<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-70717
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
USINTERNETWORKING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 52-2078325
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
ONE USI PLAZA
ANNAPOLIS, MARYLAND 21401-7478
(410) 897-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
WILLIAM T. PRICE, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
ONE USI PLAZA
ANNAPOLIS, MARYLAND 21401-7478
(410) 897-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES F. ROGERS, ESQ. WILLIAM B. GANNETT, ESQ.
LATHAM & WATKINS CAHILL GORDON & REINDEL
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300 80 PINE STREET
WASHINGTON, DC 20004 NEW YORK, NY 10005-1702
(202) 637-2200 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Explanatory Note: This Amendment No. 3 to Form S-1 Registration Statement
(Registration No. 333-70717) of USINTERNETWORKING, Inc. is being filed solely to
include superseding Exhibits to the Registration Statement. Accordingly, Part 1,
the form of prospectus, has been omitted from this filing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 23,978
NASD Filing Fee........................................................... 9,125
Nasdaq National Market Listing Fee........................................ *
Transfer Agent Fees....................................................... *
Accounting Fees and Expenses.............................................. *
Legal Fees and Expenses................................................... *
Printing and Mailing Expenses............................................. *
Miscellaneous............................................................. *
---------
Total................................................................. $ *
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
("Section 145") permits a Delaware corporation to 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 (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, 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 if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person 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 is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the corporation. No indemnification may be made in respect of any
claim, issue, or matter as to which such person 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 or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
To the extent that a present or former director or officer of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the preceding two
II-1
<PAGE>
paragraphs, Section 145 requires that such person be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding may 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 such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the corporation as authorized in Section 145.
Our Certificate provides that one of our officers or directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of his fiduciary duty as an officer or director, except in certain cases where
liability is mandated by the DGCL. The provision has no effect on any
non-monetary remedies that may be available to us or our stockholders, nor does
it relieve us or our officers or directors from compliance with federal or state
securities laws. The Certificate also generally provides that we will indemnify,
to the fullest extent permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was our director or officer,
or is or was serving at our request as a director, officer, employee or agent of
another entity, against expenses incurred by him in connection with such
Proceeding. An officer or director shall not be entitled to indemnification from
us if (i) the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests, or (ii)
with respect to any criminal action or proceeding, the officer or director had
reasonable cause to believe his conduct was unlawful.
Our Bylaws provide that we will indemnify any person who is made a party to
any threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was our director or officer, and may indemnify any of
our employees or agents in those circumstances, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding. No indemnification may be provided for any person who shall have
been finally adjudicated not to have acted honestly or in the reasonable belief
that his or her action was in or not opposed to our best interests or who had
reasonable cause to believe that his or her conduct was unlawful.
Indemnification must be provided to any of our directors, officers, employees or
agents to the extent the person succeeded, on the merits or otherwise, in
defense of any action or claim described above. Any indemnification under this
provision of the Bylaws, unless required under the Bylaws or ordered by a court,
can be made only as authorized in each specific case upon a determination by a
majority of disinterested directors or by independent legal counsel or by the
shareholders that such indemnification is appropriate under the standard set
forth in the preceding sentence.
The underwriting agreement to be filed as Exhibit 1.1 to the Registration
Statement provides for indemnification by the underwriters of USI and its
directors and certain officers, and by USI of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding all securities
sold and employee stock options granted by the Registrant since January 14,
1998. Further included is the consideration, if any, received by the Registrant
for such securities, and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules of the Securities
and Exchange Commission under which exemption from registration was claimed. All
awards of options did not involve any sale under the Securities Act. None of
these securities were registered under the Securities Act. Except as described
below, no sale of securities involved the use of an underwriter and no
commissions were paid in connection with the sales of any securities.
II-2
<PAGE>
1. At various times during the period from January 1998 through January 5,
1999, we have granted to employees and directors options to purchase an
aggregate of 13,458,000 shares of Common Stock with an exercise price of
$0.33. The issuance of these securities were not registered under the
Securities Act in reliance upon Rule 701 of the rules promulgated under the
Securities Act.
2. On February 13, 1998, we issued 100 shares of Common Stock to Christopher R.
McCleary.
3. On May 13, 1998, we issued 15,750,000 shares of Common Stock to Christopher
R. McCleary, Stephen E. McManus, Andrew A. Stern and Christopher Poelma at
par value. The purchase price for the Common Stock was paid with cash and
notes payable to the Company.
4. On May 13, 1998, we issued 38,333.33 shares of Series A Preferred Stock for
an aggregate purchase price of $23 million to the Initial Series A
Investors. The purchase price for such shares was paid in cash at the time
of the issuance. We simultaneously issued 1,666.67 shares of Series A
Preferred Stock for an aggregate purchase price of $1 million to Christopher
R. McCleary. The purchase price for such shares was paid by the forgiveness
by Mr. McCleary of $1 million of debt that we owed him.
5. On June 18, 1998, we issued 5,000 shares of Series A Preferred Stock for an
aggregate purchase price of $3 million to certain of the Initial Series A
Purchasers. We simultaneously issued 5,833.33 shares of Series A Preferred
Stock for $3.5 million to U S WEST. The purchase price for such shares was
paid in cash at the time of issuance.
6. On June 19, 1998, we issued 3,000 shares of Series A Preferred Stock for an
aggregate purchase price of $1.6 million to HAGC Partners, Chris Horgan (who
later transferred his interest to his affiliate, Southeastern Technology
Fund, L.P.) and the Account Management Purchasers. The purchase price for
such shares was paid in cash at the time of issuance. We simultaneously
issued 1,166.67 shares of Series A Preferred Stock for a purchase price of
$700,002 to USI Partners. The purchase price for such shares was paid in
cash at the time of issuance.
7. On September 8, 1998, we issued convertible promissory notes in the
aggregate amount of $9,095,000, together with warrants to purchase 7,795,722
shares of Common Stock for $.01 per share, to certain of the existing
holders of the Series A Preferred Stock. The purchase price for such notes
and warrants was paid in cash at the time of issuance.
8. On December 16, 1998, we issued convertible promissory notes in the
aggregate amount of $8 million to certain of the existing holders of the
Series A Preferred Stock. The purchase price for such notes was paid in cash
at the time of issuance.
9. On December 24, 1998, we issued convertible promissory notes in the amount
of $5 million to U S WEST. The purchase price for such notes was paid in
cash at the time of issuance.
10. On December 31, 1998, we issued 59,278.56 shares of Series B Preferred Stock
for an aggregate purchase price of $62,242,500 to certain holders of the
convertible promissory notes described above, certain holders of Series A
Preferred Stock, and a number of new investors. The purchase price for such
shares was paid in cash and/or by conversion of certain outstanding
convertible promissory notes at the time of issuance.
All of the shares of preferred stock described in paragraphs 3 through 10
above are being exchanged for shares of Common Stock prior to completion of this
offering. The issuances of the securities above were made in reliance on on or
more exemptions from registration under the Securities Act, including those
provided by Section 4(2) and Rule 701 thereunder. The purchasers of these
securities represented that they had adequate access, through their employment
with us or otherwise, to information about us.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Amended and Restated Certificate of Incorporation of the Registrant
3.2* Form of Second Restated Certificate of Incorporation of the Registrant
3.3+ Bylaws of the Registrant
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant
5.1* Opinion of Latham & Watkins with respect to the validity of the securities being offered.
10.1+ Stock Purchase Agreement between USI and the Initial Series A Purchasers dated May 13, 1998
10.2Section Stock Purchase Agreement between USI and certain of the Initial Series A Purchasers dated June 18, 1998
10.3+ Stock Purchase Agreement between USI and U S WEST dated June 18, 1998
10.4Section Stock Purchase Agreement between USI and the Account Management Purchasers dated June 19, 1998
10.5+ Stock Purchase Agreement between USI and HAGC Partners dated June 19, 1998
10.6+ Stock Purchase Agreement between USI and Chris Horgen dated June 19, 1998
10.7+ Stock Purchase Agreement between USI and USI Partners, Ltd. dated June 19, 1998
10.8Section Stock Purchase Agreement among USI, IIT Holding, Inc., Luis Sebastian Alegrett, Michael Mai, Carlos E.
Bravo, and Vicente Perez de Tudela dated August 28, 1998
10.9* Amended and Restated Stock Purchase Agreement among USI, Advanced Communication Resources, Inc., Matthew
D. Kanter, The Benjamin Kanter 1997 QSST Trust, The Ronald Kanter 1997 QSST Trust and David S. Walden
dated October 2, 1998
10.10* Stock Purchase Agreement between USI and certain other parties dated December 31, 1998
10.11* Amended and Restated Stockholders Agreement between USI and certain other parties dated December 31, 1998
10.12* Employment Agreement between USI and Christopher R. McCleary dated May 29, 1998
10.13* Employment Agreement between USI and Stephen E. McManus dated June 2, 1998
10.14* Employment Agreement between USI and Andrew A. Stern dated July 27, 1998
10.15* Employment Agreement between USI and Jeffrey L. McKnight dated December 15, 1998
10.16+# Outsource Alliance Agreement between USI and PeopleSoft USA, Inc. dated September 28, 1998
10.17+# iMAP Agreement between USI and U S WEST, Inc. dated January 15, 1999
10.18+# Software License Agreement between USI and Sagent Technology, Inc. dated June 25, 1998
10.19+# Software License and Service Agreement between USI and Broadvision, Inc. dated July 22, 1998
10.20* Note Purchase Agreement among USI and the Account Management Purchasers dated September 8, 1998
10.21* Note Purchase Agreement between USI and Southeastern Technology Fund, L.P. dated September 8, 1998
10.22* Note Purchase Agreement among USI and certain other parties dated September 8, 1998
10.23* Note Purchase Agreement between USI and U S WEST dated September 8, 1998
10.24* Note Purchase Agreement between USI and certain other parties dated December 16, 1998
10.25* Note Purchase Agreement between USI and U S WEST dated December 24, 1998
21.1+ Subsidiaries of the Registrant
23.1+ Consent of Mahoney Cohen & Company, P.C.
23.2+ Consent of Bassan & Associates S.C.
23.3+ Consent of Ernst & Young LLP regarding IIT financial statements
23.4+ Consent of Ernst & Young LLP regarding USI financial statements
24.1+ Power of Attorney (included on signature page)
27.1+ Financial Data Schedule
99.1+ Report of Independent Auditors
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
# Confidential treatment requested as to certain portions.
Section Superseding Exhibit.
II-4
<PAGE>
(b) Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Articles of
Incorporation, as amended, and By-Laws, as amended, of the Registrant and the
laws of the State of Delaware or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matters have been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
USINTERNETWORKING, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN ANNAPOLIS,
MARYLAND ON FEBRUARY 4, 1999.
<TABLE>
<S> <C> <C>
USINTERNETWORKING, INC.
By: /s/ ANDREW A. STERN
-----------------------------------------
Andrew A. Stern
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- -------------------------------------- ----------------------
<S> <C> <C>
* Chairman of the Board and Chief
- ------------------------------------ Executive Officer February 4, 1999
Christopher R. McCleary (Principal Executive Officer)
*
- ------------------------------------ President and Director February 4, 1999
Stephen E. McManus
/s/ ANDREW A. STERN Executive Vice President and Chief
- ------------------------------------ Financial Officer (Principal February 4, 1999
Andrew A. Stern Financial and Accounting Officer)
*
- ------------------------------------ Director February 4, 1999
R. Dean Meiszer
*
- ------------------------------------ Director February 4, 1999
Benjamin Diesbach
*
- ------------------------------------ Director February 4, 1999
Ray A. Rothrock
*
- ------------------------------------ Director February 4, 1999
Frank A. Adams
*
- ------------------------------------ Director February 4, 1999
William F. Earthman
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- -------------------------------------- ----------------------
- ------------------------------------
John H. Wyant Director
<S> <C> <C>
- ------------------------------------
Joseph R. Zell Director
*
- ------------------------------------ Director February 4, 1999
Michael C. Brooks
*
- ------------------------------------ Director February 4, 1999
David J. Poulin
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ANDREW A. STERN
-------------------------
Andrew A. Stern
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Amended and Restated Certificate of Incorporation of the Registrant
3.2* Form of Second Restated Certificate of Incorporation of the Registrant
3.3+ Bylaws of the Registrant
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant
5.1* Opinion of Latham & Watkins with respect to the validity of the securities being offered.
10.1+ Stock Purchase Agreement between USI and the Initial Series A Purchasers dated May 13, 1998
10.2Section Stock Purchase Agreement between USI and certain of the Initial Series A Purchasers dated June 18, 1998
10.3+ Stock Purchase Agreement between USI and U S WEST dated June 18, 1998
10.4Section Stock Purchase Agreement between USI and the Account Management Purchasers dated June 19, 1998
10.5+ Stock Purchase Agreement between USI and HAGC Partners dated June 19, 1998
10.6+ Stock Purchase Agreement between USI and Chris Horgen dated June 19, 1998
10.7+ Stock Purchase Agreement between USI and USI Partners, Ltd. dated June 19, 1998
10.8Section Stock Purchase Agreement among USI, IIT Holding, Inc., Luis Sebastian Alegrett, Michael Mai, Carlos E.
Bravo, and Vicente Perez de Tudela dated August 28, 1998
10.9* Amended and Restated Stock Purchase Agreement among USI, Advanced Communication Resources, Inc., Matthew
D. Kanter, The Benjamin Kanter 1997 QSST Trust, The Ronald Kanter 1997 QSST Trust and David S. Walden
dated October 2, 1998
10.10* Stock Purchase Agreement between USI and certain other parties dated December 31, 1998
10.11* Amended and Restated Stockholders Agreement between USI and certain other parties dated December 31, 1998
10.12* Employment Agreement between USI and Christopher R. McCleary dated May 29, 1998
10.13* Employment Agreement between USI and Stephen E. McManus dated June 2, 1998
10.14* Employment Agreement between USI and Andrew A. Stern dated July 27, 1998
10.15* Employment Agreement between USI and Jeffrey L. McKnight dated December 15, 1998
10.16+# Outsourcer Alliance Agreement between USI and PeopleSoft USA, Inc. dated September 28, 1998
10.17+# iMAP Agreement between USI and U S WEST, Inc. dated January 15, 1999
10.18+# Software License Agreement between USI and Sagent Technology, Inc. dated June 25, 1998
10.19+# Software License and Service Agreement between USI and Broadvision, Inc. dated July 22, 1998
10.20* Note Purchase Agreement among USI and the Account Management Purchasers dated September 8, 1998
10.21* Note Purchase Agreement between USI and Southeastern Technology Fund, L.P. dated September 8, 1998
10.22* Note Purchase Agreement among USI and certain other parties dated September 8, 1998
10.23* Note Purchase Agreement between USI and U S WEST dated September 8, 1998
10.24* Note Purchase Agreement between USI and certain other parties dated December 16, 1998
10.25* Note Purchase Agreement between USI and U S WEST dated December 24, 1998
21.1+ Subsidiaries of the Registrant
23.1+ Consent of Mahoney Cohen & Company, P.C.
23.2+ Consent of Bassan & Associates S.C.
23.3+ Consent of Ernst & Young LLP regarding IIT financial statements
23.4+ Consent of Ernst & Young LLP regarding USI financial statements
24.1+ Power of Attorney (included on signature page)
27.1+ Financial Data Schedule
99.1+ Report of Independent Auditors
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
# Confidential treatment requested as to certain portions.
Section Superseding Exhibit.
<PAGE>
Ex. 10.2
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by
and
among
USinternetworking, Inc.
Blue Chip Capital Fund II Limited Partnership
Miami Valley Venture Fund L.P.
Grotech Partners IV L.P.
and
Grotech Partners V L.P.
-------------------------
Dated as of June 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. DEFINITIONS............................................................................................1
1.1. DEFINITIONS................................................................................1
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.....................................................4
1.3. KNOWLEDGE STANDARD.........................................................................4
1.4. Other Defined Terms........................................................................4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF PREFERRED SHARES...............................5
2.1. PREFERRED SHARES...........................................................................5
2.2. PURCHASE AND SALE OF PREFERRED SHARES......................................................6
2.3. CLOSING....................................................................................6
2.4. FEES AND EXPENSES..........................................................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE PREFERRED SHARES........................6
3.1. REPRESENTATIONS AND WARRANTIES.............................................................7
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.....................................7
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.............................................7
3.4. CLOSING CERTIFICATES.......................................................................7
3.5. SECRETARY'S CERTIFICATES...................................................................7
3.6. DOCUMENTS..................................................................................7
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS......................................................8
3.8. CONSENTS AND APPROVALS.....................................................................8
3.9. CONSENTS AND WAIVERS.......................................................................8
3.10. NO MATERIAL JUDGMENT OR ORDER.............................................................8
3.11. LEGAL OPINION.............................................................................8
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE...................................................9
4.1. REPRESENTATIONS AND WARRANTIES.............................................................9
4.2. COMPLIANCE WITH THIS AGREEMENT.............................................................9
4.3. CLOSING CERTIFICATE........................................................................9
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS......................................................9
4.5. PAYMENT OF PURCHASE PRICE..................................................................9
4.6. CONSENTS AND APPROVALS....................................................................10
4.7. CONSENT AND WAIVER........................................................................10
4.8. NO MATERIAL JUDGMENT OR ORDER.............................................................10
<PAGE>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................10
5.1. CORPORATE EXISTENCE AND AUTHORITY.........................................................10
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.................................................11
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS..........................................11
5.4. BINDING EFFECT............................................................................11
5.5. CAPITALIZATION............................................................................11
5.6. PRIVATE OFFERING..........................................................................12
5.7. LITIGATION................................................................................13
5.8. FINANCIAL STATEMENTS......................................................................13
5.9. TITLE AND CONDITION OF ASSETS.............................................................13
5.10. CONTRACTUAL OBLIGATIONS..................................................................13
5.11. TAX MATTERS..............................................................................14
5.12. SEVERANCE ARRANGEMENTS...................................................................14
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS................................................14
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.......................................................14
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.....................................................14
5.16. EMPLOYEE BENEFITS MATTERS................................................................15
5.17. OUTSTANDING BORROWINGS...................................................................15
5.18. INSURANCE SCHEDULE.......................................................................15
5.19. SOLVENCY.................................................................................15
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE COMPANY...................15
5.21. KEY EMPLOYEES............................................................................16
5.22. COMPLIANCE WITH LAW......................................................................15
5.23. DISCLOSURE...............................................................................16
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................................................16
6.1. PARTNERSHIP EXISTENCE AND AUTHORITY.......................................................16
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.............................................17
6.3. BINDING EFFECT............................................................................17
6.4. PURCHASE FOR OWN ACCOUNT..................................................................17
6.5. FINANCIAL CONDITION.......................................................................18
6.6. RECEIPT OF INFORMATION....................................................................18
6.7. BROKER'S, FINDER'S OR SIMILAR FEES........................................................18
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT...........................................19
6.9. LITIGATION................................................................................19
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ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD
FOLLOWING THE CLOSING..........................................................................19
7.1. RESERVATION OF SHARES.....................................................................19
7.2. ISSUANCE OF ADDITIONAL PREFERRED SHARES...................................................19
ARTICLE 8. INDEMNIFICATION.......................................................................................20
8.1. INDEMNIFICATION...........................................................................20
8.2. NOTIFICATION..............................................................................21
ARTICLE 9. MISCELLANEOUS.........................................................................................22
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES................................................22
9.2. NOTICES...................................................................................22
9.3. SUCCESSORS AND ASSIGNS....................................................................23
9.4. AMENDMENT AND WAIVER......................................................................24
9.5. COUNTERPARTS..............................................................................24
9.6. HEADINGS..................................................................................24
9.7. GOVERNING LAW.............................................................................24
9.8. JURISDICTION..............................................................................24
9.9. SEVERABILITY..............................................................................25
9.10. RULES OF CONSTRUCTION....................................................................25
9.11. ENTIRE AGREEMENT.........................................................................25
9.12. PUBLICITY................................................................................25
9.13. FURTHER ASSURANCES.......................................................................26
9.14. WAIVER OF JURY TRIAL.....................................................................26
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of this 18th day of June, 1998, by and between USinternetworking, Inc.,
a Delaware corporation (the "Company") and Blue Chip Capital Fund II Limited
Partnership ("Blue Chip"), Miami Valley Venture Fund L.P. ("Miami"), Grotech
Partners IV L.P. ("Grotech") and Grotech Partners V L.P. ("Grotech II," and,
together with Blue Chip, Miami, and Grotech, are collectively referred to herein
as the "Purchasers").
RECITALS:
A. Upon the terms and subject to the conditions set forth in
this Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock", as defined below) to
the Purchasers.
B. The Purchasers desire to purchase from the Company shares
of the Series A Preferred Stock as set forth on SCHEDULE 1 hereto.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person, whether by contract, through one or
more intermediaries, or otherwise.
"BUSINESS DAY" shall mean a day other than a Saturday or
Sunday or any federal holiday.
<PAGE>
"COMMISSION" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act (as
defined below).
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Company, or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business,
properties, operations, financial condition or prospects of the Company.
"EMPLOYEE PLANS" means all benefits arrangements, pension
plans or welfare plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option
plan adopted by the Compensation Committee of the Board of Directors of the
Company providing for the issuance to certain employees of the Company of
options to purchase a certain number of shares of Common Stock at a certain
exercise price per share the total number of shares of Common Stock which may be
issued under such plan shall not exceed 6.5% of the total number of outstanding
shares of common stock calculated on a fully diluted basis, not including the
options and shares issuable or issued on exercise of options pursuant to the
Employee Stock Option Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation,
state, city, locality or other political subdivision of any 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.
"INDEBTEDNESS" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and
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currency swaps, caps, collars and similar agreements or hedging devices under
which payments are obligated to be made by such Person, whether periodically or
upon the happening of a contingency, (e) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (f) all obligations of such Person under
leases which have been or should be, in accordance with GAAP, recorded as
capital leases, (g) all indebtedness secured by any Lien (other than Liens in
favor of lessors under leases other than leases included in clause (f)) on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (h) all Indebtedness of any other
Person referred to in clauses (a) through (f) above, guaranteed, directly or
indirectly, by that Person.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or other
security interest of any kind or nature whatsoever (excluding preferred stock or
equity related preferences) including, without limitation, 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 obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company
for borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions
of the Certificate of Incorporation and By-laws or other organizational or
governing documents of such Person, and any law, treaty, rule, regulation,
right, privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
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<PAGE>
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible
Preferred Stock, par value $.01 per share, of the Company, or any other capital
stock of the Company into which such stock is reclassified or reconstituted.
"TRANSACTION EXPENSES" means any and all reasonable
out-of-pocket (i) legal expenses incurred by the Purchaser in connection with
the negotiation and preparation of the Transaction Agreements, the consummation
of the transactions contemplated thereby and preparation for any of the
foregoing, including, without limitation, travel expenses, reasonable fees,
charges and disbursements of counsel and any similar or related legal costs and
legal expenses; and (ii) other expenses incurred by the Purchaser in connection
with the negotiation and preparation of this Agreement.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this
Agreement shall have the respective meanings given to them in accordance with
sound accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person,
"to the best knowledge of" any Person or any similar phrase shall mean, (i) with
respect to any individual, the actual knowledge of such Person, (ii) with
respect to any corporation, the actual knowledge of the officers and directors
of such corporation and the knowledge of such facts that such persons should
have in the exercise of their duties after reasonable inquiry, and (iii) with
respect to a partnership, the actual knowledge of the officers and directors of
the general partner of such partnership and the knowledge of such facts that
such persons should have in the exercise of their duties after reasonable
inquiry.
1.4. Other Defined Terms.
The following terms shall have the meanings specified in the
Sections set forth below:
4
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Actions 5.7
Additional Preferred Shares 7.4
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
US West Agreement 2.2
</TABLE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the
issuance and sale of 5,000 additional shares (the "Preferred Shares") of the
Series A Preferred Stock and has duly adopted resolutions establishing the
rights, preferences, privileges and restrictions of the Series A Preferred
Stock. The Preferred Shares will have the respective rights, preferences and
privileges set forth in the Company's Certificate of Incorporation, as amended
(the "Certificate of Incorporation") and the Certificate of Designations,
Preferences, and Other Special Rights of Preferred Stock and Qualifications,
Limitations and Restrictions Thereof filed on May 27, 1998 with respect thereto
(the "Certificate of Designation" and together with the Certificate of
Incorporation, the "Certificate").
5
<PAGE>
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained,
on such day as the parties may agree but in any event prior to the Closing (as
defined therein) of the Stock Purchase Agreement (the "US WEST Agreement"),
dated as of June 18, 1998 by and between the Company and US WEST Communications,
Inc. (the "Closing Date"), the Company shall issue to the Purchasers and the
Purchasers shall acquire from the Company, the number of Preferred Shares set
forth next to each Purchaser's name on SCHEDULE 1 hereto. The aggregate purchase
price of such Preferred Shares, to be paid by the Purchasers in the amount set
forth next to each Purchaser's name on SCHEDULE 1 hereto, shall be Three Million
Dollars ($3,000,000) (the "Purchase Price").
2.3. CLOSING.
The closing of the sale to and purchase by the Purchasers of
the Preferred Shares (the "Closing") shall occur at 11 o'clock A.M., local time
on the Closing Date at the offices of Latham & Watkins, 1001 Pennsylvania
Avenue, N.W., Washington, D.C. 20004, or such other location as the parties may
agree. At the Closing, (i) the Company shall deliver to the Purchasers
certificates evidencing the Preferred Shares being purchased by the Purchasers,
free and clear of any Liens of any nature whatsoever, other than those created
by the Certificate or the Shareholders' Agreement, registered in the Purchasers'
name, and (ii) the Purchasers shall deliver to the Company the Purchase Price,
in the amounts as set forth next to each Purchaser's name on SCHEDULE 1 hereto,
by cashier's or certified check or wire transfer of immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse
each Purchaser for the Transaction Expenses, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
such Purchaser.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE PREFERRED SHARES
The obligation of each of the Purchasers to purchase the
Preferred Shares, to pay the Purchase Price therefor and to perform any of its
obligations hereunder on the Closing Date (unless otherwise specified) shall be
subject to the satisfaction of the following conditions on or before the Closing
Date:
6
<PAGE>
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in
Section 5 hereof shall be true and correct in all material respects at and as of
the Closing Date, as if made at and as of such date.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS
AGREEMENT.
The Company shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Company on or before the Closing Date.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchasers the
certificates evidencing the Preferred Shares as set forth in Section 2.3.
3.4. CLOSING CERTIFICATES.
The Company shall have delivered to the Purchasers a
certificate executed by an authorized officer of the Company, certifying that
the representations and warranties of the Company are true and correct in all
material respects on and as of the Closing Date, and that the conditions set
forth in this Section 3 to be satisfied by the Company have been satisfied on
and as of the Closing Date.
3.5. SECRETARY'S CERTIFICATES.
The Purchasers shall have received a certificate from the
Company, dated as of the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying that the attached copies of the
Certificate of Incorporation, Certificate of Designation, By-laws of the
Company, (all of which will be in form and substance consistent with this
Agreement) and resolutions of the Board of Directors of the Company approving
this transaction are all true, complete and correct and remain unamended and in
full force and effect.
3.6. DOCUMENTS.
The Purchasers shall have received true, complete and correct
copies of such documents and such other information as they may have reasonably
requested in connection with or relating to the sale of the Preferred Shares and
the transactions required to be performed herein.
7
<PAGE>
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be
acquired by the Purchasers hereunder and the consummation of this Agreement (a)
shall not be prohibited by any Requirements of Law, and (b) shall not conflict
with or be prohibited by any Contractual Obligation of the Company.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Company necessary or required in connection with
the execution, delivery or performance (including, without limitation, the
issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares) by the Company shall have been obtained and
be in full force and effect and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.9. CONSENTS AND WAIVERS
The shareholders that are parties to the Shareholders'
Agreement, dated as of May 28, 1998 (the "Shareholders' Agreement") and the
holders of at least two-thirds of the outstanding shares of Series A Preferred
Stock shall have duly executed and delivered to the Purchasers the Consent and
Waiver substantially in the form attached as EXHIBIT A hereto.
3.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirement of Law which, in the reasonable judgment
of the Purchasers, would (i) prohibit the purchase of the Preferred Shares
hereunder, (ii) subject the Purchasers to any penalty if the Preferred Shares
were to be purchased hereunder, or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
3.11. LEGAL OPINION.
The Purchasers shall have received an opinion of counsel for
the Company in the form attached as EXHIBIT B hereto.
8
<PAGE>
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred
Shares and the other obligations of the Company hereunder, shall be subject to
the satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchasers contained
in Section 6 hereof shall be true and correct in all material respects on and as
of the Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT.
Each of the Purchasers shall have performed and complied with
all of the agreements and conditions set forth herein that are required to be
performed or complied with by the Purchasers on or before the Closing Date.
4.3. CLOSING CERTIFICATE.
Each of the Purchasers shall have delivered to the Company a
certificate executed by the Purchaser certifying that the representations and
warranties of such Purchaser contained in this Agreement are true and correct in
all material respects on and as of the Closing Date and that the conditions
contained in this Section 4 to be satisfied by such Purchaser have been
satisfied on and as of the Closing Date.
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the
Company hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any Contractual Obligations of the Purchasers.
4.5. PAYMENT OF PURCHASE PRICE.
Each of the Purchasers shall have tendered to the Company the
Purchase Price as set forth in Schedule 1 hereto.
9
<PAGE>
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchasers necessary or required in connection
with the execution, delivery or performance by the Purchasers shall have been
obtained and be in full force and effect and all waiting periods shall have
lapsed without extension or imposition of any conditions or restrictions.
4.7. CONSENT AND WAIVER
The Consent and Waiver substantially in the form set forth in
EXHIBIT A hereto shall have been executed by each of the shareholders that are a
party to the Shareholders' Agreement and by the holders of at least two-thirds
of the outstanding shares of Series A Preferred Stock.
4.8. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirements of Law which, in the reasonable
judgment of the Company would (i) prohibit the sale of the Shares or the
consummation of the other transactions hereunder, (ii) subject the Company to
any penalty if the Shares were to be sold hereunder or (iii) question the
validity or legality of the transactions required to be performed under this
Agreement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with,
the Purchasers as of the date hereof and as of the Closing Date as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY.
The Company was incorporated on January 14, 1998 and (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its
10
<PAGE>
obligations under this Agreement and the related agreements referred to herein
to which it is or will be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of this
Agreement, the related agreements referred to herein and the consummation of the
transactions contemplated hereby, including, without limitation, the issuance of
the Preferred Shares, (a) have been duly authorized by all necessary corporate
action, including, if required, stockholder action, (b) do not conflict with or
contravene the terms of the Certificate or the By-laws of the Company, or any
amendment thereof; and (c) will not violate, conflict with or result in any
material breach or contravention of (i) any Contractual Obligation of the
Company or (ii) any Requirements of Law applicable to the Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any applicable Requirements of Law in effect on the
date hereof, and no lapse of a waiting period under any applicable Requirements
of Law in effect on the date hereof, is necessary or required in connection with
the execution and delivery of this Agreement by the Company, the related
agreements referred to herein or the performance by the Company or enforcement
against the Company of any material obligation by the Company under this
Agreement, the related agreements referred to herein or the transactions to be
performed hereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability.
5.5. CAPITALIZATION.
On the Closing Date, the capital stock of the Company
shall consist of One Hundred Fifty Million (150,000,000) shares of Common Stock
and One Hundred Thousand (100,000) shares of preferred stock, with such shares
including the Preferred Shares. Of the 150,100,000 authorized shares of capital
stock of the Company, immediately after the Closing, there will be (i) 15
million shares of Common Stock issued and outstanding; (ii) Five Million
11
<PAGE>
(5,000,000) shares of Common Stock reserved for issuance pursuant to the
Employee Stock Option Plan; (iii) 46,166.67 shares of Series A Preferred Stock
issued and outstanding, not including the shares that could be issued pursuant
to Section 7.2(a) hereof; and (iv) 98,100,000 fully diluted shares of Common
Stock outstanding, assuming conversion of all of the outstanding shares of
Series A Preferred Stock mentioned in subsection (iii) above, into 83,100,000
shares of Common Stock, but not including any shares authorized pursuant to the
Employee Stock Option Plan or the shares that may be issued pursuant to Section
7.2 hereof. As of the Closing Date, all outstanding shares of capital stock of
the Company, including the Preferred Shares, and the shares of Common Stock
issuable upon conversion of the Preferred Shares (when issued in accordance with
the conversion terms thereof), will be duly authorized and validly issued, fully
paid, nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions other
than those created by the Certificate, the Bylaws, and the Shareholders'
Agreement.
(a) SCHEDULE 5.5 sets forth the name of each
holder of the issued and outstanding capital stock of the Company, the number of
shares of such capital stock held beneficially or of record by each such holder,
the name of each Person holding any options or other rights to purchase any
capital stock of the Company (except as may be permitted under the Shareholders'
Agreement), the number, class and series of shares of capital stock subject to
each such option or right and the exercise price of each such option or right.
Except for the options under the Employee Stock Option Plan and the Preferred
Shares, and except as identified in Section 7.4, there are no outstanding
securities convertible into or exchangeable for capital stock of the Company or
options, warrants or other rights to purchase or subscribe to capital stock of
the Company or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any Holder is a party relating
to the issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights. The Company has
no subsidiaries.
(b) Except as set forth on SCHEDULE 5.5 or in
the US WEST Agreement and as may be provided in the Shareholders' Agreement, no
Person has any preemptive rights, rights of first refusal, "tag along" rights,
rights of co-sale or any similar rights with respect to the issuance of the
Preferred Shares contemplated hereby or the issuance of any additional shares of
stock by the Company. SCHEDULE 5.5 identifies all Persons holding any such
rights and describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was
used by the Company or its representatives in connection with the offer or sale
of the Preferred Shares. No registration
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<PAGE>
of the Preferred Shares pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws will be required by the offer, sale or
issuance of the Preferred Shares pursuant to this Agreement. The Company agrees
that neither it, nor anyone authorized to act on its behalf, will offer or sell
the Preferred Shares or any other security so as to require the registration of
the Preferred Shares pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws, unless such Preferred Shares are so
registered.
5.7. LITIGATION.
The Company has not received any notice of any governmental
charge, complaint or action or court order, writ, injunction, judgment or decree
outstanding or any claim, suit, litigation, legal proceeding, (collectively,
"Actions") which if adversely determined would have a material adverse effect on
(i) the Company or the Condition of the Company (ii) the transactions required
to be performed by the Company under this Agreement and, to the Company's
knowledge, there is no valid basis therefor, and no Action is threatened against
the Company.
5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998, [and has not
yet commenced business operations.] As of the date hereof, it has no assets,
except as described below, and has not prepared financial statements. [SCHEDULE
5.8(a) sets forth all expenditures by or on behalf of the Company since its
formation in excess of $25,000, in any one case, or $200,000, in the aggregate.]
The Company's projections attached hereto as SCHEDULE 5.8(b) were prepared by
the Company's management in good faith, are based on reasonable assumptions,
represent management's best estimates of the Company's predicted operations and
performance under its business plan and reflect actual subjective expectations
of the Company's management. The Company has no reason to believe that the
results reflected in such projections are not attainable.
5.9. TITLE AND CONDITION OF ASSETS.
The Company currently has no assets (other than cash) except
as listed on SCHEDULE 5.10. The Company has a valid and enforceable leasehold
interest in its leases listed on SCHEDULE 5.10 pursuant to the terms of the
lease agreements and is not in default thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
The Company has not entered into any contracts or agreements
or incurred any material liabilities, other than pursuant to this Agreement, the
Shareholders' Agreement and the agreements listed on SCHEDULE 5.10.
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5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns
required to be filed by it, including all federal, state, local and foreign tax
returns and reports and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, the Company has not
entered into any severance or similar arrangement in respect of any present or
former employee of the Company that will result in any obligation (absolute or
contingent) of the Company to make any payment to such present or former
employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by this Agreement and the Shareholders' Agreement
neither the Company nor any Person controlling, controlled by or under common
control with the Company will be an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. The Company is not subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, or any federal or state statute or regulation limiting its
ability to incur Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any officer, director, shareholder, or Affiliate of the Company or any action
taken by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in
any unfair labor practice.
(b) Except as set forth on SCHEDULE 5.10,
the Company is not a party to any employment agreement (other than "at will"
employment relationships), collective bargaining agreement or covenant not to
compete.
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(c) No complaint under any statute or regulation
relating to employment has been filed against the Company.
5.16. EMPLOYEE BENEFITS MATTERS.
Except as set forth on SCHEDULE 5.16, the Company has not
adopted or implemented any Employee Plan.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all Outstanding Borrowings
as of the date hereof and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's
insurance policies or programs in effect as of the date hereof and indicates the
insurer's name and policy number and also indicates any self-insurance program
that is in effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the
benefit of its creditors, (ii) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition in bankruptcy by its creditors,
(iii) suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment or
other judicial seizure of all or substantially all of its assets or (v) admitted
in writing its inability to pay its debts as they come due.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL
STOCK OF THE COMPANY.
Other than as otherwise set forth in this Agreement, the
Company has no legal obligation, absolute or contingent, other than the
obligations of the Company under this Agreement or the Shareholders' Agreement,
to any person or firm to (i) sell any capital stock of the Company or, outside
of the ordinary course of business, assets, or effect any merger, consolidation
or other reorganization of the Company or (ii) enter into any agreement with
respect any of the foregoing.
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5.21. KEY EMPLOYEES.
The performance by the Company's key employees of their duties
for the Company as contemplated by the Company's business plan will not violate
any provision of any agreement to which any of such persons or the Company is a
party, including any agreement with any former employer of any such person, or
give rise to any obligation or liability of the Company to any third party or
limit in any way the Company's ability to conduct its business. None of the
Company's key employees is engaged, directly or indirectly, or has any interest
(other than as a shareholder of a public company) in any entity which is engaged
in competition with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its
formation, the Company has complied in all material respects with all applicable
Requirements of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded
to all requests for information, and the Company has accurately answered all
questions from the Purchasers concerning the Condition of the Company, and has
not knowingly withheld any facts relating thereto which it reasonably believes
to be material with respect to its Condition. No information in this Agreement
or in any Exhibit or Schedule attached to this Agreement, contains or will
contain any untrue statement of a material fact or when considered together with
all such information delivered to the Purchasers omits to state any material
fact. The disclosures made in writing by the Company in connection with this
Agreement when read in the light of the circumstances when made and taken as a
whole, did not when made contain any untrue statement of a material fact.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents
and warrants to the Company as of the date hereof as follows:
6.1. PARTNERSHIP EXISTENCE AND AUTHORITY
Such Purchaser (a) is a limited partnership, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
formation, (b) has all requisite power and
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authority to own its assets and operate its business, and (c) has all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement and the related agreements referred to herein to which it is or will
be a party.
