikow
Title: Partner
As of the Closing Date, National Benefits Consultants, LLC hereby (i) consents
to the transactions contemplated in this Agreement and the other Transaction
Documents and (ii) agrees to be bound by Sections 6.14 and 6.15 of this
Agreement.
"NBC"
NATIONAL BENEFITS CONSULTANTS, LLC
A DELAWARE LIMITED LIABILITY COMPANY
By: /s/ MARK C. COLEMAN
----------------------------------
Name: Mark C. Coleman
Title: VP
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SCHEDULE 1.4
PURCHASE PRICE
In exchange for the rights, (x) Buyer is paying at the Closing an
aggregate Purchase Price of Twenty Million Dollars ($20,000,000) as described
below:
(i) Buyer is delivering to Seller Twelve Million U.S. Dollars
($12,000,000) in cash by wire transfer of immediately available funds to the
account set forth below:
Bank: Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
ABA No.: 021000021
Account: Deloitte & Touche
Account No.: 910-1-048362
Reference: B/O ProfitSource Corporation
Re: Contract Rights Purchase Agreement
(ii) Buyer is delivering to Seller a promissory note of Buyer, dated as
of the Closing Date in the form of Exhibit A in the principal amount of Eight
Million U.S. Dollars ($8,000,000) (the "Note"); and
(y) Buyer assumes from Seller the Liabilities by delivery to Seller of
this Agreement.
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<PAGE> 1
EXHIBIT 10.48
STOCK PURCHASE AGREEMENT
BY AND AMONG
BRITE VOICE SYSTEMS, INC.
BVS INVESTCO, INC.
"SELLER"
TSL SERVICES, INC.
THE "COMPANY"
AND
PROFITSOURCE CORPORATION
"BUYER"
NOVEMBER 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. Sale and Transfer.........................................................1
1.1. Assets...........................................................1
1.2. Assumption of Certain Liabilities................................1
1.3. Capital Stock....................................................2
1.4. Closing..........................................................2
2. Representations and Warranties of Brite and Seller.........................2
2.1. Organization and Authority.......................................2
2.2. Authorization of Agreement.......................................2
2.3. Acquired Assets..................................................3
2.4. Financial Condition..............................................3
2.5. Certain Property of Brite.......................................4
2.6. Year 2000 Compliance.............................................6
2.7. No Conflict or Violation.........................................7
2.8. Labor and Employment Matters.....................................7
2.9. Employee Plans...................................................7
2.10. Litigation......................................................8
2.11. Certain Agreements..............................................9
2.12. Compliance with Applicable Law.................................10
2.13. Licenses.......................................................10
2.14. Accounts Receivable............................................11
2.15. Intercompany and Affiliate Transactions; Insider Interests.....11
2.16. Insurance......................................................11
2.17. Customers......................................................12
2.18. No Undisclosed Liabilities.....................................12
2.19. Environmental Matters..........................................12
2.20. Taxes..........................................................13
2.21. Brokers........................................................14
2.22. The Company....................................................15
2.23. Seller.........................................................15
2.24. Ownership of Capital Stock.....................................15
2.25. Consents.......................................................16
2.26. Accuracy of Information........................................16
3. Representations and Warranties of Buyer...................................16
3.1. Organization and Corporate Authority............................16
3.2. No Conflict or Violation........................................17
3.3. Accuracy of Information.........................................17
4. Certain Understandings and Agreements of the Parties......................17
4.1. Access..........................................................17
4.2. Confidentiality.................................................17
4.3. Consolidation Transactions......................................18
4.4. Certain Changes and Conduct of Business.........................18
</TABLE>
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<TABLE>
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4.5. Restrictive Covenants...........................................20
4.6. Taxes...........................................................21
4.7. Access to Records and Files.....................................25
4.8. Cooperation in Litigation.......................................25
4.9. Employment......................................................25
4.10. Change of Name.................................................26
4.11. Collection of Accounts Receivable..............................26
4.12. Best Efforts...................................................26
4.13. Bulk Sales Laws................................................27
4.14. Closing Date Net Worth.........................................27
4.15. Further Assurances.............................................27
4.16. Notice of Breach...............................................27
4.17. Contracts and Licenses.........................................27
4.18. Supplemental Disclosure........................................28
4.19. HSR............................................................28
4.20. Competing Proposals............................................28
4.21. Series A Preferred Stock.......................................28
4.22. Employee Plans.................................................28
4.23. Real Property Leases...........................................29
5. Survival; Indemnification.................................................29
5.1. Survival........................................................29
5.2. Indemnification by Brite........................................30
5.3. Indemnification by Buyer........................................30
5.4. Indemnification Procedure.......................................31
5.5. Payment.........................................................32
5.6. Set-Off.........................................................32
5.7. Limitations.....................................................32
6. Conditions to Closing.....................................................33
6.1. Conditions to Obligations of Each Party.........................33
6.2. Conditions to Obligations of Buyer..............................33
6.3. Conditions to Obligations of Seller.............................36
7. Miscellaneous.............................................................37
7.1. Termination.....................................................37
7.2. Notices.........................................................38
7.3. Assignability and Parties in Interest...........................39
7.4. Governing Law...................................................39
7.5. Counterparts....................................................39
7.6. Publicity.......................................................39
7.7. Complete Agreement..............................................40
7.8. Modifications, Amendments and Waivers...........................40
7.9. Headings; References............................................40
7.10. Severability...................................................40
7.11. Due Diligence Investigation....................................40
7.12. Expenses of Transactions.......................................40
</TABLE>
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<TABLE>
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7.13. Arbitration....................................................40
7.14. Submission to Jurisdiction.....................................42
7.15. Attorneys' Fees................................................42
7.16. Enforcement of the Agreement...................................43
</TABLE>
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EXHIBITS
A. Form of Seller Contribution Agreement
B. Form of Company Contribution Agreement
C. Form of Warrant
D. Form of Employee General Release Agreement
E. Form of Employment Agreements
F. Form of Opinion of Counsel to Brite and Seller
G. Form of Opinion of Counsel to the Buyer
H. Form of Stockholder Agreement
SCHEDULES
1.1(a) Acquired Assets
1.1(b) Excluded Assets
1.2 Assumed Liabilities
1.4 Purchase Price
2 Schedule of Exceptions
2.3 Acquired Assets
2.4 Financial Statements
2.5(a) Real Property
2.5(b) Personal Property
2.5(c) Proprietary Rights
2.5(c)(iii) Software Licenses
2.6 Year 2000 Compliance
2.7 Conflicts/Violations
2.8 Employees
2.9 Employee Plans
2.10 Litigation
2.11 Contracts
2.12 Compliance with Applicable Law
2.13 Licenses
2.14 Accounts Receivable
2.16 Insurance
2.17 Customers
2.22(c)-1 Certificate of Incorporation of the Company
2.22(c)-2 Bylaws of the Company
2.23(b)-1 Certificate of Incorporation of Seller
2.23(b)-2 Bylaws of Seller
2.25 Consents/Notices
4.9 Employees to be Employed by the Company
6.2 Certain Employees
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<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 30, 1998 by and among Brite Voice Systems, Inc., a
Kansas corporation ("BRITE"), BVS Investco, Inc., a newly formed Delaware
corporation and wholly owned subsidiary of Brite ("SELLER"), TSL Services, Inc.,
a newly formed Delaware corporation and wholly owned subsidiary of Seller (the
"COMPANY") and ProfitSource Corporation, a Delaware corporation or its assignee
("BUYER").
A. Brite, acting through its Telecom Services Limited division,
is engaged in the business of telecommunications cost control, including,
without limitation, the provision of billing verification services, call
accounting services, software development, managed invoice processing, and
professional technical temporary staffing (the "BUSINESS").
B. Brite desires to sell and assign to Buyer, and Buyer desires
to purchase and assume from Brite, those certain assets, rights and obligations
of Brite described herein related to the Business by transferring such assets,
rights and obligations to the Seller, which in turn will transfer such assets,
rights and obligations to the Company, and will transfer all of the issued and
outstanding capital stock of the Company to Buyer, all on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER
1.1 ASSETS.
(a) Acquired Assets. On the terms and subject to the conditions set
forth in this Agreement, on December 1, 1998, (i) Brite, pursuant to a
Contribution Agreement in substantially the form attached hereto as Exhibit A
(the "SELLER CONTRIBUTION AGREEMENT") shall convey, transfer, assign, sell and
deliver to Seller, and Seller shall acquire and accept, all of the assets,
properties and rights of Brite listed on Schedule 1.1(a) (the "ACQUIRED
ASSETS"); and (ii) Seller, pursuant to a Contribution Agreement in substantially
the form attached hereto as Exhibit B (the "COMPANY CONTRIBUTION AGREEMENT")
shall convey, transfer, assign, sell and deliver to the Company, and the Company
shall acquire and accept, all of the Acquired Assets.
(b) Excluded Assets. Notwithstanding anything contained in Section
1.1(a) to the contrary, Brite will not transfer to Seller or the Company and
neither Seller nor the Company will receive, any of the assets listed on
Schedule 1.1(b) (the "EXCLUDED ASSETS"), all of which shall be retained by
Brite.
1.2 ASSUMPTION OF CERTAIN LIABILITIES. On the terms and subject to
the conditions set forth in this Agreement, immediately before the Closing,
Seller, pursuant to the Seller Contribution Agreement and the Company, pursuant
to the Company Contribution Agreement,
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shall assume those certain liabilities and obligations of Brite identified on
Schedule 1.2 (the "ASSUMED LIABILITIES"). The Company will not assume, and will
not be obligated or liable for, any liability of Brite or Seller not listed on
Schedule 1.2 including, without limitation, accounts payable incurred other than
in the ordinary course of business or other indebtedness of Brite or Seller.
Buyer and the Company will be indemnified pursuant to Section 5.2 from and
against any claims in respect of any debts, obligations or liabilities of Brite
or Seller of any nature whatsoever other than the Assumed Liabilities.
1.3 CAPITAL STOCK. In connection with the transfers described in
Sections 1.1 and 1.2, the Company will issue to Seller 45,000 shares of the
Company's Common Stock, $0.001 per share, which Shares shall be validly issued,
fully paid, and non-assessable (the "SHARES").
1.4 SALE AND PURCHASE. On the Closing Date (as hereinafter defined)
Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Shares,
for the purchase price set forth in Schedule 1.4 (the "PURCHASE PRICE").
1.5 CLOSING. The closing of the sale and purchase of the Shares (the
"CLOSING") will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park
Plaza, Irvine, California, on the earliest practicable date, as determined by
Buyer (the "CLOSING DATE") after all the conditions set forth in Section 6 have
either been satisfied or, in the case of conditions not met, waived by the party
entitled to the benefit of such conditions. Buyer shall provide notice (the
"CLOSING NOTICE") to Brite informing Brite of the date selected as the Closing
Date. At the Closing, Seller shall deliver to Buyer or its designees a stock
certificate, duly endorsed in blank (or accompanied by duly executed stock
powers), representing the Shares being sold by Seller and each other instrument
of transfer Buyer may reasonably request to vest effectively in Buyer good and
valid title to the Shares, free and clear of any liens, pledges, options,
security interest, trusts, encumbrances or other rights or interests of any
person or entity, together with any taxes, direct or indirect, attributable to
such transfer of the Shares, and Buyer shall thereupon pay to Seller the
Purchase Price.
2. REPRESENTATIONS AND WARRANTIES OF BRITE AND SELLER. Each representation and
warranty contained in this Section 2 is qualified by the disclosures made in the
disclosure schedule attached hereto as Schedule 2 (the "DISCLOSURE SCHEDULE").
This Section 2 and the Disclosure Schedule shall be read together as an
integrated provision. Brite and Seller represent and warrant to Buyer that:
2.1 ORGANIZATION AND AUTHORITY. Brite is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Kansas, with full corporate power and authority to carry on the Business as it
is now and has since its organization been conducted and as proposed to be
conducted, and to own or lease and operate the Acquired Assets. Seller and the
Company are corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware.
2.2 AUTHORIZATION OF AGREEMENT. Brite and Seller have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith,
together with all other documents to be delivered in connection
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<PAGE> 8
herewith or therewith, (collectively, the "TRANSACTION DOCUMENTS"), have been
(or upon execution will have been) duly executed and delivered by Brite, Seller
and the Company and effectively authorized by all necessary action, corporate or
otherwise, and constitute (or upon execution will constitute) legal, valid and
binding obligations of Brite, Seller and the Company, as the case may be, except
as such enforceability may be limited by general principles of equity and
bankruptcy, insolvency, reorganization and moratorium and other similar laws
relating to creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.3 ACQUIRED ASSETS.
(a) Ownership. Before the transfers to Seller and the Company
described in Section 1.1, Brite is the lawful and sole owner of and has the
right to use and transfer to Seller, and Seller has the right to receive from
Brite and immediately transfer to the Company, each of the Acquired Assets. The
Acquired Assets are free and clear of all liens, mortgages, pledges, security
interests, restrictions, prior assignments, encumbrances and claims of any kind.
The execution and delivery of the Seller Contribution Agreement by Brite and
Seller and the Company Contribution Agreement by Seller and the Company will
vest good and marketable title to the Acquired Assets in the Company, free and
clear of all liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances and claims of any kind.
(b) Sufficiency of Assets. Except for the Excluded Assets, the
Acquired Assets (i) constitute all of the assets and properties used by Brite in
connection with the operation of the Business; and (ii) are sufficient and
adequate to conduct the Business.
2.4 FINANCIAL CONDITION.
(a) Financial Statements. Schedule 2.4 sets forth the balance sheets
of the Business as of December 31, 1996 and December 31, 1997 and the related
statements of income and cash flow of the Business for the fiscal years then
ended (the "ANNUAL FINANCIAL STATEMENTS") and the balance sheet, and the related
statements of income and cash flow of the Business for the nine month period
ended September 30, 1998 (the "INTERIM FINANCIAL STATEMENTS," and with the
Annual Financial Statements, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of Brite;
(ii) were prepared in accordance with generally accepted accounting principles
consistently applied; (iii) fairly present the financial condition and the
results of the operations of the Business as at the relevant dates thereof and
for the periods covered thereby; (iv) contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
the results of the operations of the Business as a stand alone entity without
affiliation with Brite for the periods covered by the Financial Statements
(except that the Interim Financial Statements are subject to year-end
adjustments, the net effect of which will not represent a Material Adverse
Change); (v) contain and reflect adequate provisions for all reasonably
anticipated liabilities, excluding those for all taxes, federal, state, local or
foreign, with respect to the period then ended and all prior periods; (vi)
reflect accurately in all material respects the assets, liabilities, costs and
expenses of the Business as at the relevant date thereof and for the period
covered thereby; (vii) do not contain any items of a special or nonrecurring
nature, except as expressly stated therein; and (viii) are in all material
respects accurate, complete and correct. The Financial Statements accurately
reflect all information normally reported to the independent public accountants
of Brite for the
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<PAGE> 9
preparation of its financial statements. There have been no changes in
accounting principles or practices during the periods covered by the Financial
Statements.
(b) Absence of Certain Changes. Since September 30, 1998 there has
not been any Material Adverse Change, or any event, action, or circumstance of
the kind described in Section 4.4. For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a material adverse effect on the financial condition, business,
prospects, properties or results of operations of the Business, the Company, or
the Acquired Assets.
2.5 CERTAIN PROPERTY OF BRITE.
(a) Real Property. Brite does not own any real property used in
connection with the Business. Schedule 2.5(a) sets forth a true and complete
list of all real properties leased by Brite for use in connection with the
Business, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) Until transfer to the Company pursuant to Section 1.1,
Brite has a valid leasehold in the real property shown in Schedule
2.5(a), as leased by it, in each case under written leases that are
valid and enforceable (except as enforceability may be limited by the
Bankruptcy Exception) (each lease being referred to herein as a "REAL
PROPERTY LEASE", and collectively the "REAL PROPERTY LEASES") and to the
knowledge of Brite each Real Property Lease is a valid and binding
obligation of each of the other parties thereto (except as
enforceability may be limited by the Bankruptcy Exception);
(ii) Brite is not, and Brite and Seller do not have any
knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, and Brite and
Seller do not have any knowledge that any event has occurred which
through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance
upon any asset of Seller.
(b) Personal Property. Schedule 2.5(b) lists all , furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by Brite and used in connection with the Business, other than Excluded
Assets (the "PERSONAL PROPERTY"). All items of Personal Property are in good
operating condition and repair. Schedule 2.5(b) correctly identifies each item
of Personal Property as owned or leased by Brite. The items of Personal Property
identified as owned are Acquired Assets, and the items of Personal Property
identified as leased are leased pursuant to lease agreements that are Acquired
Assets. All of such leases are valid and in full force and effect and none of
such Personal Property is subject to any sublease, license or other agreement
granting to any person any right to use such property (each such lease,
sublease, license or other agreement, a "PERSONAL PROPERTY LEASE" and
collectively the "PERSONAL PROPERTY LEASES"). Prior to transfer pursuant to
Section 1.1 Brite is not in breach of or default,
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<PAGE> 10
and no event has occurred which, with due notice or lapse of time or both, may
constitute such a breach or default, under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.5(c) sets forth a true and complete list of all
Proprietary Rights (either registered, applied for, or common law) owned by,
registered in the name of, licensed to, or otherwise used by Brite in connection
with the Business. For purposes of this Agreement "PROPRIETARY RIGHTS" means
trademarks and service marks (registered or unregistered), trade dress, trade
names including, without limitation, the names "TSL", "Telecom Services
Limited", "TOMS", "Fraud-Check, and "EZ-View" and other names and slogans
embodying business or product goodwill or indications of origin associated with
the Business, all applications or registrations in any jurisdiction pertaining
to the foregoing and all goodwill associated therewith, as well as the following
used in connection with the Business, but specifically excluding any such
Proprietary Rights used by Brite in the Business and in other aspects of its
business: (i) patents, patentable inventions, discoveries, improvements, ideas,
know-how, formulas, methodologies, processes, technology and computer programs,
software and databases (including source code, object code, development
documentation, programming tools, drawings, specifications and data) associated,
developed or used in connection with the Business, and all applications or
registrations in any jurisdiction pertaining to the foregoing, including all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof; (ii) trade secrets, know-how, including confidential and
other non-public information associated, developed or used in connection with
the Business, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works
associated, developed or used in connection with the Business, and registrations
or applications for registration of copyrights in any jurisdiction; (iv)
licenses, including, without limitation, software licenses, immunities,
covenants not to sue and the like relating to any of the foregoing; (v) Internet
Web sites, domain names and registrations or applications for registration
thereof associated, developed or used in connection with the Business; (vi)
customer lists associated, developed or used in connection with the Business;
(vii) books and records describing or used in connection with any of the
foregoing; (viii) claims or causes of action arising out of or related to
infringement or misappropriation of any of the foregoing.
(ii) Until transfer pursuant to Section 1.1, all of the Proprietary
Rights used in connection with the Business are owned by Brite free and clear of
any and all liens, security interests, claims, charges and encumbrances or are
used by Brite pursuant to a valid and enforceable license granting rights
sufficiently broad to permit the historical and anticipated uses of such
Proprietary Rights in connection with the Business. Brite, and after transfer
pursuant to Section 1.1, the Company, has the right and authority to use the
Proprietary Rights in connection with the conduct of the Business in the manner
presently conducted.
(iii) Schedule 2.5(c)(iii) identifies any licenses, sublicenses or
other agreements used in connection with the Business pursuant to which Brite
grants a license to any person to use the Proprietary Rights or is a licensee of
any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights have not lapsed, expired or been abandoned
and no application or registration
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<PAGE> 11
thereof is the subject of any proceeding before any court, arbitrator, state,
local or foreign government agency, regulatory body, or other governmental
authority or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY," and
collectively "GOVERNMENTAL ENTITIES"). There have not been any actions or other
judicial or adversary proceedings involving Brite or Seller concerning any of
the Proprietary Rights, nor to the knowledge of Brite or Seller, is any such
action or proceeding threatened.
(v) To the knowledge of Brite and Seller, the conduct of the
Business does not conflict with valid patents, trademarks, trade secrets or
trade names, or other intellectual property of others. To the knowledge of Brite
and Seller, there are no conflicts with or infringements of any of the
Proprietary Rights by any third party.
(vi) Until transfer pursuant to Section 1.1, Brite, is the sole
owner of all trade secrets, including, without limitation, customer lists,
formulas, inventions, processes, know-how, computer programs and routines
associated, developed or used by Brite or its Affiliates in connection with the
Business (the "TRADE SECRETS"), free and clear of any liens, encumbrances,
restrictions, or legal or equitable claims of others, and has taken all
reasonable security measures to protect the secrecy, confidentiality, and value
of the Trade Secrets.
(vii) To the knowledge of Brite and Seller, all the Trade Secrets
are presently valid and protectible and are not part of the public knowledge or
literature; and have not, to the knowledge of Brite and Seller, been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of Brite and Seller or the Business.
2.6 YEAR 2000 COMPLIANCE. All date-related output, calculations or
results before, during or after the calendar year 2000 that are produced or used
by any material hardware, software, firmware or facilities systems (the
"COMPUTER SYSTEMS") used by Brite in connection with the Business are Year 2000
Compliant. For purposes of this section, "YEAR 2000 COMPLIANT" means:
(a) All dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) When any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) Data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) When sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
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(e) Leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.7 NO CONFLICT OR VIOLATION. The execution, delivery and performance
by Brite, Seller and the Company of this Agreement and the Transaction Documents
and the consummation of the transactions contemplated hereby do not and will
not: (i) violate or conflict with any provision of the charter documents or
bylaws of Brite, Seller or the Company; (ii) violate any provision or
requirement of any domestic or foreign, national, state, or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Brite, Seller or the Company or the Business;
(iii) violate, result in a breach of, constitute (with due notice or lapse of
time or both) a default or cause any obligation, penalty, premium or right of
termination to arise or accrue under any Contract (as hereinafter defined); (iv)
result in the creation or imposition of any lien, charge or encumbrance of any
kind whatsoever upon any of the Acquired Assets; or (v) result in the
cancellation, modification, revocation or suspension of any license, permit,
certificate, franchise, authorization or approval issued or granted by any
Governmental Entity in connection with the Business (each a "LICENSE", and
collectively, the "LICENSES").
2.8 LABOR AND EMPLOYMENT MATTERS. Schedule 2.8 lists all employees,
independent contractors and other persons employed or engaged by Brite in
connection with the Business (the "BUSINESS PERSONNEL") immediately prior to the
transfers described in Section 1.1, including date of employment or retention,
current title and compensation. There is no employment agreement, collective
bargaining agreement or other labor agreement applicable to any of the Business
Personnel to which Brite is a party or by which it is bound. Brite has complied
in all material respects with all applicable laws, rules and regulations
relating to the employment of all Business Personnel, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate Governmental Entities and has withheld and
paid to the appropriate Governmental Entities or is holding for payment not yet
due to such authorities, all amounts required to be withheld from Business
Personnel and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing. There is no unfair labor
practice complaint against Brite pending before the National Labor Relations
Board or any state or local agency with respect to the Business or any Business
Personnel; pending labor strike or other material labor trouble affecting Brite
with respect to the Business or any Business Personnel; material labor grievance
pending against Brite with respect to the Business or any Business Personnel;
pending representation question respecting any Business Personnel; pending
arbitration proceedings with respect to the Business or any Business Personnel
arising out of or under any collective bargaining agreement to which Brite is a
party; or to the knowledge of Brite or Seller, any basis for which a claim with
respect to the Business or any Business Personnel may be made under any
collective bargaining agreement to which Brite is a party.
2.9 EMPLOYEE PLANS.
(a) Schedule 2.9 sets forth a true and complete list of all bonus,
pension, stock option, stock purchase, benefit, welfare, profit-sharing,
deferred compensation, retainer, consulting, retirement, welfare, disability,
vacation, severance, hospitalization, insurance, incentive, deferred
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<PAGE> 13
compensation and other similar fringe or employee benefit plans, funds, programs
or arrangements, whether written or oral, in each of the foregoing cases which
cover, are maintained for the benefit of, or relate to any or all current or
former Business Personnel, and any other entity ("ERISA AFFILIATE") related to
it under Section 414(b), (c), (m) and (o) of the Internal Revenue Code (the
"CODE") (the "EMPLOYEE PLANS"). With respect to each Employee Plan, Brite will
make available to Buyer upon request, to the extent applicable, true and
complete copies of (i) all plan documents, (ii) the most recent determination
letter received from the Internal Revenue Service, (iii) the most recent
application for determination filed with the Internal Revenue Service, (iv) the
latest actuarial valuations, (v) the latest financial statements, (vi) the
latest Form 5500 Annual Report, including Schedule A and Schedule B thereto,
(vii) all related trust agreements, insurance contracts or other funding
arrangements which implement any of such Employee Plans, (viii) all Summary Plan
Descriptions and summaries of material modifications and all modifications
thereto communicated to employees, and (ix) in the case of stock options or
stock appreciation rights issued under any Employee Plan, a list of holders,
dates of grant, number of shares, exercise price per share and dates
exercisable. Neither Brite nor any ERISA Affiliate of Brite has any liability or
contingent liability with respect to the Employee Plans, nor will any of the
Acquired Assets be subject to any lien, charge or claim relating to the
obligations of Brite with respect to Business Personnel or Employee Plans.
(b) Neither Brite nor any ERISA Affiliate sponsors or has sponsored,
maintained, contributed to, incurred an obligation to contribute to or withdraw
from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of ERISA) or any
Multiple-Employer Plan (as defined in ERISA Sections 4063 or 4064 or Code
Section 413) related to Business Personnel, whether or not terminated, for which
any withdrawal or partial withdrawal liability has been or could be incurred,
whether or not any such liability has been asserted by or on behalf of any such
plan.
(c) There are no contracts, agreements, plans or arrangements
covering any Business Personnel with "change of control" or similar provisions
(each, a "CHANGE OF CONTROL ARRANGEMENT"). There is no contract, agreement, plan
or arrangement covering Brite, or any Business Personnel, that individually or
collectively could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code. Neither Brite or
any of its ERISA Affiliates has incurred any liability with respect to Business
Personnel under the Worker Adjustment Retraining and Notification Act or any
similar state law relating to employment termination in connection with a mass
layoff, plant closing or similar event, and the transactions contemplated by
this Agreement will not give rise to any such liability.
2.10 LITIGATION. There are no claims, actions, suits, proceedings,
labor disputes or investigations pending or, to the knowledge of Brite and
Seller, threatened before any Governmental Entity of any nature, brought by or
against Brite, Seller or the Company, the officers, directors, employees, agents
of Brite, Seller, or any of their respective Affiliates involving, affecting or
relating to the Business or any Acquired Assets, Assumed Liabilities, or
Business Personnel, or operations of Brite and Seller or the transactions
contemplated by this Agreement. None of Brite, Seller, the Company or any of the
Acquired Assets is subject to any order, writ, judgment, award, injunction or
decree of any Governmental Entity. For purposes of this Agreement, "AFFILIATE"
shall have the meaning ascribed to such term in Rule 405 under the Securities
Act of 1933, as amended. Buyer and the Company will be indemnified pursuant to
Section 5.2 from and against any claims listed on, or arising out of, the items
disclosed on
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Schedule 2.10. Buyer shall assume responsibility for the lawsuit filed by Brite
against Donaldson, Lufkin & Jenrette described on Schedule 2.10.
2.11 CERTAIN AGREEMENTS.
(a) Schedule 2.11 sets forth a true and complete list of all material
contracts, agreements, instruments, licenses, commitments and other arrangements
relating to or affecting the Business or the Acquired Assets, including, without
limitation, all written, or to the knowledge of Brite and Seller, oral, (i)
contracts, agreements and commitments not made in the ordinary course of
business, (ii) agency and brokerage agreements, (iii) service and other customer
contracts, (iv) contracts, loan agreements, letters of credit, repurchase
agreements, mortgages, security agreements, guarantees, pledge agreements, trust
indentures, promissory notes and other documents or arrangements relating to the
borrowing of money or for lines of credit, (v) tax sharing agreements, real
property leases or any subleases relating thereto, personal property leases,
employee plans, employment and labor agreements, any material agreement relating
to Proprietary Rights (including service agreements relating thereto) and
insurance contracts, (vi) agreements and other arrangements for the sale of any
assets, property or rights other than in the ordinary course of business or for
the grant of any options or preferential rights to purchase any assets, property
or rights, (vii) documents granting any power of attorney with respect to the
affairs of the Business, (viii) suretyship contracts, performance bonds, working
capital maintenance or other forms of guaranty agreements, (ix) contracts or
commitments related to the Business limiting or restraining Brite or any
Business Personnel from engaging or competing in any lines of business or with
any person or entity, (x) partnership or joint venture agreements, (xi) material
licenses, including, without limitation, material software licenses, and (xii)
all amendments, modifications, extensions or renewals of any of the foregoing
(each a "CONTRACT," and collectively, the "CONTRACTS.") Notwithstanding Sections
2.11(b)-(f) below, with respect to service and other customer contracts referred
to in (iii) above, other than the 1998 Contracts (as defined below), Brite and
Seller make no representations or warranties as to whether each Contract is
valid, binding and enforceable against the parties thereto in accordance with
its terms, whether each Contract is in full force and effect on the date hereof,
whether the Contracts provide for the consent of any party thereto, or whether
the Contracts would be breached by, or confer additional rights to any party as
a result of, the transactions contemplated hereby. For purposes hereof "1998
CONTRACTS" refer to those Contracts either (A) entered into during calendar year
1998 or (B) from which revenues were derived during calendar year 1998. Each of
the 1998 Contracts is identified by an asterisk on Schedule 2.11.
(b) To the knowledge of Brite and Seller, each Contract is valid,
binding and enforceable against the parties thereto in accordance with its
terms, except as such enforceability may be limited by the Bankruptcy Exception,
and is in full force and effect on the date hereof. Brite has performed all
obligations required to be performed by it under, and is not in material default
or breach of, any Contract, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a default.
(c) To the knowledge of Brite and Seller, no other party to any
Contract is in default in respect thereof, and no event has occurred which, with
due notice or lapse of time or both, would constitute such a default.
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(d) There are no pending or anticipated material disputes with any
party to any material Contract, and to the knowledge of Brite and Seller, no
party to any Contract intends to cancel or terminate any such agreement, whether
as a result of the transactions contemplated by this Agreement or otherwise.
(e) Brite has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by Brite since January 1, 1996 with respect to any of the
Contracts. For purposes hereof, "MATERIAL NOTICE" includes only those notices
received alleging a material breach of a Contract or serious performance issues
that could lead to cancellation or material modification of a contract or
intention to terminate or materially modify a contract, and is not intended to
include routine correspondence.
(f) None of the Contracts provides for consent of any party thereto,
or would be breached by, or confer additional rights to any party as a result
of, the transactions contemplated hereby.
2.12 COMPLIANCE WITH APPLICABLE LAW. The operations of the Business
are, and have been, conducted in substantial compliance with all applicable
laws, regulations, orders and other requirements of all Governmental Entities
having jurisdiction over the Business and its assets, properties and operations.
Brite has not received any notice of any violation of any such law, regulation,
order or other legal requirement, and is not in default with respect to any
order, writ, judgment, award, injunction or decree of any Governmental Entity,
applicable to the Business or any of the Acquired Assets. To the knowledge of
Brite and Seller, there are no proposed changes in any such laws, rules or
regulations (other than laws of general applicability) that would adversely
affect the transactions contemplated by this Agreement or all or a substantial
part of the Business or any of the Acquired Assets.
2.13 LICENSES.
(a) Schedule 2.13 sets forth a true and complete list of all Licenses
issued or granted to Brite in connection with the Business, and all pending
applications therefor. Such Licenses constitute all consents, approvals,
authorizations and other requirements prescribed by any law, rule or regulation
which must be obtained or satisfied by Brite in connection with the Business or
that are necessary for the execution, delivery and performance by Brite, Seller
and the Company of this Agreement and the other Transaction Documents. The
Licenses are sufficient and adequate in all material respects to permit the
continued lawful conduct of the Business in the manner now conducted and the
ownership, occupancy and operation of its properties for their present uses and
the execution, delivery and performance of this Agreement. No jurisdiction in
which Brite is not qualified or licensed as a foreign corporation in connection
with the Business has demanded or requested that it qualify or become licensed
as a foreign corporation. Brite has delivered to Buyer or its representatives
true and complete copies of all the Licenses together with all amendments and
modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by Brite and is valid, in full force and effect, and not subject to any
pending or known threatened administrative or judicial proceeding to suspend,
revoke, cancel or declare such License invalid in any respect. Brite is not in
violation in any material respect of any of the Licenses. The
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Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof.
2.14 ACCOUNTS RECEIVABLE. Schedule 2.14 sets forth a list of all
accounts receivable of Brite that have arisen in connection with the Business as
of October 31, 1998. Not later than December 16, 1998, Seller shall provide a
list of all accounts receivable of Brite that have arisen in connection with the
Business as of December 1, 1998 (the "ACCOUNTS RECEIVABLE"), including their
aging. All accounts receivable as of October 31, 1998, and all Accounts
Receivable as of December 1, 1998 will represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business that are current and collectible in amounts not less than the aggregate
amount thereof carried (or to be carried) on the books of Brite and reflected in
the Financial Statements, and are not and will not be subject to any valid
counterclaims or set-offs. No more than twenty-five percent (25%), exclusive of
accounts specifically reserved for as bad debts as reflected in the Financial
Statements and as supported in the schedules to the Financial Statements, of the
total dollar value of the Accounts Receivable is past due more than ninety (90)
days and none of the Accounts Receivable in excess of sixty days are subject to
any dispute or contingency.
2.15 INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) There are no material transactions, intercompany agreements or
arrangements of any kind, direct or indirect, related to the Business, between
Brite and any director, officer, employee, stockholder, relative or Affiliate of
Brite, including, without limitation, loans, guarantees or pledges to, by or for
Brite or from, to, by or for any of such persons, that are either (i) currently
in effect, or (ii) reflected in Brite's financial results.
(b) No officer, director or shareholder of Brite, or any Affiliate of
any such person, now has, or within the last two years had, either directly or
indirectly:
(i) an equity or debt interest in any corporation,
partnership, joint venture, association, organization or other person or
entity which furnishes or sells, or during such period furnished or
sold, services or products to Brite in connection with the Business, or
purchased, or during such period purchased from Brite, any goods or
services in connection with the Business, or otherwise does, or during
such period did, business with Brite in connection with the Business;
(ii) a beneficial interest in any contract, commitment or
agreement to which Brite is or was a party or under which it was
obligated or bound or to which its properties may be or may have been
subject in connection with the Business, other than commitments or
agreements between Brite and such persons in their capacities as
employees, officers or directors of Brite; or
(iii) any rights in or to any of the assets, properties or
rights used by Brite in the Business.
2.16 INSURANCE. Schedule 2.16 sets forth a true and correct list of
all current insurance policies of any nature whatsoever maintained by Brite in
connection with the Business and the
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annual or other premiums payable thereunder. There are no outstanding
requirements or recommendations by any insurance company that issued any such
policy or by any Board of Fire Underwriters or other similar body exercising
similar functions or by any Governmental Entity that require or recommend any
changes in the conduct of the Business, or any repairs or other work to be done
on or with respect to any of the properties or assets of Brite associated with
the Business. Brite has not received any notice or other communication from any
of its insurance companies within the three (3) years preceding the date hereof
canceling or materially amending or materially increasing the annual or other
premiums payable under any of such insurance policies, and to the knowledge of
Brite, no such cancellation, amendment or increase of premiums is threatened.
2.17 CUSTOMERS. Schedule 2.17 sets forth a true and complete list of
the fifteen (15) largest customers of the Business, together with revenues to
the Business from each such customer during the most recent complete fiscal year
and the current fiscal year to the date hereof. None of such customers has given
notice to Brite of an intention to terminate or materially impair its business
relationship with Brite and Brite and Seller have no knowledge of any event that
would precipitate the impairment, or termination of, or the failure to renew, or
entitle any such customer to terminate, such business relationship.
2.18 NO UNDISCLOSED LIABILITIES. Except as and to the extent
specifically reflected or reserved against in the Interim Financial Statements
or as disclosed in this Agreement or the schedules hereto, and except as
incurred in the ordinary course of business since the date of the Interim
Financial Statements, Brite and Seller have no liabilities or obligations of any
nature, whether absolute, accrued, contingent or otherwise, and whether due or
to become due (including, without limitation, any liability for taxes and
interest, penalties and other charges payable with respect to any such liability
or obligation) which in the aggregate would result in a Material Adverse Change
and no facts or circumstances exist which, with notice or the passage of time or
both, could reasonably be expected to result in any claims against or
obligations or liabilities of Brite or Seller in connection with the Business.
2.19 ENVIRONMENTAL MATTERS. Notwithstanding anything to the contrary
contained in this Agreement:
(a) The operations of the Business comply and have at all times
complied with all applicable laws, regulations and other requirements of
Governmental Entities or duties under the common law relating to toxic or
hazardous substances, wastes, pollution or to the protection of health, safety
or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained and
maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in compliance with all such Environmental Permits.
(b) Brite has not performed, failed to perform or suffered any act
which could give rise to, or otherwise incurred, liability to any person
(governmental or not) in connection with the Business under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
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(c) To the knowledge of Brite and Seller, no hazardous substance,
hazardous waste, contaminant, pollutant or toxic substance (as such terms are
defined in or otherwise subject to any applicable Environmental Law and
collectively referred to herein as "HAZARDOUS MATERIALS") has been released,
placed, disposed of or otherwise come to be located on, at, beneath or near any
of the assets or properties owned or leased by it at any time in connection with
the Business or any other property in violation of any Environmental Laws or
that could subject it to liability under any Environmental Laws.
(d) Brite has not in connection with the Business exposed any
Business Personnel or third party to any Hazardous Materials or conditions that
could subject it to any material liability under any Environmental Laws.
(e) Brite does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks in connection with the
Business.
(f) To the knowledge of Brite and Seller, with respect to any or all
of the real properties leased at any time by Brite in connection with the
Business, there are no asbestos-containing materials, urea formaldehyde
insulation, polychlorinated biphenyls or lead-based paints present at any such
properties.
(g) There are no ongoing investigations or negotiations, pending or
threatened administrative, judicial or regulatory proceedings, any threatened
actions or claims, or consent decrees or other agreements in effect that relate
to environmental conditions in, on, under, about or related to Brite , its
operations or the real properties leased at any time by Brite in each case in
connection with the Business or the Acquired Assets.
(h) Brite has delivered to Buyer copies of all environmental
assessments, audits, studies and other environmental reports in its possession
or reasonably available to it relating to the Business or the Acquired Assets.
2.20 TAXES.
(a) (i) All Tax Returns that are required to be filed by or with respect
to Brite or Seller have been duly filed and are correct and complete in all
respects; (ii) all Taxes owed or required to be withheld and paid over by Brite
or Seller have been paid in full; (iii) none of the Tax Returns referred to in
clause (i) contains any position which is or would be subject to penalties under
Section 6662 of the Internal Revenue Code of 1986, as amended (the "CODE") (or
any corresponding provision of state, local or foreign Tax law); (iv) the Tax
Returns referred to in clause (i) have either been examined by the Internal
Revenue Service or the appropriate state, local or foreign taxing authority or
the period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (v) all deficiencies asserted or assessments
made as a result of any such examinations have been paid in full; (vi) no issues
that have been raised by the relevant taxing authority in connection with the
examination of any of the Tax Returns referred to in clause (i) are currently
pending; (vii) there is no dispute or claim concerning any liability for Taxes
against Brite or Seller either claimed or raised by any authority in writing or
to which any director or officer or employee responsible for Tax matters of
Brite or Seller has personal knowledge based upon personal contact with any
agent of such authority; (viii) no waivers of statutes of limitation have been
given by or required with respect
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to any Taxes of Brite or Seller; (ix) the unpaid Taxes of Brite or Seller do not
(or of Company immediately after its formation, will not) exceed the reserve for
Tax liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth or included in Brite's
most recent balance sheet, Seller's most recent balance sheet, (or the Company's
balance sheet); and (x) to the knowledge of Brite and Seller (or any director,
officer or employee responsible for the Tax matters of Brite or Seller) (A)
there is no investigation or other proceeding pending, threatened or expected to
be commenced by any taxing authority for any jurisdiction in which Brite or
Seller does not file tax returns that may be subject to a given Tax liability in
such jurisdiction, and (B) there is no meritorious basis for such an
investigation or other proceeding that would result in such an assessment.
(b) No tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transfers contemplated by this Agreement.
(c) Company will have no liability for Taxes of any person (other than
Company) under Treasury Regulations Section 1.1502-6, as a transferee or
successor, or otherwise.
(d) As a result of Buyer's purchase of the Shares, neither Company nor
Buyer will be obligated to make a payment to an individual arising from
employment or an independent contractor relationship with Brite, Seller or
Company that would be a "parachute payment" to a "disqualified individual" as
those terms are defined in Section 280G of the Code without regard to whether
such payment is reasonable compensation for personal services performed or to be
performed in the future.
(e) Company will not be a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement or arrangement on or immediately after
December 1, 1998.
(f) Seller is eligible to make an election under Section 338(h)(10) of
the Code (and any comparable election under state, local or foreign tax law)
with respect to the Company and the purchase of Shares under this Agreement.
(g) For purposes of this Agreement (i) the term "TAX" or "TAXES" means
any income, corporation, gross receipts, profits, gains, capital stock, capital
duty, franchise, withholding, social security, unemployment, disability,
property, wealth, welfare, stamp, excise, occupation, sales, use, value added,
alternative minimum, estimated or other similar tax (including any fee,
assessment, or other charge in the nature of or in lieu of any tax) imposed by
any governmental entity (whether national, local, municipal or otherwise) or
political subdivision thereof, and any interest, penalties, additions to tax or
additional amounts in respect of the foregoing, and including any transferee or
secondary liability in respect of any tax (whether imposed by law, contractual
agreement or otherwise) and any tax as a result of being a member of any
affiliated, consolidated, combined, unitary or similar group; and (ii) the term
"TAX RETURNS" (or "TAX RETURN" when used in the singular form) means all
returns, declarations, reports, statements and other documents required to be
filed in respect of Taxes, and any claims for refunds of Taxes, including any
amendments or supplements to any of the foregoing.
2.21 BROKERS. Except for Ladenburg Thalmann & Co. Inc., whose
commissions, fees, expenses and other compensation shall be paid by Brite, no
broker, finder, investment banker, or other person is entitled to any brokerage,
finders or other fee or commission in connection with the transaction
contemplated by this Agreement, based upon arrangements made by or on behalf of
Brite or its Affiliates.
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2.22 THE COMPANY.
(a) Except for execution and delivery of this Agreement, and other than
as agreed upon in writing by Buyer, the Company has had, and before the transfer
to the Company of the Acquired Assets as described in Section 1.1 and the
assumption by the Company of the Assumed Liabilities as described in Section
1.2, the Company will have had, no assets, liabilities, business, or operations.
Between December 1, 1998 and the Closing Date, the Company will have no
operations other than operation of the Business in the ordinary course. At the
Closing, the only assets of the Company will be the Acquired Assets and the only
obligations of the Company will be the Assumed Liabilities, and such other
assets or liabilities as arise due to the operation of the Business in the
ordinary course between December 1, 1998 and the Closing Date.
(b) The Company has, and before the issuance described in Section 1.3,
the Company will have had, no issued or outstanding capital stock or other
securities. At the Closing, the only issued or outstanding capital stock or
other securities of the Company will be the Shares, and there will be no
outstanding options or rights to acquire capital stock or other securities.
(c) Complete and accurate copies of the Certificate of Incorporation and
bylaws of the Company are attached hereto as Schedules 2.22(b)-1 and 2.22(b)-2,
respectively.
2.23 SELLER.
(a) Except for execution and delivery of this Agreement, and other than
as agreed upon in writing, Seller has had, and before the transfers as
contemplated by Section 1.1 hereof, Seller will have had, no assets,
liabilities, business, or operations. On December 1,1998, the only assets of
Seller will be the Shares.
(b) Complete and accurate copies of the Certificate of Incorporation and
bylaws of Seller are attached hereto as Schedules 2.23(c)-1 and 2.23(c)-2,
respectively.
2.24 OWNERSHIP OF CAPITAL STOCK.
(a) The authorized capital stock of the Company consists of One Hundred
Thousand (100,000) shares, of which Ninety Thousand (90,0000) shares shall be
common stock having a par value of $.001 per share (the "COMMON STOCK"), and Ten
Thousand (10,000) shares of preferred stock having a par value of $.001 per
share, including Five Thousand (5,000) shares of Series A Preferred Stock. As of
the Closing there will be Forty-Five Thousand (45,000) shares of Common Stock
issued and outstanding. There is no other issued and outstanding capital stock
of the Company.
(b) As of the Closing, the Shares will be all of the issued and
outstanding capital stock of the Company and will be validly issued and
outstanding, fully paid and non-assessable. Neither Seller nor the Company has
granted, issued or agreed to grant or issue any other equity interests in the
Company and there are no outstanding options, warrants, subscription rights,
securities that are convertible into or exchangeable for, or any other
commitments of any character relating to, any equity interests of the Company.
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(c) As of the Closing, the Seller will have good and valid title to, and
sole record and beneficial ownership of, the Shares, free and clear of any
claims, liens, pledges, options, security interests, trusts encumbrances or
other rights or interests of any person or entity and the Seller has the
absolute and unrestricted right, power and authority and capacity to enter into
this Agreement.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.25 CONSENTS.
Schedule 2.25 lists all consents and notices required to be obtained or
given by or on behalf of the Company or the Stockholder before consummation of
the transactions contemplated by this Agreement in compliance with all
applicable laws, rules, regulations, or orders of any Governmental Entity, or
the provisions of any material Contract, and all such consents have been duly
obtained and are in full force and effect except where the failure to obtain
such consent will not have a Material Adverse Effect.
2.26 ACCURACY OF INFORMATION. None of the representations or
warranties or information provided and to be provided by Brite and Seller to
Buyer in this Agreement, the Disclosure Schedule, schedules or exhibits hereto,
or in any of the other Transaction Documents contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements and facts contained herein or therein
not false or misleading. The descriptions set forth in the Disclosure Schedule
are accurate descriptions of the matters disclosed therein. Copies of all
documents heretofore or hereafter delivered or made available to Buyer pursuant
hereto were or will be complete and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Brite and Seller that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and the Transaction Documents have been (or upon execution will have been) duly
executed and delivered by Buyer and effectively authorized by all necessary
action, corporate or otherwise, and constitute (or upon execution will
constitute) legal, valid and binding obligations of Buyer, except as such
enforceability may be limited by the Bankruptcy Exception.
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3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance
by Buyer of this Agreement and the Transaction Documents and the consummation of
the transactions contemplated hereby do not and will not: (i) violate or
conflict with any provision of the charter documents of Buyer; or (ii) violate
any provision or requirement of any domestic or foreign, national, state or
local law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to Buyer.
3.3 ACCURACY OF INFORMATION. None of the representations or
warranties or information provided and to be provided by Buyer to Brite and
Seller in this Agreement, the schedules or exhibits hereto, or any of the other
Transaction Documents contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein, not false or
misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 ACCESS. Brite shall afford, to Buyer and Buyer's accountants,
counsel and representatives, full access during normal business hours throughout
the period prior to the Closing Date (or the earlier termination of this
Agreement) to all of the properties, books, Contracts and records of Brite
related to the Business (including, without limitation, Brite's accounting
records, the workpapers of Brite's independent accountants, and all
environmental studies, reports and other environmental records) and, during such
period, shall furnish promptly to Buyer all information concerning the Business,
Acquired Assets, Assumed Liabilities, and Business Personnel as Buyer may
reasonably request.
4.2 CONFIDENTIALITY. For purposes hereof, Brite, Seller and the
Company will keep the matters contemplated herein and all information provided
by Buyer related to Buyer and the Consolidation Transaction (as defined in
Section 4.3) and potential participants therein, including without limitation
Deloitte & Touche LLP, confidential, and will not provide information about such
matters to any party or use such information except to the extent necessary to
effect the transactions contemplated hereby. Buyer will keep the matters
contemplated herein and all information provided by Brite related to the
Business and Brite confidential, and will not provide information about such
matters to any party or use such information except to the extent necessary to
effect the transactions contemplated hereby. Buyer and Brite shall each cause
their respective Affiliates, officers, directors, employees, agents, and
advisors to keep confidential all information received in connection with the
transactions contemplated hereby. Brite acknowledges that Buyer may provide
information about the Business to other participants in the Consolidation
Transaction. If this Agreement terminates without consummation of the Closing,
Buyer and Brite shall, and shall cause their Affiliates to, each maintain the
confidentiality of any information obtained from the other in connection with
the transactions contemplated hereby, the Consolidation Transaction, and Buyer's
business plans (the "INFORMATION"), other than Information that (i) was in the
public domain before the date of this Agreement or subsequently came into the
public domain other than as a result of disclosure by the party to whom the
Information was delivered; or (ii) was lawfully received by a party from a third
party free of any obligation of confidence of or to such third party; or (iii)
was already in the possession of the party prior to receipt thereof, directly or
indirectly, from the other party; or (iv) is required to be disclosed in a
judicial or administrative proceeding after giving the other party as much
advance notice of the possibility of such disclosure as practicable
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so that the other party may attempt to stop such disclosure; or (v) is
subsequently and independently developed by employees, consultants or agents of
the party to whom the Information was delivered without reference to the
Information. If this Agreement terminates without consummation of the Closing,
Buyer and Brite shall each return to the other all material containing or
reflecting Information provided by the other, shall not retain any copies,
extracts, or other reproductions thereof or derived therefrom, and shall
thereafter refrain from using the Information and shall maintain its
confidentiality pursuant to this Agreement.
4.3 CONSOLIDATION TRANSACTIONS Concurrent with the transaction
contemplated hereby, Buyer is acquiring in a series of transactions various
other companies engaged in the business of cost reduction, cost recovery and
profit enhancement services by means of mergers into Buyer, or acquisitions by
Buyer of all or substantially all of the assets or stock or other equity
interests of such companies (collectively, the "CONSOLIDATION TRANSACTIONS").
Brite, Seller, and the Company acknowledge that as a result of the complexity of
the transactions contemplated hereby and the Consolidation Transactions, the
Closing contemplated hereby and the closing of the Consolidation Transactions
must be concurrent at a time designated by Buyer. Accordingly, Brite, Seller,
and the Company shall upon receipt of the Closing Notice but prior to the
Closing Date (i) provide any outstanding documentation required to effect the
Closing pursuant to this Agreement in escrow pending release upon authorization
of Seller and Brite at the Closing, (ii) complete performance of their
respective obligations hereunder and under the other Transaction Documents to be
performed by the Closing, and (iii) update the schedules hereto and any other
documentation or information provided to Buyer during the course of this
transaction such that all such disclosures shall be accurate and current as of
the Closing Date.
4.4 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), except as required or permitted
pursuant to the terms hereof, Brite, Seller and the Company shall not:
(i) make any material change in the conduct of the
Business; or terminate or amend any Contract or enter into any new
contract related to the Business calling for payments by Brite in excess
of $100,000 over the life of the contract or series of related
contracts, without the prior written consent of Buyer, which may not be
unreasonably withheld;
(ii) make any change in the charter documents or bylaws of
the Company or permit the Company to have any assets, liabilities,
business, or operations other than operations in the ordinary course of
the Business, or to issue any shares of capital stock or equity
securities or grant any option, warrant or right to acquire any capital
stock or equity securities or issue any security convertible into or
exchangeable for the capital stock of Brite:
(iii) make any sale, assignment, transfer, lease,
abandonment or other conveyance of any of the Acquired Assets or any
part thereof, except transactions required pursuant to existing
Contracts set forth in Schedule 2.11 and dispositions of
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inventory or worn out or obsolete equipment for fair or reasonable value
in the ordinary course of business consistent with past practices;
(iv) subject any of the Acquired Assets , or any part
thereof, to any lien, security interest, charge, interest or other
encumbrance, or suffer such to be imposed other than such liens,
security interests, charges, interests or other encumbrances as may
arise in the ordinary course of business consistent with past practices;
(v) enter into any new (or amend any existing) employee
benefit plan, program or arrangement or any employment, severance or
consulting agreement related to any Business Personnel, or grant any
increase in the compensation or benefits payable or to become payable to
(A) any executive or the Business, or (B) any Business Personnel other
than executives except in accordance with pre-existing contractual
provisions applicable to such non-executives;
(vi) make or commit to make any capital expenditure in
connection with the Business in excess of $10,000 or to invest, advance,
loan, pledge or donate any monies to any customers or other persons or
entities or to make any similar commitments with respect to outstanding
bids or proposals in connection with the Business;
(vii) take any other action that would cause any of the
representations and warranties made herein not to remain true and
correct in all material respects;
(viii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle,
method, estimate or practice related to the Business except for any such
change required by reason of a concurrent change in GAAP, or write down
the value of any Acquired Assets or write-off as uncollectible any
Accounts Receivable included in the Acquired Assets except in the
ordinary course of business consistent with past practices;
(ix) settle, release or forgive any material claim or
litigation or waive any material right related to the Business;
(x) prior to December 1, 1998, permit Seller to have any
interest in any Acquired Assets or Assumed Liabilities or any
involvement with the Business;
(xii) delay payment of payables or accelerate collection
of receivables relative to Brite's historical practices regarding the
timing of such payments and collections; or
(xi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until December 1, 1998 (or the
earlier termination of this Agreement), Brite shall, and from December 1, 1998
to the Closing Date, the Company shall:
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(i) maintain, in all material respects, the properties of
Brite associated with the Business in accordance with present practices
and in a condition suitable for their current use;
(ii) continue to conduct the Business in the ordinary
course consistent with past practices;
(iii) keep the books of account, records and files
associated with the Business in the ordinary course and in accordance
with existing practices;
(iv) continue to maintain existing business relationships
with suppliers and customers of the Business except to the extent that
such relationships are, at the same time, judged in good faith to be
non-beneficial;
(v) maintain and comply with all Licenses;
(vi) comply with all Environmental Laws applicable to the
Business, and upon receipt of notice that there exists a violation of
any such Environmental Law, immediately notify Buyer in writing and
promptly (and in any event within the time permitted by the applicable
Governmental Entity) (A) as to areas over which Brite or Seller
exercises control, remove or remedy such violation in accordance with
all Environmental Laws; and (B) as to other areas, use its best efforts
to have such violation removed or remedied in accordance with all
Environmental Laws; and
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by Brite (or on
behalf of it) related to the Business or the Acquired Assets on the date
hereof.
4.5 RESTRICTIVE COVENANTS.
(a) Non-Competition. After the Closing, without the prior written
consent of Buyer, Brite and Seller will not, directly or indirectly engage or
become interested in, as owner, employee, partner, through equity ownership,
investment of capital, lending of money or property, rendering of services, or
otherwise, either alone or in association with others, any business competitive
with the Business (including within the definition of the Business, without
limitation, any business of the type or types conducted by Brite through its
Telecom Services division at any time during the two (2) year period preceding
the Closing Date or under development by Brite in connection with the Business
on the Closing Date) in any county or any other political subdivision of any
state of the United States of America or of any other country in the world where
Brite conducted the Business at any time during the two (2) year period
preceding the Closing Date. This covenant not to compete shall extend for a
period of three (3) years from the Closing Date. The parties hereto agree that
the duration and area for which the covenant not to compete set forth in this
Section 4.4 is to be effective are reasonable.
(b) Confidentiality. Brite and Seller acknowledge their intent to
fully and effectively convey to Buyer all Proprietary Rights to be transferred
to Buyer pursuant hereto, including, without limitation, each Trade Secret.
Accordingly, notwithstanding the expiration of the covenant not to compete set
forth in this Section 4.4 Brite and Seller shall at all times keep
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confidential and shall not disclose to others any Proprietary Rights and shall
not use or permit to be used any Proprietary Rights for any purpose other than
performance of obligations to Buyer.
(c) Non-Diversion. For a period of three (3) years following the date
hereof Brite and Seller shall not, and shall not permit any of their Affiliates
to, divert or attempt to divert or take advantage of or attempt to take
advantage of any actual or potential business or opportunities related to the
Business.
(d) Non-Recruitment. For a period of three (3) years following the
date hereof, Brite and Seller will not, and shall not permit any of their
Affiliates to, hire away, or cause any other person to hire away, any of the
Business Personnel hired or retained by the Company after the Closing, or any
employee of Buyer or its Affiliates, or directly or indirectly entice or solicit
or seek to induce or influence any of such persons to leave their employment.
(e) Remedies. The covenants contained in Section 4.4 impose a
reasonable restraint on Brite and Seller in light of the activities and business
of Brite and Seller and future plans of Buyer. Brite and Seller acknowledge that
if Brite or Seller violates any of the covenants contained in this Section 4.4
(collectively, the "RESTRICTIVE COVENANTS"), it will be difficult to determine
the resulting damages to Buyer and, in addition to any other remedies Buyer may
have, (i) Buyer shall be entitled to temporary injunctive relief without being
required to post a bond and permanent injunctive relief without the necessity of
proving actual damages, and (ii) Buyer shall have the right to offset payment
obligations to Seller to the extent of any money damages incurred or suffered by
Buyer. The Prevailing Party (as defined in Section 7.15) shall be reimbursed by
the non-prevailing party for all costs including reasonable attorneys' fees and
expenses that may be incurred in enforcing or defending, to any extent, any of
the Restrictive Covenants, whether or not litigation is actually commenced and
including litigation of any appeal defended by Buyer where such party succeeds
in enforcing any of the Restrictive Covenants. Buyer may elect to seek one or
more remedies at its discretion on a case by case basis. Failure to seek any or
all remedies in one case shall not restrict Buyer from seeking any remedies in
another situation. Such action by Buyer shall not constitute a waiver of any of
its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The covenant not to compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Business was conducted before the Closing.
4.6 TAXES.
(a) Brite's Responsibilities for Taxes. Brite and Seller shall be liable
for, and shall defend, indemnify and hold harmless Buyer and its directors,
officers, employees, attorneys
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and agents from and against any and all Taxes of any kind or character that are
(i) imposed on Seller, Brite or its group (other than Company) for any taxable
year or (ii) imposed on Company, or for which Company may otherwise be liable,
for any taxable year or period that ends on or before the Closing Date and, with
respect to any taxable year or period beginning before and ending after the
Closing Date, the portions of such taxable year ending on and including the
Closing Date. Without limiting the generality of the foregoing, such
indemnification obligation of Brite and Seller shall include (i) any obligation
to contribute to the payment of a tax determined on a consolidated, combined or
unitary basis with respect to a group of corporations that includes or included
Company and Taxes resulting from Company ceasing to be affiliated with Brite
(or, if applicable, to be a member of Brite's consolidated, combined or unitary
group) or attributable to the election to be made under Section 338(h)(10) of
the Code, and (ii) any deferred income recharacterized as income by reason of
Treasury Regulations Section 1.1502-13 and Treasury Regulations Section
1.1502-14 and any excess loss accounts taken into income under Treasury
Regulations Section 1.1502-19 (and any similar state, local or foreign
provision). The indemnification obligation provided hereunder shall include
indemnification for costs and expenses, including reasonable attorney's fees and
expenses and other costs and expenses associated with defense of a claim or
incurred in obtaining indemnification hereunder, whether or not they are
incurred in a formal proceeding.