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by such Purchaser of
this Agreement and the related agreements referred to herein to which it is a
party or will be a party and the consummation of the transactions contemplated
thereby, including, without limitation, the acquisition of the Preferred Shares:
(a) is within such Purchaser's partnership authority, and has been duly
authorized by all necessary action on the part of such Purchaser; (b) does not
conflict with or contravene the terms of such charter; and (c) will not violate,
conflict with or result in any material breach or contravention of (i) any
Contractual Obligation of such Purchaser, or (ii) the Requirements of Law or any
order or decree applicable to such Purchaser.
6.3. BINDING EFFECT.
This Agreement has been duly executed and delivered by such
Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
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.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be
issued upon conversion of the Preferred Shares, are being or will be acquired by
such Purchaser for its own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would be
in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of such Purchaser at all times
to sell or otherwise dispose of all or any part of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of such Purchaser's property being at all times
within its control. If such Purchaser should in the future decide to dispose of
any of the Preferred Shares or the shares of Common Stock issuable upon
conversion of the Preferred Shares, such Purchaser understands and agrees that
it may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect. Such Purchaser agrees to the imprinting, so
long as required by law, of a legend on certificates representing all of the
Preferred Shares or the
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shares of Common Stock to be issued upon conversion of the Preferred Shares to
the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE SHAREHOLDERS' AGREEMENT, DATED
AS OF MAY 28, 1998. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY
UPON REQUEST."
6.5. FINANCIAL CONDITION.
Such Purchaser's financial condition is such that it is able
to bear the risk of holding the Preferred Shares for an indefinite period of
time and can bear the loss of its entire investment in the Preferred Shares.
Such Purchaser has such knowledge and experience in financial and business
matters and in making high risk investments of this type that it is capable of
evaluating the merits and risks of the purchase of the Preferred Shares.
6.6. RECEIPT OF INFORMATION.
Such Purchaser has been furnished access to the business
records of the Company and such additional information and documents as such
Purchaser has requested and has been afforded an opportunity to ask questions of
and receive answers from representatives of the Company concerning the terms and
condition of this Agreement, the purchase of the Preferred Shares, the
prospective operations, market potential, capitalization, financial conditions,
and prospects of the business to be conducted by the Company, and all other
matters deemed relevant by such Purchaser.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with such Purchaser
or any action taken by such Purchaser.
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6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any Requirements of Law, and no lapse of a waiting
period under any Requirements of Law, is necessary or required in connection
with the execution, delivery or performance by such Purchaser (including,
without limitation, the acquisition of the Preferred Shares) or enforcement
against such Purchaser of this Agreement or the related agreements referred to
herein to which it is or will be a party or the transactions contemplated
thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of such
Purchaser, threatened relating to or affecting the transactions required to be
performed by such Purchaser under this Agreement or the related agreements
referred to herein to which it is or will be a party.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to
conversion or otherwise and until the payment by the Company of all other
amounts due to the Purchasers under this Agreement or the related agreements
referred to herein or the Certificate, the Company hereby covenants and agrees
with the Purchasers as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out
of its authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares and the Additional Preferred Shares (as
defined below) as provided in the Certificate, the maximum number of shares of
Common Stock that may be issuable or deliverable upon such conversion. Such
shares of Common Stock shall, when issued or delivered in accordance with the
provisions of the Certificate, be duly authorized, validly issued and fully paid
and non-assessable. The Company shall issue such Common Stock in accordance with
the provisions of the Certificate and shall otherwise comply with the terms
thereof.
7.2. ISSUANCE OF ADDITIONAL PREFERRED SHARES.
The Company may issue those shares of Series A Preferred Stock
as contemplated by and pursuant to the terms and conditions of the US WEST
Agreement (such shares are
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referred to herein as the "Additional Preferred Shares"). The Purchasers by
consummating the purchase of the Preferred Shares, thereby grant their consent,
as holders of Series A Preferred Stock and pursuant to paragraph 5(b)(12) of the
Certificate of Designation, to the above-described issuance of the Additional
Preferred Shares and waive any rights, including preemptive rights, they may
have under the Shareholders' Agreement with respect to the issuance of the
Additional Preferred Shares.
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder
or provided for in this Agreement, the Company (the "Selling Indemnifying
Party") shall defend, indemnify and hold harmless the Purchasers and their
Affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners and assigns (each a "Purchasing Indemnified Party") to
the fullest extent permitted by law from and against any and all losses, costs,
claims, damages, expenses (including reasonable fees, disbursements and other
charges of counsel, as limited by Section 8.2 below) and other liabilities
(collectively, "Liabilities") incurred or suffered by any Purchasing Indemnified
Party resulting from or arising out of (i) any breach by any Selling
Indemnifying Party of any representation or warranty, covenant or agreement of
the Selling Indemnifying Party in this Agreement; provided, however, that no
Selling Indemnifying Party shall be liable under this Section 8.1 to any
Purchasing Indemnified Party to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the material breach by
such Purchasing Indemnified Party of any representation, warranty, covenant or
other agreement of such Purchasing Indemnified Party contained in this Agreement
or (ii) any material liability of the Company on the Closing Date not disclosed
in this Agreement.
(b) In addition to all other sums due hereunder
or provided for in this Agreement, each Purchaser (the "Purchasing Indemnifying
Party"), severally and not jointly, shall defend, indemnify and hold harmless
the Company and its Affiliates and its officers, directors, agents, employees,
subsidiaries, partners and assigns (each a "Selling Indemnified Party") to the
fullest extent permitted by law from and against any and all Liabilities
incurred or suffered by such Selling Indemnified Parties resulting from or
arising out of any breach of any representation, warranty, covenant or agreement
of such Purchasing Indemnifying Party in this Agreement; provided, however, that
no Purchasing Indemnifying Party shall not be labile under this Section 8.1 to a
Selling Indemnified Party to the extent that it is finally judicially determined
that such Liabilities resulted primarily from the material breach by such
Selling Indemnified
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Party of any representation, warranty, covenant or other agreement of such
Selling Indemnified Party contained in this Agreement.
(c) If and to the extent that any
indemnification provided for in this Agreement is unenforceable for any reason,
the Indemnifying Parties (as defined below) obligated to indemnify any
Indemnified Party (as defined below) shall make the maximum contribution to the
payment and satisfaction of such indemnified liability which shall be
permissible under applicable laws. In connection with the obligation of the
Indemnifying Parties to indemnify for expenses as set forth herein, the
Indemnifying Parties further agree, upon presentation of appropriate invoices
containing reasonable detail, to reimburse each Indemnified Party for all such
expenses (including reasonable fees, disbursements and other charges of counsel,
as limited by Section 8.2 below) as they are incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against any party
entitled to indemnification pursuant to this Section 8 (an "Indemnified Party")
in respect of which indemnity may be sought from any party required to indemnify
such Indemnified Party (an "Indemnifying Party"), such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and such Indemnifying Party
shall assume the defense thereof, including the employment of counsel selected
by such Indemnifying Party and reasonably satisfactory to such Indemnified Party
and the payment of all expenses; PROVIDED, HOWEVER, that any failure to so
notify such Indemnifying Party shall not impair obligations hereunder except and
only to the extent that such failure results in actual prejudice to such
Indemnifying Party. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless (a) such Indemnifying Party agreed to pay such fees and
expenses or (b) such Indemnifying Party shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and such Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party which are different
from or additional to those available to such Indemnifying Party (in which case,
such Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such
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Indemnified Party and any other Indemnified Parties). No Indemnifying Party
shall be liable for any settlement of any such action or proceeding effected
without its written consent (which shall not be withheld unreasonably), but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, such Indemnifying Party agrees to
indemnify and hold harmless such Indemnified Party from and against any
Liabilities by reason of such settlement or judgment. No Indemnifying Party
shall agree to any settlement of any third party claim without the consent of
the Indemnified Party, which shall not be withheld if such settlement provides
only for the payment of money to be paid by the Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall
survive the Closing.
9.2. NOTICES.
All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, courier service or
personal delivery or via facsimile:
(a) If to Blue Chip or Miami:
Blue Chip Venture Company, Ltd.
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Attn: John H. Wyant
If to Grotech or Grotech II:
Grotech Capital Group
9690 Deereco Road
Timonium, MD 21093
Attention: Frank A. Adams
with a copy to:
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Taft, Stettinius & Hollister LLP
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Gerald S. Greenberg, Esq.
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service; if delivered
by facsimile, upon confirmation of such transmission; and five business days
after being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the parties hereto. This Agreement
may be assigned by the Purchasers to any permitted transferee of all or part of
the Preferred Shares or the Common Stock issued upon conversion thereof. The
Company may not assign any of its rights under this Agreement without the
written consent of the Purchasers. Except as provided in this Section 9.3, no
Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of any of this Agreement or the related
agreements referred to herein.
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9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the
Company or the Purchasers in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by any party from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or given
in writing and signed by the Company (if applicable) and the Purchasers, and
(ii) only in the specific instance and for the specific purpose for which made
or given. Except where notice is specifically required by this Agreement, no
notice to or demand on any party in any case shall entitle any party hereto to
any other or further notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without regard to the
principles of conflicts of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of Maryland or of the United States of America for the District of
Maryland and hereby expressly submits to the personal
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jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 9.2, such service to become
effective 10 days after such mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive,
and references to sections or subsections refer to sections or subsections of
this Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules
hereto and the other related agreements referred to herein, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the other related agreements referred to herein supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other parties hereto, provided that the
Purchasers may nonetheless communicate with their partners concerning such
transactions and investment in the Company and may publish a "tombstone" in the
customary form with respect to its investment. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of
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such announcement to the other parties and shall give the other parties an
opportunity to comment thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform
such further acts (including, without limitation, obtaining any consents,
exemptions, authorizations, or other actions by, or giving any notices to, or
making any filings with, any Governmental Authority or any other Person) as may
be reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.
USINTERNETWORKING, INC.
By: /s/ Christopher R. McCleary
-------------------------------------
Name: Christopher R. McCleary
-----------------------------------
Title: Chairman & Chief Executive Officer
----------------------------------
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By: /s/ John H. Wyant
--------------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By: /s/ John H. Wyant
--------------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By: /s/ Frank A. Adams
--------------------------------
Name: Frank A. Adams
Title: President & CEO
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GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By: /s/ Frank A. Adams
--------------------------------
Name: Frank A. Adams
Title: President & CEO
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TABLE OF EXHIBITS
EXHIBITS
- --------
EXHIBIT A CONSENT AND WAIVER
EXHIBIT B FORM OF OPINION
<PAGE>
EXHIBIT A
CONSENT AND WAIVER
This CONSENT AND WAIVER is entered into on this __ day of June, 1998
by and among (i) USinternetworking, Inc., a Delaware corporation (the
"COMPANY"); (ii) BLUE CHIP CAPITAL FUND II L.P. ("BLUE CHIP"), MIAMI VALLEY
VENTURE FUND L.P. ("MIAMI VALLEY"), GROTECH PARTNERS IV, L.P. ("GROTECH"),
GROTECH PARTNERS V, L.P. ("GROTECH II"), VENROCK ASSOCIATES ("VENROCK"),
VENROCK ASSOCIATES II. L.P. ("Venrock II"), SOUTHERN VENTURE FUND SBIC, L.P.
("MASSEY"), SOUTHERN VENTURE FUND II, L.P. ("MASSEY II") and USI PARTNERS,
LTD. ("USi PARTNERS" and, together with Blue Chip, Miami Valley, Grotech,
Grotech I, Venrock, Venrock II, Massey and Massey II, the "PREFERRED
STOCKHOLDERS"); and (iii) Christopher R. McCleary, Stephen E. McManus and
Christopher M. Poelma (collectively referred to herein as the "INDIVIDUAL
STOCKHOLDERS").
WHEREAS, each of the Individual Stockholders owns 5 million shares of
Common Stock of the Company, with such shares constituting all of the issued
and outstanding Common Stock of the Company as of the date hereof;
WHEREAS, the Preferred Stockholders own shares of Series A Preferred
Stock of the Company and pursuant to Section 5(b)(12) of the Certificate of
Incorporation, as amended by the Certificate of Designation, which sets forth
the terms and conditions of the Series A Preferred Stock, the Company must
obtain the consent of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock to issue additional shares of Series A Preferred
Stock;
WHEREAS, the Preferred Stockholders, the Individual Purchasers and the
Company have entered into a Shareholders' Agreement, dated as of May 28,
1998, pursuant to Section 5 of which the preferred Stockholders and the
Individual Stockholders have certain preemptive rights with respect to the
Company's issuance of additional shares of Series A Preferred Stock;
WHEREAS, the Company has entered into a Stock Purchase Agreement with
Blue Chip, Miami Valley, Grotech I and Grotech II pursuant to which the
Company has agreed to issue and sell 5,000 shares of its Series A Preferred
Stock to these investor as set forth on Exhibit A hereto (the "Additional
Investment");
WHEREAS, the Preferred Stockholders, which Preferred Stockholders
constitute all of the holders of the Series A Preferred Stock as of the date
hereof, desire to consent to the issuance of the shares of Series A Preferred
Stock for the Additional Investment as required pursuant to Section 5(b)(12)
of the Certificate of Designation; and
<PAGE>
WHEREAS, the Preferred Stockholders and the Individual Stockholders
desire to waive any rights they have under Section 5 of the Shareholders'
Agreement with respect to the issuance of shares by the Company for the
Additional Investment;
NOW, THEREFORE, in consideration of the foregoing, and the covenants
and agreements of the parties set forth herein, the parties hereto hereby
agree as follows:
1. The Preferred Stockholders do hereby consent to the
above-referenced issuance of shares of Series A Preferred Stock for the
Additional Investment.
2. The Preferred Stockholders and the Individual Stockholders do
hereby waive any rights they have under Section 5 of the Shareholders'
Agreement with respect to the issuance of shares of Series A Preferred Stock
by the Company for the Additional Investment.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
2
<PAGE>
IN WITNESS WHEREOF, this written consent and waiver has been executed
by the undersigned on the __ day of June, 1998.
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:________________________________________
Christopher R. McCleary, Chief Executive
Offer
THE PREFERRED STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:________________________________________
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY
DAYTON, LTD.
Its Special Limited Partner
By: ______________________________________
John H. Wyant
Manager
3
<PAGE>
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:______________________________
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:________________________________
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:_______________________________
Partner
By:_______________________________
Partner
SOUTHER VENTURE FUND II, L.P.
By:_________________________________
General Partner
4
<PAGE>
VENROCK ASSOCIATES
By:________________________________
General Partner
VENROCK ASSOCIATES II, L.P.
By:________________________________
General Partner
USi PARTNERS, LTD.
By:________________________________
THE INDIVIDUAL STOCKHOLDERS:
__________________________________
Christopher R. McCleary
__________________________________
Stephen E. McManus
__________________________________
Christopher M. Poelma
5
<PAGE>
EXHIBIT B
[LETTERHEAD]
FORM OF LEGAL OPINION
To the Purchasers Listed on Schedule A Hereto:
Re: Stock Purchase Agreement dated as of June 19, 1998 (the "Agreement")
by and among USinternetworking, Inc., a Delaware corporation, and the
Purchases, as listed on Schedule A attached hereto.
----------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to USinternetworking, Inc., a Delaware
corporation (the "Company"), in connection with the purchase by Purchasers of
5,000 shares of Series A Convertible Preferred Stock, par value $.01 per
share, of the Company (the "Series A Preferred Stock") pursuant to the
Agreement. This opinion is rendered to you pursuant to Section 3.11 of the
Agreement. Capitalized terms defined in the Agreement, used herein, and not
otherwise defined herein shall have the meanings given them in the Agreement.
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified
below. We have examined, among other things, the following:
<PAGE>
LATHAM & WATKINS
To the Purchases
June __, 1998
Page 2
(a) The Agreement; and
(b) The certificate of incorporation of the Company, as
amended, and the Bylaws of the Company (the "Governing Documents").
The documents described in subsections (a) and (b) above are referred to
herein collectively as the "Documents."
In our examination, we have assumed the genuineness of all signatures
(other than those of officers of the Company on the Documents), the
authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us
as copies.
We have been furnished with, and with your consent have relied upon,
certificates of officer(s) of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
Maryland, and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware,
any other laws, or as to any matters of municipal law or the laws of any
other local agencies within any state.
Our opinions set forth in clauses (i) and (iii) of paragraph 4 below are
based upon our consideration of only those statutes, rules and regulations
which, in our experience, are normally applicable to stock purchase
transactions. Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those
attorneys in this firm who have rendered legal services in connection with
the this stock purchase transaction do not have current actual knowledge of
the inaccuracy of such statement. However, except as otherwise expressly
indicated, we have not undertaken any independent investigation to determine
the accuracy of any such statement, and no inference that we have any
knowledge of any matters pertaining to such statement should be drawn from
our representation of the Company.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
<PAGE>
LATHAM & WATKINS
To the Purchases
June __, 1998
Page 3
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own and lease its properties and to conduct its business and
to execute, deliver and perform its obligations under the Agreement. Based
solely on certificates from public officials, we confirm that the Company is
qualified to do business in the State of Maryland.
2. The execution, delivery and performance of the Agreement by the
Company has been duly authorized by all necessary corporate action of the
Company, and the Agreement has been duly executed an delivered by the
Company.
3. The Agreement constitutes a legally valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery of the Agreement by the Company and the
performance of the obligations of the Company under the Agreement do not:
(i) violate any federal or Maryland statute, rule or regulation applicable to
the Company or the Delaware General Corporate Law; (ii) violate the
provisions of the Governing Documents or of any agreement to which the
Company is a party identified to us by an officer of the Company as material
to the Company's business; or (iii) to the best our knowledge, require any
consents, approvals, authorizations, registrations, declarations or filings
by the Company under any federal statute, rule or regulation applicable to
the Company. No opinion is expressed in clauses (i) and (iii) of this
paragraph 4 as to the application of Section 548 of the federal Bankruptcy
Code and comparable provisions of state law or of any antifraud laws,
antitrust or trade regulation laws.
5. The shares of Series A Preferred Stock to be issued pursuant to the
Agreement have been duly authorized and, when issued to and paid for by the
Purchasers in accordance with the terms of the Agreement, will be validly
issued, fully paid and non-assessable. The issuance of shares of Common Stock
upon conversion of the Preferred Shares has been duly authorized by the
Company, and, as of the date hereof, a sufficient number of shares of the
authorized but unissued Common Stock is available for issuance upon
conversion of the Preferred Shares. The shares of Common Stock to be issued
upon conversion of the Preferred Shares have been duly authorized and, when
issued upon conversion of the Preferred Stock in accordance with the terms of
the Preferred Stock, will be validly issued, fully paid and non-assessable
6. The authorized capital stock of the Company consists of One Hundred
Fifty Million (150,000,000) shares of Common Stock, par value $0.001 per
share, and One Hundred Thousand (100,000) shares of preferred stock, par
value $0.01 per share.
<PAGE>
LATHAM & WATKINS
To the Purchasers
June , 1998
Page 4
The opinions expressed in paragraph 3 above are subject to the following
limitations, qualifications and exceptions:
(a) such opinions are subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting the
rights of creditors; and
(b) such opinions are subject to the exercise of judicial discretion
in accordance with general principles of equity.
To the extent that the obligations of the Company may be dependent upon
such matters, we assume for purposes of this opinion that; all parties to the
Agreement other than the Company are duly formed, validly existing and in
good standing under the laws of their respective jurisdictions of formation;
all parties to the Agreement other than the Company have the requisite
partnership power and authority to execute and deliver the Agreement and to
perform their respective obligations under the Agreement; and the Agreement
to which such parties other than the Company are a party have been duly
authorized, executed and delivered by such parties and constitute their
legally valid and binding obligations, enforceable against them in accordance
with their terms. We express no opinion as to compliance by any parties to
the Agreement with any state or federal laws or regulations applicable to the
subject transactions because of the nature of their business.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be
relied upon by you for any other purpose, or furnished to, quoted to or
relied upon by any other person, firm or corporation for any purpose, without
our prior written consent.
Very truly yours,
<PAGE>
Schedule A
PURCHASERS
Blue Chip Capital Fund II Limited Partnership
Miami Valley Venture Fund L.P.
Grotech Partners IV L.P.
Grotech Partners V L.P.
<PAGE>
SCHEDULES
<PAGE>
SCHEDULE 1
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
TO BE ISSUED BY THE COMPANY
<TABLE>
<CAPTION>
Total Purchase Price To
Shares of Series A Be Paid by Such
Convertible Preferred Purchaser For Shares
Stock To Be Issued of Series A Convertible
By the Company To Preferred Stock Issued
Purchaser Each Purchaser To Each Purchaser
- --------------------------------------------------------------------------------
<S> <C> <C>
Blue Ship Capital Fund II 708.34 $ 425,000
Limited Partnership
Miami Valley Venture Fund L.P. 124.99 75,000
Grotech Partners IV, L.P. 2,083.34 1,250,000
Grotech Partners V, L.P. 2,083.33 1,250,000
-------- ----------
Total 5,000.00 $3,000,000
</TABLE>
<PAGE>
SCHEDULE 5.5
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Holders of Issued and Outstanding
Shares of Capital Stock Number of Shares of Capital Stock Held
- -------------------------------------------------------------------------------
<S> <C>
Christopher McCleary 5,000,000 shares of Common Stock
- -------------------------------------------------------------------------------
Chris Poelma 5,000,000 shares of Common Stock
- -------------------------------------------------------------------------------
Steve McManus 5,000,000 shares of Common Stock
- -------------------------------------------------------------------------------
</TABLE>
See Attached for a list of the holders of Series A Preferred Stock.
See also attached for a list of employees granted stock options, which
options shall be governed by the Employee Stock Option Plan.
<PAGE>
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
ISSUED BY THE COMPANY
TO EACH PURCHASER
<TABLE>
<CAPTION>
Total Purchase Price
Shares of Series A Paid By Such
Convertible Preferred Purchaser For Shares
Stock Issued By the of Series A Convertible
Company To Each Preferred Stock Issued
Purchaser Purchaser To Each Purchaser
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Blue Chip Capital Fund II 10,625.00 $ 6,375,000
Limited Partnership
Miami Valley Venture Fund L.P. 1,875.00 1,125,000
Grotech Partners IV, and 12,500.00 7,500,000
Grotech Partners V, L.P.
Southern Venture Fund SBIC, L.P. 3,333.33 2,000,000
Southern Venture Fund, II, L.P. 1,666.67 1,000,000
Venrock Associates 3,583.33 2,150,000
Venrock Associates II, L.P. 4,750.00 2,850,000
McCleary Technology Capital 1,666.67 1,000,000
USi Partners, Ltd. 1,166,67 700,000
Total 41,166.67 $24,700,000
</TABLE>
<PAGE>
USINTERNETWORKING, inc.
STOCK PURCHASE AGREEMENT
SCHEDULE 5.8 (a)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.08
Boggs & Partners Professional Services-Architect $ 42,282.83
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,062.54
Gordon Flesch Company Two copiers with Interface boards (one color) includes delivery, $ 48,284.50
installation and faxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,489.05
PC Connection, Inc Computer Equipment $ 77,840.00
Computer Equipment $ 38,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,618.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 38,398.42
</TABLE>
USi Confidential Page 1
<PAGE>
USInternetworking, Inc.
Stock Purchase Agreement
Schedule 6.8(a)
All Expenditures in Excess of $25,000
<TABLE>
<CAPTION>
Payee Explanation Amount
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.06
Boggs & Partners Professional Services-Architect $ 42,282.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, $ 29.951.00
notebooks
Consortium One-Annapolis L.L.C. Deposit related to the lease at
175 Admiral Cochrane Drive $400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,062.54
June Rent for 175 Admiral Cochrane Drive $ 30.052.54
Gordon Flesch Company Two copiers with interface boards
(one color) includes delivery,
installation and taxes. $ 46,284.50
One copier includes delivery,
installation and taxes $ 30,718.00
Christopher McCleary Partial repayment of loan $100,000.00
Partial repayment of loan $342,469.05
PC Connection, Inc. Computer Equipment $ 77,640.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $100,000.00
Computer Equipment $ 25,516.76
Realty Association Security Deposit and First month's $ 36,398.42
rent for 2661 Riva Road
</TABLE>
USI Confidential
Page 1
<PAGE>
USInternetworking, Inc.
Stock Purchase Agreement
Schedule 6.8(a)
Aggregate Expenditures in Excess of $200,000
<TABLE>
<CAPTION>
Payee Explanation Amount
- ----- ----------- ------
<S> <C> <C>
Consortium One-Annapolis L.L.C. Deposit and rent for $486,915.08
175 Admiral Cochrane Drive (Lease)
Christopher McCleary Payments on Loan $444,875.62
PC Connection, Inc. Computer Equipment $509,200.97
</TABLE>
Page 1
<PAGE>
SCHEDULE 5.10
LISTING OF CONTRACTUAL OBLIGATIONS
1) Officer Agreement by and between USinternetworking, Inc. and Christopher
R. McCleary dated May 29, 1998.
2) Officer Agreement by and between USinternetworking, Inc. and Chris M.
Poelma, dated June 2, 1996.
3) Officer Agreement by and between USinternetworking, Inc. and Steve
McManus, dated June 2, 1998.
4) Sublease Agreement by and between Exspartise, Inc. and USinternetworking,
Inc. dated February 9, 1998.
5) Agreement of Lease, by and between Consortium One-
Annapolis, LLC and USinternetworking, Inc., dated April 3, 1998.
6) Letter Agreement between USinternetworking, Inc. and Gary Helwig, dated
April 10, 1998 (acceptance by Helwig dated April 14, 1998).
7) Furniture Rental Agreement between Aaron Rents, Inc. and
USinternetworking, Inc., dated March 10, 1998.
8) Sublease Agreement by and between Columbia Medical Plan and
USinternetworking, Inc. dated May 8, 1998.
9) Agreement of Lease, by and between Realty Associates, Inc. and
USinternetworking, Inc., dated June 3, 1998.
10) Contract of Sale between First Church of Christ, Scientist, Seller, and
USinternetworking, Inc., Buyer, dated May 1, 1998.
In addition, please note that the Company has provided employment offers to
93 of its employees which offers set forth the amount of compensation, among
other things, for the employees, but which are not intended to create
employment contracts.
<PAGE>
SCHEDULE 5.16
EMPLOYEE PLANS
Although the Company has not adopted any formal employee benefit plans,
contours of the employee benefit plans have been described in writing to
employees. The employee benefits are to include the following: (i) a 401(k)
plan that is to be noncontributory until January 1, 1999, and thereafter
subject to a 1:2 employer match, (ii) the Employee Stock Option Plan, and
(iii) other typical plans such as health and vacation benefit plans. The
Company has stated its intention that the Employee Stock Option Plan will be
a qualified plan that will provide for the issuance of options to purchase
shares at a discount of 20% from the then-current market price, to the extent
permissible at any time. Certain of the Company's employees have been advised
in writing, pursuant to the employment offer letters, of the number of option
shares the Company intends to award to them. These option shares are listed
in Schedule 5.5.
<PAGE>
SCHEDULE 5.17
LISTING OF ALL OUTSTANDING BORROWINGS
1) $2,000,000 credit line with Cisco Systems Capital Corp. for the purchase
of Cisco Systems Products equipment. $0 outstanding at June 15, 1998.
2) $1,000,000 credit line with Hewlett-Packard Co. for the purchase of
Hewlett-Packard equipment. $651,756.06 outstanding at June 15, 1998.
<PAGE>
SCHEDULE 5.18
LISTING OF INSURANCE POLICIES OR PROGRAMS
As of the date hereof, the Company has received only an Insurance Binder.
<PAGE>
Exhibit 10.4
STOCK PURCHASE AGREEMENT
by
and
Among
USinternetworking, Inc.
and
Richard C. Albright,
Bruce H. Brandaleone,
Christopher de Roetth,
Elisabeth de Roetth,
Peter de Roetth,
Nicholas DeWolf,
Christopher Egan,
Michael J. Egan,
Richard J. and Maureen E. Egan
Grandchildren's Trust,
Donald A. Foss,
David Friend,
Roger M. Marino,
William G. Miller,
James K. Schuler,
Carolyn H. Walter
and
Jane E. Westervelt
-----------------------------
Dated as of June 19, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS..........................................................1
1.1. Definitions.....................................................1
1.2. Accounting Terms; Financial Statements..........................4
1.3. Knowledge Standard..............................................4
1.4. Other Defined Terms.............................................4
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF
PREFERRED SHARES.....................................................5
2.1. Preferred Shares................................................5
2.2. Purchase and Sale of Preferred Shares...........................5
2.3. Closing.........................................................5
2.4. Fees and Expenses...............................................6
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE THE PREFERRED SHARES........................................6
3.1. Representations and Warranties..................................6
3.2. Compliance with Terms and Conditions of this Agreement..........6
3.3. Delivery of Certificates Evidencing the Shares..................6
3.4. [intentionally omitted].........................................6
3.5. Secretary's Certificates........................................6
3.6. Documents.......................................................7
3.7. Purchase Permitted by Applicable Laws...........................7
3.8. Consents and Approvals..........................................7
3.9. Consent and Waiver..............................................7
3.10. Joinder to the Shareholders' Agreement.........................7
3.11. No Material Judgment or Order..................................7
3.12. Legal Opinion..................................................8
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE.................8
4.1. Representations and Warranties..................................8
4.2. Compliance with this Agreement..................................8
4.3. [intentionally omitted].........................................8
4.4. Issuance Permitted by Applicable Laws...........................8
4.5. Payment of Purchase Price.......................................8
4.6. Consents and Approvals..........................................8
4.7. Consents and Waiver.............................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.8. Joinder to the Shareholders' Agreement..........................9
4.9. Legal Opinion...................................................9
4.10. No Material Judgment or Order..................................9
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................9
5.1. Corporate Existence and Authority...............................9
5.2. Corporate Authorization; No Contravention.......................9
5.3. Governmental Authorization; Third Party Consents...............10
5.4. Binding Effect.................................................10
5.5. Capitalization.................................................10
5.6. Private Offering...............................................11
5.7. Litigation.....................................................11
5.8. Financial Statements...........................................12
5.9. Title and Condition of Assets..................................12
5.10. Contractual Obligations.......................................12
5.11. Tax Matters...................................................12
5.12. Severance Arrangements........................................12
5.13. Investment Company/Government Regulations.....................12
5.14. Broker's, Finder's or Similar Fees............................13
5.15. Labor Relations and Employee Matters..........................13
5.16. Employee Benefits Matters.....................................13
5.17. Outstanding Borrowings........................................13
5.18. Insurance Schedule............................................13
5.19. Solvency......................................................13
5.20. No Other Agreements to Sell the Assets or Capital Stock of
the Company..................................................14
5.21. Key Employees.................................................14
5.22. Compliance with Law...........................................14
5.23. Disclosure....................................................14
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................14
6.1. Location of Principal Office, Qualification as an Accredited
Investor.....................................................15
6.2. Transfer Restrictions Imposed by Securities Law................15
6.3. Binding Effect.................................................15
6.4. Purchase for Own Account.......................................15
6.5. Financial Condition; Sophistication............................16
6.6. Purchaser Representative; Power of Attorney; Receipt of
Information..................................................16
6.7. Broker's, Finder's or Similar Fees.............................17
6.8. Governmental Authorization; Third Party Consent................17
6.9. Litigation.....................................................17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD
FOLLOWING THE CLOSING.............................................17
7.1. Reservation of Shares..........................................17
ARTICLE 8. INDEMNIFICATION.....................................................18
8.1. Idemnification.................................................18
8.2. Notification...................................................19
ARTICLE 9. MISCELLANEOUS.......................................................19
9.1. Survival of Representations and Warranties.....................19
9.2. Notices........................................................20
9.3. Successors and Assigns.........................................20
9.4. Amendment and Waiver...........................................21
9.5. Counterparts...................................................21
9.6. Headings.......................................................21
9.7. Governing Law..................................................21
9.8. Jurisdiction...................................................21
9.9. Severability...................................................22
9.10. Rules of Construction.........................................22
9.11. Entire Agreement..............................................22
9.12. Publicity.....................................................22
9.13. Further Assurances............................................22
9.14. Waiver of Jury Trail..........................................23
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of this
19th day of June, 1998, by and between (i) USinternetworking, Inc., a Delaware
corporation (the "Company") and (ii) Richard C. Albright, Bruce H. Brandaleone,
Christopher de Roetth, Elisabeth de Roetth, Peter de Roetth, Nicholas DeWolf,
Christopher Egan, Michael J. Egan, Richard J. Egan, Richard J. and Maureen E.
Egan Grandchildren's Trust, Donald A. Foss, David Friend, Roger M. Marino,
William G. Miller, James K. Schuler, Carolyn H. Walter and Jane E. Westervelt
(collectively referred to herein as the "Purchasers").
RECITALS:
A. Upon the terms and subject to the conditions set forth in this
Agreement, the Company proposes to issue and sell shares of its Series A
Convertible Preferred Stock ("Series A Preferred Stock," as defined below) to
the Purchasers.
B. The Purchasers desire to purchase from the Company shares of the Series
A Preferred Stock as set forth on SCHEDULE 1 hereto.
C. Account Management Corporation has made certain representations in the
Certificate attached to this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any
federal holiday.
<PAGE>
"COMMISSION" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act (as defined
below).
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"CONDITION OF THE COMPANY" means the assets, business, properties,
operations, financial condition or prospects of the company.
"EMPLOYEE PLANS" means all benefits arrangements, pension plans or welfare
plans adopted by the Company for its employees.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan adopted by
the Compensation Committee of the Board of Directors of the Company providing
for the issuance to certain employees of the Company of options to purchase a
certain number of shares of Common Stock at a certain exercise price per share.
The total number of shares of Common Stock which may be issued under such plan
shall not exceed 6.5% of the total number of outstanding shares of common stock
calculated on a fully diluted basis, not including the options and shares
issuable or issued on exercise of options pursuant to the Employee Stock Option
Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city,
locality or other political subdivision of any 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.
"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or
not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured),
(b) all obligations of such Person evidenced by notes, bonds, debentures or
similar instruments, (c) all obligations of such Person representing the
balance of deferred purchase price of property or services, except trade
accounts payable and accrued commercial or trade liabilities arising in the
ordinary course of business, (d) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
obligated to be made by such Person, whether periodically or upon the
happening of a contingency, (e) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the even of default are limited to
repossession or sale of such property), (f) all obligations of such Person
under leases which have
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been or should be, in accordance with GAAP, recorded as capital leases, (g)
all indebtedness secured by any Lien (other than Liens in favor of lessors
under leases other than leases included in clause (f)) on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is non-recourse to
the credit of that Person, and (h) all Indebtedness of any other Person
referred to in clauses (a) through (f) above, guaranteed, directly or
indirectly, by that Person.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest
of any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, 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 obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for
borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or
to which such Person or any of its property is subject or applicable to any
or all of the transactions contemplated by or referred to in the Transaction
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred
Stock, par value $.01 per share, of the Company, or any other capital stock
of the Company into which such stock is reclassified or reconstituted.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement, dated as of
May 28, 1998, by and among the Company and the Stockholders that are listed
as a party thereto and any Persons who become or became parties to the
Shareholders' Agreement whether pursuant to an amendment or otherwise.
"TRANSACTION AGREEMENTS" means this Agreement, the Joinder to the
Shareholders' Agreement (as defined in Section 3.10) and the Shareholders'
Agreement.
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"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i)
legal expenses incurred by the Purchasers in connection with the negotiation
and preparation of the Transaction Agreements, the consummation of the
transactions contemplated thereby and preparation for any of the foregoing,
including, without limitation, travel expenses, reasonable fees, charges and
disbursements of counsel and any similar or related legal costs and legal
expenses; and (ii) other expenses incurred by the Purchasers in connection
with the negotiation and preparation of this Agreement.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this Agreement
shall have the respective meanings given to them in accordance with sound
accounting practice. The term "sound accounting practice" shall mean such
accounting practice as, in the opinion of the independent certified public
accountants regularly retained by the Company conforms at the time to GAAP
applied on a consistent basis except for changes with which such accountants
concur.
1.3. KNOWLEDGE STANDARD
When used herein, the phrase "to the knowledge of" any Person, "to the
best knowledge of" any Person or any similar phrase shall mean, (i) with
respect to any individual, the actual knowledge of such Person, (ii) with
respect to any corporation, the actual knowledge of the officers and
directors of such corporation and the knowledge of such facts that such
persons should have in the exercise of their duties after reasonable inquiry,
and (iii) with respect to a partnership, the actual knowledge of the officers
and directors of the general partner of such partnership and the knowledge of
such facts that such persons should have in the exercise of their duties
after reasonable inquiry.
1.4. Other Defined Terms.
The following terms shall have the meanings specified in the Sections
set forth below:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Actions 5.7
Certificate of Incorporation 2.1
Certificate 2.1
Certificate of Designation 2.1
Closing Date 2.2
Closing 2.3
</TABLE>
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<TABLE>
<S> <C>
Indemnified Party 8.2
Indemnifying Party 8.2
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Purchasing Indemnified Party 9.1
Purchasing Indemnifying Party 9.1
Selling Indemnified Party 9.1
Selling Indemnifying Party 9.1
</TABLE>
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the issuance and sale
of 3,000 shares of the Series A Preferred Stock (the "Preferred Shares") and has
duly adopted resolutions establishing the rights, preferences, privileges and
restrictions of the Series A Preferred Stock. The Preferred Shares will have the
respective rights, preferences and privileges set forth in the Company's
Certificate of Incorporation, as amended (the "Certificate of Incorporation")
and the Certificate of Designations, Preferences, and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions Thereof filed
on May 27, 1998 with respect thereto (the "Certificate of Designation" and
together with the Certificate of Incorporation, the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained, on the date
hereof or such other date as the parties may agree (the ("Closing Date"), the
Company shall issue to the Purchasers and the Purchasers shall acquire from the
Company, the number of Preferred Shares set forth next to each Purchaser's name
on SCHEDULE 1 hereto. The aggregate purchase price of such Preferred Shares, to
be paid by the Purchasers in the amount set forth next to each Purchaser's name
on SCHEDULE 1 hereto, shall be One Million Two Hundred Thousand Dollars
($1,200,024)(the "Purchase Price").
2.3. CLOSING
The closing of the sale to and purchase by the Purchasers of the Preferred
Shares (the "Closing") shall occur at 11 o'clock A.M., local time on the Closing
Date at the offices of Latham & Watkins, 1001 Pennsylvania Avenue, N.W.,
Washington D.C. 20004, or such other location as the parties may agree. At the
Closing, (i) the Company shall deliver to the Purchasers certificates evidencing
the Preferred Shares being purchased by the Purchasers, free and clear of any
Liens of any nature whatsoever, other than those created by the Certificate or
the Shareholders' Agreement, registered in the Purchasers' name, and (ii) the
Purchasers shall deliver to the Company the Purchase Price, in the amounts as
set forth next to each Purchaser's
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name on SCHEDULE 1 hereto, by cashier's or certified check or wire transfer of
immediately available funds.
2.4. FEES AND EXPENSES.
Concurrently with the Closing, the Company shall reimburse each Purchaser
for the Transaction Expenses, which payment shall be made by wire transfer of
immediately available funds to an account or accounts designated by such
Purchaser.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE PREFERRED SHARES
The obligation of each of the Purchasers to purchase the Preferred Shares,
to pay the Purchase Price therefor and to perform any of its obligations
hereunder on the Closing Date (unless otherwise specified) shall be subject to
the satisfaction of the following conditions on or before the Closing Date:
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section 5
hereof shall be true and correct in all material respects as of the date hereof.
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.
The Company shall have performed and complied with all of the agreements
and conditions set forth herein that are required to be performed or complied
with by the Company on or before the date hereof.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchasers the certificates
evidencing the Preferred Shares as set forth in Section 2.3.
3.4. [intentionally omitted]
3.5. SECRETARY'S CERTIFICATES.
The Purchasers shall have received a certificate from the Company, dated as
of the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying that the attached copies of the Certificate of
Incorporation, Certificate of Designation, By-laws of the Company, (all of
which will be in form and substance consistent with this Agreement) and
resolutions of the Board of Directors of the Company approving this transaction
are all true, complete and correct and remain unamended and in full force and
effect.
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3.6. DOCUMENTS
The Purchasers shall have received true, complete and correct copies of
such documents and such other information as they may have reasonably
requested in connection with or relating to the sale of the Preferred Shares
and the transactions required to be performed herein.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be acquired by
the Purchasers hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any Contractual Obligation of the Company.
3.8. CONSENTS AND APPROVALS
All consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, Governmental Authorities and other Persons in respect of
all Requirements of Law and with respect to those material Contractual
Obligations of the Company necessary or required in connection with the
execution, delivery or performance (including, without limitation, the issuance
of the Preferred Shares and the issuance of the Common Stock upon conversion of
the Preferred Shares) by the Company shall have been obtained and be in full
force and effect and all waiting periods shall have lapsed without extension or
the imposition of any conditions or restrictions.
3.9. CONSENT AND WAIVER
The shareholders that are parties to the Shareholders' Agreement and the
holders of at least two-thirds of the outstanding shares of Series A Preferred
Stock shall have duly executed and delivered to the Purchasers the Consent and
Waiver substantially in the form attached as EXHIBIT A hereto
3.10. JOINDER TO THE SHAREHOLDERS' AGREEMENT
The shareholders that are parties to the Shareholders' Agreement shall have
duly executed and delivered to the Purchasers the Joinder to the Shareholders'
Agreement substantially in the form attached as EXHIBIT B hereto.
3.11. NO MATERIAL JUDGMENT OR ORDER
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirement of Law which, in the reasonable judgment of the
Purchasers, would (i) prohibit the purchase of the Preferred Shares hereunder,
(ii) subject the Purchasers to any penalty if the Preferred Shares were to be
purchased hereunder, or (iii) question the validity or legality of the
transactions required to be performed under this Agreement.
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3.12. LEGAL OPINION.
The Purchasers shall have received an opinion of counsel for the Company
in the form attached as EXHIBIT C hereto.
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred Shares and
the other obligations of the Company hereunder, shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchasers contained in
Section 6 hereof shall be true and correct in all material respects on and as
of the Closing Date as if made at and as of such date.
4.2. COMPLIANCE WITH THIS AGREEMENT
Each of the Purchasers shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed
or complied with by the Purchasers on or before the Closing Date.
4.3. [intentionally omitted]
4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the Company
hereunder and the consummation of this Agreement (a) shall not be prohibited
by any Requirements of Law, and (b) shall not conflict with or be prohibited
by any Contractual Obligations of the Purchasers.
4.5. PAYMENT OF PURCHASE PRICE.
Each of the Purchasers shall have tendered to the Company the Purchase
Price as set forth in Schedule 1 hereto.
4.6. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by, or
notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to those material
Contractual Obligations of the Purchasers necessary or required in connection
with the execution, delivery or performance by the Purchasers shall have been
obtained and be in full force and effect and all waiting periods shall have
lapsed without extension or imposition of any conditions or restrictions.
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4.7. CONSENT AND WAIVER.
The Consent and Waiver substantially in the form set forth in EXHIBIT A
hereto shall have been executed and delivered by each of the shareholders that
are a party to the Shareholders' Agreement and by the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock.
4.8. JOINDER TO THE SHAREHOLDERS' AGREEMENT.
The Joinder to the Shareholders' Agreement substantially in the form set
forth in EXHIBIT B hereto shall have been executed and delivered by each of the
shareholders that are a party to the Shareholders' Agreement.
4.9. LEGAL OPINION.
The Company shall have received an opinion of counsel for each of the
Purchasers in the form attached as EXHIBIT D hereto.
4.10. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirements of Law which, in the reasonable judgment of the
Company would (i) prohibit the sale of the Shares or the consummation of the
other transactions hereunder, (ii) subject the Company to any penalty if the
Shares were to be sold hereunder or (iii) question the validity or legality of
the transactions required to be performed under this Agreement.
ARTICLE 5.
REPRESENTATION AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with, the Purchasers
as of the date hereof as follows:
5.1. Corporate Existence and Authority.
The Company was incorporated on January 14, 1998 and (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has all requisite corporate power and authority to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged, and (c) has the corporate power and authority to execute, deliver and
perform its obligations under the Transaction Agreements to which it is or
will be a party.
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of the Transaction
Agreements to which it is or will be a party and the consummation of the
transactions
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contemplated hereby, including, without limitation, the issuance
of the Preferred Shares, (a) have been duly authorized by all necessary
corporate action, including, if required, stockholder action (b) do not conflict
with or contravene the terms of the Certificate or the By-laws of the Company,
or any amendment thereof; and (c) will not violate, conflict with or result in
any material breach or contravention of (i) any Contractual Obligation of the
Company or (ii) any Requirements of Law applicable to the Company.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any applicable Requirements of Law in effect on
the date hereof, and no lapse of a waiting period under any applicable
Requirements of Law in effect on the date hereof, is necessary or required in
connection with the execution and delivery of the Transaction Agreements to
which it is or will be a party or the performance by the Company or
enforcement against the Company of any material obligation by the Company
under the Transaction Agreements to which it is or will be a party or the
transactions to be performed thereunder.
5.4. BINDING EFFECT.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability.
5.5. CAPITALIZATION.
On the Closing Date, the capital stock of the Company shall consist of
at least One Hundred Fifty Million (150,000,000) shares of Common Stock and
One Hundred Thousand (100,000) shares of preferred stock, with such shares
including the Preferred Shares. Of the 150,100,000 authorized shares of
capital stock of the Company, as of the date hereof, there will be (i) 15
million shares of Common Stock issued and outstanding; (ii) at least
5,000,000 shares of Common Stock reserved for issuance pursuant to the
Employee Stock Option Plan; (iii) 52,000 shares of Series A Preferred Stock
issued and outstanding; and (iv) 108,600,000 fully diluted shares of Common
Stock outstanding, assuming conversion of all of the outstanding shares of
Series A Preferred Stock mentioned in subsection (iii) above, into 93,600,000
shares of Common Stock, but not including any shares authorized pursuant to
the Employee Stock Option Plan or otherwise. As of the Closing Date, all
outstanding shares of capital stock of the Company, including the Preferred
Shares, and the shares of Common Stock issuable upon conversion of the
Preferred Shares (when issued in accordance with the conversion terms
thereof), will be duly authorized and validly issued, fully paid,
nonassessable and free and clear of any Liens, preferential rights,
priorities, claims, options, charges or other encumbrances or restrictions
other than those created by the Certificate, the Bylaws, and the
Shareholders' Agreement.
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(a) SCHEDULE 5.5 sets forth the name of each holder of the issued
and outstanding capital stock of the Company as of June 19, 1998, the number
of shares of such capital stock held beneficially or of record by each such
holder as of June 19, 1998, the name of each Person holding any options or
other rights to purchase any capital stock of the Company as of June 19, 1998
(except as may be permitted under the Shareholders' Agreement), the number,
class and series of shares of capital stock subject to each such option or
right as of June 19, 1998, and the exercise price of each such option or
right as of June 19, 1998. Except for the options under the Employee Stock
Option Plan and the Preferred Shares, there are no outstanding securities
convertible into or exchangeable for capital stock of the Company or options,
warrants or other rights to purchase or subscribe to capital stock of the
Company or contracts, commitments, agreements, understandings or arrangements
of any kind to which the Company or any holder is a party relating to the
issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights. The Company
has no subsidiaries.
(b) Except as set forth on SCHEDULE 5.5 and as may be provided in
the Shareholders' Agreement as of June 19, 1998, no Person has any preemptive
rights, rights of first refusal, "tag along" rights, rights of co-sale or any
similar rights with respect to the issuance of the Preferred Shares
contemplated hereby or the issuance of any additional shares of stock by the
Company. SCHEDULE 5.5 identifies all Persons holding any such rights as of
June 19, 1998 and describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was used by the
Company or its representatives in connection with the offer or sale of the
Preferred Shares. No registration of the Preferred Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws
will be required by the offer, sale or issuance of the Preferred Shares
pursuant to this Agreement. The Company agrees that neither it, nor anyone
authorized to act on its behalf, will offer or sell the Preferred Shares or
any other security so as to require the registration of the Preferred Shares
pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, unless such Preferred Shares are so registered.
5.7. LITIGATION.
As of June 19, 1998, the Company has not received any notice of any
governmental charge, complaint or action or court order, writ, injunction,
judgment or decree outstanding or any claim, suit, legal proceeding,
(collectively, "Actions") which if adversely determined would have a material
adverse effect on (i) the Company or the Condition of the Company or (ii) the
transactions required to be performed by the Company under this Agreement and,
to the Company's knowledge, there is no valid basis therefor, and no Action
is threatened against the Company.
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5.8. FINANCIAL STATEMENTS.
The Company was incorporated on January 14, 1998. As of June 19, 1998,
it has no assets, except as described below, and has not prepared financial
statements. SCHEDULE 5.8(a) sets forth all expenditures by or on behalf of
the Company since its formation through June 19, 1998 in excess of $25,000, in
any one case, or $250,000, in the aggregate. The Company's projections
attached hereto as SCHEDULE 5.8(b) are as of June 19, 1998 and were prepared
by the Company's management in good faith, are based on reasonable
assumptions, represent management's best estimates of the Company's predicted
operations and performance under its business plan and reflect actual
subjective expectations of the Company's management. The Company has no
reason to believe that the results reflected in such projections are not
attainable.
5.9. TITLE AND CONDITION OF ASSETS.
As of June 19, 1998, the Company currently has no assets (other than
cash) except as listed on SCHEDULE 5.10. As of June 19, 1998, the Company has
a valid and enforceable leasehold interest in its leases listed on SCHEDULE
5.10 pursuant to the terms of the lease agreements and is not in default
thereunder.
5.10. CONTRACTUAL OBLIGATIONS.
As of June 19, 1998, the Company has not entered into any contracts or
agreements or incurred any material liabilities, other than pursuant to this
Agreement, the Shareholder's Agreement and the agreements listed on SCHEDULE
5.10.
5.11. TAX MATTERS.
The Company has duly filed all tax reports and returns required to be
filed by it, including all federal, state, local and foreign tax returns and
reports and paid all taxes due with respect thereto.
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, as of June 19, 1998, the Company
has not entered into any severance or similar arrangement in respect of any
present or former employee of the Company that will result in any obligation
(absolute or contingent) of the Company to make any payment to such present
or former employee of the Company following termination of employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by this Agreement and the Shareholders' Agreement
neither the Company nor any Person controlling, controlled by or under common
control with the Company will be an "investment company" within the meaning
of the Investment Company Act of 1940, as amended. The Company is not subject
to regulation under the Public Utility Holding Company Act of
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1935, as amended, the Federal Power Act, or any federal or state statue or
regulation limiting its ability to incur Indebtedness.
5.14. BROKER'S FINDER'S SIMILAR FEES.
There are no brokerage commissions, finder's fee or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with the Company or any
officer, director, shareholder, or Affiliate of the Company or any action
taken by any such person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) The Company is not and has not engaged in any unfair labor
practice.
(b) Except as set forth on SCHEDULE 5.10, as of June 19, 1998,
the Company is not a party to any employment agreement (other than "at will"
employment relationships), collective bargaining agreement or covenant not to
compete.
(c) No complaint under any statute or regulation relating to
employment has been filed against the Compny.
5.16. EMPLOYEE BENEFITS MATTERS.
As of the date hereof, the Company had not adopted or implemented an
Employee Plan, execpt as described on SCHEDULE 5.16.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists the amount of all material Outstanding Borrowings as
of June 19, 1998 and the name of each lender thereof.
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 accurately summarizes all of the Company's insurance
policies or programs in effect as of June 19, 1998 and indicates the
insurer's name and policy number and also indicates any self-insurance
program that is in effect.
5.19. SOLVENCY.
The Company has not (i) made a general assignment for the benefit of its
creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (iii)
suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, (iv) suffered the attachment
or other judicial seizure of all substantially all of its assets or (v)
admitted in writing its inability to pay its debts as they come due.
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5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF THE
COMPANY.
Other than as otherwise set forth in this Agreement, the Company has no
legal obligation, absolute or contingent, other than the obligations of the
Company under this Agreement or the Shareholder's Agreement, to any person or
firm to (i) sell any capital stock of the Company or, outside of the ordinary
course of business, assets, or effect any merger, consolidation or other
reorganization of the Company or (ii) enter into any agreement with respect
to any of the foregoing.
5.21. KEY EMPLOYEES.
The performance by the Company's key employees of their duties for the
Company as contemplated by the Company's business plan will not violate any
provision of any agreement to which any of such persons or the Company is a
party, including any agreement with any former employer of any such person,
or give rise to any obligation or liability of the Company to any third party
or limit in any way the Company's ability to conduct its business. None of
the Company's key employees is engaged, directly or indirectly, or has any
interest (other than as a shareholder of a public company) in any entity
which is engaged in competition with the Company in its planned activities.
5.22. COMPLIANCE WITH LAW.
In its conduct of its business and affairs since its formation, the
Company has complied in all material respects with all applicable
Requirements of Law.
5.23. DISCLOSURE.
The Company has, to the best of its knowledge, fully responded to all
requests for information, and the Company has accurately answered all
questions from the Purchasers concerning the Condition of the Company, and
has not knowingly withheld any facts relating thereto which it reasonably
believes to be material with respect to its Condition. No information in this
Agreement or in any Exhibit or Schedule attached to this Agreement, contains
or will contain any untrue statement of a material fact or when considered
together with all such information delivered to the Purchasers omits to state
any material fact. The disclosures made in writing by the Company in
connection with this Agreement when read in the light of the circumstances
when made and taken as a whole, did not when made contain any untrue
statement of a material fact.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company as of the date hereof as follows:
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6.1. LOCATION OF PRINCIPAL OFFICE, QUALIFICATION AS AN ACCREDITED
INVESTOR.
The state in which Purchaser's principal domicile is located is the
state set forth in such Purchaser's address on SCHEDULE 2. Each Purchaser by
execution of this Agreement hereby represents that it qualifies as an
"accredited investor" for purposes of Regulation D promulgated under the
Securities Act. Such Purchaser acknowledges that the Company has made
available to such Purchaser at a reasonable time prior to the execution of
this Agreement the opportunity to ask questions and receive answers
concerning the terms and conditions of the sale of securities contemplated by
this Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may
be necessary to verify the accuracy of information furnished to such Purchaser.
6.2. TRANSFER RESTRICTIONS IMPOSED BY SECURITIES LAW.
Such Purchaser understand that the Preferred Shares have not been
registered under the Securities Act and applicable state securities laws,
and, therefore, cannot be resold unless they are subsequently registered
under the Securities Act and applicable state securities laws or unless an
exemption from such registration is available.
6.3. BINDING EFFECT.
This Agreement has been duly authorized by all necessary action on the
part of such Purchaser, has been duly executed and delivered by such
Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in
accordance with its 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.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be issued upon
conversion of the Preferred Shares, are being or will be acquired by such
Purchaser for such Purchaser's own account and with no intention of
distributing or reselling such securities or any part thereof in any
transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
such Purchaser at all times to sell or otherwise dispose of all or any part
of the Preferred Shares or the shares of Common Stock issuable upon
conversion of the Preferred Shares under an effective registration statement
under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of such Purchaser's property being at all times within such
Purchaser's control. If such Purchaser should in the future decide to
dispose of any of the Preferred Shares or the shares of Common Stock issuable
upon conversion of the Preferred Shares, such Purchaser understands and
agrees that such Purchaser may do so only in compliance with the Securities
Act and applicable state securities laws, as then in effect. Such Purchaser
agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Preferred Shares or the shares of Common
Stock to be issued upon conversion of the Preferred Shares to the following
effect:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE
SHAREHOLDERS' AGREEMENT, DATED AS OF MAY 28, 1998, AS AMENDED. A COPY OF
SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY UPON REQUEST."
6.5 FINANCIAL CONDITION: SOPHISTICATION.
Such Purchaser's financial condition is such that such Purchaser is able
to bear the risk of holding the Preferred Shares for an indefinite period of
time and can bear the loss of such Purchaser's entire investment in the
Preferred Shares. Such Purchaser has such knowledge and experience in
financial and business matters and in making high risk investments of this
type that such Purchaser is capable of evaluating the merits and risks of the
purchase of the Preferred Shares and understands that there may be no
established market for the Company's capital stock.
6.6 PURCHASER REPRESENTATIVE; POWER OF ATTORNEY; RECEIPT OF INFORMATION.
Such Purchaser has appointed Account Management Corporation (the
"Purchaser Representative") as its representative for all purposes in
connection with its investment in the Company. The Purchaser Representative
is a registered investment adviser under the Investment Advisers Act of 1940,
the services of which such Purchaser has retained in connection with
investments in addition to Purchaser's investment in the Company. Mr.
Albright and Mr. Peter de Roetth are the directors, officers and, with their
families, the beneficial owners of Purchaser Representative and are also
registered investment advisers under the Investment Advisers Act of 1940.
Except for Mr. Albright and Mr. Peter de Roetth, such Purchaser has duly and
validly granted to the Purchaser Representative a power of attorney
authorizing the Purchaser Representative to execute and deliver, on behalf of
such Purchaser, this Agreement and all other agreements, instruments, and
documents that the Purchaser Representative may deem necessary, appropriate,
or desirable in connection with Purchaser's investment in the Company.
Through the Purchaser Representative, such Purchaser has been furnished
access to the business records of the Company and such additional information
and documents as such Purchaser has requested and has been afforded an
opportunity to ask questions of and receive answers from representatives of
the Company concerning the terms and conditions of this Agreement, the
purchase of the Preferred Shares, the prospective operations, market
potential, capitalization, financial conditions, and prospects of the
business to be conducted by the Company, and all other matters deemed
relevant by such Purchaser.
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<PAGE>
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with such Purchaser or
any action taken by such Purchaser.
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any Requirements of Law, and no lapse of a waiting
period under any Requirements of Law, is necessary or required in connection
with the execution, delivery or performance by such Purchaser (including,
without limitation, the aquisition of the Preferred Shares) or enforcement
against such Purchaser of the Transaction Agreements to which such Purchaser
is or will be a party or the transactions contemplated thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of such Purchaser,
threatened relating to or affecting the transactions required to be performed
by such Purchaser under the Transaction Agreements to which such Purchaser is
or will be a party.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to conversion
or otherwise and until the payment by the Company of all other amounts due to
the Purchasers under this Agreement or the related agreements referred to
herein or the Certificate, the Company hereby covenants and agrees with the
Purchasers as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Shares as provided in the Certificate, the
maximum number of shares of Common Stock that may be issuable or deliverable
upon such conversion. Such shares of Common Stock shall, when issued or
delivered in accordance with the provisions of the Certificate, be duly
authorized, validly issued and fully paid and non-assessable. The Company
shall issue such Common Stock in accordance with the provisions of the
Certificate and shall otherwise comply with the terms thereof.
7.2. VOTING RIGHTS.
Except for Mr. Albright and Mr. Peter de Roetth, the Purchasers shall,
within 10 Business Days after the Closing Date, grant to the Purchaser
Representative its "voting proxy,"
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which proxy shall, among other things, authorize the Purchaser
Representative to cast all votes on which the holder of the Preferred Shares,
or the shares of Common Stock into which such Preferred Shares may be
converted, may be lawfully entitled to vote.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION.
(a) In addition to all other sums due hereunder or provided for in
this Agreement, the Company (the "Selling Indemnifying Party") shall defend,
indemnify and hold harmless the Purchasers and their agents, employees, and
assigns (each a "Purchasing Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, costs, claims, damages,
expenses (including reasonable fees, disbursements and other charges of
counsel, as limited by Section 8.2 below) and other liabilities
(collectively, "Liabilities") incurred or suffered by any Purchasing
Indemnified Party resulting from or arising out of (i) any breach by any
Selling Indemnifying Party of any representation or warranty, covenant or
agreement of the Selling Indemnifying Party in this Agreement; provided,
however, that no Selling Indemnifying Party shall be liable under this
Section 8.1 to any Purchasing Indemnified Party to the extent that it is
finally judicially determined that such Liabilities resulted primarily from
the material breach by such Purchasing Indemnified Party of any
representation, warranty, covenant or other agreement of such Purchasing
Indemnified Party contained in this Agreement or (ii)any material liability
of the Company on the Closing Date not disclosed in this Agreement.
In addition to all other sums due hereunder or provided for in this
Agreement, each Purchaser (the "Purchasing Indemnifying Party"), severally
and not jointly, shall defend, indemnify and hold harmless the Company and
its Affiliates and its officers, directors, agents, employees, subsidiaries,
partners and assigns (each a "Selling Indemnified Party") to the fullest
extent permitted by law from and against any and all Liabilities incurred or
suffered by such Selling Indemnified Parties resulting from or arising out of
any breach of any representation, warranty, covenant or agreement of such
Purchasing Indemnifying Party in this Agreement; provided, however, that no
Purchasing Indemnifying Party shall not be liable under this Section 8.1 to a
Selling Indemnified Party to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the material breach
by such Selling Indemnified Party of any representation, warranty, covenant
or other agreement of such Selling Indemnified Party contained in this
Agreement.
(c) if and to the extent that any indemnification provided for in
this Agreement is unenforceable for any reason, the Indemnifying Parties (as
defined below) obligated to indemnify any Indemnified Party (as defined
below) shall make the maximum contribution to the payment and satisfaction of
such indemnified liability which shall be permissible under applicable laws.
In connection with the obligation of the Indemnifying Parties to indemnify
for expenses as set forth herein, the Indemnifying Parties further agree,
upon presentation of appropriate invoices containing reasonable detail, to
reimburse each Indemnified
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<PAGE>
Party for all such expenses (including reasonable fees, disbursements and
other charges of counsel, as limited by Section 8.2 below) as they are
incurred by such Indemnified Party.
8.2. NOTIFICATION.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against any party entitled to
indemnification pursuant to this Section 8 (an "Indemnified Party") in
respect of which indemnity may be sought from any party required to indemnify
such Indemnified Party (an "Indemnifying Party"), such Indemnified Party
shall promptly notify the Indemnifying Party in writing, and such
Indemnifying Party shall assume the defense thereof, including the employment
of counsel selected by such Indemnifying Party and reasonably satisfactory to
such Indemnified Party and the payment of all expenses; PROVIDED, HOWEVER,
that any failure to so notify such Indemnifying Party shall not impair
obligations hereunder except and only to the extent that such failure results
in actual prejudice to such Indemnifying Party. Such Indemnified Party shall
have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be the expense of such Indemnified Party unless (a) such Indemnifying
Party agreed to pay such fees and expenses or (b) such Indemnifying Party
shall have failed to assume the defense of such action or proceeding or has
failed to employ counsel reasonably satisfactory to such Indemnified Party
in any such action or proceeding or (c) the named parties to any such action
or proceeding (including any impleaded parties) include both such Indemnified
Party and such Indemnifying Party, and such Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses
available to such Indemnified Party which are different from or additional
to those available to such Indemnifying Party (in which case, such
Indemnifying Party shall employ separate counsel at the expense of such
Indemnifying Party, it being understood, however, that such Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for such Indemnified Party and
any other Indemnified Parties). No Indemnifying Party shall be liable for any
settlement of any such action or proceeding effected without its written
consent (which shall not be withheld unreasonably), but if settled with its
written consent, or if there be a final judgment for the plaintiff in any
such action or proceeding, such Indemnifying Party agrees to indemnify and
hold harmless such Indemnified Party from and against any Liabilities by
reason of such settlement or judgment. No Indemnifying Party shall agree to
any settlement of any third party claim without the consent of the
Indemnified Party, which shall not be withheld if such settlement provides
only for the payment of money to be paid by the Indemnifying Party.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall survive the
Closing for a period of twelve months.
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<PAGE>
9.2. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, courier service or personal
delivery or via facsimile;
(a) If to Purchasers:
Account Management Corporation
Two Newbury Street
Boston, Massachusetts 02116
Attention: Peter de Roetth
with a copy to:
Ropes & Gray
1 International Place
Boston, MA 02110-2624
Attention: John Beard, Esq.
(b) if to the Company:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, Maryland 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if delivered
by facsimile, upon confirmation of such transmission; and five business days
after being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. This Agreement may
be assigned by the Purchasers to any permitted transferee of all or part of
the Preferred Shares or the Common Stock issued
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<PAGE>
upon conversion thereof. The Company may not assign any of its rights under
this Agreement without the written consent of the Purchasers. Except as
provided in this Section 9.3, no Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of any
of the Transaction Agreements.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by any party from the terms of any provision of this
Agreement, shall be effective (i) only if it is made or given in writing and
signed by the Company (if applicable) and the Purchasers, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to
or demand on any party in any case shall entitle any party hereto to any
other or further notice or demand in similar or other circumstances.
9.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland, without regard to the principles of conflicts
of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement or any
agreements or transactions contemplated hereby may be brought in the courts
of the State of Maryland or of the United States of America for the District
of Maryland and hereby expressly submits to the personal jurisdiction and
venue of such courts for the purposes thereof and expressly waives any claim
of
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<PAGE>
improper venue and any claim that such courts are an inconvenient forum. Each
party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
address set forth in Section 9.2, such service to become effective 10 days
after such mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair
the benefits of the remaining provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive, and
references to sections or subsections refer to sections or subsections of
this Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules hereto and the
other related agreements referred to herein, is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein or therein. This Agreement, together with the
exhibits and schedules hereto, and the other related agreements referred to
herein supersede all prior agreements and understandings between the parties
with respect to such subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the parties hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto, provided that the
Purchasers may nonetheless communicate with their partners concerning such
transactions and investment in the Company and may publish a "tombstone" in
the customary form with respect to its investment. If any announcement is
required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform such
further acts (including, without limitation, obtaining any consents,
exemptions, authorizations, or other
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<PAGE>
actions by, or giving any notices to, or making any filing with, any
Governmental Authority or any other Person) as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized
as of the data first above written.
USINTERNETWORKING, INC.
By: /s/ Christopher R. McCleary
---------------------------
Name: Christopher R. McCleary
-----------------------
Title: Chairman & Chief Executive Officer
-----------------------------------
Richard C. Albright
------------------------------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
Christopher de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
Peter de Roetth
------------------------------------------
Nicholas De Wolf
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized
as of the date first above written.
USINTERNETWORKING, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Richard C. Albright
/s/ Richard C. Albright
-----------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------------
Christopher de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Peter de Roetth
/s/ Peter de Roetth
------------------
Nicholas de Roetth
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<PAGE>
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Christopher Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Michael J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Richard J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
/s/ Peter de Roetth
------------------
Richard J. and Maureen E. Egan
Grandchildren's Trust
By: ACCOUNT MANAGEMENT CORPORATION, poa
/s/ Peter de Roetth
------------------
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<PAGE>
Donald A. Foss
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
David Friend
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Roger G. Marino
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
William O. Miller
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
James K. Schuler
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
Carolyn H. Walter
By: ACCOUNT MANAGEMENT CORPORATION, poa
By: /s/ Peter de Roetth
------------------
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<PAGE>
James E. Westervelt
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:/s/ Peter de Roetth
-------------------
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<PAGE>
TABLE OF EXHIBITS
EXHIBITS
- --------
EXHIBIT A CONSENT AND WAIVER
EXHIBIT B JOINDER TO THE SHAREHOLDER'S AGREEMENT
EXHIBIT C FORM OF OPINION - COMPANY COUNSEL
EXHIBIT D FORM OF OPINION - PURCHASERS' COUNSEL
<PAGE>
CONSENT AND WAIVER
This CONSENT AND WAIVER is entered into this _____ day of July, 1998 by
and among (i) USinternetworking, Inc., a Delaware corporation (the "COMPANY")
(ii) BLUE CHIP CAPITAL FUND II L.P. ("BLUE CHIP"), MIAMI VALLEY VENTURE FUND
L.P. ("MIAMI VALLEY"), GROTECH PARTNERS IV, L.P. ("GROTECH"), GROTECH
PARTNERS V, L.P. ("GROTECH II"), VENROCK ASSOCIATES ("VENROCK"), VENROCK
ASSOCIATES II, L.P. ("VENROCK II"), SOUTHERN VENTURE FUND SBIC, L.P.
("MASSEY"), SOUTHERN VENTURE FUND II, L.P. ("MASSEY II"), USi Partners, Ltd.
("USI PARTNERS") and US WEST Communications, Inc. ("US WEST" and, together
with Blue Chip, Miami Valley, Grotech, Grotech II, Venrock, Venrock II,
Massey, Massey II and USi Partners, the "PREFERRED STOCKHOLDERS") and (iii)
Christopher R. McCleary, Stephen E. McManus and Christopher M. Poelma
(collectively referred to herein as the "INDIVIDUAL STOCKHOLDERS").
WHEREAS, each of the Individual Stockholders owns 5 million shares of
Common Stock of the Company, with such shares constituting all of the issued
and outstanding Common Stock of the Company as of the date hereof;
WHEREAS, the Preferred Stockholders own shares of Series A Preferred
Stock of the Company and pursuant to Section 5(b)(12) of the Certificate of
Incorporation, as amended by the Certificate of Designation, which sets forth
the terms and conditions of the Series A Preferred Stock, the Company must
obtain the consent of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock to issue additional shares of Series A Preferred
Stock;
WHEREAS, the Preferred Stockholders, the Individual Stockholders and the
Company have entered into a Shareholder's Agreement, dated as of May 28,
1998, pursuant to Section 5 of which the Preferred Stockholders and the
Individual Stockholders have certain preemptive rights with respect to the
Company's issuance of additional shares of Series A Preferred Stock;
WHEREAS, the Company has entered into a Stock Purchase Agreement with
certain investors represented by Account Management Corporation (each an
"INDIVIDUAL PREFERRED STOCKHOLDER" or collectively, the "INDIVIDUAL PREFERRED
STOCKHOLDERS"), pursuant to which the Company has agreed to issue and sell up
to 3,000 shares of its Series A Preferred Stock to the Individual Preferred
Stockholders;
WHEREAS, the Preferred Stockholders, which Preferred Stockholders
constitute all of the holders of the Series A Preferred Stock as of the date
hereof, desire to consent to the issuance of the shares of Series A Preferred
Stock to each of the Individual Preferred Stockholders as required pursuant
to Section 5(b)(12) of the Certificate of Designation; and
<PAGE>
WHEREAS, the Preferred Stockholders and the Individual Stockholders
desire to waive any rights they have under Section 5 of the Shareholders'
Agreement with respect to such issuance of shares by the Company to each of
the Individual Preferred Stockholders;
NOW, THEREFORE, in consideration of the foregoing, and the covenants and
agreements of the parties set forth herein, the parties hereto hereby agree as
follows:
1. The Preferred Stockholders do hereby consent to the above-referenced
issuance of shares of Series A Preferred Stock to each of the Individual
Preferred Stockholders and to the Individual Preferred Stockholders being
bound by the terms of Shareholders' Agreement as though an original party
thereto.
2. The Preferred Stockholders and the Individual Stockholders do hereby
waive any rights they have under Section 5 of the Shareholders' Agreement
with respect to the issuance of shares of Series A Preferred Stock by the
Company to each of the Individual Preferred Stockholders.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
2
<PAGE>
IN WITNESS WHEREOF, this written consent and waiver has been executed by
the undersigned as of the date first above written.
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
-------------------------------
Christopher R. McCleary,
Chief Executive Officer
THE PREFERRED STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY,LTD.
Its General Partner
By:
-------------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
-------------------------------
John H. Wyant
Manager
3
<PAGE>
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
-------------------------------
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
-------------------------------
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
-------------------------------
Partner
By:
-------------------------------
Partner
SOUTHERN VENTURE FUND II, L.P.
By:
-------------------------------
General Partner
4
<PAGE>
VENROCK ASSOCIATES
By:
---------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By:
---------------------------
General Partner
USI PARTNERS, LTD.
By:
---------------------------
Name:
Title:
US WEST COMMUNICATIONS, INC.
By:
---------------------------
Name:
Title:
THE INDIVIDUAL STOCKHOLDERS:
----------------------------
-------------------------------
Christopher R. McCleary
-------------------------------
Stephen E. McManus
-------------------------------
Christopher M. Poelma
5
<PAGE>
JOINDER AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as of the date
written below by the undersigned (each, a "JOINING PARTY") and the parties to
the Shareholders' Agreement, dated as of May 28, 1998. Capitalized terms
used but not defined herein shall have the meanings given such terms in the
Shareholders' Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder Agreement, the Joining Party will be
deemed to be a party to the Shareholders' Agreement and shall have all of
the rights and obligations of a "STOCKHOLDER" thereunder as if it had
executed the Shareholders' Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Shareholders' Agreement. The execution of this
Joinder Agreement shall be a counterpart execution of the Shareholders'
Agreement, dated May 28, 1998, and the undersigned agrees to be bound by all
the terms thereof as though an original party thereto.
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement
as of the date written below.
Date:
------------------------------
Richard C. Albright
-----------------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
-----------------------------------
Christopher de Roeth
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
----------------------------------
<PAGE>
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
-----------------------------------
Peter de Roetth
--------------------------------------
Nicholas DeWolf
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
----------------------------------
Christopher Egan
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
-----------------------------------
Michael J. Egan
--------------------------------------
Richard J. Egan
By: ACCOUNT MANAGEMENT CORPORATION,poa
By:
----------------------------------
<PAGE>
Richard J. and Maureen E. Egan
Grandchildren's Trust
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
Donald A. Foss
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
David Friend
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
Roger G. Marino
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-------------------------------------
William G. Miller
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
--------------------------------------
<PAGE>
James K. Schuler
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
---------------------------------
Carolyn H. Walter
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
Jane E. Westervelt
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
<PAGE>
ACCEPTED AND ACKNOWLEDGED:
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
-------------------
Christopher R. McCleary, Chief Executive Officer
THE STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:
-----------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
----------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
------------------------
<PAGE>
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
---------------------------------
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
----------------------------------
Partner
By:
----------------------------------
Partner
SOUTHERN VENTURE FUND II, L.P.
By:
----------------------------------
General Partner
VENROCK ASSOCIATES
By:
----------------------------------
General Partner
<PAGE>
VENROCK ASSOCIATES II, L.P.
By:
-------------------
General Partner
- -----------------------------
Christopher R. McCleary
- -----------------------------
Steve McManus
- -----------------------------
Chris M. Poelma
USI PARTNERS, LTD.
By:
----------------------------
Name:
Title:
US WEST COMMUNICATIONS, INC.
By:
----------------------------
Name:
Title:
<PAGE>
JOINDER AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as of the date
written below by the undersigned (each, a "JOINING PARTY") and the parties to
the Shareholders' Agreement, dated as of May 28, 1998. Capitalized terms
used but not defined herein shall have the meanings given such terms in the
Shareholders' Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder Agreement, the Joining Party will be
deemed to be a party to the Shareholders' Agreement and shall have all of
the rights and obligations of a "STOCKHOLDER" thereunder as if it had
executed the Shareholders' Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Shareholders' Agreement. The execution of this
Joinder Agreement shall be a counterpart execution of the Shareholders'
Agreement, dated May 28, 1998, and the undersigned agrees to be bound by all
the terms thereof as though an original party thereto.
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement
as of the date written below.
Date:
------------------------------
Richard C. Albright
-----------------------------
Bruce H. Brandaleone
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Christopher de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
<PAGE>
Elisabeth de Roetth
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Peter de Roetth
--------------------------------------
Nicholas DeWolf
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
Christopher Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Michael J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
-----------------------------------
Richard J. Egan
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------
<PAGE>
Richard J. and Maureen E. Egan
Grandchildren's Trust
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Donald A. Foss
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
David Friend
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Roger G. Marino
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
William G. Miller
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
<PAGE>
James K. Schuler
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Carolyn H. Walter
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
Jane E. Westervelt
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
<PAGE>
ACCEPTED AND ACKNOWLEDGED:
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
----------------------------
Christopher R. McCleary, Chief Executive Officer
THE STOCKHOLDERS:
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:
----------------------------
John H. Wyant
Manager
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
----------------------------
John H. Wyant
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
----------------------------
<PAGE>
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
----------------------------
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
----------------------------
Partner
By:
----------------------------
Partner
SOUTHERN VENTURE FUND II, L.P.
By:
----------------------------
General Partner
VENROCK ASSOCIATES
By:
----------------------------
General Partner
<PAGE>
VENROCK ASSOCIATES II, L.P.
By:
-------------------------
General Partner
- ----------------------------
Christopher R. McCleary
- ----------------------------
Steve McManus
- ----------------------------
Chris M. Poelma
USI PARTNERS, LTD.
By:
-------------------------
Name:
Title:
US WEST COMMUNICATIONS, INC.
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT C
[LETTERHEAD OF LATHAM & WATKINS]
_____, 1998
To the Purchasers Listed on Schedule A Hereto:
Re: Stock Purchase Agreement dated as of June 19, 1998 (the
"Agreement") by and among USinternetworking, Inc., a Delaware
corporation, and the Purchasers, as listed on Schedule A attached
hereto.
Ladies and Gentlemen:
We have acted as counsel to USinternetworking, Inc., a Delaware
corporation (the "Company"), in connection with the purchase by Purchasers of
2,000 shares of Series A Convertible Preferred Stock, par value $.01 per share,
of the Company (the "Series A Preferred Stock") pursuant to the Agreement. This
opinion is rendered to you pursuant to Section 3.12 of the Agreement.