(b) Brite's Tax Return Filing Obligations. Brite shall file or cause to
be filed when due (i) all consolidated, combined or unitary Tax Returns that are
required to be filed by or with respect to Company for taxable years or periods
ending on or before the Closing Date and (ii) all other Tax Returns that are
required to be filed by or with respect to Company that are due on or prior to
the closing Date, and Brite shall pay any Taxes due in respect of (i) or (ii)
above. Brite will take no position (unless required by law) or make any election
on such Tax Returns that would adversely affect the Tax position of Company
after the Closing Date.
(c) Buyer's Responsibilities for Taxes. Buyer shall be liable for all
Taxes of Company for any taxable year or period that begins after November 30,
1998 and, with respect to any taxable year or period beginning before and ending
after November 30, 1998, the portion of such taxable year beginning after
November 30, 1998.
(d) Buyer's Tax Return Filing Obligations. Buyer shall file or cause to
be filed when due all Tax Returns that are required to be filed by or with
respect to Company, other than the consolidated, combined or unitary Tax Returns
referred to in Section 4.5(b) above, that are due after the Closing Date, and
Buyer shall pay any Taxes due in respect of the Tax Returns described above,
subject to reimbursement by Brite for Taxes Brite or Seller is liable for under
Section 4.5(a) above.
(e) Taxes for Short Taxable Year. Whenever it is necessary to determine
the liability under this Section 4.5 for Taxes of Company for a portion of a
taxable year or period that begins before and ends after November 30, 1998, the
determination of the Taxes of Company for the portion of the year or period
ending on, and the portion of the year or period beginning after November 30,
1998, shall be determined by assuming that Company had a taxable year or period
which ended at the close of November 30, 1998 and that Company closed its books
at that time.
(f) Review of Tax Returns and Other Filings. To the extent that one
party (the "nonfiling party") would be liable under this Section 4.5 for Taxes
payable with respect to,
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or would otherwise be subject to increased liability for Taxes as a result of,
Tax Returns or other filings filed by another party (the "other party"), the
other party shall allow the nonfiling party adequate opportunity to review and
comment on such Tax Returns or other filings and shall not file such Tax Returns
or other filings without the consent of the nonfiling party; provided, such
nonfiling party agrees that it is liable for such Taxes hereunder and, provided
further, that such consent shall not be unreasonably withheld.
(g) Contest Provisions. Buyer, Seller and Brite shall promptly notify
each other in writing upon receipt by any of them, or any of their affiliates,
or Company, of notice of any pending or threatened federal, state, local, or
foreign tax audits or assessments which may materially affect the tax
liabilities of Savings for which Brite or Seller would be required to indemnify
Buyer pursuant to this Agreement.
Brite shall have the sole right to represent Company's interests in any
tax audit or administrative or court proceeding relating to taxable periods
ending on or before the Closing Date, and to employ counsel of its choice, at
its expense. Notwithstanding the foregoing, Brite (i) shall consult with Buyer
with respect to the resolution of any issue that would affect Buyer or Company
in any way and to any extent, in the taxable periods subject to such proceeding
or any other taxable periods (including, but not limited to, any resolution that
would result in the imposition of income tax deficiencies, the reduction of
asset basis or cost adjustments, the lengthening of any amortization of
depreciation periods, the denial of amortization or depreciation deductions, or
the reductions of loss or credit carry forwards to Company or Buyer), and (ii)
shall not settle any such issue or file any amended return relating to such
issue, without the consent of Buyer, which consent shall not be unreasonably
withheld.
Brite and Seller shall be entitled to participate at Brite's expense in
the defense of any claim for Taxes for a period described in Section 4.5(e) for
the portion of the year or period ending on November 30, 1998 that is the
subject of indemnification by Brite hereunder. Neither Company nor Buyer may
agree to settle any such claim for Taxes for the portion of the year or period
ending on November 30, 1998 that is the subject of indemnification by Brite
hereunder without the prior written consent of Brite, which consent shall not be
unreasonably withheld. Brite shall not settle any such claim, or take any other
action with respect to such claim, without the consent of Buyer, which shall not
be unreasonably withheld.
(h) Termination of Tax Allocation Agreements. Any tax allocation or
sharing agreement or arrangement, whether or not written, that may have been
entered into by Seller, Brite or any member of Brite's group and Company shall
be terminated as to Company as of December 1, 1998, and no payments which are
owed by or to Company pursuant thereto shall be made thereunder.
(i) Section 338(h)(10). At the request of Buyer, Seller shall make a
joint election with Buyer under Section 338(h)(10) of the Code and under any
similar provisions of state or foreign law with respect to the purchase of
Company's Shares. Seller and Brite represent that Seller's sale of the Shares of
Company is eligible for such election. If the election is made, Seller and Buyer
shall on the Closing Date exchange completed and executed copies of Internal
Revenue Service Form 8023, required schedules thereto, and any similar state and
foreign forms. If Buyer determines that any changes are required in these forms
as a result of information which is first available after the Closing Date,
Seller will promptly cooperate with respect to such changes.
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If an election under Section 338(h)(10) of the Code is made, Brite and
Buyer will (i) cause their respective accountants to negotiate in good faith, on
their behalf, and agree to, or (ii) appoint an appraiser to determine, a
purchase price and an allocation of that price among the assets of Company that
are deemed to have been acquired pursuant to Section 338(h)(10) of the Code or
state or foreign law equivalent. Company and Brite shall use the asset values
determined from such allocation for purposes of all reports and returns with
respect to Taxes, including Internal Revenue Service Form 8594 or any equivalent
statement.
(j) Efforts to Obtain Certain Documents. Brite and Seller shall, upon
request, use their reasonable 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 on Company
(including, but not limited to, with respect to the transactions contemplated by
this Agreement).
(k) Cooperation after Closing. After the Closing Date, Brite, Seller and
Buyer shall:
(i) assist (and cause their respective affiliates to assist) the
other party in preparing any Tax Returns or reports which such other party is
responsible for preparing and filing in accordance with this Section 4.5;
(ii) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Return of Company;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to Taxes
of Company;
(iv) provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of Company for taxable periods for which
the other may have a liability under this Agreement;
(v) furnish the other with copies of all correspondence received
from any taxing authority in connection with any tax audit or information
request with respect to any such taxable period;
(vi) retain and (upon the other party's request) provide records and
information that are reasonably relevant to any audit, litigation or other
proceeding or to tax matters pertinent to Company relating to any taxable year
or period beginning before the Closing Date until the expiration of the statute
of limitations (and any extensions thereof) of the respective taxable periods
and give the other party reasonable written notice prior to transferring,
destroying or discarding any such records and information; provided, if Buyer so
requests, after receiving notice that such records are to be destroyed or
discarded, Brite shall allow Buyer to take possession of such books and records;
and, provided further, that Buyer shall not be required to give such notice to
Brite after the expiration of the statute of limitations (and any extensions
thereof known to Buyer) of the respective tax period to which such books and
records relate;
(vii) provide, upon request, all information that may be required
for reporting pursuant to Section 6043 of the Code and the regulations
thereunder; and
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(viii) abide by all record retention agreements entered into with
any taxing authority.
(l) Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including penalties and interest)
incurred in connection with the transactions contemplated by this Agreement
shall be paid by Brite when due, and Brite will, at its expense, file all
necessary Tax Returns or other forms for such Taxes and other documentation with
respect to all such matters. If required by applicable law, Buyer will join in
the execution of any such returns or documentation.
4.7 ACCESS TO RECORDS AND FILES. Brite shall have the right for a
period of three (3) years following the Closing Date to have reasonable access
to such books, records and accounts, correspondence, production records,
employment records and other similar information as are included in the Acquired
Assets pursuant to this Agreement for the limited purposes of concluding its
involvement in the Business prior to the Closing Date. Buyer shall have the
right for a period of three (3) years following the Closing Date to have
reasonable access to those books, records and accounts, correspondence, and
other records which are retained by Brite pursuant to the terms of this
Agreement to the extent that any of the foregoing relate to Business or the
Acquired Assets.
4.8 COOPERATION IN LITIGATION. Each party will fully cooperate with
the other in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business prior to or after
December 1, 1998(other than litigation between Buyer and/or its Affiliates or
assignees, on the one hand, and Brite and/or its Affiliates or assignees, on the
other hand, arising out of the transactions contemplated by this Agreement). The
party requesting such cooperation shall pay the out-of-pocket expenses
(including reasonable legal fees and disbursements) of the party providing such
cooperation and of its officers, directors, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for such party's
time spent in such cooperation or the salaries or costs of fringe benefits or
other similar expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
4.9 EMPLOYMENT.
(a) Other than as listed on Schedule 1.2, neither the Company nor
Buyer shall assume any liabilities or obligations of Brite or Seller to any
current or former employee or agent of Brite or Seller. Brite and Seller shall
be solely responsible for, and neither the Company nor Buyer shall have, any
liability or obligation to or in respect of any employee or agent or former
employee or former agent of Brite or Seller or their beneficiaries and
dependents, including, without limitation, any liability or obligation (i)
arising from such employee or agent's actual or constructive termination by
Brite or Seller, or any notice and/or payment in lieu of notice required by
applicable law in connection with such termination, (ii) in respect of any
compensation, tenure, seniority, benefit or welfare plan or arrangement of any
kind, (iii) to trusts or other funds or any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits, fringe benefits or
any other benefits or obligations, or (iv) for salaries, vacation and holiday
pay, sick pay, bonuses and other forms of compensation, or
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(v) arising from the participation and/or accrual of benefits or compensation
under, or failure to participate in or to accrue compensation or benefits under,
any Employee Plans or other employee arrangement of Brite or Seller. Except as
otherwise provided in Section 4.8(b), neither the Company nor Buyer shall have
any obligation to any employee or agent of Brite or Seller to employ or engage
any such employee or agent.
(b) Schedule 4.9 sets forth a list of all Business Personnel to whom
Buyer intends, through the Company, to offer employment or engagements
comparable to those with Brite as of the date hereof. Buyer shall, through the
Company, offer employment or such similar engagements to all of the persons
listed on Schedule 4.9 at such salaries, wages or compensation rates and such
medical insurance and other benefits as Buyer may determine At any time after
the Closing Buyer may, but is in no way obligated to, offer employment or
similar engagements to Business Personnel not listed on Schedule 4.9. Effective
as of December 1, 1998, all employees of Brite employed by the Company shall
cease to participate in or accrue benefits under any Employee Plan or
arrangements maintained by Brite, except with respect to continued participation
in medical, life and disability coverages.
(c) If any of the Business Personnel elects to become employed or
engaged by the Company, the employment or relationship between such employee or
agent and Brite shall first terminate and such employee or agent shall then be
employed or engaged by the Company according to policies and procedures
determined by Buyer.
4.10 CHANGE OF NAME. Promptly after the Closing Date Brite and its
Affiliates will discontinue using the names "Telecom Services Limited", "TSL" or
any other names confusingly similar to "Telecom Services Limited", "TSL" or any
other name or names under which, at any time, the Business was conducted.
4.11 COLLECTION OF ACCOUNTS RECEIVABLE.
(a) Not later than December 16, 1998, Brite shall deliver to Buyer a
list of all Accounts Receivable outstanding on December 1, 1998, all of which
will be included in the Acquired Assets.
(b) Brite and Seller hereby authorize Buyer and the Company to open
any and all mail addressed to Brite (if delivered to Buyer or the Company) if
received on or after December 1, 1998 and hereby grants to Buyer and the Company
a power of attorney to endorse and cash any checks or instruments made payable
or endorsed to Brite or Seller or its order and received by Buyer or the
Company.
Brite and Seller shall forward promptly to Buyer any monies, checks or
instruments received by Brite or Seller after the Closing with respect to the
Accounts Receivable.
4.12 BEST EFFORTS. Upon the terms and subject to the conditions of
this Agreement, each of the parties hereto shall use its best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to cause the
fulfillment of the conditions to Closing set forth herein and to consummate and
make effective in the most expeditious manner practicable the transactions
contemplated hereby.
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4.13 BULK SALES LAWS. Brite and Seller shall comply with the
provisions of any applicable bulk sales laws applicable to the transactions
contemplated hereby, and shall be responsible and liable for the costs of any
non-compliance, irrespective of which party is obligated under such laws.
4.14 CLOSING DATE NET WORTH. On December 1, 1998, the Company will
have a net worth, calculated in accordance with GAAP, of at least Three Million
Six Hundred Thousand Dollars ($3,600,000).
4.15 FURTHER ASSURANCES. Upon the reasonable request of a party or
parties hereto at any time after the Closing Date, the other party or parties
shall forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its or their counsel may
reasonably request in order to perfect title of Buyer and its successors and
assigns to the Shares and title of the Company and its successors and assigns to
the Acquired Assets and otherwise to effectuate the purposes of this Agreement.
4.16 NOTICE OF BREACH. At all times before the Closing, and thereafter
until the second anniversary of the Closing Date, each of the parties hereto
shall promptly give written notice with particularity of any breach or
inaccuracy of any representation, warranty, agreement or covenant of such party
contained herein or in any other Transaction Document to the parties to whom or
which such representation, warranty or covenant was made.
4.17 CONTRACTS AND LICENSES.
(a) Brite shall use its best efforts to obtain all necessary consents,
waivers, authorizations and approvals of all persons, firms or corporations
required in connection with the execution, delivery and performance by Brite and
the Company of this Agreement
(b) To the extent that the terms of any Contract or License require the
consent of any third party to avoid giving any third party the right to cancel
or terminate the Contract or License or impose extra charges or penalties in
connection with the transactions contemplated by this Agreement, the assignment
thereof to the Company will be deferred until such consent is received. With
respect to Contracts, pending receipt of such consents, Brite will, to the
extent legally permissible, subcontract performance to the Company, and the
Company will receive in respect of its subcontract performance all payments
earned under the Contract. If subcontracting is not permissible, then pending
assignment the parties will cooperate to determine a reasonable arrangement that
is designed to provide for Buyer the benefits intended to be assigned to the
Company (and indirectly to Buyer) under the relevant Contract or License,
including, without limitation, enforcement for the account of Buyer of any and
all rights of Brite against the other party to any Contract arising out of the
breach of cancellation of Contract by such other party. However, notwithstanding
this Section 4.17(b), Brite will not be required to conduct the Business after
the Closing, and Buyer will reimburse Brite for costs incurred by Brite pursuant
to this Section 4.17(b) and will indemnify Brite against liabilities incurred in
performance under this Section 4.17(b) pursuant to Section 5.3. The
reimbursement and indemnification described in the preceding sentence shall not
be subject to Section 5.7.
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4.18 SUPPLEMENTAL DISCLOSURE. At the Closing, Brite shall promptly
supplement or amend each of the schedules and the Disclosure Schedule with
respect to any matter hereafter arising which, if existing or occurring at or
prior to the date hereof, would have been required to be set forth or listed in
the schedule or the Disclosure Schedule or which is necessary to complete or
correct any information in the schedules or the Disclosure Schedule.
4.19 HSR. Buyer and Brite shall cooperate in preparing and delivering
to the Department of Justice and the Federal Trade Commission notification of
the transactions contemplated hereby pursuant to, and shall use their best
efforts to obtain early termination of the waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"). Buyer
shall pay all filing fees payable under the HSR Act in connection with the
transactions contemplated hereby . Each of Buyer and Brite shall pay its own
costs incurred in preparation of all reports and notifications required under
the HSR Act.
4.20 COMPETING PROPOSALS.
(a) Brite shall not, directly or indirectly, initiate, solicit,
encourage or participate in any discussions or negotiations with, or provide any
nonpublic information to, any person or entity concerning any potential offer
(other than as described herein) to acquire the Business or any assets thereof
or interests therein, or any other transaction or arrangement that would
interfere with the transactions contemplated hereby (a "COMPETING PROPOSAL");
(b) Brite shall promptly communicate to Buyer the existence or
occurrence and terms of any Competing Proposal or contact related thereto which
Brite or any of its employees, directors, or agents may receive in respect of
any such proposed transaction and the identity of the person, entity or group
from whom such proposal or contact was received; and
(c) Brite shall not transfer or hypothecate the Business or any
assets thereof or interests therein except to Buyer, or enter into any agreement
with any person other than Buyer in connection with any of the foregoing.
4.21 SERIES A PREFERRED STOCK. Buyer shall not amend the Articles of
Incorporation of the Company in any manner which will diminish the rights of the
Series A Preferred Stock delivered to Seller as a portion of the Purchase Price
pursuant to Schedule 1.4.
4.22 EMPLOYEE PLANS.
(a) Effective as of December 1, 1998 and contingent upon the Closing,
Transferred Employees shall cease to accrue benefits under the Brite Voice
Systems, Inc. 401(k) Plan ("Seller's 401(k) Plan"). Seller shall (1) cause the
account of each Transferred Employee who has an accrued benefit in Seller's
401(k) Plan as of the Closing to become 100% vested and (2) cause the account of
each Transferred Employee in Seller's 401(k) Plan to include an allocable share
of such contributions as would have been made between the last date of
contribution and December 1, 1998 in the same manner as if the transaction
contemplated by this Agreement had not occurred. As soon as practicable
following December 1, 1998, Seller shall segregate, in accordance with the
spin-off provisions of Code Section 414(l), the accounts of the Transferred
Employees under Seller's 401(k) Plan and shall transfer such account balances to
the trustee of a 401(k) Plan maintained by Buyer for such Transferred Employees
in a manner
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consistent with Code Section 414(l). All such transfers from Seller's 401(k)
Plan shall be in the form of cash or cash equivalents. For purposes of this
Section 4.22, the term Transferred Employee shall mean each employee of Seller
who as of the Closing becomes an employee of Buyer, in each case whether or not
actively employed on such date.
(b) Seller shall treat the transaction contemplated by this Agreement
as a termination of employment with respect to the Transferred Employees for
Seller's health plans, and shall be responsible to provide health care
continuation coverage under Seller's health plans pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), effective
as of Closing. Buyer shall not assume, and Seller agrees to be solely
responsible for, all liabilities with respect to COBRA coverage for Transferred
Employees for qualifying events arising on or prior to December 1, 1998.
4.23 REAL PROPERTY LEASES.
In the event that prior to the Closing Brite and Seller have failed to
obtain Consents to the transfer of the Real Property Leases from Brite to the
Company:
(a) Brite, Seller, the Company and Buyer shall continue to use their
best efforts to obtain such Consents after the Closing Date.
(b) Prior to the execution of the consent necessary to transfer a
Real Property Lease, Brite shall remain liable to the landlord and his
successors and assigns upon such Real Property Lease; provided, however that
Brite's liability is subject to Buyer's obligation to indemnify Brite, without
regard to the Threshold described in Section 5.7, for any amounts that Brite may
be required to pay under such Real Property Lease which the Company, had the
lease been assigned, should have paid after December 1, 1998 under such Real
Property Lease.
(c) With respect to any Real Property Lease which is terminated by
the lessor because of the change in tenancy from Brite to the Company, Brite
shall reimburse Buyer and the Company (and shall indemnify Buyer and the Company
without regard to the Threshold described in Section 5.7), for (i) any increased
rent payment incurred by Buyer or the Company to another landlord for comparable
replacement space for a term corresponding to the original Real Property Lease
term and for (ii) any and all costs incurred by Buyer and the Company associated
with relocating from the original space to the replacement space.
5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL. The representations and warranties made in this
Agreement or in any exhibit, schedule, or any Transaction Document or
certificate shall survive any investigation made by any party hereto and the
Closing of the transactions contemplated hereby until the second anniversary of
the Closing Date, except those representations and warranties contained in (i)
Section 2.12 (Compliance with Law), 2.20 (Taxes), and 2.21 (Brokers), which will
survive until the expiration (including extensions) of the applicable statute of
limitations; (ii) Section 2.19 (Environmental Matters), which will survive until
the seventh anniversary of the Closing Date; and (iii) Sections 2.3 (Acquired
Assets) and 2.22 (The Company) and 2.23 (The Seller), which will survive
indefinitely. As to any matter which is based upon willful fraud by the
indemnifying party, the representations and warranties set forth in this
Agreement shall
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expire only upon expiration of the applicable statute of limitations. No party
will be liable to another under any warranty or representation after the
applicable expiration of such warranty or representation; provided however, if a
claim or notice is given under this Section 5 with respect to any representation
or warranty prior to the applicable expiration date, such claim may be pursued
to resolution notwithstanding expiration of the representation or warranty under
which the claim was brought. Any investigations made by or on behalf of any of
the parties prior to the date hereof shall not affect any of the parties'
obligations hereunder. Completion of the transactions contemplated hereby shall
not be deemed or construed to be a waiver of any right or remedy of any of the
parties.
5.2 INDEMNIFICATION BY BRITE. Subject to the limits set forth in this
Section 5, Brite, Seller and their successors and assigns shall jointly and
severally indemnify, defend and hold harmless Buyer and, if the transactions
contemplated hereby are consummated, the Company, and their respective
Affiliates, and the officers, directors, employees and agents of any of them,
from and against any and all claims, losses, damages, liabilities obligations,
assessments, penalties and interest, demands, actions and expenses (including,
without limitation, settlement costs and any legal, accounting and other
expenses for investigating or defending any actions or threatened actions)
("LOSSES") reasonably incurred by any such indemnitee, arising out of or in
connection with any of the following:
(a) the operations of Brite or Seller and the ownership or operation
of the Excluded Assets including, without limitation, the operation or
maintenance of the Employee Plans at any time before or after the Closing;
(b) the ownership or operation of the Acquired Assets or Business before
December 1, 1998;
(c) any obligations of the Company accrued or arising from actions
taken by Brite, Seller or the Company before December 1, 1998 other than the
Assumed Liabilities;
(d) any untruth or inaccuracy of any representation or warranty made by
Brite, Seller or the Company in this Agreement or any Transaction Document;
(e) the breach of any covenant, agreement or obligation of Brite, Seller
or the Company contained in this Agreement or any Transaction Document;
(f) any claims against, or liabilities or obligations of, Brite or
Seller not specifically assumed by Buyer pursuant to this Agreement;
(g) employment or retention by Brite or its Affiliates of any persons
and termination of such employment or retention; and
(h) any tax liability arising or resulting from the structure of the
transactions contemplated by this Agreement.
5.3 INDEMNIFICATION BY BUYER. Subject to the limits set forth in this
Section 5, Buyer and, if the transactions contemplated hereby are consummated,
the Company, shall indemnify, defend and hold harmless Brite and its Affiliates
and the officers, directors, employees and
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agents of any of them from and against any and all Losses reasonably incurred by
any such indemnitee arising out of or in connection with any of the following:
(a) the ownership and operation of the Acquired Assets and the Business
after December 1, 1998;
(b) any untruth or inaccuracy of any representation or warranty made by
Buyer in this Agreement or any other Transaction Document;
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any Transaction Document;
(d) any claims against, or liabilities or obligations of, Brite
specifically assumed by the Company pursuant to this Agreement;
(e) employment or retention by Buyer or its Affiliates of any persons
and termination of such employment or retention and;
(f) any obligations of the Company accrued or arising from actions taken
by Buyer or the Company after the Closing.
5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim,
the Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel
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that is relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of
any Claim in accordance with the terms of Section 5.4(b), or if the Indemnitor
fails diligently to prosecute such defense, the Indemnitee may defend against
the subject of the Claim, at the Indemnitor's sole cost, risk and expense, in
such manner and on such terms as the Indemnitee deems appropriate, including,
without limitation, settling the subject of the Claim after giving reasonable
notice to the Indemnitor. If the Indemnitee defends the subject of a Claim in
accordance with this Section, the Indemnitor shall cooperate with the Indemnitee
and its counsel, at the Indemnitor's sole cost, risk and expense, in all
reasonable respects, and shall deliver to the Indemnitee or its counsel copies
of all pleadings and other information within the Indemnitor's knowledge or
possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee
against Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 PAYMENT. All payments owing under this Section 5 will be made
promptly as indemnifiable Losses are incurred. If the Indemnitee defends the
subject matter of any Claim in accordance with Section 5.4(c) or proceeds with
separate counsel in accordance with Section 5.4(b), the expenses (including
attorneys' fees) incurred by the Indemnitee shall be paid by the Indemnitor in
advance of the final disposition of such matter as incurred by the Indemnitee,
if the Indemnitee undertakes in writing to repay any such advances in the event
that it is ultimately determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement or applicable law.
5.6 SET-OFF. In addition to any rights of set off or other rights
that any of the Indemnitees may have at common law, by statute or otherwise,
each Indemnitee, notwithstanding Section 5.7, shall have the right to set off
any amount that is owed by such Indemnitee to an Indemnitor against any amount
otherwise payable by the Indemnitor to the Indemnitee.
5.7 LIMITATIONS. Notwithstanding any provision of this Agreement to
the contrary, except as otherwise contemplated in Section 5.6 and Section
4.17(b), no party shall have any obligation to indemnify any person entitled to
indemnity under this Section 5 or to pay damages
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in respect of contract claims arising under this Agreement or any other
Transaction Document unless the persons so entitled to indemnity or recovery
thereunder have suffered Losses in an aggregate amount attributable to all
claims and obligors in excess of Two Hundred Thousand Dollars ($200,000) (the
"THRESHOLD"). Once the aggregate amount of Losses exceeds the Threshold, persons
entitled to recovery shall be entitled to recover the full amount of all Losses,
including any amounts which constituted the Threshold. No person shall be
entitled to indemnification under this Section 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of
Brite, Seller and the Company, on the one hand, and Buyer, on the other hand, to
consummate the transactions contemplated hereby shall be subject to the
fulfillment, before the Closing Date, of the conditions set forth in this
Section 6.1, any one or more of which may be waived in writing by the party
entitled to the benefit of such condition; provided, however, that such waiver
will not diminish such party's right to indemnification pursuant to Section 5,
unless so stated, and provided further that Brite, Seller and the Company will
be required to perform their obligations hereunder, notwithstanding lack of
fulfillment of the conditions set forth in this Section 6.1, if Buyer agrees in
writing to be liable for, and to indemnify Brite and Seller from and against,
any obligations that Brite and Seller would incur as a result of consummating
the transactions contemplated hereby notwithstanding the fact that the
conditions in this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction
or other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, prospects, net income or
financial condition of Brite or Seller is in effect; and no action or
proceeding, has been instituted or threatened by any Governmental Entity, other
person, or entity which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement the result of which could constitute a Material
Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for Brite and Seller may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transactions contemplated hereby are subject to the fulfillment,
at or before the Closing Date, of the conditions set forth in this Section 6.2,
any one or more of which may be waived by Buyer in its discretion; provided
however, such waiver will not waive or diminish Buyer's right to indemnification
pursuant to Section 5, unless so stated:
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(a) Representations and Warranties True. The representations and
warranties of Brite, Seller and the Company contained in this Agreement or in
any Transaction Document delivered pursuant hereto shall be true and correct in
all material respects as of the date hereof and on the Closing Date, and at the
Closing Brite, Seller and the Company shall each have delivered to Buyer a
certificate dated the Closing Date to such effect signed by the President or any
Vice President and the Secretary or any Assistant Secretary of Brite, Seller and
the Company.
(b) Performance of Brite and Seller. Brite, Seller and the Company
have performed in all material respects all obligations required to be performed
by them under this Agreement on or before the Closing Date, and at the Closing
Brite shall have delivered to Buyer a certificate to such effect dated the
Closing Date and signed by the President or any Vice President and the Secretary
or any Assistant Secretary of Brite.
(c) Consents to Assignments of Certain Contracts. All necessary
consents to the assignment of all Contracts requiring consents as a condition to
their assignment to and assumption by the Company as described herein shall have
been obtained in written instruments reasonably satisfactory to Buyer.
(d) Additional Closing Documents of Brite. Buyer has received, or is
receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant
Secretary of Brite and Seller of resolutions of the Board of Directors
of Brite and Seller authorizing the execution, delivery and performance
of this Agreement and the Transaction Documents and the consummation of
the transactions contemplated hereby;
(ii) Leasehold deeds of trust or similar forms of
conveyance in proper statutory form for recording duly executed and
acknowledged by Brite and Seller covering the Real Property Leases to be
conveyed to the Company pursuant to this Agreement;
(iii) Such further instruments of sale, transfer,
conveyance, assignment or delivery covering the Acquired Assets, or any
part thereof, as Buyer may reasonably require to assure the full and
effective sale, transfer, conveyance, assignment or delivery to the
Company of the Acquired Assets to be transferred pursuant to this
Agreement; and
(iv) Such other documents as Buyer may reasonably request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses or otherwise in connection with the
execution, delivery and performance of this Agreement, the absence of which
could result in material liability or a Material Adverse Change or the
cancellation or adverse change in terms of, or payments under, any Contract,
have been duly obtained in form reasonably satisfactory to Buyer and are in full
force and effect on the Closing Date.
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(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that may result in a Material Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the Acquired Assets, the business, operations, financial
condition and prospects of the Business.
(h) Financing. Buyer shall have available, on commercially reasonable
terms reasonably satisfactory to Buyer, debt financing sufficient to finance the
Cash Payment (as defined in Schedule 1.4), and to provide Buyer with adequate
working capital following the Closing.
(i) Bulk Sales. Brite and Seller shall have complied, on their behalf
and on behalf of Buyer, with all bulk sales laws applicable to the transactions
contemplated hereby, including requirements imposed upon Buyer under applicable
law.
(j) Audit. A review of the books, records and results of operations
of the Business as of September 30, 1998 has been completed and Buyer is
satisfied that the results thereof are substantially consistent with the
unaudited financial statements of the Business through the same period and other
information provided to Buyer by Brite and do not reflect any Material Adverse
Change since December 31, 1997.
(k) Employee Matters. Buyer is reasonably assured that the employees
and independent contractors identified on Schedule 4.9 are of a quantity and
having the skills sufficient for the operation of the Business, and are
continuing their employment or affiliation with the Company after the Closing on
terms acceptable to Buyer, Buyer has received an Employee General Release
Agreement in the form of Exhibit D hereto executed by each such employee or
independent contractor, and the persons listed on Schedule 6.2 shall have
entered into employment contracts substantially in the form attached hereto as
Exhibit E.
(l) Opinion of Counsel. Buyer has received a favorable opinion, dated
as of the Closing Date, from counsel to Brite and Seller in substantially the
form of Exhibit F. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Brite, or its officers, and such counsel
may assume that this Agreement has been duly authorized, executed and delivered
by Buyer.
(m) Legal Matters. All Transaction Documents required to be executed
or delivered by or on behalf of Brite, Seller and the Company under this
Agreement, and all other actions and proceedings required to be taken by or on
behalf of either of them in furtherance of the transactions contemplated hereby,
are in form and substance reasonably satisfactory to counsel for Buyer.
(n) Stockholder Agreement. Buyer has received an executed Stockholder
Agreement substantially in the form of Exhibit H.
(o) Certificates. Seller shall have delivered to Buyer the
certificates representing the Shares and the stock certificates or stock powers
as described in Section 1.4.
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(p) Stock Books. The Company shall have delivered the stock books,
stock ledgers, minute books and corporate seals of the Company.
(q) Other Closing Documents. Buyer has received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of Brite, Seller and the Company or in
furtherance of the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Brite and
Seller to consummate the transactions contemplated hereby are subject to the
fulfillment, at or before the Closing Date, of the conditions set forth in this
Section 6.3 any one or more of which may be waived by Brite and Seller and the
Company in writing in its discretion; provided however, such waiver will not
waive or diminish the right of Seller to indemnification pursuant to Section 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any Transaction Document
shall be true and correct in all material respects on the date hereof, and at
the Closing Buyer shall have delivered to Brite a certificate to such effect
dated the Closing Date, signed by the President or any Vice President and the
Secretary or any Assistant Secretary of Buyer.
(b) Performance of Covenants. Each of the obligations of Buyer to be
performed on or before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed on or before the Closing Date, and at the Closing
Buyer shall have delivered to Brite a certificate to such effect dated the
Closing Date signed by the President or any Vice President and the Secretary or
any Assistant Secretary of Buyer.
(c) Authority. All actions required to be taken by, or on the part
of, Buyer to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken by the Board of Directors of Buyer.
(d) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant
Secretary of Buyer, of resolutions of its Board of Directors authorizing
the execution and delivery of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby;
and
(ii) Such other closing documents as Brite may reasonably
request.
(e) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required in connection with the execution, delivery and performance of this
Agreement, the absence of which could result in material liability to Brite,
have been duly obtained and are in full force and effect on the Closing Date;
provided however, that Brite, Seller and the Company will be required to perform
their obligations hereunder, notwithstanding lack of fulfillment of the
conditions set forth in this
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Section 6.3(e), if Buyer agrees in writing to be liable for, and to indemnify
Brite and Seller from and against, any obligations that Brite or Seller would
incur as a result of consummating the transactions contemplated hereby
notwithstanding the fact that the conditions in this Section 6.3(e) have not
been fulfilled.
(f) Opinion of Counsel. Brite has received a favorable opinion, dated
as of the Closing Date, from counsel to Buyer, in substantially the form of
Exhibit G. In giving such opinion, such counsel may rely upon certificates of
public officials, upon opinions of local counsel and, as to matters of fact,
upon a certificate of Buyer, and such counsel may assume that this Agreement has
been duly authorized, executed and delivered by Brite.
(g) Purchase Price. Seller has received:
(i) the Cash Payment (as defined in Schedule 1.4);
(ii) the Warrants (as defined in Schedule 1.4); and
(iii) certificates representing the Preferred Stock (as
defined in Schedule 1.4).
(h) Legal Matters. All Transaction Documents required to be executed
or delivered by or on behalf of Buyer under this Agreement, and all other
actions and proceedings required to be taken by or on behalf of Buyer in
furtherance of the transactions contemplated hereby, are in form and substance
reasonably satisfactory to counsel for Brite .
(i) Other Closing Documents. Brite has received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of Buyer or in furtherance of the transactions
contemplated by this Agreement as Brite may reasonably request.
7. MISCELLANEOUS.
7.1 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated (a) by Buyer, if (i) Brite, Seller or the Company fails
to comply in any material respect with any of its or their covenants or
agreements contained herein, or (ii) any of the representations and warranties
of Brite, Seller or the Company are breached or is inaccurate in any material
way; or (b) by Brite, or Buyer if (i) a Governmental Entity has issued a
non-appealable order, decree or ruling or taken any other action (which order,
decree or ruling the parties hereto have used their best efforts to lift), which
permanently restrains, enjoins or otherwise prohibits the transactions
contemplated by this Agreement; or (ii) a condition to its performance hereunder
has not been satisfied or waived prior to November 30, 1998. Notwithstanding the
foregoing, a party may not terminate this Agreement if the event giving rise to
the termination right results from the willful failure of such party to perform
or observe any of the covenants or agreements set forth herein to be performed
or observed by such party or if such party is, at such time, in material breach
of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will
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terminate and the transactions contemplated hereby will be abandoned, without
further action by any party. If this Agreement is terminated as provided herein,
no party to this Agreement will have any liability or further obligation to any
other party to this Agreement except as provided in Sections 2.21 (Brokers), 4.2
(Confidentiality), 5 (Survival; Indemnification), 7.12 (Expenses), 7.13
(Arbitration), 7.14 (Submission to Jurisdiction) and 7.15 (Attorneys' Fees), and
except that termination of this Agreement will not affect any liability of any
party for any breach of this Agreement prior to termination, or any breach at
any time of the provisions hereof surviving termination.
7.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile to the parties, their
successors in interest or their assignees at the following addresses and
telephone numbers, or at such other addresses or telephone numbers as the
parties may designate by written notice in accordance with this Section 7.2:
If to Buyer: President
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (949) 429-5500
Fax: (949) 429-5599
With a copy to: Brian W. Copple
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3874
Fax: (949) 451-4220
If to Brite or Seller:
Brite Voice Systems, Inc.
250 International Parkway, Suite 300
Heathrow, Florida 32746
Attn: Glenn Etherington, CFO
Tel: (407) 357-1002
Fax: (407) 357-1400
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With a copy to: Thomas P. Garretson
Triplett, Woolf & Garretson, LLC
2959 North Rock Road, Suite 300
Wichita, Kansas 67226
Tel: (316) 630-8100
Fax: (316) 630-8101
7.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of
the rights, interests or obligations hereunder may not be assigned by any of the
parties hereto, except that Buyer may assign its rights and obligations under
this Agreement in whole or in part to any Affiliate or Affiliates of Buyer or
any successor to all or substantially all of the Business or assets of Buyer and
Brite may assign its rights and obligations under this Agreement in whole or in
part to any Affiliate or Affiliates of Brite or any successor to all or
substantially all of the Business or assets of Brite with the written consent of
Buyer, which consent may not be unreasonably withheld. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective permitted successors and assigns. Nothing in this Agreement will
confer upon any person or entity not a party to this Agreement, or the legal
representatives of such person or entity, any rights or remedies of any nature
or kind whatsoever under or by reason of this Agreement.
7.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
regard to its choice-of-law principles.
7.5 COUNTERPARTS. Facsimile transmission of any signed original
document and/or retransmission of any signed facsimile transmission will be
deemed the same as delivery of an original. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same instrument.
7.6 PUBLICITY. Prior to the Closing Date, no party may, nor may it
permit its Affiliates to, issue or cause the publication of any press release or
other announcement with respect to this Agreement or the transactions
contemplated hereby without the consent of the other parties. Notwithstanding
the foregoing, in the event any such press release or announcement is required
by law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party prior to the issuance of any such
press release or announcement. Buyer acknowledges that upon the execution of
this Agreement Brite is required by law to announce its existence.
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7.7 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the Transaction Documents contain or will contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, and understandings.
7.8 MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time prior to the
Closing Date or termination of this Agreement, any party may, (a) waive any
inaccuracies in the representations and warranties of any other party contained
in this Agreement or in any Transaction Document; and (b) waive compliance by
any other party with any of the covenants or agreements contained in this
Agreement. No waiver of any of the provisions of this Agreement will be
considered, or will constitute, a waiver of any of the rights of remedies, at
law or equity, of the party entitled to the benefit of such provisions unless
made in writing by the party entitled to the benefit of such provision.
7.9 HEADINGS; REFERENCES. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References herein to Sections, Schedules and
Exhibits refer to the referenced Sections, Schedules or Exhibits hereof unless
otherwise specified.
7.10 SEVERABILITY. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11 DUE DILIGENCE INVESTIGATION. All representations and warranties
contained herein which are made to the knowledge of a party shall require that
such party make reasonable investigation and inquiry with respect thereto to
ascertain the correctness and validity thereof.
7.12 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred
by Buyer in connection with the transactions contemplated by this Agreement
shall be borne by Buyer, and all fees, costs, and expenses incurred by Brite,
Seller and the Company in connection with the transactions contemplated by this
Agreement shall be borne by Brite.
7.13 ARBITRATION.
(a) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
rules or procedures vary from the following provisions. The arbitration shall be
conducted by one independent and impartial arbitrator, appointed by the AAA;
provided however, if the claim and any counterclaim, in the aggregate, exceed
Two Hundred Thousand Dollars ($200,000) (the "THRESHOLD"), exclusive of interest
and attorneys' fees, the dispute shall be heard and determined by three (3)
arbitrators as provided herein (such arbitrator or arbitrators are hereinafter
referred to as the "ARBITRATOR"). The judgment of the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof. The
arbitration proceedings shall be held in New York, New York unless the parties
otherwise agree to another location.
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(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
If a party has a counterclaim against the other party, such party shall furnish
the party with whom it has the dispute a notice of such claim as provided in the
Rules (a "NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the
Arbitration Notice, which, in addition to the items required by the Rules, shall
include a statement of the nature, with reasonable detail, of the dispute. A
copy of the Arbitration Notice shall be concurrently provided to the AAA, along
with a copy of this Agreement, and if pursuant to Section 7.11(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. A copy of
the Notice of Counterclaim shall be concurrently provided to the AAA. If the
claim set forth in the Notice of Counterclaim causes the aggregate amount in
dispute to exceed the Threshold, the Notice of Counterclaim shall so state. If
pursuant to Section 7.11(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice, each party shall
select one person to act as Arbitrator and the two selected shall select a third
arbitrator within ten (10) days of their appointment. If the Arbitrators
selected by the parties are unable or fail to agree upon the third arbitrator
within such time, the third arbitrator shall be selected by the AAA. Each
Arbitrator shall be a practicing attorney or a retired or former judge with at
least twenty (20) years experience with and knowledge of securities laws,
complex business transactions, and mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of no more than twenty (20)
requests for the production of documents and one set of ten (10) interrogatories
(without subparts) upon the other parties; and (ii) depose a maximum of three
(3) witnesses. All objections are reserved for the arbitration hearing except
for objections based on privilege and proprietary or confidential information.
The response to the document demand, the documents to be produced, and the
responses to the interrogatories shall be exchanged thirty (30) days later. Each
deposition must be concluded within four (4) hours and all depositions must be
taken within thirty (30) days of the pre-hearing conference. Any party deposing
an opponent's expert must pay the expert's fee for attending the deposition. All
discovery disputes shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three
(3) days before the arbitration hearing, specifying the facts each intends to
prove and analyzing the applicable law. The parties have the right to
representation by legal counsel throughout the arbitration proceedings. The
presentation of evidence at the arbitration hearing shall be governed by the
Federal Rules of Evidence. Oral evidence given at the arbitration hearing shall
be given under oath. Any party desiring a stenographic record may secure a court
reporter to attend the arbitration proceedings. The party requesting the court
reporter must notify the other parties and the Arbitrator of the arrangement in
advance of the hearing, and must pay for the cost incurred.
(f) Each party may be joined as an additional party to an arbitration
involving other parties. If more than one arbitration is begun and any party
contends that two or more
41
<PAGE> 47
arbitrations are substantially related and that the issues should be heard in
one proceeding, the Arbitrator selected in the first-filed of such proceedings
shall determine whether, in the interests of justice and efficiency, the
proceedings should be consolidated before that Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
deposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any, shall be tried and litigated exclusively in
the State and Federal courts located in New York, New York. The aforementioned
choice of venue is intended by the parties to be mandatory and not permissive in
nature, thereby precluding the possibility of litigation between the parties
with respect to or arising out of this Agreement in any jurisdiction other than
that specified in this paragraph. Each party hereby waives any right it may have
to assert the doctrine of forum non conveniens or similar doctrine or to object
to venue with respect to any proceeding brought in accordance with this
paragraph, and stipulates and acknowledges that it has had sufficient minimum
contacts with New York such that the State and Federal courts located in the New
York, New York shall have in personam jurisdiction over each of them for the
purpose of litigating any dispute, controversy, or proceeding brought in
accordance with this paragraph. Each party hereby authorizes and accepts service
of process sufficient for personal jurisdiction in any action against it as
contemplated by this paragraph by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 7.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
7.15 ATTORNEYS' FEES. If Buyer or any of its Affiliates, successors or
assigns brings any action, suit, counterclaim, cross-claim, appeal, arbitration,
or mediation for any relief against Brite or Seller or any of their Affiliates
successors or assigns, or if Brite or Seller or any of their Affiliates
successors or assigns brings any action, suit, counterclaim, cross-claim,
appeal, arbitration, or mediation for any relief against Buyer or any of its
Affiliates, successors or assigns, declaratory or otherwise, to enforce the
terms hereof or to declare rights hereunder (collectively, an "ACTION"), in
addition to any damages and costs which the prevailing party otherwise would be
entitled, the non-prevailing party shall pay to the prevailing party a
reasonable sum for attorneys' fees and costs (at the prevailing party's
attorneys' then-prevailing rates) incurred in bringing and prosecuting such
Action and/or enforcing any judgment, order, ruling, or award (collectively, a
"DECISION") granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such action is
prosecuted to a Decision. Any Decision entered in such Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt
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<PAGE> 48
proceedings; (3) garnishment, levy and debtor and third party examinations; (4)
discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party.
7.16 ENFORCEMENT OF THE AGREEMENT. Brite, Seller, the Company and
Buyer acknowledge that irreparable damage would occur if any of the obligations
of Brite, Seller and the Company under this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Buyer will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
by Brite, Seller or the Company and to enforce specifically the terms and
provisions hereto, this being in addition to any other remedy to which Buyer is
entitled at law or in equity.
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<PAGE> 49
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
BRITE VOICE SYSTEMS, INC.
By: /s/ STANLEY G. BRANNAN
-----------------------------------
Name: Stanley G. Brannan
-----------------------------------
Title: President
-----------------------------------
BVS INVESTCO, INC.
By: /s/ Daniel F. Lindley
-----------------------------------
Name: Daniel F. Lindley
-----------------------------------
Title: Asst. Secretary
-----------------------------------
TSL SERVICES, INC.
By: /s/ Daniel F. Lindley
-----------------------------------
Name: Daniel F. Lindley
-----------------------------------
Title: Asst. Secretary
-----------------------------------
- ------------------------------------
PROFITSOURCE CORPORATION
By: /s/ David Ehlen
-----------------------------------
Name: David Ehlen
-----------------------------------
Title: CEO
-----------------------------------
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<PAGE> 50
SCHEDULE 1.4
PURCHASE PRICE
In exchange for the Shares, Buyer shall pay an aggregate purchase price
as described below:
(i) Buyer shall pay to Seller at the Closing Nineteen Million Two
Hundred Eighty Seven Thousand Five Hundred Dollars ($19,287,500) in cash, by
wire transfer to such account as may be specified by Seller in writing (the
"CASH PAYMENT");
(ii) Buyer shall deposit into the Escrow Account (as such term is
defined in the Escrow Agreement) Two Hundred Twelve Thousand Five Hundred
Dollars ($212,500) in cash which shall be managed in accordance with the terms
of the Escrow Agreement of even date herewith by and among the parties hereto.
(iii) Buyer shall cause the Company to issue to Seller 5,000
shares of the Company's Series A Preferred Stock, described more particularly in
the Company's Certificate of Incorporation set forth in Schedule 2.22(c)-1 (the
"PREFERRED STOCK"), and
(iv) Buyer shall cause the Company to issue to Seller warrants in
the form of Exhibit C to purchase shares of the Company's Common Stock,
representing 10.0% of the fully diluted equity of the Company as of the Closing
Date (the "WARRANTS").
(v) In accordance with the terms of that certain amendment to the
Letter of Understanding by and among Brite, National Benefits Consultants, LLC
and Buyer, dated as of September 2, 1998 (the "THIRD AMENDMENT"), the Five
Hundred Thousand Dollars ($500,000) delivered by Buyer to Brite pursuant to the
terms of Amendment No. 3 shall be considered a portion of the Purchase Price.
<PAGE> 1
EXHIBIT 10.49
STOCK PURCHASE AGREEMENT
BY AND AMONG
EPS SOLUTIONS CORPORATION
"BUYER"
D.L.D. INSURANCE BROKERS, INC.
"COMPANY"
AND
DANA L. DOWERS CORPORATION
"STOCKHOLDER"
MARCH 1, 1999
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale and Purchase..........................................................2
1.1. Agreements to Sell and Purchase....................................2
1.2. Closing............................................................2
1.3. Purchase Price.....................................................2
1.4. Certificates for Shares............................................2
2. Representations and Warranties of the Company and the Stockholder.........2
2.1. Organization and Good Standing.....................................3
2.2. Ownership of Capital Stock.........................................3
2.3. Authorization of Agreement.........................................5
2.4. Title to Assets....................................................5
2.5. Financial Condition and Accounting.................................5
2.6. Certain Property of the Company....................................6
2.7. Year 2000 Compliance...............................................9
2.8. No Conflict or Violation...........................................9
2.9. Consents..........................................................10
2.10. Labor and Employment Matters.....................................10
2.11. Employee Plans...................................................10
2.12. Litigation.......................................................14
2.13. Certain Agreements...............................................14
2.14. Compliance with Applicable Law...................................15
2.15. Licenses.........................................................15
2.16. Intercompany and Affiliate Transactions; Insider Interests.......16
2.17. Insurance........................................................16
2.18. Customers........................................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
2.19. No Undisclosed Liabilities.......................................17
2.20. Taxes............................................................17
2.21. Indebtedness.....................................................20
2.22. Environmental Matters............................................20
2.23. Securities Matters...............................................21
2.24. Buyer and the Consolidation Transactions.........................22
2.25. Banks............................................................23
2.26. Powers of Attorneys and Suretyships...............................23
2.27. Brokers...........................................................23
2.28. Summary of Certain Considerations.................................23
2.29. Acknowledgment re Deloitte & Touche LLP...........................23
2.30. Accuracy of Information...........................................24
3. Representations and Warranties of Buyer..................................24
3.1. Organization and Corporate Authority..............................24
3.2. No Conflict or Violation..........................................24
3.3. Capitalization....................................................24
3.4. Notes.............................................................25
3.5. Litigation........................................................25
3.6. Buyer's Operations and Financial Condition........................25
3.7. Accuracy of Information...........................................26
4. Certain Understandings and Agreements of the Parties.....................26
4.1. Access............................................................26
4.2. Confidentiality...................................................26
4.3. Certain Changes and Conduct of Business...........................27
4.4. Restrictive Covenants.............................................30
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
4.5. Securities Restrictions...........................................33
4.6. Registration......................................................34
4.7. Cooperation in Litigation.........................................35
4.8. Tax Matters.......................................................35
4.9. Employee Plans....................................................39
4.10. Consolidation Transactions.......................................39
4.11. Supplemental Disclosure..........................................40
4.12. HSR..............................................................40
4.13. Competing Proposals..............................................40
4.14. Bonus Plan.......................................................41
4.15. Best Efforts.....................................................41
4.16. Further Assurances...............................................41
4.17. Notice of Breach.................................................41
5. Survival; Indemnification................................................41
5.1. Survival..........................................................41
5.2. Indemnification by the Stockholder and Dowers.....................42
5.3. Indemnification by Buyer..........................................42
5.4. Indemnification Procedure.........................................41
5.5. Payment...........................................................45
5.6. Limitations.......................................................45
6. Conditions to Closing....................................................45
6.1. Conditions to Obligations of Each Party...........................45
6.2. Conditions to Obligations of Buyer................................46
6.3. Conditions to Obligations of the Stockholder......................49
7. Miscellaneous............................................................50
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
7.1. Termination.......................................................50
7.2. Notices...........................................................51
7.3. Assignability and Parties in Interest.............................53
7.4. Governing Law.....................................................53
7.5. Counterparts......................................................53
7.6. Publicity.........................................................53
7.7. Complete Agreement................................................53
7.8. Modifications, Amendments and Waivers.............................53
7.9. Headings; References..............................................54
7.10. Severability.....................................................54
7.11. Investigation....................................................54
7.12. Expenses of Transactions.........................................54
7.13. Arbitration......................................................54
7.14. Submission to Jurisdiction.......................................57
7.15. Attorneys' Fees..................................................57
7.16. Enforcement of the Agreement.....................................58
</TABLE>
iv
<PAGE> 6
EXHIBITS
A. Form of Accredited Investor Questionnaire
B. Summary of Certain Considerations
C. Form of Stockholder Agreement
C-1 Form of Stock Power
D. Form of Voting Agreement
E. Form of Subordination Agreement
F. Form of Opinion of Counsel to the Company, the Stockholder and Dowers
G-1 Form of Employment Agreement for Key Employees
G-2 Form of Employment Agreement for Other Employees
H. Form of Opinion of Counsel to the Buyer
I. Form of Note
SCHEDULES
1.3 Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.7 Year 2000 Compliance
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.12 Litigation
2.13 Contracts
2.15 Licenses
2.17 Insurance
2.18 Customers
2.20(b) Tax Returns
2.20(j) 351 Information
2.21 Indebtedness
2.25 Banks
2.28 Brokers
3.5 Buyer Litigation
3.6(a) EPSC Subsidiaries
3.6(b) Consolidated Indebtedness
3.6(c) Business Descriptions
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(ix) Transfer of Assets
4.3(a)(xii) Stockholder Distributions
4.6 Maximum IPO Shares
6.2 Employees Signing Employment Agreements
v
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of March 1, 1999 by and among D.L.D. Insurance Brokers, Inc., a
California corporation (the "COMPANY"), Dana L. Dowers Corporation, a California
corporation and the sole stockholder of the Company (the "STOCKHOLDER"), and EPS
Solutions Corporation, a Delaware corporation ("BUYER").
A. The Company is engaged in the business of insurance brokerage,
consulting and other insurance services (the "BUSINESS").
B. The Stockholder owns all of the issued and outstanding shares
of capital stock of the Company (the "SELLER SHARES").
C. The Stockholder desires to sell to Buyer, and Buyer desires to
purchase from the Stockholder, all of the Seller Shares on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE> 8
1. SALE AND PURCHASE.
1.1. Agreements to Sell and Purchase. On the Closing Date (as hereinafter
defined) the Stockholder shall sell to Buyer, and Buyer shall purchase from the
Stockholder, the number of Seller Shares set forth opposite the Stockholder's
name on Schedule 1.3, for the purchase price described in Section 1.3.
1.2. Closing. The closing of the sale and purchase of the Seller Shares (the
"Closing") will take place at the offices of Gibson, Dunn & Crutcher LLP, 4 Park
Plaza, Irvine, California, on a date to be selected by Buyer after all the
conditions set forth in Article 6 have either been satisfied or, in the case of
conditions not satisfied, waived in writing by the party entitled to the benefit
of such conditions (the "CLOSING DATE"). Prior to the Closing Date, Buyer shall
provide written notice (the "CLOSING NOTICE") to the Company and the Stockholder
informing the Company and the Stockholder of the anticipated Closing Date. At
the Closing, the Stockholder shall deliver to Buyer or its designees stock
certificates, duly endorsed in blank (or accompanied by duly executed stock
powers), representing the Seller Shares being sold by the Stockholder and each
other instrument of transfer Buyer may reasonably request to vest effectively in
Buyer good and valid title to the Seller Shares, free and clear of any liens,
pledges, options, security interest, trusts, encumbrances or other rights or
interests of any person or entity, together with any taxes, direct or indirect,
attributable to such transfer of the Seller Shares, and Buyer shall thereupon
pay to the Stockholder the Purchase Price for the Stockholder's Seller Shares.
1.3. Purchase Price. The consideration to be paid by Buyer for the Seller Shares
(the "PURCHASE PRICE"), both in the aggregate and to the Stockholder for the
Stockholder's Seller Shares, is described in Schedule 1.3.
1.4. Certificates for Shares. In order to facilitate replacement of certificates
for the shares of Series A Common Stock of Buyer constituting part of the
Purchase Price (the "SHARES") upon an IPO (as defined herein) with the transfer
agent's form of certificate, and to facilitate enforcement of the Stockholder
Agreement (as defined herein), Buyer will keep custody of the certificates
representing the Shares until the IPO and until the Shares are no longer subject
to the Stockholder Agreement, and recipients of Shares will execute and deliver
blank stock powers as described in Section 6.2(d)(i). This custody arrangement
will not affect the rights as a stockholder of any permitted recipient of
Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
Each representation and warranty contained in this Article 2 is qualified by the
disclosures made in the disclosure schedule attached hereto as Schedule 2 (the
"DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure Schedule shall be read
together as an integrated provision. The Company and the Stockholder, jointly
and severally, represent and warrant to Buyer that:
2
<PAGE> 9
2.1. Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, with full corporate power and authority to carry on the Business as
it is now and has since its organization been conducted and as proposed to be
conducted, and to own, lease or operate its assets and properties. The Company
is duly qualified to do business and is in good standing in every jurisdiction
in which the character of the properties owned or leased by it or the nature of
the business conducted by it makes such qualification necessary, except where
failure to be so qualified would not have a material adverse effect on the
Business or the Company's assets or financial condition (a "MATERIAL ADVERSE
EFFECT"). Schedule 2.1 lists all of the jurisdictions in which the Company is
qualified to do business. Complete and accurate copies of the charter documents
and bylaws of the Company, with all amendments thereto to the date hereof, have
been furnished to Buyer or its representatives.
2.2. Ownership of Capital Stock.
(a) The authorized capital stock of the Company consists of 100,000
shares of common stock of the Company, without par value, of which 5,000 shares
are issued and outstanding. There is no other issued and outstanding capital
stock of the Company.
(b) The Seller Shares are all of the issued and outstanding capital
stock of the Company and are validly issued and outstanding, fully paid and
non-assessable. The Seller Shares owned by the Stockholder are set forth in part
(b) of Schedule 1.3. Neither the Stockholder nor the Company has granted, issued
or agreed to grant or issue any other equity interests in the Company and there
are no outstanding options, warrants, subscription rights, securities that are
convertible into or exchangeable for, or any other commitments of any character
relating to, any equity interests of the Company.
(c) The Stockholder has good and valid title to, and sole record and
beneficial ownership of, the Seller Shares owned by such Stockholder, free and
clear of any claims, liens, pledges, options, security interests, trusts
encumbrances or other rights or interests of any person or entity and the
Stockholder has the absolute and unrestricted right, power and authority and
capacity to enter into this Agreement.
(d) All dividends, distributions and redemptions made or to be made by
the Company with respect to its equity interests have complied or will comply
with applicable law.
(e) All offers and sales of capital stock of the Company prior to the
date hereof were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and were registered or qualified
under or exempt from all applicable state securities laws.
3
<PAGE> 10
(f) The Company does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
4
<PAGE> 11
2.3. Authorization of Agreement. The Company and the Stockholder have all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the parties hereto in connection herewith
(together with all other documents to be delivered in connection herewith or
therewith, collectively the "TRANSACTION DOCUMENTS") have (except for
Transaction Documents to be executed and delivered solely by Buyer) been duly
and validly approved by the Board of Directors of the Company (the "BOARD OF
DIRECTORS") and the Stockholder and no other proceedings on the part of the
Company or the Stockholder are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the other
Transaction Documents to be delivered by the Company and the Stockholder have
been (or upon execution will have been) duly executed and delivered by the
Company and the Stockholder, have been effectively authorized by all necessary
action, corporate or otherwise, and constitute (or upon execution will
constitute) legal, valid and binding obligations of the Company and the
Stockholder, except as such enforceability may be limited by general principles
of equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4. Title to Assets. The Company is the lawful owner of each of its assets,
whether real, personal, mixed, tangible or intangible. The Company's assets are
sufficient and adequate to conduct the Business as presently conducted; and are
free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of any kind except any
of the following: (i) purchase money security interests in specific items of
equipment each having a value not in excess of $10,000; (ii) Personal Property
leased pursuant to Personal Property Leases; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Buyer; (v) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vi) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. There are no outstanding agreements,
options or commitments of any nature obligating the Company or the Stockholder
to transfer any of the assets of the Company or rights or interests therein to
any party.