Capitalized terms defined in the Agreement, used herein, and not otherwise
defined herein shall have the meanings given them in the Agreement.
As such counsel, we have examined such matters of fact and questions of
law as we have considered appropriate for purposes of rendering the opinions
expressed below, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified below.
We have examined, among other things, the following:
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
To the Purchasers
_________, 1998
Page 2
(a) The Agreement; and
(b) The certificate of incorporation of the Company, as amended,
and the Bylaws of the Company (the "Governing Documents").
The documents described in subsections (a) and (b) above are referred
to herein collectively as the "Documents."
In our examination, we have assumed the genuineness of all signatures
(other than those of officers of the Company on the Documents), the authenticity
of all documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as copies.
We have been furnished with, and with your consent have relied upon,
certificates of officer(s) of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
Maryland, and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of the laws of any other jurisdiction or, in the case of Delaware, any
other laws, or as to any matters of municipal law or the laws of any other local
agencies within any state.
Our opinions set forth in clauses (i) and (iii) of paragraph 4 below
are based upon our consideration of only those statutes, rules and regulations
which, in our experience, are normally applicable to stock purchase
transactions. Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those attorneys
in this firm who have rendered legal services in connection with the this stock
purchase transaction do not have current actual knowledge of the inaccuracy of
such statement. However, except as otherwise expressly indicated, we have not
undertaken any independent investigation to determine the accuracy of any such
statement, and no inference that we have any knowledge of any matters pertaining
to such statement should be drawn from our representation of the Company.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
To the Purchasers
_________, 1998
Page 3
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware with corporate power
and authority to own and lease its properties and to conduct its business and to
execute, deliver and perform its obligations under the Agreement. Based solely
on certificates from public officials, we confirm that the Company is qualified
to do business in the State of Maryland.
2. The execution, delivery and performance of the Agreement by the
Company has been duly authorized by all necessary corporate action of the
Company, and the Agreement has been duly executed and delivered by the Company.
3. The Agreement constitutes a legally valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery of the Agreement by the Company and the
performance of the obligations of the Company under the Agreement do not: (i)
violate any federal or Maryland statute, rule or regulation applicable to the
Company or the Delaware General Corporation Law; (ii) violate the provisions of
the Governing Documents or of any agreement to which the Company is a party
identified to us by an officer of the Company as material to the Company's
business; or (iii) to the best our knowledge, require any consents, approvals,
authorizations, registrations, declarations or filings by the Company under any
federal statute, rule or regulation applicable to the Company. No opinion is
expressed in clauses (i) and (iii) of this paragraph 4 as to the application of
Section 548 of the federal Bankruptcy Code and comparable provisions of state
law or of any antifraud laws, antitrust or trade regulation laws.
5. The shares of Series A Preferred Stock to be issued pursuant to
the Agreement have been duly authorized and, when issued to and paid for by the
Purchasers in accordance with the terms of the Agreement, will be validly
issued, fully paid and non-assessable. The issuance of shares of Common Stock
upon conversion of the Preferred Shares has been duly authorized by the Company,
and, as of the date hereof, a sufficient number of shares of the authorized but
unissued Common Stock is available for issuance upon conversion of the Preferred
Shares. The shares of Common Stock to be issued upon conversion of the Preferred
Shares have been duly authorized and, when issued upon conversion of the
Preferred Stock in accordance with the terms of the Preferred Stock, will be
validly issued, fully paid and non-assessable.
6. As of June 19, 1998, the date of the Agreement, the authorized
capital stock of the Company consisted of One Hundred Fifty Million
(150,000,000) shares of Common
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
To the Purchasers
_________, 1998
Page 4
Stock, par value $0.001 per share, and One Hundred Thousand (100,000) shares of
preferred stock, par value $0.01 per share.
The opinions expressed in paragraph 3 above are subject to the
following limitations, qualifications and exceptions:
(a) such opinions are subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting the rights
of creditors; and
(b) such opinions are subject to the exercise of judicial
discretion in accordance with general principles of equity.
To the extent that the obligations of the Company may be dependent upon
such matters, we assume for purposes of this opinion that: all parties to the
Agreement other than the Company are duly formed, validly existing and in good
standing under the laws of their respective jurisdictions of formation; all
parties to the Agreement other than the Company have the requisite partnership
power and authority to execute and deliver the Agreement and to perform their
respective obligations under the Agreement; and the Agreement to which such
parties other than the Company are a party have been duly authorized, executed
and delivered by such parties and constitute their legally valid and binding
obligations, enforceable against them in accordance with their terms. We express
no opinion as to compliance by any parties to the Agreement with any state or
federal laws or regulations applicable to the subject transactions because of
the nature of their business.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
<PAGE>
Schedule A
PURCHASERS
Richard C. Albright
Bruce H. Brandaleone
Christopher de Roetth
Elisabeth de Roetth
Peter de Roetth
Nicholas DeWolf
Christopher Egan
Michael J. Egan
Richard J. Egan
Richard J. and Maureen E. Egan
Grandchildren's Trust
Donald A. Foss
David Friend
Roger M. Marino
William G. Miller
James K. Schuler
Carolyn H. Walter
Jane E. Westervelt
<PAGE>
DRAFT
WRITER'S DIRECT DIAL NUMBER: (617) 951-741 1
WRITERS E-MAIL ADDRESS: [email protected]
July 20, 1998
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, MD 21401
Gentlemen:
This opinion is furnished to you pursuant to Section 4.9 of that certain
Stock Purchase Agreement (the "Purchase Agreement") dated as of June 19, 1998
between you and the purchasers named therein (the "Purchasers"). The Purchasers
consist of two individuals acting in their own behalf (the "Signing Purchasers")
and fourteen individuals and one trust (the "Agency Purchasers") represented in
the transaction by Account Management Corporation, a Massachusetts corporation
("AMC") as Agent. Pursuant to the Purchase Agreement, the Purchasers have
executed and delivered a certain "Joinder Agreement" pursuant to which they have
become parties to a certain Shareholders' Agreement dated as of May 28, 1998.
The Purchase Agreement, the Joinder Agreement and the Shareholders' Agreement
are herein together referred to as the "Transaction Agreements".
We have acted as counsel for AMC and the Purchasers in connection with the
Transaction Agreements and the transactions contemplated thereby. We have acted
as counsel to AMC for a number of years, and are generally familiar with its
legal standing and legal affairs; our relationship to the Purchasers is as
special counsel for the particular transactions contemplated by the Transaction
Agreements.
We have examined a power of attorney executed by Richard A. Egan appointing
AMC as attorney in fact for purposes of the transactions contemplated by the
Transaction Agreements, and we have been informed that like powers of attorney
have been executed and delivered to AMC by each of the other Agency Purchasers.
We have examined a document furnished to us as a copy of the Richard J. and
Maureen E. Egan Grandchildren's Trust. We have also made inquiries as to the
age, financial standing and investing experience of all Purchasers who are
individuals. We are relying on the foregoing in connection with this opinion. We
point out the fact that the Transaction Agreements provide that the governing
law of such agreements is the law of Maryland. We are not members of the bar of
the state of Maryland, but have assumed for the
<PAGE>
-2- July 20, 1998
purposes of this opinion that the law of Maryland does not differ from the law
of Massachusetts insofar as relevant to the conclusions expressed herein.
Based upon the foregoing, we are the opinion that:
1. AMC is a corporation duly incorporated, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts.
2. AMC holds a valid, binding and enforceable power of attorney from each of
the Agency Purchasers.
3. The Purchase Agreement, and the Joinder Agreement have been duly executed
and delivered by or on behalf of the Purchasers, such execution and
delivery being by AMC, as agent, in the case of the Agency Purchasers.
Except as qualified by the following sentence and by the last paragraph of
this opinion, the Transaction Agreements constitute the legal valid and
binding obligations of the Purchasers, enforceable against each of them in
accordance with their terms. We express no opinion, however, on Section 4
of the Shareholders' Agreement (dealing with registration of securities
under the Securities Act of 1933, as amended, and state securities laws),
nor as to the effect of any limitations on the validity or enforceability
of that Section on other provisions of the Shareholders' Agreement.
(4) None of (i) the execution and delivery of the Transaction Agreements by
each of the Purchasers, (ii) the purchase of the Series A Preferred Stock by
each of the Purchasers, (iii) compliance with the terms and conditions of the
Transaction Agreements on the Closing Date will conflict with, breach the terms
and conditions of, constitute a default under, any judgment, decree, order,
agreement, lease or other instrument known to us to which any of the Purchasers
is a party or by which any of the Purchasers is legally bound.
(5) To our knowledge, there is no order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any United States
federal, state or local or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body in existence which restrains or which materially and
adversely affects the transactions contemplated by the Transaction Agreement, or
is likely to render it impossible or unlawful to consummate such transactions.
Our opinion as to the legality, validity, binding effect and enforceability
of the Purchase Agreement and the other Transaction Agreements is subject to (a)
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of contracting parties and (b)
general principles of equity, regardless whether enforcement is sought in
proceedings in equity or at law. We also express no opinion as to the
enforceability of
<PAGE>
-3- July 20, 1998
provisions relating to submission to jurisdiction, waiver of service of process,
venue or waiver of the right to trial by jury.
Very truly yours,
Ropes & Gray
JEB/aml:3318915.01
<PAGE>
SCHEDULES
<PAGE>
SCHEDULE 1
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
TO BE ISSUED BY THE COMPANY
TO EACH PURCHASER
<TABLE>
<CAPTION>
Total Purchase Price To
Shares of Series A Be Paid By Such
Convertible Preferred Purchaser For Shares
Stock To Be Issued of Series A Convertible
By the Company To Preferred Stock Issued
Purchaser Each Purchaser To Each Purchaser
- --------------------------------------------------------------------------------
<S> <C> <C>
Richard C. Albright 166.67 $ 100,002.00
Bruce H. Brandaleone 166.67 $ 100,002.00
Nicholas de Wolf 166.67 $ 100,002.00
Christopher de Roetth 125.00 $ 75,000.00
Elisabeth de Roetth and Peter de Roetth 166.67 $ 100,002.00
Christopher Egan 41.67 $ 25,002.00
Michael J. Egan 41.67 $ 25,002.00
Richard J. Egan 166.67 $ 100,002.00
Richard J. and Maureen E. Egan
Grandchildren's Trust 41.67 $ 25,002.00
Donald A. Foss 166.67 $ 100,002.00
David Friend 125.00 $ 75,000.00
Roger M. Marino 166.67 $ 100,002.00
William G. Miller 125.00 $ 75,000.00
James K. Schuler 125.00 $ 75,000.00
Carolyn H. Walter 41.67 $ 25,002.00
Jane E. Westervelt 166.67 $ 100,002.00
------------------------------------------
Total 2,000.04 $ 1,200,024
</TABLE>
Page 1
<PAGE>
SCHEDULE 2
Account Management Corporation
Two Newbury Street
Boston, Massachusetts 02116
<PAGE>
SCHEDULE 5.5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Holders of Issued and Outstanding Number of Shares of Capital Stock Held
Shares of Capital Stock
- --------------------------------------------------------------------------------
<S> <C>
Christopher McCleary 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
Chris Poelma 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
Steve McManus 5,000,000 shares of Common Stock
- --------------------------------------------------------------------------------
</TABLE>
See attached for a list of the holders of Series A Preferred Stock.
See also attached for a list of employees granted stock options, which options
shall be governed by the Employee Stock Option Plan.
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
Shares of Series A Convertible Preferred Stock
Holders Issued To Each Holder
- --------------------------------------------------------------------------------
<S> <C>
Blue Chip Capital Fund II 11,333.34
Limited Partnership
Miami Valley Venture Fund L.P. 1,999.99
Grotech Partners IV, and 16,666.67
Grotech Partners V, L.P.
Southern Venture Fund SBIC, L.P. 3,333.33
Southern Venture Fund, II, L.P. 1,666.67
Venrock Associates 3,583.33
Venrock Associates II, L.P. 4,750.00
Christopher R. McCleary (or McCleary Technology
Capital) 1,666.67
USI Partners, Ltd. 1,166.67
US WEST Communications, Inc. 5,833.33
Total 52,000.00
</TABLE>
Page 1
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASES AGREEMENT
SCHEDULE 6.8(A)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.05
Boggs & Partners Professional Services-Architect $ 42,282.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,052.54
Gordon Flesch Company Two copiers with interface boards (one color) includes delivery. $ 48,264.50
Installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,489.95
PC Connection, Inc Computer Equipment $ 77,640.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,518.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 38,398.42
</TABLE>
Page 1
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASES AGREEMENT
SCHEDULE 5.8(A)
ALL EXPENDITURES IN EXCESS OF $25,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
American Express Advance payment of account $ 40,125.05
Boggs & Partners Professional Services-Architect $ 42,282.93
Coleman-Martin Computer Equipment-Laptops $ 43,417.00
Computer Equipment-Printer, deskpro, notebooks $ 29,951.00
Consortium One-Annapolis L.L.C. Deposit related to the lease at 175 Admiral Cochrane Drive $ 400,000.00
May Rent for 175 Admiral Cochrane Drive $ 30,052.54
June Rent for 175 Admiral Cochrane Drive $ 30,052.54
Gordon Flesch Company Two copiers with interface boards (one color) includes delivery. $ 48,264.50
Installation and taxes.
One copier includes delivery, installation and taxes. $ 80,718.00
Christopher McCleary Partial repayment of loan $ 100,000.00
Partial repayment of loan $ 342,489.95
PC Connection, Inc Computer Equipment $ 77,640.00
Computer Equipment $ 39,471.45
Computer Equipment $ 41,809.00
Computer Equipment $ 100,000.00
Computer Equipment $ 25,518.75
Realty Association Security Deposit and First month's rent for 2661 Riva Road $ 38,398.42
</TABLE>
Page 1
<PAGE>
USINTERNETWORKING, INC.
STOCK PURCHASES AGREEMENT
SCHEDULE 5.8(A)
AGGEGRATE EXPENDITURES IN EXCESS OF $200,000
<TABLE>
<CAPTION>
PAYEE EXPLANATION AMOUNT
- ----- ----------- ------
<S> <C> <C>
Consortium One-Annapolis L.L.C. Deposit and rent for 175 Admiral Cochrane Drive (Lease) $ 465,915.00
Christopher McCleary Payments on Loan $ 444,875.62
PC Connection, Inc. Computer Equipment $ 509,200.97
</TABLE>
Page 1
<PAGE>
SCHEDULE 5.10
LISTING OF CONTRACTUAL OBLIGATIONS
1) Officer Agreement by and between USinternetworking, Inc. and Christopher
R. McCleary dated May 29. 1998.
2) Officer Agreement by and between USinternetworking, Inc. and Chris M.
Poelma, dated June 2, 1998.
3) Officer Agreement by and between USinternetworking, Inc. and Steve
McManus, dated June 2,1998.
4) Sublease Agreement, by and between Exsportise, Inc. and USinternetworking,
Inc., dated February 9,1998.
5) Agreement of Lease, by and between Consortium One-Annapolis, LLC and
USinternetworking, Inc., dated April 3,1998.
6) Letter Agreement between USinternetworking, Inc. and Gary Heiwig, dated
April 10, 1998 (acceptance by Heiwig dated April 14, 1998).
7) Furniture Rental Agreement between Aaron Rents, Inc. and
USinternetworking, Inc., dated March 10, 1998.
8) Sublease Agreement, by and between Columbia Medical Plan and
USinternetworking, Inc. dated May 8, 1998.
9) Agreement of Lease, by and between Realty Associates, Inc. and
USinternetworking, Inc., dated June 3, 1998
10) Contract of Sale between First Church of Christ, Scientist, Seller, and
USinternetworking, Inc., Buyer, dated May 1, 1998.
<PAGE>
SCHEDULE 5.16
EMPLOYEE PLANS
Although the Company has not adopted any formal employee benefit plans, the
contours of the employee benefit plans have been described in writing to
employees. The employee benefits are to include the following: (i) a 401(k) plan
that is to be noncontributory until January 1, 1999, and thereafter subject to a
1:2 employer match, (ii) the Employee Stock Option Plan, and (iii) other typical
plans such as health and vacation benefit plans. The Company has stated its
intention that the Employee Stock Option Plan will be a qualified plan that will
provide for the issuance of options to purchase shares at a discount of 20% from
the then-current market price, to the extent permissible at any time. Certain of
the Company's employees have been advised in writing, pursuant to the employment
offer letters, of the number of option shares the Company intends to award to
them. These option shares are listed in Schedule 5.5.
<PAGE>
SCHEDULE 5.17
LISTING OF ALL OUTSTANDING BORROWINGS
1) $2,000,000 credit line with Cisco Systems Capital Corp. for the purchase
of Cisco Systems Products equipment. $0 outstanding at June 15, 1998.
2) $1,000,000 credit line with Hewlett-Packard Co. for the purchase of
Hewlett-Packard equipment. $651,758.06 outstanding at June 15, 1998.
<PAGE>
SCHEDULE 5.18
LISTING OF INSURANCE POLICIES OR PROGRAMS
As of the date hereof, the Company has received only an Insurance Binder.
Exhibit 10.8
EXECUTION COPY
-----------------------------------------
-----------------------------------------
STOCK PURCHASE AGREEMENT
dated as of
August 28, 1998
by and among
USINTERNETWORKING, INC.,
IIT Holding, Inc.,
Luis Sebastian Alegrett,
Michael Mai,
Carlos E. Bravo,
and
Vicente Perez de Tudela
-----------------------------------------
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. DEFINITIONS...................................................................................1
1.1. Defined Terms........................................................................1
1.2. Certain Usage........................................................................9
ARTICLE II. PURCHASE AND SALE OF SHARES...................................................................9
2.1. Purchase and Sale of Shares..........................................................9
2.2. Total Consideration and Terms.......................................................10
2.3. Contingent Payments.................................................................11
2.4. Post-Closing Adjustment.............................................................12
2.5. Noncompete..........................................................................13
2.6. Bonus Payments......................................................................13
ARTICLE III. CLOSING......................................................................................14
3.1. Closing.............................................................................14
3.2. Sellers' Closing Deliveries.........................................................14
3.3. Purchaser's Closing Deliveries......................................................14
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND SELLERS..........................................................................14
4.1. Organization........................................................................15
4.2. Subsidiaries........................................................................15
4.3. Capitalization......................................................................16
4.4. Authorization.......................................................................16
4.5. No Conflict or Violation............................................................17
4.6. Financial Statements................................................................17
4.7. Books and Records...................................................................17
4.8. Projections.........................................................................18
4.9. Undisclosed Liabilities.............................................................18
4.10. Absence of Certain Changes or Events................................................18
4.11. Contracts; No Defaults..............................................................19
4.12. Government Contracts; Backlog.......................................................21
4.13. Tangible Assets.....................................................................22
4.14. Intellectual Property...............................................................23
4.15. Real Property.......................................................................25
4.16. Litigation and Proceedings..........................................................26
4.17. Employee Benefit Plans..............................................................27
4.18. Labor Relations.....................................................................29
4.19. Legal Compliance....................................................................30
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4.20. Environmental Protection............................................................30
4.21. Taxes...............................................................................31
4.22. Governmental Authorities: Consents.................................................33
4.23. Licenses, Permits and Authorizations................................................33
4.24. Insurance...........................................................................34
4.25. Brokers'Fees........................................................................34
4.26. No Other Agreements to Sell the Shares..............................................34
4.27. Transactions with Certain Persons...................................................34
4.28. Customers, Distributors and Suppliers...............................................35
4.29. Banking Relationships...............................................................36
4.30. Accounts Receivable.................................................................36
4.31. Inventory...........................................................................36
4.32. Year 2000...........................................................................36
4.33. Investment..........................................................................37
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER..................................................37
5.1. Organization of Purchaser...........................................................37
5.2. Authorization.......................................................................37
5.3. No Conflict or Violation............................................................38
5.4. Governmental Authorities; Consents..................................................38
5.5. Brokers'Fees........................................................................38
5.6. Warrant Shares......................................................................38
5.7. Capitalization......................................................................39
5.8. Financial Statements................................................................39
5.9. Purchaser Disclosure Material.......................................................39
ARTICLE VI. COVENANTS OF SELLERS AND THE COMPANY.........................................................39
6.1. Conduct of Business.................................................................39
6.2. HSR Act.............................................................................41
6.3. No Solicitations....................................................................41
6.4. Notice to Purchaser.................................................................42
6.5. Consents............................................................................42
6.6. Inspections.........................................................................42
6.7. Employee Benefit Plans..............................................................42
ARTICLE VII. COVENANTS OF PURCHASER.......................................................................43
7.1. Consents............................................................................43
7.2. Notice to Purchaser.................................................................43
ARTICLE VIII. COVENANTS OF SELLERS, THE COMPANY AND
PURCHASER....................................................................................43
8.1. Confidentiality.....................................................................43
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8.2. Nonsolicitation of Employees........................................................44
8.3. Cooperation and Records Retention...................................................44
ARTICLE IX. CONDITIONS TO OBLIGATIONS....................................................................44
9.1. Conditions to Obligations of Purchaser, Sellers and the Company.....................44
9.2. Conditions to Obligations of Purchaser..............................................45
9.3. Conditions to the Obligations of Sellers and the Company............................46
ARTICLE X. TERMINATION..................................................................................47
10.1. Termination.........................................................................47
10.2. Effect of Termination...............................................................48
10.3. Risk of Loss........................................................................48
ARTICLE XI. DEFAULT AND REMEDIES.........................................................................48
11.1. Breach and Opportunity to Cure......................................................48
11.2. Sellers'Remedies....................................................................49
11.3. Purchaser's Remedies................................................................49
11.4. Return of Deposit...................................................................49
11.5. Escrow Deposit......................................................................49
ARTICLE XII. POST CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATION.........................................50
12.1. Indemnification.....................................................................50
12.1.1. Purchaser's Right to Indemnification....................................50
12.1.2. Seller's Right to Indemnification...........................................50
12.1.3. Conduct of Proceedings......................................................51
12.1.4. Limitations on Indemnification..............................................51
12.1.5. Indemnification Sole Remedy.................................................52
12.2. Right of Offset.....................................................................52
12.3. Survival of Representations.........................................................52
12.4. Rights of Set-Off...................................................................52
ARTICLE XIII. TAX MATTERS..................................................................................53
13.1. Allocation of Responsibility........................................................53
13.2. Payment of Taxes....................................................................53
13.3. Tax Returns.........................................................................53
13.4. Refunds.............................................................................53
13.5. Contests............................................................................54
13.6. Allocation of Taxes.................................................................54
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13.7. Treatment of Indemnity Payments.....................................................55
13.8. Indemnification.....................................................................55
13.9. Successors..........................................................................55
ARTICLE XIV. SELLER REPRESENTATIVE........................................................................55
14.1. Designation of Seller Representative................................................55
14.2. Authority and Rights of Seller Representative;
Limitations on Liability............................................................56
ARTICLE XV. MISCELLANEOUS................................................................................56
15.1. Waiver..............................................................................56
15.2. Notices.............................................................................56
15.3. Assignment..........................................................................58
15.4. Rights of Third Parties.............................................................58
15.5. Reliance............................................................................58
15.6. Transfer Taxes; Title Costs; Expenses...............................................58
15.7. Construction........................................................................58
15.8. Arbitration.........................................................................59
15.9. Attorney's Fees.....................................................................60
15.10. Captions; Counterparts..............................................................60
15.11. Entire Agreement....................................................................60
15.12. Amendments..........................................................................60
15.13. Severability........................................................................60
15.14. Publicity...........................................................................60
15.15. Further Assurances..................................................................61
</TABLE>
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<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A-1 Employees
Exhibit A-2 Independent Contractors
Exhibit B Pro Rata Share
Exhibit C Form of Warrant Agreement
Exhibit D Allocation of Cash Consideration
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Employment Agreement
Exhibit G Warrantholder's Agreement
</TABLE>
v
<PAGE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 4.1 Foreign Qualifications
Schedule 4.2 Subsidiaries
Schedule 4.3 Capitalization
Schedule 4.6 Financial Statements
Schedule 4.8 Projections
Schedule 4.9 Undisclosed Liabilities
Schedule 4.10 Absence of Certain Changes
Schedule 4.11 Contracts
Schedule 4.12 Government Contracts
Schedule 4.14(c) Company Intellectual Property
Schedule 4.14(d) Third Party Intellectual Property
Schedule 4.15 Real Property
Schedule 4.17 Employee Benefit Plans
Schedule 4.20 Environmental Compliance
Schedule 4.20(f) Environmental Reports
Schedule 4.21 Taxes
Schedule 4.23 Licenses, Permits and Authorizations
Schedule 4.24 Insurance
Schedule 4.27 Transactions with Certain Persons
Schedule 4.28 Customers, Distributors & Suppliers
Schedule 4.29 Banking Relationships
Schedule 5.9 Purchaser Disclosure Material
</TABLE>
vi
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "AGREEMENT" or "PURCHASE
AGREEMENT") is entered into by and among Luis Sebastian Alegrett, Michael Mai,
Carlos E. Bravo, and Vicente Perez de Tudela, (the "SELLERS" and each a
"SELLER"), IIT Holding, Inc., a Florida corporation (the "COMPANY") and
USinternetworking, Inc., a Delaware corporation (the "PURCHASER"), as of this
28th day of August, 1998.
RECITALS:
A. Sellers own of record and beneficially all of the issued
and outstanding shares of common stock, par value $5.00 per share (the "COMPANY
COMMON STOCK"), of the Company (the "SHARES").
B. Upon the terms and subject to the conditions set forth
herein, Sellers desire to sell to Purchaser, and Purchaser desires to purchase
from Sellers, the Shares, free and clear of any and all Encumbrances.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"ACQUIRED COMPANIES" shall mean the Company and its
Subsidiaries.
"AFFILIATE" shall mean with respect to any specified Person,
any other Person that, directly or indirectly, controls, is controlled by, or is
under common control with, such Person, through one or more intermediaries or
otherwise.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"ANCILLARY AGREEMENTS" shall mean all exhibits and schedules
to the Agreement.
"ANTITRUST AUTHORITY" shall mean the Antitrust Division of the
United States Department of Justice or the United States Federal Trade
Commission.
"BALANCE SHEET" shall mean the balance sheets of each of the
Subsidiaries of the Company except IIT Technology Solutions, Inc. as of the date
indicated thereon, together with the notes thereto.
"BENEFIT ARRANGEMENT" shall have the meaning set forth in
SECTION 4.17.
<PAGE>
"BOOKS AND RECORDS" shall mean all of the following as made
and kept by the Acquired Companies (a) all records and lists pertaining to
customers, suppliers or personnel of the Acquired Companies, (b) all product,
business and marketing plans of the Acquired Companies and (c) all books,
ledgers, files, reports, plans, drawings and operating records of every kind
maintained by the Acquired Companies including, without limitation, all stock
books, stock ledgers and corporate minutes and Real Estate Records of the
Acquired Companies.
"BUSINESS" shall mean the Acquired Companies' business of
providing consulting and implementation services to users of People Soft
software.
"BUSINESS DAY" shall mean any day that is not a Saturday,
Sunday or any other day on which banks are required or authorized by law to be
closed in New York, New York.
"CASH CONSIDERATION" shall have the meaning specified in
SECTION 2.2.
"CHANGE OF CONTROL" shall mean with respect to any Person the
consummation of the first to occur of (i) the sale, lease or other transfer of
all or substantially all of the assets of such Person to any person or group (as
such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended); (ii) the consummation of a plan relating to the liquidation or
dissolution of such Person; (iii) the merger or consolidation of such Person
with or into another entity or the merger of another entity into such Person or
any subsidiary thereof with the effect that immediately after such transaction
the stockholders of such Person immediately prior to such transaction (or their
Affiliates) hold less than 50% of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; or (iv) the acquisition
(other than pursuant to purchase of the Shares hereunder) by any person or group
other than a stockholder (or its Affiliates) of such Person on the date hereof
of more than 50% of the voting power of all securities of such Person generally
entitled to vote in the election of directors of such Person.
"CLAIMS" shall have the meaning set forth in SECTION 12.1.1.
"CLOSING" shall have the meaning set forth in SECTION 3.1.
"CLOSING DATE" shall have the meaning set forth in
SECTION 3.1.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY COMMON STOCK" shall have the meaning set forth in the
Recitals.
"CONTINGENT PAYMENTS" shall have the meaning set forth in
SECTION 2.3.
"CONTRACTS" shall mean, collectively, all agreements,
contracts, leases, purchase orders, memoranda of understanding and other binding
contractual commitments to which the Company is a party, including those
contracts listed on SCHEDULE 4.11.
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<PAGE>
"DEPOSIT" shall have the meaning set forth in SECTION 2.2.
"DISCLOSURE SCHEDULE" shall mean the schedules attached
hereto.
"EBITDA" shall mean, with respect to any Person for any
period, the Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with the sale
or disposition of any asset, to the extent such losses were deducted in
computing such Net Income, plus (ii) the amounts paid during such period
pursuant to SECTION 2.6, plus (iii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was deducted in computing such Net Income, plus (iv)
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with capital lease
obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to hedging obligations), to the extent that any such expense
was deducted in computing such Net Income, plus (v) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Net Income, minus (vi) non-cash items increasing such Net Income
for such period (other than items that were accrued in the ordinary course of
business), in each case, on a consolidated basis and determined in accordance
with GAAP. Neither the payment to the Company of any portion of the Deposit nor
the use of such funds by the Company shall be considered for purposes of the
calculation of EBITDA.
"EMPLOYEE LAWS" shall have the meaning set forth in SECTION
4.18.
"EMPLOYEE PLANS" shall have the meaning set forth in SECTION
4.17(a).
"EMPLOYEE RETENTION PERCENTAGE" shall mean, the percentage
obtained by dividing (i) the aggregate number of the employees and independent
contractors of the Acquired Companies listed on EXHIBIT A-1 who are employed by
the Acquired Companies as of December 31, 1998 (plus (A) any employees of the
Acquired Companies listed on EXHIBIT A-1 who are employees of the Purchaser or
any Affiliate of the Purchaser other than the Acquired Companies as of December
31, 1998, and (B) any employees listed on EXHIBIT A-1 who are not employed by
the Acquired Companies as of December 31, 1998 because of such person's death or
disability or termination by the Acquired Companies for cause) by (ii) 53.
"ENCUMBRANCE" shall mean any mortgage, claim, charge, lien,
easement, right-of-way, covenant, condition, option, pledge, call, commitment,
security interest, conditional sales agreement, title retention agreement,
lease, and any other imperfection of title or restriction of any kind and
nature, choate or inchoate.
3
<PAGE>
"ENVIRONMENTAL CLAIMS" shall mean all accusations,
allegations, notice of violations, liens, claims, demands, suits, or causes of
action for any damage, including without limitation, personal injury, property
damage (including any depreciation of property values), lost use of property, or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws.
"ENVIRONMENTAL CONDITIONS" shall mean the state of the
environment, including natural resources (e.g., flora and fauna), soil, surface
water, wet lands, ground water, any present or potential drinking water supply,
subsurface strata, or ambient air, regulated under Environmental Laws relating
to or arising out of the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, pouring,
emptying, discharging, injecting, escaping, leaching, disposal, dumping, or
threatened release of Hazardous Materials by the Acquired Companies or their
predecessors or successors in interest, or by their agents, representatives,
employees, or independent contractors when acting in such capacity on behalf of
the Acquired Companies. With respect to Environmental Claims by third parties,
Environmental Conditions also include the exposure of persons to Hazardous
Materials at the work place or the exposure of persons or property to Hazardous
Materials migrating from or otherwise emanating from or located on property
owned or occupied by the Acquired Companies.
"ENVIRONMENTAL EXPENSES" shall mean any liability, loss, cost,
or expense related to an Environmental Claim, incurred in compliance with any
Environmental Laws, or incurred in response to Environmental Conditions,
including without limitation the costs of any investigation, remedial or
response actions, the costs associated with posting financial assurances for the
completion of any such actions, the preparation of any closure or other plans or
analyses, the costs of health assessments or other medical studies, the costs of
retention of expert consultants or legal counsel, capital improvements,
operation and maintenance costs, testing and monitoring costs, power and utility
costs and administrative costs incurred by governmental agencies.
"ENVIRONMENTAL LAWS" shall mean any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, legally binding decrees or other requirement of any
Governmental Authority (including, without limitation, common law) regulating,
relating to or imposing liability or standards of conduct concerning protection
of the environment or of human health relating to exposure of any kind of
Hazardous Materials, as has been, is now, or may at any time hereafter be, in
effect.
"ENVIRONMENTAL NONCOMPLIANCE" shall mean: (i) the release of
any Hazardous Materials into the environment, any storm drain, sewer, septic
system or publicly owned treatment works, in violation of any effluent or
emission limitations, standards or other criteria or guidelines established by
any federal, state or local law, regulation, rule, ordinance, plan or order;
(ii) any noncompliance with Environmental Laws including the failure to have
obtained permits, variances or other authorizations required under Environmental
Laws; (iii) any facility operations, procedures and/or designs which do not
conform to the statutory or regulatory requirements of Environmental Laws; and
(iv) the operation of any facility or equipment in
4
<PAGE>
violation of any permit condition, schedule of compliance, administrative or
court order and the like.
"ERISA" shall have the meaning set forth in SECTION 4.17(a).
"ERISA AFFILIATE" shall have the meaning set forth in SECTION
4.17(a).
"FINAL BALANCE SHEET" shall mean a consolidated balance sheet
of the Company and its Subsidiaries as of the Closing Date which shall be
prepared in accordance with GAAP and shall be audited by an independent
accounting firm of recognized national standing.
"FINAL NET CURRENT ASSETS" shall have the meaning set forth in
SECTION 2.4(a).
"FINANCIAL STATEMENTS" shall have the meaning set forth in
SECTION 4.6.
"FIXTURES" shall mean any fixtures, machinery, installations
and building equipment located at or on any Real Property.
"GAAP" shall mean United States generally accepted accounting
principles consistently applied.
"GOLDEN PARACHUTE PAYMENT" shall have the meaning set forth in
SECTION 4.17(c).
"GOVERNMENTAL AUTHORITY" shall mean any federal, state,
municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
court, tribunal, arbitrator or arbitral body.
"GOVERNMENT CONTRACT" shall have the meaning set forth in
SECTION 4.12.
"GOVERNMENT ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HAZARDOUS MATERIALS" shall mean any hazardous substance,
gasoline or petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity, and any
other materials or substances of any kind, whether solid, liquid or gas, and
whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or that
could give rise to liability under any Environmental law.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended.
"IMPROVEMENTS" shall mean any right, title or interest in any
buildings, facilities, other structures and improvements, building systems and
fixtures.
"INDEMNIFIED PARTY" shall have the meaning set forth in
SECTION 12.1.3.
5
<PAGE>
"INDEMNITOR" shall have the meaning set forth in
SECTION 12.1.3.
"INDEPENDENT ACCOUNTING FIRM" shall have the meaning set forth
in SECTION 2.3(e).
"INSURANCE POLICY" shall have the meaning set forth in SECTION
4.24.
"INTELLECTUAL PROPERTY" shall mean (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"INTERIM BALANCE SHEET" shall mean the Balance Sheet dated the
Interim Balance Sheet Date.
"INTERIM BALANCE SHEET DATE" shall mean July 31, 1998.
"INTERIM FINANCIAL STATEMENTS" shall mean the Interim Balance
Sheet and the statements of operations, changes in shareholders' equity and cash
flow for the period ended on the Interim Balance Sheet Date.
"INVENTORY" shall mean all of the inventory held by the
Acquired Companies for resale, and all of the Acquired Companies' raw materials,
works in process, finished products, wrapping, supply and packaging items, in
each case wherever the same may be located.
"IRS" means the United States Internal Revenue Service.
"LIABILITIES" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on the business, assets, liabilities, condition (financial or otherwise),
results of operations or prospects of the Acquired Companies, taken as a whole.
6
<PAGE>
"MULTIEMPLOYER PLAN" shall have the meaning set forth in
SECTION 4.17(a).
"NET CURRENT ASSETS" shall have the meaning set forth in
SECTION 2.4(a).
"NET INCOME" shall mean with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP.
"1998 TARGET EBITDA" shall mean $1,819,684.
"1998 TARGET REVENUE" shall mean $5,426,634.
"NONCOMPETITION AGREEMENT" shall have the meaning set forth in
SECTION 2.5.
"PBGC" shall have the meaning specified in SECTION 4.17(a).
"PENSION PLAN" shall have the meaning specified in
SECTION 4.17(a).
"PERMITS" shall mean any licenses, permits, certificates of
occupancy, approvals, authorizations, variances and waivers issued by any
Governmental Authority.
"PERMITTED ENCUMBRANCE" shall mean any (i) mechanics lien,
materialmen's lien and similar Encumbrance with respect to any amounts not yet
due and payable or which are being contested in good faith through appropriate
proceedings and for which adequate reserves are maintained in accordance with
GAAP, (ii) Encumbrance for Taxes not yet due and payable or which are being
contested in good faith through appropriate proceedings, for which adequate
reserves are maintained in accordance with GAAP, and which are disclosed on the
Disclosure Schedule, (iii) routine utility easements or other non-detrimental
agreements of record affecting the Real Property which do not materially
interfere with the use, occupancy or marketability of the Real Property subject
thereto and (iv) other Encumbrances disclosed in the Schedules to this
Agreement.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, labor union or Governmental Authority.
"PERSONNEL" shall have the meaning set forth in
SECTION 4.10(b).
"PRE-CLOSING ENVIRONMENTAL MATTER" shall mean any
Environmental Claim, Environmental Condition or any noncompliance with any
Environmental Law on the part of the Acquired Companies, their Affiliates or any
of their predecessors in interest occurring or in existence on, or arising from
actions occurring prior to, the Closing Date.
"PRE-CLOSING PARTIAL PERIOD" shall have the meaning set forth
in SECTION 13.1.
"PRIME RATE" shall have the meaning set forth in
SECTION 12.1.1.
7
<PAGE>
"PRO RATA SHARE" shall mean with respect to each Seller, such
Seller's percentage interest in the equity of the Company as set forth on
EXHIBIT B hereto.
"PROJECTIONS" shall have the meaning set forth in SECTION 4.8.
"PURCHASER" shall have the meaning set forth in the Preamble.
"PURCHASER INDEMNITEES" shall have the meaning set forth in
SECTION 12.1.1.
"REAL ESTATE RECORDS" shall mean, to the extent in the
possession or control of Sellers or the Acquired Companies, the real estate
records, files, books, blueprints, plans (as-built and otherwise), surveys,
specifications, designs, drawings, and other data associated with the Real
Property.
"REAL PROPERTY" shall have the meaning set forth in
SECTION 4.15.
"REAL PROPERTY LEASE" shall have the meaning set forth in
SECTION 4.15.