2.5. Financial Condition and Accounting.
(a) Financial Statements. The Company has previously delivered to buyer
the balance sheets of the Company as of December 31, 1996, 1997 and 1998 and the
related statements of income and cash flow for the fiscal years then ended (the
"YEAR-END FINANCIAL STATEMENTS"), and the balance sheet, and the related
statements of income and cash flow of the Company for the two-month period ended
February 28, 1999, or the most
5
<PAGE> 12
recent interim date available (the "INTERIM FINANCIAL STATEMENTS," and with the
Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of the
Company; (ii) were prepared on a tax basis; (iii) fairly present the financial
condition and the results of the operations of the Company as at the relevant
dates thereof and for the periods covered thereby; (iv) contain and reflect all
necessary adjustments and accruals for a fair presentation of the financial
condition and the results of the operations of the Company for the periods
covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) contain and reflect adequate
provisions for all reasonably anticipated liabilities, including without
limitation, for all taxes, federal, state, local or foreign, with respect to the
period then ended and all prior periods; and (vi) do not contain any items of a
special or nonrecurring nature, except as expressly stated therein. The Interim
Financial Statements accurately reflect all information normally reported to the
independent public accountants of the Company for the preparation of its
financial statements. There have been no changes or modifications of revenue
recognition, cost allocation practices, method of accounting, or other financial
or operational practices or principles.
(b) Absence of Certain Changes. Since December 31, 1997 there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3(a). For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any event, circumstance, condition, development or
occurrence causing, resulting in, having, or that could reasonably be expected
to have, a Material Adverse Effect.
2.6. Certain Property of the Company.
(a) Real Property. The Company has never owned and does not currently
own any real property. Schedule 2.6(a) lists all real properties leased by the
Company, including a brief description of the operating facilities located
thereon, the annual rent payable thereon, the length of the term, any option to
renew with respect thereto and the notice and other provisions with respect to
termination of rights to the use thereof.
(i) The Company has a valid leasehold in the real properties
shown in Schedule 2.6(a) under written leases (each lease being referred to
herein as a "REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES")
and to the knowledge of the Company or the Stockholder, each Real Property Lease
is a valid and binding obligation of each of the other parties thereto, except
as enforceability may be limited by the Bankruptcy Exception.
(ii) The Company is not, and neither the Company nor the
Stockholder has any knowledge that any other party to any Real Property Lease
is, in default with respect to any material term or condition thereof, and no
event has occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or would cause
6
<PAGE> 13
the acceleration of any obligation of any party thereto or the creation of a
lien or encumbrance upon any asset of the Company.
(iii) To the knowledge of the Company or the Stockholder, all of
the buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by the Company (the "PERSONAL PROPERTY"). All items of Personal Property
are in good operating condition and repair sufficient to enable the Company to
operate the Business as presently conducted. The Company holds valid leases in
all of the Personal Property leased by it, and none of such Personal Property is
subject to any sublease, license or other agreement granting to any person any
right to use such property (each such lease, sublease, license or other
agreement, a "PERSONAL PROPERTY LEASE," and collectively the "PERSONAL PROPERTY
LEASES"). Schedule 2.6(b) provides a description and the location of each item
of Personal Property, accurately identifies such Personal Property as owned or
leased, and lists each Personal Property Lease. The Company is not in material
breach of or default, and no event has occurred which, with due notice or lapse
of time or both, may constitute such a material breach or default, under any
Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by the Company that are material to the Business.
For purposes of this Agreement "PROPRIETARY RIGHTS" means trademarks and service
marks (registered or unregistered), trade dress, trade names including, without
limitation, the name D.L.D. Insurance Brokers, Inc., and other names and slogans
embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith, as well as the following: (i) patents,
patentable inventions, discoveries, improvements, ideas, know-how, formula,
methodology, processes, technology and computer programs, software and databases
(including source code, object code, development documentation, programming
tools, drawings, specifications and data), and all applications or registrations
in any jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof;
(ii) trade secrets, know-how, including confidential and other non-public
information, and the right in any jurisdiction to limit the use or disclosure
thereof; (iii) copyrights in writings, designs, mask works or other works, and
registrations or applications for registration of copyrights in any
jurisdiction; (iv) licenses, including, without limitation, software licenses,
immunities, covenants not to sue and the like relating to any of the foregoing;
(v) Internet Web sites, domain names and registrations or applications for
registration thereof;
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(vi) customer lists; (vii) books and records describing or used in connection
with any of the foregoing; and (viii) claims or causes of action arising out of
or related to infringement or misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by the Company free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company pursuant
to a valid and enforceable license granting rights sufficiently broad to permit
the historical and anticipated uses of the Proprietary Rights in connection with
the conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which the Company grants a license to any person to use
the Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind the Company. There have not been any actions or other judicial
or adversary proceedings involving the Company concerning any of the Proprietary
Rights, nor to the knowledge of the Company or the Stockholder, is any such
action or proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names or other intellectual property
rights of others. To the knowledge of the Company or the Stockholder, there are
no conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) The Company is the sole owner of its trade secrets,
including, without limitation, customer lists, formulas, inventions, processes,
know-how, computer programs and routines associated, developed or used in
connection with the Business (the "TRADE SECRETS"), free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, and has
taken all reasonable security measures to protect the secrecy, confidentiality,
and value of the Trade Secrets. Any of the employees of the Company and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Trade Secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and have entered into agreements that the Trade Secrets are proprietary to the
Company and not to be divulged or misused.
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<PAGE> 15
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of the Company or the Business.
(viii) The Company has taken all commercially reasonable
precautions necessary to ensure that all Proprietary Rights have been properly
protected and have been kept secret.
2.7. Year 2000 Compliance. Except as set forth on Schedule 2.7, all date-related
output, calculations or results before, during or after the calendar year 2000
that are produced or used by any hardware, software (other than software that is
generally available upon payment of a "shrink-wrap" type license and that has
not been customized for use in connection with the Business), firmware or
facilities systems (the "COMPUTER SYSTEMS") owned or used by the Company and
material to the Business are Year 2000 Compliant. For purposes of this Section,
"YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8. No Conflict or Violation. The execution, delivery and performance by the
Company and the Stockholder of this Agreement and the other Transaction
Documents to be delivered by the Company or the Stockholder and the consummation
of the transactions contemplated hereby and thereby do not and will not: (i)
violate or conflict with any provision of the charter documents or bylaws of the
Company; (ii) violate in any material respect any provision or requirement of
any domestic or foreign, federal, state, or local law, statute,
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<PAGE> 16
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to the Company or the Business; (iii) except as
set forth in Schedule 2.9, violate in any material respect, result in a material
breach of, constitute (with due notice or lapse of time or both) a material
default or cause any material obligation, penalty, premium or right of
termination to arise or accrue under any Contract (as hereinafter defined); (iv)
result in the creation or imposition of any material lien, charge or encumbrance
of any kind whatsoever upon any of the properties or assets of the Company; or
(v) except as set forth in Schedule 2.9, result in the cancellation,
modification, revocation or suspension of any material license, permit,
certificate, franchise, authorization or approval issued or granted by any
Governmental Entity (each a "LICENSE," and collectively, the "LICENSES").
2.9. Consents. Schedule 2.9 lists all consents and notices required to be
obtained or given by or on behalf of the Company or the Stockholder before
consummation of the transactions contemplated by this Agreement in compliance
with all applicable laws, rules, regulations, or orders of any Governmental
Entity, or the provisions of any material Contract, and all such consents have
been duly obtained and are in full force and effect, except where the failure to
obtain such consent will not have a Material Adverse Effect.
2.10. Labor and Employment Matters. Schedule 2.10 lists all employees of the
Company, including date of retention, current title and compensation. There is
no employment agreement, collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound. The Company
has complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate Governmental Entities and has withheld and
paid to the appropriate Governmental Entities or is holding for payment not yet
due to such Governmental Entities, all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no unfair labor practice complaint against the Company pending before the
National Labor Relations Board or any state or local agency; pending labor
strike or other material labor trouble affecting the Company; material labor
grievance pending against the Company; pending representation question
respecting the employees of the Company; pending arbitration proceedings arising
out of or under any collective bargaining agreement to which the Company is a
party. For purposes of this Agreement, "EMPLOYEES" includes employees,
independent contractors and other persons filling similar functions.
2.11. Employee Plans.
(a) All accrued obligations of the Company, whether arising by operation
of law, by contract or past custom, or otherwise, for payments by the Company to
trusts or other funds or to any Governmental Entity, with respect to
unemployment compensation benefits, social security benefits or any other
benefits or obligations, with respect to employment of
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<PAGE> 17
employees through the date hereof have been paid or adequate accruals therefor
have been made in the Financial Statements, and payments or adequate accruals
for all such obligations will be made through the Closing Date. All reasonably
anticipated obligations of the Company with respect to employees, whether
arising by operation of law, by contract, by past custom, or otherwise, for
salaries, vacation and holiday pay, sick pay, bonuses and other forms of
compensation payable to employees in respect of the services rendered by any of
them prior to the date hereof have been or will be paid by the Company prior to
the Closing Date or adequate accruals therefor have been made in the Financial
Statements, and payments or adequate accruals for all such obligations will be
made through the Closing Date except that the Company has not accrued vacation
pay, holiday pay and sick pay (which in the aggregate total less than $10,000).
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of the Company, and any other entity ("ERISA
AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS"),
together with all accrued liabilities under such Employee Plans. With respect to
each Employee Plan, the Company has made available to Buyer, to the extent
applicable, true and complete copies of (i) all plan documents, including in the
case of any Employee Plan not set forth in writing, a written description
thereof, (ii) the most recent determination letter received from the Internal
Revenue Service (the "IRS"), (iii) the most recent application for determination
filed with the IRS, (iv) the latest actuarial valuations, (v) the latest
financial statements, (vi) the three (3) most recent Form 5500 Annual Reports,
including Schedule A and Schedule B thereto, (vii) all related trust agreements,
insurance contracts or other funding arrangements which implement any of such
Employee Plans, (viii) all Summary Plan Descriptions and summaries of material
modifications and all modifications thereto communicated to employees, and (ix)
in the case of stock options or stock appreciation rights issued under any
Employee Plan, a list of holders, dates of grant, number of shares, exercise
price per share and dates exercisable. Neither the Company nor any ERISA
Affiliate of the Company has any liability or contingent liability with respect
to the Employee Plans, nor will any of the Company's assets be subject to any
lien, charge or claim relating to the obligations of the Company with respect to
employees or Employee Plans. No party to any Employee Plan is in default with
respect to any material term or condition thereof, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto.
(c) Except as set forth on Schedule 2.11 each of the Employee Plans, and
the administration thereof, is and has been in material compliance with the
requirements
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<PAGE> 18
provided by any and all applicable statutes, orders or governmental rules or
regulations currently in effect, including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, and,
with respect to each Employee Plan, there is no violation of any reporting or
disclosure requirement imposed by ERISA or the Code. Each of the Company and its
ERISA Affiliates has made full and timely payment of all amounts required to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status. In accordance with
applicable law, each Employee Plan can be amended or terminated at any time,
without consent from any other party and without liability other than for
benefits accrued as of the date of such amendment or termination.
(d) Neither the Company nor any ERISA Affiliate sponsors or has
sponsored, maintained, contributed to, incurred an obligation to contribute to
or withdrawn from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of
ERISA) or any Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064
or Code Section 413), whether or not terminated, for which any withdrawal or
partial withdrawal liability has been or could be incurred, whether or not any
such liability has been asserted by or on behalf of any such plan. Neither the
Company nor any ERISA Affiliate sponsors or has ever sponsored, maintained,
contributed to or incurred an obligation to contribute to any Employee Plan
subject to the provisions of Title IV of ERISA.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of the Company regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees, including, without limitation, all
communications to employees concerning such matters, each of which is an
accurate description of the terms of such plans or policies. The Company has no
affirmative action obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of the Company's employees with "change of control" or similar provisions.
There is no contract, agreement, plan or arrangement covering the Company or any
employee, that individually or collectively could give rise to the payment of
any amount that would not be deductible
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pursuant to the terms of Section 280G of the Code. Neither the Company nor any
of its ERISA Affiliates has incurred any liability under the Worker Adjustment
Retraining and Notification Act or any similar state law relating to employment
termination in connection with a mass layoff, plant closing or similar event,
and the transactions contemplated by this Agreement will not give rise to any
such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither the Company nor any ERISA Affiliate has had asserted
against it any claim for any excise tax or penalty imposed under ERISA or the
Code with respect to any Employee Plan nor, to the knowledge of the Company or
the Stockholder, is there any basis for any such claim. No officer, director or
employee of the Company or any of its ERISA Affiliates has committed a material
breach of any responsibilities or obligations imposed upon fiduciaries by Title
I of ERISA with respect to any Employee Plan.
(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by the Company or any of its ERISA
Affiliates, each of the Company and the ERISA Affiliates have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and Sections
4980B, 9801 and 9802 of the Code. The Company is not obligated to provide health
care or other welfare benefits of any kind to its retired or former employees or
their dependents, or to any person not actively employed by it, pursuant to the
terms of any Employee Plan or pursuant to any agreement or understanding, other
than as required by applicable law.
(i) Other than routine claims for benefits, there is no claim pending or
to the knowledge of the Company or the Stockholder, threatened, involving any
Employee Plan by any person against such Employee Plan, the Company or any of
its ERISA Affiliates. There is no pending or, to the knowledge of the Company or
the Stockholder, threatened, proceeding involving any Employee Plan before the
IRS, the United States Department of Labor or any other governmental authority.
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<PAGE> 20
2.12. Litigation. Except as set forth on Schedule 2.12, there are no claims,
actions, suits or proceedings of any nature pending or, to the knowledge of the
Company or the Stockholder, threatened by or against the Stockholder, the
Company, Dowers, the officers, directors, employees, agents of the Company, or
any of their respective Affiliates involving, affecting or relating to the
Business or any assets, properties or operations of the Company or the
transactions contemplated by this Agreement. Neither the Company nor any of the
Company's assets is subject to any order, writ, judgment, award, injunction or
decree of any Governmental Entity. For purposes of this Agreement, "AFFILIATE"
shall have the meaning ascribed to such term in Rule 405 under the Securities
Act.
2.13. Certain Agreements.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which the Company is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all material written, or oral, (i) contracts,
agreements and commitments not made in the ordinary course of business, (ii)
agency and brokerage agreements, (iii) service and other customer contracts,
(iv) contracts, loan agreements, letters of credit, repurchase agreements,
mortgages, security agreements, guarantees, pledge agreements, trust indentures,
promissory notes and other documents or arrangements relating to the borrowing
of money or for lines of credit, (v) tax sharing agreements, real property
leases or any subleases relating thereto, personal property leases, any material
agreement relating to Proprietary Rights (including service agreements relating
thereto) and insurance contracts, (vi) agreements and other arrangements for the
sale of any assets, property or rights other than in the ordinary course of
business or for the grant of any options or preferential rights to purchase any
assets, property or rights, (vii) documents granting any power of attorney with
respect to the affairs of the Company, (viii) suretyship contracts, performance
bonds, working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining the Company or any of its
employees or Affiliates from engaging or competing in any lines of business or
with any person or entity, (x) partnership or joint venture agreements, (xi)
stockholder agreements or agreements relating to the issuance of any securities
of the Company or the granting of any registration rights with respect thereto,
and (xii) all amendments, modifications, extensions or renewals of any of the
foregoing (each a "CONTRACT," and collectively, the "CONTRACTS").
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. The Company has performed all material obligations required to be
performed by it under, and is not in material default or breach of, any
Contract, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a material default or breach.
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<PAGE> 21
(c) To the knowledge of the Company or the Stockholder, no other party
to any Contract is in material default or breach in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of the Company or the Stockholder, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) The Company has delivered to Buyer or Buyer's representatives or
given Buyer an opportunity to review true and complete originals or copies of
all the Contracts and a copy of every Material Notice received by the Company or
the Stockholder since January 1, 1996, with respect to any of the Contracts. For
purposes hereof, "MATERIAL NOTICE" means those notices alleging a material
breach of a Contract or intention to terminate or materially modify a Contract,
but does not include routine correspondence.
(f) To the knowledge of the Company or the Stockholder, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14. Compliance with Applicable Law. The operations of the Company are, and
have been, conducted in all material respects in accordance with all applicable
laws, regulations, orders and other requirements of all Governmental Entities
having jurisdiction over the Company or its assets, properties or operations,
including, without limitation, all such laws, regulations, orders and
requirements relating to the Business except in any case where the failure to so
conduct its operations would not have a Material Adverse Effect. The Company has
not received any notice of any material violation of any such law, regulation,
order or other legal requirement, and is not in material default with respect to
any order, writ, judgment, award, injunction or decree of any Governmental
Entity, applicable to the Company or any of its assets, properties or
operations.
2.15. Licenses.
(a) Schedule 2.15 lists all material Licenses issued or granted to the
Company, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by the Company, in connection with the Business or that are
necessary for the execution, delivery and performance by the Company and the
Stockholder of this Agreement and the other Transaction Documents. The Licenses
are sufficient and adequate in all material respects to permit the continued
lawful conduct of the Business in the manner now conducted and the ownership,
occupancy and operation of the Company's properties for its present uses and the
execution, delivery and performance of this Agreement. No jurisdiction in which
the Company is not qualified or licensed as a foreign corporation has demanded
or requested in writing that it qualify or become licensed
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<PAGE> 22
as a foreign corporation. The Company has delivered to Buyer or its
representatives true and complete copies of all the material Licenses together
with all amendments and modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by the Company and is valid, in full force and effect, and not subject to
any pending or known threatened administrative or judicial proceeding to
suspend, revoke, cancel or declare such License invalid in any respect. The
Company is not in violation in any material respect of any of the Licenses. The
Licenses have never been suspended, revoked or otherwise terminated, subject to
any fine or penalty, or subject to judicial or administrative review, for any
reason other than the renewal or expiration thereof, nor has any application of
the Company for any License ever been denied.
2.16. Intercompany and Affiliate Transactions; Insider Interests.
(a) There are no material transactions, agreements or arrangements of
any kind, direct or indirect, between the Company and any director, officer,
employee, stockholder, relative or Affiliate of the Company or the Stockholder,
including, without limitation, loans, guarantees or pledges to, by or for the
Company or from, to, by or for any of such persons, that are either (i)
currently in effect, or (ii) reflected in the Company's financial results.
(b) No officer, director or stockholder of the Company, or any Affiliate
of any such person, now has, or within the last three (3) years had, either
directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to the Company, or purchased, or during such period purchased from the
Company, any goods or services, or otherwise does, or during such period did,
business with the Company;
(ii) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was obligated
or bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between the Company
and such persons in their capacities as employees, officers or directors of the
Company; or
(iii) any rights in or to any of the assets, properties or rights
used by the Company in the ordinary course of business.
2.17. Insurance. Schedule 2.17 lists all insurance policies of any nature
whatsoever maintained by the Company at any time during the three (3) years
prior to the date of this Agreement and the annual or other premiums payable
from the time thereunder. There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or by any
Board of Fire Underwriters or other similar body exercising similar
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<PAGE> 23
functions or by any Governmental Entity that require or recommend any changes in
the conduct of the Business, or any repairs or other work to be done on or with
respect to any of the properties or assets of the Company. The Company has not
received any notice or other communication from any such insurance company
within the three (3) years preceding the date hereof canceling or materially
amending or materially increasing the annual or other premiums payable under any
of such insurance policies, and to the knowledge of the Company or the
Stockholder, no such cancellation, amendment or increase of premiums is
threatened.
2.18. Customers. Schedule 2.18 lists the ten (10) largest customers of the
Company in terms of revenues of the Company attributable to such customers,
together with revenues to the Company from each such customer during the most
recent complete fiscal year and the current fiscal year to the date hereof, and
the scheduled termination dates of their current contracts with the Company.
None of such customers has given written notice to the Company of an intention
to terminate or materially impair its business relationship with the Company and
neither the Company nor the Stockholder has any knowledge of any event that
would precipitate the impairment, or termination of, or the failure to renew, or
entitle any such customer to terminate, such business relationship.
2.19. No Undisclosed Liabilities. Except as and to the extent specifically
reflected or reserved against in the Interim Financial Statements and except as
incurred in the ordinary course of business since the date of the Interim
Financial Statements, the Company has no material liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise, and whether due
or to become due (including, without limitation, any liability for taxes and
interest, penalties and other charges payable with respect to any such liability
or obligation) and no facts or circumstances exist which, with notice or the
passage of time or both, could reasonably be expected to result in any material
claims against or obligations or liabilities of the Company.
2.20. Taxes.
(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of the
Company for or with respect to (A) any Pre-Acquisition Taxable Period, or (B)
any Straddle Period to the extent allocable to the period ending on the Closing
Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of
the Company that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of the Company
that includes but does not end on the Closing Date.
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(iv) "TAX" OR "TAXES" means all taxes, including, without
limitation, all net income, gross receipts, sales, use, withholding, payroll,
employment, social security, unemployment, excise and property taxes, plus
applicable penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or
any judicial or administrative proceeding, relating to liability for or refunds
or adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to
be filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. The Company has (i) timely
filed or caused to be timely filed all Tax Returns of the Company required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not shown on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to the Company. With respect to each such Tax Return,
Schedule 2.20(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which the Company has received a
written and/or oral notice from a Tax authority that such Tax authority intends
to commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which the Company has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. The Company has either delivered to Buyer or
made available for inspection by Buyer or its representatives or agents complete
and correct copies of all Tax audit reports and statements of Tax deficiencies
with respect to any delinquent Tax assessed against or agreed to by the Company
for all taxable periods commencing on or after January 1, 1993, for which audit
reports or statements of deficiencies have been received by the Company. The
Company has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of the Company
(whether imposed before or after Closing and whether imposed upon filing of a
Tax Return or as a result of an audit or examination) which are unpaid as of the
close of business on the Closing Date will not exceed the reserves for Tax
Liabilities (not including any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as set forth in the account for
accrued taxes payable account included in the Interim Financial Statements.
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(d) Tax Sharing Agreements. The Company is not a party to any
tax-sharing or tax-indemnity agreement and has not otherwise assumed by contract
or otherwise the Tax Liability of any other person.
(e) Section 481 Adjustments. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise.
(f) Foreign Tax Matters. The Company is not and has never been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(g) No Liens. None of the assets of the Company are subject to any liens
in respect of Taxes (other than for current Taxes not yet due and payable).
(h) No Closing Agreements. The Company has not executed or entered into
any closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(i) S Corporation Status. The Company (and any predecessor of the
Company) has been a validly electing S corporation within the meaning of Code
Sections 1361 and 1362 at all times during its existence, and the Company will
be an S corporation up to and including the day before the Closing Date. The
Company will similarly qualify as an S corporation for state or local income tax
purposes.
(j) Section 351. It is acknowledged that Buyer, the Company and the
Stockholder intend that the transfer of the Seller Shares by the Stockholder to
Buyer pursuant to this Agreement qualify (i) as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of applicable state income tax law, and (ii) under Code
Section 351 as part of a transfer by the Stockholder and other persons
transferring property to Buyer who collectively will be in control (as defined
in Section 368(c) of the Code) of Buyer following such transfers. The
information set forth on Schedule 2.20(j) is accurate and may be used by Buyer
for tax filing purposes.
(k) Treatment As Sale of Assets. The Stockholder and Buyer acknowledge
that the sale of the Seller Shares will be treated as a sale of assets for
federal and California income tax purposes, and agree to allocate the Purchase
Price among the acquired assets for income tax purposes in accordance with
Section 1060 of the Code and Treasury Regulations thereunder.
(l) Section 280G. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G.
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2.21. Indebtedness. Schedule 2.21 lists each person or entity that owns any
direct or indirect debt interest (other than accounts payable incurred in the
ordinary course of the Company's business) in the Company (including, without
limitation, any indebtedness for borrowed money, whether or not evidenced by a
note or other written instrument) and a description of each such debt interest.
2.22. Environmental Matters. Notwithstanding anything to the contrary contained
in this Agreement:
(a) The Company and its operations comply and have at all times complied
in all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) The Company has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by the Company at any time or any other property in material violation of any
Environmental Laws such that the Company could be subject to material liability
under any Environmental Laws.
(d) The Company has not exposed any employee or third party to any
Hazardous Materials or conditions that could subject it to any material
liability under any Environmental Laws.
(e) The Company does not now own or operate, and has never owned or
operated, aboveground or underground storage tanks.
(f) To the knowledge of the Company or the Stockholder, with respect to
any or all of the real properties leased at any time by the Company, there are
no asbestos-containing
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materials, urea formaldehyde insulation, polychlorinated biphenyls or lead-based
paints present at any such properties.
(g) There are no pending or, to the knowledge of the Company or the
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of the Company or the Stockholder, any threatened actions or
claims, or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to the Company, its
operations or the real properties leased or owned by the Company at any time.
(h) The Company has delivered to Buyer copies of all written
environmental assessments, audits, studies and other environmental reports in
its possession or reasonably available to it relating to any of the current or
former businesses of the Company or its operations.
2.23. Securities Matters.
(a) The Stockholder understands that (i) neither the Shares nor any
notes issued by Buyer, or the offer and sale thereof, have been registered or
qualified under the Securities Act or any state securities or "Blue Sky" laws,
on the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration and qualification under
Sections 4(2) and 18 of the Securities Act, and (ii) Buyer's reliance on such
exemptions is predicated on the Stockholder's representations set forth herein.
(b) The Stockholder acknowledges that an investment in Buyer involves an
extremely high degree of risk, lack of liquidity and substantial restrictions on
transferability and that the Stockholder may lose its entire investment in the
Shares and any notes issued by Buyer (the "SECURITIES").
(c) Buyer has made available to the Stockholder or its advisors, the
opportunity to obtain information to evaluate the merits and risks of the
investment in the Securities, and the Stockholder has received all information
requested from Buyer. The Stockholder has had an opportunity to ask questions
and receive answers from Buyer regarding the terms and conditions of the
offering of the Securities and the business, properties, plans, prospects, and
financial condition of Buyer and to obtain additional information as the
Stockholder has deemed appropriate for purposes of investing in the Securities
pursuant to this Agreement.
(d) The Stockholder, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to Buyer and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, the Stockholder has relied solely upon independent
investigations made by the Stockholder has consulted its own investment
advisors, counsel and accountants. The Stockholder has adequate means of
providing for
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current needs and personal contingencies, and has no need for liquidity and can
sustain a complete loss of the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the Stockholder's own account, for investment purposes, not as a nominee or
agent, and not with a view to or for sale in connection with any distribution of
the Securities in violation of applicable securities laws.
(f) The Stockholder understands that no federal or state agency has
passed upon the Securities or made any finding or determination as to the
fairness of the investment in the Securities.
(g) The Stockholder is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented its accredited status by
delivery to Buyer of a completed questionnaire in the form of Exhibit A hereto
attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) Neither the Company nor the Stockholder has received any general
solicitation or general advertising concerning the Securities, nor is the
Company or the Stockholder aware of any such solicitation or advertising.
2.24. Buyer and the Consolidation Transactions.
(a) The Stockholder is aware that:
(i) Buyer has recently been organized and has limited financial
and operating history.
(ii) There can be no assurance that any of the Additional
Consolidation Transactions or Further Consolidation Transactions (as defined in
Section 4.10) will occur, that Buyer will be successful in accomplishing the
purpose for which it was formed or that it will ever be profitable. No assurance
can be given regarding (A) whether the companies acquired by Buyer in the
Initial Consolidation Transactions can be successfully integrated and operated,
or (B) what companies, if any, will ultimately be acquired by Buyer. No company
is obligated to participate in the Additional Consolidation Transactions or
Further Consolidation Transactions unless a written agreement to such effect is
entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether the Stockholder would be able to
participate, or the price at which any shares of Common Stock would be sold.
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(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(d)(iii).
(b) The Stockholder acknowledges that no assurances have been made to
the Stockholder with respect to any of the foregoing and no representations,
oral or written, have been made to the Stockholder by Buyer or any of its
employees, representatives or agents concerning the potential value of the
Shares issued as part of the Purchase Price or the prospects of Buyer, except as
set forth herein.
2.25. Banks. Schedule 2.25 lists the account information at each bank or other
institution at which the Company has a line of credit, check, savings or other
account, certificate of deposit or safe deposit box and the names of each person
authorized to draw thereon or have access thereto.
2.26. Powers of Attorneys and Suretyships. The Company does not have any general
or special powers of attorney outstanding (whether as grantor or grantee
thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person or entity,
except as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.27. Brokers. Except as set forth on Schedule 2.27, no broker, finder,
investment banker, or other person is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of the Company or the
Stockholder.
2.28. Summary of Certain Considerations. The Stockholder acknowledges receipt
and understanding of the Summary of Certain Considerations attached hereto as
Exhibit B.
2.29. Acknowledgment re Deloitte & Touche LLP. As part of the Initial
Consolidation Transactions, Buyer purchased the Integrated Cost Reduction
Strategies ("ICRS") business unit of Deloitte & Touche LLP ("DELOITTE"). The
Company and the Stockholder acknowledge, for the benefit of Deloitte and its
Affiliates, that Deloitte is not related to Buyer, that Buyer and the
individuals related to Buyer with whom the Company and the Stockholder have
dealt in connection with the transactions contemplated by the various agreements
of the Company and the Stockholder with Buyer have acted and will act on behalf
of Buyer and not Deloitte or any of Deloitte's Affiliates (as partners,
principals, employees, agents, associates or otherwise). For these purposes,
"Affiliates" of Deloitte
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include persons controlling, controlled by, or under common control with
Deloitte, including without limitation partners of Deloitte.
2.30. Accuracy of Information. None of the representations or warranties or
information provided and to be provided by the Company or the Stockholder to
Buyer in this Agreement, the Disclosure Schedule, schedules or exhibits hereto,
or in any Accredited Investor Questionnaire, or any of the other Transaction
Documents delivered by the Company or the Stockholder, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary in order to make the statements and facts contained
herein or therein not false or misleading. The descriptions set forth in the
Disclosure Schedule are accurate descriptions of the matters disclosed therein.
Copies of all documents heretofore or hereafter delivered or made available to
Buyer pursuant hereto were or will be complete and accurate records of such
documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Stockholder that:
3.1. Organization and Corporate Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and the other Transaction Documents to be executed and delivered by Buyer have
been (or upon execution by Buyer will have been) duly executed and delivered by
Buyer, have been effectively authorized by all necessary action of Buyer,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer, except as such enforceability may
be limited by the Bankruptcy Exception.
3.2. No Conflict or Violation. The execution, delivery and performance by Buyer
of this Agreement and the other Transaction Documents to be executed and
delivered by Buyer and the consummation of the transactions contemplated hereby
and thereby, do not and will not: (i) violate or conflict with any provision of
the charter documents or bylaws of Buyer; or (ii) violate in any material
respect any provision or requirement of any domestic or foreign, national, state
or local law, statute, judgment, order, writ, injunction, decree, award, rule,
or regulation of any Governmental Entity applicable to Buyer.
3.3. Capitalization. The authorized capital stock of Buyer consists of
240,000,000 shares of common stock, par value $0.001 per share (the "COMMON
STOCK") of which 200,000,000 are Series A Common Stock and 40,000,000 are Series
B Common Stock, and 10,000,000 shares of undesignated preferred stock. The
Shares, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable. Holders of Series B Common Stock are
entitled to elect all the directors in one of the Buyer's three (3) classes of
directors, with the
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holders of Series A Common Stock entitled to elect the remaining directors. In
all other respects the Series A and Series B Common Stock are identical.
3.4. Notes. Any note to be delivered by Buyer as part of the Purchase Price,
when delivered in accordance with the terms of this Agreement, will be duly
executed, and will constitute a legal, valid and binding obligation of Buyer,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5. Litigation. Except as set forth on Schedule 3.5, there are no material
claims, actions, suits, or proceedings of any nature pending or, to the
knowledge of Buyer, threatened by or against Buyer, the officers, directors,
employees, agents of Buyer, or any of their respective Affiliates involving,
affecting or relating to any assets, properties or operations of Buyer or any of
its Affiliates or the transactions contemplated by this Agreement. Buyer is not
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. From and after the Closing, Buyer or its Affiliates may be
subject to claims, actions, suits, or proceedings including as a result of
acquisitions by Buyer in the Additional Consolidation Transactions or Further
Consolidation Transactions, and Buyer makes no representations or warranties
about any such claims, actions, suits or proceedings or the absence thereof.
3.6. Buyer's Operations and Financial Condition.
(a) Buyer has one subsidiary, Enterprise Profit Solutions Corporation, a
Delaware corporation ("EPSC"). Buyer owns all of the issued and outstanding
capital stock of EPSC, and there are no outstanding rights of any party to
acquire any interest in EPSC other than a pledge of the capital stock of EPSC to
lenders of senior indebtedness of EPSC (the "SENIOR LENDERS"). Buyer is a
holding company, and substantially all of Buyer's consolidated assets and
operations are held and conducted by EPSC and EPSC's subsidiaries. Set forth on
Schedule 3.6(a) is complete and accurate list of all subsidiaries of EPSC.
Except as specified on Schedule 3.6(a), EPSC owns all of the issued and
outstanding capital stock of each of its subsidiaries, and there are no
outstanding rights of any party to acquire any interest in any of such
subsidiaries other than a pledge of the issued and outstanding capital stock of
each such subsidiary to the Senior Lenders.
(b) Set forth on Schedule 3.6(b) is a complete and accurate summary of
the indebtedness of Buyer, EPSC, and EPSC's subsidiaries for borrowed money
(excluding trade debt).
(c) Set forth on Schedule 3.6(c) is a description of the businesses
conducted by EPSC through its various divisions and subsidiaries, together with
1998 revenues and pre-tax net income for each of such businesses and
subsidiaries. Such business description, revenue and income information was
provided by the companies acquired or their stockholders, reflects the
operations of each such division and subsidiary as an independent company before
its acquisition by Buyer in the Initial Consolidation Transactions, and is made
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available by Buyer solely for informational purposes without representation or
ratification of any kind. No representations are made regarding future
performance.
3.7. Accuracy of Information. None of the representations or warranties or
information provided and to be provided by Buyer to the Stockholder in this
Agreement, the schedules or exhibits hereto, or in any of the other Transaction
Documents delivered by Buyer contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein not false or
misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1. Access. The Company shall afford, to Buyer and Buyer's accountants, counsel
and representatives, full access during normal business hours throughout the
period prior to the Closing Date (or the earlier termination of this Agreement)
to all of the properties, books, Contracts and records of the Company
(including, without limitation, the Company's accounting records, the workpapers
of the Company's independent accountants, and all environmental studies, reports
and other environmental records) and, during such period, shall furnish promptly
to Buyer all information concerning the Company, the Business, the Company's
properties, liabilities and personnel as Buyer may reasonably request.
4.2. Confidentiality. For purposes hereof, the Company, the Stockholder and Dana
L. Dowers, an individual ("DOWERS"), will keep the matters contemplated herein
and all information provided by Buyer related to Buyer and the Initial,
Additional, and Further Consolidation Transactions and potential participants
therein, including without limitation Deloitte & Touche LLP, confidential, and
will not provide information about such matters to any party or use such
information except to the extent necessary to effect the transactions
contemplated hereby. Buyer will keep the matters contemplated herein and all
information provided by the Company, the Stockholder and Dowers related to the
Company and the Business confidential, and will not provide information about
such matters to any party or use such information except to the extent necessary
to effect the transactions contemplated hereby. Buyer and the Company shall each
cause their respective Affiliates, officers, directors, employees, agents, and
advisors to keep confidential all information received in connection with the
transactions contemplated hereby. The Company, the Stockholder and Dowers
acknowledge that Buyer may provide information about the Company and the
Business to other participants in the Additional or Further Consolidation
Transactions to the extent necessary to facilitate those transactions. If this
Agreement terminates without consummation of the Closing, the Company, the
Stockholder, Dowers and Buyer shall, and shall cause their Affiliates to, each
maintain the confidentiality of any information obtained from the other in
connection with the transactions contemplated hereby, the Additional or Further
Consolidation Transactions, and Buyer's business plans (the "INFORMATION"),
other than Information that (i) was in the public domain before the date of this
Agreement or subsequently came into the public domain other than as a result of
disclosure by the party to
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whom the Information was delivered; or (ii) was lawfully received by a party
from a third party free of any obligation of confidence of or to such third
party; or (iii) was already in the possession of the party prior to receipt
thereof, directly or indirectly, from the other party; or (iv) is required to be
disclosed in a judicial or administrative proceeding after giving the other
party as much advance notice of the possibility of such disclosure as
practicable so that the other party may attempt to stop such disclosure; or (v)
is subsequently and independently developed by employees of the party to whom
the Information was delivered without reference to the Information. If this
Agreement terminates without consummation of the Closing, Buyer, on the one
hand, and the Stockholder, Dowers and the Company, on the other, shall return to
the other all material containing or reflecting the Information provided by the
other, shall not retain any copies, extracts, or other reproductions thereof or
derived therefrom, and Buyer shall ensure the return of all such material from
all other parties with whom it has been shared, and shall thereafter refrain
from using the Information and shall maintain its confidentiality pursuant to
this Agreement.
4.3. Certain Changes and Conduct of Business. (a) From and after the date of
this Agreement and until the Closing (or the earlier termination of this
Agreement), the Company shall, and the Stockholder shall cause the Company to,
conduct the Company's business solely in the ordinary course consistent with
past practices. Without limiting the generality of the preceding sentence,
except as required or permitted pursuant to the terms hereof, the Company shall
not, and the Stockholder shall cause the Company not to:
(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts of the type described in
Schedule 4.3(a)(i), in any case calling for payments to or by the Company in
excess of $20,000 over the life of the contract or series of related contracts,
without the prior written consent of Buyer, which may not be unreasonably
withheld;
(ii) make any change in the charter documents or bylaws of the
Company, issue any additional shares of capital stock or equity securities or
grant any option, warrant or right to acquire any capital stock or equity
securities or issue any security convertible into or exchangeable for the
capital stock of the Company, alter any term of any of the outstanding
securities of the Company, or make any change in the outstanding shares of
capital stock or other ownership interests or in the capitalization, whether by
reason of a reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, stock dividend or otherwise;
(iii) (A) incur or assume any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant any
option, warrant or right to purchase any of the foregoing, (B) issue any
securities convertible or exchangeable for debt securities of the Company, or
(C) issue any options or other rights to acquire directly or
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indirectly any debt securities of the Company or any security convertible into
or exchangeable for such debt securities;
(iv) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of the Company or any part thereof, except
transactions required pursuant to existing contracts of the Company and
dispositions of inventory or worn out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent with past
practices;
(v) subject any of the assets of the Company, or any part
thereof, to any lien, security interest, charge, interest or other encumbrance,
or suffer such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of business
consistent with past practices;
(vi) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(vii) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(viii) make or commit to make any capital expenditure in excess
of $25,000 or to invest, advance, loan, pledge or donate any moneys to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(ix) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, the Stockholder or any Affiliate of the Company
or the Stockholder, except for the retention of certain excluded assets by
Stockholder as described in Schedule 4.3(a)(ix);
(x) guarantee any indebtedness for borrowed money or any other
obligation;
(xi) delay payment of payables or accelerate collection of
receivables relative to the Company's historical practices regarding the timing
of such payments and collections;
(xii) declare or make any dividends, distributions or other
payments to equity holders, except for the retention of the excluded assets by
Stockholder as described in Schedule 4.3(a)(ix) and as set forth on Schedule
4.3(a)(xii);
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(xiii) make any change in any revenue recognition or cost
allocation practices or method of accounting or accounting principle, method,
estimate or practice, or write down the value of any assets or write-off as
uncollectible any Accounts Receivable except in the ordinary course of business
consistent with past practices;
(xiv) settle, release or forgive any material claim or litigation
or waive any material right;
(xv) take any other action that would cause any of the
representations and warranties made by the Company or the Stockholder herein not
to remain true and correct in all material respects, or that would cause any of
the conditions to the parties' respective obligations to consummate the
transactions contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not
to be met; or
(xvi) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), the Company shall, and the Stockholder shall
cause it to:
(i) maintain, in all material respects, the assets and properties
of the Company in accordance with present practices and in a condition suitable
for their current use except for the retention of the excluded assets by
Stockholder as described in Schedule 4.3(a)(ix);
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of the Company in the
ordinary course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
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(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by the Company (or on
behalf of it) on the date hereof.
4.4. Restrictive Covenants.
(a) Non-Competition. The Stockholder and Dowers recognize that the
covenants of the Stockholder and Dowers contained in this Section 4.4(a) (the
"COVENANT NOT TO COMPETE") are an essential part of this Agreement and the other
Transaction Documents and that but for the agreement of the Stockholder and
Dowers to comply with such covenants Buyer would not enter into this Agreement
or the other Transaction Documents. The Stockholder and Dowers acknowledge and
agree that the Covenant Not to Compete is necessary to protect the Business
acquired by Buyer, including without limitation, goodwill and the Proprietary
Rights, and that irreparable harm and damage will be done to Buyer if the
Stockholder or Dowers competes with Buyer in any way prohibited by the Covenant
Not to Compete. In addition, the Stockholder and Dowers acknowledge that the
Purchase Price is consideration for professional relationships and market place
reputation developed by the Company and the Stockholder and the Covenant Not to
Compete is necessary for Buyer to receive the full benefit of this Agreement.
After the Closing, neither the Stockholder nor Dowers shall individually, or in
concert, directly or indirectly:
(i) either on its, his, her or their own account or for any other
person or entity, solicit, induce, attempt to induce, interfere with, or
endeavor to cause (in each case in such a manner that could have a material
adverse effect on the financial condition, prospects or operation of the
Business, the assets of the Company or Buyer or any of its Affiliates) any
customer, which has utilized the services of the Company at any time during the
two (2) year period preceding the Closing Date or with whom the Company was
engaged in meaningful negotiations as of the Closing Date (each, a "CUSTOMER"),
to modify, amend, terminate or otherwise alter the terms upon which it acquires
services from Buyer or Buyer's Affiliates, or to acquire from any party other
than Buyer or its Affiliates any services of the kind available from Buyer or
its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by the
Company at any time during the two (2) year period preceding the Closing Date or
under development by the Company on the Closing Date),
(iii) take any material action intended to advance an interest of
any competitor of the Business, or encourage any other person to take such
action; or
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(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the world, where the Company generated revenue or established
goodwill at any time during the two (2) year period preceding the Closing Date.
This Covenant Not to Compete shall bind the Stockholder and Dowers until
December 31, 2002, provided however, that if the employment of Dowers is
terminated by Buyer without Cause or by Dowers for Good Reason (each as defined
in Dowers' Employment Agreement delivered pursuant to Section 6.3(c)(iv)), and
if either (i) a registration statement for an underwritten IPO of Buyer's equity
securities has not been filed by December 31, 1999, or (ii) Buyer fails to
consummate a public offering that results in a public trading market of equity
securities of Buyer on a national securities exchange or the Nasdaq Stock Market
by May 15, 2000, then after termination of Dowers' employment with the Company
or any of its Affiliates, Dowers will no longer be subject to the covenants
contained in Sections 4.4(a)(ii) and (iii), and the covenants in Section
4.4(a)(iv) will not be breached by any general marketing efforts with which
Dowers may be involved that are not targeted specifically at any Customer. The
parties hereto agree that the duration and area for which the Covenant Not to
Compete set forth in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Notwithstanding the expiration of the Covenant Not
to Compete set forth in Section 4.4(a) the Stockholder and Dowers shall at all
times keep confidential and shall not disclose to others any Proprietary Rights
and shall not use or permit to be used any Proprietary Rights for any purpose
other than performance of obligations to Buyer.
(c) Non-Diversion. For the maximum period during which the Covenant Not
to Compete could apply pursuant to Section 4.4(a) each of the Stockholder and
Dowers shall not, and shall cause their Affiliates not to, divert or attempt to
divert or take advantage of or attempt to take advantage of any actual or
potential business or opportunities of Buyer or its Affiliates of which either
of the Stockholder and Dowers become aware as the result of their affiliation
with the Business or their relationship with Buyer or its Affiliates and which
relate specifically to the Business, or any part thereof, provided however, that
if the employment of Dowers is terminated by Buyer without Cause or by Dowers
for Good Reason (each as defined in Dowers' Employment Agreement delivered
pursuant to Section 6.3(c)(iv)), and if either (i) a registration statement for
an underwritten IPO of Buyer's equity securities has not been filed by December
31, 1999, or (ii) Buyer fails to consummate a public offering that results in a
public trading market of equity securities of Buyer on a national securities
exchange or the Nasdaq Stock Market by May 15, 2000, then after termination of
Dowers' employment with the Company or any of its Affiliates, this Section
4.4(c) will not be breached by accepting business from any Customer or
prospective customer that responds to general marketing
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efforts with which Dowers may be involved that are not targeted specifically at
any Customer. This Section 4.4(c) is in addition to and not by way of limitation
of any other duties the Stockholder and Dowers may have to Buyer or its
Affiliates.
(d) Non-Recruitment. For the maximum period during which the Covenant
Not to Compete could apply pursuant to Section 4.4(a) each of the Stockholder
and Dowers shall not, and shall cause their Affiliates not to, hire away, or
cause any other person to hire away, any employee of or consultant to Buyer or
its Affiliates (including without limitation persons employed or engaged by the
Company before the Closing Date), or directly or indirectly entice or solicit or
seek to induce or influence any of such employees or consultants to leave their
employment or engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on the Stockholder and Dowers in light of the activities
and business of the Company and future plans of Buyer. The Stockholder and
Dowers acknowledge that if they violate any of the covenants contained in this
Section 4.4 (collectively, the "RESTRICTIVE COVENANTS"), it will be difficult to
determine the resulting damages to Buyer and, in addition to any other remedies
Buyer may have, Buyer shall be entitled to temporary injunctive relief without
being required to post a bond and permanent injunctive relief without the
necessity of proving actual damages. The Stockholder and Dowers shall be
severally liable to pay all costs, including reasonable attorneys' fees and
expenses, that Buyer may incur in enforcing or defending, to any extent, any of
the Restrictive Covenants breached by the Stockholder or Dowers, whether or not
litigation is actually commenced and including litigation of any appeal defended
by Buyer where such party succeeds in enforcing any of the Restrictive
Covenants. Buyer may elect to seek one or more remedies at its discretion on a
case by case basis. Failure to seek any or all remedies in one case shall not
restrict Buyer from seeking any remedies in another situation. Such action by
Buyer shall not constitute a waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each
of the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its enforceability. However, if any term, provision or
condition of the Restrictive Covenants is held by a court or arbitrator to be
invalid, void or unenforceable, the remainder of the provisions thereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. If a court or arbitrator should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court or
arbitrator shall modify such covenant so as to make it enforceable to the
fullest extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances. The Covenant Not to Compete shall be deemed to be
a series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where the
Covenant Not to Compete is intended to be effective.
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4.5. Securities Restrictions.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(d)(i), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS EPS SOLUTIONS CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO EPS SOLUTIONS CORPORATION AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(d)(i) and the Voting
Agreement described in Section 6.2(d)(iii), provided that with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholder will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period,
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(ii) such lock up provision will be contingent upon the officers and directors
of the registrant entering into similar lock up agreements, and (iii) no
Stockholder will be required to comply with this lock up provision if any other
stockholder owning more shares of Common Stock than such Stockholder and who is
subject to a contractual lock up provision similar to this one has been released
from such lock up obligation.
4.6. Registration.
(a) The Stockholder will not have any rights to demand registration of
any of the Shares, or to participate in any registration undertaken by Buyer
except as set forth in this Section 4.6. If Buyer files a registration statement
with the Securities and Exchange Commission for an underwritten IPO of its
equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Stockholder shall
have the right, subject to the limitations set forth in this Section 4.6(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by such Stockholder. Other stockholders
(including but not limited to stockholders acquiring Common Stock in the
Initial, Additional, and Further Consolidation Transactions and stockholders who
acquired Common Stock in connection with the formation, or work on behalf of,
Buyer) will have rights to include shares of Common Stock in such offering, and
if the aggregate amount of shares that all stockholders with such rights
(collectively, the "SELLING STOCKHOLDER") desire to include exceeds the number
of shares of Common Stock that can be sold by all Selling Stockholders, then all
Selling Stockholders desiring to sell in any such offering will participate
pro-rata on the basis of the relative numbers of shares of Common Stock eligible
for inclusion that they originally sought to include. However, notwithstanding
the foregoing no Selling Stockholder will be permitted to include in any such
registration and offering (i) any Shares subject to performance-related
restrictions at the time of filing of the registration statement for such
offering or (ii) more than, in the aggregate for all such registrations and
offerings, half of the shares of Common Stock held by such Selling Stockholder
as of the date hereof. Furthermore, in no case will the Stockholder hereunder be
permitted to include in the IPO registration and offering, in the aggregate,
more than the number of Shares listed on Schedule 4.6 under the item "Maximum
IPO Shares".
(b) If the Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are
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caused by any untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing to
Buyer by such Stockholder expressly for use therein, for which the Stockholder
will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7. Cooperation in Litigation. Each party will fully cooperate with the others
in the defense or prosecution of any litigation or proceeding already instituted
or which may be instituted hereafter against or by such party relating to or
arising out of the conduct of the Business prior to or after the Closing Date
(other than litigation between Buyer and/or its Affiliates or assignees, on the
one hand, and the Company or the Stockholder and/or their Affiliates or
assignees, on the other, arising out of the transactions contemplated by this
Agreement). Subject to the provisions hereof regarding payments by each party of
its costs and payments or attorneys' fees and costs, the party requesting such
cooperation shall pay the out-of-pocket expenses (including reasonable legal
fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or other similar expenses paid by the
party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
4.8. Tax Matters.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as
of the close of the Company's business activities on the Closing Date, and, in
the case of Pre-Acquisition
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Taxable Periods ending on the Closing Date, all of the Company's income, gains
and other Tax items attributable to the Closing Date shall be included and
reported by the Company in Tax Returns of the Company for such Pre-Acquisition
Taxable Periods to be filed following the Closing and that all Taxes
attributable to the Company's income, gains or other taxable items for the
Closing Date shall be reported on such Tax Returns.
(ii) The allocation of any Tax Liability between the portion of
any Straddle Period ending on the Closing Date and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of the Company as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on and inclusive of the Closing Date (the
"PRE-CLOSING PERIOD") and the period following the Closing Date (the
"POST-CLOSING PERIOD") in the proportion which the number of days in each such
period bears to the total number of days in the Straddle Period; and provided
further, if as of the Closing Date the Company is a partner in any partnership
which has a Tax year that does not end as of the Closing Date, any tax liability
attributable to such partnership's activities shall be allocated between the
Pre-Closing Period and the Post-Closing Period in the same manner based upon the
number of days in each such period.
(b) Tax Returns Required to Be Filed Prior to the Closing Date. Prior to
the Closing Date the Company (i) shall prepare and file, or cause to be prepared
and filed, all Tax Returns of the Company required to be filed on or prior to
the Closing Date (after giving effect to any valid extensions), and (ii) shall
pay or cause to be paid all Taxes shown or reported to be due and payable by the
Company on such Tax Returns.
(c) Tax Returns for Other Pre-Acquisition Taxable Periods.
(i) Buyer shall cause the Company to prepare and file all Tax
Returns required to be filed by the Company for Pre-Acquisition Taxable Periods
which are not required to be filed on or prior to the Closing Date (after giving
effect to any valid extensions).
(ii) The Stockholder shall be responsible for and shall pay (A)
all reasonable costs and expenses related to the preparation and filing of the
Company's Tax Returns for Pre-Acquisition Taxable Periods described in Section
4.8(c)(i), and (B) all Taxes shown or reported to be due and payable on such Tax
Returns to the extent not specifically reserved (excluding reserves for deferred
taxes) against in the Interim Financial Statements. The Stockholder shall pay
such costs, expenses and Tax liabilities promptly following receipt by the
Stockholder of a notice from Buyer of Buyer's calculation of the Stockholder's
payment obligation hereunder together with copies of the relevant Tax Returns
and other information supporting Buyer's calculation. If the Stockholder
disputes all or any portion of the payment obligation hereunder as calculated by
Buyer, the Stockholder shall nevertheless promptly pay
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to Buyer the amount specified in the notice and any dispute related thereto
shall be resolved pursuant to the arbitration provisions of Section 7.13. Any
additional Taxes attributable to the periods covered by such Tax returns,
whether pursuant to an amended return or any Tax Proceeding, shall be paid by
Stockholder promptly upon demand therefor by Buyer.
(d) Straddle Period Returns.
(i) The parties acknowledge and agree that the Company may be
required, with respect to certain Taxes for Straddle Periods, to file a full
year return (herein a "STRADDLE PERIOD RETURN") reporting and accounting for
such Taxes on an aggregate basis covering both the Pre-Closing Period and the
Post-Closing Period. The Buyer, at its expense, shall cause the Company to
prepare and file such Straddle Period Returns .
(ii) The Taxes reportable on such Straddle Period Returns that
are attributable to the Pre-Closing Period (herein "PRE-CLOSING TAXES") shall be
determined in accordance with the provisions of Section 4.8(a)(ii). The
Stockholder shall be responsible for and shall pay all Pre-Closing Taxes shown
or reported to be due and payable on such Straddle Period Returns to the extent
not specifically reserved (excluding reserves for deferred taxes) against in the
Interim Financial Statements. The Stockholder shall pay such Pre-Closing Taxes
promptly following receipt by the Stockholder of a notice from Buyer of Buyer's
calculation of the Stockholder's payment obligation hereunder together with
copies of the relevant Tax Returns and other information supporting Buyer's
calculation. If the Stockholder disputes all or any portion of the payment
obligation hereunder as calculated by Buyer, the Stockholder shall nevertheless
promptly pay to Buyer the amount specified in the notice and any dispute related
thereto shall be resolved pursuant to the arbitration provisions of Section
7.13. Any additional Taxes attributable to the Pre-Closing Periods covered by
such Tax Returns, whether pursuant to an amended return or any Tax Proceeding,
shall be paid by Stockholder promptly upon demand therefor by Buyer.
(e) Buyer and the Stockholder shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to Sections 4.8(c) and (d). Such cooperation shall include
the retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to the filing of such Tax Returns.
(f) Tax Proceedings.
(i) Buyer shall, upon receipt of notice thereof by Company,
notify the Stockholder of any written communication from a Tax authority with
respect to any pending Tax Proceeding involving a Pre-Acquisition Tax Liability.
Buyer shall include with such notification a copy of the written communication
so received by Company.
(ii) The Buyer shall have responsibility and authority to
represent the interests of the Company in any Tax Proceeding relating to
Pre-Acquisition Taxable Periods and
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Straddle Periods and to employ counsel of its choice in connection therewith;
provided, however, that the Stockholder shall be permitted to participate in any
such Tax Proceedings and all hearings related thereto at their expense; and
provided further, that, without the prior written consent of the Stockholder,
which shall not be unreasonably withheld, the Buyer shall not agree to settle or
compromise any such Tax Proceeding and/or any Pre-Acquisition Tax Liability
issue arising therein if such settlement can reasonably be expected to result in
a material increase in the Pre-Acquisition Tax Liabilities for which the
Stockholder is responsible hereunder, provided, however, the consent of the
Stockholder to such settlement or compromise shall not be required hereunder if
the failure to settle or compromise the Tax Proceeding or an issue arising
therein can reasonably be expected to result in an adverse effect on the Company
following the Closing. The Stockholder, promptly upon demand from the Buyer,
shall pay the reasonable costs and expenses, including attorney fees, incurred
by Buyer in connection with any such Tax Proceedings, provided, however, in any
Tax Proceeding related to a Straddle Period which involves Tax Liabilities for
which the Stockholder is responsible hereunder and Tax Liabilities attributable
to the Post-Closing Period for which the Stockholder is not responsible, the
Buyer, on the one hand, and the Stockholder, on the other hand, shall jointly
bear the costs and expenses thereof as allocated between them on an equitable
basis.
(iii) All notices to Stockholder provided for hereunder shall be
deemed delivered to the Stockholder upon receipt thereof by Stockholder. The
Stockholder shall pay all Tax Liabilities and costs and expenses for which the
Stockholder is responsible hereunder.
(iv) The Stockholder shall furnish to Buyer such information and
documents as may be reasonably requested by Buyer, and shall otherwise
reasonably cooperate with Buyer, in connection with Buyer's conduct of any Tax
Proceedings described herein.
(g) Books and Records. Prior to the Closing Date the Company shall
properly maintain its books and records necessary or appropriate to the filing
of the Tax Returns described in this Section 4.8, and on or before the Closing
the Stockholder shall cause all such books and records and all other books and
records related to the Company's Tax Returns and Tax matters to be delivered to
the Buyer. Buyer shall cause the Company to retain all such books and records
delivered to Buyer as provided hereunder until the expiration of the statute of
limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which the Tax Returns relate.
(h) Section 351. For all federal and state income tax purposes the
Stockholder and Buyer shall (i) treat and report the transfer of the Seller
Shares in a manner consistent with its qualification as a transfer of property
to a controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of state income tax law, and (ii) file such Tax returns
and Tax information reports related to the transfer as may be required or
otherwise appropriate under the Tax laws and regulations applicable to transfers
of property pursuant to Code Section 351.
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(i) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(j) Treatment As Sale of Assets. The Stockholder and Buyer acknowledge
that the sale of the Seller Shares will be treated as a sale of assets for
federal and California income tax purposes, and agree to allocate the Purchase
Price among the acquired assets for income tax purposes in accordance with
Section 1060 of the Code and Treasury Regulations thereunder.
(k) Excluded Assets. The Stockholder shall be responsible for any taxes
relating to the the retention of certain excluded assets by Stockholder as
described in Schedule 4.3(a)(ix).
(l) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.8 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.9. Employee Plans. On or before Closing, the Company shall (i) contribute and
cause to be allocated to the accounts of all employees who are participants in
the D.L.D. Insurance Brokers, Inc. 401(k) Plan (the "401(k) PLAN") as of the
date of its termination all employer contributions that otherwise would have
been made to the 401(k) Plan for the current plan year with respect to the time
period prior to Closing, but for the consummation of the transaction
contemplated by this Agreement, (ii) adopt any amendments to the 401(k) Plan
which are necessary to authorize such contributions and allocations, and furnish
an executed copy of such amendments to Buyer, (iii) cause the 401(k) Plan to be
terminated, with such effective date of termination to be on or before the
Closing and with no further liability or obligation with respect thereto on the
part of the Company or Buyer, (iv) cause the account of each participant in the
401(k) Plan as of the date of the termination to become one hundred percent
(100%) vested and nonforfeitable, and (v) on or before Closing, deliver to Buyer
a certification of the occurrence of the foregoing transactions (which shall be
referred to collectively as the "EMPLOYEE PLANS TRANSACTIONS"). All of the costs
and expenses of the Employee Plans Transactions, including without limitation
the cost of making application to the IRS for termination, are to be borne by
either the Company or the Stockholder, or to the extent permitted by applicable
law, the 401(k) Plan.