"RECIPIENTS" shall have the meaning set forth in
SECTION 4.17(c).
"REVENUE" shall mean the consolidated revenue of the Company
determined in accordance with GAAP.
"SELLER REPRESENTATIVE" shall have the meaning set forth in
SECTION 14.1.
"SELLERS" shall have the meaning set forth in the Preamble.
"SELLER INDEMNITEES" shall have the meaning set forth in
SECTION 12.1.2.
"SHARES" shall have the meaning set forth in the Recitals.
"SUBSIDIARY" shall mean any corporation, partnership, limited
liability company, joint venture or other entity in which the Company, directly
or indirectly, holds fifty percent (50%) or more of the voting power of all
equity securities or other ownership interests of such entity, or over which the
Company either directly or indirectly exercises actual control.
"TARGET NET CURRENT ASSETS" shall mean $462,000.
"TAX" or "TAXES" shall mean any federal, state, local or
foreign net or gross income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, (including taxes under Code Sec.
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax, governmental fee or like assessment or charge
of any kind whatsoever, including any interest, penalty or additions thereto and
any amount imposed by any governmental authority or arising under any Tax law or
agreement, including, without limitation, any joint venture or partnership
agreement.
8
<PAGE>
"TAX RETURNS" shall mean all reports, returns, declarations,
claims for refund or statements of any kind or nature relating to Taxes, and any
schedule or attachment thereto and any amendment thereof.
"TOTAL CONSIDERATION" shall have the meaning set forth in
SECTION 2.2(a).
"TRANSACTIONS" shall mean the transactions contemplated by
this Agreement and the Ancillary Agreements.
"WARRANTS" shall mean the warrants entitling the holders
thereof to purchase up to 400,000 shares of common stock of Purchaser at a price
of $2.00 per share, subject to the terms and conditions of the Warrant Agreement
attached hereto as EXHIBIT C.
"WELFARE PLAN" shall have the meaning set forth in
SECTION 4.17(a).
"WHOLESALE PRICE" shall mean with respect to each item of
Inventory, the manufacturer's wholesale list price for such item as of the
applicable date applying the actual volume discount to which the relevant
Acquired Company was entitled in purchasing such item under its value added
reseller agreement or other similar agreement at the time such item was
purchased from the manufacturer.
1.2 CERTAIN USAGE. As used herein the following additional terms
shall have the following meaning:
The term "including" as used herein shall be read to mean
"including, without limitation."
The term "knowledge" as used herein, shall mean with respect
to any person, those facts or circumstances actually known by such person as
well as any facts or circumstances that would be known after due inquiry by a
person holding a comparable office or job or with comparable experience or
responsibilities in a comparable organization. For purposes of this Agreement,
the knowledge of Sebastian Alegrett, Michael Mai, Carlos E. Bravo, and Vicente
Perez de Tudela shall be imputed to the Sellers and the Company, and the
knowledge of Stephen McManus and John Streeten shall be imputed to Purchaser.
ARTICLE II.
PURCHASE AND SALE OF SHARES
2.1 PURCHASE AND SALE OF SHARES. Upon the terms and subject to the
conditions contained herein, on the Closing Date, Sellers shall sell, convey and
transfer to Purchaser, and Purchaser shall purchase and acquire from Sellers,
the Shares, free and clear of all Encumbrances.
2.2 TOTAL CONSIDERATION AND TERMS.
(a) The aggregate consideration for the Shares to be purchased
by Purchaser hereunder and for the Noncompetition Agreement (the "TOTAL
CONSIDERATION")
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shall, subject to adjustment as provided in SECTION 2.2(e) and SECTIONS 2.3, 2.4
and 12.1 hereof, consist of (i) $12,887,000 in cash plus the amounts, if any,
added pursuant to Section 2.2(e) (the "CASH CONSIDERATION"); (ii) $3,800,000 in
the Contingent Payment (as defined below), subject to the rights of set-off as
provided in SECTION 12.4 hereof and subject to satisfaction of the terms and
conditions set forth below in SECTION 2.3; and (iii) the Warrants, which
Warrants the parties agree have a value of $40,000.
(b) Purchaser has previously delivered to the Company,
$225,000 as a deposit towards the Cash Consideration and Purchaser may elect
pursuant to SECTION 2.2(e) to deliver further amounts as a deposit towards the
Cash Consideration (the "DEPOSIT"). At Closing, the amount of the Deposit shall
be applied towards the payment of the Cash Consideration. The amount of the
Deposit shall be forfeited to the Sellers or returned to the Purchaser in
accordance with the provisions of SECTIONS 11.2 and 11.4, in the event that this
Agreement is terminated prior to Closing.
(c) At the Closing, Purchaser will (i) pay to each Seller by
wire transfer of immediately available funds to an account designated in writing
by such Seller an amount equal to such Seller's share as set forth on EXHIBIT D
of the Cash Consideration minus the Deposit, and (ii) deliver the Warrants in
the amounts set forth on EXHIBIT D.
(d) Upon the execution of this Agreement, Purchaser shall
deliver to an escrow account, pursuant to the Escrow Agreement dated the date
hereof, the amount of $400,000 as a deposit towards the Cash Consideration, by
wire transfer of immediately available funds to an account designated in writing
by the Company (the balance of such account, including interest accrued thereon
net of the fees of the Escrow Agent, the "ESCROW DEPOSIT"). At Closing, the
Escrow Deposit shall be applied towards the payment of the Cash Consideration.
In the event that this Agreement is terminated prior to Closing, the Escrow
Deposit shall be delivered to the Seller Representative or Purchaser in
accordance with the provisions of SECTION 11.5.
(e) Purchaser shall have the right to extend the Closing Date
by making the payments set forth below to the Sellers and the Company in equal
shares on the day following the Closing Date (as it may be extended), which
amount shall upon payment be added to the Cash Consideration:
<TABLE>
<CAPTION>
PAYMENT DATE EXTENDED CLOSING DATE AMOUNT
<S> <C> <C>
September 9, 1998 September 15, 1998 $250,000
September 16, 1998 September 22, 1998 $250,000
September 23, 1998 September 29, 1998 $250,000
</TABLE>
2.3 CONTINGENT PAYMENTS.
(a) As further consideration of the agreements set forth
herein and the sale by Sellers of the Shares, if the targets set forth below are
all achieved, Purchaser
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shall pay to each Seller such Seller's Pro Rata Share of the applicable amounts
set forth below: (the "CONTINGENT PAYMENT"):
(i) In the event that the Revenue of the Company
for the twelve months ended December 31, 1998 (the "1998 REVENUE") is greater
than the 1998 Target Revenue, Purchaser shall pay to each Seller such Seller's
Pro Rata Share of $933,333 and will pay to each Seller such Seller's Pro Rata
Share of $0.172 for each dollar by which the 1998 Revenue exceeds the 1998
Target Revenue, which additional amount will in no event exceed $400,000; and
(ii) In the event that the EBITDA of the Company
for the twelve months ended December 31, 1998 (the "1998 EBITDA") is greater
than the 1998 Target EBITDA, Purchaser shall pay to each Seller such Seller's
Pro Rata Share of $933,333 and will pay $0.513 for each dollar by which the 1998
EBITDA exceeds the 1998 Target EBITDA, which additional amount will in no event
exceed $400,000; and
(iii) In the event that the Employee Retention
Percentage as of December 31, 1998 exceeds the percentage as agreed between
Purchaser and Sellers, Purchaser shall pay to each Seller such Seller's Pro Rata
Share of $1,133,333.
(b) Within ten (10) calendar days following the date on which
Purchaser receives the Company's audited financial statements for the twelve
months ended December 31, 1998, Purchaser shall prepare and deliver to the
Seller Representative a calculation of the 1998 Revenue and 1998 EBITDA and the
Employee Retention Percentage as of December 31, 1998.
(c) The Seller Representative may dispute Purchaser's
calculation of the 1998 Revenue and the 1998 EBITDA, but only on the basis that
the amounts reflected in such calculation were not determined in accordance with
GAAP or adjusted in accordance with this Agreement. The Seller Representative
shall notify Purchaser in writing of each disputed item, specifying the amount
of each item in dispute and setting forth, in detail, the basis for each item in
dispute, within thirty (30) calendar days of the Seller Representative's receipt
of Purchaser's calculation of the Revenue. If the Seller Representative has not
notified Purchaser of any such dispute within such thirty (30) day period or has
notified Purchaser that the Sellers accept the calculation, of the 1998 Revenue,
and the 1998 EBITDA, then Purchaser's calculation shall be deemed to be final
and conclusive on the parties hereto, and any amount payable under SECTION
2.3(a) shall be paid by Purchaser by wire transfer within five (5) Business Days
thereafter.
(d) In the event of such a dispute, Purchaser and the Seller
Representative shall negotiate in good faith to reconcile their differences. If
such dispute has not been resolved within twenty (20) Business Days after
Purchaser's receipt of notice of such dispute, the Seller Representative and
Purchaser shall submit the item(s) remaining in dispute to a mutually acceptable
independent "Big Five" accounting firm (the "INDEPENDENT ACCOUNTING FIRM"),
which shall, as promptly as practical but in no event later than thirty (30)
calendar days after such submission, determine and report
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<PAGE>
upon such remaining disputed item(s). Such determination and report shall be
final, binding and conclusive on the parties hereto and any amount payable under
SECTION 2.3(c) shall be paid by Purchaser by wire transfer within five (5)
Business Days thereafter. The fees and disbursements of the Independent
Accounting Firm shall be allocated between Purchaser and Sellers in the same
proportion that the aggregate amount of such remaining disputed item(s) so
submitted to the Independent Accounting Firm, which is unsuccessfully disputed
by each such party (as determined by the Independent Accounting Firm), bears to
the total amount of such remaining disputed item(s) so submitted.
(e) In order not to interfere with the ability of the Company
to meet the Revenue and EBITDA targets set forth in SECTION 2.3(a), prior to
January 1, 1999, Purchaser shall not transfer any of the employees, assets, or
customers of the Acquired Companies to Purchaser or any Affiliate of Purchaser
unless Purchaser first makes arrangements for the Acquired Companies to receive
an allocation of Revenue and EBITDA attributable to such employees, assets or
customers for the period prior to January 1, 1999.
(f) Notwithstanding the provisions of SECTION 2.3(a),
Purchaser shall pay to each of the Sellers such Seller's Pro Rata Share of the
full amount of the Contingent Payment in the event that the Company or Purchaser
suffers a Change of Control prior to January 1, 1999.
2.4 POST-CLOSING ADJUSTMENT.
(a) Within ninety (90) calendar days following the Closing
Date, Purchaser shall prepare and deliver to the Seller Representative (i) the
Final Balance Sheet, and (ii) a calculation of the Net Current Assets of the
Company and its Subsidiaries as set forth on the Final Balance Sheet (the "FINAL
NET CURRENT ASSETS"). The Final Balance Sheet shall be prepared in accordance
with GAAP consistent with the preparation of the Interim Financial Statements of
the Company. During the preparation of the Final Balance Sheet by Purchaser and
the period of any dispute provided for in Section 2.4(b), the Seller
Representative shall cooperate fully, and shall cause its accountants to
cooperate fully, with Purchaser and Purchaser's accountants in order to prepare
the Final Balance Sheet and to investigate the basis of any such dispute. "NET
CURRENT ASSETS" as of any date shall mean (i) the current assets of the Company
as of such date, MINUS (ii) the current liabilities of the Company as of such
date, as determined in accordance with GAAP.
(b) The Seller Representative may dispute any amounts
reflected on the Final Balance Sheet but only on the basis that the amounts
reflected on the Final Balance Sheet were not recorded in accordance with GAAP.
The Seller Representative shall notify Purchaser in writing of each disputed
item, specifying the amount of each item in dispute and setting forth, in
detail, the basis for each item in dispute, within thirty (30) calendar days of
the Seller Representative's receipt of the Final Balance Sheet. If
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<PAGE>
the Seller Representative has not notified Purchaser of any such dispute within
such thirty (30) day period, then the Final Balance Sheet shall be deemed to be
final and conclusive on the parties hereto, and any amount payable under SECTION
2.4(d) shall be paid by Purchaser or Sellers, as the case may be in accordance
with SECTION 2.4(d).
(c) In the event of such a dispute, Purchaser and the Seller
Representative shall negotiate in good faith to reconcile their differences. If
such dispute has not been resolved within twenty (20) Business Days after
Purchaser's receipt of notice of such dispute, Purchaser and the Seller
Representative shall submit the item(s) remaining in dispute to the Independent
Accounting Firm, which shall, as promptly as practicable but in no event later
than thirty (30) calendar days after such submission, determine and report upon
such remaining disputed items(s). Such determination and report shall be final,
binding and conclusive on the parties hereto. The fees and disbursements of the
Independent Accounting Firm shall be allocated between Purchaser and Sellers in
the same proportion that the aggregate amount of such remaining disputed
items(s) so submitted to the Independent Accounting Firm, which is
unsuccessfully disputed by each such party (as determined by the Independent
Accounting Firm), bears to the total amount of such remaining disputed items(s)
so submitted.
(d) If the Post-Closing Adjustment (as defined below) is a
negative number, Sellers shall, within three (3) Business Days after the final
determination of the Post-Closing Adjustment, pay to Purchaser an amount equal
to the absolute value of the Post Closing Adjustment. If the Post-Closing
Adjustment is a positive number, Purchaser shall within three (3) Business Days
after the final determination of the Post Closing Adjustment, pay to each of the
Sellers, in equal shares, in immediately available funds an amount equal to the
Post Closing Adjustment. The "POST-CLOSING ADJUSTMENT" shall be computed by
subtracting the Target Net Current Assets from the Final Net Current Assets.
2.5 NONCOMPETE. As further consideration of the agreements set
forth herein and sale by Sellers of the Shares, at the Closing, each Seller
shall enter into a noncompetition agreement with Purchaser in the form of
EXHIBIT E hereto (collectively, the "NONCOMPETITION AGREEMENTS"). The
Noncompetition Agreements shall become effective as of the Closing Date and
shall continue in effect for a period of two years after the Closing Date.
Purchaser and Sellers agree that the amount of the consideration allocable to
the Noncompetition Agreements shall be $100,000.
2.6 BONUS PAYMENTS. Purchaser shall cause to be paid a total of
up to $800,000 as follows:
(a) From time to time after Closing, Purchaser shall cause to
be paid up to $600,000 to those employees and independent contractors of the
Acquired Companies set forth on EXHIBIT A-1 who are employed by the Acquired
Companies on the Closing Date, in such amounts and to the persons as specified
in writing by the Seller Representative, in each case net of any amounts
required to be withheld by law.
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<PAGE>
(b) In the event that Sellers become entitled to the
Contingent Payment pursuant to SECTION 2.3(a)(iii), Purchaser shall cause to be
paid $200,000 to those employees and independent contractors of the Acquired
Companies set forth on EXHIBIT A-1 who are employed by the Acquired Companies on
the date Sellers become entitled to such Contingent Payment, in such amounts and
to the persons as specified in writing by the Seller Representative, in each
case net of any amounts required to be withheld by law.
ARTICLE III.
CLOSING
3.1 CLOSING. The consummation of the purchase and sale of the
Shares (the "CLOSING") shall take place at 10:00 a.m., local time, on September
8, 1998 at the offices of Latham & Watkins, 1001 Pennsylvania Avenue, N.W.,
Suite 1300, Washington, D.C., or at such other time or place as the Seller
Representative and Purchaser may agree in writing, provided, however, that
Purchaser shall have the right to extend the Closing Date to a date not later
than September 29, 1998 by payment of the amounts set forth in Section 2.2(e)
(the day on which the Closing takes place being referred to herein as the
"CLOSING DATE").
3.2 SELLERS' CLOSING DELIVERIES. At the Closing, Sellers shall
deliver to Purchaser (i) stock certificates evidencing the Shares, duly endorsed
in blank or accompanied by a stock power duly executed in blank, and (ii) the
other documents required to be delivered by Sellers pursuant to Article IX
hereof.
3.3 PURCHASER'S CLOSING DELIVERIES. At the Closing, (i) Purchaser
shall pay to each Seller such Seller's share of the Cash Consideration minus the
Deposit, as set forth on EXHIBIT D (as provided in SECTION 2.2 hereof) and (ii)
Purchaser shall deliver to Sellers the other documents required to be delivered
by Purchaser pursuant to Article IX hereof.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and Sellers, severally but not jointly, represent
and warrant to Purchaser as follows, which representations and warranties are,
as of the date hereof, and will be, as of the Closing Date, true and correct:
4.1 ORGANIZATION. Each of the Acquired Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to conduct
the Business as it is presently being conducted and to own and lease its
properties and assets. Each of the Acquired Companies is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of its properties owned or leased or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect. Copies
of the articles of incorporation and bylaws of each of the Acquired Companies,
and all amendments thereto, heretofore delivered to Purchaser are accurate and
complete as of the date hereof. SCHEDULE 4.1 contains a true, correct and
14
<PAGE>
complete list of all jurisdictions in which each of the Acquired Companies is
qualified to do business as a foreign corporation.
4.2 SUBSIDIARIES. Except as set forth on SCHEDULE 4.2, the Company
has no direct or indirect stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, limited
liability company, joint venture or other entity. SCHEDULE 4.2 sets forth for
each Subsidiary of the Company (i) its name and jurisdiction of incorporation,
(ii) the number of shares of authorized capital stock of each class of its
capital stock, (iii) the number of issued and outstanding shares of each class
of its capital stock, the names of the holders thereof, and the number of shares
held by each such holder, and (iv) the number of shares of its capital stock
held in treasury. All of the issued and outstanding shares of capital stock of
each Subsidiary of the Company have been duly authorized and are validly issued,
fully paid, and nonassessable. The Company holds of record and owns beneficially
all of the outstanding shares of each Subsidiary of the Company, free and clear
of any restrictions on transfer (other than restrictions under the Securities
Act and state securities laws), Taxes, Encumbrances, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to sell, transfer, or otherwise dispose of any
capital stock of any of its Subsidiaries or that could require any Subsidiary of
the Company to issue, sell, or otherwise cause to become outstanding any of its
own capital stock. There are no outstanding stock appreciation, phantom stock,
profit participation, or similar rights with respect to any Subsidiary of the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any Subsidiary
of the Company. None of the Company and its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary of the Company. IIT Technology Solutions, Inc. has no assets or
liabilities and has not conducted any business since its inception.
4.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists
solely of 100 shares of Company Common Stock, of which 95 shares are issued and
outstanding. All of the issued and outstanding shares of the Company Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and are not subject to any preemptive rights. Each of the Sellers
owns of record and beneficially the number of shares of Company Common Stock as
are set forth on SCHEDULE 4.3, free and clear of all Encumbrances and such
shares of Company Common Stock constitute all of the issued and outstanding
shares of capital stock of the Company.
(b) The Company has not issued or granted any outstanding
options, warrants, rights or other securities convertible into or exchangeable
or exercisable for shares of the capital stock of the Company, any other
commitments or agreements providing for the issuance of additional shares of the
capital stock of the Company, the sale of treasury shares, or for the repurchase
or redemption of shares of the Company's
15
<PAGE>
capital stock, or any obligations arising from canceled stock. There are no
agreements of any kind which may obligate the Company to issue, purchase,
register for sale, redeem or otherwise acquire any of its securities or
interests. There are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to the Company.
(c) There are no voting trusts, stockholder agreements,
proxies or other agreements in effect with respect to the voting or transfer of
the Shares.
4.4 AUTHORIZATION.
(a) The Company has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary Agreements to which it is a party, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Ancillary Agreements by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby have been duly
approved by the board of directors of the Company. No other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Ancillary Agreements and the transactions contemplated hereby and
thereby.
(b) This Agreement has been duly executed and delivered by the
Company and each of Sellers and is, and upon execution and delivery of the
Ancillary Agreements each such Ancillary Agreement will be, legal, valid and
binding obligations of the Company and each of Sellers enforceable against them
in accordance with its terms.
4.5 NO CONFLICT OR VIOLATION. Except as would not have a Material
Adverse Effect, neither the execution, delivery or performance of this Agreement
and the Ancillary Agreements nor the consummation of the transactions
contemplated hereby, nor compliance by each of the Acquired Companies or any of
Sellers with any of the provisions hereof, does or will violate any provision
of, or result in the breach of, any applicable law, rule or regulation of any
Governmental Authority, the articles of incorporation or bylaws of each of the
Acquired Companies, or any contract, agreement, indenture or other instrument to
which any of the Sellers or each of the Acquired Companies is a party or by
which any of the Sellers or each of the Acquired Companies may be bound, or of
any order, judgment or decree applicable to any of them, or terminate or result
in the termination of any such agreement, indenture or instrument, or result in
the creation of any lien, charge or Encumbrance upon any of the properties or
assets of each of the Acquired Companies, constitute any event which, after
notice or lapse of time or both, would result in any such violation, breach,
acceleration, termination or creation of a lien or result in a violation or
revocation of any required license, permit or approval from any Governmental
Authority or other third party.
4.6 FINANCIAL STATEMENTS. Attached as SCHEDULE 4.6 hereto are (i)
the audited balance sheets of IIT, Inc. and the unaudited balance sheets of
International Information Technology IIT, C.A. ("IIT, C.A.") as of December 31,
1997 and the related audited statements
16
<PAGE>
of earnings, shareholders equity and cash flows of IIT, Inc. and the unaudited
statements of earnings, shareholders equity and cash flows of IIT, C.A. for each
of the twelve-month periods then ended, together, in the case of IIT, Inc., with
the independent auditor's report thereon and (ii) the unaudited balance sheet of
each of IIT, Inc. and IIT, C.A. as of July 31, 1998 and the related unaudited
statements of earnings, shareholders' equity and cash flows of IIT, Inc. and
IIT, C.A. for the seven month period then ended (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements (including the notes thereto) were
prepared in accordance with GAAP, consistently applied throughout the periods
indicated, and present fairly and accurately the financial condition and results
of operation of each of IIT, Inc. and IIT, C.A. as of and for the periods
indicated; PROVIDED, HOWEVER, that the unaudited Financial Statements as of and
for the periods ending July 31, 1998 are subject to normal year-end adjustments
(which will not be material) and lack footnotes and other presentation items.
The audited financial statements of IIT, C.A. to be delivered pursuant to
SECTION 9.2(o) will be identical to the unaudited financial statements of IIT,
C.A. as of and for the period ended December 31, 1997 set forth on SCHEDULE 4.6,
except for the deletion of any qualifications and changes resulting therefrom.
4.7 BOOKS AND RECORDS. The Company has made and kept (and given
Purchaser access to) Books and Records and accounts, which, in reasonable
detail, accurately and fairly reflect the activities of each of the Acquired
Companies. The minute books of each of the Acquired Companies previously
delivered to Purchaser accurately and adequately reflect all action previously
taken by the shareholders, board of directors and committees of the board of
directors of each of the Acquired Companies. The copies of the stock book
records of each of the Acquired Companies previously delivered to Purchaser are
true, correct and complete, and accurately reflect all transactions effected in
each of the Acquired Companies' capital stock through and including the date
hereof. The Company has not engaged in any transaction, maintained any bank
account or used any corporate funds except for transactions, bank accounts and
funds which have been and are reflected in the normally maintained Books and
Records of each of the Acquired Companies.
4.8 PROJECTIONS. The Company has delivered to Purchaser projected
income statements, balance sheets and statements of cash flow of the Company for
the 1998 fiscal year (the "PROJECTIONS"), which are attached as SCHEDULE 4.8
hereto. The Projections were prepared by the officers of the Company in good
faith, are based upon the historical performance of the Company and a growth
forecast believed to be reasonable as of the date such projections were made, as
of the date hereof and as of the Closing Date, not taking into account the
effect of the transactions contemplated hereby.
4.9 UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE 4.9,
each of the Acquired Companies has no material Liabilities except for
liabilities and obligations (a) reflected or reserved for on the Interim Balance
Sheet or (b) that have arisen since the date of the Interim Balance Sheet in the
ordinary course of the operation of the business and consistent with past
practice of the Company (all of which are liabilities similar in type to those
reflected on the Interim Balance Sheet).
17
<PAGE>
4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Interim
Balance Sheet Date, except as disclosed on SCHEDULE 4.10, there has not been
any:
(a) as of the date hereof, material adverse change in the
business, operations, condition (financial or otherwise), assets or liabilities
of each of the Acquired Companies;
(b) (i) except for normal periodic increases in the ordinary
course of business consistent with past practice, increase in the compensation
payable or to become payable by each of the Acquired Companies to any of its
officers, employees or agents (collectively, "PERSONNEL"), (ii) bonus, incentive
compensation, service award or other like benefit granted, made or accrued,
contingently or otherwise, for or to the credit of any of the Personnel, (iii)
employee welfare, pension, retirement, profit-sharing or similar payment or
arrangement made or agreed to by each of the Acquired Companies for any
Personnel except pursuant to the existing plans and arrangements described in
the Disclosure SCHEDULES hereto, or (iv) new employment agreement to which each
of the Acquired Companies is a party;
(c) addition to or modification of the employee benefit plans,
arrangements or practices affecting Personnel other than (i) contributions made
for 1998 in accordance with the normal practices of the Company or (ii) the
extension of coverage to other Personnel who became eligible after the Interim
Balance Sheet Date;
(d) sale, assignment or transfer of any material assets of
each of the Acquired Companies other than in the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights
of substantial value to each of the Acquired Companies, whether or not in the
ordinary course of business;
(f) amendment, cancellation or termination of any Contract,
license or other instrument material to any of the Acquired Companies;
(g) capital expenditure or commitments for capital
expenditures or the execution of any lease by any of the Acquired Companies,
involving payments in excess of Fifty Thousand Dollars ($50,000) in the
aggregate;
(h) failure to operate the business of any of the Acquired
Companies in the ordinary course so as to use reasonable efforts to preserve the
Business intact, to keep available the services of the Personnel, and to
preserve the goodwill of each of the Acquired Companies' suppliers, customers
and others having business relations with any of the Acquired Companies;
(i) change in accounting methods or practices by any of the
Acquired Companies;
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(j) revaluation by any of the Acquired Companies of any of its
respective assets, including without limitation, writing off notes, inventory or
accounts receivable;
(k) damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of any of the Acquired
Companies; or
(l) indebtedness incurred by any of the Acquired Companies for
borrowed money or commitment to borrow money entered into by any of the Acquired
Companies, or any loans made or agreed to be made by any of the Acquired
Companies.
4.11 CONTRACTS; NO DEFAULTS.
(a) SCHEDULE 4.11 contains a listing of all Contracts
described in (i) through (xv) below to which any of the Acquired Companies is a
party as of the date hereof. Such listing identifies, among other things, the
parties to and the expiration date of the contracts. True, correct and complete
copies of contracts (or a summary thereof, if oral) referred to in clauses (i)
through (xv) below have been delivered to or made available to Purchaser and its
agents and representatives.
(i) Each Contract which involves performance of
services or delivery of goods and/or materials, by or to any of the Acquired
Companies of an amount or value in excess of $50,000;
(ii) Each note, debenture, other evidence of
indebtedness, guarantee, loan, letter of credit, surety-bond or financing
agreement or instrument or other contract for money borrowed, including any
agreement or commitment for future loans, credit or financing;
(iii) Each Contract not in the ordinary course of
business;
(iv) Each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other Contract
affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property constituting fixed assets;
(v) Each material licensing agreement or other
Contract with respect to patents, trademarks, copyrights, or other intellectual
property, including agreements with current or former employees, consultants or
contractors regarding the appropriation or the nondisclosure of Intellectual
Property;
(vi) Each Contract to which any employee of any
of the Acquired Companies is bound which in any manner purports to (A) restrict
such Person's freedom to engage in any line of business or to compete with any
other Person, or (B) assign to any other Person its rights to any material
invention, improvement, or discovery;
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(vii) Each employment agreement, collective
bargaining agreement or other Contract to or with any employee or any labor
union or other employee representative of a group of employees relating to
wages, hours, and other conditions of employment;
(viii) Each joint venture Contract, partnership
agreement, limited liability company agreement or other Contract (however named)
involving a sharing of profits, losses, costs, or liabilities by any of the
Acquired Companies with any other Person;
(ix) Each Contract containing covenants which in
any way purport to restrict any of the Acquired Companies' business activity or
purport to limit the freedom of any of the Acquired Companies to engage in any
line of business or to compete with any Person;
(x) Each Contract providing for payments to or
by any Person or entity based on sales, purchases or profits, other than direct
payments for goods;
(xi) Each power of attorney granted by any of the
Acquired Companies which is currently effective and outstanding;
(xii) Each Contract under which any of the Acquired
Companies is obligated to incur capital expenditures after the date hereof in an
aggregate amount in excess of Fifty Thousand Dollars ($50,000);
(xiii) Each written warranty, guaranty or other
similar undertaking with respect to contractual performance extended by any of
the Acquired Companies;
(xiv) Each amendment, supplement, and modification
(whether written or oral) in respect of any of the foregoing.
(b) Except as set forth on SCHEDULE 4.11, all of the Contracts
listed pursuant to paragraph (a) hereof (i) are in full force and effect, (ii)
represent the legal, valid and binding obligations of each of the Acquired
Companies and are enforceable against each of the Acquired Companies in
accordance with their terms and (iii) represent the legal, valid and binding
obligations of the other parties thereto and are enforceable against such
parties in accordance with their terms, except as may be limited by bankruptcy
laws. No condition exists or event has occurred which, with notice or lapse of
time or both, would constitute a default or a basis for force majeure or the
claim of excusable delay or nonperformance under such Contracts.
(c) Except as set forth on SCHEDULE 4.11, there are no
renegotiations of, or attempts to renegotiate, or outstanding rights to
renegotiate, any material amounts paid or payable to any of the Acquired
Companies under current or completed Contracts, with any Person having the
contractual or statutory right to require such renegotiation. Neither
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Sellers, nor any of the Acquired Companies, has received any written demand for
such renegotiation in respect of any such Contract. Except as set forth on
SCHEDULE 4.11, no customer or government contracting officer has asserted that
any material adjustments are required to the terms of any Contracts.
(d) Except as specifically noted on SCHEDULE 4.11, no consent
of any party to any such Contract is required in connection with the
Transactions.
(e) Except as set forth on SCHEDULE 4.11, to the knowledge of
Sellers and the Company, neither Sellers, nor any of the Acquired Companies, has
committed any act or omission which would result in, and there has been no
occurrence which would give rise to, any material product liability or material
liability for breach of warranty on the part of any of the Acquired Companies.
4.12 GOVERNMENT CONTRACTS; BACKLOG.
(a) There is no suit or investigation pending or, to the best
knowledge of any of the Acquired Companies, threatened against any of the
Acquired Companies asserting or alleging the commission of criminal acts or
bribery by any of the Acquired Companies with respect to any Contract between
the Acquired Companies and any Governmental Authority including the United
States Government or any department or agency thereof (a "GOVERNMENT CONTRACT").
None of the Acquired Companies has ever been debarred or suspended from
participation in the award of contracts with any Governmental Authority (it
being understood that debarment and suspension does not include ineligibility to
bid for certain contracts due to generally applicable bidding requirements).
Each of the Acquired Companies is, and at all times has been, in compliance in
all material respects with all applicable laws, rules and regulations relating
to any Government Contract and none of the Acquired Companies has ever received
written notice of any kind from any Governmental Authority alleging any
violation, or notifying any of the Acquired Companies of any investigation of a
possible violation, of any applicable law, rule, or regulation by the Acquired
Companies or any act for which the Acquired Companies could be debarred or
suspended from contracting with any Governmental Authority, or prohibiting or
seeking to prohibit the Acquired Companies from conducting, or restricting or
seeking to restrict the Acquired Companies' ability to conduct, all or any part
of its business or operations or from contracting with any Governmental
Authority. No payment has been made by the Acquired Companies, or, to the best
knowledge of the Acquired Companies, by any Person acting on its behalf, to any
Person in connection with any Government Contract in violation of applicable
procurement laws or regulations or in violation of (or requiring disclosure
pursuant to) the Foreign Corrupt Practices Act.
(b) With respect to each Government Contract (i) each of the
Acquired Companies has complied with all material terms and conditions of such
Government Contract, including all clauses, provisions and requirements
incorporated expressly, by reference or by operation of law therein; (ii) each
of the Acquired Companies has
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complied with all material requirements of applicable laws pertaining to such
Government Contract; (iii) all representations and certifications executed,
acknowledged or set forth in or pertaining to such Government Contract were
complete and correct in all material respects as of their effective date, and
each of the Acquired Companies has complied in all material respects with all
such representations and certifications; and (iv) no termination for
convenience, termination for default, cure notice or show cause notice is in
effect as of the date hereof pertaining to any Government Contract.
(c) SCHEDULE 4.12 identifies each of the Acquired Companies'
current Government Contracts.
4.13 TANGIBLE ASSETS. Each of the Acquired Companies owns or leases
all buildings, machinery, equipment, and other tangible assets necessary for the
conduct of its businesses as presently conducted. Such tangible assets, in the
aggregate, are free from material defects (patent and latent), have been
maintained in accordance with normal industry practice, are in good operating
condition and repair (subject to normal wear and tear), and are suitable for the
purposes for which they presently are used.
4.14 INTELLECTUAL PROPERTY.
(a) Each of the Acquired Companies owns or has the right to
use pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the businesses of the Acquired Companies
as presently conducted. Each item of Intellectual Property owned or used by the
Acquired Companies immediately prior to the Closing hereunder will be owned or,
subject to the receipt of any consents identified in SCHEDULE 4.11, available
for use by the Acquired Companies on identical terms and conditions immediately
subsequent to the Closing hereunder. Each of the Acquired Companies has taken
all action reasonably necessary to maintain and protect each item of
Intellectual Property that it owns or uses.
(b) None of the Acquired Companies has interfered with,
infringed upon, misappropriated, or otherwise come into conflict in any material
respects with any Intellectual Property rights of third parties, and none of the
Sellers and the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Acquired Companies has ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Acquired Companies must license or refrain from using any Intellectual Property
rights of any third party). To the knowledge of the Acquired Companies, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Acquired Companies.
(c) SCHEDULE 4.14(c) identifies each patent or registration
which has been issued to each of the Acquired Companies with respect to any of
its Intellectual Property, identifies each pending patent application or
application for registration which each of the Acquired Companies has made with
respect to any of its Intellectual Property,
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and identifies each license, agreement, or other permission which each of the
Acquired Companies has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). Each of the Acquired
Companies has delivered to Purchaser correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and permissions (as
amended to date) and have made available to Purchaser correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. SCHEDULE 4.14(c) also identifies each trade
name or unregistered trademark used by each of the Acquired Companies in
connection with any of its businesses. With respect to each item of Intellectual
Property required to be identified in SCHEDULE 4.14(c):
(i) each of the Acquired Companies possess all
right, title, and interest in and to the item, free and clear of any
Encumbrance, license, or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of the Sellers and the directors and officers of each of the Acquired
Companies, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) none of the Acquired Companies has ever
agreed to indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(d) SCHEDULE 4.14(d) identifies each item of Intellectual
Property that any third party owns and that each of the Acquired Companies uses
pursuant to license, sublicense, agreement, or permission, except for
commercially available desktop applications. The Sellers have delivered to
Purchaser correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in SCHEDULE 4.14(d):
(i) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
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(iv) no party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(v) with respect to each sublicense, to the
knowledge of each of the Acquired Companies the representations and warranties
set forth in subsections (i) through (iv) above are true and correct with
respect to the underlying license;
(vi) the underlying item of Intellectual Property
is not subject to any outstanding injunction, judgment, order, decree, ruling,
or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
knowledge of each of the Acquired Companies, is threatened which challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property; and
(viii) none of the Acquired Companies has granted any
sublicense or similar right with respect to the license, sublicense, agreement,
or permission.
(e) To the knowledge of the Acquired Companies, none of the
Acquired Companies will interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of the Business as presently
conducted;
4.15 REAL PROPERTY.
(a) SCHEDULE 4.15 lists and describes all real property
(together with all improvements thereon, the "REAL PROPERTY") now used, operated
or occupied by the Acquired Companies and the name of the record owner thereof.
For each parcel of Real Property listed on SCHEDULE 4.15, which is owned by the
Acquired Companies, each of the Acquired Companies holds good and marketable fee
simple title to such Real Property free and clear of any Encumbrances except for
Permitted Encumbrances. For each parcel of Real Property listed on SCHEDULE
4.15, which is not owned by the Acquired Companies, the Company has made
available to Purchaser true and correct copies of the Real Property lease or
sublease (each a "REAL PROPERTY LEASE") with respect to such Real Property. Each
Real Property Lease is legal, valid, binding, enforceable, and in full force and
effect and none of the Acquired Companies has assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold. Each of the Acquired Companies enjoys peaceful and undisturbed
possession of all Real Property, and each of the Acquired Companies has
fulfilled in all material respects all the obligations required to be performed
by it through the date hereof with respect to each Real Property Lease.
(b) Each of the Acquired Companies has received all required
material approvals of Governmental Authorities (including Permits and material
certificates of occupancy or other similar certificates permitting lawful
occupancy of the Real Property)
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required in connection with the present use of the Real Property and all the
Improvements thereon.
(c) All the Real Property are supplied with utilities and
other services necessary for the operation of such facilities as currently
operated.
(d) All Improvements, and all Fixtures and Equipment and other
tangible assets owned, leased, or used by the Acquired Companies on the Real
Property are in good condition and repair in all material respects, and such
Improvements and Fixtures are free from structural defects.
(e) None of the Acquired Companies has received notice of any
special assessment relating to any Real Property or any portion thereof, and
none of the Acquired Companies has knowledge of any pending or threatened
special assessment.
(f) There is not now pending, or to the knowledge of the
Company, threatened, any eminent domain or condemnation proceeding affecting the
Real Property or any portion thereof.
4.16 LITIGATION AND PROCEEDINGS. There are no lawsuits, actions,
suits, claims or other proceedings at law or in equity (including, without
limitation, investigations by any Government Authority involving any Government
Contract wherein a claim for improper charges was made), or before or by any
court or Governmental Authority or before any arbitrator pending or, to the
knowledge of the Company, threatened, against the Acquired Companies. There is
no unsatisfied judgment, order, injunction or decree binding upon the Acquired
Companies.
4.17 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. The following terms, when used in this
SECTION 4.17, shall have the following meanings. Any of these terms may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference.
(i) "BENEFIT ARRANGEMENT" shall mean any
employment, consulting, severance or other similar contract, arrangement or
policy and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including without limitation any
self-insured arrangements), workers' compensation, disability benefits, fringe
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health, disability or accident benefits (including without
limitation any "voluntary employees' beneficiary association" as defined in
SECTION 501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options, restricted stock,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Acquired Companies, and (C) covers any
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employee or former employee of the Acquired Companies (with respect to their
relationship with the Acquired Companies).
(ii) "EMPLOYEE PLANS" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
(iii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
(iv) "ERISA AFFILIATE" shall mean any entity
which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, a member of an "affiliated
service group" with, or otherwise required to be aggregated with, the Acquired
Companies as set forth in SECTION 414(b), (c), (m) or (o) of the Code.
(v) "MULTIEMPLOYER PLAN" shall mean any
"multiemployer plan," as defined in SECTION 4001(a)(3) of ERISA, (A) which the
Acquired Companies or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to and (B) which covers any employee or former
employee of the Acquired Companies or any ERISA Affiliate (with respect to their
relationship with such entities).
(vi) "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
(vii) "PENSION PLAN" shall mean any "employee pension
benefit plan" as defined in SECTION 3(2) of ERISA (other than a Multiemployer
Plan) (A) which the Acquired Companies or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to and (B) which covers
any employee or former employee of the Acquired Companies or any ERISA Affiliate
(with respect to their relationship with such entities).
(viii) "WELFARE PLAN" shall mean any "EMPLOYEE
WELFARE BENEFIT PLAN" as defined in SECTION 3(1) of ERISA, (A) which the
Acquired Companies or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to, and (B) which covers any employee or former
employee of the Acquired Companies or any ERISA Affiliate (with respect to their
relationship with such entities).
(b) DISCLOSURE; DELIVERY OF COPIES OF RELEVANT DOCUMENTS AND
OTHER INFORMATION. SCHEDULE 4.17 contains a complete list of Employee Plans.
(c) REPRESENTATIONS. Except as set forth in SCHEDULE 4.17:
(i) PENSION PLANS.
(A) No Pension Plan is subject to Code ss.
412 or ERISA ss. 302.
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(B) Neither the Acquired Companies nor
any ERISA Affiliate is required to provide security to a Pension Plan under
SECTION 401(a)(29) of the Code.
(C) Each Pension Plan that is intended to be
qualified under Code ss. 401(a) or Code ss. 403(a) and each related trust
agreement, annuity contract or other funding instrument has been determined by
the Internal Revenue Service to be qualified and tax-exempt under the provisions
of Code SECTIONs 401(a) and 501(a).
(D) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument is in material
compliance with its terms and, both as to form and in operation, with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such plans, including without limitation ERISA and the
Code.
(E) No Pension Plan is subject to Title IV
of ERISA.
(ii) MULTIEMPLOYER PLANS. There are no
Multiemployer Plans, and neither the Acquired Companies nor any ERISA Affiliate
has ever maintained, contributed to, participated or agreed to participate in a
Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan which covers or
has covered employees or former employees of the Acquired Companies (with
respect to their relationship with the Acquired Companies) is in material
compliance with its terms and, both as to form and operation, with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, including without limitation ERISA
and the Code.
(B) Neither the Acquired Companies nor
any ERISA Affiliate of the Acquired Companies has any current or projected
liability for any unfunded post-retirement medical or life insurance benefits in
connection with any Employee of the Acquired Companies or ERISA Affiliate of the
Acquired Companies.
(C) Each Welfare Plan which is a "group
health plan," as defined in SECTION 607(1) of ERISA, has been operated in
material compliance with the provisions of Part 6 of Title I, Subtitle B of
ERISA and SECTION 4980B of the Code at all times.
(iv) BENEFIT ARRANGEMENTS. Each Benefit
Arrangement is in material compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement, including without limitation the Code.
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(v) FIDUCIARY DUTIES AND PROHIBITED
TRANSACTIONS. Neither of the Acquired Companies has any liability with respect
to any transaction in violation of SECTIONs 404 or 406 of ERISA or any
"prohibited transaction," as defined in SECTION 4975(c)(1) of the Code, for
which no exemption exists under SECTION 408 of ERISA or SECTION 4975(c)(2) or
(d) of the Code with respect to any Welfare Plan or Pension Plan. Neither of the
Acquired Companies has participated in a violation of Part 4 of Title I,
Subtitle B of ERISA by any plan fiduciary of any Welfare Plan or Pension Plan or
has any unpaid civil penalty under SECTION 502(l) of ERISA.
(vi) LITIGATION. There is no material action,
order, writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, arbitral action, governmental audit or investigation
relating to or seeking benefits under any Employee Plan that is pending,
threatened or anticipated against the Acquired Companies or any ERISA Affiliate
other than routine claims for benefits.
(vii) UNPAID CONTRIBUTIONS. Neither the Acquired
Companies nor any ERISA Affiliate has any liability for unpaid contributions
with respect to any Pension Plan, Multiemployer Plan or Welfare Plan. Each of
the Acquired Companies or an ERISA Affiliate has made all required contributions
under each Employee Plan for all periods through and including the Closing Date
or proper accruals have been made and are reflected on the appropriate balance
sheet and books and records.
(viii) The Company has delivered pursuant to this
Agreement a true and complete set of copies of (a) all Employee Plans and
related trust agreements, annuity contracts or other funding instruments as in
effect immediately prior to the Closing Date, together with all amendments
thereto which shall become effective at a later date; (b) the latest Internal
Revenue Service determination letter obtained with respect to any such Employee
Plan qualified or exempt under SECTION 401 or 501 of the Code; (c) Forms 5500
and certified financial statements for the most recently completed three fiscal
years for each Employee Plan required to file such form, together with the most
recent actuarial report, if any, prepared by the Employee Plan's enrolled
actuary; (d) all summary plan descriptions for each Employee Plan required to
prepare, file and distribute summary plan descriptions; (e) all summaries
furnished employees, officers and directors of the Acquired Companies of all
incentive compensation, other plans and fringe benefits for which a summary plan
description is not required; (f) current registration statements on Form S-8 and
amendments thereto with respect to any Employee Plan; and (g) the notifications
to employees of their rights under SECTION 4980B of the Code.
(ix) No payment made to any Person who
constitutes a "disqualified individual" within the meaning of SECTION 280G(c) of
the Code with respect to the Acquired Companies ("RECIPIENTS") pursuant to any
employment contract, severance agreement or other arrangement to which either of
the Acquired Companies is a party ("GOLDEN PARACHUTE PAYMENT"), other than any
payment made or to be made under any of the Employment Agreements, will be
nondeductible to the Acquired Companies
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because of the applicability of SECTION 280G of the Code to the Golden Parachute
Payment, nor will the Acquired Companies be required to "gross up" or otherwise
compensate any Recipient because of the imposition of any excise tax (including
any interest or penalties related thereto) on the Recipient because of the
applicability of SECTIONs 280G and 4999 of the Code.
4.18 LABOR RELATIONS. The persons listed on EXHIBIT A-1 are all of
the employees of the Acquired Companies and all of the independent contractors
of IIT, C.A. as of the date of this Agreement. The persons listed on EXHIBIT A-2
are all of the independent contractors engaged by IIT, Inc. to provide software
consulting or implementation services as of the date of this Agreement. None of
the Acquired Companies is a party to any collective bargaining agreement. The
Contracts listed on SCHEDULE 4.11 also include all written employment or
severance agreements to which any of the Acquired Companies is a party with
respect to any employee or former employee and which may not be terminated at
will, or by giving notice of 30 days or less, without cost or penalty including,
without limitation, any severance payment. The Company has delivered or made
available to Purchaser true, correct and complete copies of each such Contract,
as amended to date. None of the Acquired Companies, nor to the knowledge of the
Company, the other party or parties thereto, is in breach of any term of any
such Contract. Neither of the Acquired Companies has engaged in any unfair labor
practice and there are no complaints against any of the Acquired Companies
pending before the National Labor Relations Board or any similar state or local
labor agency by or on behalf of any employee of the Acquired Companies. There
are no representation questions, arbitration proceedings, labor strikes, slow
downs or stoppages, grievances or other labor disputes pending or, to the
knowledge of the Company, threatened with respect to the employees of the
Acquired Companies, and none of the Acquired Companies has experienced any
attempt by organized labor to cause any of the Acquired Companies to comply or
conform to demands of organized labor relating to its employees. Except as
listed on SCHEDULE 4.11, none of the Acquired Companies has entered into any
severance or similar arrangement in respect of any present employee of the
Acquired Companies that will result in any obligation (absolute or contingent)
of the Acquired Companies to make any payment to any present employee of the
Acquired Companies following termination of employment. Each of the Acquired
Companies has complied in all material respects with all laws, rules and
regulations relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and health
and plant closings (hereinafter collectively referred to as the "EMPLOYMENT
LAWS"). None of the Acquired Companies is liable for the payment of taxes,
fines, penalties or other amounts, however designated, for failure to comply
with any of the foregoing Employment Laws.
4.19 LEGAL COMPLIANCE. Each of the Acquired Companies is, and at
all times has been, in compliance in all material respects with all laws
(including rules and regulations thereunder) of federal, state, and local
governments (and all agencies thereof) applicable thereto.
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4.20 ENVIRONMENTAL PROTECTION.
(a) Each of the Acquired Companies is, and at all times has
been, in compliance in all material respects with all Environmental Laws.
(b) There are no existing or threatened Environmental Claims
against the Acquired Companies, nor have the Acquired Companies received any
notification of any allegation of any actual, or potential responsibility for,
or any inquiry or investigation regarding, any disposal, release, or threatened
release at any location of any Hazardous Materials generated or transported by
the Acquired Companies.
(c) To the knowledge of the Company, (i) no underground tank
or other underground storage receptacle for Hazardous Materials is currently
located on the Real Property and there have been no releases of any Hazardous
Materials from any such underground tank or related piping; and (ii) there have
been no releases (i.e., any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping) by the Acquired Companies of Hazardous
Materials on, upon, or into the Real Property. In addition, there have been no
such releases by the Acquired Companies' corporate predecessors and no releases
on, upon, or into any Real Property in the vicinity of any of the Real Property
which, through soil or ground water contamination, has come to be located on any
of the Real Property.
(d) There are no consent decrees, consent orders, judgments,
judicial or administrative orders, agreements with, or liens by, any
Governmental Authority or quasi-governmental entity relating to any
Environmental Law which regulate, obligate, or bind the Acquired Companies.
(e) There are no written environmental reports, audits and
assessments on any of the Real Property which have been conducted, by the
Acquired Companies or any Person engaged by the Acquired Companies for such
purpose, at any facility owned or formerly owned by the Acquired Companies.
True, complete and correct copies of such reports have been delivered to
Purchaser.
(f) Neither the Acquired Companies nor any of the Sellers have
released any other Person from any claim under any Environmental Law or waived
any rights concerning any Environmental Condition.
(g) Each of the Acquired Companies has given all material
notices and warnings, made all material reports, and has kept and maintained all
material records required by, and in compliance in all material respects with,
all Environmental Laws.
4.21 TAXES.
(a) Except as otherwise disclosed in SCHEDULE 4.21:
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(i) Each of the Acquired Companies has timely
filed, or been included in, all Tax Returns required to be filed through the
date hereof and will timely file any such Tax Returns required to be filed on or
prior to the Closing Date, in each case, subject to any applicable extensions.
All such Tax Returns are complete and accurate in all material respects.
(ii) All Taxes that accrue or are payable by the
Acquired Companies (i) in respect of taxable periods that end on or before the
Closing Date and (ii) for any taxable period that begins before the Closing Date
and ends thereafter, to the extent such Taxes are attributable to the portion of
such period ending on the Closing Date under the terms of SECTION 13.6, have or
will have been timely paid on or before the Closing Date unless a reserve for
such amount has been or will be established therefor in the Final Balance Sheet
(other than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income).
(iii) The Company has not requested any extension of
time within which to file any Tax Return which is currently pending or has been
granted and is in effect and the Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency;
(iv) There are no pending, or to the best of each
Seller's knowledge, proposed or threatened (whether orally or in writing),
audits, investigations or claims for or relating to any Taxes of the Acquired
Companies, except to the extent that adequate liabilities or reserves with
respect thereto are accrued on the Final Balance Sheet in accordance with GAAP
or (i) such deficiency or claim is being contested in good faith by appropriate
proceedings, (ii) no such accrual is required by GAAP and (iii) the nature and
amount of the disputed Tax is set forth on SCHEDULE 4.21;
(v) No claim has ever been made by an authority
in a jurisdiction where any of the Acquired Companies does not file Tax Returns
that any of the Acquired Companies is or may be subject to taxation by that
jurisdiction;
(vi) None of the Acquired Companies has filed a
consent under Code Section 341(f) concerning collapsible corporations;
(vii) None of the Acquired Companies is a party to,
or is bound by, or has any obligation under any Tax allocation or sharing
agreement (including indemnity arrangements), and, after the Closing Date, none
of the Acquired Companies shall be a party to, bound by or have any obliteration
under any Tax allocation or sharing agreement or have any liability thereunder
for amounts due in respect of periods prior to the Closing Date;
(viii) None of the Acquired Companies (i) has been a
member of any affiliated group filing a consolidated federal income Tax Return
(other than a group
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the common parent of which is the Company) and (ii) has any liability for the
Taxes of any other person as defined in Section 7701(a)(1) of the Code under
Treas. Reg. ss. 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise;
(ix) None of the assets of the Acquired Companies
(x) are required to be treated as being owned by any other person pursuant to
the so-called safe harbor lease provisions of former Section 168(f)(8) of the
Code, (y) secures any debt the interest on which is tax-exempt under Code
Section 103(a), or (z) is tax-exempt use property within the meaning of Code
Section 168(h);
(x) None of the Acquired Companies has agreed to
or is required to make any adjustment pursuant to Code Section 481(a) by reason
of a change in accounting method initiated by the Acquired Companies and none of
the Sellers have knowledge that the IRS has proposed any such adjustment or
change in accounting method;
(xi) Except for any withholding with respect to
the bonus payments pursuant to Section 2.6, the Non-Competition Agreements and
the Employment Agreements, the transactions contemplated herein are not subject
to the Tax withholding provisions of Section 3406 of the Code, or of Subchapter
A of Chapter 3 of the Code or any other provision of law;
(xii) There are no Encumbrances related to Taxes on
any of the assets of the Acquired Companies (other than for current Taxes not
yet due and payable); and
(xiii) The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Code Section 897(c)(1)(A)(ii).
(b) SCHEDULE 4.21 lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Acquired Companies since their
inception, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. Correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Acquired Companies for periods
since their inception have been delivered to Purchaser.
4.22 GOVERNMENTAL AUTHORITIES: CONSENTS. Assuming the truth and
completeness of the representations and warranties of Purchaser contained in
this Agreement, no consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority or other third party is
required on the part of the Acquired Companies with respect to the Company's
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (a) any novations or consents required in
connection with Government Contracts or subcontracts thereunder, and (b) any
consents required in connection with the Contracts ("Contract Consents").
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4.23 LICENSES, PERMITS AND AUTHORIZATIONS. SCHEDULE 4.23 contains a
list of all material Permits (including without limitation, all facility
security clearances) of or with any governmental regulatory or administrative
authority, whether foreign, federal, state or local, which are held by the
Acquired Companies. All such Permits are in full force and effect and there are
no proceedings pending or to the best knowledge of the Company, threatened that
seek the revocation, cancellation, suspension or material adverse modification
thereof. Such Permits constitute all of the Permits necessary to permit the
Acquired Companies to own, operate, use and maintain their assets in the manner
in which they are now operated and maintained and to conduct the Business as
currently conducted. All required filings with respect to such Permits have been
timely made and all required applications for renewal thereof have been timely
filed.
4.24 INSURANCE.
(a) SCHEDULE 4.24 contains an accurate and complete
description of all policies of property, fire and casualty, product liability,
workers' compensation, errors and omissions and other forms of insurance held by
the Acquired Companies ("INSURANCE POLICIES"). True, correct and complete copies
of such insurance policies have been made available to Purchaser.
(b) All policies listed on SCHEDULE 4.24 (i) are valid,
outstanding, and enforceable policies, (ii) provide coverage for the assets and
the operations of the Acquired Companies for all material risks normally insured
against by a Person or entity carrying on the same business or businesses as the
Acquired Companies, and (iii) will not terminate, or lapse by reason of, the
transactions contemplated by this Agreement.
(c) None of the Acquired Companies has received (i) any notice
of cancellation of any policy described in paragraph (a) hereof or refusal of
coverage thereunder, (ii) any notice that any issuer of such policy has filed
for protection under applicable bankruptcy laws or is otherwise in the process
of liquidating or has been liquidated, or (iii) any other notice that such
policies are no longer in full force or effect or that the issuer of any such
policy is no longer willing or able to perform its obligations thereunder.
4.25 BROKERS' FEES. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finders' fee or other commission for
which Purchaser or the Acquired Companies could become liable in connection with
the transactions contemplated by this Agreement based upon arrangements made by
Sellers, the Acquired Companies or any of their respective Affiliates.
4.26 NO OTHER AGREEMENTS TO SELL THE SHARES. None of the Sellers is
subject to any commitment or legal obligation, absolute or contingent, to any
Person other than Purchaser to sell, assign, transfer or effect a sale of any of
the capital stock of the Company, to effect any merger, consolidation,
liquidation, dissolution or other reorganization of the Company, or to enter
into any agreement or cause the entering into of an agreement with respect to
any of the foregoing.
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4.27 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth on
SCHEDULE 4.27, no officer, director or employee of the Acquired Companies or any
Seller nor any member of any such person's immediate family is presently, or
within the past year has been, a party to any transaction with the Acquired
Companies, including without limitation, any contract, agreement or other
arrangement (a) providing for the furnishing of services by, (b) providing for
the rental of real or personal property from, or (c) otherwise requiring
payments to (other than for services as officers, directors or employees of the
Acquired Companies ) any such person or corporation, partnership, trust or other
entity in which any such Person has an interest as a shareholder, officer,
director, trustee or partner. Furthermore, except as set forth on SCHEDULE 4.27,
the Acquired Companies have no liability or obligation to make any payment on
behalf of or for the benefit of any of the Sellers, or any officer, director or
employee of the Acquired Companies or any such person's immediate family that is
not directly related to, and in furtherance of, the Business.
4.28 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.
(a) SCHEDULE 4.28 sets forth a complete and accurate list of
the names and addresses of the Acquired Companies' (a) 10 largest customers,
distributors and other agents and representatives, showing the approximate total
sales in dollars by the Acquired Companies to each such customer for the twelve
months ended December 31, 1997 and the seven months ended July 31, 1998; and (b)
suppliers with purchases greater than $500,000 on an annualized basis during the
last six months, showing the approximate total purchases in dollars by the
Company from each such supplier during each such calendar year. Since the
Interim Balance Sheet Date there has been no material adverse change in the
business relationship of the Acquired Companies with any customer, distributor
or supplier named on SCHEDULE 4.28. The Acquired Companies have not received any
written communication, and to the Company's knowledge any other communication,
from any customer, distributor or supplier named on SCHEDULE 4.28 notifying the
Acquired Companies of any intention to terminate or materially reduce purchases
from, or supplies to, the Acquired Companies or to take any other action which
could reasonably be expected to have a Material Adverse Effect.
(b) Each service provided or product manufactured, sold,
leased, or delivered, by the Acquired Companies has been in conformity with all
applicable contractual commitments and all express and implied warranties, and
all applicable industry standards, and the Acquired Companies have no Liability
(and there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Acquired
Companies giving rise to any Liability) for replacement or repair thereof or
other damages in connection with such products or services subject only to the
reserve for product warranty claims set forth on the face of the Interim Balance
Sheet (rather that in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company. No service provided or product manufactured, sold, leased, or
delivered, by the Acquired Companies is subject to any guaranty, warranty, or
other indemnity beyond the applicable standard terms and conditions of service,
sale or lease of the Company.
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SCHEDULE 4.28 includes copies of the standard terms and conditions of service or
sale for the Acquired Companies (containing applicable guaranty, warranty, and
indemnity provisions).
4.29 BANKING RELATIONSHIPS. SCHEDULE 4.29 sets forth a complete and
accurate description of all arrangements that the Acquired Companies have with
any banks, savings and loan associations or other financial institutions
providing for checking accounts, safe deposit boxes, borrowing arrangements, and
certificates of deposit or otherwise, indicating in each case account numbers,
if applicable, and the Person or Persons authorized to act or sign on behalf of
the Acquired Companies in respect of any of the foregoing.
4.30 ACCOUNTS RECEIVABLE. The amount of accounts receivable,
unbilled invoices, and other debts due or recorded in the records and books of
account of the Acquired Companies as being due to the Acquired Companies as of
the Closing Date will be, subject to the reserves reflected on the Interim
Balance Sheet and except for Accounts Receivable required to be written off due
to the insolvency of a debtor of the Acquired Companies, good and collectible in
full in the ordinary course of business and in any event not later than ninety
(90) days after the Closing Date, and to the knowledge of the Sellers and the
Company, none of such accounts receivable or other debts is subject to any
counterclaim or set-off except to the extent of any such reserve. Since the
Interim Balance Sheet Date, the Company has not made any change in its credit
policies nor has it materially deviated from its credit policies.
4.31 INVENTORY. Each item of Inventory reflected on the Financial
Statements (a) is owned by the Acquired Companies free and clear of all
Encumbrances, except for Permitted Encumbrances and purchase money liens arising
from accounts payable reflected on the Financial Statements, (b) exists in
salable condition, and (c) has a book value as reflected on the Financial
Statements of the lesser of the Acquired Companies' actual cost for such item of
Inventory and the Wholesale Price for such item of Inventory as of the date of
the Financial Statements.
4.32 YEAR 2000. The Acquired Companies have all systems and
software solutions necessary or appropriate to address and accommodate Year 2000
computer systems issues, and the Intellectual Property has been tested and is
fully capable of providing accurate results using data having date ranges
spanning the twentieth and twenty-first centuries. Without limiting the
generality of the foregoing, the Intellectual Property is able to (i) manage and
manipulate data involving all dates from the twentieth and twenty-first
centuries without functional or data abnormality related to such dates; (ii)
manage and manipulate data involving all dates from the twentieth and
twenty-first centuries without inaccurate results related to such dates; (iii)
have user interfaces and data fields formatted to distinguish between dates from
the twentieth and twenty-first centuries; and (iv) represent all data related to
include indications of the millennium, century and decade as well as the actual
year except for the failure to have or obtain such systems and software
solutions would not reasonably be expected to have in a Material Adverse Effect.
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4.33 INVESTMENT. Each of the Sellers that is receiving Warrants (i)
understands that the Warrants have not been, and will not be, registered under
the Securities Act of 1933, as amended, (the "Securities Act") or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii) is
acquiring the Warrants solely for his own account for investment purposes, and
not with a view to the distribution thereof, (iii) is a sophisticated investor
with knowledge and experience in business and financial matters, (iv) has
received certain information concerning Purchaser and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and the
risks inherent in holding the Warrants, (E) is able to bear the economic risk
and lack of liquidity inherent in holding the Warrants, and (F) is an
"Accredited Investor" as defined by Rule 501 under the Securities Act for the
reasons set forth in the Accredited Investor questionnaire previously delivered
to Purchaser by each of the Sellers.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows,
which representations and warranties are, as of the date hereof, and will be, as
of the Closing Date, true and correct:
5.1 ORGANIZATION OF PURCHASER. Purchaser 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 conduct its business as it
is presently being conducted and to own and lease its properties and assets.
Purchaser is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on its business.
5.2 AUTHORIZATION. Purchaser has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary Agreements, to consummate the Transactions and
to perform its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Ancillary Agreements by Purchaser and the consummation
by Purchaser of the Transactions have been duly approved by the board of
directors and stockholders of Purchaser. No other corporate proceedings on the
part of Purchaser are necessary to authorize this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Purchaser and is, and upon execution and
delivery of the Ancillary Agreements will be, legal, valid and binding
obligations of Purchaser enforceable against it in accordance with its terms.
5.3 NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Purchaser with any of the provisions
hereof, violates any provision of, or will result in the breach of, any
applicable law, rule or regulation of any governmental body, the certificate of
incorporation, bylaws or other organizational documents of Purchaser, or any
agreement, indenture or other instrument to which Purchaser is a party or by
which Purchaser may be bound, or of any order, judgment or decree applicable to
any of them, or terminate or result in the termination of any such
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agreement, indenture or instrument, or constitute any event which, after notice
or lapse of time or both, would result in any such violation, breach,
acceleration, termination or result in a violation or revocation of any required
license, permit or approval from any Governmental Authority or other third
party.
5.4 GOVERNMENTAL AUTHORITIES; CONSENTS. Assuming the truth and
completeness of the representations and warranties of Sellers and the Company
contained in this Agreement, no consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Authority or other
third party is required on the part of Purchaser with respect to Purchaser's
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby.
5.5 BROKERS' FEES. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finders' fee or other commission for
which Sellers could become liable in connection with the transactions
contemplated by this Agreement based upon arrangements made by Purchaser or any
of its Affiliates.
5.6 WARRANT SHARES. The Warrants have been duly authorized and
when issued in accordance with the terms of this Agreement will be validly
issued, fully paid and non-assessable and free of any liens and Encumbrances
except as set forth in the Warrant Agreement and not subject to any preemptive
rights. The shares of common stock, par value $.001 per share, of Purchaser (the
"Purchaser Common Stock") have been reserved for issuance in connection with the
exercise of the Warrants. The Purchaser Common Stock to be issued pursuant to
the Warrants shall, when issued, (i) be duly authorized, validly issued, fully
paid and non-assessable and free of liens and Encumbrances, (ii) be free and
clear of any transfer restrictions, liens and Encumbrances, except for the
restrictions on transfer in the Warrantholders' Agreement, and (iii) not be
subject to any pre-emptive rights created by statute, the certificate of
incorporation of the Purchaser or the Bylaws of the Purchaser.
5.7 CAPITALIZATION. The capital stock of Purchaser consists of
300,000,000 shares of Purchaser Common Stock and 200,000 shares of preferred
stock. Of the 300,200,000 authorized shares of capital stock of Purchaser, as of
the date hereof, (i) 15 million shares of Purchaser Common Stock are issued and
outstanding; (ii) 6,000,000 shares of Purchaser Common Stock are reserved for
issuance pursuant to Purchaser's employee stock option plan; (iii) 55,000.04
shares of Purchaser Series A Preferred Stock are issued and outstanding; and
(iv) 114,000,000 fully diluted shares of Purchaser Common Stock are outstanding,
assuming conversion of all of the outstanding shares of Purchaser Series A
Preferred Stock mentioned in subSECTION (iii) above, into 99,000,000 shares of
Purchaser Common Stock, but not including any shares authorized pursuant to the
Purchaser's employee stock option plan or otherwise. As of the Closing Date, all
outstanding shares of capital stock of Purchaser, including the shares of
Purchaser Common Stock issuable upon exercise of the Warrants (when issued in
accordance with the terms thereof), will be duly authorized and validly issued,
fully paid, nonassessable
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and free and clear of any Encumbrances other than those created by Purchaser's
certificate of incorporation, bylaws, and the Shareholders' Agreement dated May
28, 1998.
5.8 FINANCIAL STATEMENTS. Attached as SCHEDULE 5.8 hereto are the
unaudited balance sheet of the Purchaser as of June 30, 1998 and the related
unaudited statements of earnings, shareholders' equity and cash flows of the
Purchaser for the 6 month period then ended (collectively, the "PURCHASER
FINANCIAL Statements"). The Purchaser Financial Statements were prepared in
accordance with GAAP, consistently applied throughout the periods indicated, and
present fairly and accurately the financial condition and results of operation
of the Purchaser as of and for the periods indicated; PROVIDED, HOWEVER, that
the Purchaser Financial Statements are subject to normal year-end adjustments
(which will not be material) and lack footnotes and other presentation items.
5.9 PURCHASER DISCLOSURE MATERIAL. The information set forth on
SCHEDULE 5.9 (the "PURCHASER DISCLOSURE MATERIAL") (when read together), subject
to any assumptions contained therein, as of July 28, 1998 did not contain any
misstatement of a material fact or omit to state a material fact necessary to
make the statements made therein in light of the circumstances under which they
were made not misleading. Any assumptions contained in the Purchaser Disclosure
Material are, in view of management of the Purchaser, reasonable.
ARTICLE VI.
COVENANTS OF SELLERS AND THE COMPANY
6.1 CONDUCT OF BUSINESS.
(a) From the date hereof through the Closing Date, Sellers
agree that they shall, and shall cause the Company, except as otherwise
contemplated by this Agreement or as consented to by Purchaser in writing, to
operate the Business in the ordinary course and consistent with past practice
and not to take any action inconsistent with this Agreement. Without limiting
the generality of the foregoing, unless consented to by Purchaser in writing,
Sellers shall cause the Company not to, except as contemplated by this
Agreement:
(i) change or amend its articles of
incorporation, bylaws or other organizational documents;
(ii) declare or pay any dividends, or make any
distributions in respect of any shares of its capital stock or other equity
interests, or repurchase or redeem any issued and outstanding shares of its
capital stock or other equity interests;
(iii) issue or sell any shares of capital stock of
the Company or equity interest or any beneficial interest therein (including,
without limitation, any options or warrants);
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(iv) enter into, extend, materially modify,
terminate or renew any Contract of a type required to be listed on SCHEDULE 4.11
other than in the ordinary course of business;
(v) sell, assign, transfer, convey, lease or
otherwise dispose of any interest in the Real Property or any other material
asset;
(vi) except as otherwise required by law or
consistent with past practices, take any action with respect to the grant of any
severance or termination pay (other than pursuant to policies or agreements of
the Company as the case may be, in effect on the date hereof);
(vii) make any change in the management structure of
the Company, including, without limitation, the hiring of additional officers or
the terminations of existing officers;
(viii) acquire by merger or consolidation with, or
merge or consolidate with, or purchase substantially all of the assets of, or
otherwise acquire any material assets or business of any corporation,
partnership, association or other business organization or division thereof;
(ix) make any loans or advances to any Person;
(x) make any income tax election or settlement
or compromise with tax authorities which would affect the assets of the Company
or the Business after the Closing;
(xi) fail to maintain any material asset in
substantially its current state of repair, normal wear and tear excepted;
(xii) make any change in its accounting policies or
practices;
(xiii) make aggregate capital expenditures in excess
of Fifty Thousand Dollars ($50,000);
(xiv) waive, settle or release any claim or cause of
action of the Company;
(xv) declare or issue any bonus or other
payments, whether or not in the ordinary course of business, to any management
or executive employees of Company or its Subsidiaries; or
(xvi) enter into any agreement, or otherwise become
obligated, to do any action prohibited hereunder.
(b) Sellers and the Company agree that, prior to the Closing,
they shall use their best efforts to (i) preserve substantially intact the
business organization of the
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Company, (ii) retain in its employ all of the key employees of the Company with
respect to the periods prior to and after the Closing Date and (iii) preserve
the current relationships of the Company with the material customers and
suppliers of, and other persons which have significant business relationships
with, the Company subject in all cases to the exercise of reasonable management
discretion.
6.2 HSR ACT. In connection with the Transaction, the Company and
Sellers (if requested by Purchaser) will comply (and, to the extent required,
will cause their Affiliates to comply) with the notification and reporting
requirements of the HSR Act and shall use their respective best efforts to
obtain early termination of the waiting period under the HSR Act. Seller and the
Company shall (and, to the extent required, shall cause their Affiliates to)
substantially comply with any additional requests for information, including
requests for production of documents and production of witnesses for interviews
or depositions, by any Antitrust Authority.
6.3 NO SOLICITATIONS. From the date of this Agreement through the
Closing Date, each of the Sellers and the Company shall not, and shall not
knowingly permit any of their Affiliates, officers, directors, employees,
trustees, representatives and agents to, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any Person or group of Persons (other than Purchaser or any
of its Affiliates) concerning any merger, sale of assets, sale of shares of
capital stock or similar transactions involving the Company. Sellers and the
Company shall (a) immediately notify Purchaser (orally and in writing) if any
discussions or negotiations are sought to be initiated, any inquiry or proposal
is made, any information is requested with respect to the Transaction or any
offer is made with respect to the Company, any Real Property, or any Shares, (b)
include in such notification the terms of any such proposal or offer that it may
receive with respect thereto (and provide Purchaser with a copy thereof in
writing), including the identity of the soliciting party and (c) keep Purchaser
informed with respect to the status of the foregoing.
6.4 NOTICE TO PURCHASER. Sellers and the Company will promptly
notify Purchaser of any circumstance, event or action by Sellers, the Company or
otherwise, that causes any statement made by Sellers or the Company in this
Agreement to be inaccurate or incomplete in any material respect or that may
have a Material Adverse Effect and which has not already been disclosed.
6.5 CONSENTS. Unless waived specifically in writing by Purchaser,
Sellers will obtain in writing any consents of any Governmental Authority or
other third party necessary for the consummation of the Transactions.
6.6 INSPECTIONS. Prior to the Closing, Sellers and the Company
shall provide Purchaser and its representatives (including, without limitation,
its engineers, surveyors, attorneys and accountants) access at all reasonable
times to the Real Property and other assets of the Company. At all times prior
to Closing, Purchaser and its representatives, upon reasonable notice to the
Company shall have the right to have access to the those employees, agents and
representatives approved in advance by the Company (which approval shall not be
unreasonably
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withheld), to review all Books and Records of the Company (including for
purposes of conducting an audit of the Company's Financial Statements),
including all the Real Estate Records, to enter onto the Real Property, and to
inspect, examine and survey the Real Property or any other reasonable business
purpose; PROVIDED that such access shall be had in such a manner so as not to
unreasonably interfere with the conduct of the Business. In addition, Purchaser
and its representatives shall have reasonable access to the customers of the
Company for purposes of performing Purchaser's due diligence investigation.
6.7 MPLOYEE BENEFIT PLANS. Sellers shall prevent the Company, and
any Welfare Plan or Pension Plan, or any trust created thereunder, from engaging
in any "prohibited transaction" (as such term is defined in Section 406 of
ERISA), and prevent the Company from (a) terminating any Pension Plan in a
manner that results in the imposition of a lien on any property of the Company
pursuant to Section 4068 of ERISA or (b) take any action that adversely affects
the qualification of any Employee Plan or its compliance with the applicable
requirements of ERISA or the Code or results in a "reportable event" (as such
term is defined in Section 4043(b) of ERISA).
ARTICLE VII.
COVENANTS OF PURCHASER
7.1 CONSENTS. Purchaser shall cooperate with Sellers in connection
with Sellers' efforts to obtain the consents required by SECTION 6.5.
7.2 NOTICE TO PURCHASER. Purchaser will promptly notify the
Company of any circumstance, event or action by Purchaser or otherwise, that
causes any statement made by Purchaser in this Agreement to be inaccurate or
incomplete in any material respect or that may have a Material Adverse Effect
and which has not already been disclosed.
ARTICLE VIII.
COVENANTS OF SELLERS, THE COMPANY AND PURCHASER
8.1 CONFIDENTIALITY.
(a) Except (i) for any governmental filings required in order
to complete the Transactions, and (ii) as Purchaser, the Company and each of the
Sellers may agree or consent in writing, all information received by Purchaser,
the Company or Sellers and their respective representatives pursuant to the
terms of this Agreement or otherwise heretofore provided to the receiving party
in connection with the transactions contemplated hereby shall be kept in
confidence by the receiving party and its representatives and shall not be used
in any manner by such party or its representatives except in connection with its
performance or preparing to perform under this Agreement; PROVIDED, HOWEVER,
that any party hereto may disclose such information to its legal and financial
advisors, lenders, financing sources and their respective legal advisors and
representatives so long as such Persons agree to maintain the confidentiality of
such information in accordance with this SECTION 8.1. If the transactions
contemplated hereby shall fail to be consummated, all copies of documents or
extracts thereof containing
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information and data as to one of the other parties, including all information
prepared by the receiving party or such receiving party's representatives, shall
be turned over to the party furnishing same, except that such information
prepared by the receiving party or such receiving party's representatives may be
destroyed at the option of the receiving party, with notice of such destruction
(or return) to be confirmed in writing to the disclosing party. Any information
not so destroyed (or returned) will remain subject to these confidentiality
provisions (notwithstanding any termination of this Agreement).
(b) The foregoing confidentiality provisions shall not apply
to such portions of the information received which (i) are or become generally
available to the public through no action by the receiving party or by such
party's representatives or (ii) are or become available to the receiving party
on a nonconfidential basis from a source, other than the disclosing party or its
representatives, which the receiving party believes, after reasonable inquiry,
is not prohibited from disclosing such portions to it by a contractual, legal or
fiduciary obligation, and, except as set forth in Section 8.1(c) below, shall
not apply to any disclosure by Purchaser or the Company after the Closing.
(c) Purchaser agrees that any disclosure of the existence of
the Employee Retention Percentage may be very detrimental to Sellers and will
take all reasonable action to keep confidential the existence of the Employee
Retention Percentage. This shall include providing information regarding the
Employee Retention Percentage (including its existence) only to those officers
of Purchaser and its advisors on a need to know basis. If it is determined that
the Employee Retention Percentage information was negligently disclosed by
Purchaser to employees of IIT, Inc. or others, and that this information had a
material affect on the ability of the Sellers to meet the employee retention
target, then Sellers shall be relieved of any obligation to meet the Employee
Retention Percentage criteria under Section 2.3(a)(iii) with regard to the
Contingent Payment to Sellers and for the Bonus Payment under Section 2.6.
8.2 NONSOLICITATION OF EMPLOYEES. Prior to the Closing, and if
this Agreement is terminated pursuant to Section 10.1(c), for a period of
twenty-four months after the date of this Agreement, Purchaser shall not (a)
solicit or induce any employee, officer, representative, consultant or other
agent of the Acquired Companies, to leave the Acquired Companies' employ or
otherwise interfere with the employment relationship between any such person and
the Acquired Companies or (b) solicit any customers of the Acquired Companies on
the date of this Agreement to provide PeopleSoft implementation services.
8.3 COOPERATION AND RECORDS RETENTION. After the Closing Date,
Sellers and the Company shall each (i) provide the other party with such
assistance as may reasonably be requested by in connection with the preparation
of any return, audit, or other examination by any taxing authority or judicial
or administrative proceedings relating to liability for any Taxes, (ii) provide
the other party with any records or other information that may be relevant to
such return, audit or examination, proceeding or determination, and (iii)
provide the other party with any final determination of any such audit or
examination, proceeding, or determination that affects any amount required to be
shown on any Tax Return of the other for any period. Without
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limiting the generality of the foregoing, the Company and Sellers shall each
retain, until the applicable statutes of limitations (including any extensions)
have expired, copies of all Tax Returns, supporting work schedules, and other
records or information that may be relevant to such returns for all tax periods
or portions thereof ending on or before the Closing Date.
ARTICLE IX.