4.10. Consolidation Transactions. Effective as of December 14, 1998, the Buyer
acquired approximately 38 companies engaged in the business of cost reduction,
cost recovery and profit enhancement services by means of acquisitions by Buyer
of all or substantially all of the assets or stock or other equity interests of
such companies (collectively, the "INITIAL CONSOLIDATION TRANSACTIONS").
Contemporaneously with the transaction contemplated hereby, Buyer is attempting
to acquire various other companies (with the transaction
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contemplated hereby, the "ADDITIONAL CONSOLIDATION TRANSACTIONS"), and following
closing or abandonment of the Additional Consolidation Transactions, Buyer
intends to pursue still more acquisitions (the "FURTHER CONSOLIDATION
TRANSACTIONS"). The Company and the Stockholder acknowledge that as a result of
the complexity of the transactions contemplated hereby and the other Additional
Consolidation Transactions, and for valuation and other reasons, the Closing
contemplated hereby and the closing of the other Additional Consolidation
Transactions may need to be concurrent or sequenced as designated by Buyer.
Accordingly, the Company and the Stockholder shall at any time upon or after
execution of this Agreement, but prior to the Closing Date (i) provide any
outstanding documentation required to effect the Closing pursuant to this
Agreement in escrow pending release upon authorization of the Stockholder at the
Closing, (ii) complete performance of their respective obligations hereunder and
under the other Transaction Documents to be performed by the Closing, and (iii)
update the schedules hereto and any other documentation or information provided
to Buyer during the course of this transaction such that all such disclosures
shall be accurate and current as of the Closing Date.
4.11. Supplemental Disclosure. At the Closing, the Company and the Stockholder
shall supplement or amend each of the schedules hereto with respect to any
matter hereafter arising which, if existing or occurring at or prior to the date
hereof, would have been required to be set forth or listed in the schedules or
which is necessary to complete or correct any information in the schedules.
4.12. HSR. Buyer and the Company shall cooperate in preparing and delivering to
the Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Buyer and the Company shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Buyer and the Company shall pay its own costs incurred in preparation of
all reports and notifications required under the HSR Act.
4.13. Competing Proposals.
(a) None of the Company, the Stockholder or Dowers shall directly or
indirectly, initiate, solicit, encourage or participate in any discussions or
negotiations with, or provide any nonpublic information to, any person or entity
concerning any potential offer (other than as described herein) to acquire the
Company, the Business or any assets thereof or interests therein, or any other
transaction or arrangement that would interfere with the transactions
contemplated hereby (a "COMPETING PROPOSAL").
(b) The Company, the Stockholder and Dowers shall promptly communicate
to Buyer the existence or occurrence and terms of any Competing Proposal or
contact related thereto which the Stockholder, Dowers or the Company or any of
its employees, directors, or
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agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) The Company, the Stockholder and Dowers shall not transfer or
hypothecate the Business or any assets thereof or interests therein except to
Buyer, or enter into any agreement with any person other than Buyer in
connection with any of the foregoing.
4.14. Bonus Plan. If Buyer does not close the IPO of its equity securities by
June 30, 1999, Buyer will implement a cash bonus plan designed to reward
employees on the basis of the performance of the divisions or subsidiaries of
Buyer in which they work. Amounts payable under, and other terms of, any such
plan will be subject to restrictions imposed by Buyer's lenders, Buyer's capital
investment requirements, and preservation of adequate working capital.
4.15. Best Efforts. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use its best efforts (other than the
payment of money unreimbursed by the other party) to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to cause the fulfillment of the
conditions to Closing set forth herein and to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
4.16. Further Assurances. Upon the reasonable request of a party or parties
hereto at any time after the Closing Date, the other party or parties shall
forthwith execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as the
requesting party or parties or its or their counsel may reasonably request in
order to effectuate the purposes of this Agreement.
4.17. Notice of Breach. At all times before the Closing, and thereafter until
the second anniversary of the Closing Date, each of the parties hereto shall
promptly give written notice with particularity of any breach or inaccuracy of
any representation, warranty, agreement or covenant of such party contained
herein or in any other Transaction Document to the parties to whom or which such
representation, warranty or covenant was made.
5. SURVIVAL; INDEMNIFICATION.
5.1. Survival. The representations and warranties made in this Agreement or in
any exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the date 18 months after of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.28 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Sections 2.2
(Ownership of Capital Stock); 2.4 (Title to Assets) and 2.22 (Indebtedness),
which will survive indefinitely. As to any matter or claim which is based upon
fraud by the indemnifying party, the representations and warranties set forth in
this Agreement shall
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expire only upon expiration of the applicable statute of limitations. No party
will be liable to another under any warranty or representation after the
applicable expiration of such warranty or representation; provided however, if a
claim or notice is given under this Article 5 with respect to any representation
or warranty prior to the applicable expiration date, such claim may be pursued
to resolution notwithstanding expiration of the representation or warranty under
which the claim was brought. Any investigations made by or on behalf of any of
the parties prior to the date hereof shall not affect any of the parties'
obligations hereunder. Completion of the transactions contemplated hereby shall
not be deemed or construed to be a waiver of any right or remedy of any of the
parties.
5.2. Indemnification by the Stockholder and Dowers. Subject to the limits set
forth in this Article 5, the Stockholder and Dowers and, if the transactions
contemplated hereby are not consummated, the Company, and their successors and
assigns shall jointly and severally indemnify, defend, reimburse and hold
harmless Buyer and its Affiliates and their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all claims, losses, damages, liabilities, obligations, assessments,
penalties and interest, demands, actions and expenses, whether direct or
indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("LOSSES")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the ownership and operation of the Company before the
Closing, provided that such Loss is not an obligation for payment of money in an
amount reflected as a liability of the Company in the Interim Financial
Statements or a trade payable incurred in the ordinary course of business since
the date of the Interim Financial Statements;
(b) any untruth or inaccuracy of any representation, warranty or
certification made by the Company, the Stockholder or Dowers in this Agreement
or any other Transaction Document; and
(c) the breach of any covenant, agreement or obligation of the
Company, the Stockholder or Dowers contained in this Agreement or any other
Transaction Document.
5.3. Indemnification by Buyer. Subject to the limits set forth in this Article
5, Buyer and its successors and assigns shall indemnify, defend, reimburse and
hold harmless the Stockholder, Dowers and their successors and assigns from and
against any and all Losses reasonably incurred by the Stockholder or Dowers
arising out of or in connection with any of the following:
(a) the ownership and operation of the Company after the Closing
(except that, to the extent permitted by law, Buyer and its successors and
assigns will not be required to indemnify, defend, reimburse or hold harmless
the Stockholder or Dowers in respect of
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any Losses arising as a result of willful or grossly negligent acts or omissions
of the Stockholder or Dowers, including without limitation in Dowers' capacity
as an employee of or consultant to Buyer or its Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document; and
(d) any adverse tax consequences to the Stockholder or Dowers
arising from the structure of the sale of the Seller Shares as a sale of stock
which the parties will elect to be treated as a sale of assets over and above
the amount of taxes they would have had to pay had the sale of the Seller Shares
been structured as a sale of the Seller Shares by The Dowers Family Trust
directly to Buyer, including, without limitation, any costs or expenses incurred
in connection with an audit, any adjustments to taxes paid and all related
costs, fees and expenses of any attorneys or accountants representing the
Stockholder or Dowers.
5.4. Indemnification Procedure.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the
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Indemnitor shall cooperate with the Indemnitee, and the Indemnitor shall deliver
to the Indemnitee or its counsel copies of all pleadings and other information
within the Indemnitor's knowledge or possession reasonably requested by the
Indemnitee or its counsel that is relevant to the defense of such Claim and that
will not prejudice the Indemnitor's position, claims or defenses. The Indemnitee
and its counsel shall maintain confidentiality with respect to all such
information consistent with the conduct of a defense hereunder. The Indemnitor
shall have the right to elect to settle any claim for monetary damages only
without the Indemnitee's consent, if the settlement includes a complete release
of the Indemnitee. If the settlement does not include such a release, it will be
subject to the consent of the Indemnitee, which will not be unreasonably
withheld. The Indemnitor may not admit any liability of the Indemnitee or waive
any of the Indemnitee's rights without the Indemnitee's prior written consent,
which will not be unreasonably withheld. If the subject of any Claim results in
a judgment or settlement, the Indemnitor shall promptly pay such judgment or
settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the Indemnitor shall cooperate with the
Indemnitee and its counsel, at the Indemnitor's sole cost, risk and expense, in
all reasonable respects, and shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that are
relevant to the defense of the subject of any such Claim and that will not
prejudice the Indemnitor's position, claims or defenses. The Indemnitee shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
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5.5. Payment. All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6. Limitations.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of the Stockholder and Dowers on the
one hand, to Buyer, and Buyer, on the other hand to the Stockholder and Dowers,
for all claims arising under this Agreement and the other Transaction Documents
shall equal the aggregate Purchase Price. All claims of Buyer against the
Stockholder and Dowers arising under this Agreement and the other Transaction
Documents shall be settled first by offset against the Note. The amount of any
such claim over and above the amount available by offset against the Note shall
be paid either in cash or in Shares, at the option of the Stockholder and
Dowers. For purposes of this Section 5.6(b), the value of Shares received shall
be (i) prior to the IPO, the per share Agreed Price (as defined in the
Stockholder Agreement) then prevailing; and (ii) after the IPO, the per share
closing price on the primary exchange or market on which the Common Stock is
traded on the date such indemnifiable Losses become payable, except that the
value of any Shares sold in bona fide third party transactions will be the gross
proceeds to the Stockholder of such sale.
6. CONDITIONS TO CLOSING.
6.1. Conditions to Obligations of Each Party. The obligations of the
Stockholder, on the one hand, and Buyer, on the other hand, to consummate the
transactions contemplated hereby are
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subject to the fulfillment, at or before the Closing Date, of the conditions set
forth in this Section 6.1, any one or more of which may be waived in writing by
the party entitled to the benefit of such condition; provided, however, that
such waiver will not diminish such party's right to indemnification pursuant to
Article 5, unless so stated, and provided further that the Stockholder will be
required to perform their obligations hereunder, notwithstanding lack of
fulfillment of the conditions set forth in this Section 6.1, if Buyer agrees in
writing to be liable for, and to indemnify the Stockholder from and against, any
obligations that the Stockholder would incur as a result of consummating the
transactions contemplated hereby notwithstanding the fact that the conditions in
this Section 6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, net income or financial
condition of the Company, is in effect; and no action or proceeding has been
instituted or threatened by any Governmental Entity, other person, or entity
which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for the Company may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable laws, including, without limitation, expiration or
termination of the waiting period prescribed by the HSR Act.
6.2. Conditions to Obligations of Buyer. The obligations of Buyer to consummate
the transactions contemplated hereby are subject to the fulfillment, at or
before the Closing Date, of the conditions set forth in this Section 6.2, any
one or more of which may be waived by Buyer in writing in its discretion;
provided however, such waiver will not waive or diminish Buyer's right to
indemnification pursuant to Article 5, unless so stated:
(a) Representations and Warranties True. The representations and
warranties of the Company and the Stockholder contained in this Agreement or in
any other Transaction Document shall be true and correct in all material
respects as of the date hereof and on the Closing Date, and at the Closing the
Company and the Stockholder shall each have delivered to Buyer a certificate
dated the Closing Date to such effect signed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and by the
Stockholder.
(b) Performance of the Company and the Stockholder. The Company and the
Stockholder shall have performed in all material respects all obligations
required to be
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performed by each of them under this Agreement on or before the Closing Date,
and at the Closing the Company and the Stockholder, as the case may be, shall
each have delivered to Buyer a certificate to such effect dated the Closing Date
and signed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Company or the Stockholder, as applicable.
(c) Additional Closing Documents of the Company. Buyer has received, or
is receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of the Company of resolutions of the Board of Directors and the Stockholder
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents to be delivered by the Company and the Stockholder
and the consummation of the transactions contemplated hereby and thereby;
(ii) Such other documents as Buyer may reasonably request.
(d) Additional Closing Documents of the Stockholder. Buyer has received,
or is receiving at the Closing, all of the following, each duly executed by the
Stockholder and, in the case of Section 6.2(d)(v), and dated the Closing Date:
(i) A Stockholder Agreement substantially in the form of Exhibit
C, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit C-1 executed by the Stockholder and the spouse of
the Stockholder, if applicable;
(ii) The Accredited Investor Questionnaire described in Section
2.24(g);
(iii) A Voting Agreement substantially in the form of Exhibit D,
executed and delivered by each recipient of Shares;
(iv) A Subordination Agreement substantially in the form of
Exhibit E, executed and delivered by each recipient of the Notes (as defined in
Schedule 1.3); and
(v) Such other duly executed certificates, instruments and
documents in furtherance of the transactions contemplated by this Agreement and
the other Transaction Documents as Buyer may reasonably request.
(e) Consents and Approvals. Except as set forth on Schedule 2.9, all
consents, waivers, authorizations and approvals of any Governmental Entity, and
of any other person or entity, required under the Contracts, Licenses, or
otherwise in connection with the execution, delivery and performance of this
Agreement, absence of which could result in material liability to Buyer or a
Material Adverse Change, or the cancellation or adverse
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change in terms of, or payments under, any Contract, shall have been duly
obtained in form reasonably satisfactory to Buyer, shall be in full force and
effect on the Closing Date and the original executed copies shall have been
delivered to Buyer on or before the Closing Date.
(f) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(g) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the business, operations, properties, assets, financial
condition and prospects of the Company.
(h) Closing Date Net Worth. At the Closing the Company will (i) have a
net worth calculated according to generally accepted accounting principles of at
least Fifty Thousand Dollars ($50,000), and (ii) sufficient working capital to
operate the Company; and at the Closing the Company shall have delivered to
Buyer a certificate dated the Closing Date to such effect with supporting
financial information, signed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Company.
(i) Financing. Buyer shall have received the consent of its senior
lenders to the transactions contemplated hereby, and shall have available, on
commercially reasonable terms reasonably satisfactory to Buyer, debt financing
sufficient to finance the cash portion of the Purchase Price and the cash
portion of the purchase price being paid by Buyer pursuant to each of the
Consolidation Transactions, and to provide Buyer with adequate working capital
following the transactions contemplated hereby and the Consolidation
Transactions.
(j) No Default. The Company shall not be in default of any material
obligation.
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to the Company, the Stockholder and
Dowers in substantially the form of Exhibit F. In giving such opinion, such
counsel may rely upon certificates of public officials, upon opinions of local
counsel and, as to matters of fact, upon a certificate of the Company, or its
officers, and such counsel may assume that this Agreement has been duly
authorized, executed and delivered by Buyer.
(l) Certificates. The Stockholder shall have delivered to Buyer the
certificates representing the Seller Shares and the stock certificates or stock
powers as described in Section 1.2.
(m) Stock Books. The Company shall have delivered the stock books, stock
ledgers, minute books and corporate seals of the Company.
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(n) Employee Matters. Buyer shall be reasonably assured that employees
of the Company of a quantity and having the skills sufficient for the operation
of the Business are continuing their employment or affiliation with Buyer or
Buyer's Affiliates after the Closing. Buyer shall have received an Employment
Agreement substantially in the form attached hereto as Exhibit G-1 for each key
employee designated by Buyer or Exhibit G-2 for other employees (each with
conforming changes as appropriate for the employee), duly executed and delivered
by the persons named on Schedule 6.2.
(o) Resignation of Directors. Buyer shall have received written
resignations of the directors of the Company in form satisfactory to Buyer.
(p) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of the Company or the Stockholder or in
furtherance of the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.
6.3. Conditions to Obligations of the Stockholder. The obligations of the
Stockholder to consummate the transactions contemplated hereby are subject to
the fulfillment, at or before the Closing Date, of the conditions set forth in
this Section 6.3, any one or more of which may be waived by the Stockholder in
writing in their discretion; provided however, such waiver will not waive or
diminish the right of the Stockholder to indemnification pursuant to Article 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to the
Company a certificate to such effect dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
the Company a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the execution and
delivery of this Agreement and the other Transaction Documents to be delivered
by Buyer and the consummation of the transactions contemplated hereby;
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(ii) The Note;
(iii) A photocopy of the certificate representing the Shares
issued in the name of the Stockholder as set forth in Schedule 1.3; and
(iv) An Employment Agreement substantially in the form attached
hereto as Exhibit G-1 for each key employee designated by Buyer or Exhibit G-2
for other employees (each with conforming changes as appropriate for the
employee), with each of the persons named on Schedule 6.2.
(d) The Cash Payment. The Stockholder shall have received the Cash
Payment (as described in Schedule 1.3).
(e) Opinion of Counsel. The Stockholder shall have received a favorable
opinion, dated as of the Closing Date, from counsel to Buyer in substantially
the form of Exhibit H. In giving such opinion, such counsel may rely upon
certificates of public officials, upon opinions of local counsel and, as to
matters of fact, upon a certificate of Buyer, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by the Company
and the Stockholder.
(f) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Seller Shares
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by the Stockholder.
7. MISCELLANEOUS.
7.1. Termination. This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) the Company or the Stockholder fail to comply in
any material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of the Company or the
Stockholder is breached or is inaccurate in any material way; (b) by the Company
or the Stockholder if (i) Buyer fails to comply in any material respect with any
of its covenants or agreements contained herein, or (ii) any of the
representations and warranties of Buyer is breached or is inaccurate in any
material way; or (c) by the Company or Buyer if (i) a Governmental Entity has
issued a non-appealable order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto have used their best efforts to
lift), which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement; or (ii) a condition to its
performance hereunder has not been satisfied or waived prior to March 15, 1999,
provided however, that if the board of directors of Buyer should, in good faith,
determine that it is necessary to extend the Closing for the purpose of
facilitating the financing of the Additional Consolidation Transactions, it may
extend such date by thirty (30) days. Notwithstanding the foregoing, a party may
not terminate this Agreement if the event giving rise to the termination right
results from the willful failure of such party to perform or observe any of
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the covenants or agreements set forth herein to be performed or observed by such
party or if such party is, at such time, in material breach of this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.28 (Brokers), 4.2 (Confidentiality), 7.12
(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction), and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2. Notices. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed given upon personal delivery or three
(3) days after being mailed by certified or registered mail, postage prepaid,
return receipt requested, or one (1) business day after being sent via a
nationally recognized overnight courier service if overnight courier service is
requested from such service or upon receipt of electronic or other confirmation
of transmission if sent via facsimile, to the parties, their successors in
interest or their assignees at the following addresses and telephone numbers, or
at such other addresses or telephone numbers as the parties may designate by
written notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
EPS Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Telephone No.: (714) 429-5500
Facsimile No.: (714) 429-5559
With a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Telephone No.: (949) 451-3874
Facsimile No.: (949) 451-4220
Attn: Ronit E. Attlesey, Esq.
If to the Company,
the Stockholder or
Dowers: Dana L. Dowers
President
Dana L. Dowers Corporation
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2560 Riviera Drive
Laguna Beach, CA 92651
Telephone No.: (949) 261-0242
Facsimile No.: (949) 464-1225
With a copy to: Higham, McConnell & Dunning LLP
28202 Cabot Road, Suite 450
Laguna Niguel, California 92677-1250
Telephone No.: (949) 365-5515
Facsimile No.: (949) 365-5522
Attn: Steven J. Dunning, Esq.
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7.3. Assignability and Parties in Interest. This Agreement and the rights,
interests or obligations hereunder may not be assigned by any of the parties
hereto, except that after the closing Buyer may assign its rights and
obligations under this Agreement in whole or in part to any Affiliate or
Affiliates of Buyer or any successor to all or substantially all of the business
or assets of Buyer. This Agreement shall inure to the benefit of and be binding
upon Buyer and the Company and their respective permitted successors and assigns
and upon the Stockholder and its executors, administrators, heirs, legal
representatives and permitted successors and assigns. Nothing in this Agreement
will confer upon any person or entity not a party to this Agreement, or the
legal representatives of such person or entity, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
7.4. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, without regard
to its conflicts-of-law principles.
7.5. Counterparts. Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6. Publicity. Prior to the Closing Date, no party may, or may it permit its
Affiliates to, issue or cause the publication of any press release or other
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer and the Company,
except that Buyer may disclose details of this Agreement to other participants
in, or as necessary to effect, the Consolidation Transactions. Notwithstanding
the foregoing, in the event any such press release or announcement is required
by law to be made by the party proposing to issue the same, such party shall
consult in good faith with the other party as far in advance as practicable to
the issuance of any such press release or announcement.
7.7. Complete Agreement. This Agreement, the exhibits and schedules hereto, and
the other Transaction Documents contain or will contain the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and therein and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, and understandings.
7.8. Modifications, Amendments and Waivers. At any time prior to the Closing
Date or termination of this Agreement, any party may, (a) waive any inaccuracies
in the representations and warranties of any other party contained in this
Agreement or in any other Transaction Document; and (b) waive compliance by any
other party with any of the covenants or agreements contained in this Agreement.
No waiver of any of the provisions of
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this Agreement will be considered, or will constitute, a waiver of any of the
rights or remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9. Headings; References. The headings contained in this Agreement and the
other Transaction Documents are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. References herein to
Articles, Sections, Schedules and Exhibits refer to the referenced Articles,
Sections, Schedules or Exhibits hereof unless otherwise specified.
7.10. Severability. Any provision of this Agreement which is invalid, illegal,
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction.
7.11. Investigation. All representations and warranties contained herein which
are made to the knowledge of a party shall require that such party make
reasonable investigation and inquiry with respect thereto to ascertain the
correctness and validity thereof. Representations and warranties made to the
knowledge of the Company shall be deemed made to the knowledge of the
Stockholder only and no other person.
7.12. Expenses of Transactions. All fees, costs and expenses incurred by Buyer,
in connection with the transactions contemplated by this Agreement shall be
borne by Buyer, and all fees, costs and expenses incurred by the Company or the
Stockholder in connection with the transactions contemplated by this Agreement
shall be borne by the Stockholder, except that fees, costs and expenses incurred
by the Company and the Stockholder in connection with the formation of the
Stockholder, the annual franchise tax payable to the California Franchise Tax
Board by the Stockholder, the cost of preparation and filing of state and
federal income tax returns by the Stockholder and the negotiation and
preparation of the documents in connection with the transfer of the Seller
Shares from The Dowers Family Trust to the Stockholder and in connection with
the sale of the Seller Shares to Buyer by Stockholder (as opposed to The Dowers
Family Trust) shall be borne by Buyer and shall be paid to the Stockholder
promptly upon demand.
7.13. Arbitration.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in
54
<PAGE> 61
courts of appropriate jurisdiction, and such request shall not be deemed a
waiver of the right to compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of Dowers by Buyer or any Affiliate of Buyer, the provisions of this
Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between Dowers and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least twenty (20) years experience
with and knowledge of securities laws, complex business transactions, and
mergers and acquisitions.
55
<PAGE> 62
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
56
<PAGE> 63
7.14. Submission to Jurisdiction. All actions or proceedings arising in
connection with this Agreement for preliminary or injunctive relief or matters
not subject to arbitration, if any, shall be tried and litigated exclusively in
the state or federal courts located in the County of Orange, State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this paragraph. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 7.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
7.15. Attorneys' Fees. If Buyer or any of its Affiliates, successors or assigns
brings any action, suit, counterclaim, cross-claim, appeal, arbitration, or
mediation for any relief against the Company or any of its Affiliates,
successors or assigns or the Stockholder or Dowers, or if the Company or any of
its Affiliates, successors or assigns or the Stockholder or Dowers brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against Buyer or any of its Affiliates, successors or assigns,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "ACTION"), in addition to any damages and costs
which the prevailing party otherwise would be entitled, the non-prevailing party
shall pay to the prevailing party a reasonable sum for attorneys' fees and costs
(at the prevailing party's attorneys' then-prevailing rates) incurred in
bringing and prosecuting such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained
57
<PAGE> 64
the greater relief in connection with any particular claim, although, with
respect to any claim, it may be determined that there is no PREVAILING PARTY.
7.16. Enforcement of the Agreement. The Company, the Stockholder, Dowers and
Buyer acknowledge that irreparable damage would occur if any of the obligations
of the Company, the Stockholder and Dowers under this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Buyer will be entitled to an injunction or injunctions to prevent breaches of
this Agreement by the Company, the Stockholder or Dowers and to enforce
specifically the terms and provisions hereto, this being in addition to any
other remedy to which Buyer is entitled at law or in equity.
58
<PAGE> 65
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
EPS SOLUTIONS CORPORATION
"BUYER"
By: /s/ MARK C. COLEMAN
-------------------------------------
Name: Mark C. Coleman
-------------------------------------
Title: SVP
-------------------------------------
D.L.D. INSURANCE BROKERS, INC.
"COMPANY"
By: /s/ DANA L. DOWERS
-------------------------------------
Name: Dana L. Dowers
Title: President
DANA L. DOWERS CORPORATION
"STOCKHOLDER"
/s/ DANA L. DOWERS
- -------------------------------------------
Dana L. Dowers
DANA L. DOWERS
SOLELY WITH RESPECT TO SECTIONS 4.2, 4.4,
4.13, 5.1 THROUGH 5.6, AND 7.13 THROUGH
7.16 OF THIS AGREEMENT
/S/ DANA L. DOWERS
- -------------------------------------------
Dana L. Dowers
59
<PAGE> 66
SCHEDULE 1.3
PURCHASE PRICE
(a) Aggregate Purchase Price.
(i) An aggregate of Four Million Eight Hundred Thousand Dollars
($4,800,000) (the "CASH PAYMENT").
(ii) A Promissory Note of Buyer, dated as of the Closing Date
substantially in the form of Exhibit I for an aggregate principal amount
of Seven Million Two Hundred Thousand Dollars ($7,200,000) (the "NOTE")
(iii) An aggregate of 238,148 shares of Series A Common Stock of
Buyer (the "SHARES"), certificates for which will be retained by Buyer
pending release pursuant to Section 1.4.
(b) Consideration to Stockholder.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Seller Shares
Name of Owned and to Cash Note Common Stock
Stockholder be sold to Buyer Consideration Consideration Consideration
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DANA L. DOWERS CORPORATION 5,000 $4,800,000 $7,200,000 238,148
SHARES SHARES
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.50
================================================================================
CREDIT AGREEMENT
DATED AS OF DECEMBER 7, 1998
AMONG
PROFITSOURCE CORPORATION
AND
ENTERPRISE PROFIT SOLUTIONS CORPORATION,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS ADMINISTRATIVE AGENT,
ANTARES CAPITAL CORPORATION
AS DOCUMENTATION AGENT,
ING (U.S.) CAPITAL CORPORATION,
AS MANAGING AGENT,
AND
THE OTHER LENDERS PARTY HERETO
----------------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC,
LEAD ARRANGER
ANTARES CAPITAL CORPORATION,
CO-ARRANGER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I DEFINITIONS........................................................................1
1.01 Certain Defined Terms......................................................1
1.02 Other Interpretive Provisions.............................................23
1.03 Accounting Principles.....................................................24
ARTICLE II THE CREDITS......................................................................24
2.01 Amounts and Terms of Commitments..........................................24
(a) The Term Credit...................................................24
(b) The Revolving Credit..............................................25
2.02 Loan Accounts.............................................................25
2.03 Procedure for Borrowing...................................................25
2.04 Conversion and Continuation Elections.....................................27
2.05 Voluntary Termination or Reduction of Commitments.........................28
2.06 Optional Prepayments......................................................28
2.07 Mandatory Prepayments of Loans; Mandatory Commitment Reductions...........28
(a) Asset Dispositions................................................28
(b) Equity or Debt Issuance...........................................29
(c) General...........................................................29
2.08 Repayment.................................................................29
(a) The Term Credit...................................................30
(b) The Revolving Credit..............................................30
2.09 Interest..................................................................30
2.10 Fees......................................................................31
(a) Agency and Other Fees.............................................31
(b) Commitment Fees...................................................31
2.11 Computation of Fees and Interest..........................................32
2.12 Payments by the Company...................................................32
2.13 Payments by the Lenders to the Agent......................................33
2.14 Sharing of Payments, Etc..................................................33
2.15 Security and Guaranty.....................................................34
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY..........................................34
3.01 Taxes.....................................................................34
3.02 Illegality................................................................36
3.03 Increased Costs and Reduction of Return...................................37
3.04 Funding Losses............................................................38
3.05 Inability to Determine Rates..............................................39
3.06 Certificates of Lenders...................................................39
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C>
3.07 Substitution of Lenders...................................................39
3.08 Survival..................................................................39
ARTICLE IV CONDITIONS PRECEDENT.............................................................40
4.01 Conditions of Initial Loans...............................................40
(a) Credit Agreement and Notes........................................40
(b) Resolutions; Incumbency...........................................40
(c) Organization Documents; Good Standing.............................40
(d) Legal Opinions....................................................41
(e) Payment of Fees...................................................41
(f) Collateral Documents..............................................41
(g) Insurance Policies................................................42
(h) Perfection Certificate............................................42
(i) Certificate.......................................................42
(j) Issuance of Holdings Subordinated Notes, Etc......................42
(k) Solvency..........................................................42
(l) Financial Information.............................................43
(m) Acquisition Documents, Etc........................................43
(n) Pro Forma Compliance with Financial Covenants.....................44
(o) Other Documents...................................................44
4.02 Conditions to All Borrowings..............................................44
(a) Notice of Borrowing...............................................44
(b) Continuation of Representations and Warranties....................44
(c) No Existing Default...............................................44
(d) No Material Adverse Effect........................................44
ARTICLE V REPRESENTATIONS AND WARRANTIES....................................................45
5.01 Corporate Existence and Power.............................................45
5.02 Corporate Authorization; No Contravention.................................45
5.03 Governmental Authorization................................................45
5.04 Binding Effect............................................................46
5.05 Litigation................................................................46
5.06 No Default................................................................46
5.07 ERISA Compliance..........................................................46
5.08 Use of Proceeds; Margin Regulations.......................................47
5.09 Title to Properties; Liens................................................47
5.10 Taxes.....................................................................47
5.11 Financial Condition.......................................................48
5.12 Environmental Matters.....................................................49
5.13 Collateral Documents......................................................49
5.14 Regulated Entities........................................................50
5.15 No Burdensome Restrictions................................................50
5.16 Copyrights, Patents, Trademarks and Licenses, Etc.........................50
</TABLE>
ii.
<PAGE> 4
<TABLE>
<S> <C>
5.17 Subsidiaries..............................................................51
5.18 Insurance.................................................................51
5.19 Solvency..................................................................51
5.20 Swap Obligations..........................................................51
5.21 Full Disclosure...........................................................51
5.22 Year 2000.................................................................52
5.23 Representations and Warranties Contained in the Acquisition
Agreements................................................................52
5.24 Deloitte & Touche Subordinated Debt.......................................52
ARTICLE VI AFFIRMATIVE COVENANTS............................................................53
6.01 Financial Statements......................................................53
6.02 Certificates; Other Information...........................................54
6.03 Notices...................................................................55
6.04 Preservation of Corporate Existence, Etc..................................57
6.05 Maintenance of Property...................................................57
6.06 Insurance.................................................................57
6.07 Payment of Obligations....................................................58
6.08 Compliance with Laws......................................................58
6.09 Compliance with ERISA.....................................................58
6.10 Inspection of Property and Books and Records..............................58
6.11 Environmental Laws........................................................59
6.12 Use of Proceeds...........................................................59
6.13 Year 2000.................................................................59
6.14 Additional Guarantors.....................................................60
6.15 Further Assurances........................................................61
6.16 Wholly-Owned Subsidiaries.................................................61
ARTICLE VII NEGATIVE COVENANTS..............................................................62
7.01 Limitation on Liens.......................................................62
7.02 Disposition of Assets.....................................................64
7.03 Consolidations and Mergers................................................65
7.04 Loans and Investments.....................................................65
7.05 Limitation on Indebtedness................................................66
7.06 Transactions with Affiliates..............................................67
7.07 Use of Proceeds...........................................................68
7.08 Contingent Obligations....................................................68
7.09 Lease Obligations.........................................................69
7.10 Restricted Payments.......................................................69
7.11 ERISA.....................................................................70
7.12 Change in Business........................................................70
7.13 Accounting Changes........................................................70
</TABLE>
iii.
<PAGE> 5
<TABLE>
<S> <C>
7.14 Capital Expenditures......................................................71
7.15 Holdings Subordinated Debt................................................71
7.16 Amendments to Acquisition Agreements......................................72
7.17 Tax Sharing Agreement.....................................................72
7.18 Financial Covenants.......................................................72
ARTICLE VIII EVENTS OF DEFAULT..............................................................74
8.01 Event of Default..........................................................74
(a) Non-Payment.......................................................74
(b) Representation or Warranty........................................74
(c) Specific Defaults.................................................74
(d) Other Defaults....................................................74
(e) Cross-Default.....................................................75
(f) Insolvency; Voluntary Proceedings.................................75
(g) Involuntary Proceedings...........................................75
(h) ERISA.............................................................76
(i) Monetary Judgments................................................76
(j) Non-Monetary Judgments............................................76
(k) Change of Control.................................................76
(l) Loss of Licenses..................................................76
(m) Adverse Change....................................................76
(n) Guarantor Defaults................................................77
(o) Invalidity of Subordination Provisions............................77
(p) Collateral........................................................77
(q) Acquisition Agreements............................................77
8.02 Remedies..................................................................77
8.03 Specified Swap Contract Remedies..........................................78
8.04 Rights Not Exclusive......................................................78
ARTICLE IX THE AGENT........................................................................78
9.01 Appointment and Authorization; "Agent"....................................78
9.02 Delegation of Duties......................................................79
9.03 Liability of Agent........................................................79
9.04 Reliance by Agent.........................................................79
9.05 Notice of Default.........................................................80
9.06 Credit Decision...........................................................80
9.07 Indemnification of Agent..................................................81
9.08 Agent in Individual Capacity..............................................81
9.09 Successor Agent...........................................................81
9.10 Withholding Tax...........................................................82
9.11 Collateral Matters........................................................83
9.12 Lead Arranger, Co-Arranger, Managing Agent, Documentation Agent...........84
</TABLE>
iv.
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE X MISCELLANEOUS.....................................................................85
10.01 Amendments and Waivers....................................................85
10.02 Notices...................................................................85
10.03 No Waiver; Cumulative Remedies............................................86
10.04 Costs and Expenses........................................................86
10.05 Indemnification...........................................................87
10.06 Marshalling; Payments Set Aside...........................................88
10.07 Successors and Assigns....................................................89
10.08 Assignments, Participations, Etc..........................................89
10.09 Confidentiality...........................................................91
10.10 Set-off...................................................................92
10.11 Automatic Debits of Fees..................................................92
10.12 Guaranty..................................................................92
(a) Guaranty..........................................................92
(b) Separate Obligation...............................................93
(c) Limitation of Guaranty............................................94
(d) Liability of Guarantor............................................94
(e) Consents of Guarantor.............................................95
(f) Guarantor's Waivers...............................................96
(g) Financial Condition of the Company................................96
(h) Subrogation.......................................................97
(i) Continuing Guaranty...............................................97
(j) Reinstatement.....................................................97
(k) Substantial Benefits..............................................98
(l) Knowing and Explicit Waivers......................................98
10.13 Release of Subsidiary Guarantors..........................................98
10.14 Notification of Addresses, Lending Offices, Etc...........................99
10.15 Counterparts..............................................................99
10.16 Severability..............................................................99
10.17 No Third Parties Benefited................................................99
10.18 Governing Law and Jurisdiction............................................99
10.19 Waiver of Jury Trial.....................................................100
10.20 Entire Agreement.........................................................100
10.21 Antares..................................................................100
</TABLE>
v.
<PAGE> 7
ANNEXES
Annex I Subsidiary Guarantors
Annex II Pricing Grid
SCHEDULES
Schedule 1.01 Founding Companies
Schedule 2.01 Commitments and Pro Rata Shares
Schedule 5.05 Litigation
Schedule 5.07 ERISA
Schedule 5.11 Permitted Liabilities
Schedule 5.12 Environmental Matters
Schedule 5.17 Subsidiaries and Minority Interests
Schedule 5.18 Insurance Matters
Schedule 7.01 Permitted Liens
Schedule 7.05 Permitted Indebtedness
Schedule 7.08 Contingent Obligations
Schedule 7.09 Leases
Schedule 10.02 Payment Offices; Addresses for Notices; Lending Offices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Holdings' and Company's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F-1 Form of Revolving Note
Exhibit F-2 Form of Term Note
Exhibit G Form of Security Agreement
Exhibit H Form of Update Certificate
Exhibit I Form of Additional Guarantor Assumption Agreement
Exhibit J Form of Legal Opinion of Additional Guarantor's Counsel
vi.
<PAGE> 8
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of December 7, 1998, among
Enterprise Profit Solutions Corporation, a Delaware corporation (the "Company"),
ProfitSource Corporation, a Delaware corporation, certain other affiliates of
the Company parties hereto as guarantors, the several lending institutions from
time to time party to this Agreement (individually, each a "Lender" and,
collectively, the "Lenders"), Bank of America National Trust and Savings
Association, as administrative agent for itself and the other Lenders (in such
capacity, the "Agent"), Antares Capital Corporation, as documentation agent (in
such capacity, the "Documentation Agent"), and ING (U.S.) Capital Corporation,
as managing agent (in such capacity, the "Managing Agent").
WHEREAS, the Lenders have agreed to make available to the Company a
secured term loan and revolving credit facility upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Certain Defined Terms. The following terms have the following meanings
(including in the Recitals hereof):
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in
(a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary, or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary), provided that the Company or the Subsidiary is the
surviving entity.
"Acquisition Agreements" has the meaning specified in subsection
4.01(m).
"Additional Guarantor Accession Date has the meaning specified in
subsection 6.14(a).
"Additional Guarantor Assumption Agreement" has the meaning
specified in subsection 6.14(a).
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
1.
<PAGE> 9
indirectly, the power to direct or cause the direction of the management
and policies of the other Person, whether through the ownership of
voting securities, membership interests, by contract, or otherwise.
"Agent" means BofA in its capacity as agent for the Lenders
hereunder, and any successor agent arising under Section 9.09.
"Agent-Related Persons" means BofA and any successor agent
arising under Section 9.09, together with their respective Affiliates
(including, in the case of BofA, the Lead Arranger), and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means the address for payments set forth
on Schedule 10.02 or such other address as the Agent may from time to
time specify.
"Aggregate Commitment" means the combined Commitments of the
Lenders.
"Aggregate Specified Swap Amount" means, at any time, the sum of
all Specified Swap Amounts owing to all Swap Providers.
"Agreement" means this Credit Agreement.
"Annualization Quotient" means, in respect of any Compliance
Period, the quotient obtained by dividing (a) the number of days elapsed
from the first day of the Compliance Period through the Closing Date, by
(b) 365.
"Antares" means Antares Capital Corporation, a Delaware
corporation.
"Applicable Fee Amount" means with respect to the commitment fee
payable hereunder on and after the first anniversary of the Closing
Date, the amount set forth opposite the indicated Level below the
heading "Commitment Fee" in the pricing grid set forth on Annex II in
accordance with the parameters for calculations of such amount also set
forth on Annex II.
"Applicable Margin" means
(a) at all times prior to the first anniversary of the Closing
Date,
(i) with respect to Base Rate Loans, 2.25%; and
(ii) with respect to Offshore Rate Loans, 3.50%; and
(b) at all times on and after the first anniversary of the
Closing Date, with respect to Base Rate Loans and Offshore Rate Loans,
the amount set forth opposite the indicated Level below the heading
"Base Rate Spread" or "Offshore Rate Spread" in the
2.
<PAGE> 10
pricing grid set forth on Annex II in accordance with the parameters for
calculations of such amounts also set forth on Annex II.
"Assignee" has the meaning specified in subsection 10.08(a).
"Attorney Costs" means and includes all fees and disbursements of
any law firm or other external counsel, the allocated cost of internal
legal services and all disbursements of internal counsel.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. Section 101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BofA
in San Francisco, California, as its "reference rate." (The "reference
rate" is a rate set by BofA based upon various factors including BofA's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.) Any change in the
reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change.
"Base Rate Loan" means a Loan that bears interest based on the
Base Rate.
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Borrowing" means a borrowing hereunder consisting of Loans of
the same Type made to the Company on the same day by the Lenders under
Article II, and, other than in the case of Base Rate Loans, having the
same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.03.
"Business Day" means any day other than a Saturday, Sunday, Good
Friday or other day on which commercial banks in New York City or San
Francisco are authorized or required by law to close and, if the
applicable Business Day relates to any Offshore Rate Loan, means such a
day on which dealings are carried on in the London offshore Dollar
interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"CERCLA" has the meaning specified in the definition of
"Environmental Laws."
3.
<PAGE> 11
"Change of Control" means the occurrence of any of the following:
(a) any "person" or "group" (as such terms are used in subsections 13(d)
and 14(d) of the Exchange Act and the regulations thereunder) other than
the Transaction Shareholders or any group which includes any Transaction
Shareholder is or becomes on or after the Closing Date the "beneficial
owner" (as such term is used in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership"
of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of
time), directly or indirectly, of securities of Holdings representing
25% or more of the combined voting power of Holdings' then-outstanding
voting securities; (b) the Continuing Directors shall cease to
constitute at least a majority of the directors constituting the board
of directors of Holdings; or (c) Holdings shall cease to own and control
directly, of record and beneficially, 100% of each class of outstanding
capital stock of the Company free and clear of all Liens (other than any
Liens under the Collateral Documents).
"Closing Date" means the date occurring on or before December 18,
1998 on which all conditions precedent set forth in Section 4.01 are
satisfied or waived by all Lenders (or, in the case of subsection
4.01(e), waived by the Person entitled to receive such payment).
"Closing Date Transaction" has the meaning specified in the
definition of Transaction.
"Co-Agents" means Antares, in its capacity as documentation
agent, and ING, in its capacity as managing agent.
"Code" means the Internal Revenue Code of 1986
"Collateral" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by Holdings, the
Company, any Guarantor or other Subsidiary in or upon which a Lien now
or hereafter exists in favor of the Lenders, or the Agent on behalf of
the Lenders, the Lead Arranger or any Swap Provider whether under this
Agreement or under any Collateral Documents.
"Collateral Documents" means, collectively, (i) the Security
Agreement, the Mortgage(s) and all other security agreements, mortgages,
deeds of trust, patent and trademark assignments, lease assignments,
guarantees and other similar agreements between Holdings, the Company,
any Guarantor or any other Subsidiary and the Lenders, or the Agent for
the benefit of the Lenders, the Lead Arranger or any Swap Provider, now
or hereafter delivered to the Lenders or the Agent, pursuant to or in
connection with the transactions contemplated hereby, and all financing
statements (or comparable documents now or hereafter filed in accordance
with the Uniform Commercial Code or comparable law) against Holdings,
the Company, any Guarantor or any other Subsidiary as debtor in favor of
the Lenders, or the Agent for the benefit of the Lenders, the Lead
Arranger or any Swap Provider as secured party, and (ii) any amendments,
supplements,
4.
<PAGE> 12
modifications, renewals, replacements, consolidations, substitutions and
extensions of any of the foregoing.
"Commitment" means, for each Lender, the sum of its Revolving
Commitment and Term Commitment.
"Company Leverage Ratio" means, as of any date of determination,
the ratio of (a) Funded Debt on such date to (b) EBITDA for the period
of 12 months (or four fiscal quarters, as the case may be) ended on such
date, of the Company and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit C.
"Compliance Period" means any period of four consecutive fiscal
quarters for which any covenant set forth in Section 7.18 is measured.
"Consolidated Net Worth" means, as of any date of determination,
total assets on such date minus total liabilities on such date, of the
Company and its Subsidiaries on a consolidated basis, as determined in
accordance with GAAP.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of
another Person (the "primary obligor"), including any obligation of that
Person (i) to purchase, repurchase or otherwise acquire such primary
obligations or any security therefor, (ii) to advance or provide funds
for the payment or discharge of any such primary obligation, or to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor,
(iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary
obligation, (iv) in connection with any synthetic lease or other similar
off balance sheet lease transaction, or (v) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in
respect thereof (each, a "Guaranty Obligation"); (b) with respect to any
Surety Instrument issued for the account of that Person or as to which
that Person is otherwise liable for reimbursement of drawings or
payments; (c) to purchase any materials, supplies or other property
from, or to obtain the services of, another Person if the relevant
contract or other related document or obligation requires that payment
for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies
or other property is ever made or tendered, or such services are ever
performed or tendered; (d) all Earn-Out Obligations; or (e) in respect
of any Swap Contract. The amount of any Contingent Obligation shall, in
the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably
5.
<PAGE> 13
anticipated liability in respect thereof, and in the case of other
Contingent Obligations other than in respect of Swap Contracts, shall be
equal to the maximum reasonably anticipated liability in respect thereof
and, in the case of Contingent Obligations in respect of Swap Contracts,
shall be equal to the Swap Termination Value.
"Continuing Director" means, as of any date of determination, any
member of the board of directors of Holdings who (i) was a member of
such board of directors on the Closing Date or (ii) was nominated or
elected to such board of directors with the approval of a majority of
the directors constituting Continuing Directors who were members of such
board of directors at the time of such nomination or election.
"Contractual Obligation" means, as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument,
document or agreement to which such Person is a party or by which it or
any of its property is bound.
"Conversion/Continuation Date" means any date on which, under
Section 2.04, the Company (a) converts Loans of one Type to another
Type, or (b) continues as Loans of the same Type, but with a new
Interest Period, Loans having Interest Periods expiring on such date.
"D&T Subordinated Note" means, collectively, the Holdings
Subordinated Notes issued to Deloitte & Touche LLP.
"Default" means any event or circumstance which, with the giving
of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Disposition" means the sale, lease, conveyance or other
disposition of property, other than sales or other dispositions
expressly permitted under subsections 7.02(a) through 7.02(f).
"Dollars," "dollars" and "$" each mean lawful money of the United
States.
"Earn-Out Obligations" means any obligations, whether contingent
or matured, to pay additional consideration in connection with any
Acquisition by the Company or any Subsidiary (including any non-compete,
consulting and similar obligations not constituting reasonable
compensation for actual services rendered).
"EBITDA" of any Person means, for any period, net income plus
interest expense plus income tax expense plus depreciation expense,
amortization expense and other non-cash expenses plus extraordinary
losses minus extraordinary gains, in each case, which were deducted (or,
in the case of any extraordinary gains, added) in determining net
income, of such Person, as determined in accordance with GAAP. For
purposes of determining the consolidated EBITDA of the Company and its
Subsidiaries or Holdings and its Subsidiaries (except for purposes of
determining the Company's compliance with subsection 7.18(e), which
compliance shall be measured on the basis of the actual
6.
<PAGE> 14
consolidated EBITDA of the Company and its Subsidiaries for each of the
first four full fiscal quarters ending after the Closing Date), EBITDA
shall be calculated on the basis of the combined financial statements of
the Company and its Subsidiaries for the 12 months ended September 30,
1998, delivered to the Agent and the Lenders pursuant to subsection
4.01(l)(iv), as supplemented from time to time by the financial
statements delivered after the Closing Date pursuant to subsections
6.01(a), 6.01(b) and 6.01(c), until such time as the first day of any
rolling twelve month or four quarter period, as the case may be, for
which the Company's or Holding's consolidated EBITDA is calculated
hereunder falls on or after the Closing Date. For purposes of
determining the consolidated EBITDA of the Company and its Subsidiaries
or Holdings and its Subsidiaries in connection with the calculation of
the Company Leverage Ratio or the Holdings Leverage Ratio, and only to
the extent that (i) supporting financial information satisfactory to the
Majority Lenders shall have been received by the Agent and the Lenders
and (ii) the Majority Lenders shall have approved of the following
adjustments, Holdings' and the Company's consolidated EBITDA shall be
adjusted upon the Permitted Acquisition of any acquired Person (the
"Acquiree") (A) to include the historical financial results of such
Acquiree for each rolling twelve month or four quarter period, as the
case may be, for which Holdings' or the Company's consolidated EBITDA is
calculated hereunder, until such time as the first day of any such
rolling twelve month or four quarter period, as the case may be, falls
on or after the date on which the Acquisition of such Acquiree is
consummated; and (B) to exclude any specific, identifiable expense items
which are eliminated as a result of the Permitted Acquisition of such
Acquiree at the closing thereof. Notwithstanding clauses (i) and (ii) of
the immediately preceding sentence, if audited financial statements
accompanied by an unqualified opinion of an Independent Auditor are
delivered to the Agent and the Lenders in respect of an Acquiree for the
then most recent fiscal year of such Acquiree, then the approval of the
Majority Lenders shall not be required for pro forma additions to the
consolidated EBITDA of the Company or Holdings in respect of the
historical financial results of such Acquiree resulting from the
Permitted Acquisition of such Acquiree that comply in all respects with
the SEC Pro Forma Rules, provided that (i) the Company or Holdings, as
the case may be, shall have delivered a certificate of a Responsible
Officer clearly setting forth such pro forma additions to consolidated
EBITDA resulting from the Permitted Acquisition of such Acquiree and
certifying that such pro forma additions comply in all respects with the
SEC Pro Forma Rules, and (ii) no such pro forma additions to the
consolidated EBITDA of Holdings and its Subsidiaries or the Company and
its Subsidiaries, as the case may be, in respect of any Acquiree shall
exceed $5,000,000.
"Eligible Assignee" means (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (b) a commercial
bank organized under the laws of any other country which is a member of
the Organization for Economic Cooperation and Development (the "OECD"),
or a political subdivision of any such country, and having a combined
capital and surplus of at least $100,000,000, provided that such bank is
acting through a branch or agency located in the United States; (c) a
Person that is primarily engaged in the business of commercial banking
and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person
of which a Lender is a Subsidiary, or (iii) a Person of which a Lender
is a
7.
<PAGE> 15
Subsidiary and (d) any other entity which is an "accredited investor"
(as defined in Regulation D under the Exchange Act) which extends credit
or buys loans as one of its businesses, including insurance companies,
mutual funds and lease financing companies; provided that no Loan Party
or any Affiliate of any Loan Party shall be an Eligible Assignee.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural
resources damage, or otherwise alleging liability or responsibility for
damages (punitive or otherwise), cleanup, removal, remedial or response
costs, restitution, civil or criminal penalties, injunctive relief, or
other type of relief, resulting from or based upon the presence,
placement, discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from
Property, whether or not owned by any Loan Party (or Subsidiary
thereof).
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters; including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act
of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation
and Recovery Act, the Toxic Substances Control Act, the Emergency
Planning and Community Right-to-Know Act, the California Hazardous Waste
Control Law, the California Solid Waste Management, Resource, Recovery
and Recycling Act, the California Water Code and the California Health
and Safety Code.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the
Code for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year
in which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations which is treated as such a
withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by the Company or any ERISA Affiliate from a Multiemployer
Plan or notification that a Multiemployer Plan is in reorganization; (d)
the filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of
8.
<PAGE> 16
ERISA, or the commencement of proceedings by the PBGC to terminate a
Pension Plan or Multiemployer Plan; (e) an event or condition which
might reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the
Company or any ERISA Affiliate; in each case which could reasonably be
expected to result in liability to the Company in excess of $5,000,000.
"Estimated Remediation Costs" means all costs associated with
performing work to remediate contamination of real property or
groundwater, including engineering and other professional fees and
expenses, costs to remove, transport and dispose of contaminated soil,
costs to "cap" or otherwise contain contaminated soil, and costs to pump
and treat water and monitor water quality.
"Eurodollar Reserve Percentage" has the meaning specified in the
definition of "Offshore Rate."
"Event of Default" means any of the events or circumstances
specified in Section 8.01.
"Event of Loss" means, with respect to any property, any of the
following: (a) any loss, destruction or damage of such property; (b) any
pending or threatened institution of any proceedings for the
condemnation or seizure of such property or for the exercise of any
right of eminent domain; or (c) any actual condemnation, seizure or
taking, by exercise of the power of eminent domain or otherwise, of such
property, or confiscation of such property or the requisition of the use
of such property.
"Exchange Act" means the Securities Exchange Act of 1934.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York with
respect to the preceding Business Day opposite the caption "Federal
Funds (Effective)," or, if for any relevant day such rate is not so
published with respect to any such preceding Business Day, the rate for
such day will be the arithmetic mean as determined by the Agent of the
rates for the last transaction in overnight Federal funds arranged prior
to 9:00 a.m. (New York City time) on that day by each of three leading
brokers of Federal funds transactions in New York City selected by the
Agent.
"Fee Letter" means that certain letter agreement dated as of
November 25, 1998, among the Company, the Agent and the Lenders.
"Fixed Charge Coverage Ratio" has the meaning specified in
subsection 7.18(f).
9.
<PAGE> 17
"Founding Companies" means the Persons listed on Schedule 1.01,
which Persons will be acquired by the Company on the Closing Date, in
the case of part A thereof, and within 60 days thereafter, in the case
of part B thereof, pursuant to the Transaction.
"FRB" means the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal
functions.
"Funded Debt" of any Person means, without duplication, (a) all
interest-bearing Indebtedness of such Person (whether on- or off-balance
sheet), (b) all non-contingent obligations of such Person in respect of
any Surety Instrument, (c) all obligations of such Person with respect
to leases which are or should be capitalized on the balance sheet of
such Person in accordance with GAAP and (d) all Contingent Obligations
of such Person in respect of the Funded Debt of any other Person.
"Further Taxes" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or
similar charges (including net income taxes and franchise taxes), and
all liabilities with respect thereto, imposed by any jurisdiction on
account of amounts payable or paid pursuant to Section 3.01.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by
any of the foregoing.
"Guarantor" means Holdings and each Subsidiary of the Company
party to a Guaranty in its capacity as a guarantor hereunder.
"Guaranty" means the guaranty of each Guarantor made pursuant to
Section 10.12 and any other guaranty under any separate agreement
executed by any Guarantor pursuant to which it guarantees the
Obligations.
"Guaranty Obligation" has the meaning specified in the definition
of "Contingent Obligation."
"Hazardous Materials" means all those substances that are
regulated by, or which may form the basis of liability under, any
Environmental Law, including any substance identified under any
Environmental Law as a pollutant, contaminant, hazardous waste,
hazardous constituent, special waste, hazardous substance, hazardous
material, or toxic substance, or petroleum or petroleum derived
substance or waste.
"Holdings" means ProfitSource Corporation, a Delaware
corporation.
10.
<PAGE> 18
"Holdings Leverage Ratio" means, as of any date of determination,
the ratio of (a) Funded Debt on such date to (b) EBITDA for the period
of 12 months (or four fiscal quarters, as the case may be) ended on such
date, of Holdings and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"Holdings Note" means that certain Promissory Note dated the
Closing Date made by Holdings in favor of the Company.
"Holdings Subordinated Notes" means those certain Subordinated
Promissory Notes issued by Holdings pursuant to the Acquisition
Agreements.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (other
than trade payables entered into in the ordinary course of business on
ordinary terms); (c) all non-contingent reimbursement or payment
obligations with respect to Surety Instruments; (d) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or arising
under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to property acquired
by the Person (even though the rights and remedies of the seller or bank
under such agreement in the event of default are limited to repossession
or sale of such property); (f) all obligations with respect to capital
leases; (g) all non-contingent Earn-Out Obligations; (h) all
indebtedness referred to in clauses (a) through (g) above secured by (or
for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of
such Indebtedness; and (i) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in
clauses (a) through (h) above. For all purposes of this Agreement, the
Indebtedness of any Person shall include all recourse Indebtedness of
any partnership or joint venture or limited liability company in which
such Person is a general partner or a joint venturer or a member.
"Indemnified Liabilities" has the meaning specified in Section
10.05.
"Indemnified Person" has the meaning specified in Section 10.05.
"Independent Auditor" has the meaning specified in subsection
6.01(a).
"ING" means ING (U.S.) Capital Corporation, a Delaware
corporation.
"Insolvency Proceeding" means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit
11.
<PAGE> 19
of creditors, composition, marshalling of assets for creditors, or
other, similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, in either case undertaken under
U.S. Federal, state or foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Base
Rate Loan, the last day of each Interest Period applicable to such Loan
and, as to any Base Rate Loan, the last Business Day of each calendar
quarter and the Revolving Termination Date, in the case of Revolving
Loans, or the Term Loan Maturity Date, in the case of Term Loans,
provided, however, that if any Interest Period for an Offshore Rate Loan
exceeds three months, the date that falls three months after the
beginning of such Interest Period and after each Interest Payment Date
thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion /
Continuation Date on which the Loan is converted into or continued as an
Offshore Rate Loan, and ending on the date one, two, three or six months
thereafter as selected by the Company in its Notice of Borrowing or
Notice of Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, that Interest Period shall be extended to
the following Business Day unless the result of such extension
would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the
preceding Business Day;
(ii) any Interest Period pertaining to an Offshore Rate Loan
that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on
the last Business Day of the calendar month at the end of such
Interest Period;
(iii) no Interest Period for any Term Loan shall extend
beyond the Term Loan Maturity Date and no Interest Period for any
Revolving Loan shall extend beyond the Revolving Termination
Date; and
(iv) no Interest Period applicable to a Term Loan or portion
thereof shall extend beyond any date upon which is due any
scheduled principal payment in respect of the Term Loans unless
the aggregate principal amount of Term Loans represented by Base
Rate Loans, or by Offshore Rate Loans having Interest Periods
that will expire on or before such date, equals or exceeds the
amount of such principal payment.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
12.
<PAGE> 20
"Joint Venture" means a partnership, limited liability company,
joint venture or other similar legal arrangement (whether created by
contract or conducted through a separate legal entity) now or hereafter
formed by the Company or any of its Subsidiaries with another Person in
order to conduct a common venture or enterprise with such Person.
"Lead Arranger" means NationsBanc Montgomery Securities LLC, a
Delaware limited liability company.
"Lender" means the institutions specified in the introductory
clause hereto. Unless the context otherwise clearly requires, "Lender"
includes any such institution in its capacity as Swap Provider pursuant
to a Specified Swap Contract. Unless the context otherwise clearly
requires, references to any such institution as a "Lender" shall also
include any of such institution's Affiliates that may at any time of
determination be Swap Providers pursuant to Specified Swap Contracts.
"Lending Office" means, as to any Lender, the office or offices
of such Lender specified as its "Lending Office" or "Domestic Lending
Office" or "Offshore Lending Office," as the case may be, on Schedule
10.02, or such other office or offices as the Lender may from time to
time notify the Company and the Agent.
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as
debtor, under the Uniform Commercial Code or any comparable law) and any
contingent or other agreement to provide any of the foregoing, but not
including the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Lender to the Company
under Article II, and may be a Base Rate Loan or an Offshore Rate Loan
(each, a "Type" of Loan), and includes any Revolving Loan or Term Loan.
"Loan Documents" means this Agreement, any Notes, the Collateral
Documents, the Fee Letter, any documents evidencing or relating to
Specified Swap Contracts, and all other documents delivered to the Agent
or any Lender in connection with the transactions contemplated by this
Agreement.