CONDITIONS TO OBLIGATIONS
9.1 CONDITIONS TO OBLIGATIONS OF PURCHASER, SELLERS AND THE
COMPANY. The obligations of Purchaser, Sellers and the Company to consummate, or
cause to be consummated, the Transactions are subject to the satisfaction of the
following conditions, any one or more of which may be waived in writing by such
parties:
(a) There shall not be in force any order or decree, statute,
rule or regulation nor shall there be on file any complaint by a Governmental
Authority seeking an order or decree, restraining, enjoining or prohibiting the
consummation of the Transactions and none of Purchaser, any of the Sellers or
the Company shall have received notice from any Governmental Authority that it
has determined to institute any suit or proceeding to restrain or enjoin the
consummation of the Transactions or to nullify or render ineffective this
Agreement if consummated, or to take any other action which would result in the
prohibition or a material change in the terms of the Transactions.
9.2 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate, or cause to be consummated, the Transactions are
subject to the satisfaction of the following additional conditions, any one or
more of which may be waived in writing by Purchaser:
(a) Each of the representations and warranties of Sellers and
the Company contained in this Agreement shall be true and correct in all
material respects (except where such representations and warranties are
qualified by materiality) both on the date hereof and as of the Closing, as if
made at and as of that time, and each of the covenants and agreements of Sellers
and the Company to be performed as of or prior to the Closing shall have been
duly performed in all material respects.
(b) All material permits, approvals, clearances, and consents
of, and all filings with, Governmental Authorities required to be procured by
any of the Sellers or the Company in connection with the Transactions shall have
been procured.
(c) The Company shall have delivered to Purchaser a
certificate signed by an officer of the Company, dated as of the Closing Date,
certifying that, the conditions specified in SECTION 9.1, as they relate to
either or both Sellers and the Company, and SECTION 9.2(a) have been fulfilled.
(d) Any consent required for the consummation of the
Transactions under any Contract required to be listed on SCHEDULE 4.11 hereto or
for the continued
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enjoyment by the Company of the benefits of any such Contract after the Closing
shall have been obtained.
(e) All Persons who are directors or officers of the Company
shall have resigned such directorships or offices, effective as of the Closing
Date.
(f) Purchaser shall have received opinions, dated as of the
Closing Date, from counsel to the Company and counsel to Sellers, reasonably
acceptable to counsel to Purchaser.
(g) Sellers and the Company shall have delivered all
assignments, consents, approvals and other documents, certificates and
instruments as Purchaser may reasonably request for the purpose of (i)
evidencing the accuracy and completeness of any of the representations,
warranties or statements, the performance of any covenants or agreements of the
Company or the compliance by Purchaser with any of the conditions, all as
contained or referred to in this Agreement or (ii) effectuating or confirming
the consummation of the Transactions.
(h) Purchaser shall have received possession or control of all
corporate, accounting, business and tax records of the Company.
(i) Each of the Sellers shall have entered into a
Non-Competition Agreement containing the terms set forth on EXHIBIT E.
(j) Each of the Sellers shall have entered into an Employment
Agreement with the Company containing the terms set forth on EXHIBIT F.
(k) Purchaser shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of the
Company of the resolutions duly and validly adopted by the Board of Directors of
the Company evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the Transactions.
(l) Sellers shall have delivered signed UCC-3 termination
statements terminating all security interests in the assets of the Company
except for security interests securing indebtedness to be assumed by Purchaser.
(m) Each of the Sellers that receives the Warrants shall have
executed and delivered the Warrantholders' Agreement in the form attached as
EXHIBIT G.
(n) The Company shall deliver to Purchaser an executed
affidavit, dated not more than thirty (30) days prior to the Closing Date, in
accordance with Code Section 1445(b)(3) and Treasury Regulation sections
1.897-2(h) and 1.1445-2(c)(3), which statement certifies that the Shares are not
U.S. real property interests.
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(o) Purchaser shall have received the audited financial
statements of IIT, C.A. as of and for the twelve month period ended December 31,
1997 identical to the unaudited financial statements of IIT, C.A. as of and for
the period ended December 31, 1997 set forth on Scheduled 4.6 except for the
deletion of any qualifications and changes resulting therefrom, provided,
however, that Purchaser's obligation to consummate the Transactions shall be
conditioned on delivery of such financial statements only if Purchaser
establishes that it was otherwise ready, willing and able to deliver the Cash
Consideration.
9.3 CONDITIONS TO THE OBLIGATIONS OF SELLERS AND THE COMPANY. The
obligations of Sellers and the Company to consummate the Transactions are
subject to the satisfaction of the following additional conditions, any one or
more of which may be waived in writing by Sellers:
(a) Each of the representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material respects
(except where such representations and warranties are qualified by materiality)
both on the date hereof and as of the Closing, as if made anew at and as of that
time, and each of the covenants and agreements of Purchaser to be performed as
of or prior to the Closing shall have been duly performed in all material
respects.
(b) Sellers shall have received an opinion, dated as of the
Closing Date, from counsel to Purchaser, reasonably acceptable to counsel to
Sellers.
(c) Purchaser shall have delivered to Sellers and the Company
a certificate signed by an officer of Purchaser, dated as of the Closing Date,
certifying that, the conditions specified in SECTION 9.1, as they relate to
Purchaser, and subsection 9.3(a) have been fulfilled.
(d) Sellers shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of
Purchaser, of the resolutions duly and validly adopted by the Board of Directors
of Purchaser evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
ARTICLE X.
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the
Transactions abandoned:
(a) By mutual written consent of the parties at any time
prior to the Closing.
(b) Prior to the Closing, by written notice to Sellers from
Purchaser, (i) pursuant to SECTION 11.1, (ii) if the Closing has not occurred on
or before October 31,
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1998 and Purchaser is not in material breach of a representation, warranty,
covenant or agreement or (iii) if consummation of the Transactions is enjoined,
prohibited or otherwise restrained by the terms of a final, non-appealable order
or judgment of a court of competent jurisdiction.
(c) Prior to the Closing, by written notice to Purchaser from
Sellers, (i) pursuant to SECTION 11.1, (ii) if the Closing has not occurred on
or before October 31, 1998 and neither Sellers nor the Company are in material
breach of a representation, warranty, covenant or agreement of either Sellers or
the Company or (iii) if consummation of the Transactions is enjoined, prohibited
or otherwise restrained by the terms of a final, non-appealable order or
judgment of a court of competent jurisdiction.
10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to SECTION 10.1, this Agreement shall forthwith become void
and have no effect, without liability on the part of any party hereto or their
respective Affiliates, officers, directors or stockholders, other than liability
of Sellers, the Company or Purchaser as the case may be, for any
misrepresentation contained in, or any breach of, this Agreement occurring prior
to such termination. The provisions of SECTION 10.1, this SECTION 10.2 and
Article XI shall survive any termination of this Agreement.
10.3 RISK OF LOSS. If any material portion of the assets of the
Company (the "ASSETS") is destroyed or damaged by fire or any other cause on or
prior to the Closing Date, the Company shall give written notice to Purchaser as
soon as practicable after, but in any event within five (5) calendar days of,
discovery of such damage or destruction, including specification of the amount
of insurance, if any, covering such Assets and the amount, if any, which Sellers
or the Company are otherwise entitled to receive as a consequence of such damage
or destruction. Prior to the Closing, Purchaser shall have the option, which
shall be exercised by written notice to the Company within fifteen (15) business
days after receipt of the Company's notice or if there are not fifteen (15)
business days prior to the Closing Date, as soon as practicable prior to the
Closing Date, of (a) accepting such Assets in their destroyed or damaged
condition in which event Purchaser shall be entitled to the proceeds of any
insurance or other proceeds payable with respect to such loss, or the cash
equivalent thereof, and subject to Article XII, to such indemnification for any
uninsured portion of such loss pursuant to Article XII, and the full Total
Consideration shall be paid for such Assets, (b) if agreed by Sellers, excluding
such Assets from this Transaction, in which event the Total Consideration shall
be reduced by the amount allocated to such Assets and the Pro Rata Share of the
proceeds of any insurance or other proceeds payable with respect to such loss
shall be distributed to each of the Sellers, or (c) after providing Sellers and
the Company with a reasonable opportunity to cure, terminating this Agreement in
accordance with Article X, if such damage or destruction has a Material Adverse
Effect.
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ARTICLE XI.
DEFAULT AND REMEDIES
11.1 BREACH AND OPPORTUNITY TO CURE. If any party shall breach the
terms of this Agreement or default in the performance of its obligations
hereunder, the nondefaulting party shall have the right to provide the
defaulting party with notice specifying in reasonable detail the nature of such
breach or default. If such breach or default has not been cured by the earlier
of (a) the Closing Date and (b) thirty (30) days after delivery of such notice,
then the party giving such notice may (i) terminate this Agreement by giving
written notice to the defaulting party hereunder, (ii) extend the Closing Date
if such default has not been cured by the Closing Date (but no such extension
shall constitute a waiver of such nondefaulting party's right to terminate as a
result of such default), (iii) exercise the remedies available to such party
pursuant to Sections 11.2 or 11.3, subject to the right of the other party to
contest such action through appropriate proceedings, and/or (iv) proceed to
Closing, but which shall not constitute a waiver of such breach or default.
11.2 SELLERS' REMEDIES. Purchaser recognizes that if the
Transactions are not consummated solely as a result of Purchaser's default,
Sellers would incur damages, the extent of which is extremely difficult and
impractical to ascertain. The parties, therefore, agree that if this Agreement
is terminated or otherwise is not consummated solely due to the material default
of Purchaser, Purchaser shall pay to each of the Sellers an equal share of
$400,000 in addition to the amount of the Deposit, as Sellers' sole and
exclusive remedy in full settlement of any damages of any nature or kind that
Sellers may suffer or allege to suffer as the result of any default or breach by
Purchaser. The parties agree that this sum shall be in lieu of any and all other
relief to which Sellers might otherwise be entitled due to Purchaser's breach
of, or default under, this Agreement.
11.3 PURCHASER'S REMEDIES. Sellers agree that the Shares represent
unique property that cannot be readily obtained on the open market and that
Purchaser would be irreparably injured if this Agreement is not specifically
enforced after default. Therefore, Purchaser shall have the right to
specifically enforce Sellers' performance under this Agreement, and Sellers
agree to waive the defense in any such suit that Purchaser has an adequate
remedy at law and to interpose no opposition, legal or otherwise, as to the
propriety of specific performance as a remedy, and that Purchaser shall have the
right to obtain specific performance of the terms of this Agreement without
being required to prove actual damages, post bond or furnish other security. In
addition, Purchaser shall be entitled to obtain from Sellers, court costs and
reasonable attorneys' fees incurred by Purchaser in enforcing its rights
hereunder. As a condition to seeking specific performance, Purchaser shall not
be required to have tendered the Cash Consideration, but shall be ready, willing
and able to do so. In the event Purchaser elects to terminate this Agreement as
a result of Sellers' default, instead of seeking specific performance, then
Purchaser shall be entitled to recover its damages resulting from such default,
plus reasonable attorney's fees and court costs incurred by Purchaser in
enforcing its rights under this Agreement.
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11.4 RETURN OF DEPOSIT. In the event that the Closing does not
occur due to a breach by the Company or any of the Sellers, then Purchaser shall
be entitled to a return of the Deposit.
11.5 ESCROW DEPOSIT. In the event that all of the conditions to
Closing are satisfied but Purchaser fails to tender the balance of the Cash
Consideration or to purchase the Shares on the Closing Date, the $400,000 of the
liquidated damages set forth in SECTION 11.2 shall be paid to the Seller
Representative from the Escrow Deposit and the balance, if any, of the Escrow
Deposit shall be returned to Purchaser. In the event that the Closing does not
occur due to no fault or breach by Purchaser, then Purchaser shall be entitled
to a return of the Escrow Deposit.
ARTICLE XII.
POST CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATION
The parties covenant and agree as follows with respect to the
period subsequent to the Closing Date:
12.1 INDEMNIFICATION.
12.1.1. PURCHASER'S RIGHT TO INDEMNIFICATION. Subject to
Section 12.1.4, each Seller undertakes and agrees to indemnify, defend by
counsel reasonably acceptable to Purchaser, and hold harmless Purchaser, its
parent, affiliates, successors and assigns and their respective directors,
officers, employees, shareholders, representatives and agents (hereinafter
referred to collectively as "Purchaser Indemnitees") from and against and in
respect of such Seller's Pro Rata Share of any and all losses, costs,
liabilities, claims, obligations, diminution in value and expenses, including
reasonable attorneys' fees ("Claims"), incurred or suffered by a Purchaser
Indemnitee arising from (a) the claims of third parties with respect to
operation of the Company prior to Closing; (b) a breach, misrepresentation, or
other violation of any of the Sellers' or the Company's covenants, warranties or
representations contained in this Agreement excluding those that are to be
indemnified pursuant to section 13.8; (c) any breach or default by the Company
under any Contract prior to Closing; (d) any Pre-Closing Environmental Matters;
and (e) any and all actions, suits, proceedings, claims demands, assessments,
judgments, costs and expenses, incident to any of the foregoing or incurred to
oppose the imposition thereof, or in enforcing this indemnity; together with
interest at the Prime Rate (as defined below) on any such Claim from the date of
incurrence by such Purchaser Indemnitee(s) until the date of reimbursement by
Sellers. "Prime Rate" shall mean the prime rate as published in the Money Rates
column of the Eastern Edition of the Wall Street Journal (or the average of such
rates if more than one rate is indicated), in effect on the date of incurrence
of such Claim. The foregoing indemnity is intended by Sellers to cover all acts,
suits, proceedings, claims, demands, assessments, adjustments, diminution in
value, costs, and expenses with respect to any and all of the specific matters
set forth in this indemnity.
12.1.2. SELLERS' RIGHT TO INDEMNIFICATION. Purchaser
undertakes and agrees to indemnify, defend by counsel reasonably acceptable to
Sellers and hold harmless Sellers, their representatives and agents (hereinafter
referred to collectively as "Seller Indemnitees") from and
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against and in respect of any and all Claims incurred or suffered by a Seller
Indemnitee after Closing arising from: (a) a breach, misrepresentation, or other
violation of any of Purchaser's covenants, warranties or representations
contained in this Agreement excluding those that are to be indemnified pursuant
to SECTION 13.8; (b) any claims of third parties with respect to the operation
of the Company on or after the Closing Date; and (c) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs and expenses,
incident to any of the foregoing or incurred to oppose the imposition thereof,
or in enforcing this indemnity; together with interest at the Prime Rate on any
such claim from the date of incurrence by such Seller Indemnitee(s) to the date
of reimbursement by Purchaser. The foregoing indemnity is intended by Purchaser
to cover all acts, suits, proceedings, claims, demands, assessments,
adjustments, costs, and expenses with respect to any and all of the specific
matters set forth in this indemnity.
12.1.3. CONDUCT OF PROCEEDINGS. If any claim or proceeding
covered by the foregoing agreements to indemnify and hold harmless shall arise,
the party who seeks indemnification (the "Indemnified Party") shall give written
notice thereof to the other party (the "Indemnitor") promptly after the
Indemnified Party learns of the existence of such claim or proceeding; PROVIDED,
HOWEVER, that the Indemnified Party's failure to give the Indemnitor prompt
notice shall not bar the Indemnified Party's right to indemnification unless
such failure has materially prejudiced the Indemnitor's ability to defend the
claim or proceeding. The Indemnitor shall have the right to employ counsel
reasonably acceptable to the Indemnified Party to defend against any such claim
or proceeding, or to compromise, settle or otherwise dispose of the same, if the
Indemnitor deems it advisable to do so, all at the expense of the Indemnitor;
PROVIDED that the Indemnitor shall not have the right to control the defense of
any such claim or proceeding unless it has acknowledged in writing its
obligation to indemnify the Indemnified Party fully from all liabilities
incurred as a result of such claim or proceeding and then and periodically
thereafter provides the Indemnified Party with reasonably sufficient evidence of
the ability of the Indemnitor to satisfy any such liabilities. The parties will
fully cooperate in any such action, and shall make available to each other any
books or records useful for the defense of any such claim or proceeding. If the
Indemnitor fails to acknowledge in writing its obligation to defend against or
settle such claim or proceeding within twenty (20) days after receiving notice
thereof from the Indemnified Party (or such shorter time specified in the notice
as the circumstances of the matter may dictate), the Indemnified Party shall be
free to dispose of the matter, at the expense of the Indemnitor (if the
Indemnitor is ultimately liable), in any way in which the Indemnified Party
deems to be in its best interest.
12.1.4. LIMITATIONS ON INDEMNIFICATION. Notwithstanding
anything to the contrary in this SECTION 12.1:
(a) An Indemnitor shall have no obligation with respect to any
Claims for breach of representation or warranty under this SECTION 12.1, except
for the representations set forth in SECTIONS 4.3, 4.21, and 4.27, until the
aggregate amount of all Claims against all Indemnitors exceeds $100,000 at which
time the full amount of all Claims against all Indemnitors shall be due without
regard to such threshold amount.
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(b) In no event shall any Party have any indemnity obligations
for breaches of representations or warranties under this Section 12.1 for any
Claim first asserted after the survival period set forth for such Claim in
Section 12.3.
(c) Notwithstanding any other provision contained in this
Agreement, in no event shall any Seller be liable to Purchaser or any other
Person in an amount in excess of the Total Consideration received by such
Seller.
12.1.5. INDEMNIFICATION SOLE REMEDY. The right to
indemnification under this Article XII and Article XIII, subject to the
limitations set forth in SECTION 12.1.4 and Article XIII and the right of the
Sellers to terminate the Noncompetition Agreements in the event of Purchaser's
default in the performance of its obligations under SECTION 2.3, shall be the
exclusive remedy of any party in connection with any breach by another party of
its representations, warranties, or covenants or any other default under this
Agreement, and neither party shall make or assert any claim under this Agreement
or related to the Transactions, regardless of the form of action, except under
and in accordance with this Article XII, provided that this shall not affect the
right (a) of Purchaser to make a claim for specific performance as provided in
Section 11.3, or (b) of either party to make a claim for damages arising from
the other party's fraud up to a limit equal to the Total Consideration paid to
Sellers under this Agreement.
12.2 RIGHT OF OFFSET. Each of Purchaser and Sellers shall have the
right to offset against amounts owing to the other any amounts owing to such
party pursuant to SECTION 12.1, provided such party has a good faith basis to
believe that it is entitled to indemnification for such Claims. If it is
determined that a party was not entitled to indemnification for such Claims, it
shall pay the other party interest at the Prime Rate plus 500 basis points from
the date such amount was due until paid.
12.3 SURVIVAL OF REPRESENTATIONS. The representations and
warranties contained herein shall survive for eighteen months after the Closing
without limitation and without regard to any investigation made by any of the
parties hereto; PROVIDED, HOWEVER, that the representations and warranties made
by the Company and Sellers in SECTIONS 4.1, 4.3, 4.4, and 4.20, shall survive
without limitation and the representations and warranties in SECTION 4.21 shall
survive for the period set forth in SECTION 13.8.
12.4 RIGHTS OF SET-OFF. Any Contingent Payments owed by Purchaser
to Sellers pursuant to SECTION 2.3 are subject to reduction for any Claims
pursuant to SECTION 12.1 above and SECTION 13.8, provided that Purchaser has a
good faith basis to believe that it is entitled to indemnification for such
Claims. If it is determined that Purchaser was not entitled to indemnification
for such Claims, it shall pay the Sellers interest at the Prime Rate plus 500
basis points from the date such amount was due until paid..
ARTICLE XIII.
TAX MATTERS
13.1 ALLOCATION OF RESPONSIBILITY. From and after the Closing
Date, the Sellers shall pay any Taxes payable by the Company (i) for all taxable
periods ending on or prior to the
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Closing Date, (ii) for all taxable periods beginning prior to the Closing Date
and ending after the Closing Date (a "PRE-CLOSING PARTIAL PERIOD"), for that
portion of such taxable period up to and including the Closing Date, and (iii)
as a result of any breach of any representation, warranty or covenant in Section
4.21, Section 6.1(x) or Article XIII of this Agreement. Notwithstanding the
foregoing, no payment shall be required to be paid for Taxes to the extent
reserves for such Taxes are established on the Final Balance Sheet (other than
any reserves for deferred Taxes established to reflect timing differences
between book and Tax income).
13.2 PAYMENT OF TAXES. Purchaser shall notify the Seller
Representative of any Tax obligation of the Company at least fifteen (15) days
before such obligation is due to be paid. Seller Representative shall wire
transfer funds to Purchaser for value no later than three (3) days before such
payments are due.
13.3 TAX RETURNS. The Seller Representative shall prepare or cause
to be prepared, in a manner consistent with past practices all Tax Returns for
the Company for all taxable years or periods ending on or before the Closing
Date but which are due to be filed after the Closing Date (taking into account
all applicable extensions of time for filing). The Seller Representative shall
cause such Tax Returns to be delivered to Purchaser for comment and approval,
which approval shall not be unreasonably withheld, no later than thirty (30)
days prior to the due date for filing any such Tax Return (taking into account
any applicable extensions of time to file).
13.4 REFUNDS. Sellers shall be entitled to retain, or receive
payment from Purchaser within fifteen (15) days of the receipt of any Tax
refunds or credits relating to the Company that were paid with respect to (i)
all taxable periods ending on or prior to the Closing Date and (ii) Pre-Closing
Partial Periods, for that portion of such taxable period up to and including the
Closing Date. Purchaser shall, if Seller Representative so requests and at
Seller Representative's expense, cause the Company to file for and obtain any
refund to which Seller Representative is entitled to under this Section 13.4,
provided that Seller Representative shall not file, and Purchaser shall not be
obligated to file, to obtain any refund that would have the effect of (x)
increasing any Tax liability of the Company or (y) otherwise materially and
adversely affect any item or Tax attribute of the Company, in each case for any
taxable period ending after the Closing Date, without Seller Representative
first obtaining the Company's consent, which consent shall not be unreasonably
withheld. Purchaser shall permit Seller Representative to control (at the Seller
Representative's expense) the prosecution of such refund claim, and shall cause
powers of attorney authorizing Seller Representative to represent the Company
before the relevant taxing authority with respect to such refund to be executed,
provided that Seller Representative (i) shall keep Purchaser informed regarding
the progress and substantive aspect of any such refund and (ii) shall not
compromise or settle any such refund without obtaining Purchaser's consent,
which consent shall not be unreasonably withheld, if such compromise or
settlement would have the effect of (x) increasing any Tax liability of the
Company or (y) otherwise materially and adversely affect any item or Tax
attribute of the Company, in each case for any taxable period ending after the
Closing Date. In the event that any refund or credit of Taxes for which a
payment has been made pursuant to this section 13.4 is
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subsequently reduced or disallowed, the Sellers shall indemnify and hold
Purchaser harmless for any Taxes assessed against the Company by reason of the
reduction or disallowance.
13.5 CONTESTS. Purchaser and the Seller Representative agree to
give prompt notice to each other of any proposed adjustment to Taxes for any
periods of the Company ending on or prior to the Closing Date or any Pre-Closing
Partial Period. Purchaser and the Seller Representative shall cooperate with
each other in the conduct of any audit or other proceeding involving the Company
for such periods and each party may participate at its own expense. Seller
Representative shall have the right to control the conduct of any such audit or
proceeding for which the Sellers agree that any resulting Tax allocable to any
period prior to and including the Closing Date is covered by the indemnity set
forth in Section 13.8 of this Agreement, (such audit or proceeding, a "Seller's
Contest") provided that: (i) Seller Representative shall keep Purchaser informed
regarding the progress and substantive aspects of any Seller's Contest and (ii)
Seller Representative shall not compromise or settle any Seller's Contest if
such compromise or settlement would have the effect of (x) increasing any Tax
liability of the Company or (y) otherwise materially and adversely affect any
item or Tax attribute of the Company, in each case for any taxable period ending
after the Closing Date, without obtaining Purchaser's consent, which consent
shall not be unreasonably withheld. If Seller Representative chooses to direct a
Seller's Contest, Purchaser shall cause powers of attorney authorizing Seller
Representative to represent the Company before the relevant taxing authority and
such other documents as are reasonably necessary for Seller Representative to
control the conduct of any Sellers' Contest, consistent with the terms of this
Section 13.5
13.6 ALLOCATION OF TAXES. For purposes of SECTION 4.21 and this
Article XIII, in the case of Taxes that are payable with respect to a taxable
period that begins before the Closing Date and ends after the Closing Date, the
portion of such Taxes payable for the period ending on the Closing Date shall be
(a) in the case of any Tax based upon or measured by income, and in the case of
sale or use tax, the amount which would be payable if the taxable year ended as
of the end of the Closing Date and (b) in the case of any other Tax, such as
personal or real property, the amount of such tax for the entire period
multiplied by a fraction, the numerator of which is the number of days in the
period ending on the Closing Date and the denominator of which is the number of
days in the entire period.
13.7 TREATMENT OF INDEMNITY PAYMENTS. All indemnity and other
payments made under this Agreement shall be considered to be adjustments to the
Total Consideration.
13.8 INDEMNIFICATION. The covenants and agreements of the parties
contained in this Article XIII and the representations and warranties contained
in SECTION 4.21 of this Agreement shall survive the Closing and shall remain in
full force and effect until ninety (90) days following the expiration of the
applicable statutes of limitations with respect to any Taxes that would be
indemnifiable under this Article XIII. The procedures set forth in SECTION
12.1.3 of this Agreement shall apply to any claims made by the parties to this
Agreement pursuant to this Article XIII. Subject to the limitation set forth in
Section 12.1.4(c), each Seller shall undertake and agree to indemnify, defend by
counsel reasonably acceptable to Purchaser, and hold Purchaser and the Company
harmless from and against such Seller's Pro Rata Share of all
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Claims arising out of, any breach of representation or warranty in Section 4.21
of this Agreement or any covenant made by the Sellers or Seller Representative
in this Article XIII or in Section 6.1(x) of this Agreement, together with
interest at the Prime Rate on any such Claim from the date of incurrence by the
Purchaser or the Company until the date of reimbursement by Sellers. Purchaser
undertakes and agree to indemnify, defend by counsel reasonably acceptable to
Sellers, and hold Sellers harmless from and against all Claims arising out of
breach of any covenant made by Purchaser under this Article XIII, together with
interest at the Prime Rate on any such Claim from the date of incurrence by the
Sellers until the date of reimbursement by Purchaser. Notwithstanding anything
to the contrary in this Agreement, to the extent that the provisions contained
in this Article XIII conflict with any provision of Article XII of this
Agreement, the provisions contained in this Article XIII shall control.
13.9 SUCCESSORS. For purposes of this Article XIII, all references
to the Purchaser, the Sellers and the Company shall include successors.
ARTICLE XIV.
SELLER REPRESENTATIVE
14.1 DESIGNATION OF SELLER REPRESENTATIVE. The parties agree that
it is desirable to designate a representative to act on behalf of Sellers (the
"SELLER REPRESENTATIVE"). The parties have designated L. Sebastian Alegrett and
Carlos E. Bravo, jointly, as the Seller Representative, and approval of this
Agreement by Sellers shall constitute certification and approval of such
designation.
14.2 AUTHORITY AND RIGHTS OF SELLER REPRESENTATIVE; LIMITATIONS ON
LIABILITY. The Seller Representative shall have full power, authority and
discretion to act on behalf of the Sellers for all purposes under this Agreement
and the Ancillary Agreements. The Seller Representative will have no liability
to the Sellers with respect to actions taken or omitted to be taken in its
capacity as Seller Representative, except with respect to the Seller
Representative's gross negligence or willful misconduct. The Seller
Representative shall be entitled to reimbursement, from the Sellers for all
reasonable expenses, disbursements and advances (including fees and
disbursements of its counsel, experts and other agents and consultants) incurred
by the Seller Representative in such capacity, and for indemnification against
any loss, liability or expenses arising out of actions taken or omitted to be
taken in its capacity as Seller Representative (except for those arising out of
Seller Representative's gross negligence or willful misconduct).
ARTICLE XV.
MISCELLANEOUS
15.1 WAIVER. Either party to this Agreement may, at any time prior
to the Closing, waive any of the terms or conditions of this Agreement;
PROVIDED, HOWEVER, any such waiver must be in writing, executed in the same
manner as this Agreement.
15.2 NOTICES. All notices and other communications among the
parties shall be in writing and shall be deemed to have been duly given when (i)
delivered in person, or (ii) five
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(5) days after posting in the United States mail having been sent registered or
certified mail return receipt requested, or (iii) delivered by telecopy and
promptly confirmed by delivery in person or post as aforesaid in each case, with
postage prepaid, addressed as follows:
If to Purchaser, to:
USINTERNETWORKING, INC.
175 Admiral Cochrane Drive
Annapolis, MD 21401
Attention: Stephen E. McManus
Telecopy No.: (410) 897-4400
with copies to (which shall not constitute
notice):
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attention: James F. Rogers
Telecopy No.: (202) 637-2201
If to Sellers, to:
L. Sebastian Alegrett
906 Escobar Avenue
Coral Gables, FL 33134
Michael Mai
19261 Dearborne Circle
Huntington Beach, CA 92648
Vicente Perez de Tudela
19502 Ranch Lane #102
Huntington Beach, CA 92648
Carlos E. Bravo
1421 Kirkwall Court
Inverness, IL 60010
with copies to (which shall not constitute
notice):
Stephen A. Colley
Duckor, Spradling & Metzger
401 West A Street
Suite 2400
54
<PAGE>
San Diego, CA 92101-7915
Telecopy No.: (619) 231-6629
If to Company, to:
IIT Holding, Inc.
2333 Ponce de Leon
Suite 1108
Coral Gables, FL 33134
Attention: Sebastian Alegrett
Telecopy No.: (305) 460-6899
with copies to (which shall not constitute
notice):
Stephen A. Colley
Duckor, Spradling & Metzger
401 West A Street
Suite 2400
San Diego, CA 92101-7915
Telecopy No.: (619) 231-6629
or to such other address or addresses as the parties may from time to time
designate in writing.
15.3 ASSIGNMENT. Neither party hereto may assign its rights under
this Agreement without the consent of the other party hereto; PROVIDED; HOWEVER
that Purchaser may assign its rights and obligations under this Agreement to an
Affiliate of Purchaser.
15.4 RIGHTS OF THIRD PARTIES. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give any Person,
other than the parties hereto, any right or remedies under or by reason of this
Agreement.
15.5 RELIANCE. Each of the parties to this Agreement shall be
deemed to have relied upon the accuracy of the written representations and
warranties made to it in or pursuant to this Agreement, notwithstanding any
investigations conducted by or on its behalf or notice, knowledge or belief to
the contrary.
15.6 TRANSFER TAXES; TITLE COSTS; EXPENSES. Notwithstanding any
other provision hereof, Purchaser shall be solely responsible for the costs and
expenses of all recording fees (on a per-page basis or otherwise), transfer
taxes, conveyance taxes, sales and use taxes, stamp taxes and other taxes
incurred or otherwise payable in connection with the Transaction. Any filing
fees payable in connection with the parties' compliance with the HSR Act shall
be paid by Purchaser. All other costs and expenses incurred by the parties in
connection with the transactions contemplated hereby shall be borne by the party
incurring such expense.
15.7 CONSTRUCTION. This Agreement shall be construed and enforced
in accordance with the laws of the State of New York. Unless otherwise stated,
references to
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Sections, Articles, Exhibits or Schedules refer to the Sections, Articles,
Exhibits and Schedules to this Agreement. The parties to this Agreement
participated jointly in the negotiation and drafting of this Agreement. If any
ambiguity or question of intent or interpretation shall arise with respect to
this Agreement, then this Agreement shall be construed as if drafted jointly by
the parties and no presumption or burden of proof will arise favoring or
disfavoring any party to this Agreement by virtue of the authorship of any
provision of this Agreement.
15.8 ARBITRATION. The parties hereby agree to submit all
controversies, claims and matters of difference arising out of this Agreement to
arbitration in Dade County, Florida, according to the commercial rules and
practices of the American Arbitration Association ("AAA) from time to time in
force, and in accordance with the following provisions of this Section 15.8.
(a) Arbitration discovery will be conducted in accordance with
the Federal Rules of Civil Procedure, with any disputes over the scope of
discovery to be determined by the arbitrators, it being intended that the
arbitrators will allow limited, reasonable discovery prior to any hearing on the
merits.
(b) Arbitration hereunder will be by three independent and
impartial arbitrators. Each of the parties will appoint one arbitrator within 30
days after initiation of arbitration and the two arbitrators so appointed will
select a third arbitrator within 45 days after initiation of arbitration. In the
event that the parties or the arbitrators fail to select arbitrators as required
above, the AAA will select such arbitrators.
(c) The AAA will have the authority to disqualify any
arbitrator who it determines not to be independent and impartial. The
arbitrators will be entitled to a fee commensurate with their fees for
professional services requiring similar time and effort.
(d) The arbitrators will conduct a hearing no later than 60
days after initiation of the matter to arbitration, and a decision will be
rendered by the arbitrators within 30 days of the hearing. At the hearing, the
parties will present such evidence and witnesses as they may choose, with or
without counsel. Adherence to formal rules of evidence will not be required but
the arbitration panel will consider any evidence and testimony that it
determines to be relevant, in accordance with procedures that it determines to
be appropriate. The arbitration determination will be in writing and will
specify the factual and legal bases for the determination. The arbitrators may
award legal or equitable relief, including but not limited to specific
performance.
(e) The parties agree that this submission and agreement to
arbitrate will be governed by and specifically enforceable in accordance with
the laws of the State of New York. Arbitration may proceed in the absence of any
party if prior written notice of the proceedings has been given to such party.
The parties agree to abide by all decisions and determinations rendered in such
proceedings. Such decisions and determinations will be final and binding on all
parties. All decisions and determinations may be filed with the clerk of one or
more courts, state federal or foreign having jurisdiction over the party against
whom it is rendered or its property, as a basis of judgment.
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<PAGE>
(f) The arbitrators' fees and other costs of the arbitration
will be borne by the party against whom the award is rendered, except as the
arbitration panel may otherwise provide in its written opinion.
15.9 ATTORNEY'S FEES. In the event of any arbitration or litigation
arising under this Agreement, the prevailing party shall be entitled to recover
his or its reasonable attorney's fees from the other party.
15.10 CAPTIONS; COUNTERPARTS. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
15.11 ENTIRE AGREEMENT. This Agreement (together with the Schedules
and Exhibits to this Agreement, which constitute part of this Agreement)
constitutes the entire agreement among the parties and supersede any other
agreements, whether written or oral, that may have been made or entered into by
or among any of the parties hereto or any of their respective Subsidiaries
relating to the Transactions. No representations, warranties, covenants,
understandings, agreements, oral or otherwise, relating to the transactions
contemplated by this Agreement exist between the parties except as expressly set
forth in this Agreement.
15.12 AMENDMENTS. This Agreement may be amended or modified in whole
or in part, only by a duly authorized agreement in writing executed in the same
manner as this Agreement and which makes reference to this Agreement.
15.13 SEVERABILITY. If any term or provision of this Agreement is
invalid or unenforceable in any situation in any jurisdiction, then all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect and the application of such term or provision shall be interpreted so
as reasonably to effect the intent of the parties to this Agreement.
15.14 PUBLICITY. All press releases or other public communications
of any nature whatsoever, or other notices to third parties except as
contemplated by Section 8.1 relating to the transactions contemplated by this
Agreement, and the method of the release for publication thereof, shall be
subject to the prior mutual approval of Purchaser and the Company which approval
shall not be unreasonably withheld by any party; PROVIDED, HOWEVER, that,
nothing herein shall prevent any party from publishing such press releases or
other public communications as such party may consider necessary in order to
satisfy such party's legal or contractual obligations after such consultation
with the other parties hereto as is reasonable under the circumstances.
15.15 FURTHER ASSURANCES. The parties agree to: (a) furnish upon
request to each other such further information, (b) execute and deliver such
other documents, and (c) do such other acts and things, all as the other party
may reasonably request for the purpose of carrying
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out the intent of this Agreement, including providing to Purchaser all of the
rights, benefits and services enjoyed by the Company in the operation of the
Business from whatever source.
SIGNATURE PAGE FOLLOWS
58
<PAGE>
IN WITNESS WHEREOF the parties have hereunto caused this
Agreement to be duly executed as of the date first above written.
IIT HOLDING, INC.
By: /s/ Luis Sebastian Alegrett
--------------------------------
Name: Luis Sebastian Alegrett
--------------------------
Title: PRESIDENT
--------------------------
By: /s/ Luis Sebastian Alegrett
--------------------------------
Luis Sebastian Alegrett
By: /s/ Michael Mai
--------------------------------
Michael Mai
By: /s/ Vicente Perez de Tudela
----------------------------------
Vicente Perez de Tudela
By: /s/ Carlos E. Bravo
----------------------------------
Carlos E. Bravo
USinternetworking, Inc.
By: /s/ Stephen E. McManus
----------------------------------
Name: Stephen E. McManus
-----------------------------
Title: President
------------------------------
59
<PAGE>
STOCK PURCHASE
AGREEMENT
IIT HOLDING, INC.
SCHEDULES AND EXHIBITS
<PAGE>
EXHIBITS
Exhibit A-1 Employees
Exhibit A-2 Independent Contractors
Exhibit B Pro Rata Share
Exhibit C Form of Warrant Agreement
Exhibit D Allocation of Cash Consideration, Warrants and
Disbursement Instructions
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Employment Agreement
Exhibit G Warrantholder's Agreement
<PAGE>
EXHIBIT A
<PAGE>
WARRANT AGREEMENT
BETWEEN
USinternetworking, Inc.
and
----------
------------------------------
Dated as of September __, 1998
------------------------------
<PAGE>
This WARRANT AGREEMENT is dated as of September ___, 1998, between
USINTERNETWORKING, INC., a Delaware corporation (the "Company"), and L.
Sebastian Alegrett, Michael Mai, Vicente Perez de Tudela and Carlos E. Bravo,
together with their successors and assigns (the "Holders").
WHEREAS, the Company proposes to issue to the Holders (in the amounts
set forth on Exhibit A) Common Stock Purchase Warrants, as hereinafter described
(the "Warrants"), to purchase up to 400,000 shares of Common Stock, par value
$.0l per share (the "Common Stock"), of the Company (the Common Stock issuable
on exercise of the Warrants being referred to herein as the "Warrant Shares"),
at $2.00 per share, (as adjusted from time to time pursuant to this Agreement,
the "Exercise Price") as part of the consideration for the sale by the Holders
of their shares of common stock, par value $5.00 per share of IIT Holding, Inc.
("IIT") pursuant to the Stock Purchase Agreement dated as of August 28, 1998
between the Company, IIT and the Holders (the "Stock Purchase Agreement").
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. WARRANT CERTIFICATE. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement
shall be in registered form only and shall be substantially in the form set
forth in Exhibit B attached hereto.