"Loan Party" means the Company, Holdings and each Subsidiary
party hereto as a Guarantor.
"Majority Lenders" means at any time Lenders then holding in
excess of 50% of the sum of (a) the combined Revolving Commitments, or
if the Revolving Commitments
13.
<PAGE> 21
have been terminated, the then aggregate unpaid principal amount of the
Revolving Loans, plus (b) the combined Term Commitments, or if the Term
Commitments have been terminated, the then aggregate unpaid principal
amount of the Term Loans, or, if the Revolving Commitments and Term
Commitments have been terminated and no Loans are then outstanding,
Lenders then owed a Specified Swap Amount in excess of 50% of the
Aggregate Specified Swap Amount.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in,
or a material adverse effect upon, the operations, business, properties,
liabilities (whether actual or contingent), assets, condition (financial
or otherwise) or prospects of (i) the Company and its Subsidiaries taken
as a whole or (ii) as to Holdings and its Subsidiaries taken as a whole
or (iii) as to the Founding Companies; (b) a material impairment of the
ability of any Loan Party to perform under any Loan Document to which it
is a party and to avoid any Event of Default; or (c) a material adverse
effect upon (i) the legality, validity, binding effect or enforceability
against any Loan Party of any Loan Document to which it is a party, or
(ii) the perfection or priority of any Lien granted under any of the
Collateral Documents.
"Minimum Amount" means (i) in respect of any Borrowing,
conversion or continuation of Loans, (A) in the case of Base Rate Loans,
an aggregate minimum amount of $5,000,000 or any integral multiple of
$1,000,000 in excess thereof, and (B) in the case of Offshore Rate
Loans, an aggregate minimum amount of $5,000,000 or any integral
multiple of $1,000,000 in excess thereof, (ii) in the case of any
reduction of the Commitments under Section 2.05, an aggregate minimum
amount of $5,000,000 or any integral multiple of $1,000,000 in excess
thereof, and (iii) in the case of any optional prepayment of Loans under
Section 2.06, an aggregate minimum amount of $1,000,000 or any multiple
of $1,000,000 in excess thereof.
"Mortgage" means any deed of trust, mortgage, leasehold mortgage,
assignment of rents or other document creating a Lien on real property
or any interest in real property.
"Mortgaged Property" means all property subject to a Lien
pursuant to a Mortgage.
"Multiemployer Plan" means a "multiemployer plan," within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any
ERISA Affiliate makes, is making, or is obligated to make contributions
or, during the preceding three calendar years, has made, or been
obligated to make, contributions.
"Net Issuance Proceeds" means, as to any issuance of debt or
equity by any Person, cash proceeds received or receivable by such
Person in connection therewith, net
14.
<PAGE> 22
of reasonable out-of-pocket costs and expenses paid or incurred in
connection therewith in favor of any Person not an Affiliate of such
Person.
"Net Proceeds" means, (a) as to any Disposition by a Person,
proceeds in cash, checks or other cash equivalent financial instruments
as and when received by such Person, net of: (i) the direct costs
relating to such Disposition excluding amounts payable to such Person or
any Affiliate of such Person, (ii) sale, use or other transaction taxes
and capital gains taxes paid or payable by such Person as a direct
result thereof, and (iii) amounts required to be applied to repay
principal, interest and prepayment premiums and penalties on
Indebtedness secured by a purchase money security interest on the asset
which is the subject of such Disposition; and (b) proceeds paid on
account of any Event of Loss, net of (i) all money actually and
reasonably promptly applied to repair or reconstruct the damaged
property or property affected by the condemnation or taking, (ii) all of
the costs and expenses reasonably incurred in connection with the
collection of such proceeds, award or other payments, and (iii) any
amounts retained by or paid to parties having superior rights to such
proceeds, awards or other payments. For purposes of determining the
amount of Net Proceeds in respect of any Disposition or Event of Loss,
however, the amount of proceeds calculated as provided above shall be
reduced by the amount of such proceeds that such Person has used (or
intends to use within six months of the date of receipt of such
proceeds) to repair, rebuild or replace all or any part of the assets in
respect of which such proceeds were received, it being understood that
any portion of such proceeds that has not been so used within such six
month period shall be deemed to be Net Proceeds received on the last day
of such six month period.
"Note" means a promissory note executed by the Company in favor
of a Lender pursuant to subsection 2.02(b), in substantially the form of
Exhibit F-1, in the case of Revolving Loans, and in the form of Exhibit
F-2, in the case of Term Loans.
"Notice of Borrowing" means a notice in substantially the form of
Exhibit A.
"Notice of Conversion / Continuation" means a notice in
substantially the form of Exhibit B.
"Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by the Company to any Lender, the Agent, or any Indemnified Person,
whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter
arising.
"Offshore Rate" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/100th of 1%) determined
by the Agent as follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
15.
<PAGE> 23
Where:
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on
such day (whether or not applicable to any Lender) under
regulations issued from time to time by the FRB for determining
the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect
to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"); and
"LIBOR" means the rate of interest per annum determined by
the Agent to be the arithmetic mean (rounded upward to the next
1/16th of 1%) of the rates of interest per annum notified to the
Agent as the rate of interest at which Dollar deposits in the
approximate amount of the amount of the Loan to be made or
continued as, or converted into, an Offshore Rate Loan and having
a maturity comparable to such Interest Period would be offered by
BofA to major banks in the London interbank market at their
request at approximately 11:00 a.m. (London time) two Business
Days prior to the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on
the Offshore Rate.
"Organization Documents" means, for any Person, the certificate
or articles of incorporation, the bylaws, the partnership agreement, the
limited liability company agreement or operating agreement, any
certificate of determination or instrument relating to the rights of
preferred shareholders of such Person, any shareholder rights agreement,
any other applicable organizational or constitutional documents and all
applicable resolutions of the board of directors (or any committee
thereof) of such Person.
"Other Taxes" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Documents.
"Participant" has the meaning specified in subsection 10.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
"Perfection Certificate" means a certificate, in form and
substance satisfactory to the Agent, providing certain information
relating to the Loan Parties and the Collateral.
16.
<PAGE> 24
"Pension Plan" means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA which the Company sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a multiple employer plan (as described
in Section 4064(a) of ERISA) has made contributions at any time during
the immediately preceding five (5) plan years.
"Permitted Acquisition" means any Acquisition (other than any
Acquisition included in the Closing Date Transaction) that conforms to
the following requirements: (a) the assets, Person, division or line of
business to be acquired is in a substantially similar or related line of
business as the Company, (b) the Agent and the Lenders shall have
received, no less than 10 Business Days prior to the consummation of
such Acquisition, reasonably adequate financial information regarding
the assets, Person or business to be acquired, including the most recent
audited financial statements, if available, but in any case the most
recently prepared balance sheet, statement of income and statement of
cash flows for the assets, Person or business to be acquired and pro
forma projected financial statements showing the effect of the
Acquisition of the assets, Person or business on the Company, including
a balance sheet for the Company and its Subsidiaries as of the time of
the Acquisition and projected statements of income and cash flows for
the Company and its Subsidiaries through at least the Revolving
Termination Date, (c) all transactions related to such Acquisition shall
be consummated in accordance with applicable Requirements of Law, (d)
such Acquisition shall be non-hostile in nature and not involve any
transaction subject to Section 13(d) or 14(d) of the Exchange Act, (e)
the prior, effective written consent or approval to such Acquisition of
the board of directors or equivalent governing body of the acquiree is
obtained, (f) immediately after giving effect to such Acquisition: (i)
no Default or Event of Default shall have occurred and be continuing or
would result therefrom, (ii) 100% of the capital stock of any acquired
or newly formed corporation, partnership, limited liability company or
other business entity is owned directly by the Company or a U.S.
Wholly-Owned Subsidiary of the Company, and all actions required to be
taken, if any, with respect to such acquired or newly formed Subsidiary
under Section 6.14 or as otherwise required under Section 6.15 shall
have been taken, (iii) there shall be at least $5,000,000 of
availability under the Revolving Commitments for Borrowings of Revolving
Loans, and (iv) (A) the Company shall be in compliance, on a pro forma
basis after giving effect to such Acquisition, with the covenants
contained in Section 7.18 recomputed as of the last day of the most
recently ended fiscal quarter of the Company as if such Acquisition had
occurred on the first day of each relevant period for testing such
compliance, and the Company shall have delivered to the Agent a
certificate of a Responsible Officer of the Company to such effect,
together with all relevant financial computations evidencing such
compliance, (B) if all or any part of the consideration for such
Acquisition shall be financed directly or indirectly by one or more
Borrowings hereunder, then the Company Leverage Ratio, measured as of
the end of the most recent fiscal quarter on a pro forma basis after
giving effect to such Acquisition, shall not be more than 2.00 to 1.00,
and the Holdings Leverage Ratio, measured as of the end of the most
recent fiscal quarter on a pro forma basis after giving effect to such
Acquisition, shall not be more than 3.50 to 1.00; provided, however,
that the preceding clause (iv) shall not apply to
17.
<PAGE> 25
any Secondary Acquisition, and (C) any acquired or newly formed
Subsidiary shall not be liable for any Indebtedness other than
Indebtedness permitted under Section 7.05, (g) the assets, Person or
business to be acquired shall have had an EBITDA equal to or greater
than zero for the then most recent period of 12 fiscal months ended
prior to the consummation of such Acquisition, and (h) in the case of
any Significant Acquisition (other than any Secondary Acquisition), (i)
any Earn-Out Obligations constituting all or a portion of the
consideration for such Acquisition shall be on terms satisfactory to the
Majority Lenders, and (ii) the Majority Lenders, shall have otherwise
consented in writing to the consummation of such Acquisition.
"Permitted Liens" has the meaning specified in Section 7.01.
"Permitted New Subordinated Debt" has the meaning specified in
Section 7.05(g).
"Permitted Swap Obligations" means all obligations (contingent or
otherwise) of the Company or any Subsidiary existing or arising under
Swap Contracts, provided that each of the following criteria is
satisfied: (a) such obligations are (or were) entered into by such
Person in the ordinary course of business for the purpose of directly
mitigating risks associated with liabilities, commitments or assets held
by such Person, or changes in the value of securities issued by such
Person in conjunction with a securities repurchase program not otherwise
prohibited hereunder, and not for purposes of speculation or taking a
"market view;" (b) such Swap Contracts do not contain (i) any provision
("walk-away" provision) exonerating the non-defaulting party from its
obligation to make payments on outstanding transactions to the
defaulting party, or (ii) with respect to any Swap Contract that is not
a Specified Swap Contract, any provision creating or permitting the
declaration of an event of default, termination event or similar event
upon the occurrence of an Event of Default hereunder (other than an
Event of Default under subsection 8.01(a)) and (c) a perfected security
interest in such Person's rights and interests to and in such Swap
Contracts has been granted, and exists, in favor of the Agent, for the
benefit of the Lenders, as collateral for the Obligations.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority, or
any other entity of whatever nature.
"Plan" means an employee benefit plan (as defined in Section 3(3)
of ERISA) which the Company sponsors or maintains or to which the
Company makes, is making, or is obligated to make contributions and
includes any Pension Plan.
"Pledged Shares" has the meaning specified in the Security
Agreement.
"Principal Installment" means such amount of principal of the
Term Loans that is due and payable on any Principal Payment Date.
"Principal Payment Date" has the meaning specified in subsection
2.08(a).
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<PAGE> 26
"Pro Rata Share" means, as to any Lender at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of (a) in the case of the Revolving
Commitments or the Revolving Loans, such Lender's Revolving Commitment
divided by the combined Revolving Commitments of all Lenders (or, if all
Revolving Commitments have been terminated, the aggregate principal
amount of such Lender's Revolving Loans divided by the aggregate
principal amount of the Revolving Loans then held by all Lenders), and
(b) in the case of the Term Commitments or the Term Loans, such Lender's
Term Commitment divided by the combined Term Commitments of all Lenders
(or, if all Term Commitments have been terminated, the aggregate
principal amount of such Lender's Term Loans divided by the aggregate
principal amount of Term Loans then held by all Lenders). The initial
Pro Rata Share of each Lender is set forth opposite such Lender's name
in Schedule 2.1 under the heading "Pro Rata Share."
"Related Person" means, with respect to any natural person, (i)
such person's spouse, parents and descendants (whether by blood or
adoption and including stepchildren) and the spouses of any such natural
persons and (ii) any corporation, partnership, trust or other Person in
which no one has any interest (directly or indirectly) except for any of
such natural person, such spouse, parents and descendants and the
spouses of any such natural persons.
"Replacement Lender" has the meaning specified in Section 3.07.
"Reportable Event" means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law (statutory
or common), treaty, rule or regulation or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of
its property is subject.
"Responsible Officer" means, as to any Person, the chief
executive officer or the president of such Person, or any other officer
having substantially the same authority and responsibility; or, with
respect to compliance with financial covenants, the chief financial
officer or the treasurer of such Person, or any other officer having
substantially the same authority and responsibility.
"Revolving Commitment," as to each Lender, has the meaning
specified in subsection 2.01(b).
"Revolving Loan" has the meaning specified in Section 2.01.
"Revolving Termination Date" means the earlier to occur of:
(a) June 14, 2001; and
19.
<PAGE> 27
(b) the date on which the Commitments terminate in accordance
with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SEC Pro Forma Rules" means the SEC's requirements, as set forth
in Regulation S-X promulgated by the SEC, for the preparation of pro
forma financial statements and the making of pro forma adjustments in
connection therewith.
"Secondary Acquisition" means any Acquisition by the Company or
any Subsidiary of the Company of any Person identified on part B of
Schedule 1.01; provided that any such Acquisition shall be a Secondary
Acquisition only if such Acquisition is consummated not later than 60
days after the Closing Date.
"Security Agreement" means a security agreement in substantially
the form of Exhibit G.
"Significant Acquisition" means (a) any Acquisition by the
Company or any Subsidiary in respect of which cash or cash equivalents
and/or assumption and/or incurrence of Indebtedness exceeding
$10,000,000 in the aggregate constitutes all or a portion of the
consideration therefor, and (b) any Acquisition by the Company or any
Subsidiary at any time that cash or cash equivalents and/or assumption
and/or incurrence of Indebtedness exceeding $20,000,000 in the aggregate
has constituted (or, immediately after giving effect to such
Acquisition, shall have constituted) all or a portion of the
consideration for all Acquisitions by the Company and its Subsidiaries
consummated in the then current fiscal year.
"Solvent" means, as to any Person at any time, that (a) the fair
value of the property of such Person is greater than the amount of such
Person's liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 101(31) of the Bankruptcy Code and, in the
alternative, for purposes of the California Uniform Fraudulent Transfer
Act; (b) the present fair saleable value of the property of such Person
is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to realize upon its property and pay
its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of
business; (d) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature; and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's property would constitute
unreasonably small capital.
"Specified Swap Amount" means, at any time, in respect of
Specified Swap Contracts to which any Swap Provider is party, the Swap
Termination Value relating
20.
<PAGE> 28
thereto; provided that for purposes of this definition, any Swap
Termination Value that is negative as to (i.e., owing by) any Swap
Provider shall be deemed equal to zero (0).
"Specified Swap Contract" means any Swap Contract made or entered
into at any time, or in effect at any time (whether heretofore or
hereafter), whether directly or indirectly, and whether as a result of
assignment or transfer or otherwise, between the Company and any Swap
Provider which Swap Contract is or was intended by the Company to have
been entered into, in part or entirely, for purposes of mitigating
interest rate or currency exchange risk relating to any Loan (which
intent shall conclusively be deemed to exist if the Company so
represents to the Swap Provider in writing), and as to which the final
scheduled payment by the Company is not later than the Revolving
Termination Date.
"Subordinated Debt" means the Holdings Subordinated Notes and any
Permitted New Subordinated Debt.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
"Surety Instruments" means all letters of credit (including
standby and commercial), bankers acceptances, bank guaranties, shipside
bonds, surety bonds and similar instruments.
"Swap Contract" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity
index swap or option, bond, note or bill option, interest rate option,
forward foreign exchange transaction, cap, collar or floor transaction,
currency swap, cross-currency rate swap, swaption, currency option or
any other, similar transaction (including any option to enter into any
of the foregoing) or any combination of the foregoing, and, unless the
context otherwise clearly requires, any master agreement relating to or
governing any or all of the foregoing.
"Swap Provider" means any Lender, or any Affiliate of any Lender,
that is at the time of determination party to a Specified Swap Contract
with the Company or any Subsidiary.
"Swap Termination Value" means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for
any date on or after the date such Swap Contracts have been closed out
and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date referenced
in clause (a) the
21.
<PAGE> 29
amount(s) determined as the mark-to-market value(s) for such Swap
Contracts, as determined by the Company based upon one or more
mid-market or other readily available quotations provided by any
recognized dealer in such Swap Contracts (which may include any Lender.)
"Tax Sharing Agreement" means that certain Tax Sharing Agreement
dated as of December 11, 1998, by and among Holdings and its
Subsidiaries.
"Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the
case of each Lender and the Agent, respectively, taxes imposed on or
measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Lender or the Agent,
as the case may be, is organized or maintains a Lending Office.
"Term Commitment," as to each Lender, has the meaning specified
in subsection 2.01(a).
"Term Loan" has the meaning specified in Section 2.01.
"Term Loan Maturity Date" means June 14, 2001.
"Transaction" means (a) the following events occurring
simultaneously on the Closing Date: (i) the Acquisition by the Company
of the Founding Companies identified on part A of Schedule 1.01, (ii)
the issuance of the Holdings Subordinated Notes and shares of Holdings'
common stock to owners, officers, directors and employees of such
Founding Companies (such events, the "Closing Date Transaction"); and
(b) the following events occurring not later than 60 days after the
Closing Date: (i) the Acquisition by the Company of the Founding
Companies identified on Part B of Schedule 1.01, and (ii) the issuance
of the Holdings Subordinated Notes and shares of Holdings' common stock
to owners, officers, directors and employees of such Founding Companies.
"Transaction Documents" means (i) the documents and instruments
evidencing any Subordinated Debt and the issuance of the shares of
common stock of Holdings in connection with the Transaction and all
related stockholder agreements and (ii) the Acquisition Agreements.
"Transaction Shareholders" means those Persons obtaining shares
of Holdings' common stock on the Closing Date or pursuant to a Secondary
Acquisition and all Related Persons of such Persons.
"Type" has the meaning specified in the definition of "Loan."
"UCC" means the Uniform Commercial Code as in effect in the State
of California.
22.
<PAGE> 30
"Unfunded Pension Liability" means the excess of a Pension Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current
value of that Pension Plan's assets, determined in accordance with the
assumptions used for funding the Pension Plan pursuant to Section 412 of
the Code for the applicable plan year.
"United States" and "U.S." each means the United States of
America.
"U.S. Subsidiary" and "U.S. Wholly-Owned Subsidiary" means a
Subsidiary or Wholly-Owned Subsidiary, as the case may be, that is
located in and a resident of the United States.
"Wholly-Owned Subsidiary" means any corporation in which (other
than directors' qualifying shares required by law) 100% of the capital
stock of each class having ordinary voting power, 100% of the capital
stock of every other class and all warrants, options or other rights to
acquire capital stock of any class, in each case, at the time as of
which any determination is being made, is owned, beneficially and of
record, by the Company, or by one or more of the other Wholly-Owned
Subsidiaries, or both.
1.02 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding," and the word
"through" means "to and including."
(iv) The term "property" includes any kind of property or asset,
real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
23.
<PAGE> 31
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Lenders by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Company
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Lenders or the Agent merely because of the
Agent's or Lenders' involvement in their preparation.
1.03 Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied; provided, however, that, if GAAP shall have been
modified after the Closing Date and the application of such modified GAAP shall
have a material effect on such financial computations (including the
computations required for the purpose of determining compliance with the
financial covenants set forth herein), then such computations shall be made and
such financial statements, certificates and reports shall be prepared, and all
accounting terms not otherwise defined herein shall be construed, in accordance
with GAAP as in effect prior to such modification, unless and until the Majority
Lenders and the Company shall have agreed upon the terms of the application of
such modified GAAP.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company.
ARTICLE II
THE CREDITS
2.01 Amounts and Terms of Commitments
(a) The Term Credit. Each Lender severally agrees, on the terms and
conditions set forth herein, to make a single loan to the Company (each such
loan, a "Term Loan") on the Closing Date in an amount not to exceed the amount
set forth opposite such Lender's name on Schedule 2.01 under the heading "Term
Commitment" (such amount, such Lender's "Term Commitment") . Amounts borrowed as
Term Loans which are repaid or prepaid by the Company may not be reborrowed.
24.
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(b) The Revolving Credit. Each Lender severally agrees, on the terms
and conditions set forth herein, to make loans to the Company (each such loan, a
"Revolving Loan") from time to time on any Business Day during the period from
the Closing Date to the Revolving Termination Date, in an aggregate amount not
to exceed at any time outstanding the amount set forth opposite such Lender's
name on Schedule 2.01 under the heading "Revolving Commitment" (such amount as
the same may be reduced under Section 2.05 or reduced or increased as a result
of one or more assignments under Section 10.08, such Lender's "Revolving
Commitment"); provided, however, that, after giving effect to any Borrowing of
Revolving Loans, the aggregate principal amount of all outstanding Revolving
Loans, together with the aggregate principal amount of all Term Loans
outstanding at such time, shall not at any time exceed the Aggregate Commitment.
Within the limits of each Lender's Revolving Commitment, and subject to the
other terms and conditions hereof, the Company may borrow under this subsection
2.01(b), prepay under Section 2.06 and reborrow under this subsection 2.01(b).
2.02 Loan Accounts.
(a) The Loans made by each Lender shall be evidenced by one or more
loan accounts or records maintained by such Lender in the ordinary course of
business. The loan accounts or records maintained by the Agent and each Lender
shall be conclusive absent manifest error/rebuttable presumptive evidence of the
amount of the Loans made by the Lenders to the Company and the interest and
payments thereon. Any failure so to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Company hereunder to
pay any amount owing with respect to the Loans.
(b) Upon the request of any Lender made through the Agent, the Loans
made by such Lender may be evidenced by one or more Notes, instead of or in
addition to loan accounts. Each such Lender shall endorse on the schedules
annexed to its Note(s) the date, amount and maturity of each Loan made by it and
the amount of each payment of principal made by the Company with respect
thereto. Each such Lender is irrevocably authorized by the Company to endorse
its Note(s) and each Lender's record shall be conclusive absent manifest error;
provided, however, that the failure of a Lender to make, or an error in making,
a notation thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Company hereunder or under any such Note to such Lender.
2.03 Procedure for Borrowing.
(a) Each Borrowing shall be made upon the Company's irrevocable
written notice delivered to the Agent in the form of a Notice of Borrowing
(which notice must be received by the Agent prior to 9:00 a.m. (San Francisco
time) (i) at least three Business Days prior to the requested Borrowing Date, in
the case of Offshore Rate Loans; and (ii) on the requested Borrowing Date, in
the case of Base Rate Loans, specifying:
(i) the amount of the Borrowing, which shall be in a Minimum
Amount;
(ii) the requested Borrowing Date, which shall be a Business Day;
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(iii) the Type of Loans comprising the Borrowing and whether
Revolving Loans or Term Loans are requested; and
(iv) the duration of the Interest Period applicable to such Loans
included in such notice (subject to the provisions of the definition of
"Interest Period" herein). If the Notice of Borrowing fails to specify
the duration of the Interest Period for any Borrowing comprised of
Offshore Rate Loans, such Interest Period shall be three months;
provided, however, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
11:00 a.m. (San Francisco time) one Business Day prior to the Closing Date and
such Borrowing will consist of Base Rate Loans only; and further provided that
if so requested by the Agent, all Borrowings during the first three months
following the Closing Date shall have the same Interest Period and shall be Base
Rate Loans or Offshore Rate Loans for Interest Periods no longer than one month.
(b) The Agent will promptly notify each Lender of its receipt of any
Notice of Borrowing and of the amount of such Lender's Pro Rata Share of that
Borrowing.
(c) Each Lender will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Company at the Agent's
Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date
requested by the Company in funds immediately available to the Agent. The
proceeds of all such Borrowings will then be made available to the Company by
the Agent at such office by crediting the account of the Company on the books of
BofA with the aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent, or if requested by the
Company, by wire transfer in accordance with written instructions provided to
the Agent by the Company of such funds as received by the Agent, unless on the
date of the Borrowing all or any portion of the proceeds thereof shall then be
required to be applied to the repayment of any outstanding Loans, in which case
such proceeds or portion thereof shall be applied to the payment of such Loans.
(d) After giving effect to any Borrowing, unless the Agent shall
otherwise consent, there may not be more than eight different Interest Periods
in effect.
2.04 Conversion and Continuation Elections.
(a) The Company may, upon irrevocable written notice to the Agent in
accordance with subsection 2.04(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the
case of any other Type of Loans, to convert any such Loans (or any part
thereof in a Minimum Amount) into Loans of any other Type; or
(ii) elect, as of the last day of the applicable Interest Period,
to continue any Loans having Interest Periods expiring on such day (or
any part thereof in a Minimum Amount);
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provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $5,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Company to continue such Loans as, and convert such Loans into, Offshore
Rate Loans shall terminate.
(b) The Company shall deliver a Notice of Conversion / Continuation
to be received by the Agent not later than 9:00 a.m. (San Francisco time) (i) at
least three Business Days in advance of the Conversion / Continuation Date, if
the Loans are to be converted into or continued as Offshore Rate Loans; and (ii)
on the Conversion / Continuation Date, if the Loans are to be converted into
Base Rate Loans, specifying:
(i) the proposed Conversion / Continuation Date;
(ii) the aggregate amount of Loans to be converted or continued;
(iii) the Type of Loans resulting from the proposed conversion or
continuation; and
(iv) other than in the case of conversions into Base Rate Loans,
the duration of the requested Interest Period (subject to the provisions
of the definition of "Interest Period" herein).
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, or if any Default or Event
of Default then exists, the Company shall be deemed to have elected to convert
such Offshore Rate Loans into Base Rate Loans effective as of the expiration
date of such Interest Period.
(d) The Agent will promptly notify each Lender of its receipt of a
Notice of Conversion / Continuation, or, if no timely notice is provided by the
Company, the Agent will promptly notify each Lender of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Lender.
(e) Unless the Majority Lenders otherwise consent, during the
existence of a Default or Event of Default, the Company may not elect to have a
Loan converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
unless the Agent shall otherwise consent, there may not be more than eight
different Interest Periods in effect.
2.05 Voluntary Termination or Reduction of Commitments. The Company may,
upon not less than five Business Days' prior notice to the Agent, terminate the
Revolving Commitments, or permanently reduce the Revolving Commitments, provided
that the aggregate amount of any partial reduction is in a Minimum Amount;
unless, after giving effect thereto and
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to any prepayments of Loans made on the effective date thereof, the
then-outstanding principal amount of the Revolving Loans would exceed the amount
of the combined Revolving Commitments then in effect. Once reduced in accordance
with this Section, the Revolving Commitments may not be increased. Any reduction
of the Revolving Commitments shall be applied to each Lender according to its
Pro Rata Share. All accrued commitment fees to, but not including the effective
date of any reduction or termination of Revolving Commitments, shall be paid on
the effective date of such reduction or termination.
2.06 Optional Prepayments. Subject to Section 3.04, the Company may, at
any time or from time to time, upon irrevocable notice to the Agent, by no later
than 9:00 a.m. (San Francisco Time) (a) three Business Days prior to the date of
such prepayment in the case of prepayment of Offshore Rate Loans, and (b) on the
date of such prepayment in the case of prepayment of Base Rate Loans, ratably
prepay Loans in whole or in part, in Minimum Amounts. Such notice of prepayment
shall specify the date and amount of such prepayment and the Type(s) of Loans to
be prepaid and whether such prepayment is of Revolving Loans or Term Loans (or a
combination thereof). The Agent will promptly notify each Lender of its receipt
of any such notice, and of such Lender's Pro Rata Share of such prepayment. If
such notice is given by the Company, the Company shall make such prepayment and
the payment amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to each such date on the
amount of Offshore Rate Loans prepaid and any amounts required pursuant to
Section 3.04. Optional prepayments of the Term Loans shall be applied pro rata
to the Principal Installments.
2.07 Mandatory Prepayments of Loans; Mandatory Commitment Reductions.
(a) Asset Dispositions. If the Company or any Subsidiary shall at
any time or from time to time make or agree to make a Disposition, or shall
suffer an Event of Loss, then (i) the Company shall promptly notify the Agent in
advance of such Disposition or promptly upon the occurrence of such Event of
Loss (including the amount of the estimated Net Proceeds to be received by the
Company or such Subsidiary in respect thereof) and (ii) if, after giving effect
to such Disposition or Event of Loss, the Net Proceeds of all Dispositions and
Events of Loss which have occurred in such fiscal year are greater than
$5,000,000 in the aggregate, then promptly upon, and in no event later than one
day after, receipt by the Company or the Subsidiary of the Net Proceeds of such
Disposition or Event of Loss, the Company shall prepay Term Loans in an
aggregate amount equal to the amount of all Net Proceeds received by the Company
or any Subsidiary on account of all Dispositions and Events of Loss which have
occurred in such fiscal year less the amount, if any, of Net Proceeds already so
applied in such fiscal year. Such prepayments shall be applied pro rata to the
Principal Installments.
(b) Equity or Debt Issuance. If Holdings shall issue new equity or
issue any debt securities or otherwise incur any additional Indebtedness for
borrowed money, in each case for cash consideration in excess of $1,000,000,
Holdings shall promptly notify the Agent of the estimated Net Issuance Proceeds
of such issuance or the amount of the proceeds of such additional Indebtedness,
as the case may be, to be received by Holdings in respect thereof. Promptly
upon, and in no event later than one day after, receipt by Holdings of Net
Issuance Proceeds of such issuance of new equity or debt securities or the
proceeds of such additional
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Indebtedness, as the case may be, Holdings shall pay to the Company in the form
of a capital contribution the lesser of (i) 100% of the amount of such Net
Issuance Proceeds or the proceeds of such additional Indebtedness, as the case
may be, and (ii) the then outstanding aggregate principal balance of the Term
Loans, and the Company shall on the same day prepay the Term Loans in an
aggregate amount equal to the amount of such Net Issuance Proceeds or proceeds
of such additional Indebtedness so contributed to the Company by Holdings, to be
applied pro rata to the Principal Installments.
(c) General. Any prepayments pursuant to this Section 2.07 shall be
subject to Section 3.04 and applied first to any Base Rate Loans then
outstanding and then to Offshore Rate Loans with the shortest Interest Periods
remaining; provided, however, that if the amount of Base Rate Loans then
outstanding is not sufficient to satisfy the entire prepayment requirement, the
Company may, at its option, place any amounts which it would otherwise be
required to use to prepay Offshore Rate Loans on a day other than the last day
of the Interest Period therefor in an interest-bearing account pledged to the
Agent for the benefit of the Lenders until the end of such Interest Period at
which time such pledged amounts will be applied to prepay such Offshore Rate
Loans. The Company shall pay, together with each prepayment under this Section
2.07, accrued interest on the amount of any Offshore Rate Loans prepaid and any
amounts required pursuant to Section 3.04.
2.08 Repayment.
(a) The Term Credit. The Company shall repay to the Agent for the
account of the Lenders the aggregate principal amount of the Term Loans on each
date and in such amounts as follows (each such payment date a "Principal Payment
Date") : (i) on the last Business Day of each calendar quarter, commencing on
March 31, 1999, a quarterly principal installment of $1,500,000, and (ii) on the
Term Loan Maturity Date, the aggregate principal amount of Term Loans
outstanding on such date.
(b) The Revolving Credit. The Company shall repay to the Agent for
the account of the Lenders on the Revolving Termination Date the aggregate
principal amount of Revolving Loans outstanding on such date.
2.09 Interest.
(a) Each Loan shall bear interest on the outstanding principal
amount thereof from the applicable Borrowing Date at a rate per annum equal to
the Offshore Rate or the Base Rate, as the case may be (and subject to the
Company's right to convert to other Types of Loans under Section 2.04) , plus
the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Offshore Rate Loans under Section 2.06 or 2.07 for the portion of the Offshore
Rate Loans so prepaid and upon payment (including prepayment) in full thereof
and, during the existence of any Event of Default, interest shall be paid on
demand of the Agent at the request or with the consent of the Majority Lenders.
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(c) Notwithstanding subsection (a) of this Section, while any Event
of Default exists or after acceleration, the Company shall pay interest (after
as well as before entry of judgment thereon to the extent permitted by law) on
the principal amount of all outstanding Obligations, at a rate per annum which
is determined by adding 2% per annum to the Applicable Margin then in effect for
such Loans and, in the case of Obligations not subject to an Applicable Margin,
at a rate per annum equal to the Base Rate plus the Applicable Margin then in
effect for Base Rate Loans plus 2% per annum; provided, however, that, on and
after the expiration of any Interest Period applicable to any Offshore Rate Loan
outstanding on the date of occurrence of such Event of Default or acceleration,
the principal amount of such Loan shall, during the continuation of such Event
of Default or after acceleration, bear interest at a rate per annum equal to the
Base Rate plus the Applicable Margin then in effect for Base Rate Loans plus 2%
per annum.
(d) Anything herein to the contrary notwithstanding, the obligations
of the Company to any Lender hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Lender would be contrary to the provisions of
any law applicable to such Lender limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Lender, and in such
event the Company shall pay such Lender interest at the highest rate permitted
by applicable law.
2.10 Fees.
(a) Agency and Other Fees. The Company shall pay an agency fee and
such other fees to the Agent, the Lead Arranger and the Documentation Agent for
their own account, as required by Fee Letter.
(b) Commitment Fees. The Company shall pay to the Agent for the
account of each Lender a commitment fee on the actual daily unused portion of
such Lender's Revolving Commitment, computed on a quarterly basis in arrears on
the last Business Day of each calendar quarter based upon the daily utilization
for that quarter as calculated by the Agent, equal to (i) 0.50% per annum for
the period from and including the Closing Date through the first anniversary
thereof, and (ii) a rate per annum equal to the Applicable Fee Amount
thereafter. Such commitment fee shall accrue from the Closing Date to the
Revolving Termination Date and shall be due and payable quarterly in arrears on
the last Business Day of each calendar quarter commencing on December 31, 1998
through the Revolving Termination Date, with the final payment to be made on the
Revolving Termination Date; provided that, in connection with any termination of
Commitments under Section 2.05, the accrued commitment fee calculated for the
period ending on such date shall also be paid on the date of such termination,
with the following quarterly payment being calculated on the basis of the period
from such termination date to such quarterly payment date. The commitment fees
provided in this subsection shall accrue at all times after the above-mentioned
commencement date, including at any time during which one or more conditions in
Article IV are not met.
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2.11 Computation of Fees and Interest.
(a) All computations of interest for Base Rate Loans when the Base
Rate is determined by BofA's "reference rate" shall be made on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed. All other
computations of fees and interest shall be made on the basis of a 360-day year
and actual days elapsed (which results in more interest being paid than if
computed on the basis of a 365-day year) . Interest and fees shall accrue during
each period during which interest or such fees are computed from the first day
thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be
conclusive and binding on the Company and the Lenders in the absence of manifest
error. The Agent will, at the request of the Company or any Lender, deliver to
the Company or such Lender, as the case may be, a statement showing the
quotations used by the Agent in determining any interest rate and the resulting
interest rate.
2.12 Payments by the Company.
(a) All payments to be made by the Company shall be made without
set-off, recoupment or counterclaim. Except as otherwise expressly provided
herein, all payments by the Company shall be made to the Agent for the account
of the Lenders at the Agent's Payment Office, and shall be made in Dollars and
in immediately available funds, no later than 11:00 a.m. (San Francisco time) on
the date specified herein. The Agent will promptly distribute to each Lender its
Pro Rata Share (or other applicable share as expressly provided herein) of such
payment in like funds as received. Any payment received by the Agent later than
11:00 a.m. (San Francisco time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Company prior to the
date on which any payment is due to the Lenders that the Company will not make
such payment in full as and when required, the Agent may assume that the Company
has made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required) , in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Company has not made such
payment in full to the Agent, each Lender shall repay to the Agent on demand
such amount distributed to such Lender, together with interest thereon at the
Federal Funds Rate for each day from the date such amount is distributed to such
Lender until the date repaid.
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2.13 Payments by the Lenders to the Agent.
(a) Unless the Agent receives notice from a Lender on or prior to
the Closing Date or, with respect to any Borrowing after the Closing Date, at
least one Business Day prior to the date of such Borrowing, that such Lender
will not make available as and when required hereunder to the Agent for the
account of the Company the amount of that Lender's Pro Rata Share of the
Borrowing, the Agent may assume that each Lender has made such amount available
to the Agent in immediately available funds on the Borrowing Date and the Agent
may (but shall not be so required) , in reliance upon such assumption, make
available to the Company on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount available to the Agent in
immediately available funds and the Agent in such circumstances has made
available to the Company such amount, that Lender shall on the Business Day
following such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such period. A
notice of the Agent submitted to any Lender with respect to amounts owing under
this subsection (a) shall be conclusive, absent manifest error. If such amount
is so made available, such payment to the Agent shall constitute such Lender's
Loan on the date of Borrowing for all purposes of this Agreement. If such amount
is not made available to the Agent on the Business Day following the Borrowing
Date, the Agent will notify the Company of such failure to fund and, upon demand
by the Agent, the Company shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any Borrowing Date
shall not relieve any other Lender of any obligation hereunder to make a Loan on
such Borrowing Date, but no Lender shall be responsible for the failure of any
other Lender to make the Loan to be made by such other Lender on any Borrowing
Date.
2.14 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder) , such Lender shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Lenders such participations in the
Loans made by them as shall be necessary to cause such purchasing Lender to
share the excess payment pro rata with each of them; provided, however, that if
all or any portion of such excess payment is thereafter recovered from the
purchasing Lender, such purchase shall to that extent be rescinded and each
other Lender shall repay to the purchasing Lender the purchase price paid
therefor, together with an amount equal to such paying Lender's ratable share
(according to the proportion of (i) the amount of such paying Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. the Company agrees that any Lender so
purchasing a participation from another Lender may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off, but subject to Section 10.10) with respect to such participation as
fully as if such Lender were the direct creditor of the Company in the amount of
such participation. The Agent will keep records (which shall be
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conclusive and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Lenders following
any such purchases or repayments.
2.15 Security and Guaranty.
(a) All obligations of the Company and each other Loan Party under
this Agreement and all other Loan Documents to which it is a party shall be
secured in accordance with the Collateral Documents.
(b) All obligations of the Company under this Agreement, each of the
Notes and all other Loan Documents to which it is a party shall be
unconditionally guaranteed by each Guarantor pursuant to its Guaranty.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Any and all payments by the Company to each Lender or the Agent
under this Agreement and any other Loan Document shall be made free and clear
of, and without deduction or withholding for, any Taxes, except as provided in
subsections 3.01(b) and (g) below. In addition, the Company shall pay all Other
Taxes.
(b) If the Company shall be required by law to deduct or withhold
any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, then (except as provided in subsection
3.01(g) below):
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section), such Lender or the Agent, as the case may be, receives
and retains an amount equal to the sum it would have received and
retained had no such deductions or withholdings been made;
(ii) the Company shall make such deductions and withholdings;
(iii) the Company shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Company shall also pay to each Lender or the Agent for
the account of such Lender, at the time interest is paid, Further Taxes
in the amount that the respective Lender specifies as necessary to
preserve the after-tax yield such Lender would have received if such
Taxes, Other Taxes or Further Taxes had not been imposed.
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(c) The Company agrees to indemnify and hold harmless each Lender
and the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii)
Further Taxes in the amount that the respective Lender specifies as necessary to
preserve the after-tax yield such Lender would have received if such Taxes,
Other Taxes or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were
correctly or legally asserted (except for Taxes and Further Taxes for which the
Company is not responsible under subsection 3.01(g) below). Payment under this
indemnification shall be made within 30 days after the date such Lender or the
Agent makes written demand therefor.
(d) Within 30 days after the date of any payment by the Company of
Taxes, Other Taxes or Further Taxes, the Company shall furnish to each Lender or
the Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Lender or the Agent.
(e) If the Company is required to pay any amount to any Lender or
the Agent pursuant to subsection (b) or (c) of this Section, then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Company which may thereafter accrue, if such change in
the sole judgment of such Lender is not otherwise disadvantageous to such
Lender.
(f) Nothing contained in this Section 3.01 shall override any term
or provision of any Specified Swap Contract regarding withholding taxes relating
to Swap Contracts.
(g) For any period with respect to which a Lender has failed to
provide the Company or the Agent with the appropriate form as required by
Section 9.10(a) (whether or not such Lender is lawfully able to do so, unless
such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Lender shall not be entitled to indemnification under this
Section 3.01 with respect to Taxes imposed on such Lender; provided that if a
Lender, which is otherwise exempt from withholding tax, becomes subject to Taxes
because of its failure to deliver a form required hereunder, the Loan Parties
shall take such steps as such Lender shall reasonably request, at the Lender's
expense, to assist such Lender to recover such Taxes.
(h) Each Lender represents and warrants to the Agent and the Company
as of the date hereof that under applicable law and treaties no tax will be
required to be withheld by the Company or the Agent with respect to any payments
to be made to such Lender hereunder.
3.02 Illegality.
(a) If any Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central Lender or other Governmental Authority has
asserted that it is unlawful, for any Lender or its applicable Lending Office to
make Offshore Rate Loans, then, on notice thereof by such Lender to the Company
through the
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Agent, any obligation of that Lender to make Offshore Rate Loans shall be
suspended until such Lender notifies the Agent and the Company that the
circumstances giving rise to such determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any
Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact
and demand from such Lender (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Lender then outstanding, together with interest
accrued thereon and amounts required under Section 3.04, either on the last day
of the Interest Period thereof, if such Lender may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if such Lender may not
lawfully continue to maintain such Offshore Rate Loan. If the Company is
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Company shall borrow from the affected Lender, in the amount of
such repayment, a Base Rate Loan.
(c) If the obligation of any Lender to make or maintain Offshore
Rate Loans has been so terminated or suspended, the Company may elect, by giving
notice to such Lender through the Agent that all Loans which would otherwise be
made by such Lender as Offshore Rate Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Agent under this Section, the
affected Lender shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of such Lender, be
illegal or otherwise disadvantageous to such Lender.
3.03 Increased Costs and Reduction of Return.
(a) If any Lender determines that, due to either (i) the
introduction of or any change (other than any change by way of imposition of or
increase in reserve requirements included in the calculation of the Offshore
Rate) in or in the interpretation of any law or regulation or (ii) the
compliance by that bank with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any Offshore Rate Loans, then the Company shall be liable
for, and shall from time to time, within 10 days after demand (with a copy of
such demand to be sent to the Agent), pay to the Agent for the account of such
Lender, additional amounts as are sufficient to compensate such Lender for such
increased costs.
(b) If any Lender shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
such Lender (or its Lending Office) or any corporation controlling such Lender
with any Capital Adequacy Regulation, affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy and such Lender's
desired return on capital) determines that the amount of such
35.
<PAGE> 43
capital is increased as a consequence of its Commitments, loans, credits or
obligations under this Agreement, then, within 10 days after demand of such
Lender to the Company through the Agent, the Company shall pay to such Lender,
from time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender for such increase.
(c) Before giving any notice to the Agent under this Section, the
affected Lender shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of such Lender, be
illegal or otherwise disadvantageous to such Lender.
3.04 Funding Losses. the Company shall reimburse each Lender and hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of:
(a) the failure of the Company to make on a timely basis any payment
of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or convert a Loan
after the Company has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion / Continuation;
(c) the failure of the Company to make any prepayment in accordance
with any notice delivered under Section 2.06;
(d) the prepayment (including pursuant to Section 2.06 or 2.07 or in
connection with a substitution of any Lender pursuant to Section 3.07 or the
syndication of the Loans after the Closing Date) or other payment (including
after acceleration thereof) of an Offshore Rate Loan on a day that is not the
last day of the relevant Interest Period; or
(e) the conversion under Section 2.04 of any Offshore Rate Loan to a
Base Rate Loan on a day that is not the last day of the relevant Interest
Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained (but excluding
loss of margin) . For purposes of calculating amounts payable by the Company to
the Lenders under this Section and under subsection 3.03(a) , each Offshore Rate
Loan made by a Lender (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at the LIBOR used
in determining the Offshore Rate for such Offshore Rate Loan by a matching
deposit or other borrowing in the interbank eurodollar market for a comparable
amount and for a comparable period, whether or not such Offshore Rate Loan is in
fact so funded.
3.05 Inability to Determine Rates. If the Agent or the Majority Lenders
determine that for any reason adequate and reasonable means do not exist for
determining the Offshore Rate for any requested Interest Period with respect to
a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to
subsection 2.09(a) for any requested Interest Period with respect to a proposed
Offshore Rate Loan does not adequately and fairly reflect the cost to the
Lenders of funding such Loan, the Agent will promptly so notify the Company and
each Lender.
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Thereafter, the obligation of the Lenders to make or maintain Offshore Rate
Loans hereunder shall be suspended until the Agent upon the instruction of the
Majority Lenders revokes such notice in writing. Upon receipt of such notice,
the Company may revoke any Notice of Borrowing or Notice of Conversion /
Continuation then submitted by it. If the Company does not revoke such Notice,
the Lenders shall make, convert or continue the Loans, as proposed by the
Company, in the amount specified in the applicable notice submitted by the
Company, but such Loans shall be made, converted or continued as Base Rate Loans
instead of Offshore Rate Loans.
3.06 Certificates of Lenders. Any Lender claiming reimbursement or
compensation under this Article III shall deliver to the Company (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to such Lender hereunder and such certificate shall be conclusive and binding on
the Company in the absence of manifest error.
3.07 Substitution of Lenders. Upon the receipt by the Company from any
Lender (an "Affected Lender") of a claim for compensation under Section 3.01 or
Section 3.03, the Company may: (i) request one or more of the other Lenders to
acquire and assume all or part of such Affected Lender's Loans and Commitment;
or (ii) designate a replacement commercial bank (which shall be an Eligible
Assignee) satisfactory to the Company to acquire and assume all or a ratable
part of such Affected Lender's Loans and Commitment (a "Replacement Lender");
provided, however, that the Company shall be liable for the payment upon demand
of all costs and other amounts arising under Section 3.04 that result from the
acquisition of any Affected Lender's Loan and/or Commitment (or any portion
thereof) by a Lender or Replacement Lender, as the case may be, on a date other
than the last day of the applicable Interest Period with respect to any Offshore
Rate Loan then outstanding. Any such designation of a Replacement Lender under
clause (ii) shall be effected in accordance with, and subject to the terms and
conditions of, the assignment provisions contained in Section 10.08, and shall
in any event be subject to the prior written consent of the Agent (which consent
shall not be unreasonably withheld).
3.08 Survival. The agreements and obligations of the Company in this
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 Conditions of Initial Loans. The obligation of each Lender to make
its initial Loan hereunder is subject to the condition that the Agent shall have
received on or before the Closing Date all of the following, in form and
substance satisfactory to the Agent and each Lender, and in sufficient copies
for each Lender:
(a) Credit Agreement and Notes. This Agreement executed by each
party thereto and Notes executed by the Company for the Lenders requesting
Notes;
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(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of directors or
equivalent governing body of each Loan Party authorizing the
transactions contemplated hereby and by each other Loan Document to
which such Loan Party is a party, certified as of the Closing Date by
the Secretary or an Assistant Secretary (or other appropriate officer or
official) of such Person; and
(ii) A certificate of the Secretary or Assistant Secretary of
each Loan Party, dated the Closing Date, certifying the names, titles
and true signatures of the officers of such Loan Party authorized to
execute, deliver and perform, as applicable, this Agreement, and all
other Loan Documents to be delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of the following
documents:
(i) the articles or certificate of incorporation and the bylaws
(or other equivalent Organization Documents) of Holdings and the Company
as in effect on the Closing Date, certified by the Secretary or
Assistant Secretary of such Person as of the Closing Date; and
(ii) a good standing and tax good standing certificate for each
Loan Party from the Secretary of State (or similar, applicable
Governmental Authority) of its state of incorporation and each state
where such Person is qualified to do business as a foreign corporation
as of a recent date;
(d) Legal Opinions.
(i) an opinion of Gibson, Dunn & Crutcher, counsel to Holdings
and the Company and addressed to the Agent and the Lenders, dated the
Closing Date, substantially in the form of Exhibit D; and
(ii) copies of the closing legal opinions delivered to Holdings
pursuant to the Acquisition Agreements, together with reliance letters
permitting the Agent and the Lenders to rely on such opinions as though
they were the addressees thereof, in form and substance satisfactory to
the Agent and the Lenders.
(e) Payment of Fees. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, including any fees referenced in Section 2.10 and all costs
and expenses payable under Section 10.04 to the extent such costs and expenses
are invoiced prior to or on the Closing Date, plus such additional amounts of
costs and expenses as shall constitute a reasonable estimate of costs and
expenses payable under Section 10.04 incurred or to be incurred through the
closing proceedings (provided that such estimate shall not thereafter preclude
final settling of accounts between the Company and any Persons entitled to
payment or reimbursement under Section 10.04);
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(f) Collateral Documents. The Collateral Documents, executed by the
each Loan Party required to be a party thereto, in appropriate form for
recording, where necessary, together with:
(i) acknowledgment copies of all UCC-l financing statements
filed, registered or recorded to perfect the security interests of the
Agent for the benefit of the Lenders, or other evidence satisfactory to
the Agent that there has been filed, registered or recorded (or
arrangements made with a reputable filing service to file, register or
record) all financing statements and other filings, registrations and
recordings necessary and advisable to perfect the Liens of the Agent for
the benefit of the Lenders in accordance with applicable law;
(ii) written advice relating to such Lien and judgment searches
as the Agent shall have requested, and such termination statements or
other documents as may be necessary to confirm that the Collateral is
subject to no other Liens in favor of any Persons (other than Permitted
Liens);
(iii) all certificates and instruments representing the Pledged
Shares, together with stock transfer powers executed in blank as the
Agent or the Lenders may specify; and
(iv) evidence that all other actions necessary or, in the opinion
of the Agent or the Lenders, desirable to perfect and protect the first
priority Lien created by the Collateral Documents, and to enhance the
Agent's ability to preserve and protect its interests in and access to
the Collateral, have been taken;
(g) Insurance Policies. Evidence that the Agent has been named as
loss payee under all policies of casualty insurance under a Form 438FBFU or
other standard lender's loss payable endorsement, and as additional insured
under all policies of liability insurance, required in accordance with Section
6.06 and the Collateral Documents, together with a certificate of insurance as
to all insurance coverage on the properties of the Loan Parties;
(h) Perfection Certificate. A Perfection Certificate from the
Company (as to each Loan Party);
(i) Certificate. A certificate signed by a Responsible Officer of
each Loan Party, dated as of the Closing Date, stating that:
(i) the representations and warranties contained in Article V are
true and correct on and as of such date, as though made on and as of
such date;
(ii) no Default or Event of Default exists or would result from
the initial Borrowing; and
(iii) there has occurred since September 30, 1998, no event or
circumstance that has resulted or could reasonably be expected to result
in a Material Adverse Effect;
<PAGE> 47
(j) Issuance of Holdings Subordinated Notes, Etc. (i) A certificate
of a Responsible Officer of Holdings certifying as to the issuance of the
Holdings Subordinated Notes and shares of Holdings' common stock for aggregate
consideration of not less than $60,000,000; and (ii) copies of all documentation
relating to the Holdings Subordinated Notes, including all subordination
agreements relating thereto, all of which shall be in form and substance
satisfactory to the Agent and the Lenders;
(k) Solvency. After giving effect to the Transaction, Holdings and
its Subsidiaries, on a consolidated basis, and the Company and its Subsidiaries,
on a consolidated basis, shall be Solvent, and the Agent and the Lenders shall
have received a certificate to that effect from a Responsible Officer of
Holdings and the Company;
(l) Financial Information. The Agent and each Lender shall have
received and reviewed to their satisfaction (i) all available historical
financial results for the Founding Companies, which results shall have been
prepared in accordance with GAAP and include but not be limited to audited
financial statements for the fiscal year ended December 31, 1997, for such
Founding Companies making up at least 60% of pro forma EBITDA of the Company and
its Subsidiaries after giving effect to the Acquisitions of all of the Founding
Companies; (ii) a pro forma balance sheet for the Company and its Subsidiaries
as of the Closing Date, after giving effect to the Acquisitions of the Founding
Companies, prepared in accordance with GAAP by independent public accountants
acceptable to the Agent and the Lenders; (iii) interim summary combined balance
sheet and statement of income of the Company and its Subsidiaries for the nine
months ended September 30, 1998, together with the report of Ernst & Young
relating thereto; (iv) summary combined income statements of the Company and its
Subsidiaries for the twelve months ended September 30 ,1998, but without giving
effect to any Secondary Acquisition, which shall be in form and substance
satisfactory to the Agent and the Lenders and accompanied by a certificate of a
Responsible Officer of the Company certifying that such combined income
statements were prepared in accordance with GAAP (except as otherwise specified
in such combined income statements), are complete and accurate in all material
respects and fairly present the financial performance of the Company and its
Subsidiaries for such 12-month period; (v) detailed financial projections
through at least the Revolving Termination Date, including but not limited to
balance sheets, income and cash flow statements, prepared in accordance with
GAAP, reflecting management's assumptions regarding future financial and
operating performance of the Company and its Subsidiaries; and (vi) such other
financial information relating to Holdings, the Company or any of its
Subsidiaries as the Agent, any Lender or the Lead Arranger may reasonably
require, including, in such form and detail as shall be satisfactory to the
Agent, the Lead Arranger and each Lender, a schedule or schedules showing all
adjustments made to the historical financial results of the Founding Companies
for purposes of preparing the pro forma financial statements of the Company and
its Subsidiaries delivered to the Agent, the Lead Arranger and each Lender
pursuant to this subsection 4.01(l);
(m) Acquisition Documents, Etc. The Agent and the Lenders shall have
received a certificate of a Responsible Officer of Holdings and the Company
certifying that (i) all conditions precedent to the consummation of the Closing
Date Transaction have been satisfied other than the payment of cash
consideration to the sellers of the Founding Companies
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<PAGE> 48
included in the Closing Date Transaction, (ii) the merger agreements,
acquisition agreements and/or asset purchase agreements (the "Acquisition
Agreements") evidencing the Acquisition by the Company of the Founding Companies
shall not have been amended, supplemented or otherwise modified except as
disclosed to the Agent and the Lenders, and (iii) the Acquisition of the
Founding Companies (other than any Secondary Acquisition) by the Company shall
have been consummated, or shall be consummated simultaneously with the initial
Borrowing hereunder, in accordance with all Requirements of Law and in
accordance with the terms of the Acquisition Agreements referenced in the
preceding clause (ii).
(n) Pro Forma Compliance with Financial Covenants. The Agent and the
Lenders shall have received a certificate of a Responsible Officer of the
Company certifying that the Company shall be in pro forma compliance with
Section 7.18, and its other Indebtedness and financial obligations, immediately
after giving effect to the Closing Date Transaction and the initial Borrowing
hereunder; and
(o) Other Documents. Such other approvals, opinions, documents or
materials as the Agent or any Lender may reasonably request.
4.02 Conditions to All Borrowings. The obligation of each Lender to make
any Loan to be made by it (including its initial Loan) is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date:
(a) Notice of Borrowing. The Agent shall have received a Notice of
Borrowing;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article V shall be true and correct on and as
of such Borrowing Date with the same effect as if made on and as of such
Borrowing Date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date), taking into account any amendments to the Schedules
and other disclosures made in writing by the Company to the Agent and the
Lenders after the Closing Date and approved by the Agent and the Majority
Lenders.
(c) No Existing Default. No Default or Event of Default shall exist
or shall result from such Borrowing; and
(d) No Material Adverse Effect There has occurred since September
30, 1998, no event or circumstance that has resulted or could reasonably be
expected to result in a Material Adverse Effect.
Each Notice of Borrowing submitted by the Company hereunder shall constitute a
representation and warranty by the Company hereunder, as of the date of each
such notice and as of each Borrowing Date, that the conditions in this Section
4.02 are satisfied.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Agent and each Lender
that:
5.01 Corporate Existence and Power Such Loan Party and each of its
Subsidiaries:
(a) is a corporation, limited liability company or partnership duly
organized or formed, as the case may be, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals (i) to own its assets and carry on its
business and (ii) to execute, deliver, and perform its obligations under the
Loan Documents and Transaction Documents to which it is a party;
(c) is duly qualified, licensed and in good standing under the laws
of each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, license or good standing;
and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (b)(i), clause (c) or clause (d) of this Section, to
the extent that the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
5.02 Corporate Authorization; No Contravention. The execution, delivery
and performance by such Loan Party of this Agreement and each other Loan
Document or Transaction Document to which such Loan Party is party, have been
duly authorized by all necessary corporate action, and do not and will not:
(a) contravene the terms of any of such Loan Party's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or
the creation of any Lien under, any document evidencing any Contractual
Obligation to which such Loan Party or any of its Subsidiaries is a party or any
order, injunction, writ or decree of any Governmental Authority to which such
Person or its property is subject; or
(c) violate any Requirement of Law.
5.03 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings or filings in connection with the
Liens granted to the Agent under the Collateral Documents) is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, such Loan Party of this Agreement or any other Loan
Document or Transaction Document to which it is a party.
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5.04 Binding Effect. This Agreement and each other Loan Document to
which such Loan Party or any of its Subsidiaries is a party constitute the
legal, valid and binding obligations of such Loan Party and any of its
Subsidiaries to the extent it is a party thereto, enforceable against such
Person in accordance with their respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles relating
to enforceability.
5.05 Litigation. Except as specifically disclosed in Schedule 5.05,
there are no actions, suits, proceedings, claims or disputes pending, or to the
best knowledge of such Loan Party, threatened or contemplated, at law, in
equity, in arbitration or before any Governmental Authority, against such Loan
Party, or its Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document or Transaction Document, or any of the transactions contemplated hereby
or thereby; or
(b) if determined adversely to such Loan Party or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect. No injunction,
writ, temporary restraining order or any order of any nature has been issued by
any court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document,
or directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
5.06 No Default. No Default or Event of Default exists or would result
from the incurring, directly or indirectly of any Obligations by such Loan
Party, whether as borrower or guarantor thereof, or from the grant or perfection
of the Liens of the Agent and the Lenders on the Collateral. Neither such Loan
Party, whether as borrower or guarantor thereof, nor any Subsidiary of such Loan
Party is in default under or with respect to any Contractual Obligation in any
respect which, individually or together with all such defaults, could reasonably
be expected to have a Material Adverse Effect, or that would create an Event of
Default under subsection 8.01(e).
5.07 ERISA Compliance. Except as specifically disclosed in Schedule
5.07:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS, or has applied for such
determination within the applicable remedial amendment period under Section
401(b) of the Code, and to the best knowledge of such Loan Party, nothing has
occurred which would cause the loss of such qualification. Such Loan Party and
each ERISA Affiliate has made all required contributions to any Plan subject to
Section 412 of the Code, and no application for a funding waiver or an extension
of any amortization period pursuant to Section 412 of the Code has been made
with respect to any Plan.
43.
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(b) There are no pending or, to the best knowledge of such Loan
Party, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability in excess of
$5,000,000; (iii) neither such Loan Party nor any ERISA Affiliate has incurred,
or reasonably expects to incur, any liability under Title IV of ERISA with
respect to any Pension Plan (other than premiums due and not delinquent under
Section 4007 of ERISA); (iv) neither such Loan Party nor any ERISA Affiliate
has incurred, or reasonably expects to incur, any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
5.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Section 6.12
and Section 7.07. No Loan Party is generally engaged in the business of
purchasing or selling Margin Stock or extending credit for the purpose of
purchasing or carrying Margin Stock.
5.09 Title to Properties; Liens. Such Loan Party and each of its
Subsidiaries have good record and marketable title in fee simple to, or valid
leasehold interests in, all real property necessary or used in the ordinary
conduct of their respective businesses, except for such defects in title as
could not, individually or in the aggregate, have a Material Adverse Effect. The
property of such Loan Party and its Subsidiaries is subject to no Liens, other
than Permitted Liens.
5.10 Taxes. Such Loan Party and its Subsidiaries have filed all Federal
and other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against such Loan
Party or any of its Subsidiaries that would, if made, have a Material Adverse
Effect.
5.11 Financial Condition. (a) The audited and unaudited consolidated
balance sheets of Holdings and its Subsidiaries delivered to the Lenders
hereunder as of the end of each fiscal year, fiscal quarter or fiscal month, as
the case may be, and in each case the related consolidated statements of income
or operations for the fiscal period ended on that date:
44.
<PAGE> 52
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein, subject to ordinary, good faith year end audit adjustments in the case
of quarterly and monthly financial statements; and
(ii) are complete and accurate in all material respects and
fairly present the financial condition of Holdings and its Subsidiaries as of
the date thereof and results of operations and cash flows for the period covered
thereby;
(b) The audited or reviewed financial statements of certain Founding
Companies dated December 31, 1997, and identified on Schedule 5.11(b), and the
related statements of income or operations for the fiscal year ended on that
date, the interim summary combined balance sheet and statement of income of the
Company and its Subsidiaries for the nine months ended September 30, 1998, and
the summary combined income statements of the Company and its Subsidiaries for
the 12 months ended September 30, 1998:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein, subject to ordinary, good faith year end audit adjustments in the case
of quarterly financial statements;
(ii) are complete and accurate in all material respects and
fairly present the financial condition of the Founding Companies as of the date
thereof and results of operations and cash flows for the period covered thereby;
and
(iii) except as specifically disclosed in Schedule 5.11, show
all material Indebtedness and other liabilities, direct or contingent, of the
Founding Companies as of the date thereof, including liabilities for taxes,
material commitments and Contingent Obligations.
(c) The pro forma financial statements of the Company and its
Subsidiaries referred to in subsection 4.01(1) were prepared in accordance with
GAAP, are complete and accurate in all material respects and fairly present the
pro forma financial condition of the Company and its Subsidiaries as of the date
thereof, and the financial projections also referred to in subsection 4.01(1)
represent the Company's best estimates and assumptions as to future performance,
which the Company believes to be fair and reasonable as of the time made in the
light of current and reasonably foreseeable business conditions.
(d) Since September 30, 1998, there has not been, nor is it
reasonably likely that there will be, any Material Adverse Effect.
5.12 Environmental Matters.
(a) Except as specifically disclosed in Schedule 5.12, the ongoing
operations of such Loan Party and each of its Subsidiaries comply in all
respects with all Environmental Laws, except such non-compliance which would not
(if enforced in accordance with applicable law) result in liability in excess of
$1,000,000 in the aggregate.
45.
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(b) Except as specifically disclosed in Schedule 5.12, such Loan
Party and each of its Subsidiaries have obtained all licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for their respective ordinary course
operations, all such Environmental Permits are in good standing, and such Loan
Party and each of its Subsidiaries are in compliance with all material terms and
conditions of such Environmental Permits.
(c) Except as specifically disclosed in Schedule 5.12 or pursuant to
Section 6.03, neither such Loan Party nor any of its Subsidiaries or any of
their respective present property or operations, is subject to any outstanding
written order from or agreement with any Governmental Authority (except for
routine agreements in the ordinary course of business) , nor subject to any
judicial or docketed administrative proceeding, respecting any Environmental
Law, Environmental Claim or Hazardous Material.
(d) Except as specifically disclosed in Schedule 5.12, there are no
Hazardous Materials or other conditions or circumstances existing with respect
to any property of such Loan Party or any of its Subsidiaries, or arising from
operations prior to the Closing Date, of such Loan Party or any of its
Subsidiaries that would reasonably be expected to give rise to Environmental
Claims with a potential liability of such Loan Party and its Subsidiaries in
excess of $1,000,000 in the aggregate for any such condition, circumstance or
property. In addition, (i) neither such Loan Party nor any of its Subsidiaries
has any underground storage tanks (x) that are not properly registered or
permitted under applicable Environmental Laws, or (y) that are leaking or
disposing of Hazardous Materials off-site, and (ii) such Loan Party and its
Subsidiaries have notified all of their employees of the existence, if any, of
any health hazard arising from the conditions of their employment and have met
all notification requirements under Title III of CERCLA and all other
Environmental Laws.
5.13 Collateral Documents. (a) The provisions of each of the Collateral
Documents are effective to create in favor of the Agent for the benefit of the
Lenders, a legal, valid and enforceable first priority security interest in all
right, title and interest of such Loan Party in the Collateral described therein
subject only to Permitted Liens; and financing statements have been filed in the
offices in all of the jurisdictions listed in the schedule to the Security
Agreement.
(b) Each Mortgage (if any) when delivered under Section 6.15 will be
effective to grant to the Agent for the benefit of the Lenders a legal, valid
and enforceable mortgage lien on all the right, title and interest of the
mortgagor under such Mortgage in the mortgaged property described therein. When
each such Mortgage is duly recorded in the offices listed on the schedule to
such Mortgage and the mortgage recording fees and taxes in respect thereof are
paid and compliance is otherwise had with the formal requirements of state law
applicable to the recording of real estate mortgages generally, each such
mortgaged property, subject to the encumbrances and exceptions to title set
forth therein and except as noted in the title policies delivered to the Agent
pursuant to Section 6.15, will be subject to a legal, valid, enforceable and
perfected first priority deed of trust; and when financing statements have been
filed in the offices specified in such Mortgage, such Mortgage also will create
a legal, valid, enforceable and perfected first lien on, and security interest
in, all right, title and interest of the Company or such Subsidiary (as the case
may be) under such Mortgage in all personal property and fixtures which
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is covered by such Mortgage, subject to no other Liens, except the encumbrances
and exceptions to title set forth therein and except as noted in the title
policies delivered to the Agent pursuant to Section 6.15, and Permitted Liens.
(c) All representations and warranties of such Loan Party and any of
its Subsidiaries party thereto contained in the Collateral Documents are true
and correct.
5.14 Regulated Entities. None of Holdings, the Company, any Person
controlling the Company, or any Subsidiary, is an "Investment Company" within
the meaning of the Investment Company Act of 1940. No Loan Party is not subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
5.15 No Burdensome Restrictions. Neither such Loan Party nor any of its
Subsidiaries is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, which
could reasonably be expected to have a Material Adverse Effect.
5.16 Copyrights, Patents, Trademarks and Licenses, Etc. Such Loan Party
or its Subsidiaries own or are licensed or otherwise have the right to use all
of the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person that could be expected to have a Material Adverse Effect. To
the best knowledge of such Loan Party, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by such Loan Party or any of its Subsidiaries
infringes upon any rights held by any other Person. Except as specifically
disclosed in Schedule 5.05, no claim or litigation regarding any of the
foregoing is pending or, to the best knowledge of such Loan Party, threatened,
which, in either case, could reasonably be expected to have a Material Adverse
Effect.
5.17 Subsidiaries. As of the Closing Date, Holdings and the Company have
no Subsidiaries other than those specifically disclosed in part (a) of Schedule
5.17 and has no equity investments in any other Person other than those
specifically disclosed in part (b) of Schedule 5.17. The Company is a
Wholly-Owned Subsidiary of Holdings and each of the Company's Subsidiaries is a
Wholly-Owned Subsidiary, except as disclosed on Schedule 5.17.
5.18 Insurance. Except as specifically disclosed in Schedule 5.18, the
properties of such Loan Party and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of such Loan Party, in
such amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where such Loan Party or such Subsidiary operates.
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5.19 Solvency. Such Loan Party is Solvent.
5.20 Swap Obligations. Neither such Loan Party nor any of its
Subsidiaries has incurred any outstanding obligations under any Swap Contracts,
other than Permitted Swap Obligations. Such Loan Party has undertaken its own
independent assessment of its consolidated assets, liabilities and commitments
and has considered appropriate means of mitigating and managing risks associated
with such matters and has not relied on any Swap Provider or any Affiliate of
any Swap Provider in determining whether to enter into any Swap Contract.
5.21 Full Disclosure. None of the representations or warranties made by
such Loan Party or any of its Subsidiaries in the Loan Documents or Transaction
Documents as of the date such representations and warranties are made or deemed
made, and none of the statements contained in any exhibit, report, statement or
certificate furnished or made available by or on behalf of such Loan Party or
any of its Subsidiaries in connection with the Loan Documents or Transaction
Documents (including the offering and disclosure materials delivered by or on
behalf of such Loan Party to the Lenders prior to the Closing Date), contains
any untrue statement of a material fact or, when considered as a whole, omits
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered; provided that to the
extent any such information, report, financial statement, exhibit or schedule
was based upon or constitutes a forecast or projection, such Loan Party
represents only that it acted in good faith and utilized reasonable assumptions
and due care in the preparation of such information, report, financial
statement, exhibit or schedule (it being understood that forecasts and
projections by their nature involve approximations and uncertainties).
5.22 Year 2000. On the basis of representations and warranties set forth
in the Acquisition Agreements and due diligence inquiries in connection
therewith, such Loan Party reasonably believes the "Year 2000 problem" (that is,
the inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999), including costs of remediation,
will not result in a Material Adverse Effect. Such Loan Party and its
Subsidiaries are in the process of developing feasible contingency plans
intended to ensure uninterrupted and unimpaired business operation in the event
of a material failure of their own or a third party's systems or equipment due
to the Year 2000 problem, including those of vendors, customers, and suppliers,
as well as a general failure of or interruption in its communications and
delivery infrastructure.
5.23 Representations and Warranties Contained in the Acquisition
Agreements. The Acquisition Agreements are in full force and effect, no term or
condition thereof has been amended, waived or modified, except as may have been
consented to in writing by the Majority Lenders or as permitted hereunder, the
parties thereto have performed all material obligations required to be performed
thereunder and no notice of termination or intent to terminate shall have been
given by any party thereto. All representations and warranties of Holdings and
the Company set forth therein are true and correct in all material respects. The
Agent and the Lenders shall be entitled to rely on all of such representations
and warranties of
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Holdings and the Company set forth therein with the same force and effect as
though they were incorporated in this Agreement and made by Holdings and the
Company for the Agent and the Lenders herein.
5.24 Deloitte & Touche Subordinated Debt. No event or circumstance has
occurred or exists which has resulted in, or would permit (whether with the
passage of time, the giving of notice or otherwise), the acceleration or
required principal repayment prior to December 14, 2001, of any of the
Subordinated Debt held by Deloitte & Touche LLP, except as permitted under
subsection 7.15(c).
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Lenders waive compliance in writing:
6.01 Financial Statements. The Company shall deliver to the Agent and
each Lender in form and detail satisfactory to the Agent and the Majority
Lenders:
(a) as soon as available, but not later than 105 days after the end
of each fiscal year, a copy of the audited consolidated balance sheet of
Holdings and its Subsidiaries, and of the Company and its Subsidiaries, each as
at the end of such year and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such year, setting forth in
each case in comparative form the figures for the previous fiscal year, and each
accompanied by the unqualified opinion of Ernst & Young or another
nationally-recognized independent public accounting firm ("Independent Auditor")
which report shall state that such consolidated financial statements present
fairly the financial position for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years. Any such opinion shall not be
qualified as to (i) going concern, (ii) any limitation in the scope of the
audit, or (iii) possible errors generated by financial reporting and related
systems due to the Year 2000 problem;
(b) as soon as available, but not later than 45 days after the end
of each of the first three fiscal quarters of each fiscal year, a copy of the
unaudited consolidated balance sheet of Holdings and its Subsidiaries, and of
the Company and its Subsidiaries, each as of the end of such quarter and the
related consolidated statements of income, shareholders' equity and cash flows
for the period commencing on the first day and ending on the last day of such
quarter, and certified by a Responsible Officer of Holdings as being complete
and accurate in all material respects and fairly presenting, in accordance with
GAAP (subject to ordinary, good faith adjustments and the absence of footnotes),
the financial position and the results of operations and cash flows of
Holdings and its Subsidiaries, and of the Company and its Subsidiaries;
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(c) as soon as available, but not later than 45 days after the end
of each fiscal month of each fiscal year, a copy of the unaudited consolidated
balance sheet of Holdings and its Subsidiaries, and of the Company and its
Subsidiaries, each as of the end of such fiscal month and the related
consolidated statements of income, shareholders' equity and cash flows for the
period commencing on the first day and ending on the last day of such fiscal
period, certified by a Responsible Officer of Holdings as being complete and
accurate in all material respects and fairly presenting, in accordance with GAAP
(subject to ordinary, good faith year-end audit adjustments), the financial
position and the results of operations and cash flows of Holdings and its
Subsidiaries, and of the Company and its Subsidiaries;
(d) as soon as available, but not later than 105 days after the end
of each fiscal year, copies of unaudited consolidating balance sheets of
Holdings and its Subsidiaries as at the end of such year and the related
consolidating statements of income, shareholders' equity and cash flows for such
year, certified by a Responsible Officer of Holdings as having been developed
and used in connection with the preparation of the financial statements referred
to in subsection 6.01(a); and
(e) as soon as available, but not later than 45 days after the end
of each of the first three fiscal quarters of each fiscal year, copies of the
unaudited consolidating balance sheets of Holdings and its Subsidiaries, and the
related consolidating statements of income, shareholders' equity and cash flows
for such quarter, all certified by a Responsible Officer as having been
developed and used in connection with the preparation of the financial
statements referred to in subsection 6.01(b).
6.02 Certificates; Other Information. The Company shall furnish to the
Agent and each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 6.01(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 6.01(a) and (b), a Compliance Certificate executed
by a Responsible Officer of Holdings and the Company;
(c) promptly upon sending or receipt, copies of any and all
management letters and correspondence relating to management letters, sent or
received by Holdings, the Company or any of its Subsidiaries to or from the
Independent Auditor;
(d) upon the request of the Agent or any Lender, a copy of the
Company's and its Subsidiaries' plan, timetable and budget to address the Year
2000 problem, together with periodic updates thereof and expenses incurred to
date, any third party assessment of the Company's and its Subsidiaries' Year
2000 remediation efforts, and any Year 2000 contingency plans, and any estimates
of the Company's and its Subsidiaries' potential litigation exposure (if any) to
the Year 2000 problem;
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(e) promptly, copies of all financial statements and reports that
the Company sends to its shareholders, and copies of all financial statements
and regular, periodical or special reports (including Forms 10K, 10Q and 8K)
that Holdings or the Company or any Subsidiary may make to, or file with, the
SEC;
(f) not more than 45 days after the end of each calendar quarter, an
Update Certificate, in substantially the form of Exhibit H, executed by a
Responsible Officer of the Company;
(g) at the same time it is provided to the holders of any
Subordinated Debt, the information provided to such holders pursuant to the
reporting and notices provisions of the documents evidencing such Subordinated
Debt;
(h) promptly after receipt thereof, all schedules, exhibits or other
documents evidencing any calculations supporting any material adjustments to the
purchase price under the Acquisition Agreements;
(i) concurrently with the delivery of the financial statements
referred to in subsection 6.01(a) , a consolidated financial forecast for
Holdings and its Subsidiaries for the then current and the next succeeding two
fiscal years, including forecasted consolidated balance sheets, consolidated
statements of income, shareholders' equity and cash flows of Holdings and its
Subsidiaries, and the related consolidating statements of income, shareholders'
equity and cash flows, which forecast shall (A) state the assumptions used in
the preparation thereof, a(B) be in form reasonably satisfactory to the Majority
Lenders;
(j) not less than 10 Business Days prior to the consummation of any
Secondary Acquisition, amended Schedules reflecting changes to the disclosures
contained in the Schedules delivered on the Closing Date resulting from such
Secondary Acquisition, in form and substance satisfactory to the Agent and the
Majority Lenders; and
(k) promptly, such additional information regarding the business,
financial or corporate affairs of Holdings, the Company or any Subsidiary as the
Agent, at the request of any Lender, may from time to time reasonably request.
6.03 Notices. The Company shall promptly notify the Agent and each
Lender:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of (i) any breach or non-performance of, or any default under,
any Contractual Obligation of Holdings, the Company or any of its Subsidiaries
which could result in a Material Adverse Effect; and (ii) any dispute,
litigation, investigation, proceeding or suspension which may exist at any time
between Holdings, the Company or any of its Subsidiaries and any Governmental
Authority which could result in a Material Adverse Effect;
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(c) of the commencement of, or any material development in, any
litigation or proceeding affecting Holdings, the Company or any Subsidiary (i)
in which the amount of damages claimed is $1,000,000 (or its equivalent in
another currency or currencies) or more, (ii) in which injunctive or similar
relief is sought and which, if adversely determined, would reasonably be
expected to have a Material Adverse Effect, or (iii) in which the relief sought
is an injunction or other stay of the performance of this Agreement or any Loan
Document;
(d) upon, but in no event later than 10 days after, becoming aware
of (i) any and all enforcement, cleanup, removal or other governmental or
regulatory actions instituted, completed or threatened against the Company or
any Subsidiary or any of their respective properties pursuant to any applicable
Environmental Laws, (ii) all other Environmental Claims, and (iii) any
environmental or similar condition on any real property adjoining or in the
vicinity of the property of Holdings, the Company or any Subsidiary that could
reasonably be anticipated to cause such property or any part thereof to be
subject to any restrictions on the ownership, occupancy, transferability or use
of such property under any Environmental Laws;
(e) of any other litigation or proceeding affecting Holdings, the
Company or any of its Subsidiaries which Holdings or the Company would be
required to report to the SEC pursuant to the Exchange Act, within four days
after reporting the same to the SEC;
(f) of the occurrence of any of the following events affecting
Holdings, the Company or any ERISA Affiliate (but in no event more than 10 days
after such event), and deliver to the Agent and each Lender a copy of any
notice with respect to such event that is filed with a Governmental Authority
and any notice delivered by a Governmental Authority to Holdings, the Company or
any ERISA Affiliate with respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension Liability of any
Pension Plan;
(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by Holdings, the Company or
any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability.
(g) of any material change in accounting policies or financial
reporting practices by Holdings, the Company or any of its consolidated
Subsidiaries;
(h) of the entry by the Company or any of its Subsidiaries into any
Specified Swap Contract, together with the details thereof;
(i) of the occurrence of any default, event of default, termination
event or other event under any Specified Swap Contract that after the giving of
notice, passage of time or both,
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would permit either counterparty to such Specified Swap Contract to terminate
early any or all trades relating to such contract;
(j) upon the request from time to time of the Agent, the Swap
Termination Values, together with a description of the method by which such
amounts were determined, relating to any then-outstanding Swap Contracts to
which the Company or any of its Subsidiaries is party; and
(k) the occurrence of any Event of Loss exceeding $1,000,000.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer of the Company setting forth details of the
occurrence referred to therein, and stating what action Holdings, the Company or
any affected Subsidiary proposes to take with respect thereto and at what time.
Each notice under subsection 6.03(a) shall describe with particularity any and
all clauses or provisions of this Agreement or other Loan Document that have
been (or foreseeably will be) breached or violated.
6.04 Preservation of Corporate Existence, Etc. Each Loan Party
shall, and shall cause each of its Subsidiaries to, except in connection with
transactions permitted by Section 7.03 and sales of assets permitted by Section
7.02:
(a) preserve and maintain in full force and effect its (i) legal
existence and (ii) good standing under the laws of its state or jurisdiction of
incorporation or formation;
(b) preserve and maintain in full force and effect all material
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business except
in connection with transactions permitted by Section 7.03 and sales of assets
permitted by Section 7.02;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
6.05 Maintenance of Property. Each Loan Party shall, and shall cause
each of its Subsidiaries to, maintain and preserve all its property which is
used or useful in its business in good working order and condition, ordinary
wear and tear excepted, except as permitted by Section 7.02.
6.06 Insurance. In addition to insurance requirements set forth in the
Collateral Documents, each Loan Party shall maintain, and shall cause each of
its Subsidiaries to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons; including workers'
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compensation insurance, public liability and property and casualty insurance
which amount shall not be reduced by the Company in the absence of 30 days'
prior notice to the Agent. All such insurance shall name the Agent as loss
payee/mortgagee and as additional insured, for the benefit of the Lenders, as
their interests may appear. The Company shall furnish the Agent, with sufficient
copies for each Lender, at reasonable intervals (but not less than once per
calendar year) a certificate of a Responsible Officer of the Company (and, if
requested by any Lender, any insurance broker of the Company) setting forth the
nature and extent of all insurance maintained by Holdings, the Company and its
Subsidiaries in accordance with this Section or any Collateral Documents (and
which, in the case of a certificate of a broker, were placed through such
broker).
6.07 Payment of Obligations. Each Loan Party shall, and shall cause each
of its Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by such Loan Party or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property not constituting a Permitted Lien; and
(c) all Indebtedness, as and when due and payable, but subject to
any subordination provisions contained in any instrument or agreement evidencing
such Indebtedness;
except where failure to do so would not otherwise constitute a Default or Event
of Default hereunder.
6.08 Compliance with Laws. Each Loan Party shall comply, and shall cause
each of its Subsidiaries to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including the Federal Fair Labor Standards Act), except such as
may be contested in good faith or as to which a bona fide dispute may exist.
6.09 Compliance with ERISA. Each Loan Party shall, and shall cause each
of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
6.10 Inspection of Property and Books and Records. Each Loan Party
shall, and shall cause each of its Subsidiaries to, maintain proper books of
record and account, in which full, true and correct entries in conformity with
GAAP consistently applied shall be made of all financial transactions and
matters involving the assets and business of such Loan Party and such
Subsidiary. Each Loan Party shall permit, and shall cause each of its
Subsidiaries to permit,
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(a) representatives and independent contractors of the Agent or any Lender to
visit and inspect any of their respective properties, to examine their
respective corporate, financial, operating and other records, and make copies
thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, at their own expense at such reasonable times during normal
business hours and as often as may be reasonably desired, upon reasonable
advance notice to such Loan Party (b) representatives and independent
contractors of the Agent to do any of the foregoing at the expense of the
Company at such reasonable times during normal business hours, but no more
frequently than twice in any calendar year, upon reasonable advance notice to
such Loan Party;
provided, however, when an Event of Default exists the Agent or any Lender may
do any of the foregoing at the expense of the Company at any time during normal
business hours and without advance notice.
6.11 Environmental Laws.
(a) Each Loan Party shall, and shall cause each of its Subsidiaries
to, conduct its operations and keep and maintain its property in compliance in
all material respects with all Environmental Laws.
(b) Upon the written request of the Agent or any Lender, the Company
shall submit and cause each of its Subsidiaries to submit, to the Agent with
sufficient copies for each Lender, at the Company's sole cost and expense, at
reasonable intervals, a report providing an update of the status of any
environmental, health or safety compliance, hazard or liability issue identified
in any notice or report required pursuant to subsection 6.03(d), that could,
individually or in the aggregate, result in liability in excess of $1,000,000.
6.12 Use of Proceeds. The Company shall use the proceeds of the Loans in
connection with the consummation of the Closing Date Transaction, for Permitted
Acquisitions, working capital and other general corporate purposes not in
contravention of any Requirement of Law or of any Loan Document.
6.13 Year 2000. The Company shall, and shall cause each of its
Subsidiaries to, complete or accomplish the following:
(a) By June 30, 1999, renovate all systems and equipment affected by
the Year 2000 problem to cause them to perform correctly date-sensitive
functions for relevant date data from before and after December 31, 1999 ("Year
2000 Compliance") or replace them with technology not so affected, and commence
testing; and
(b) By June 30, 1999, complete testing and installation of all
material systems and equipment to ensure timely Year 2000 Compliance.
6.14 Additional Guarantors. (a) If the Company, or any Subsidiary of the
Company, shall incorporate, create or acquire any U.S. Subsidiary, the Company
shall cause such Subsidiary to furnish promptly, but in no event more than 30
days after its incorporation,
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creation or acquisition, as the case may be, each of the following to the Agent,
in sufficient quantities for each Lender:
(i) a duly executed notice and agreement in substantially the
form of Exhibit I (an "Additional Guarantor Assumption Agreement");
(ii) (A) (1) copies of the resolutions of the board of directors
of such Subsidiary approving and authorizing the execution, delivery and
performance by such Subsidiary of its Additional Guarantor Assumption
Agreement, this Agreement and the Security Agreement, certified as of
the date of such Additional Guarantor Assumption Agreement (the
"Additional Guarantor Accession Date") by the Secretary or an Assistant
Secretary of such Subsidiary; and (2) a certificate of the Secretary or
Assistant Secretary of such Subsidiary certifying the names and true
signatures of the officers of such Subsidiary authorized to execute and
deliver and perform, as applicable, its Additional Guarantor Assumption
Agreement, this Agreement and all other Loan Documents to be delivered
hereunder; (B) the articles or certificate of incorporation of such
Subsidiary as in effect on the Additional Guarantor Accession Date,
certified by the Secretary or Assistant Secretary of such Subsidiary as
of the Additional Guarantor Accession Date, and the bylaws of such
Subsidiary as in effect on the Additional Guarantor Accession Date,
certified by the Secretary or Assistant Secretary or such Subsidiary as
of the Additional Guarantor Accession Date; and (C) if such Subsidiary
has EBITDA exceeding $1,000,000 for the immediately preceding 12-month
period, an opinion of counsel to such Subsidiary and addressed to the
Agent and the Lenders, substantially in the form of Exhibit J; and
(iii) (A) such amendments to the Schedules to the Security
Agreement as shall be required in connection with the accession of such
Subsidiary thereto; (B) executed UCC-1 financing statements furnished by
the Agent in each jurisdiction in which such filing is necessary to
perfect the security interest of the Agent on behalf of the Lenders in
the Collateral of such Subsidiary and in which the Agent requests that
such filing be made, and (C) if requested by the Agent, such Mortgages
and other documents as may be required to create and perfect a lien in
the interests of such Subsidiary in any real property and such title
insurance policies and other documents as the Agent or the Majority
Lenders may reasonably request in connection therewith.
(b) The Company shall, not later than the expiration of the 30-day
period referenced in subsection (a) above, pledge (or cause to be pledged) the
capital stock of such Subsidiary to the Agent pursuant to the Security
Agreement, and execute and deliver, or cause such Subsidiary to execute and
deliver, to the Agent (in sufficient quantities for each Lender) such other
items as reasonably requested by the Agent in connection with the matters set
forth in this Section 6.14.
(c) Additionally, the Company and such Subsidiary shall have
executed and delivered to the Agent (in sufficient quantities for each Lender)
such other items as reasonably requested by the Agent in connection with the
foregoing, including officers' certificates, search reports and other
certificates and documents.
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6.15 Further Assurances.
(a) The Company shall ensure that all written information, exhibits
and reports furnished to the Agent or the Lenders by and on behalf of any Loan
Party do not and will not contain any untrue statement of a material fact and do
not and will not, when considered as a whole, omit to state any material fact or
any fact necessary to make the statements contained therein not misleading in
light of the circumstances in which made, and will promptly disclose to the
Agent and the Lenders and correct any defect or error that may be discovered
therein or in any Loan Document or in the execution, acknowledgement or
recordation thereof.
(b) If at any time Holdings, the Company or any Subsidiary shall
become the owner of any real property that is located in the United States that
has an aggregate fair market value equal to at least $5,000,000, promptly, and
in any event within thirty 30 days following acquisition of such real property,
Holdings and the Company shall (and shall cause any of their Subsidiaries to)
enter into and deliver to the Agent a Mortgage in respect to such property, in
form and substance reasonably satisfactory to the Agent, together with such
title insurance polices, insurance endorsements, surveys, appraisals, consents,
estoppels, subordination agreements and other documents and other instruments as
the Agent or the Majority Lenders shall reasonably request.
(c) Promptly upon request by the Agent or the Majority Lenders,
Holdings and the Company shall (and shall cause any of their Subsidiaries to)
do, execute, acknowledge, deliver, record, re-record, file, re-file, register
and re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments the Agent or such
Lenders, as the case may be, may reasonably require from time to time in order
(i) to carry out more effectively the purposes of this Agreement or any other
Loan Document, (ii) to subject to the Liens created by any of the Collateral
Documents any of the properties, rights or interests covered by any of the
Collateral Documents, (iii) to perfect and maintain the validity, effectiveness
and priority of any of the Collateral Documents and the Liens intended to be
created thereby, and (iv) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm to the Agent and Lenders the rights granted or now
or hereafter intended to be granted to the Lenders under any Loan Document or
under any other document executed in connection therewith.
6.16 Wholly-Owned Subsidiaries. Not later than 30 days (or, in the case
of the warrants to purchase the common stock of TSL Services, Inc., issued to
BVS Invesco, one year) following the Closing Date, (i) the Company shall have
caused all Founding Companies acquired by the Company pursuant to the
Transaction which are not already Wholly-Owned Subsidiaries of the Company to
become Wholly-Owned Subsidiaries or (ii) the Company shall have demonstrated to
the satisfaction of the Agent and the Majority Lenders that such
non-Wholly-Owned Subsidiaries can pay cash dividends to a Wholly-Owned
Subsidiary or to the Company without making any payment to any other shareholder
of such non-Wholly-Owned Subsidiary and that the other shareholders, and all
Persons having any rights to acquire or otherwise receive capital stock, of such
non-Wholly-Owned Subsidiary shall have consented to
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the execution, delivery and performance by such non-Wholly-Owned Subsidiary of
the Loan Documents to which it is a party.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Lenders waive compliance in writing:
7.01 Limitation on Liens. Holdings and the Company shall not, and shall
not suffer or permit any Subsidiary to, directly or indirectly, make, create,
incur, assume or suffer to exist any Lien upon or with respect to any part of
its property, whether now owned or hereafter acquired, other than the following
("Permitted Liens"):
(a) any Lien existing on the Closing Date and set forth in Schedule
7.01 securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 6.07, provided that no notice
of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty or which
are being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;
(e) Liens (other than any Lien imposed by ERISA and other than on
the Collateral) consisting of pledges or deposits required in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other social security legislation;
(f) Liens securing (i) the non-delinquent performance of bids, trade
contracts (other than for borrowed money), leases (other than capital leases) ,
and statutory obligations, (ii) contingent obligations on surety and appeal
bonds, and (iii) other non-delinquent obligations of a like nature; in each
case, incurred in the ordinary course of business, provided all such Liens in
the aggregate would not (even if enforced) cause a Material Adverse Effect;
(g) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for Holdings, the Company and its
Subsidiaries do not exceed $1,000,000;
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(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of Holdings, the Company and its
Subsidiaries;
(i) purchase money security interests on any property acquired or
held by the Company or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property; provided that (i) any such Lien
attaches to such property concurrently with or within 20 days after the
acquisition thereof, (ii) such Lien attaches solely to the property so acquired
in such transaction, (iii) the principal amount of the Indebtedness secured
thereby does not exceed 100% of the cost of such property, and (iv) the
principal amount of the Indebtedness secured by any and all such purchase money
security interests shall not at any time exceed, together with Indebtedness
permitted under subsection 7.04(d), $10,000,000;
(j) Liens securing obligations in respect of capital leases on
assets subject to such leases, provided that such capital leases are otherwise
permitted hereunder;
(k) Liens arising solely by virtue of any statutory or common law
provision relating to bankers liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by Holdings or the Company in excess of those set forth by regulations
promulgated by the FRB, and (ii) such deposit account is not intended by
Holdings, the Company or any Subsidiary to provide collateral to the depository
institution;
(l) Liens consisting of pledges of cash collateral or government
securities not constituting Collateral to secure on a mark-to-market basis
Permitted Swap Obligations only, provided that (i) the counterparty to any Swap
Contract relating to any such Permitted Swap Obligation is under a similar
requirement to deliver similar collateral from time to time to the Company or
the Subsidiary party thereto on a mark-to-market basis; and (ii) the aggregate
value of such collateral so pledged by the Company and the Subsidiaries together
in favor of any counterparty does not at any time exceed $5,000,000; and
(m) Liens on specific tangible assets of Persons which become
Subsidiaries after the date of this Agreement, provided, however, that (a) such
Liens existed at the time the respective Persons became Subsidiaries and were
not created in anticipation thereof, (b) any such Lien does not by its terms
cover any assets after the time such Person becomes a Subsidiary which were not
covered immediately prior thereto, (c) any such Lien does not by its terms
secure any Indebtedness other than Indebtedness existing immediately prior to
the time such Person becomes a Subsidiary, and (d) such Indebtedness is
permitted by Section 7.05(d).
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7.02 Disposition of Assets. Holdings and the Company shall not, and
shall not suffer or permit any Subsidiary to, directly or indirectly, sell,
assign, lease, convey, transfer or otherwise dispose of (whether in one or a
series of transactions) any property (including accounts and notes receivable,
with or without recourse) or enter into any agreement to do any of the
foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(b) the sale of equipment and other tangible assets to the extent
that such equipment or other tangible asset is exchanged for credit against the
purchase price of similar replacement equipment or other tangible assets, as the
case may be, or the proceeds of such sale are reasonably promptly (but in no
event later than six months after such sale) applied to the purchase price of
such replacement equipment or other tangible asset; and
(c) dispositions of tangible assets by the Company or any U.S.
Subsidiary to the Company or any U.S. Subsidiary pursuant to reasonable business
requirements and in the ordinary course of business;
(d) the lease or sublease of real property by the Company or any
Subsidiary to other Persons in the ordinary course of business;
(e) licenses and sublicenses on a non-exclusive basis of
intellectual property in the ordinary course of business;
(f) (i) cancellation of Indebtedness evidenced by promissory notes
made by any officer or employee of any Loan Party as consideration for the
issuance to such officer or employee of capital stock of Holdings; and (ii) the
sale of cash equivalents and other short term money market investments in the
ordinary course of business pursuant to Holdings' and the Company's usual and
customary cash management policies and procedures;
(g) subject to Section 2.07, dispositions by the Company or any
Subsidiary not otherwise permitted hereunder which are made for fair market
value; provided, that (i) at the time of any disposition, no Event of Default
shall exist or shall result from such disposition, (ii) at least 75% of the
aggregate sales price from such disposition shall be paid in cash, (iii) the
aggregate book value of all assets so sold by the Company and its Subsidiaries,
together, shall not exceed in any fiscal year $3,000,000, and (iv) no
dispositions of accounts or notes receivable shall be permitted hereunder unless
in connection with the sale of all or substantially all of a business unit,
division or Subsidiary of the Company and such sale is otherwise permitted
hereunder; and
(h) transfers to the Company of stock of Persons acquired by
Holdings (or of Persons established by Holdings to acquire assets of Persons) in
Acquisitions permitted hereunder; provided that such Acquisitions are included
in the Closing Date Transaction or are Permitted Acquisitions and any such
transfer occurs immediately upon the consummation of any such Acquisition.
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7.03 Consolidations and Mergers. Holdings and the Company shall not, and
shall not suffer or permit any Subsidiary to, merge, consolidate with or into,
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions all or substantially all of its assets (whether
now owned or hereafter acquired) to or in favor of any Person, except:
(a) any of the Company's Subsidiaries may merge with, consolidate
into or transfer all or substantially all of its assets to any Subsidiary of the
Company (provided that the surviving or transferee entity is a U.S. Wholly-Owned
Subsidiary of the Company) or to the Company and in connection therewith such
Subsidiary may be liquidated or dissolved;
(b) Holdings, the Company or any of its Subsidiaries may sell or
dispose of assets in accordance with the provisions of Section 7.02;
(c) the Company or any of its Subsidiaries may make any Investment
permitted by Section 7.04; and
(d) the Company or any Subsidiary thereof may merge with or
consolidate into any other Person (other than Holdings), provided that (i) (in
the case of the Company) the Company is the surviving Person, (ii) such merger
or consolidation is in connection with a Permitted Acquisition, (iii) no such
merger or consolidation shall be made while there exists a Default or if a
Default would occur as a result thereof and (iv) all actions have been taken (to
the satisfaction of the Agent) under Sections 6.14 and 6.15 to protect and
continue perfected the Liens of the Agent under the Collateral Documents.
7.04 Loans and Investments. Holdings and the Company shall not purchase
or acquire, or suffer or permit any Subsidiary to purchase or acquire, any
capital stock, equity interest, or any obligations or other securities of, or
any interest in, any Person, or make any Acquisitions, or make any advance,
loan, extension of credit or capital contribution to or any other investment in,
any Person including any Affiliate of the Company together, ("Investments"),
except for:
(a) Investments held by Holdings and the Company or such Subsidiary
in the form of cash equivalents and short term money market investments in the
ordinary course of business pursuant to such Person's usual and customary cash
management policies and procedures;
(b) extensions of credit by the Company or any such Subsidiary in
the nature of accounts receivable or notes receivable arising from the sale or
lease of goods or services in the ordinary course of business;
(c) existing Investments disclosed in Schedule 5.17, and other
Investments in the capital stock of U.S. Wholly Owned Subsidiaries, and
extensions of credit by the Company to any of its U.S. Wholly Owned Subsidiaries
or by any of its Wholly-Owned Subsidiaries to the Company or to any other U.S.
Wholly-Owned Subsidiaries in the ordinary course of business;
(d) Investments by Holdings, the Company or any U.S. Wholly Owned
Subsidiary incurred in order to consummate Acquisitions otherwise permitted
herein, provided that such Acquisitions are included in the Closing Date
Transaction or are Permitted
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Acquisitions, and provided further that all proceeds of any such Investment by
the Company in Holdings are applied to consummate such Acquisitions and that all
stock of Persons acquired by Holdings (or of Persons established by Holdings to
acquire assets of Persons) are immediately transferred to the Company pursuant
to Section 7.02(h);
(e) Investments constituting Permitted Swap Obligations or payments
or advances under Swap Contracts relating to Permitted Swap Obligations;
(f) (i) management and employee loans and guarantees not exceeding
$1,000,000 in the aggregate in any fiscal year; (ii) a Loan to Moses Cheung not
exceeding $2,400,000 advanced in connection with the Closing Date Transaction;
and (iii) cashless loans to management and employees for the sole purpose of
financing the purchase of Holdings' capital stock;
(g) any promissory notes, securities or other instruments received
as consideration for any Disposition permitted under Section 7.02;
(h) equity investments held by Holdings obtained in consideration of
the issuance by Holdings of common stock, provided that (i) all such equity
investments are immediately transferred to the Company, and (ii) no such equity
investment would result in an Event of Default;
(i) the extension of credit by the Company to Holdings evidenced by
the Holdings Note; and
(j) other Investments, including Investments in joint ventures and
Investments received or otherwise acquired as part of a litigation settlement or
an Insolvency Proceeding of the issuing Person, which do not exceed $1,000,000
in the aggregate at any time outstanding.
7.05 Limitation on Indebtedness. Holdings and the Company shall not, and
shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 7.08;
(c) Indebtedness existing on the Closing Date and set forth in
Schedule 7.05;
(d) Indebtedness of the Company or any Subsidiary secured by Liens
permitted by subsection 7.01(i), (j) and (m) in an aggregate amount outstanding
not to exceed $10,000,000;
(e) Indebtedness incurred in connection with leases permitted
pursuant to Section 7.09;
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(f) Indebtedness of U.S. Wholly Owned Subsidiaries of the Company to
the Company or to other U.S. Wholly Owned Subsidiaries of the Company;
(g) in the case of Holdings, (i) Indebtedness owing to the Company
evidenced by the Holdings Note, (ii) additional unsecured, subordinated
Indebtedness of Holdings incurred after the Closing Date, provided that the
proceeds of any such additional Indebtedness are applied to the extent required
to repay the Loans in accordance with subsection 2.07(b), and (iii) Indebtedness
in respect of the Holdings Subordinated Notes issued on or prior to the Closing
Date, and any extensions, renewals or replacements of such Indebtedness,
provided that (A) concurrently with the issuance of such Indebtedness, the
Holdings Subordinated Notes in a principal amount equal to the principal amount
of such Indebtedness shall have been repaid, at a price not in excess of 100% of
the principal amount thereof (plus interest accrued to the date of repayment and
not paid in cash); (B) no material terms applicable to such Indebtedness shall
be more favorable to the extending, renewing or replacement lenders than the
terms that are applicable to the holders of the Holdings Subordinated Notes
(other than the D&T Subordinated Note) as of the Closing Date; and provided
further, in the case of any such Indebtedness described in clause (ii) or (iii)
above, (1) the terms of such Indebtedness and the indenture or other agreement
evidencing such Indebtedness otherwise shall be satisfactory in all material
respects to the Majority Lenders (including terms and conditions relating to the
interest rate, fees, subordination, amortization, maturity, covenants, events of
default and remedies), (2) the interest rate applicable thereto shall be fixed,
non-increasing market interest rate per annum and shall be payable not more
often than quarterly; (3) after giving effect to the issuance thereof, no Event
of Default shall exist hereunder, and (4) such Indebtedness shall mature not
earlier than December 14, 2001 (any such Indebtedness under clause (i) or (ii)
issued in compliance with this subsection (g) hereinafter "Permitted New
Subordinated Debt"); and
(h) additional unsecured Indebtedness of the Company or any
Subsidiary not exceeding $5,000,000 in the aggregate at any time outstanding for
all such Indebtedness.
7.06 Transactions with Affiliates. Holdings and the Company shall not,
and shall not suffer or permit any Subsidiary to, enter into any transaction
with any Affiliate of the Company, except upon fair and reasonable terms no less
favorable to Holdings, the Company or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company except for the Holdings Note, employee compensation, director fees,
customary indemnities of management and employees, transfers of assets among the
Company and its U.S. Wholly-Owned Subsidiaries, employee loans and guarantees
permitted under Section 7.04(f) transactions between Holdings and the Company
that are permitted under Section 7.02(h) and Section 7.04(d), the Tax Sharing
Agreement and transfers to pay audit, SEC and other administrative expenses
incurred by Holdings.
7.07 Use of Proceeds.
(a) Holdings and the Company shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds, directly or
indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of Holdings and the Company or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the
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purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any
security in any transaction that is subject to Section 13 or 14 of the Exchange
Act or (v) to enter into or consummate any Acquisition that is not part of the
Closing Date Transaction or a Permitted Acquisition.
(b) Holdings and the Company shall not, directly or indirectly, use
any portion of the Loan proceeds to purchase during the underwriting period, or
for thirty days thereafter, Ineligible Securities underwritten by the Lead
Arranger. The Lead Arranger is a wholly-owned subsidiary of BankAmerica
Corporation and a registered broker-dealer which is permitted to underwrite and
deal in certain Ineligible Securities; and "Ineligible Securities" means
securities which may not be underwritten or dealt in by member banks of the
Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C.
Section 24, Seventh), as amended.
7.08 Contingent Obligations. Holdings and the Company shall not, and
shall not suffer or permit any Subsidiary to, create, incur, assume or suffer to
exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations existing as of the Closing Date and
listed on Schedule 7.08;
(d) Contingent Obligations of Holdings and the Company in respect of
Indebtedness of any of its Wholly Owned Subsidiaries, or Contingent Obligations
of any of its Wholly Owned Subsidiaries in respect of Indebtedness which is the
subject of the Contingent Obligation of another of its Wholly Owned Subsidiaries
or of the Company, in each case to the extent such Indebtedness is permitted
hereunder;
(e) Contingent Obligations of the Company and its Subsidiaries with
respect to Surety Instruments incurred in the ordinary course of business and
not exceeding at any time $5,000,000 in the aggregate in respect of Holdings and
the Company and its Subsidiaries together; and
(f) additional unsecured Contingent Obligations of the Company or
any Subsidiary not exceeding $1,000,000 in the aggregate at any time outstanding
for all such Contingent Obligations.
7.09 Lease Obligations. Holdings and the Company shall not, and shall
not suffer or permit any Subsidiary to, create or suffer to exist any
obligations for the payment of rent for any property under lease or agreement to
lease, except for:
(a) leases of Holdings and the Company and of Subsidiaries in
existence on the Closing Date and listed in Schedule 7.09;
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(b) operating leases entered into by Holdings, the Company or any
Subsidiary after the Closing Date in the ordinary course of business;
(c) leases entered into by the Company or any Subsidiary after the
Closing Date pursuant to sale-leaseback transactions to the extent permitted
under subsection 7.02(g); and
(d) capital leases other than those permitted under clauses (a) and
(b) of this Section, entered into by the Company or any Subsidiary after the
Closing Date in the ordinary course of business to finance the acquisition of
equipment.
7.10 Restricted Payments. Holdings and the Company shall not, and shall
not suffer or permit any Subsidiary to, declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock, or
purchase, redeem or otherwise acquire for value any shares of its capital stock
or any warrants, rights or options to acquire such shares, now or hereafter
outstanding; except that:
(a) Holdings, the Company and any Wholly-Owned Subsidiary may
declare and make dividend payments or other distributions payable solely in its
common stock;
(b) Holdings, the Company and any Wholly-Owned Subsidiary may
purchase, redeem or otherwise acquire shares of its stock or warrants or options
to acquire any such shares with the proceeds received from the substantially
concurrent issue of new shares of its stock or by cancellation of Indebtedness
incurred by any Person to finance the acquisition such stock;
(c) any Subsidiary may declare and make dividends to a Wholly Owned
Subsidiary or the Company; and
(d) the Company may declare and pay cash dividends to Holdings (i)
from time to time in an amount not to exceed $5,000,000 in the aggregate in any
fiscal year on account of actual corporate overhead expenses of Holdings, (ii)
from time to time (A) in an amount not to exceed in the aggregate in any
calendar year Company's agreed share of tax obligations, calculated pursuant to
the Tax Sharing Agreement, and (B) as necessary to permit Holdings to pay
interest on the Holdings Note, provided that simultaneously therewith all such
interest is returned to the Company to make such interest payment and such
transaction is effected on a cashless basis; and (iii) so long as no Default or
Event of Default shall have occurred and be continuing or would result
therefrom, in an amount not to exceed in the aggregate in any calendar year the
interest due and payable in such calendar year (together with, in the case of
the D&T Subordinated Note, any deferred, accrued interest which was due and
payable in any prior calendar year to the extent such interest has not then
already been paid) on Subordinated Debt, which dividend (A) shall be paid by the
Company to Holdings on the Business Day immediately prior to the date on which
such interest payment in respect of the Subordinated Debt is actually paid by
Holdings to the holders thereof and (B) shall not exceed the amount of such
interest payment; provided that no such distribution by the Company to Holdings
shall be permitted under this clause (iii) if the Company Leverage Ratio,
measured as of the end of the most recent fiscal quarter on a pro forma basis
after giving effect to all Funded Debt outstanding on the date
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such dividend payment is to be made, is greater than 2.00 to 1.00. Prior to
paying any cash dividends which are subject to the preceding clause (iii), the
Company shall deliver to the Agent and the Lenders a certificate of a
Responsible Officer of the Company certifying the Company's compliance with the
preceding maximum Company Leverage Ratio.
7.11 ERISA. Holdings and the Company shall not, and shall not suffer or
permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably expected to result in liability of such Person
in an aggregate amount in excess of $5,000,000; or (b) engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA which has resulted or
could reasonably be expected to result in liability to such Person in an
aggregate amount in excess of $5,000,000.
7.12 Change in Business. Holdings and the Company shall not, and shall
not suffer or permit any Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on by Holdings, the
Company and its Subsidiaries on the date hereof. Holdings shall not engage in
any business activity other than its ownership of the capital stock of the
Company and the performance of its obligations under the Transaction Documents
to which it is a party.
7.13 Accounting Changes. Holdings and the Company shall not, and shall
not suffer or permit any Subsidiary to, make any significant change in
accounting treatment or reporting practices, except as required by GAAP, or
change the fiscal year of Holdings, the Company or of any Subsidiary, except to
change the fiscal year of a Subsidiary acquired in connection with a Permitted
Acquisition to conform its fiscal year to Holdings' and the Company's.
7.14 Capital Expenditures. Holdings and the Company shall not, and shall
not suffer or permit any Subsidiary to, make any expenditures for fixed or
capital assets, including obligations under capital leases, in excess of (a)
$8,000,000 on a consolidated basis, in fiscal year 1999 and (b) $6,000,000, on a
consolidated basis, in fiscal year 2000 and in any fiscal year thereafter.
7.15 Holdings Subordinated Debt. (i) Holdings shall not amend,
supplement or otherwise modify the terms of the Holdings Note. (ii) Holdings
shall not (a), except in connection with the issuance of Permitted New
Subordinated Debt, amend, supplement or otherwise modify the terms of the
Holdings Subordinated Notes or, after issued, the Permitted New Subordinated
Debt, in a manner that imposes obligations on Holdings that are materially more
onerous or otherwise materially more burdensome to Holdings than its obligations
under the Holdings Subordinated Notes or the Permitted New Subordinated Debt, as
the case may be, on their respective dates of issuance; provided that no such
amendment, supplement or other modification of the Holdings Subordinated Notes
or the Permitted New Subordinated Debt, as the case may be, shall be permitted
hereunder if, after giving effect thereto, (i) the interest rate applicable to
such Indebtedness shall not be a fixed, non-increasing market interest rate per
annum payable no more often than quarterly, or (ii) such Indebtedness shall
mature on an earlier date than the maturity date of the Holdings Subordinated
Notes or Permitted New
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Subordinated Debt, as the case may be, prior to giving effect to such amendment,
supplement or other modification; or (b) (i) prepay, redeem or repurchase any of
the Subordinated Debt (except, if permitted by the respective subordination
agreements among the Agent, the Company and the holders of such Subordinated
Debt, in connection with the issuance of Permitted New Subordinated Debt or
equity) or the Permitted New Subordinated Debt if not permitted by the
respective subordination agreements among the Agent, the Company and the holders
of such Subordinated Debt; (ii) make any principal payments on any Holdings
Subordinated Notes or Permitted New Subordinated Debt not permitted by the
respective subordination agreements among the Agent, the Company and the holders
of such Subordinated Debt or (iii) make any interest payments on any Holdings
Subordinated Notes or Permitted New Subordinated Debt other than regularly
scheduled interest payments thereunder made by increasing the principal balance
thereof by the amount of such payment or, to the extent Holdings has or would
have sufficient cash on hand by means of payments by the Company to Holdings
permitted hereunder and/or has sufficient cash on hand by other means permitted
hereunder, and if permitted by the respective subordination agreements among the
Agent, the Company and the holders of such Subordinated Debt, scheduled interest
payments (together with, in the case of the D&T Subordinated Note, payment of
deferred, accrued interest to the extent such interest has not then already been
paid) paid in cash; or (c) take, or suffer or permit to occur, any action that
would cause any Subordinated Debt to become due and payable prior to the final
scheduled maturity date thereof, including any closing of any public or private
debt or equity offering by Holdings, the Company or any Subsidiary that would so
result in Subordinated Debt becoming so due and payable, except, in the case of
any initial public offering or private placement of Holdings' capital stock, if
the Term Loans and all such Subordinated Debt is repaid in full thereby.
7.16 Amendments to Acquisition Agreements. Neither Holdings nor the
Company shall (i) amend, supplement, waive or otherwise modify any provision of
the Acquisition Agreements in any material respect, or (ii) take or fail to take
any action under the Acquisition Agreements that would reasonably be expected to
have Material Adverse Effect.
7.17 Tax Sharing Agreement. Holdings and the Company shall not amend,
supplement or otherwise modify the terms of the Tax Sharing Agreement in a
manner that imposes obligations on the Company that are more onerous or
otherwise more burdensome to the Company than its obligations under the Tax
Sharing Agreement as in effect on the Closing Date.
7.18 Financial Covenants.
(a) Maximum Holdings Leverage Ratio. Holdings shall not permit the
Holdings Leverage Ratio as at the end of any fiscal quarter to be greater than
(i) 4.00 to 1.00 for any fiscal quarter ending in 1998 or 1999 and (ii) 3.50 to
1.00 for any fiscal quarter ending in 2000 and thereafter.
(b) Minimum Consolidated Net Worth. The Company shall not permit its
Consolidated Net Worth as at the end of any fiscal quarter to be less than (i)
90% of Consolidated Net Worth measured as of the Closing Date (after giving
effect to the Transaction),
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plus (ii) 50% of consolidated net income of the Company and its Subsidiaries
earned in each quarterly accounting period ending after the Closing Date (but
without any deduction for any consolidated net loss for any such quarterly
accounting period), plus (iii) 100% of the Net Issuance Proceeds of any new
equity issued by the Company after the Closing Date, minus (iv) any cash
distributions made by the Company to Holdings pursuant to subsection
7.10(d)(iii).
(c) Maximum Company Leverage Ratio. The Company shall not permit the
Company Leverage Ratio as at the end of any fiscal quarter to be greater than
(i) 2.50 to 1.00 for any fiscal quarter ending in 1998 or 1999 and (ii) 2.00 to
1.00 for any fiscal quarter ending in 2000 and thereafter.
(d) Minimum Interest Coverage Ratio. The Company shall not permit as
at the end of any fiscal quarter, measured on a consolidated basis for the
Company and its Subsidiaries for the period of four fiscal quarters ended on
such date in accordance with GAAP, the ratio (the "Interest Coverage Ratio") of
(i) EBITDA to (ii) (A) cash interest expense plus (B) cash distributions made by
the Company to Holdings pursuant to subsection 7.10(d)(iii) to be less than (1)
3.00 to 1.00 for any period of four fiscal quarters ending in 1998 or 1999, or
for each period of four fiscal quarters ending on March 31, 2000, and June 30,
2000, and (2) 3.50 to 1.00 for the period of four fiscal quarters ending
September 30, 2000 and each period of four fiscal quarters thereafter. For
purposes of calculating the Interest Coverage Ratio hereunder, until such time
as the first day of the rolling four-quarter period for which the Interest
Coverage Ratio is being calculated falls on or after the Closing Date, cash
interest expense for purposes of the preceding clause (ii)(A) shall be deemed to
be equal to (i) actual cash interest expense for the Company and its
Subsidiaries, measured on a consolidated basis for the period from the Closing
Date through the last day of the Compliance Period in accordance with GAAP, plus
(ii) (A) the lesser of (x) $89,041,057 and (y) the Indebtedness of the Company
and its Subsidiaries outstanding on the last day of the Compliance Period,
multiplied by (B) the average interest rate then in effect for outstanding
Loans, multiplied by (C) the Annualization Quotient.
(e) Minimum Quarterly EBITDA. The Company shall not permit (i)
EBITDA for each of the first four full fiscal quarters ending after the Closing
Date, measured on a consolidated basis for the Company and its Subsidiaries in
accordance with GAAP, to be less than $10,000,000 for each such quarter, and
(ii) EBITDA for each rolling period of four fiscal quarters ending on December
31, 1999, and thereafter, measured on a consolidated basis for the Company and
its Subsidiaries in accordance with GAAP, to be less than $43,000,000 for each
such rolling four-quarter period.
(f) Minimum Fixed Charge Coverage Ratio. The Company shall not
permit as at the end of any fiscal quarter, measured on a consolidated basis for
the Company and its Subsidiaries for the period of four fiscal quarters ended on
such date in accordance with GAAP, the ratio (the "Fixed Charge Coverage Ratio")
of (i)(A) EBITDA minus (B) capital expenditures minus (C) cash distributions
made by the Company to Holdings pursuant to subsection 7.10(d)(ii) (to the
extent that such cash distributions made by the Company to Holdings pursuant to
subsection 7.10(d)(ii) have not already reduced EBITDA for purposes of the
preceding clause (i)(A)) to (ii)(A) principal amortization of Funded Debt
plus (B) cash interest expense plus (C) cash distributions made by the Company
to Holdings pursuant to subsection 7.10(d)(i) or
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7.10(d)(iii) (to the extent that such cash distributions made by the Company to
Holdings pursuant to subsection 7.10(d)(i) or 7.10(d)(iii) have not already
reduced EBITDA for purposes of the preceding clause (i)(A)) to be less than
1.25 to 1.00. For purposes of calculating the Fixed Charge Coverage Ratio
hereunder, until such time as the first day of the rolling four-quarter period
for which the Fixed Charge Coverage Ratio is calculated falls on or after the
Closing Date, (1) capital expenditures for purposes of the preceding clause
(i)(B) shall be deemed to be equal to $7,300,000; (2) cash interest expense for
purposes of the preceding clause (ii)(B) shall be deemed to be equal to (x)
actual cash interest expense for the Company and its Subsidiaries, measured on a
consolidated basis for the period from the Closing Date through the last day of
the Compliance Period in accordance with GAAP, plus (y) (I) the lesser of (aa)
$89,041,057 and (bb) the Indebtedness of the Company and its Subsidiaries
outstanding on the last day of the Compliance Period, multiplied by (II) the
average interest rate then in effect for outstanding Loans, multiplied by (III)
the Annualization Quotient; (3) cash distributions made by the Company to
Holdings pursuant to subsection 7.10(d)(ii) shall be deemed to be equal to (x)
actual cash distributions made by the Company to Holdings pursuant to subsection
7.10(d)(ii) after the Closing Date through the last day of the Compliance Period
plus (y) $14,300,000 multiplied by the Annualization Quotient; and (4) actual
cash distributions made by the Company to Holdings pursuant to Subsection
7.10(d)(i) and 7.10(d)(iii) shall be annualized in a manner acceptable to the
Agent and the Majority Lenders.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. The Company or any other Loan Party fails to make,
(i) when and as required to be made herein, payments of any amount of principal
of any Loan, or (ii) when and as required to be paid under any Specified Swap
Contract, any payment or transfer under such Specified Swap Contract, or (iii)
within three days after the same becomes due, payment of any interest, fee or
any other amount payable hereunder or under any other Loan Document (other than
a Specified Swap Contract); or
(b) Representation or Warranty. Any representation or warranty by
Holdings, the Company or any other Loan Party made or deemed made herein, in any
other Loan Document other than a Specified Swap Contract, or which is contained
in any certificate, document or financial or other statement by Holdings, the
Company or any other Loan Party, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document other than a Specified Swap Contract, is incorrect in any material
respect on or as of the date made or deemed made; or
(c) Specific Defaults. Holdings, the Company or any other Loan Party
fails to perform or observe any term, covenant or agreement contained in any of
Section 6.01, 6.02, 6.03, 6.04(a)(i), 6.12, 6.13, 6.14 or 6.15(a) or in Article
VII; or
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(d) Other Defaults. Holdings, the Company or any other Loan Party
shall fail to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document other than a Specified Swap Contract, and
such default shall continue unremedied for a period of 20 days after the earlier
of (i) the date upon which a Responsible Officer knew of such failure or (ii)
the date upon which written notice thereof is given to the Company by the Agent
or any Lender; or
(e) Cross-Default. (i) Holdings, the Company or any Subsidiary (A)
shall fail to make any payment in respect of any Indebtedness or Contingent
Obligation (other than in respect of Swap Contracts) , having an aggregate
principal amount (including undrawn committed or available amounts and including
amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $5,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure; or (B) shall fail to perform or
observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure if the effect of such failure, event or condition is to
cause, or to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause, such Indebtedness
to be declared to be due and payable, or require such Indebtedness to be repaid
in full prior to its final scheduled maturity date (other than as contemplated
in the exception set forth in subsection 7.15(c)), or such Contingent Obligation
to become payable or cash collateral in respect thereof to be demanded; or (ii)
there occurs under any Swap Contract an Early Termination Date (as defined in
such Swap Contract) resulting from (1) any event of default under such Swap
Contract as to which Holdings and the Company or any Subsidiary is the
Defaulting Party (as defined in such Swap Contract) or (2) any Termination Event
(as so defined) as to which Holdings and the Company or any Subsidiary is an
Affected Party (as so defined), and, in either event, the Swap Termination
Value owed by Holdings and the Company or such Subsidiary as a result thereof is
greater than $5,000,000;
(f) Insolvency; Voluntary Proceedings. Holdings, the Company or any
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against Holdings, the Company or any
Subsidiary, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of Holdings', the
Company's or any Subsidiary's properties, and any such proceeding or petition
shall not be dismissed, or such writ, judgment, warrant of attachment, execution
or similar process shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; (ii) Holdings, the Company or any Subsidiary
admits the material allegations of a
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petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) Holdings, the Company or any Subsidiary acquiesces in the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial
portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of any Loan Party under Title IV of ERISA to the Pension
Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$5,000,000; or (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $5,000,000; or (iii) any Loan Party or any
ERISA Affiliate shall fail to pay when due, after the expiration of any
applicable grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate
amount in excess of $5,000,000; or
(i) Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against
Holdings, the Company or any Subsidiary involving in the aggregate a liability
(to the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related or unrelated
series of transactions, incidents or conditions, of $1,000,000 or more, and the
same shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of 10 days after the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or
decree is entered against Holdings, the Company or any Subsidiary which does or
would reasonably be expected to have a Material Adverse Effect, and there shall
be any period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) Change of Control. There occurs any Change of Control; or
(l) Loss of Licenses. Any Governmental Authority revokes or fails to
renew any material license, permit or franchise of Holdings, the Company or any
Subsidiary, or Holdings, the Company or any Material Subsidiary for any reason
loses any material license, permit or franchise, or Holdings, the Company or any
Subsidiary suffers the imposition of any restraining order, escrow, suspension
or impound of funds in connection with any proceeding (judicial or
administrative) with respect to any material license, permit or franchise if
such revocation, failure to renew, loss or imposition could be expected to have
a Material Adverse Effect; or
(m) Adverse Change. There occurs a Material Adverse Effect; or
(n) Guarantor Defaults. Any Guarantor fails in any material respect
to perform or observe any term, covenant or agreement in its Guaranty; or any
Guaranty is for any reason partially (including with respect to future advances)
or wholly revoked or invalidated, or otherwise ceases to be in full force and
effect, or the Guarantor or any other Person contests in
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any manner the validity or enforceability thereof or denies that it has any
further liability or obligation thereunder; or any event described in
subsections (f) or (g) of this Section occurs with respect to any Guarantor; or
(o) Invalidity of Subordination Provisions. The subordination
provisions applicable to any Subordinated Debt or any agreement or instrument
governing any or the foregoing is for any reason revoked or invalidated, or
otherwise cease to be in full force and effect, or the Indebtedness hereunder is
for any reason subordinated or does not have the priority contemplated by this
Agreement or such subordination provisions; or
(p) Collateral. (i) Any provision of any Collateral Document shall
for any reason cease to be valid and binding on or enforceable against Holdings,
the Company or any Subsidiary party thereto or Holdings, the Company or any
Subsidiary shall so state in writing or bring an action to limit its obligations
or liabilities thereunder; or (ii) any Collateral Document shall for any reason
(other than pursuant to the terms thereof) cease to create a valid security
interest in the Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a perfected and first priority
security interest, subject only to Permitted Liens; or
(q) Acquisition Agreements. Any material breach or default occurs
under any of the Acquisition Agreements.
8.02 Remedies. If any Event of Default occurs, the Agent shall, at the
request of, or may, with the consent of, the Majority Lenders, do any or all of
the following:
(a) declare the obligation of each Lender to make Loans to be
terminated, whereupon such obligation and each Lender's Commitments shall be
terminated;
(b) declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company and each other Loan Party; and
(c) exercise on behalf of itself and the Lenders all rights and
remedies available to it and the Lenders under the Loan Documents or applicable
law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each
Lender to make Loans shall automatically terminate and the unpaid principal
amount of all outstanding Loans and all interest and other amounts as aforesaid
shall automatically become due and payable without further act of the Agent or
any Lender.
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8.03 Specified Swap Contract Remedies. Notwithstanding any other
provision of this Article VIII, each Swap Provider shall have the right, with
prior notice to the Agent, but without the approval or consent of the Agent or
the other Lenders, with respect to any Specified Swap Contract of such Swap
Provider, (a) to declare an event of default, termination event or other similar
event thereunder and to create an Early Termination Date, (b) to determine net
termination amounts in accordance with the terms of such Specified Swap
Contracts and to set-off amounts between Specified Swap Contracts, and (c) to
prosecute any legal action against Holdings and the Company or its Subsidiary to
enforce net amounts owing to such Swap Provider.
8.04 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE IX
THE AGENT
9.01 Appointment and Authorization; "Agent". Each Lender hereby
irrevocably (subject to Section 9.09) appoints, designates and authorizes the
Agent to execute the Collateral Documents and all subordination agreements
relating to the Holdings Subordinated Notes and to take such action on its
behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated to it
by the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
9.02 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
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9.03 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or for the value of
or title to any Collateral, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of the Company or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of Holdings, the Company or any of their Subsidiaries or
Affiliates.
9.04 Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Holdings
and the Company), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a
request or consent of the Majority Lenders and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 4.01, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter (including any and all items referenced in subsections
4.01(j), (l) and (m)) either sent, or made available for inspection, by the
Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Lender.
9.05 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Agent for the account of the Lenders, unless the Agent shall have
received written notice from a Lender or the Company referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a
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"notice of default." The Agent will notify the Lenders of its receipt of any
such notice. The Agent shall take such action with respect to such Default or
Event of Default as may be requested by the Majority Lenders in accordance with
Article VIII; provided, however, that unless and until the Agent has received
any such request, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of the
Lenders.
9.06 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of
Holdings, the Company and their Subsidiaries or the Founding Companies, shall be
deemed to constitute any representation or warranty by any Agent-Related Person
to any Lender. Each Lender represents to the Agent that it has, independently
and without reliance upon any Agent-Related Person and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of Holdings, the Company and their
Subsidiaries and the Founding Companies, the value of and title to any
Collateral, and all applicable Lender regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Company hereunder. Each Lender also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of Holdings, the Company and their
Subsidiaries. Except for notices, reports and other documents expressly herein
required to be furnished to the Lenders by the Agent, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of Holdings, the Company or any
Subsidiary which may come into the possession of any of the Agent-Related
Persons.
9.07 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of Holdings
and the Company and without limiting the obligation of Holdings and the Company
to do so), pro rata, from and against any and all Indemnified Liabilities;
provided, however, that no Lender shall be liable for the payment to the
Agent-Related Persons of any portion of such Indemnified Liabilities resulting
solely from such Person's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender shall reimburse the Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including Attorney
Costs) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that the Agent is not reimbursed for such expenses by or on behalf of Holdings
or the Company. The undertaking in this Section shall
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survive the payment of all Obligations hereunder and the resignation or
replacement of the Agent.
9.08 Agent in Individual Capacity. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with Holdings, the Company
and their Subsidiaries and Affiliates as though BofA were not the Agent
hereunder and without notice to or consent of the Lenders. The Lenders
acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding each of Holdings, the Company or any of their
Subsidiaries or Affiliates (including information that may be subject to
confidentiality obligations in favor of Holdings, the Company or such Subsidiary
or Affiliate) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, BofA shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
include BofA in its individual capacity.
9.09 Successor Agent. The Agent may, and at the request of the Majority
Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If the Agent
resigns under this Agreement, the Majority Lenders shall appoint from among the
Lenders a successor agent for the Lenders which successor agent shall be
approved by the Company (such approval not to be unreasonably withheld). If no
successor agent is appointed prior to the effective date of the resignation of
the Agent, the Agent may appoint, after consulting with the Lenders and the
Company, a successor agent from among the Lenders. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article IX and Sections 10.04 and
10.05 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under this Agreement. If no successor agent has
accepted appointment as Agent by the date which is 30 days following a retiring
Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of the Agent hereunder until such time, if any, as the Majority Lenders
appoint a successor agent as provided for above.
9.10 Withholding Tax.
(a) If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Lender claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, or
if any Lender claims exemption from U.S. withholding tax under Sections 871(h)
or 881(c) of the Code with respect to payments of "portfolio interest," such
Lender agrees with and in favor of the Agent, to deliver to the Agent:
(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest
or fees in the first calendar
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year and before the payment of any interest or fees in each third
succeeding calendar year during which interest or fees may be paid under
this Agreement;
(ii) if such Lender claims that interest or fees paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224
before the payment of any interest or fees is due in the first taxable
year of such Lender and in each succeeding taxable year of such Lender
during which interest or fees may be paid under this Agreement;
(iii) if such Lender claims exemption from, or a reduction of,
withholding tax under Sections 871(h) or 881(c) of the Code with respect
to payments of "portfolio interest," a Form W-8, or any subsequent
versions thereof or successors thereto (and if such Lender delivers a
Form W-8, a certificate representing that such Lender is not a "bank"
for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of the Company and is not a controlled foreign corporation related to
the Company (within the meaning of Section 864(d)(4) of the Code)) on
or before the date it becomes a party to this Agreement; and
(iv) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of Holdings and the Company owing to such Lender,
such Lender agrees to notify the Agent of the percentage amount in which it is
no longer the beneficial owner of Obligations of the Company owing to such
Lender. To the extent of such percentage amount, the Agent will treat such
Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Company owing to such Lender, such Lender agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Lender not providing such forms
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or other documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered or was not properly executed, or because such
Lender failed to notify the Agent of a change in circumstances which rendered
the exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
9.11 Collateral Matters.
(a) The Agent is authorized on behalf of all the Lenders, without
the necessity of any notice to or further consent from the Lenders, from time to
time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(b) The Lenders irrevocably authorize the Agent, at its option and
in its discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all
Loans and all other Obligations known to the Agent and payable under this
Agreement or any other Loan Document; (ii) constituting property sold or to be
sold or disposed of as part of or in connection with any Disposition permitted
hereunder; (iii) constituting property in which Holdings, the Company or any
Subsidiary owned no interest at the time the Lien was granted or at any time
thereafter; (iv) constituting property leased to Holdings, the Company or any
Subsidiary under a lease which has expired or been terminated in a transaction
permitted under this Agreement or is about to expire and which has not been, and
is not intended by the Company or such Subsidiary to be, renewed or extended;
(v) consisting of an instrument evidencing Indebtedness or other debt
instrument, if the indebtedness evidenced thereby has been paid in full; or (vi)
if approved, authorized or ratified in writing by the Majority Lenders or all
the Lenders, as the case may be, as provided in subsection 10.01(f). Upon
request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this subsection 9.11(b), provided that the absence of any such confirmation for
whatever reason shall not affect the Agent's rights under this Section 9.11.
(c) Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of Holdings, the Company or any
Subsidiary) that each Loan Party's obligation to such Lender under this
Agreement and the other Loan Documents is not and shall not be secured by any
real property collateral now or hereafter acquired by such Lender other than the
real property described in the Mortgages.
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9.12 Lead Arranger, Co-Arranger, Managing Agent, Documentation Agent.
Neither the Lead Arranger, nor any of the Lenders identified on the facing page
or signature pages of this Agreement as a "Co-Arranger," "Managing Agent" or
"Documentation Agent", shall have any obligation, liability, responsibility or
duty under this Agreement other than those applicable to all Lenders as such.
Without limiting the foregoing, neither the Lead Arranger nor any of the Lenders
so identified as a "Co-Arranger," "Managing Agent" or "Documentation Agent",
shall have or be deemed to have any fiduciary relationship with any Lender. Each
Lender acknowledges that it has not relied, and will not rely, on the Lead
Arranger, or any of the Lenders so identified, in deciding to enter into this
Agreement or in taking or not taking action hereunder.
ARTICLE X
MISCELLANEOUS
10.01 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Holdings, the Company or any other Loan Party therefrom, shall be
effective unless the same shall be in writing and signed by the Majority Lenders
(or by the Agent at the written request of the Majority Lenders) and each Loan
Party thereto and acknowledged by the Agent, and then any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all the Lenders and acknowledged by the
Agent, do any of the following:
(a) increase or extend the Commitment of any Lender (or reinstate
any Commitment terminated pursuant to Section 8.02);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Lenders (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or (subject to clause (ii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Lenders or any of
them to take any action hereunder;
(e) amend this Section 10.01, subsection 2.04(e), Section 2.14, the
definition of "Majority Lenders" herein, or any provision herein providing for
consent or other action by all Lenders or some specified amount of Lenders; or
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(f) discharge any Guarantor, or release all or substantially all of
the Collateral except as otherwise may be provided in Section 10.13 or the
Collateral Documents or except where the consent of the Majority Lenders only is
specifically provided for;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Lenders or all the
Lenders, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Fee Letters and documents
evidencing Specified Swap Contracts may be amended, or rights or privileges
thereunder waived, in a writing executed by the parties thereto.
10.02 Notices.
(a) All notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by any Loan Party by facsimile (i) shall be immediately confirmed by
a telephone call to the recipient at the number specified on Schedule 10.02, and
(ii) shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on Schedule 10.02; or, as directed to any Loan Party or the Agent, to
such other address as shall be designated by such party in a written notice to
the other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to the Loan Parties and
the Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II or IX to the Agent shall not be effective until
actually received by the Agent and any notice of any Default or Event of Default
to any Loan Party shall not be effective until actually received by such Loan
Party.
(c) Any agreement of the Agent and the Lenders herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Loan Parties. The Agent and the Lenders shall be entitled to
rely on the authority of any Person purporting to be a Person authorized by the
Loan Parties to give such notice and the Agent and the Lenders shall not have
any liability to the Loan Parties or other Person on account of any action taken
or not taken by the Agent or the Lenders in reliance upon such telephonic or
facsimile notice. The obligation of the Company to repay the Loans or the
obligations of any Loan Party under any Loan Document to which it is a party
shall not be affected in any way or to any extent by any failure by the Agent
and the Lenders to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Agent and the Lenders of a confirmation which is at
variance with the terms understood by the Agent and the Lenders to be contained
in the telephonic or facsimile notice.
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10.03 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
10.04 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent) and
Antares (including in its capacity as Documentation Agent) within five Business
Days after demand (subject to subsection 4.01(e)) for all reasonable costs and
expenses incurred by BofA (including in its capacity as Agent) and Antares
(including in its capacity as Documentation Agent), in connection with (i) the
development, preparation, delivery, ongoing administration and execution of, and
the due diligence relating thereto, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated) , this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and (ii) the consummation of the transactions contemplated hereby and
thereby, and (iii) the syndication and assignment following the Closing Date of
all or any part of BofA's or Antares' interest as a Lender hereunder, including
reasonable Attorney Costs incurred by BofA (including in its capacity as Agent)
and Antares (including in its capacity as Documentation Agent) with respect
thereto;
(b) pay or reimburse the Agent, the Lead Arranger and each Lender
within five Business Days after demand (subject to subsection 4.01(e)) for all
costs and expenses (including Attorney Costs) incurred by them in connection
with the enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or any other Loan Document during the existence of
an Event of Default or after acceleration of the Loans (including in connection
with any "workout" or restructuring regarding the Loans, and including in any
Insolvency Proceeding or appellate proceeding); and
(c) pay or reimburse BofA (including in its capacity as Agent)
within five Business Days after demand (subject to subsection 4.01(e)) for all
reasonable appraisal (including the allocated cost of internal appraisal
services) , audit, environmental inspection and review (including the allocated
cost of such internal services) , search and filing costs, fees and expenses,
incurred or sustained by BofA (including in its capacity as Agent) in connection
with the matters referred to under subsections (a) and (b) of this Section.
10.05 Indemnification.
(a) Whether or not the transactions contemplated hereby are
consummated, each of Holdings and the Company shall indemnify, defend and hold
the Agent-Related Persons, and each Lender and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including reasonable Attorney Costs) of any
kind or nature whatsoever which may at any time (including at any time following
repayment of the Loans and
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termination of all Specified Swap Contracts and the termination, resignation or
replacement of the Agent or replacement of any Lender) be imposed on, incurred
by or asserted against any such Person in any way relating to or arising out of
this Agreement, the other Loan Documents, the Transaction Documents or any
document contemplated by or referred to therein, or the transactions
contemplated, thereby, or any action taken or omitted by any such Person under
or in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement, the other
Loan Documents, the Transaction Documents or the Specified Swap Contracts or the
Loans or the use of the proceeds thereof, whether or not any Indemnified Person
is a party thereto (all the foregoing, collectively, the "Indemnified
Liabilities"); provided that neither Holdings nor the Company shall have any
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities to the extent resulting from the gross negligence or willful
misconduct of such Indemnified Person. The agreements in this Section shall
survive payment of all other Obligations.
(b) (i) Each Loan Party shall indemnify, defend and hold harmless
each Indemnified Person, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
or disbursements (including reasonable Attorney Costs and the allocated cost of
internal environmental audit or review services), which may be incurred by or
asserted against such Indemnified Person in connection with or arising out of
any pending or threatened investigation, litigation or proceeding, or any action
taken by any Person, with respect to any Environmental Claim arising out of or
related to any property subject to a Mortgage provided by such Loan Party in
favor of the Agent or any Lender. No action taken by legal counsel chosen by the
Agent or any Lender in defending against any such investigation, litigation or
proceeding or requested remedial, removal or response action shall vitiate or
any way impair the Company's obligation and duty hereunder to indemnify and hold
harmless the Agent and each Lender.
(ii) In no event shall any site visit, observation, or testing
by the Agent or any Lender (or any contractee of the Agent or any Lender) be
deemed a representation or warranty that Hazardous Materials are or are not
present in, on, or under, the site, or that there has been or shall be
compliance with any Environmental Law. Neither the Company nor any other Person
is entitled to rely on any site visit, observation, or testing by the Agent or
any Lender. Neither the Agent nor any Lender owes any duty of care to protect
the Company or any other Person against, or to inform the Company or any other
party of, any Hazardous Materials or any other adverse condition affecting any
site or property. Neither the Agent nor any Lender shall be obligated to
disclose to the Company or any other Person any report or findings made as a
result of, or in connection with, any site visit, observation, or testing by the
Agent or any Lender.
(c) Survival; Defense. The obligations in this Section shall survive
payment of all other Obligations. At the election of any Indemnified Person, the
Company shall defend such Indemnified Person using legal counsel satisfactory to
such Indemnified Person in such Person's sole discretion, at the sole cost and
expense of the Company. All amounts owing under this Section shall be paid
within 30 days after demand.
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10.06 Marshalling; Payments Set Aside. Neither the Agent nor the Lenders
shall be under any obligation to marshal any assets in favor of Holdings, the
Company or any other Person or against or in payment of any or all of the
Obligations. To the extent that the Company makes a payment to the Agent or the
Lenders, or the Agent or the Lenders exercise their right of set-off, and such
payment or the proceeds of such set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by the Agent or such Lender
in its discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred, and (b) each Lender
severally agrees to pay to the Agent upon demand its pro rata share of any
amount so recovered from or repaid by the Agent.
10.07 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Lender.
10.08 Assignments, Participations, Etc. Any Lender may, with the
written consent of the Company and the Agent (which in each case shall not be
unreasonably withheld), at any time assign and delegate to one or more Eligible
Assignees (each an "Assignee") all, or any ratable part of all, of the Loans,
the Commitment and the other rights and obligations of such Lender hereunder;
provided, however, that (i) no written consent of the Company shall be required
during the existence of a Default or an Event of Default; (ii) no written
consent of the Company or the Agent shall be required in connection with any
assignment and delegation by a Lender to an Eligible Assignee that is another
Lender or an Affiliate of such Lender; (iii) except in connection with an
assignment of all of a Lender's rights and obligations with respect to its
Commitment and Loans, any such assignment to an Eligible Assignee that is not a
Lender hereunder shall be equal to or greater than $5,000,000; and (iv) no such
partial assignment need be of a ratable part of the Revolving Loans, the Term
Loans, the Commitment and the other interests, rights and obligations hereunder
of such assigning Lender; and provided further, however, that the Company and
the Agent may continue to deal solely and directly with such Lender in
connection with the interest so assigned to an Assignee until (A) such Lender
and its Assignee shall have delivered to the Company and the Agent an Assignment
and Acceptance Agreement substantially in the form of Exhibit E (an "Assignment
and Acceptance"), together with any Note or Notes subject to such assignment;
(B) a written notice of such assignment, together with payment instructions,
addresses and related information with respect to the Assignee, in substantially
the form of the Notice of Assignment and Acceptance attached as Schedule 1 to
the Assignment and Acceptance, shall have been given to the Company and the
Agent by such Lender and the Assignee; (C) the assignor Lender or Assignee shall
have paid to the Agent a processing fee in the amount of $4,000; and (D) the
Agent and the Company each shall have provided any required consent to such
assignment in accordance with this Section.
(b) From and after the date that the Agent notifies the assignor
Lender that the Agent has received (and, if required, provided its consent with
respect thereto and, if necessary, received any other consents required under
this Section 10.8) an executed Assignment and
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Acceptance and payment of the above-referenced processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, (ii) this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom, and (iii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Loan Documents; provided, however, that the assignor
Lender shall not relinquish its rights under Article III or under Sections 10.04
and 10.05 (and any equivalent provisions of the other Loan Documents) to the
extent such rights relate to the time prior to the effective date of the
Assignment and Acceptance. The Commitment allocated to each Assignee shall
reduce the Commitment of the assigning Lender pro tanto.
(c) Within five Business Days after its receipt of notice by the
Agent that it has received (and, if necessary, consented to) an executed
Assignment and Acceptance and payment of the processing fee (and provided that
the Company consents to such assignment in accordance with subsection 10.08(a)),
the Company shall execute and deliver to the Agent any new Notes requested by
such Assignee evidencing such Assignee's assigned Loans and Commitment and, if
the assignor Lender has retained a portion of its Loans and its Commitment,
replacement Notes as requested by the assignor Lender evidencing the Loans and
Commitment retained by the assignor Lender (such Notes to be in exchange for,
but not in payment of, the Notes held by such Lender, if any).
(d) Any Lender may at any time sell to one or more commercial banks
or other Persons not Affiliates of the Company (a "Participant") participating
interests in any Loans, the Commitment of that Lender and the other interests of
that Lender (the "originating Lender") hereunder and under the other Loan
Documents; provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Loan Parties and the Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Lenders
as described in the first proviso to Section 10.01. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections
3.01, 3.03 and 10.05 as though it were also a Lender hereunder (provided that in
the case of Section 3.01, the amounts, if any, payable by the Company shall not
be increased as a result of such participation), and if amounts outstanding
under this Agreement are due and unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.
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(e) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Note held by
it in favor of any Federal Reserve Lender in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Lender may enforce such pledge or security interest in any manner permitted
under applicable law.
(f) So long as Deloitte & Touche LLP holds any Subordinated Debt, no
assignment or participation hereunder to any Assignee or Participant shall be
effective unless, prior to the making of such assignment or the sale of such
participation, a Responsible Officer of the Company shall certify to the Agent
and the Lenders that such assignment to such Assignee, or the sale of such
participation to such Participant, as the case may be, shall not result in any
violation of, or (if such Assignee or Participant is an attest client of
Deloitte & Touche LLP) impairment of Deloitte & Touche LLP's independence in
respect of such attest client under, any Requirement of Law or any rule,
regulation, interpretation, guidelines or request from any self-regulatory body
with authority with respect to auditing standards or auditing firms (whether or
not having the force of law) applicable to or binding upon Deloitte & Touche LLP
in its capacity as a holder of Subordinated Debt. In the event of any request
made to the Company for such certification, the Agent or the party seeking to
make such assignment or to sell such participation shall provide such
information as may be reasonably requested by the Company to evaluate such
request and the Company agrees to consult with Deloitte & Touche LLP and act in
good faith to provide, and not unreasonably withhold, such certification or to
advise the Agent in reasonable detail as to why such certification cannot be
provided.
10.09 Confidentiality. Each Lender agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by any Loan Party and provided to it by such Loan Party or any
Subsidiary, or by the Agent on such Loan Party's or such Subsidiary's behalf,
under this Agreement or any other Loan Document, and neither it nor any of its
Affiliates shall use any such information other than in connection with or in
enforcement of this Agreement and the other Loan Documents or in connection with
other business now or hereafter existing or contemplated with such Loan Party or
any Subsidiary, except to the extent such information (i) was or becomes
generally available to the public other than as a result of disclosure by the
Lender, or (ii) was or becomes available on a non-confidential basis from a
source other than a Loan Party, provided that such source is not bound by a
confidentiality agreement with such Loan Party known to such Lender; provided,
however, that any Lender may disclose such information (A) at the request or
pursuant to any requirement of any Governmental Authority to which such Lender
is subject or in connection with an examination of such Lender by any such
authority; (B) pursuant to subpoena or other court process; (C) when required to
do so in accordance with the provisions of any applicable Requirement of Law;
(D) to the extent reasonably required in connection with any litigation or
proceeding to which the Agent, any Lender or their respective Affiliates may be
party; (E) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (F) to such Lender's
independent auditors, legal counsel and other professional advisors; (G) to any
Participant or Assignee, actual or potential, provided that such Person agrees
in writing to keep such information confidential to the same extent required of
the Lenders hereunder; (H) as to any
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Lender or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Company or any
Subsidiary is party or is deemed party with such Lender or such Affiliate; and
(I) to its Affiliates.
10.10 Set-off. In addition to any rights and remedies of the Lenders
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to the Company or any other Loan Party, any such notice
being waived by the Company and each other Loan Party to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Lender to or for the credit or the
account of the Company against any and all Obligations owing to such Lender, now
or hereafter existing, irrespective of whether or not the Agent or such Lender
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Lender agrees promptly to
notify the Company and the Agent after any such set-off and application made by
such Lender; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. NOTWITHSTANDING THE
FOREGOING, IF ANY MORTGAGE HAS BEEN PROVIDED BY A LOAN PARTY HEREUNDER, NO
LENDER SHALL EXERCISE, OR ATTEMPT TO EXERCISE, ANY RIGHT OF SET-OFF, BANKERS
LIEN, OR THE LIKE, AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF HOLDINGS, THE
COMPANY OR ANY SUBSIDIARY OF THE COMPANY HELD OR MAINTAINED BY SUCH LENDER
WITHOUT THE PRIOR WRITTEN CONSENT OF THE AGENT.
10.11 Automatic Debits of Fees. With respect to any principal, interest,
fee, or any other cost or expense (including Attorney Costs) due and payable to
the Agent, BofA or the Lead Arranger under the Loan Documents, each of Holdings
and the Company hereby irrevocably authorizes BofA to debit any deposit account
of Holdings or the Company with BofA in an amount such that the aggregate amount
debited from all such deposit accounts does not exceed such principal, interest,
fee or other cost or expense. If there are insufficient funds in such deposit
accounts to cover the amount then due, such debits will be reversed (in whole or
in part, in BofA's sole discretion) and such amount not debited shall be deemed
to be unpaid. No such debit under this Section shall be deemed a set-off.
10.12 Guaranty
(a) Guaranty. Each of the Guarantors unconditionally and
irrevocably, jointly and severally guarantees to the Agent, the Lead Arranger,
the Swap Providers and the Lenders, and their respective successors, endorsers,
transferees and assigns (the "Guaranteed Persons"), the full and prompt payment
when due (whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise) and performance of all indebtedness,
liabilities and other obligations of the Company to any Guaranteed Person,
whether created under, arising out of or in connection with this Agreement, the
Notes or any of the other Loan Documents or otherwise, including all unpaid
principal of the Loans, all interest accrued thereon, all fees due under this
Agreement and all other amounts payable by the Company to any Guaranteed Person
thereunder or in connection therewith. The terms
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"indebtedness," "liabilities" and "obligations" are used herein in their most
comprehensive sense and include any and all advances, debts, obligations and
liabilities, now existing or hereafter arising, whether voluntary or involuntary
and whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether recovery upon such indebtedness,
liabilities and obligations may be or hereafter become unenforceable or shall be
an allowed or disallowed claim under the Bankruptcy Code or other applicable
law. The foregoing indebtedness, liabilities and other obligations of the
Company shall hereinafter be collectively referred to as the "Guaranteed
Obligations." The Guaranteed Obligations include interest which, but for an
Insolvency Proceeding, would have accrued on such Guaranteed Obligations,
whether or not a claim is allowed against the Company for such interest in any
such Insolvency Proceeding.
(b) Separate Obligation. Each Guarantor acknowledges and agrees (i)
that the Guaranteed Obligations are separate and distinct from any indebtedness,
obligations or liabilities arising under or in connection with any other
agreement, instrument or guaranty, including under any provision of this
Agreement other than this Section 10.12, executed at any time by such Guarantor
in favor of any Guaranteed Person, and (ii) such Guarantor shall pay and perform
all of the Guaranteed Obligations as required under this Section 10.12, and each
Guaranteed Person may enforce any and all of its rights and remedies hereunder,
without regard to any other agreement, instrument or guaranty, including any
provision of this Agreement other than this Section 10.12, at any time executed
by such Guarantor in favor of any Guaranteed Person, regardless of whether or
not any such other agreement, instrument or guaranty, or any provision thereof
or hereof, shall for any reason become unenforceable or any of the indebtedness,
obligations or liabilities thereunder shall have been discharged, whether by
performance, avoidance or otherwise. Each Guarantor acknowledges that in
providing benefits to the Company and such Guarantor, the Guaranteed Persons are
relying upon the enforceability of this Section 10.12 and the Guaranteed
Obligations as separate and distinct indebtedness, obligations and liabilities
of such Guarantor, and each Guarantor agrees that each Guaranteed Person would
be denied the full benefit of their bargain if at any time this Section 10.12 or
the Guaranteed Obligations were treated any differently. The fact that the
Guaranty of each Guarantor is set forth in this Agreement rather than in a
separate guaranty document is for the convenience of the Company and the
Guarantors and shall in no way impair or adversely affect the rights or benefits
of any Guaranteed Person under this Section 10.12. Each Guarantor agrees to
execute and deliver a separate agreement, immediately upon request at any time
of any Guaranteed Person, evidencing such Guarantor's obligations under this
Section 10.12. Upon the occurrence of any Event of Default, a separate action or
actions may be brought against each Guarantor, whether or not the Company or any
other Guarantor or Person is joined therein or a separate action or actions are
brought against the Company or any other Guarantor or Person.
(c) Limitation of Guaranty. To the extent that any court of
competent jurisdiction shall impose by final judgment under applicable law
(including the California Uniform Fraudulent Transfer Act and Sections 544 and
548 of the Bankruptcy Code) any limitations on the amount of any Guarantor's
liability with respect to the Guaranteed Obligations which
87.
<PAGE> 95
any Guaranteed Person can enforce under this Section 10.12, each Guaranteed
Person by its acceptance hereof accepts such limitation on the amount of such
Guarantor's liability hereunder to the extent needed to make this Section 10.12
fully enforceable and nonavoidable.
(d) Liability of Guarantor. The liability of each Guarantor under
this Section 10.12 shall be irrevocable, absolute, independent and
unconditional, and shall not be affected by any circumstance which might
constitute a discharge of a surety or guarantor other than the indefeasible
payment and performance in full of all Guaranteed Obligations. In furtherance of
the foregoing and without limiting the generality thereof, each Guarantor agrees
as follows:
(i) such Guarantor's liability hereunder shall be the immediate,
direct, and primary obligation of such Guarantor and shall not be
contingent upon any Guaranteed Person's exercise or enforcement of any
remedy it may have against the Company or any other Person, or against
any Collateral or other security for any Guaranteed Obligations;
(ii) this Guaranty is a guaranty of payment when due and not
merely of collectibility;
(iii) such Guarantor's payment of a portion, but not all, of the
Guaranteed Obligations shall in no way limit, affect, modify or abridge
such Guarantor's liability for any portion of the Guaranteed Obligations
remaining unsatisfied; and
(iv) such Guarantor's liability with respect to the Guaranteed
Obligations shall remain in full force and effect without regard to, and
shall not be impaired or affected by, nor shall such Guarantor be
exonerated or discharged by, any of the following events:
(A) any Insolvency Proceeding;
(B) any limitation, discharge, or cessation of the liability
of the Company or any other guarantor or Person for any Guaranteed Obligations
due to any statute, regulation or rule of law, or any invalidity or
unenforceability in whole or in part of any of the Guaranteed Obligations or the
Loan Documents;
(C) any merger, acquisition, consolidation or change in
structure of the Company or any other Guarantor or Person, or any sale, lease,
transfer or other disposition of any or all of the assets or shares of the
Company or any other Guarantor or other Person;
(D) any assignment or other transfer, in whole or in part, of
any Guaranteed Person's interests in and rights under this Guaranty or the other
Loan Documents;
88.
<PAGE> 96
(E) any claim, defense, counterclaim or set-off, other than
that of prior performance, that the Company, such Guarantor, any other guarantor
or other Person may have or assert, including any defense of incapacity or lack
of corporate or other authority to execute any of the Loan Documents;
(F) any Guaranteed Person's amendment, modification, renewal,
extension, cancellation or surrender of any Loan Document or any Guaranteed
Obligations;
(G) any Guaranteed Person's exercise or nonexercise of any
power, right or remedy with respect to any Guaranteed Obligations or any
Collateral;
(H) any Guaranteed Person's vote, claim, distribution,
election, acceptance, action or inaction in any Insolvency Proceeding;
(I) any other guaranty, whether by any Guarantor or any other
Person, of all or any part of the Guaranteed Obligations or any other
indebtedness, obligations or liabilities of any Guaranteed Person.
(e) Consents of Guarantor. Each Guarantor hereby unconditionally
consents and agrees that, without notice to or further assent from such
Guarantor:
(i) the principal amount of the Guaranteed Obligations may be
increased or decreased and additional indebtedness or obligations of the
Company under the Loan Documents may be incurred and the time, manner,
place or terms of any payment under any Loan Document be extended or
changed, by one or more amendments, modifications, renewals or
extensions of any Loan Document or otherwise;
(ii) the time for the Company's (or any other Person's)
performance of or compliance with any term, covenant or agreement on its
part to be performed or observed under any Loan Document may be
extended, or such performance or compliance waived, or failure in or
departure from such performance or compliance consented to, all in such
manner and upon such terms as any Guaranteed Person (or the Majority
Lenders, as the case may be) may deem proper;
(iii) each Guaranteed Person may request and accept other
guarantees and may take and hold other security as collateral for the
Guaranteed Obligations, and may, from time to time, in whole or in part,
exchange, sell, surrender, release, subordinate, modify, waive, rescind,
compromise or extend such other guaranties or security and may permit or
consent to any such action or the result of any such action, and may
apply such security and direct the order or manner of sale thereof;
(iv) each Guaranteed Person may exercise, or waive or otherwise
refrain from exercising, any other right, remedy, power or privilege
even if the exercise thereof affects or eliminates any right of
subrogation or any other right of such Guarantor against the Company;
89.
<PAGE> 97
(f) Guarantor's Waivers. Each Guarantor waives and agrees not to
assert:
(i) any right to require any Guaranteed Person to proceed against
the Company, any other guarantor or any other Person, or to pursue any
other right, remedy, power or privilege of such Guaranteed Person
whatsoever;
(ii) the defense of the statute of limitations in any action
hereunder or for the collection or performance of the Guaranteed
Obligations;
(iii) any defense arising by reason of any lack of corporate or
other authority or any other defense of the Company, such Guarantor or
any other Person;
(iv) any defense based upon any Guaranteed Person's errors or
omissions in the administration of the Guaranteed Obligations;
(v) any rights to set-offs and counterclaims;
(vi) without limiting the generality of the foregoing, to the
fullest extent permitted by law, any defenses or benefits that may be
derived from or afforded by applicable law limiting the liability of or
exonerating guarantors or sureties, or which may conflict with the terms
of this Section 10.12; and
(vii) any and all notice of the acceptance of this Guaranty, and
any and all notice of the creation, renewal, modification, extension or
accrual of the Guaranteed Obligations, or the reliance by any Guaranteed
Person upon this Guaranty, or the exercise of any right, power or
privilege hereunder. The Guaranteed Obligations shall conclusively be
deemed to have been created, contracted, incurred and permitted to exist
in reliance upon this Guaranty. Each Guarantor waives promptness,
diligence, presentment, protest, demand for payment, notice of default,
dishonor or nonpayment and all other notices to or upon the Company,
such Guarantor or any other Person with respect to the Guaranteed
Obligations.
(g) Financial Condition of the Company. No Guarantor shall have any
right to require any Guaranteed Person to obtain or disclose any information
with respect to: the financial condition or character of the Company or the
ability of the Company to pay and perform the Guaranteed Obligations; the
Guaranteed Obligations; any Collateral or other security for any or all of the
Guaranteed Obligations; the existence or nonexistence of any other guarantees of
all or any part of the Guaranteed Obligations; any action or inaction on the
part of any Guaranteed Person or any other Person; or any other matter, fact or
occurrence whatsoever. Each Guarantor hereby acknowledges that it has undertaken
its own independent investigation of the financial condition of the Company and
all other matters pertaining to this Guaranty and further acknowledges that it
is not relying in any manner upon any representation or statement of any
Guaranteed Person with respect thereto.
90.
<PAGE> 98
(h) Subrogation. Until the Guaranteed Obligations shall be satisfied
in full and the Revolving Commitments shall be terminated, each Guarantor shall
not have, and shall not directly or indirectly exercise (i) any rights that it
may acquire by way of subrogation under this Section 10.12, by any payment
hereunder or otherwise, (ii) any rights of contribution, indemnification,
reimbursement or similar suretyship claims arising out of this Section 10.12 or
(iii) any other right which it might otherwise have or acquire (in any way
whatsoever) which could entitle it at any time to share or participate in any
right, remedy or security of any Guaranteed Person as against the Company or
other guarantors, whether in connection with this Section 10.12, any of the
other Loan Documents or otherwise. If any amount shall be paid to any Guarantor
on account of the foregoing rights at any time when all the Guaranteed
Obligations shall not have been paid in full, such amount shall be held in trust
for the benefit of each Guaranteed Person and shall forthwith be paid to the
Agent to be credited and applied to the Guaranteed Obligations, whether matured
or unmatured, in accordance with the terms of the Loan Documents.
(i) Continuing Guaranty. This Guaranty is a continuing guaranty and
agreement of subordination and shall continue in effect and be binding upon each
Guarantor until termination of the Commitments and payment and performance in
full of all Guaranteed Obligations, including Guaranteed Obligations which may
exist continuously or which may arise from time to time under successive
transactions, and each Guarantor expressly acknowledges that this Guaranty shall
remain in full force and effect notwithstanding that there may be periods in
which no Guaranteed Obligations exist.
(j) Reinstatement. This Guaranty shall continue to be effective or
shall be reinstated and revived, as the case may be, if, for any reason, any
payment of the Guaranteed Obligations by or on behalf of the Company (or receipt
of any proceeds of Collateral) shall be rescinded, invalidated, declared to be
fraudulent or preferential, set aside, voided or otherwise required to be repaid
to the Company, its estate, trustee, receiver or any other Person (including
under the Bankruptcy Code or other state or federal law) , or must otherwise be
restored by any Guaranteed Person, whether as a result of Insolvency Proceedings
or otherwise. All losses, damages, costs and expenses that any Guaranteed Person
may suffer or incur as a result of any voided or otherwise set aside payments
shall be specifically covered by the indemnity in favor of the Lenders and the
Agent contained in Section 10.5.
(k) Substantial Benefits. The funds that have been borrowed from the
Lenders by the Company have been and are to be contemporaneously used for the
direct or indirect benefit of the Company and each Guarantor. It is the
position, intent and expectation of the parties that the Company and each
Guarantor have derived and will derive significant and substantial direct or
indirect benefits from the accommodations that have been made by the Lenders
under the Loan Documents.
(l) Knowing and Explicit Waivers. EACH GUARANTOR ACKNOWLEDGES THAT
IT EITHER HAS OBTAINED THE ADVICE OF LEGAL COUNSEL OR HAS HAD THE OPPORTUNITY TO
OBTAIN SUCH ADVICE IN
91.
<PAGE> 99
CONNECTION WITH THE TERMS AND PROVISIONS OF THIS SECTION 10.12. EACH GUARANTOR
ACKNOWLEDGES AND AGREES THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN
ARE MADE WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND CONSEQUENCES, AND THAT
ALL SUCH WAIVERS AND CONSENTS HEREIN ARE EXPLICIT AND KNOWING AND WHICH EACH
GUARANTOR EXPECTS TO BE FULLY ENFORCEABLE.
10.13 Release of Subsidiary Guarantors. The Company may at any time
deliver to the Agent a certificate from a Responsible Officer certifying as of
the date of the certificate that, after the consummation of the transaction or
series of transactions described in such certificate (which certification shall
also state that such transactions, individually or in the aggregate, will be in
compliance with the terms and conditions of this Agreement, including to the
extent applicable Sections 7.02 and 7.03, and that no Event of Default existed,
exists or will exist, as the case may be, immediately before, as a result of or
immediately after giving effect to such transaction or transactions and
termination), the Guarantor identified in such certification will no longer be
a Subsidiary of the Company. Effective upon the consummation of the transaction
or series of transactions described in such certificate, the Subsidiary
identified in such certification shall thereupon automatically cease to be a
Guarantor hereunder and shall cease to be a party hereto and shall thereupon
automatically be released from its obligations under Section 10.12. The Company
shall promptly notify the Agent of the consummation of any such transaction or
series of transactions. The Agent, on behalf of the Lenders, shall, at the
Company's expense, execute and deliver such instruments as the Company may
reasonably request to evidence such release, including such UCC termination
statements and other documents as may be necessary to release the Lien of the
Agent and the Lenders on the assets of such released Subsidiary.
10.14 Notification of Addresses, Lending Offices, Etc. Each Lender shall
notify the Agent in writing of any changes in the address to which notices to
the Lender should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
10.15 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.16 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.17 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the other Loan
Parties, the Lenders, the Agent and the Agent-Related Persons, the Indemnified
Persons and their permitted successors and assigns, and no other Person shall be
a direct or indirect legal beneficiary of, or have any direct or
92.
<PAGE> 100
indirect cause of action or claim in connection with, this Agreement or any of
the other Loan Documents.
10.18 Governing Law and Jurisdiction. THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR
OF THE UNITED STATES SITTING IN NEW YORK CITY, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF THE COMPANY, EACH OTHER LOAN PARTY, THE AGENT AND THE
LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, EACH OTHER LOAN
PARTY, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. THE COMPANY, EACH OTHER LOAN PARTY, THE AGENT AND THE LENDERS
EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH
MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
(c) Nothing contained in this Section shall override any contrary
provision contained in any Specified Swap Contract.
10.19 Waiver of Jury Trial. THE COMPANY, EACH OTHER LOAN PARTY, THE
LENDERS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON,
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE. THE COMPANY, EACH OTHER LOAN PARTY, THE LENDERS AND THE AGENT EACH
AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION
AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO
ANY
93.
<PAGE> 101
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
10.20 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
each other Loan Party, the Lenders and the Agent, and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof.
10.21 Antares. The parties agree and acknowledge that all references to
"Antares Leveraged Capital Corp." in any certificate, agreement or other Loan
Document delivered in connection herewith shall be deemed a reference to Antares
Capital Corporation (formerly known as Antares Leveraged Capital Corp.).
[Signature page follows.]
94.
<PAGE> 102
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in San Francisco, California by their proper and
duly authorized officers as of the day and year first above written.
PROFITSOURCE CORPORATION
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
ENTERPRISE PROFIT SOLUTIONS CORPORATION
By:
---------------------------------------
Name:
Title:
THE SUBSIDIARIES LISTED ON ANNEX I
By:
---------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent and a Lender
By:
---------------------------------------
Name: Kevin C. Leader
Title: Vice President
ANTARES CAPITAL CORPORATION, as
Documentation Agent a Lender
By:
---------------------------------------
Name:
Title:
95.
<PAGE> 103
ING (U.S.) CAPITAL CORPORATION, as
Managing Agent and a Lender
By:
---------------------------------------
Name:
Title:
96.
<PAGE> 104
ANNEX II
PRICING GRID
The Applicable Margin and the Applicable Fee Amount, for any day on and
after the first anniversary of the Closing Date, shall be the amount per annum
set forth below based on the Company Leverage Ratio set forth in the Compliance
Certificate most recently delivered by the Company to the Agent pursuant to
Section 6.02(b) of the Credit Agreement; changes in the Applicable Margin and
the Applicable Fee Amount resulting from a change in the Company Leverage Ratio
shall become effective on the earlier of: (i) the date of delivery by the
Company to the Agent of a new Compliance Certificate and accompanying financial
statements pursuant to Section 6.02(b); and (ii) the date on which the Company
is required to deliver such new Compliance Certificate and accompanying
financial statements pursuant to Section 6.02(b). If the Company shall fail to
deliver a Compliance Certificate and accompanying financial statements within
the number of days after the end of any fiscal quarter or fiscal year as
required pursuant to Section 6.02(b), the parties agree that the Applicable
Margin and the Applicable Fee Amount shall be fixed at Level 3 until such time
as the Company delivers such new Compliance Certificate and accompanying
financial statements pursuant to Section 6.02(b).
<TABLE>
<CAPTION>
==========================================================================================
LEVEL COMPANY OFFSHORE RATE BASE RATE COMMITMENT FEE
LEVERAGE RATIO SPREAD SPREAD
==========================================================================================
<S> <C> <C> <C> <C>
Level 1 less than or 2.75% 1.50% 0.50%
equal to 1.00
- ------------------------------------------------------------------------------------------
Level 2 greater than 3.25% 2.00% 0.50%
1.00 but less
than or equal
to 1.75
- ------------------------------------------------------------------------------------------
Level 3 greater than 3.50% 2.25% 0.50%
1.75
- ------------------------------------------------------------------------------------------
</TABLE>
1.
<PAGE> 105
SCHEDULE 2.01
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Term Revolving
Lender Commitment Commitment Pro Rata Share
- ------ ----------- ----------- --------------
<S> <C> <C> <C>
Bank of America National Trust
and Savings Association $18,750,000 $18,750,000 37.50000000%
Antares Capital Corporation $18,750,000 $18,750,000 37.50000000%
ING (U.S.) Capital Corporation $12,500,000 $12,500,000 25.00000000%
----------- ----------- -----------
TOTAL $50,000,000 $50,000,000 100%
</TABLE>
1.
<PAGE> 106
SCHEDULE 10.02
PAYMENT OFFICES;
ADDRESSES FOR NOTICES; LENDING OFFICES
PROFITSOURCE CORPORATION
Address: 695 Town Center Drive, Suite 400
Costa Mesa, CA 92626-1924
Attention: Mark Coleman
Telephone: (714) 429-5710
Facsimile: (714) 429-5599
ENTERPRISE PROFIT SOLUTIONS CORPORATION
Address: 695 Town Center Drive, Suite 400
Costa Mesa, CA 92626-1924
Attention: Mark Coleman
Telephone: (714) 429-5710
Facsimile: (714) 429-5599
OTHER LOAN PARTIES
Address c/o Enterprise Profit Solutions Corporation
695 Town Center Drive, Suite 400
Costa Mesa, CA 92626-1924
Attention: Mark Coleman
Telephone: (714) 429-5710
Facsimile: (714) 429-5599
1.
<PAGE> 107
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
Notices for Borrowing, Conversions/ Continuations, Payments:
Address Bank of America National Trust and Savings
Association
Agency Administrative Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520
Attention: Lorine Stafford
Telephone: (925) 675-7153
Facsimile: (925) 675-7531 or 7532
Other Notices:
Address Bank of America National Trust and Savings
Association
Credit Products #3838
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Kevin C. Leader
Telephone: (415) 622-8168
Facsimile: (415) 622-2385
Agent's Payment Office:
Address Bank of America National Trust and Savings
Association
1850 Gateway Boulevard
Concord, CA 94520
Attention: Agency Administrative Services #5596
Reference: ProfitSource
For Credit to Bancontrol Acct. No. 12330-16523
2.
<PAGE> 108
ANTARES CAPITAL CORPORATION,
as a Lender
Domestic and Offshore Lending Office:
Address 311 S. Wacker Drive
Suite 2725
Chicago, IL 60606
Attention: Judy Keegan
Telephone: (312) 697-3971
Facsimile: (312) 697-3998
Notices (other than Borrowing Notices and Notices of
Conversion/Continuation):
Address 311 S. Wacker Drive
Suite 2725
Chicago, IL 60606
Attention: Stefano Robertson
Reference: Profit Source
Facsimile: (312) 697-3998
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Lender
Domestic and Offshore Lending Office:
Address Bank of America National Trust and Savings
Association
1850 Gateway Boulevard, 4th Floor
Concord, CA 94520
Attention: Lorine Stafford
Telephone: (925) 675-7153
Facsimile: (925) 675-7531 or 7532
3.
<PAGE> 109
Notices (other than Borrowing Notices and Notices of
Conversion/Continuation):
Address Bank of America National Trust and Savings
Association
Credit Products #3838
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Kevin C. Leader
Reference: ProfitSource
Facsimile: (415) 622-4585
ING (U.S.) CAPITAL CORPORATION, as a Lender
Domestic and Offshore Lending Office:
Address ING (U.S.) Capital Corporation
Loan Operations - 6L
135 E. 57th Street
New York, NY 10022
Attention: Pamela Kaye
Telephone: (212) 409-1743
Facsimile: (212) 486-6341
Notices (other than Borrowing Notices and Notices of
Conversion/Continuation):
Address ING (U.S.) Capital Corporation
333 S. Grand Avenue
Suite 4200
Los Angeles, CA 90071
Attention: Bradford W. Pollard
Reference: ProfitSource
Facsimile: (213) 346-3991
4.
<PAGE> 1
EXHIBIT 10.51
FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this
"Amendment") dated as of March 17, 1999 is entered into among Enterprise Profit
Solutions Corporation, a Delaware corporation (the "Company"), EPS Solutions
Corporation (f/k/a ProfitSource Corporation), a Delaware corporation, certain
other affiliates of the Company, the several financial institutions party to the
Credit Agreement referred to below (collectively, the "Lenders"), Bank of
America National Trust and Savings Association, as administrative agent for
itself and the other Lenders, Antares Capital Corporation, as documentation
agent, and ING (U.S.) Capital LLC, as managing agent.
RECITALS
A. The parties hereto have entered into a Credit Agreement dated
as of December 7, 1998 (the "Credit Agreement"), pursuant to which the Lenders
agreed to make available to the Company a term loan and revolving credit
facility. The "Closing Date" under the Credit Agreement was December 14, 1998.
B. The Company has requested that the Credit Agreement be amended
to (i) increase the Revolving Commitments of Bank of America National Trust and
Savings Association ("BofA") and Antares Capital Corporation ("Antares") by
$5,000,000 each and (ii) amend part B of Schedule 1.01 to the Credit Agreement
to modify the list of Persons (or assets of such Persons) that may be acquired
pursuant to a Secondary Acquisition, and the Lenders or the Majority Lenders, as
required, are willing to so amend the Credit Agreement subject to the terms and
conditions of this Amendment.
C. The Company has requested that the Majority Lenders provide a
further waiver of the requirement under Section 1.01 of the Credit Agreement
that all Secondary Acquisitions be consummated not later than 60 days after the
Closing Date and allow the Company until March 19, 1999 to consummate the
Secondary Acquisitions, and the Majority Lenders are willing to so waive such
requirement and grant such extension subject to the terms and conditions of this
Amendment.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto agree as follows:
1. Capitalized Terms. Capitalized terms used in this Amendment
(including in the Recitals hereof and in the Consent and Agreement of Guarantors
attached hereto) and not otherwise defined shall have the respective meanings
set forth in the Credit Agreement.
2. Amendments.
a. Subject to the terms and conditions set forth herein,
the Lenders hereby agree to amend the Credit Agreement as follows: Schedule 2.01
(entitled "Commitments and Pro Rata Shares") is hereby amended and restated in
its entirety in the form of Annex A attached hereto.
<PAGE> 2
b. Subject to the terms and conditions set forth
herein, the Majority Lenders hereby agree to amend the Credit Agreement as
follows: Part B of Schedule 1.01 (entitled "Founding Companies") is hereby
amended and restated in its entirety in the form of Annex B attached hereto.
3. Waiver. Subject to the terms and conditions set forth herein,
the Majority Lenders hereby agree to waive compliance by the Company with
Section 1.01 of the Credit Agreement insofar as any Acquisition, which would
otherwise be a Secondary Acquisition under Section 1.01 of the Credit Agreement,
is not a Secondary Acquisition because such Acquisition is consummated later
than 60 days after the Closing Date; provided, however, that any such
Acquisition shall be a Secondary Acquisition only if such Acquisition is
consummated not later than March 19, 1999.
4. Fees. The Company shall pay to the Agent for the account of
each of BofA and Antares the fees set forth in that certain letter agreement
dated as of the date hereof by and between the Company and the Agent. Such fees
shall be due and payable by the Company upon its execution of this Amendment.
5. Certain Transitional Matters. On the Effective Date (as
defined in Section 7 below), the amount of Revolving Loans then outstanding and
held by each Lender shall be adjusted to reflect the changes in the Lenders' Pro
Rata Shares of the Revolving Loans, subject to Section 3.04 of the Credit
Agreement. Each Lender having Revolving Loans then outstanding and whose Pro
Rata Share in respect of Revolving Loans has been decreased on the Effective
Date as a result of the increase in the aggregate Revolving Commitments
contemplated hereby shall be deemed to have assigned on the Effective Date,
without recourse, to each Lender increasing its Revolving Commitment on the
Effective Date such portion of such Revolving Loans as shall be necessary to
effectuate such adjustment. Each such Lender increasing its Revolving Commitment
on the Effective Date shall (i) be deemed to have assumed such portion of such
Revolving Loans and (ii) fund on the Effective Date such assumed amounts to the
Agent for the account of the assigning Lender in accordance with the provisions
hereof in the amount notified to such increasing Lender by the Agent.
6. Representations and Warranties. Each Loan Party
hereby represents and warrants to the Agent and the Lenders as of the
date hereof and as of the Effective Date (as defined in Section 7
hereof) as follows:
a. No Default or Event of Default has occurred and is
continuing.
b. The execution, delivery and performance by each Loan
Party of this Amendment have been duly authorized by all necessary corporate and
other action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person (including any Governmental
Authority) in order to be effective and enforceable.
c. This Amendment and the Loan Documents constitute the
legal, valid and binding obligations of each Loan Party, enforceable against it
in accordance with their respective terms, without defense, counterclaim or
offset.
d. All representations and warranties of each Loan Party
contained in the Loan Documents are true and correct.
2.
<PAGE> 3
e. Each Loan Party is entering into this
Amendment on the basis of its own investigations and for its own reasons,
without reliance upon the Agent, the Lenders or any other Person.
7. Effective Date. The amendments and waiver set forth in
Sections 2 and 3 above will become effective on the date on which all of the
following conditions are and remain satisfied (such date, the "Effective Date"):
(i) the Agent shall have received from each Loan Party and
the Lenders an executed counterpart of this Amendment;
(ii) the Agent shall have received the consent of each
Guarantor in its capacity as such to the execution and delivery hereof;
(iii) the Agent shall have received (A) for the account of
BofA and Antares payment of the fees required under Section 4 hereof and (B) for
the account of the Agent and Antares all accrued and unpaid costs and expenses
(including attorneys' fees) incurred by the Agent and Antares and reimbursable
under Section 10.04 of the Credit Agreement;
(iv) the Agent shall have received a copy of the
resolutions of the Company authorizing the transactions contemplated hereby,
certified as of the Effective Date by the Secretary or Assistant Secretary of
the Company;
(v) the Agent shall have received an opinion of Brian W.
Copple, Esq., General Counsel of the Company, addressed to the Agent and the
Lenders, dated the Effective Date, and otherwise in form and substance
satisfactory the Agent and the Lenders;
(vi) the Secondary Acquisitions shall have been
consummated on the Effective Date substantially concurrently with the
effectiveness of the amendments and waiver contemplated hereby, and all
requirements of the Credit Agreement pertaining thereto (including the
provisions of Section 6.14) shall have been satisfied; and
(vii) the Agent shall have received replacement Notes in
favor of BofA and Antares evidencing the increased Revolving Commitments of BofA
and Antares.
8. Reservation of Rights. Each Loan Party acknowledges and agrees
that the execution and delivery by the Agent and the Lenders of this Amendment
shall not be deemed to create a course of dealing or an obligation to execute
similar waivers or amendments under the same or similar circumstances in the
future.
9. Miscellaneous.
a. Except as expressly amended or waived herein, all
terms, covenants and provisions of the Loan Documents are and shall remain in
full force and effect, without defense, offset or counterclaim.
b. This Amendment shall be binding upon and inure to the
benefit of each Loan Party, the Agent and the Lenders and their respective
successors and assigns. No third party beneficiaries are intended in connection
with this Amendment.
3.
<PAGE> 4
c. This Amendment shall be governed by and construed in
accordance with the law of the State of New York, provided that the Agent and
the Lenders shall retain all rights arising under Federal law.
d. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this Amendment (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of the Company, any other Loan Party or any Lender will
have the same force and effect as the delivery of a hard copy original. Any
failure by the Agent to receive the hard copy executed original of such document
shall not diminish the binding effect of receipt of the facsimile transmitted
executed original of such document of the party whose hard copy page was not
received by the Agent.
e. This Amendment contains the entire and exclusive
agreement of the parties hereto with reference to the matters discussed herein.
This Amendment supersedes all prior drafts and communications with respect
hereto or thereto. This Amendment may not be amended except in accordance with
the provisions of Section 10.01 of the Credit Agreement.
f. If any term or provision of this Amendment shall be
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Amendment or
the Loan Documents.
g. The Company covenants to pay or reimburse the Agent and
the Lenders, upon demand, for all reasonable costs and expenses (including
allocated costs of in-house counsel) incurred in connection with the
development, preparation, negotiation, execution and delivery of this Amendment.
[Signatures follow.]
4.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their duly authorized officers as of the day and year first
written above.
EPS SOLUTIONS CORPORATION
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
ENTERPRISE PROFIT SOLUTIONS CORPORATION
By:
------------------------------------
Title:
---------------------------------
THE SUBSIDIARIES LISTED ON ANNEX I
By:
------------------------------------
Title:
---------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent and as
a Lender
By:
------------------------------------
Title:
---------------------------------
5.
<PAGE> 6
ANTARES CAPITAL CORPORATION,
as Documentation Agent and a Lender
By:
------------------------------------
Title:
---------------------------------
ING (U.S.) CAPITAL LLC,
as Managing Agent and a Lender
By:
------------------------------------
Title:
---------------------------------
6.
<PAGE> 7
CONSENT AND AGREEMENT OF GUARANTORS
Each of the undersigned, in its capacity as a Guarantor,
acknowledges that its consent to the foregoing First Amendment to Credit
Agreement and Waiver (the "Amendment") is not required, but each of the
undersigned nevertheless does hereby consent to the foregoing Amendment and to
the documents and agreements referred to therein. Nothing herein shall in any
way limit any of the terms or provisions of the Guaranty of the undersigned or
the Collateral Documents executed by the undersigned in the Agent's and the
Lenders' favor, or any other Loan Document executed by the undersigned (as the
same may be amended from time to time), all of which are hereby ratified and
affirmed in all respects.
GUARANTORS:
EPS SOLUTIONS CORPORATION,
as a Guarantor
By:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Title:
---------------------------------
THE SUBSIDIARIES LISTED ON ANNEX I,
as Guarantors
By:
---------------------------------
Title:
---------------------------------
7.
<PAGE> 1
EXHIBIT 10.52
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF APRIL 1, 1999
AMONG
EPS SOLUTIONS CORPORATION
AND
ENTERPRISE PROFIT SOLUTIONS CORPORATION,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS ADMINISTRATIVE AGENT,
AND
THE LENDERS PARTY HERETO
-------------------------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC,
SOLE LEAD ARRANGER
AND SOLE BOOK MANAGER
================================================================================
<PAGE> 2
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement (this "Agreement") is
entered into as of April 1, 1999 among ENTERPRISE PROFIT SOLUTIONS CORPORATION,
a Delaware corporation (the "Company"), EPS SOLUTIONS CORPORATION (f/k/a
ProfitSource Corporation), a Delaware corporation, certain other affiliates of
the Company, the several lending institutions from time to time party to this
Agreement (each a "Lender" and, collectively, the "Lenders"), and Bank of
America National Trust and Savings Association, as administrative agent for the
Lenders (in such capacity, the "Agent").
WHEREAS, the Loan Parties, the Lenders party thereto and the
Agent entered into a Credit Agreement dated as of December 7, 1998, which
agreement was amended by the First Amendment to Credit Agreement and Waiver
dated as of March 17, 1999 (as in effect as of the date of this Agreement, the
"Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement
as set forth herein and to restate the Credit Agreement in its entirety to read
as set forth in the Credit Agreement with the amendments specified below,
subject to the terms and conditions of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions; References; Interpretation.
(a) Unless otherwise specifically defined herein, each term used
herein (including in the Recitals hereof and in the Consent and Agreement of
Guarantors attached hereto) which is defined in the Credit Agreement shall have
the meaning assigned to such term in the Credit Agreement.
(b) Each reference to "this Agreement", "hereof", "hereunder",
"herein" and "hereby" and each other similar reference and contained in the
Credit Agreement, and each reference to "the Credit Agreement" and each other
similar reference in the other Loan Documents, shall from and after the
Effective Date ( as defined in Section 2) refer to the Credit Agreement as
amended and restated hereby.
(c) The rules of interpretation set forth in Section 1.02 of the
Credit Agreement shall be applicable to this Agreement.
2. Amendments to Credit Agreement. Subject to the terms and conditions hereof,
the Credit Agreement is amended as follows, effective as of the date of
satisfaction of the conditions set forth in Section 4 (the "Effective Date"):
(a) Amendments to Article I of the Credit Agreement.
(1) The definition of "Lead Manager" defined in
the Credit Agreement
1.
<PAGE> 3
shall include from and after the Effective Date NationsBanc Montgomery
Securities LLC in its capacity as Sole Lead Arranger and Sole Book Manager in
connection with the Credit Agreement (as amended and restated by this
Agreement).
(2) The term "Notes" defined in the Credit Agreement shall
include from and after the Effective Date the Notes delivered under this
Agreement.
(b) Amendment to Subsection 2.01(a) of the Credit Agreement. An
additional Borrowing of Term Loans under subsection 2.01(a) of the Credit
Agreement shall be permitted in a single drawdown on the Effective Date up to
the aggregate amount of the unused Term Commitments then in effect (after giving
effect to the increase in the aggregate Term Commitments contemplated in this
Agreement). After the Effective Date, the Term Commitment of each Lender then
remaining unused shall immediately terminate without any further act of the
Agent, the Company or any of the Lenders.
(c) Amendment to Schedule 2.01 of the Credit Agreement. Schedule
2.01 of the Credit Agreement is replaced in its entirety by Schedule 2.01
attached to this Agreement.
(d) Amendment to Schedule 10.02 of the Credit Agreement. Schedule
10.02 of the Credit Agreement is replaced in its entirety by Schedule 10.02 of
this Agreement.
3. Representations and Warranties. Each Loan Party hereby represents and
warrants to the Agent and the Lenders as follows:
(a) No Default or Event of Default has occurred and is continuing
(or would result from the amendment of the Credit Agreement contemplated
hereby).
(b) The execution, delivery and performance by such Loan Party of
this Agreement and the Credit Agreement (as amended and restated by this
Agreement) have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
or notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable.
(c) This Agreement, each Note delivered hereunder and the Credit
Agreement (as amended and restated by this Agreement) constitute the legal,
valid and binding obligations of such Loan Party (to the extent it is a party
thereto), enforceable against it in accordance with their respective terms.
(d) All representations and warranties of such Loan Party
contained in the Credit Agreement are true and correct (except to the extent
such representations and warranties expressly refer to an earlier date, in which
case they shall be true and correct as of such earlier date and except that this
subsection (d) shall be deemed instead to refer to the last day of the most
recent fiscal month, quarter and year for which financial statements have then
been delivered in respect of the representation and warranty made in subsection
5.11(a) of the Credit Agreement
2.
<PAGE> 4
and to take into account any amendments to the Schedules to the Credit Agreement
and other disclosures made in writing by Holdings and the Company to the Agent
and the Lenders after the Closing Date and approved by the Agent and the
Majority Lenders).
(e) There has occurred since September 30, 1998, no event or
circumstance that has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(f) Each Loan Party is entering into this Agreement on the basis
of its own investigation and for its own reasons, without reliance upon the
Agent and the Lenders or any other Person.
(g) The Loan Parties' obligations under the Credit Agreement and
under the other Loan Documents are not subject to any defense, counterclaim,
set-off, right of recoupment, abatement or other claim.
4. Conditions of Effectiveness.
(a) The effectiveness of Section 2 of this Agreement shall be
subject to the satisfaction of each of the following conditions precedent:
(1) The Agent shall have received from each Loan Party and
each of the Lenders (i) a duly executed original (or, if elected by the Agent,
an executed facsimile copy) of this Agreement; and (ii) if requested by any
Lender, Notes (or replacement Notes) substantially in the forms of Exhibit F-1
and Exhibit F-1 to the Credit Agreement.
(2) The Agent shall have received the consent of each
Guarantor in its capacity as such to the execution and delivery hereof by the
Company.
(3) The Agent shall have received evidence of payment by
the Company of all fees, costs and expenses due and payable as of the Effective
Date hereunder and under the Credit Agreement, including any fees arising under
or referenced in Section 5 of this Agreement and the Agent's Attorney Costs, to
the extent invoiced on or prior to the Effective Date.
(4) The Agent shall have received from the Company a copy
of the resolutions passed by the board of directors of the Company, certified as
of the Effective Date by the Secretary or an Assistant Secretary of such Person,
authorizing the execution, delivery and performance of this Agreement, the Notes
to be delivered hereunder and the Credit Agreement (as amended and restated by
this Agreement).
(5) The Agent shall have received an opinion of Gibson
Dunn & Crutcher, special counsel to the Company, addressed to the Agent and the
Lenders, dated the Effective Date, substantially in the form of Exhibit A
hereto.
(6) The Agent shall have received all other documents it
or any Lender may reasonably request relating to any matters relevant hereto,
all in form and substance satisfactory to the Agent and each Lender.
3.
<PAGE> 5
(7) The representations and warranties in Section 3 of
this Agreement shall be true and correct on and as of the Effective Date with
the same effect as if made on and as of the Effective Date.
For purposes of determining compliance with the conditions
specified in this Section 4(a), each Lender that has executed this Agreement
shall be deemed to have consented to, approved or accepted, or to be satisfied
with, each document or other matter (including any and all items referenced in
subsections 4(a)(1) and (2) and 4(a)(4) through (7)) either sent, or made
available for inspection, by the Agent to such Lender for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to such Lender.
(b) From and after the Effective Date, the Credit Agreement is
amended as set forth herein and is restated in its entirety to read as set forth
in the Credit Agreement with the amendments specified herein and all outstanding
Notes under the Credit Agreement shall be superseded and replaced by the Notes
delivered under this Agreement. All such previously outstanding Notes will be
deemed cancelled upon the occurrence of the Effective Date. The Credit Agreement
(as amended and restated by this Agreement) is hereby ratified and confirmed in
all respects.
(c) The Agent will notify the Company and the Lenders of the
occurrence of the Effective Date.
5. Fees. The Company shall pay to the Agent the fees set forth in that certain
letter agreement dated as of March 26, 1999, by and between the Company and the
Agent. Such fees shall be due and payable by the Company on the date set forth
in such letter agreement.
6. Certain Transitional Matters. On the Effective Date, the amount of Revolving
Loans and Term Loans then outstanding and held by each Lender shall be adjusted
to reflect the changes in the Lenders' Pro Rata Shares of the Revolving Loans
and Term Loans, subject to Section 3.04 of the Credit Agreement. Each Lender
having Revolving Loans and Term Loans then outstanding and whose Pro Rata Share
in respect of Revolving Loans and Term Loans has been decreased on the Effective
Date as a result of the increase in the aggregate Revolving Commitments and
aggregate Term Commitments contemplated hereby shall be deemed to have assigned
on the Effective Date, without recourse, to each Lender increasing its Revolving
Commitment and Term Commitment on the Effective Date such portion of such
Revolving Loans and Term Loans as shall be necessary to effectuate such
adjustment. Each such Lender increasing its Revolving Commitment and Term
Commitment on the Effective Date shall (i) be deemed to have assumed such
portion of such Revolving Loans and Term Loans and (ii) fund on the Effective
Date such assumed amounts to the Agent for the account of the assigning Lender
in accordance with the provisions hereof in the amount notified to such
increasing Lender by the Agent. All amounts funded on the Effective Date by any
Lender in respect of its Term Commitment shall constitute "Term Loans" under and
for all purposes of the Credit Agreement and the other Loan Documents. In
connection with certain contemplated post-closing assignments of a portion of
the Term Loans of Antares Capital Corporation to Pilgrim Prime Rate Trust,
Sequils Pilgrim I, Ltd. and ML CLO XX Pilgrim American (Cayman) Ltd., the
parties hereto agree to a one-time
4.
<PAGE> 6
waiver of Section 10.08 of the Credit Agreement insofar as it requires
assignments thereunder to be in minimum increments of $5,000,000, in order to
permit Antares Capital Corporation to assign a portion of its Term Loans to each
of Pilgrim Prime Rate Trust, Sequils-Pilgrim I, Ltd. and ML CLO XX Pilgrim
American (Cayman) Ltd. in increments of $3,000,000 each.
7. Miscellaneous.
(a) Each Loan Party acknowledges and agrees that the execution
and delivery by the Agent and the Lenders of this Agreement shall not be deemed
to create a course of dealing or an obligation to execute similar waivers or
amendments under the same or similar circumstances in the future.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and thereto and their respective successors and assigns.
(c) This Agreement shall be governed by and construed in
accordance with the law of the State of New York, provided that the Agent and
the Lenders shall retain all rights arising under Federal law.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a Lender or
any Loan Party shall bind such Lender or such Loan Party, respectively, with the
same force and effect as the delivery of a hard copy original. Any failure by
the Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
(e) This Agreement contains the entire and exclusive agreement of
the parties hereto with reference to the matters discussed herein. This
Agreement supersedes all prior drafts and communications with respect hereto or
thereto. This Agreement may not be amended except in accordance with the
provisions of Section 10.01 of the Credit Agreement.
(f) If any term or provision of this Agreement shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Agreement, the
Credit Agreement or the Loan Documents.
(g) The Company agrees to pay or reimburse BofA (including in its
capacity as Agent), upon demand, for all reasonable costs and expenses
(including reasonable Attorney Costs) incurred by BofA (including in its
capacity as Agent) in connection with the development, preparation, negotiation,
execution and delivery of this Agreement.
[signature pages follow]
5.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered in San Francisco, California by their proper
and duly authorized officers as of the day and year first above written.
ENTERPRISE PROFIT SOLUTIONS CORPORATION
By:
---------------------------------
Title:
---------------------------------
THE SUBSIDIARIES LISTED ON ANNEX I
By:
---------------------------------
Title:
---------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, AS AGENT AND BANK
By:
---------------------------------
Kevin Leader, Vice President
ANTARES CAPITAL CORPORATION
By:
---------------------------------
Title:
---------------------------------
ARCHIMEDES FUNDING II, LTD.
By: ING Capital Advisors LLC, as
Collateral Manager
By:
---------------------------------
Title:
---------------------------------
6.
<PAGE> 8
COMERICA WEST INCORPORATED
By:
---------------------------------
Title:
---------------------------------
GREEN TREE FINANCIAL SERVICING
CORPORATION
By:
---------------------------------
Title:
---------------------------------
HELLER FINANCIAL, INC.
By:
---------------------------------
Title:
---------------------------------
ING (U.S.) CAPITAL LLC
By:
---------------------------------
Title:
---------------------------------
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By: ING Capital Advisors LLC,
as Investment Advisor
By:
---------------------------------
Title:
---------------------------------
7.
<PAGE> 9
KEY CORPORATE CAPITAL, INC.
By:
---------------------------------
Title:
---------------------------------
KEYPORT LIFE INSURANCE COMPANY
By: STEIN ROE & FARMHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By:
---------------------------------
Title:
---------------------------------
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
(AS ASSIGNEE)
By: Pilgrim Investments, Inc.
as its Investment Manager
By:
---------------------------------
Title:
---------------------------------
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc.
as its Investment Manager
By:
---------------------------------
Title:
---------------------------------
8.
<PAGE> 10
SEQUILS - PILGRIM I, LTD. (AS ASSIGNEE)
By: Pilgrim Investments, Inc.
as its Investment Manager
By:
---------------------------------
Title:
---------------------------------
SRF TRADING, INC.
By:
---------------------------------
Title:
---------------------------------
STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY
By:
---------------------------------
Title:
---------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
---------------------------------
Title:
---------------------------------
9.
<PAGE> 11
EPS SOLUTIONS CORPORATION
By:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Title:
---------------------------------
10.
<PAGE> 12
CONSENT AND AGREEMENT OF GUARANTORS
Each of the undersigned, in its capacity as a Guarantor,
acknowledges that its consent to the foregoing Amended and Restated Credit
Agreement (the "Agreement") is not required, but each of the undersigned
nevertheless does hereby consent to the foregoing Agreement and to the documents
and agreements referred to therein. Nothing herein shall in any way limit any of
the terms or provisions of the Guaranty of the undersigned or the Collateral
Documents executed by the undersigned in the Agent's and the Lenders' favor, or
any other Loan Document executed by the undersigned (as the same may be amended
from time to time), all of which are hereby ratified and affirmed in all
respects.
GUARANTORS:
EPS SOLUTIONS CORPORATION,
as a Guarantor
By:
--------------------------------
Title:
--------------------------------
By:
--------------------------------
Title:
--------------------------------
THE SUBSIDIARIES LISTED ON ANNEX I,
as Guarantors
By:
--------------------------------
Title:
--------------------------------
11.
<PAGE> 13
SCHEDULE 2.01
COMMITMENTS AND PRO RATA SHARES
<TABLE>
<CAPTION>
PRO RATA PRO RATA
SHARE SHARE
TERM REVOLVING (TERM (REVOLVING
LENDERS COMMITMENT COMMITMENT COMMITMENT) COMMITMENT)
- ------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Antares Capital Corporation $16,871,428.57 $11,128,571.43 14.838095240% 14.838095240%
Archimedes Funding II, Ltd. $ 5,000,000.00 $ 0.00 7.142857143% 0.000000000%
Bank of America National Trust and Savings Association $ 9,321,428.57 $13,178,571.43 13.316326529% 17.571428573%
Comerica West Incorporated $ 3,107,142.86 $ 4,392,857.14 4.438775514% 5.857142853%
Green Tree Financial Servicing Corporation $ 0.00 $13,500,000.00 0.000000000% 18.000000000%
Heller Financial, Inc. $ 5,592,857.15 $ 7,907,142.85 7.989795929% 10.542857133%
ING (U.S.) Capital LLC $ 9,321,428.57 $13,178,571.43 13.316326529% 17.571428573%
Key Corporate Capital Inc. $ 4,142,857.14 $ 5,857,142.86 5.918367343% 7.809523813%
Keyport Life Insurance Company $ 4,000,000.00 $ 0.00 5.714285714% 0.000000000%
SFR Trading, Inc. $ 5,000,000.00 $ 0.00 7.142857143% 0.000000000%
Stein Roe Floating Rate Limited Liability Company $ 1,000,000.00 $ 0.00 1.428571429% 0.000000000%
The ING Capital Senior Secured High Income Fund, L.P. $ 2,500,000.00 $ 0.00 3.571428571% 0.000000000%
Transamerica Business Credit Corporation $ 4,142,857.14 $ 5,857,142.86 5.918367343% 7.809523813%
-------------- -------------- ----------- -----------
TOTAL $ 70,000,000 $ 75,000,000 100.000000000% 100.000000000%
============== ============== ============= =============
</TABLE>
1
<PAGE> 14
Annex I
Bay Group International, Inc.
Hindert & Associates, Inc.
Hindert Agency, Inc.
Benefit Designs, Inc.
Benefit Designs International, Inc.
Benefit Funding Services Group, LLC
Benefit Funding Services, LLC
Better Communications, Inc.
TSL Services, Inc.
D'Accord Holdings Inc.
D'Accord Group, Inc.
D'Accord Incorporated
D'Accord Financial Services, Inc.
D'Accord International Services, Inc.
D'Accord Asset Management, Inc.
Dimension Funding, Inc.
Disbursement Recovery Services, L.L.C.
D.L.D. Insurance Brokers, Inc.
FFR Holding Co., Inc.
First Financial Resources Management Co. Inc.
First Financial Resources, Inc.
FFP Insurance Services, Inc. (Nevada)
FFP Insurance Services, Inc. (California)
Holden Corporation
Lease Audit & Analysis Services, Inc.
National Benefits Consultants, L.L.C.
National Healthcare Recovery Services, L.L.C.
National Recovery Services, LLC
National RevMax Consultants, LLC
The Oxxford Consulting Group, Inc.
1
<PAGE> 15
Partners Consulting Services, Inc.
Pritchett Publishing Company
Sigma International, Inc.
The Dublin Group, Inc.
The Structured Settlements Company, Inc.
The Wadley-Donovan Group, Ltd.
Young, Clark & Associates, Inc.
Praxis Development LC
The Praxis Group, Inc.
The Praxis Institute, Inc.
2
<PAGE> 16
FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this
"Amendment") dated as of March 17, 1999 is entered into among Enterprise Profit
Solutions Corporation, a Delaware corporation (the "Company"), EPS Solutions
Corporation (f/k/a ProfitSource Corporation), a Delaware corporation, certain
other affiliates of the Company, the several financial institutions party to the
Credit Agreement referred to below (collectively, the "Lenders"), Bank of
America National Trust and Savings Association, as administrative agent for
itself and the other Lenders, Antares Capital Corporation, as documentation
agent, and ING (U.S.) Capital LLC, as managing agent.
RECITALS
A. The parties hereto have entered into a Credit Agreement dated
as of December 7, 1998 (the "Credit Agreement"), pursuant to which the Lenders
agreed to make available to the Company a term loan and revolving credit
facility. The "Closing Date" under the Credit Agreement was December 14, 1998.
B. The Company has requested that the Credit Agreement be amended
to (i) increase the Revolving Commitments of Bank of America National Trust and
Savings Association ("BofA") and Antares Capital Corporation ("Antares") by
$5,000,000 each and (ii) amend part B of Schedule 1.01 to the Credit Agreement
to modify the list of Persons (or assets of such Persons) that may be acquired
pursuant to a Secondary Acquisition, and the Lenders or the Majority Lenders, as
required, are willing to so amend the Credit Agreement subject to the terms and
conditions of this Amendment.
C. The Company has requested that the Majority Lenders provide a
further waiver of the requirement under Section 1.01 of the Credit Agreement
that all Secondary Acquisitions be consummated not later than 60 days after the
Closing Date and allow the Company until March 19, 1999 to consummate the
Secondary Acquisitions, and the Majority Lenders are willing to so waive such
requirement and grant such extension subject to the terms and conditions of this
Amendment.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto agree as follows:
1. Capitalized Terms. Capitalized terms used in this Amendment
(including in the Recitals hereof and in the Consent and Agreement of Guarantors
attached hereto) and not otherwise defined shall have the respective meanings
set forth in the Credit Agreement.
2. Amendments.
a. Subject to the terms and conditions set forth herein,
the Lenders hereby agree to amend the Credit Agreement as follows: Schedule 2.01
(entitled "Commitments and Pro Rata Shares") is hereby amended and restated in
its entirety in the form of Annex A attached hereto.
<PAGE> 17
b. Subject to the terms and conditions set forth herein,
the Majority Lenders hereby agree to amend the Credit Agreement as follows: Part
B of Schedule 1.01 (entitled "Founding Companies") is hereby amended and
restated in its entirety in the form of Annex B attached hereto.
3. Waiver Subject to the terms and conditions set forth herein,
the Majority Lenders hereby agree to waive compliance by the Company with
Section 1.01 of the Credit Agreement insofar as any Acquisition, which would
otherwise be a Secondary Acquisition under Section 1.01 of the Credit Agreement,
is not a Secondary Acquisition because such Acquisition is consummated later
than 60 days after the Closing Date; provided, however, that any such
Acquisition shall be a Secondary Acquisition only if such Acquisition is
consummated not later than March 19, 1999.
4. Fees. The Company shall pay to the Agent for the account of
each of BofA and Antares the fees set forth in that certain letter agreement
dated as of the date hereof by and between the Company and the Agent. Such fees
shall be due and payable by the Company upon its execution of this Amendment.
5. Certain Transitional Matters. On the Effective Date (as
defined in Section 7 below), the amount of Revolving Loans then outstanding and
held by each Lender shall be adjusted to reflect the changes in the Lenders' Pro
Rata Shares of the Revolving Loans, subject to Section 3.04 of the Credit
Agreement. Each Lender having Revolving Loans then outstanding and whose Pro
Rata Share in respect of Revolving Loans has been decreased on the Effective
Date as a result of the increase in the aggregate Revolving Commitments
contemplated hereby shall be deemed to have assigned on the Effective Date,
without recourse, to each Lender increasing its Revolving Commitment on the
Effective Date such portion of such Revolving Loans as shall be necessary to
effectuate such adjustment. Each such Lender increasing its Revolving Commitment
on the Effective Date shall (i) be deemed to have assumed such portion of such
Revolving Loans and (ii) fund on the Effective Date such assumed amounts to the
Agent for the account of the assigning Lender in accordance with the provisions
hereof in the amount notified to such increasing Lender by the Agent.
6. Representations and Warranties. Each Loan Party hereby
represents and warrants to the Agent and the Lenders as of the date hereof and
as of the Effective Date (as defined in Section 7 hereof) as follows:
a. No Default or Event of Default has occurred and is
continuing.
b. The execution, delivery and performance by each Loan
Party of this Amendment have been duly authorized by all necessary corporate and
other action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person (including any Governmental
Authority) in order to be effective and enforceable.
c. This Amendment and the Loan Documents constitute the
legal, valid and binding obligations of each Loan Party, enforceable against it
in accordance with their respective terms, without defense, counterclaim or
offset.
d. All representations and warranties of each Loan Party
contained in the Loan Documents are true and correct.
2.
<PAGE> 18
e. Each Loan Party is entering into this Amendment on the
basis of its own investigations and for its own reasons, without reliance upon
the Agent, the Lenders or any other Person.
7. Effective Date. The amendments and waiver set forth in
Sections 2 and 3 above will become effective on the date on which all of the
following conditions are and remain satisfied (such date, the "Effective Date"):
(i) the Agent shall have received from each Loan Party and
the Lenders an executed counterpart of this Amendment;
(ii) the Agent shall have received the consent of each
Guarantor in its capacity as such to the execution and delivery hereof;
(iii) the Agent shall have received (A) for the account of
BofA and Antares payment of the fees required under Section 4 hereof and (B) for
the account of the Agent and Antares all accrued and unpaid costs and expenses
(including attorneys' fees) incurred by the Agent and Antares and reimbursable
under Section 10.04 of the Credit Agreement;
(iv) the Agent shall have received a copy of the
resolutions of the Company authorizing the transactions contemplated hereby,
certified as of the Effective Date by the Secretary or Assistant Secretary of
the Company;
(v) the Agent shall have received an opinion of Brian W.
Copple, Esq., General Counsel of the Company, addressed to the Agent and the
Lenders, dated the Effective Date, and otherwise in form and substance
satisfactory the Agent and the Lenders;
(vi) the Secondary Acquisitions shall have been
consummated on the Effective Date substantially concurrently with the
effectiveness of the amendments and waiver contemplated hereby, and all
requirements of the Credit Agreement pertaining thereto (including the
provisions of Section 6.14) shall have been satisfied; and
(vii) the Agent shall have received replacement Notes in
favor of BofA and Antares evidencing the increased Revolving Commitments of BofA
and Antares.
8. Reservation of Rights. Each Loan Party acknowledges and agrees
that the execution and delivery by the Agent and the Lenders of this Amendment
shall not be deemed to create a course of dealing or an obligation to execute
similar waivers or amendments under the same or similar circumstances in the
future.
9. Miscellaneous.
a. Except as expressly amended or waived herein, all
terms, covenants and provisions of the Loan Documents are and shall remain in
full force and effect, without defense, offset or counterclaim.
b. This Amendment shall be binding upon and inure to the
benefit of each Loan Party, the Agent and the Lenders and their respective
successors and assigns. No third party beneficiaries are intended in connection
with this Amendment.
3.
<PAGE> 19
c. This Amendment shall be governed by and construed in
accordance with the law of the State of New York, provided that the Agent and
the Lenders shall retain all rights arising under Federal law.
d. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this Amendment (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of the Company, any other Loan Party or any Lender will
have the same force and effect as the delivery of a hard copy original. Any
failure by the Agent to receive the hard copy executed original of such document
shall not diminish the binding effect of receipt of the facsimile transmitted
executed original of such document of the party whose hard copy page was not
received by the Agent.
e. This Amendment contains the entire and exclusive
agreement of the parties hereto with reference to the matters discussed herein.
This Amendment supersedes all prior drafts and communications with respect
hereto or thereto. This Amendment may not be amended except in accordance with
the provisions of Section 10.01 of the Credit Agreement.
f. If any term or provision of this Amendment shall be
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Amendment or
the Loan Documents.
g. The Company covenants to pay or reimburse the Agent and
the Lenders, upon demand, for all reasonable costs and expenses (including
allocated costs of in-house counsel) incurred in connection with the
development, preparation, negotiation, execution and delivery of this Amendment.
[Signatures follow.]
4.
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their duly authorized officers as of the day and year first
written above.
EPS SOLUTIONS CORPORATION
By:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Title:
---------------------------------
ENTERPRISE PROFIT SOLUTIONS CORPORATION
By:
---------------------------------
Title:
---------------------------------
THE SUBSIDIARIES LISTED ON ANNEX I
By:
---------------------------------
Title:
---------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Agent and as a Lender
By:
---------------------------------
Title:
---------------------------------
5.
<PAGE> 21
ANTARES CAPITAL CORPORATION,
as Documentation Agent and a Lender
By:
---------------------------------
Title:
---------------------------------
ING (U.S.) CAPITAL LLC,
as Managing Agent and a Lender
By:
---------------------------------
Title:
---------------------------------
6.
<PAGE> 22
CONSENT AND AGREEMENT OF GUARANTORS
Each of the undersigned, in its capacity as a Guarantor,
acknowledges that its consent to the foregoing First Amendment to Credit
Agreement and Waiver (the "Amendment") is not required, but each of the
undersigned nevertheless does hereby consent to the foregoing Amendment and to
the documents and agreements referred to therein. Nothing herein shall in any
way limit any of the terms or provisions of the Guaranty of the undersigned or
the Collateral Documents executed by the undersigned in the Agent's and the
Lenders' favor, or any other Loan Document executed by the undersigned (as the
same may be amended from time to time), all of which are hereby ratified and
affirmed in all respects.
GUARANTORS:
EPS SOLUTIONS CORPORATION,
as a Guarantor
By:
--------------------------------
Title:
--------------------------------
By:
--------------------------------
Title:
--------------------------------
THE SUBSIDIARIES LISTED ON ANNEX I,
as Guarantors
By:
--------------------------------
Title:
--------------------------------
7.
<PAGE> 1
EXHIBIT 10.53
FIRST AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
AND WAIVER
This FIRST AmendMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND WAIVER
(this "Amendment") is entered into as of September 30, 1999, among ENTERPRISE
PROFIT SOLUTIONS CORPORATION, a Delaware corporation (the "Company"), EPS
SOLUTIONS CORPORATION, a Delaware corporation, certain other affiliates of the
Company, the several lending institutions party to the Credit Agreement referred
to below (each a "Lender" and, collectively, the "Lenders"), and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as administrative agent for the Lenders (in such capacity, the
"Agent").
WHEREAS, the Company, the Guarantors, the Lenders and the Agent entered
into an Amended and Restated Credit Agreement dated as of April 1, 1999 (as in
effect as of the date of this Amendment, the "Credit Agreement"); and
WHEREAS, the Company has requested that the Majority Lenders agree to
certain amendments to the Credit Agreement, and provide certain waivers in
connection therewith, and the Majority Lenders have agreed to such request,
subject to the terms and conditions of this Amendment;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions; References; Interpretation.
(a) Unless otherwise specifically defined herein, each term used herein
(including in the Recitals hereof and in the Consent and Agreement of Guarantors
attached hereto) which is defined in the Credit Agreement shall have the meaning
assigned to such term in the Credit Agreement.
(b) Each reference to "this Amendment", "hereof", "hereunder", "herein"
and "hereby" and each other similar reference contained in the Credit Agreement,
and each reference to "the Credit Agreement" and each other similar reference in
the other Loan Documents, shall from and after the Effective Date refer to the
Credit Agreement as amended hereby.
(c) The rules of interpretation set forth in Section 1.02 of the Credit
Agreement shall be applicable to this Amendment.
2. Amendments to Credit Agreement. Subject to the terms and conditions hereof,
the Credit Agreement is amended as follows, effective as of the date of
satisfaction of the conditions set forth in Section 5 (the "Effective Date"):
(a) Amendments to Article I of the Credit Agreement.
(1) A new definition of "Availability Reduction Period" shall be
inserted in proper alphabetical order as follows:
1.
<PAGE> 2
"Availability Reduction Period" means the period from and after the
"Effective Date" of the First Amendment until the earlier of (a) the
Revolving Termination Date and (b) the earlier of (i) the date on which
the Company requests in writing that the Availability Reduction Period
be terminated and delivers to the Agent and the Lenders a Compliance
Certificate executed by a Responsible Officer of Holdings and the
Company demonstrating (A) compliance by Holdings with subsection 7.18(a)
for the fiscal quarter ending December 31, 1999 (such compliance to be
demonstrated without giving effect to the financial covenant amendments
or to the Waived Defaults, in each case, for the quarter ending December
31, 1999, set forth in the First Amendment) and (B) compliance by the
Company with subsections 7.18(b), 7.18(c), 7.18(d), 7.18(e) and 7.18(f)
for the fiscal quarter ending December 31, 1999 (such compliance to be
demonstrated without giving effect to the financial covenant amendments
or to the Waived Defaults, in each case, for the quarter ending December
31, 1999, set forth in the First Amendment), and (ii) the date on which
the Company delivers to the Agent and the Lenders a Compliance
Certificate executed by a Responsible Officer of Holdings and the
Company demonstrating (A) compliance by Holdings with subsection 7.18(a)
for the fiscal quarter ending March 31, 2000 (such compliance to be
demonstrated after fully giving effect to the First Amendment) and (B)
compliance by the Company with subsections 7.18(b), 7.18(c), 7.18(d),
7.18(e) and 7.18(f) for the fiscal quarter ending March 31, 2000 (such
compliance to be demonstrated after fully giving effect to the First
Amendment), which Compliance Certificate shall be accompanied by a
written statement of a Responsible Officer of the Company certifying
that the Company and each of its Subsidiaries is in compliance with each
other covenant and agreement of such Person set forth in the Credit
Agreement and the other Loan Documents to which it is a party and that
the Availability Reduction Period is terminated.
(2) A new definition of "First Amendment" shall be inserted in
proper alphabetical order as follows:
"First Amendment" means the First Amendment to Amended and Restated
Credit Agreement and Waiver dated as of September 30, 1999, among the
Company, Holdings, certain of their affiliates, the Lenders party
thereto and the Agent."
(3) The definition of "Permitted Acquisition" shall be amended by
(A) deleting the word "and" immediately preceding clause (h), (B) replacing the
period at the end of such definition with a semicolon, and (C) adding a new
clause (i) at the end of such definition as follows:
"and (i) during the Availability Reduction Period, no proceeds of any
Loan may be used directly or indirectly for all or any part of the
consideration for such Acquisition."
(4) The definition of "Significant Acquisition" shall be amended and
restated as follows:
2.
<PAGE> 3
"Significant Acquisition" means (a) any Acquisition by Holdings, the
Company or any Subsidiary in respect of which cash or cash equivalents
and/or assumption and/or incurrence of Indebtedness exceeding
$10,000,000 in the aggregate constitutes all or a portion of the
consideration therefor, (b) any Acquisition by Holdings, the Company or
any Subsidiary at any time that cash or cash equivalents and/or
assumption and/or incurrence of Indebtedness exceeding $20,000,000 in
the aggregate has constituted (or, immediately after giving effect to
such Acquisition, shall have constituted) all or a portion of the
consideration for all Acquisitions by Holdings, the Company and its
Subsidiaries consummated in the then current fiscal year, and (c) during
the Availability Reduction Period, any Acquisition by Holdings, the
Company or any Subsidiary."
(b) Amendment to Article 2 of the Credit Agreement. Subsection 2.01(b)
is amended by amending and restating the proviso set forth in that subsection as
follows:
"provided, however, that, after giving effect to any Borrowing of
Revolving Loans, (i) the aggregate principal amount of all outstanding
Revolving Loans shall not at any time exceed (A) during the Availability
Reduction Period, the lesser of (1) $62,000,000 and (2) the aggregate
Revolving Commitments, and (B) at any other time, the aggregate
Revolving Commitments, and (ii) the aggregate principal amount of all
outstanding Revolving Loans, together with the aggregate principal
amount of all Term Loans outstanding at such time, shall not at any time
exceed the Aggregate Commitment."
(c) Amendments to Article VII of the Credit Agreement.
(1) Subsection 7.04(d) is amended by inserting an additional proviso
immediately before the semicolon at the end of such subsection as follows:
", and provided further that during the Availability Reduction Period
any such Acquisition shall be financed solely from the proceeds of the
issuance of junior capital satisfactory to the Majority Lenders"
(2) Subsection 7.05(h) is amended and restated as follows:
"(h) unsecured Indebtedness of the Company or any Subsidiary not
exceeding (i) during the Availability Reduction Period, an additional
$500,000 in the aggregate at any time outstanding for all such
Indebtedness incurred after the "Effective Date" of the First Amendment,
and (ii) at any other time, $5,000,000 in the aggregate at any time
outstanding for all such Indebtedness."
(3) Subsection 7.10(d) is amended by amending and restating clause
(i) thereof as follows:
"(i) from time to time in an amount not to exceed $5,000,000 in the
aggregate in any fiscal year on account of actual corporate overhead expenses of
Holdings, provided that no distribution by the Company to Holdings shall be
permitted under this clause (i) during the Availability Reduction Period,"
3.
<PAGE> 4
(4) Subsection 7.10(d) is further amended by inserting immediately
before the comma at the end of clause (ii)(A) the following proviso:
", provided that no distribution by the Company to Holdings shall be
permitted under this clause (ii)(A) during the Availability Reduction
Period except for the Company's agreed share under the Tax Sharing
Agreement of actual cash taxes paid by Holdings"
(5) Subsection 7.10(d) is further amended by inserting in the
proviso at the end of clause (iii) immediately after the words "provided that no
distribution by the Company to Holdings shall be permitted under this clause
(iii)" the following additional text:
"(A) during the Availability Reduction Period or (B)"
(6) Section 7.14 is amended and restated as follows:
"7.14 Capital Expenditures. Holdings and the Company shall not, and
shall not suffer or permit any Subsidiary to, make any expenditures for fixed or
capital assets, including obligations under capital leases, in excess of (a)
$4,500,000 on a consolidated basis for the period from July 1, 1999, through
December 31, 1999, (b) $2,000,000 on a consolidated basis for the fiscal quarter
ending March 31, 2000, (c) $8,000,000 on a consolidated basis in fiscal year
2000 and (d) $6,000,000 in fiscal year 2001 and in any fiscal year thereafter."
(7) Subsection 7.18(a) (captioned "Maximum Holdings Leverage Ratio")
is amended by adding a proviso immediately before the period at the end of
clause (ii) as follows:
"provided that, unless the Availability Reduction Period shall have been
terminated pursuant to clause (b)(i) of the definition thereof, Holdings
shall be permitted to have a Holdings Leverage Ratio for the fiscal
quarter ending March 31, 2000, of not greater than 4.00 to 1.00"
(8) Subsection 7.18(c) (captioned "Maximum Company Leverage Ratio")
is amended by adding a proviso immediately before the period at the end of
clause (ii) as follows:
"provided that, unless the Availability Reduction Period shall have been
terminated pursuant to clause (b)(i) of the definition thereof, the
Company shall be permitted to have a Company Leverage Ratio for the
fiscal quarter ending March 31, 2000, of not greater than 2.50 to 1.00"
(9) Subsection 7.18(e) (captioned "Minimum Quarterly EBITDA") is
amended and restated as follows:
"(e) Minimum Quarterly EBITDA. The Company shall not permit (i)
EBITDA for each of the fiscal quarters listed below, measured on a consolidated
basis for the Company and its Subsidiaries in accordance with GAAP, to be less
than (A) $11,000,000 for the fiscal quarter ending September 30, 1999, (B)
$21,000,000 for the fiscal quarter ending December 31, 1999, (C) $12,000,000 for
the fiscal quarter ending March 31, 2000, and (D) $10,000,000 for each of the
fiscal quarters ending June 30, 2000, September 30, 2000 and
4.
<PAGE> 5
December 31, 2000; and (ii) EBITDA for each rolling period of four fiscal
quarters ending on December 31, 1999, and thereafter, measured on a consolidated
basis for the Company and its Subsidiaries in accordance with GAAP, to be less
than $43,000,000 for each such rolling four-quarter period."
3. Defaults and Waiver.
(a) For purposes of this Waiver, the "Waived Defaults" shall mean:
(1) the Events of Default that have arisen, or are anticipated to
arise, solely as a consequence of a breach of the negative covenant set forth at
subsection 7.18(a) of the Credit Agreement for each of the fiscal quarters ended
or ending June 30, 1999, September 30, 1999, and December 31, 1999;
(2) the Events of Default that have arisen, or are anticipated to
arise, solely as a consequence of a breach of the negative covenant set forth at
subsection 7.18(c) of the Credit Agreement for each of the fiscal quarters ended
or ending June 30, 1999, September 30, 1999, and December 31, 1999; and
(3) the Event of Default that has arisen solely as a consequence of
a breach of the negative covenant set forth at subsection 7.18(e)(i) (as in
effect prior to giving effect to this Amendment) for the fiscal quarter ended
June 30, 1999.
(b) Subject to and upon the terms and conditions hereof, the Majority
Lenders hereby waive the Waived Defaults.
(c) Nothing contained herein shall be deemed a waiver of (or otherwise
affect the Agent's or the Lenders' ability to enforce) any other Default or
Event of Default, including without limitation (i) any Default or Event of
Default as may now or hereafter exist and arise from or otherwise be related to
the Waived Defaults (including without limitation any cross-default arising
under the Credit Agreement by virtue of any matters resulting from the Waived
Defaults), and (ii) any Default or Event of Default arising at any time after
the Effective Date and which is similar in type to any of the Waived Defaults.
4. Representations and Warranties. Each Loan Party hereby represents and
warrants to the Agent and the Lenders as follows:
(a) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing (or would result from the amendment of
the Credit Agreement contemplated hereby).
(b) The execution, delivery and performance by such Loan Party of this
Amendment and the Credit Agreement (as amended by this Amendment) have been duly
authorized by all necessary corporate and other action and do not and will not
require any registration with, consent or approval of, or notice to or action
by, any Person (including any Governmental Authority) in order to be effective
and enforceable.
5.
<PAGE> 6
(c) This Amendment, the Credit Agreement (as amended by this Amendment)
and each other Loan Document to which such Loan Party is a party constitute the
legal, valid and binding obligations of such Loan Party, enforceable against it
in accordance with their respective terms.
(d) All representations and warranties of such Loan Party contained in
the Credit Agreement are true and correct (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date and except that this
subsection (d) shall be deemed instead to refer to the last day of the most
recent month, quarter and year for which financial statements have then been
delivered in respect of the representation and warranty made in subsection
5.11(a) of the Credit Agreement and to take into account any amendments to the
Schedules to the Credit Agreement and other disclosures made in writing by
Holdings or the Company to the Agent and the Lenders after the Closing Date and
approved by the Agent and the Majority Lenders).
(e) Such Loan Party is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Lenders or any other Person.
(f) Such Loan Party's obligations under the Credit Agreement and under
the other Loan Documents to which it is a party are not subject to any defense,
counterclaim, set-off, right of recoupment, abatement or other claim.
5. Conditions of Effectiveness.
(a) The effectiveness of Sections 2 and 3 of this Amendment shall be
subject to the satisfaction of each of the following conditions precedent:
(1) The Agent shall have received from each Loan Party and the
Majority Lenders a duly executed original (or, if elected by the Agent, an
executed facsimile copy) of this Amendment.
(2) The Agent shall have received the consent of each Guarantor in
its capacity as such to the execution and delivery hereof by the Company.
(3) The Agent shall have received evidence of payment by the Company
of all fees, costs and expenses due and payable as of the Effective Date
hereunder and under the Credit Agreement, including any fees arising under or
referenced in Section 6 of this Amendment and any costs and expenses payable
under Section 7(g) of this Amendment (including the Agent's Attorney Costs, to
the extent invoiced on or prior to the Effective Date).
(4) The Agent shall have received from the Company an Update
Certificate (as to each Loan Party), substantially in the form of Exhibit H to
the Credit Agreement, dated the Effective Date and otherwise in form and
substance satisfactory to the Agent, covering the period from the last day of
the "Reporting Period" covered by the most recent Update Certificate furnished
to the Agent and the Lenders pursuant to subsection 6.01(f) of the Credit
Agreement through the Effective Date.
6.
<PAGE> 7
(5) The Agent shall have received evidence satisfactory to it that
all actions necessary or, in the opinion of the Agent or the Lenders, desirable
to perfect and protect the first priority Lien created by the Collateral
Documents, and to enhance the Agent's ability to preserve and protect its
interests in and access to the Collateral, have been taken, including, without
limitation, (i) the Agent's receipt of acknowledgment copies of all UCC-l
financing statements filed, registered or recorded to perfect the security
interests of the Agent for the benefit of the Lenders, or other evidence
satisfactory to the Agent that there has been filed, registered or recorded (or
arrangements made with a reputable filing service to file, register or record)
all financing statements and other filings, registrations and recordings
necessary and advisable to perfect the Liens of the Agent for the benefit of the
Lenders in accordance with applicable law, (ii) the Agent's receipt of written
advice relating to such Lien and judgment searches as the Agent shall have
requested, and such termination statements or other documents as may be
necessary to confirm that the Collateral is subject to no other Liens in favor
of any Persons (other than Permitted Liens), and (iii) the Agent's receipt of
all certificates and instruments representing the Pledged Shares, together with
stock transfer powers executed in blank as the Agent or the Lenders may specify.
(6) The Agent shall have received from each of the Company and
Holdings a copy of the resolutions passed by the board of directors of such
Person, certified as of the Effective Date by the Secretary or an Assistant
Secretary of such Person, authorizing the execution, delivery and performance of
this Amendment and the Credit Agreement (as amended by this Amendment).
(7) The Agent shall have received an opinion of counsel to the
Company and addressed to the Agent and the Lenders, dated the Effective Date, in
form and substance satisfactory to the Agent.
(8) The Agent shall have received all other documents it or any
Lender may reasonably request relating to any matters relevant hereto, all in
form and substance satisfactory to the Agent and each Lender.
(9) The representations and warranties in Section 4 of this
Amendment shall be true and correct on and as of the Effective Date with the
same effect as if made on and as of the Effective Date.
(b) For purposes of determining compliance with the conditions specified
in subsection 5(a) above, each Lender that has executed this Amendment shall be
deemed to have consented to, approved or accepted, or to be satisfied with, each
document or other matter either sent, or made available for inspection, by the
Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Lender.
(c) From and after the Effective Date, the Credit Agreement is amended
as set forth herein. Except as expressly amended pursuant hereto, the Credit
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects.
(d) The Agent will notify the Company and the Lenders of the occurrence
of the Effective Date.
7.
<PAGE> 8
6. Fees. The Company shall pay to the Agent the fees set forth in that certain
letter agreement dated as of September 14, 1999, by and between the Company and
the Agent. Such fees shall be due and payable by the Company on the Effective
Date.
7. Miscellaneous.
(a) Each Loan party acknowledges and agrees that the execution and
delivery by the Agent and the Lenders of this Amendment shall not be deemed to
create a course of dealing or an obligation to execute similar waivers or
amendments under the same or similar circumstances in the future.
(b) This Amendment shall be binding upon and inure to the benefit of the
Company, Holdings and the other Guarantors, the Lenders and the Agent and their
respective successors and assigns.
(c) This Amendment shall be governed by and construed in accordance with
the law of the State of New York, provided that the Agent and the Lenders shall
retain all rights arising under Federal law.
(d) This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a Lender or
a Loan Party shall bind such Person with the same force and effect as the
delivery of a hard copy original. Any failure by the Agent to receive the hard
copy executed original of such document shall not diminish the binding effect of
receipt of the facsimile transmitted executed original of such document of the
party whose hard copy page was not received by the Agent.
(e) This Amendment contains the entire and exclusive agreement of the
parties hereto with reference to the matters discussed herein. This Amendment
supersedes all prior drafts and communications with respect hereto. This
Amendment may not be amended except in accordance with the provisions of Section
10.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment, the
Credit Agreement or the other Loan Documents.
(g) The Company agrees to pay or reimburse BofA (including in its
capacity as Agent) upon demand, for all reasonable costs and expenses (including
reasonable Attorney Costs) incurred by BofA (including in its capacity as Agent)
in connection with the development, preparation, negotiation, execution and
delivery of this Amendment.
8.
<PAGE> 9
[signature pages follow]
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered in San Francisco, California by their proper and
duly authorized officers as of the day and year first above written.
ENTERPRISE PROFIT SOLUTIONS CORPORATION
By:
---------------------------------------
Name:
Title:
EPS SOLUTIONS CORPORATION
By:
---------------------------------------
Name:
Title:
THE SUBSIDIARIES LISTED ON ANNEX I
By:
---------------------------------------
Name:
Title:
BANK OF AMERICA, N.A. (formerly known as
Bank of America National Trust and Savings
Association), as Agent and as a Lender
By:
---------------------------------------
Name: Kevin Leader
Title: Managing Director
10.
<PAGE> 11
ANTARES CAPITAL CORPORATION
By:
---------------------------------------
Title:
-------------------------------------
ARCHIMEDES FUNDING II, LTD.
By: ING Capital Advisors LLC,
as Collateral Manager
By:
---------------------------------------
Title:
-------------------------------------
COMERICA WEST INCORPORATED
By:
---------------------------------------
Title:
-------------------------------------
GREEN TREE FINANCIAL SERVICING CORPORATION
By:
---------------------------------------
Title:
-------------------------------------
HELLER FINANCIAL, INC.
By:
---------------------------------------
Title:
-------------------------------------
11.
<PAGE> 12
ING (U.S.) CAPITAL LLC
By:
---------------------------------------
Title:
-------------------------------------
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By: ING Capital Advisors LLC,
as Investment Advisor
By:
---------------------------------------
Title:
-------------------------------------
KEY CORPORATE CAPITAL, INC.
By:
---------------------------------------
Title:
-------------------------------------
KEYPORT LIFE INSURANCE COMPANY
By: STEIN ROE & FARMHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By:
---------------------------------------
Title:
-------------------------------------
12.
<PAGE> 13
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
By: Pilgrim Investments, Inc.
as its Investment Manager
By:
---------------------------------------
Title:
-------------------------------------
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc.
as its Investment Manager
By:
---------------------------------------
Title:
-------------------------------------
SEQUILS - Pilgrim I, Ltd.
By: Pilgrim Investments, Inc.
as its Investment Manager
By:
---------------------------------------
Title:
-------------------------------------
SRF TRADING, INC.
By:
---------------------------------------
Title:
-------------------------------------
13.
<PAGE> 14
STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY
By:
---------------------------------------
Title:
-------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
---------------------------------------
Title:
-------------------------------------
14.
<PAGE> 15
CONSENT AND AGREEMENT OF GUARANTORS
Each of the undersigned, in its capacity as a Guarantor, acknowledges
that its consent to the foregoing First Amendment to Amended and Restated Credit
Agreement and Waiver (the "Agreement") is not required, but each of the
undersigned nevertheless does hereby consent to the foregoing Agreement and to
the documents and agreements referred to therein. Nothing herein shall in any
way limit any of the terms or provisions of the Guaranty of the undersigned or
the Collateral Documents executed by the undersigned in the Agent's and the
Lenders' favor, or any other Loan Document executed by the undersigned (as the
same may be amended from time to time), all of which are hereby ratified and
affirmed in all respects.
GUARANTORS:
EPS SOLUTIONS CORPORATION,
as a Guarantor
By:
---------------------------------------
Name:
Title:
THE SUBSIDIARIES LISTED ON ANNEX I, as Guarantors
By:
---------------------------------------
Name:
Title:
<PAGE> 16
Annex I
Bay Group International, Inc.
Hindert & Associates, Inc.
Hindert Agency, Inc.
Benefit Designs, Inc.
Benefit Designs International, Inc.
Benefit Funding Services Group, LLC
Benefit Funding Services, LLC
Better Communications, Inc.
TSL Services, Inc.
D'Accord Holdings Inc.
D'Accord Group, Inc.
D'Accord Incorporated
D'Accord Financial Services, Inc.
D'Accord International Services, Inc.
D'Accord Asset Management, Inc.
Dimension Funding, Inc.
Disbursement Recovery Services, L.L.C.
D.L.D. Insurance Brokers, Inc.
FFR Holding Co., Inc.
First Financial Resources Management Co. Inc.
First Financial Resources, Inc.
FFP Insurance Services, Inc. (Nevada)
FFP Insurance Services, Inc. (California)
Holden Corporation
Lease Audit & Analysis Services, Inc.
National Benefits Consultants, L.L.C.
National Healthcare Recovery Services, L.L.C.
National Recovery Services, LLC
National RevMax Consultants, LLC
The Oxxford Consulting Group, Inc.
<PAGE> 17
Partners Consulting Services, Inc.
Pritchett Publishing Company
Sigma International, Inc.
The Dublin Group, Inc.
The Structured Settlements Company, Inc.
The Wadley-Donovan Group, Ltd.
Young, Clark & Associates, Inc.
Praxis Development LC
The Praxis Group, Inc.
The Praxis Institute, Inc
<PAGE> 1
EXHIBIT 10.54
ADDENDUM TO
STOCK PURCHASE AGREEMENT
THIS ADDENDUM, is made and entered into as of April 27, 2000, by and
between Pritchett Publishing Company (hereinafter referred to as "Seller") and
ProfitSource Corporation (hereinafter referred to as "Buyer").
WHEREAS, the parties entered into a Stock Purchase Agreement dated
November 11, 1998; and
WHEREAS, a dispute has arisen regarding the interpretation of Section
4.13 of the Agreement; and
WHEREAS, the parties wish to resolve the dispute.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
Section 4.13 of the Stock Purchase Agreement shall be revised
to read as follows:
ADDITIONAL PURCHASE PRICE. If Buyer does not close the IPO of
its equity securities by June 30, 1999, Buyer will agree to
pay the Seller an additional purchase price based on the
performance of the Buyer since date of acquisition. Amounts
payable under, and other terms of, any such plan will be
subject to restrictions imposed by Buyer's lenders, Buyer's
capital investment requirements and preservation of adequate
working capital.
In all other respects, the terms and conditions of the Stock Purchase
Agreement dated November 11, 1998 are hereby reaffirmed.
PRITCHETT PUBLISHING COMPANY EPS SOLUTIONS CORPORATION
(F/K/A PROFITSOURCE CORPORATION)
By: /s/ Early Price Pritchett III By: /s/ Michael G. Goldstein
----------------------------- ----------------------------
Early Price Pritchett III Michael G. Goldstein
<PAGE> 1
Exhibit 22.1
Following is a list of each direct and indirect subsidiary of the
Company or any subsidiary thereof and the jurisdiction of its incorporation.
<TABLE>
<CAPTION>
- ------------------------------------------------------- --------------------
NAME (DIRECT OWNER) JURISDICTION
- ------------------------------------------------------- --------------------
<S> <C>
Bay Group International, Inc. California
Bay Group International Asia-Pacific Limited Hong Kong
Benefit Designs, Inc. Ohio
Benefit Designs International, Inc. Ohio
Benefit Funding Services Group, LLC Nevada
Benefit Funding Services, LLC Nevada
Better Communications, Inc. Massachusetts
D'Accord Asset Management, Inc. California
D'Accord Financial Services Limited United Kingdom
D'Accord Financial Services, Inc. California
D'Accord Group, Inc. California
D'Accord Holdings, Inc. California
D'Accord Incorporated California
D'Accord International Services, Inc. California
D'Accord Limited Partnership California
Dimension Funding, Inc. California
Disbursement Recovery Services LLC Delaware
D.L.D. Insurance Brokers, Inc. California
e.fox.com, Inc. Delaware
FFP Insurance Services, Inc. Nevada
FFP Insurance Services, Inc. California
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
FFR Holding Co., Inc. Delaware
First Financial Resources Management Co., Inc. Pennsylvania
First Financial Resources, Inc. Nevada
Hindert & Associates, Inc. Delaware
Hindert Agency Inc. Ohio
Holden Corporation Illinois
Lease Audit & Analysis Services, Inc. Maryland
National Benefits Consultants, L.L.C. Delaware
National RevMax Consultants, L.L.C. Delaware
Partners Consultings Services, Inc. California
Praxis Development LC Utah
Pritchett Publishing Company Texas
Sigma International, Inc. Virginia
The Dublin Group, Inc. California
The Oxxford Consulting Group, Inc. Delaware
The Praxis Group, Inc. Utah
The Praxis Group, Inc. Utah
The Structured Settlements Company, Inc. California
TSL Services, Inc. Delaware
The Wadsley-Donovan Group, Ltd. New Jersey
Young, Clark & Associates, Inc. Georgia
</TABLE>
The following is a list of all other names (including trade names,
fictitious names and d/b/a's) presently used (or proposed to be used) by the
Company, any Subsidiary or any of their divisions or other business units in
connection with the conduct of their business or the ownership of their
properties.
2
<PAGE> 3
<TABLE>
<CAPTION>
Entity DBA's etc.
<S> <C>
Enterprise Profit Solutions Corporation The Conrad Lee Company
CyberLease, LLC
CyberStract, LLC
DHR International, Inc.; DHR
Equitax
FDSI Logistics, Inc.; Freight Distribution Services,
Inc.
FDSI; FDSI Outsourced Logistics
First Choice Brokerage Corporation
Kenneth H. Wells & Associates, Inc.
Kenneth H. Wells & Associates of Texas, Inc.
Kenneth H. Wells of California Insurance Services,
Inc.
Mobility Services International, Inc.
The Oxxford Group, Inc.
The Praxis Group Limited Partnership
The Ringco Group, LLC
RBG Group Ltd.' The Rummler-Brache Group Ltd.; RBG
Bay Group International, Inc. BayGroup International
BayGroup International
BayGroup International, Inc.
Benefit Designs International, Inc. Benefit Designs
Better Communications, Inc. Better Communications
Disbursement Recovery Services LLC DRS
DMS Logistics
DMS & Telecom
DMS Leasing
First Financial Resources, Inc. First Financial Resources
Hindert Agency, Inc. Benefit Designs
Hindert & Associates, Inc. Benefit Designs
Holden Corporation Holden North American Corporation
Lease Audit & analysis Services, Inc. LAAS
National Benefits Consultants, L.L.C. College Financial Aid Services of America
Matchless Insurance Marketing
National RevMax Consultants, L.L.C. RevMax LLC
The Oxxford Consulting Group, Inc. Oxxford Consulting
TSL Services, Inc. TSL
Sigma International, Inc. Sigma
The Dublin Group The Training Company
The Praxis Institute, Inc. Vitality Alliance, Inc.
</TABLE>
3
<TABLE>
Entity DBA's etc.
<S> <C>
Vitality Alliance International, Inc.
The Praxis Group, Inc. Praxis
Pritchett Publishing Company Pritchett
Prichett & Associates
Pritchett & Associates, Inc.
</TABLE>
4