SECTION 2. EXECUTION OF WARRANT CERTIFICATE. The Warrant Certificates
shall be signed on behalf of the Company by its Chief Executive Officer or its
President or a Vice President and by its Secretary or an Assistant Secretary
under its corporate seal. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificate.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by the Company, such Warrant
Certificates nevertheless may be delivered or disposed of as though such person
had not ceased to be such officer of the Company; and any Warrant Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the execution
of this Warrant Agreement any such person was not such officer.
SECTION 3. REGISTRATION. The Company shall number and register each
Warrant Certificate and any Warrant Certificate subsequently issued in respect
of the
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Warrants in a register as they are issued. The Company may deem and treat the
registered holder(s) of the Warrant Certificates as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone), for all purposes, and shall not be affected by any notice to the
contrary.
SECTION 4. RESTRICTIONS ON TRANSFERS.
The holders of the Warrants agree not to directly or indirectly sell,
transfer, assign, hypothecate, pledge or otherwise in any way alienate or
encumber any Warrants, or any right or interest therein, (a "Transfer") except
for (i) Transfers to the Company, (ii) a Transfer by a Holder of Warrants by
will or intestate succession to such Holder's executor's, administrators,
testamentary trustees, legatees or beneficiaries, or (iii) a Transfer of
Warrants by a Holder to any Related Party (as defined below) of such Holder. As
used in this Section 4, the term "Related Party" with respect to any Holder
means: (A) any person or entity that directly or indirectly, through one or more
intermediaries, has control of or is controlled by, or is under common control
with, the person or entity specified; (B) a trust, corporation, partnership or
other entity, the beneficiaries, stockholders, partners, or owners, or persons
holding a controlling interest of which consist of such Holder and/or such other
persons or entities referred to in the immediately preceding clause (A), or (C)
with respect to any Holder which is an individual, such Holder's spouse,
siblings, children or parents.
SECTION 5. WARRANTS; EXERCISE OF WARRANTS. Subject to the terms of this
Agreement, each Warrant Holder shall have the right, which may be exercised
commencing at the opening of business on September __, 1998 (the "Initial
Exercise Date") and shall only be exercisable from the Initial Exercise Date
through 5:00 p.m., New York City time, on September __, 2008 (the "Exercise
Period") to receive from the Company the number of fully paid and nonassessable
Warrant Shares (as defined below) which the Warrant Holder may at the time be
entitled to receive on exercise of such Warrants then actually held and upon
payment of the Exercise Price then in effect for such Warrant Shares. In the
alternative, each Holder may exercise its right, during the Exercise Period, to
receive Warrant Shares on a net basis, such that, without the exchange of any
funds, the Holder receives that number of Warrant Shares otherwise issuable upon
exercise of its Warrants less that number of Warrant Shares having an aggregate
fair market value (as defined below) at the time of exercise equal to the
aggregate Exercise Price that would otherwise have been paid by the Holder of
the Warrant Shares. For purposes of the foregoing sentence, "fair market value"
of the Warrant Shares will be determined in good faith by the Board of Directors
of the Company as of the date of any such exercise. Each Warrant not exercised
during the Exercise Period, shall become void and all rights thereunder and all
rights in respect thereof under this agreement shall cease
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<PAGE>
as of such time. No adjustments as to dividends will be made upon exercise of
the Warrants.
A Warrant may be exercised upon surrender to the Company at its office
designated for such purpose (the address of which is set forth in Section 14
hereof) of the certificate or certificates evidencing the Warrants to be
exercised with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the Exercise Price for
the number of Warrant Shares in respect of which such Warrants are then
exercised. Payment of the aggregate Exercise Price shall be made (i) by wire
transfer or by certified or official bank check to the order of the Company, or
(ii) in the manner provided in the first paragraph of this Section 5.
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
holder and in such name or names as the Warrant Holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants; provided, however, that if any consolidation,
merger or lease or sale of assets is proposed to be effected by the Company, or
a tender offer or an exchange offer for shares of Common Stock of the Company
shall be made, upon such surrender of Warrants and payment of the Exercise Price
as aforesaid, the Company shall, as soon as possible, but in any event not later
than two business days thereafter, issue and cause to be delivered the full
number of Warrant Shares issuable upon the exercise of such Warrants in the
manner described in this sentence. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part and, in the event that a
certificate evidencing warrants is exercised in respect of fewer than all of the
Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate evidencing the remaining Warrant
or Warrants will be issued and delivered pursuant to the provisions of this
Section and of Section 2 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled and disposed of by the Company. The Company shall keep copies of this
Agreement and any notices given or received hereunder available for inspection
by the holders during normal business hours at its office.
3
<PAGE>
SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like
tenor and representing an equivalent number of Warrants, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
reasonably satisfactory to it. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
SECTION 8. RESERVATION OF WARRANT SHARES. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury, for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of Warrants, the maximum number
of shares of Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.
The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 12 hereof.
4
<PAGE>
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue and payment therefor, be fully paid,
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests with respect to the issue thereof.
SECTION 9. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES
ISSUABLE.
(a) ADJUSTMENTS TO WARRANTS.
In the event that the outstanding shares of the Common Stock subject to
the Warrants are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split, stock dividend,
subdivision, distribution or combination of shares, the Company shall make an
appropriate and equitable adjustment in the number and kind of shares as to
which the Warrants, or portions thereof then unexercised, shall be exercisable,
to the end that after such event the Warrant Holder's proportionate interest
shall be maintained as before the occurrence of such event. Such adjustment in
the Warrant shall be made without change in the total price applicable to the
unexercised portion of the Warrant (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices). Any such adjustment
made by the Company or its Board of Directors (the "Board") shall be final and
binding upon the Warrant Holder, the Company and all other interested persons.
Nothing in this Agreement shall entitle the Warrant Holder to pre-emptive or
similar rights with respect to any issuance of Common Stock or other securities
for such consideration as the Board may determine.
(b) REORGANIZATION OF THE COMPANY.
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Warrants shall automatically become exercisable for the
kind and amount of securities, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the Warrant Holder had exercised the Warrant immediately before the
effective date of the transaction. Concurrently with the consummation of such
transaction, the corporation formed by or
5
<PAGE>
surviving any such consolidation or merger if other than the Company, or the
person to which such sale or conveyance shall have been made, shall enter into a
supplemental Warrant Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section. The successor Company shall mail to
Warrant Holders a copy of the supplemental Warrant Agreement.
If this subsection (b) applies, subsection (a) of this Section 10 does
not apply.
(c) FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Warrant Shares on
the exercise of Warrants. If more than one Warrant shall be presented for
exercise in full at the same time by the same Warrant Holder, the number of full
Warrant Shares which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of Warrant Shares purchasable on
exercise of the Warrants so presented.
SECTION 11. NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
Exercise Price pursuant to Section 10, the Company shall promptly thereafter
cause to be given to each of the registered holders of the Warrant Certificates
at such holder's address appearing on the Warrant register written notice of
such adjustments by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 12.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in shares of Common Stock or distributions
referred to in subsection (a) of Section 10 hereof); or
(c) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Common Stock issuable
upon exercise of
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<PAGE>
the Warrants (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at such holder's address appearing on the Warrant
register, at least 20 days (or 10 days in any case specified in clauses (a) or
(b) above) prior to the applicable record date hereinafter specified, or
promptly in the case of events for which there is no record date, by first-class
mail, postage prepaid, a written notice stating (i) the date as of which the
holders of record of shares of Common Stock to be entitled to receive any such
rights, options, warrants or distribution are to be determined, or (ii) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 11 or any defect therein shall not affect the legality or validity of
any distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the right
to vote or to consent or to receive notice as stockholders in respect of the
meetings of stockholders or the election of Directors of the Company or any
other matter, or any rights whatsoever as stockholders of the Company.
SECTION 12. NOTICES TO COMPANY AND WARRANT HOLDERS. Any notice or
demand authorized by this Agreement to be given or made by the registered holder
of any Warrant Certificate to or on the Company shall be sufficiently given or
made when and if deposited in the mail, first class or registered, postage
prepaid, addressed to the office of the Company expressly designated by the
Company at its office for purposes of this Agreement (until the Warrant holders
are otherwise notified in accordance with this Section by the Company), as
follows:
USinternetworking, Inc.
175 Admiral Cochrane Drive
7
<PAGE>
Annapolis, MD 21401
Attention: Chief Executive Officer
Any notice pursuant to this Agreement to be given by the Company to the
registered holder(s) of any Warrant Certificate shall be sufficiently given when
and if deposited in the mail, first-class or registered, postage prepaid,
addressed (until the Company is otherwise notified in accordance with this
Section by such holder) to such holder at the address appearing on the Warrant
register of the Company.
SECTION 13. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Warrant Certificates in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable
and which shall not in any way adversely affect the interests of the holders of
Warrant Certificates.
SECTION 14. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company shall bind and inure to the
benefit of its respective successors and assigns hereunder.
SECTION 15. TERMINATION. This Agreement shall terminate at the end of
the Exercise Period.
SECTION 16. GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
internal laws of said State.
SECTION 17. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and the
registered holders of the Warrant Certificates, any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company and the registered holders of the Warrant
Certificates.
SECTION 18. ATTORNEY'S FEES. In the event of any arbitration or
litigation arising under this Agreement, the prevailing party shall be entitled
to recover his or its reasonable attorney's fees from the other party.
SECTION 19. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to
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be an original, and all such counterparts shall together constitute but one and
the same instrument.
[Signature Page Follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
USINTERNETWORKING, INC.,
a Delaware corporation
By:
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Name:
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Title:
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HOLDERS:
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Address
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Address
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Address
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Address
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Address
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Address
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Address
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<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THEY MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (1) IN COMPLIANCE WITH THE WARRANT AGREEMENT DATED SEPTEMBER 1998 AND
(2)(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT;
OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL
FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER.
EXERCISABLE ON OR BEFORE SEPTEMBER ___, 2008
No. _________ Warrants
Warrant Certificate
USINTERNETWORKING, INC.
This Warrant Certificate certifies that ____________, or registered
assigns, is the registered holder of Warrants expiring ________________ (the
"Warrants") to purchase Common Stock, par value $.01 per share (the "Common
Stock"), of USinternetworking, Inc., a Delaware corporation (the "Company").
Each Warrant entitles the holder upon exercise to receive from the Company
during the period beginning on the opening of business on September __, 1998 and
ending at 5:00 p.m., New York City time on September___, 2008 (the "Exercise
Period"), one fully paid and nonassessable share of Common Stock (a "Warrant
Share") at the initial exercise price (the "Exercise Price") of $2.00 payable in
lawful money of the United States of America
<PAGE>
upon surrender of this Warrant Certificate and payment of the Exercise Price at
the office of the Company designated for such purpose, but only subject to the
conditions set forth herein and in the Warrant Agreement referred to herein. The
Exercise Price and number of Warrant Shares issuable upon exercise of the
warrants are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement.
A Warrant may be exercised only during the Exercise Period, and to the
extent not exercised by the end of the Exercise Period such Warrants shall
become void.
This Warrant Certificate shall not be valid unless countersigned by the
Company, as such term is used in the Warrant Agreement.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at the end of the Exercise Period,
entitling the holder on exercise to receive shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock"), and are issued pursuant to
a Warrant Agreement dated as of September __, 1998 (the "Warrant Agreement"),
duly executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
Warrants may be exercised at any time during the Exercise Period. The
holder of Warrants evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the attached form of election to
purchase properly completed and executed, together with payment of the Exercise
Price in cash at the office of the Company designated for such purpose. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment shall
be made for any dividends on any Common Stock issuable upon exercise of this
Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of
<PAGE>
any Warrant, but the Company will pay the cash value thereof determined as
provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
<PAGE>
IN WITNESS WHEREOF, USinternetworking. Inc. has caused this Warrant
Certificate to be signed by its Chief Executive Officer and by its Secretary and
has caused its corporate seal to be affixed hereunto or imprinted hereon.
Dated:
USINTERNETWORKING, INC.
By:
------------------------------
Chief Executive Officer
By:
------------------------------
Secretary
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to receive ____________ shares of Common Stock and
herewith tenders payment for such shares to the order of USinternetworking,
Inc., in the amount of $____________ in accordance with the terms hereof. The
undersigned requests that a certificate for such shares be registered in the
name of_________________ whose address is _________________ and that such shares
be delivered to _____________ whose address is_____________. If said number of
shares is less than all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the remaining
balance of such shares be registered in the name of _____________ whose address
is _______________, and that such Warrant Certificate be delivered
to_______________ whose address is _________________
Date: Signature:
Signature Guaranteed:
<PAGE>
FORM OF
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made as of this
__________ day of September, 1998, by and among ________ ("Seller") and
USinternetworking, Inc., a Delaware corporation ("Purchaser").
RECITALS
A. Seller, IIT Holding, Inc. (the "Company") and Purchaser have entered
into a Stock Purchase Agreement dated August 28, 1998 (the "Stock Purchase
Agreement"), pursuant to the Company will become a wholly-owned subsidiary of
Purchaser, and Seller will receive the consideration set forth in the Stock
Purchase Agreement.
B. Seller is a selling stockholder under the Stock Purchase Agreement.
C. It is a condition to the consummation of the transactions
contemplated by Stock Purchase Agreement for the parties hereto to enter into a
non-competition agreement, upon the terms and subject to the conditions set
forth herein.
D. The parties hereto desire to enter into this non-competition
agreement upon the terms and subject to the conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual as set forth herein, the parties hereto agree as follows:
1. NON-COMPETITION/NON-INTERFERENCE.
a. For a period of two (2) years from the date of this Agreement
(the "NONCOMPETITION PERIOD"), Seller agrees that he will not, and he will cause
each of his Affiliates (as defined below) not to, directly or indirectly, (i)
own, manage, operate, control, join, assist, lend money to, guarantee the
obligation of, or participate in the ownership, management, operation or control
of, or be connected as consultant, stockholder, director, officer, employee, or
with, or participate in any manner with the start-up or set-up of, any
Competitive Business (as defined below), or (ii) solicit or induce any
individual during any period in which he or she is an employee of Purchaser or
any of its Affiliates to terminate such employment or employed by any person or
entity other than Purchaser or its Affiliates.
b. For purposes of this Agreement, the term "COMPETITIVE
BUSINESS" means the provision of consulting and implementation services to users
of PeopleSoft software in the Restricted Region (as defined below).
<PAGE>
c. For purposes of this Agreement, the term "RESTRICTED REGION"
any location on the United States of America or the Republic of Venezuela, it
being acknowledge that the nature of Purchaser's business renders meaningless
the use of geographic scope restrictions.
d. For purposes of this Agreement, an "AFFILIATE" of any person
or entity means any other person or entity that controls, is controlled by or is
under common control with such person or entity.
e. Notwithstanding anything herein to the contrary, the
restrictions of this Agreement shall not apply to the activities of any
publicly-held company less than five percent (5%) of the equity of which is
owned, directly or indirectly, by Seller or his Affiliates.
f. Seller acknowledges and agrees that the provisions of this
Section 1 have been specifically negotiated and carefully tailored with a view
to preventing the serious irreparable injury that Purchaser will suffer in the
event of competition by Seller with Purchaser in the Restricted Region during
the Noncompetition Period. Purchaser is providing the benefits set forth in the
Stock Purchase Agreement in part in reliance on Seller's representation that the
restrictions on him set forth in this Section 1 will not impose an undue
hardship on him. Seller further acknowledges that breach of this Section 1 will
cause irreparable injury and damage to Purchaser, the exact amount of which will
be difficult to ascertain, and that the remedies at law for any such breach
would be inadequate. Accordingly, if Seller breaches this Section 1, then
Purchaser shall be entitled, in addition to all remedies available at law, to
equitable relief, including injunctive relief, and an equitable accounting of
all losses and damages. Any such requirement of bond or undertaking is hereby
waived by Seller. If Seller violates this Section 1 and Purchaser brings legal
action for injunctive or other relief, Purchaser shall not, as a result of the
time involved in obtaining such relief, be deprived of the benefit of the full
period of noncompetition set forth in this Section 1. Accordingly, the covenant
set forth in this Section 1 shall be deemed to have the duration set forth
herein, computed from the date such relief is granted but reduced by the time
expired between the date the Noncompetition Period began to run and the date of
the first violation of Section 1 by Seller.
g. In the event that, despite the express agreement of Purchaser
and Seller, and any provision of this Section 1 shall be finally determined by
any court or other tribunal of competent jurisdiction to be unenforceable for
any reason whatsoever, the parties agree that this Section 1 shall not be
rendered void, but shall be interpreted to extend only over the maximum period
of time for which it may be enforceable, and/or over the maximum geographical
areas as to which it may be enforceable, and/or to the maximum extent in any and
all other respects as to which it may be enforceable, all as determined by such
court or tribunal.
2. NON-ASSIGNMENT. The duties of each party hereunder shall not be
assignable; PROVIDED, HOWEVER, that Purchaser may assign its rights under this
Agreement to, and this Agreement shall thereafter be binding upon and inure to
the benefit of, (i) any Affiliate of
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Purchaser and (ii) any person or entity that acquires all or substantially all
of the assets or stock of Purchaser (by asset purchase, stock purchase, merger,
liquidation, dissolution or otherwise), each such case, such assignee shall
thereupon be deemed substituted for Purchaser upon the terms and subject to the
conditions hereof.
3. TERMINATION. Seller shall have the right to terminate this
Agreement upon two business days notice to Purchaser, if Purchaser defaults in
the performance of its obligations to make the Contingent Payments under SECTION
2.3 of the Stock Purchase Agreement.
4. NOTICES. Any notice, request or other instruction or other
document to be given hereunder by any party hereto to any other party hereto
must be in writing and delivered personally (including by overnight courier or
express mail service), sent by registered or certified mail, postage or fees
prepaid or by facsimile (with an original by overnight courier delivered the
next business day):
If to Purchaser, to:
USinternetworking, Inc
One USi Plaza.
175 Admiral Cochrane Drive
Annapolis, MD 21401
Facsimile: (410) 573-1906
Attention: Chief Executive Officer
with a copy to:
James F. Rogers
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Facsimile: (202) 637-2201
If to the Seller:
----------------------------------------
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Facsimile:
-------------------------------
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<PAGE>
with a copy to:
Stephen A. Colley
Duckor, Spradling & Metzger
401 West A Street
Suite 2400
San Diego, CA 92101-7915
Facsimile: (619) 231-6629
or to such other address as may be specified from time to time in a notice given
by such party. Any notice which is delivered personally in the manner provided
herein will be deemed to have been duly given to the party to whom it is
directed upon actual receipt by such party or the office of such party. Any
notice which is addressed and mailed in the manner herein provided will be
conclusively presumed to have been duly given to the party to which it is
addressed at the close of business, local time of the recipient, on the fifth
business day after the day it is placed in the mail or, if earlier, the time of
actual receipt.
5. APPLICABLE LAW. This Agreement shall be interpreted and enforced
under the laws of the State of New York, without regard to the choice of law
rules utilized in that jurisdiction.
6. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior oral and written agreements, understandings and commitments between the
parties with respect to the subject matter hereof. No amendments to this
Agreement may be made except by a writing signed by all parties hereto.
7. NO WAIVER. No failure or delay of Purchaser to exercise any of its
rights or remedies hereunder for breach of any provision hereof shall constitute
a waiver of such rights or remedies or any waiver in connection with any
subsequent breach thereof. No waiver of any provision of this Agreement shall be
effective unless in writing and signed by the party against which such waiver is
sought to be enforced.
8. ACKNOWLEDGMENTS. The Seller hereby acknowledges that he has had
the opportunity to consult independent counsel of his choosing in connection
with the execution of Agreement. The Seller further acknowledges that his
execution and delivery of this Agreement has not been obtained by any duress,
and that he freely and voluntarily has entered into it, and that he has
carefully read all of the provisions of this Agreement in their entirety and
fully understands the meaning, intent and consequences of this Agreement.
4
<PAGE>
9. COUNTERPARTS. This Agreement may be signed in multiple
counterparts, all of which together shall constitute one agreement binding on
the parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
10. ARBITRATION. Any dispute or controversy arising under or in
connection us Agreement shall be settled exclusively by arbitration, conducted
before a single arbitrator in the metropolitan area in which the Seller is then
based in accordance with the rules American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Agreement.
11. ATTORNEY'S FEES. If any action in law or in equity is necessary to
enforce or interpret the provisions of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees, costs, and necessary
disbursements, in addition to any other relief to which it may be entitled.
12. CONSTRUCTION. The Section headings of this Agreement are for
convenience only and in no way modify, interpret or construe the meaning of
specific provisions of this Agreement. As used herein, the neuter gender shall
also denote the masculine and feminine, and the masculine gender shall also
denote the neuter and feminine, where the context so permits.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this NonCompetition
Agreement as of the date first written above.
SELLER:
By:
--------------------------------
PURCHASER:
USINTERNETWORKING, INC.
By:
--------------------------------
Name:
Title:
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<PAGE>
EXHIBIT F
<PAGE>
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of September ___, 1998, is made by
and between USinternetworking, Inc., a Delaware corporation (together with any
successor thereto, the "COMPANY") and __________ (the "EXECUTIVE").
RECITALS
A. It is the desire of the Company to assure itself of the services of
the Executive by engaging the Executive to perform such services under the terms
hereof.
B. The Executive desires to commit himself to serve the Company on the
terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" shall have the meaning set forth in
Section 4.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) The Company shall have "CAUSE" to terminate the Executive's
employment hereunder upon the Executive's:
(i) failure substantially to perform his duties hereunder,
other than any such failure resulting from the Executive's Disability,
after notice and reasonable opportunity for cure, all as reasonably
determined by the Board,
(ii) conviction of a felony; or
(iii) fraud or personal dishonesty for material personal gain
involving the Company's assets.
(d) "CHANGE OF CONTROL" shall mean, with respect to any Person,
the consummation of the first to occur of (i) the sale, lease or other transfer
of all or substantially all of the assets of such Person to any person or group
(as such term is used in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended); (ii) the consummation of a plan relating to liquidation or
dissolution of such Person; (iii) the merger or consolidation of such Person
with or into another entity or the merger of another entity into such Person or
any subsidiary
<PAGE>
thereof with the effect that immediately after such transaction the stockholders
of such Person immediately prior to such transaction (or their Affiliates) hold
less than 50% of the total voting power of all securities generally entitled to
vote in the election of directors, managers or trustee's of the entity surviving
such merger or consolidation; or (iv) the acquisition by any person or group
(other than a stockholder of such Person as of the date of this Agreement) of
more than 50% of the voting power of all securities of such Person generally
entitled to vote in the election of directors of such Person.
(e) "COMPANY" shall have the meaning set forth in the preamble
hereto.
(f) "COMPENSATION COMMITTEE" means the compensation committee of
the Board of Directors of the Company.
(g) "CONTRACT YEAR" shall mean each twelve month period beginning
on the effective date hereof or an annual anniversary thereof.
(h) "DATE OF TERMINATION" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment terminated pursuant to SECTION 5(a)(ii) - (vi) the date
specified in the Notice of Termination.
(i) "DISABILITY" shall mean the absence of the Executive from the
Executive's duties to the Company on a full-time basis for a total of six months
during any twelve month period as a result of incapacity due to mental or
physical illness which is determined to be reasonably likely to extend beyond
the completion of the Term by a physician selected by the Company and acceptable
to the Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(j) "EXECUTIVE" shall have the meaning set forth in the preamble
hereto.
(k) The Executive shall have "GOOD REASON" to terminate his
employment in the event that the Company (i) fails to make any payment or
provide any benefit hereunder, (ii) commits a material breach of this Agreement
and does not cure such failure or breach after notice and a reasonable
opportunity to cure, (iii) assigns the Executive without his consent to a
position, responsibilities or duties of a materially lesser status or degree of
responsibility than his position, responsibilities or duties at the date of this
Agreement, (iv) requires the Executive to relocate his principal office outside
the _____ metropolitan area, or (v) permits a Change of Control of IIT Holding,
Inc. or International Information Technology, Inc.
(l) "NOTICE OF TERMINATION" shall have the meaning set forth in
SECTION 5(b).
(m) "PAYMENT PERIOD" shall have the meaning set forth in SECTION
7(a)(i).
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(n) "PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, or unincorporated organization.
(o) "TERM" shall have the meaning set forth in Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the
Executive shall enter the employ of the Company, for the period set forth in
this SECTION 2, in the position set forth in SECTION 3 and upon the other terms
and conditions herein provided. The term of employment under this Agreement (the
"TERM") shall be for the period beginning on the effective date this Agreement
and ending on September __, 2000, unless earlier terminated as provided in
SECTION 5.
3. POSITION AND DUTIES.
(a) The Executive shall serve as a Vice President of the Company
with such customary responsibilities, duties and authority as may from time to
time be assigned to the Executive by the Board. The Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Company.
(b) If elected or appointed thereto, and only for the duration of
such elected term or appointment, the Executive shall serve as a director of the
Company and any of its subsidiaries and/or in one or more executive offices of
any of such subsidiaries, provided that the Executive is indemnified for serving
in any and all such capacities on a basis consistent with that provided by the
Company to other directors of the Company or similarly situated executive
officers of any such subsidiaries.
4. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. During the Term the Executive shall
receive a base salary at a rate of $175,000 per annum, subject to increase as
determined by the Compensation Committee ("ANNUAL BASE SALARY").
(b) BONUS. For each Contract Year, the Executive shall be entitled
to receive a bonus of 30% of the Annual Base Salary for such Contract Year if
Executive achieves the performance goals set forth in a plan for the Executive
for such Contract Year. Such plan will be consistent with the overall plans and
objectives for the Company and will contain financial, employee retention and
business development targets as mutually agreed upon by the Executive and the
Company.
(c) BENEFITS. The Executive shall be entitled to participate in
the other employee benefit plans, programs and arrangements of the Company
(including 15 days of vacation plus holidays) now in effect which are applicable
to the senior officers of the Company, subject to and on a basis consistent with
the terms, conditions and overall administration thereof
3
<PAGE>
(d) OPTIONS. On the date of this Agreement, the Executive shall be
granted 100,000 options with an exercise price of $0.44 per share under the
Company's Stock Option Plan (the "Options").
(e) EXPENSES. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in the performance
of his duties to the Company, in accordance with the Company's documentation and
other policies with respect thereto.
(f) RELOCATION. [For Carlos Bravo Only] The Company shall pay the
Executive's actual and reasonable relocation expenses to any location within the
United States, up to a maximum of $75,000; as outlined in the relocation policy
attached as Exhibit A.
5. TERMINATION. The Executive's employment hereunder may be
terminated by the Company or the Executive, as applicable, without any breach of
this Agreement only under the following circumstances:
(a) CIRCUMSTANCES.
(i) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(ii) DISABILITY. If the Company reasonably determines in good
faith that the Executive has incurred a Disability, the Company may
give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive, provided that within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of his duties. The Executive shall continue to receive his
Annual Base Salary until the Date of Termination.
(iii) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause.
(iv) TERMINATION WITHOUT CAUSE. The Company may terminate the
Executive's employment hereunder without Cause.
(v) RESIGNATION WITH GOOD REASON. The Executive may terminate
his employment for Good Reason.
(vi) TERMINATION WITHOUT GOOD REASON. The Executive may
resign his employment without Good Reason upon 60 days written notice
to the Company.
(b) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive under this SECTION 5 (other than
termination pursuant to paragraph (a)(i)) shall be communicated by a written
notice to the other party hereto
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indicating the specific termination provision in this Agreement relied upon,
setting forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated, and specifying a Date of Termination which, except in
the case of termination for Cause, shall be at least fourteen days (or 60 days
in the case of Termination without Good Reason by the Executive) following the
date of such notice (a "Notice of Termination").
6. SEVERANCE PAYMENTS.
(a) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON: If
the Executive's employment shall terminate without Cause (pursuant to SECTION
5(a)(iv) or for Good Reason (pursuant to SECTION 5(a)(v)) the Company shall:
(i) pay to the Executive, in a lump sum, within five days
following the date of the termination, an amount equal to the Base
Salary provided herein that the Executive would have been entitled to
receive had he continued his employment hereunder for the remainder of
the Term; and
(ii) pay to the Executive within five days following the date
of termination a prorated amount of bonus based on the Company's
year-to-date performance in relation to the performance targets set by
the Board;
(iii) continue for the remainder of the Term the Executive's
coverage under all Company benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Date of
Termination, to the extent permitted thereunder. In the event that the
Executive's participation in any such plan or program is not permitted,
the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have
been entitled to receive under such plans and programs; and
(iv) the Executive's Options, if any, shall become 100%
vested as of the Date of Termination and shall remain exercisable until
the date such Option would otherwise expire without regard to this
Agreement.
(b) SURVIVAL. The expiration or termination of the Term shall not
impair the rights or obligations of any party hereto which shall have accrued
hereunder prior to such expiration.
7. COMPETITION.
(a) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that during the Term and during the 12 month period
beginning on the Date of Termination, the Executive will not directly or
indirectly, by or for himself, or as the agent of another, or through others as
an agent,
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(i) in any way solicit or induce or attempt to solicit or
induce any employee, officer, representative, consultant, or other
agent of the Company (whether such person is presently employed by the
Company or may hereinafter be so employed), to leave the Company's
employ or otherwise interfere with the employment relationship between
any such person and the Company; or
(ii) take any action to purchase or obtain goods or services,
from any of the Company's proprietary suppliers or other supplier with
whom the Company has developed an exclusive relationship; or
(iii) in any way solicit, or attempt to divert, take away or
call on, any customers of the Company.
(b) The Executive shall not, at any time during the Term, or (if
his employment was terminated by the Executive without Good Reason or by the
Company for Cause) during the 12 month period following the Date of Termination,
without the prior written consent of the Board, directly or indirectly engage
in, or have any interest in, or manage or operate any person, firm, corporation,
partnership or business (whether as director, officer, employee, agent,
representative, partner, security holder, consultant or otherwise) that engages
in any business which competes with any business of the Company or any
subsidiary wherever located at the date of termination; PROVIDED, HOWEVER, that
the Executive shall be permitted to acquire a stock interest in such a
corporation provided such stock is publicly traded and the stock so acquired is
not more than five percent (5%) of the outstanding shares of such corporation.
(c) In the event the terms of this SECTION 7 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical area
or by reason of its being too extensive in any other respect, it will be
interpreted to extend only over the maximum period of time for which it may be
enforceable, and/or over the maximum geographical area as to which it may be
enforceable and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.
(d) The provisions of this SECTION 7 shall terminate upon two days
notice from Executive if the Company defaults in the performance of its
obligations under Section 2.3 of the Stock Purchase Agreement dated August 28,
1998 between the Company, Executive and the other parties thereto.
8. NONDISCLOSURE OF PROPRIETARY INFORMATION.
(a) Except as required in the faithful performance of the
Executive's duties hereunder or pursuant to subsection (c), the Executive shall,
in perpetuity, maintain in confidence and shall not directly, indirectly or
otherwise, use, disseminate, disclose or publish, or use for his benefit or the
benefit of any person, firm, corporation or other entity any confidential or
proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential
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customers, marketing methods, costs, prices, contractual relationships,
regulatory status, compensation paid to employees or other terms of employment,
or deliver to any person, firm, corporation or other entity any document,
record, notebook, computer program or similar repository of or containing any
such confidential or proprietary information or trade secrets; provided,
however, that no information otherwise in the public domain (other than by any
act of Executive in violation hereof) shall be considered confidential or
proprietary. The parties hereby stipulate and agree that as between them the
foregoing matters are important, material and confidential proprietary
information and trade secrets and affect the successful conduct of the
businesses of the Company (and any successor or assignee of the Company).
(b) Upon termination of the Executive's employment with Company
for any reason and upon the Company's request, the Executive will promptly
deliver to the Company all correspondence, drawings, manuals, letters, notes,
notebooks, reports, programs, plans, proposals, financial documents, or any
other documents concerning the Company's customers, business plans, marketing
strategies, products or processes and/or which contain proprietary information
or trade secrets.
(c) The Executive may respond to a lawful and valid subpoena or
other legal process but shall give the Company the earliest possible notice
thereof, shall, as much in advance of the return date as possible, make
available to the Company and its counsel the documents and other information
sought and shall assist such counsel in resisting or otherwise responding to
such process.
9. INJUNCTIVE RELIEF. It is recognized and acknowledged by the
Executive that a breach of the covenants contained in Sections 7 and 8 will
cause irreparable damage to Company and its goodwill, the exact amount of which
will be difficult or impossible to ascertain, and that the remedies at law for
any such breach will be inadequate. Accordingly, the Executive agrees that in
the event of a breach of any of the covenants contained in Sections 7 and 8, in
addition to any other remedy which may be available at law or in equity, the
Company will be entitled to specific performance and injunctive relief.
10. BINDING ON SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company, the Executive and their respective
successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
11. GOVERNING LAW. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
New York.
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and
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<PAGE>
shall be in writing and delivered personally or sent by telex, telecopy, or
certified or registered mail, postage prepaid, as follows:
(a) If to the Company:
USinternetworking, Inc.
One USi Plaza
175 Admiral Cochrane Drive
Annapolis, MD 21401
Attn: Chief Executive Officer
Tel. No.: (410) 897-4400
Fax No.: (410) 573-1906
(b) If to the Executive, to him at the address set forth below
under his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
15. ENTIRE AGREEMENT. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding to vary the terms of this
Agreement.
16. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive and
the Chairman of the Board. By an instrument in writing similarly executed, the
Executive or the Company may waive compliance by the other party or parties with
any provision of this Agreement that such other party was or is obligated to
comply with or perform, provided, however, that such waiver shall not operate as
a waiver of, or estoppel with respect to, any other or subsequent failure. No
failure to exercise and no delay in exercising any right, remedy, or power
hereunder preclude any other or further exercise of any other right, remedy, or
power provided herein or by law or in equity.
17. NO INCONSISTENT ACTIONS. The parties hereto shall not voluntarily
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with respect
to the interpretation and application of the provisions of this Agreement.
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18. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a single arbitrator in the metropolitan area in which the
Executive is then based (or was last based during the Term if the Executive's
employment has been terminated) in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of SECTIONS 7 or 8 of the Employment Agreement, and provided further
that the Executive shall be entitled to seek specific performance of his right
to be paid and/or damages until the Date of Termination during the pendency of
any dispute or controversy arising under or in connection with this Agreement.
The fees and expense of the arbitrator shall be borne by the Company.
19. ATTORNEY'S FEES. In the event of any arbitration or litigation
arising under this Agreement, the prevailing party shall be entitled to recover
his or its reasonable attorney's fees from the other party.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
THE COMPANY:
USINTERNETWORKING, NC.
By:
----------------------------------------
Name:
------------------------------------
THE EXECUTIVE:
By:
----------------------------------------
Address:
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EXHIBIT A
Relocation package for Carlos Bravo shall include all benefits normally
provided for executive relocation including but not limited to:
1. brokerage expenses; Payment of all sales and closing expenses
including any realtor or brokerage expenses;
2. All moving expenses such as van lines, packing, loading, unloading,
etc.
3. Temporary living expenses during the moving process and until
executive locates a suitable permanent residence up to a maximum of 45 days;
4. All finding and closing expenses and mortgage finance expenses in
locating and purchasing a new residence in the general relocation area,
including all closing expenses, realtor and brokerage expenses, normal and
reasonable mortgage fees and points, and
5. All miscellaneous "move in" expenses such as costs of utility
hook-up, etc.
<PAGE>
EXHIBIT G
<PAGE>
USINTERNETWORKING, INC.
WARRANTHOLDERS' AGREEMENT
DATED AS OF
________, 1998
<PAGE>
WARRANTHOLDERS' AGREEMENT
This WARRANTHOLDERS' AGREEMENT ("Agreement") is entered into as of
_______,1998 by and among USinternetworking, Inc., a Delaware corporation (the
"Company"), and those holders of Warrants ("Holders") listed on Schedule 1
hereto.
RECITALS:
A. The Company has agreed to issue warrants to purchase Common Stock in
connection with the acquisition of_________ pursuant to that certain Stock
Purchase Agreement dated as of August __, 1998 (the "Stock Purchase Agreement")
by and among ___ and the Company.
B. It is a condition precedent to the Closing under the Stock Purchase
Agreement that the parties hereto enter into this Agreement.
C. All of the Holders (as hereinafter defined) desire to enter into
this Agreement for the purpose of regulating certain aspects of the Holders'
ownership of Company Securities.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the Company and Holders
agree as follows:
Section 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings and other defined terms in this Agreement shall have the
meanings given such terms in their respective sections and/or paragraphs:
"COMMON STOCK" means the Common Stock, par value $.00l per share, of
the Company and any other capital stock of the Company into which such Common
Stock is reclassified or reconstituted.
"COMPANY SECURITIES" means the Common Stock, any securities convertible
into or exchangeable for Common Stock and any other capital stock of the Company
now or hereafter issued by the Company.
"HOLDERS" shall mean those individuals and entities identified as
"Holders" on Schedule I hereto and such other persons who become parties to this
Agreement pursuant to Section 2 thereof or by executing an instrument of
accession.
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Section 2. TRANSFER OF SECURITIES.
(a) GENERAL PROHIBITION ON TRANSFER. No Holder shall sell, assign,
transfer, pledge, encumber or in any way dispose of ("Transfer") any Company
Securities unless (i) such Holder has complied with the provisions of this
Section 2, (ii) the transferee (if other than the Company or a transferee of
Company Securities pursuant to a transaction set forth in clause (iv) of the
definition of Exempt Transfers (as set forth in Section 2(c)) has agreed to
become a party to, and be bound by the terms of, this Agreement and has executed
a supplemental agreement hereto in form and substance reasonably satisfactory to
the Company, and (iii) such Holder has delivered to the Company an opinion of
such Holder's counsel, in form and substance reasonably satisfactory to the
Company, to the effect that such Transfer is either exempt from the registration
requirements of the Securities Act and the applicable securities laws of any
state or that such registration requirements have been complied with.
(b) RIGHT OF FIRST OFFER.
(i) If any Holder (a "Seller") has received and accepted a bona
fide offer (a "Transfer Offer ") to purchase any or all of the Company
Securities (the "Transfer Stock") then owned by such Seller to any person other
than pursuant to an Exempt Transfer (as defined in Section 2(c) below), then
before the Seller may sell the Transfer Stock, the Seller shall provide to the
Company a written notice detailing the terms of such Transfer Offer that the
Seller has accepted with respect to such Transfer Stock (a "Transfer Notice").
Such Transfer Notice shall identity the Transfer Stock, the price of the
Transfer Stock, the identity of the third party offeror and all the other
material terms and conditions of such Transfer Offer. The Transfer Notice shall
contain an irrevocable offer (a "First Offer") to sell the Transfer Stock to the
Company at a price equal to the price and upon substantially the same terms as
the terms contained in such Transfer Offer. The Company shall have the
irrevocable right and option (the "Right of First Offer"), exercisable as
provided below, to accept the First Offer as to any or all Company Securities of
the Transfer Stock. The Company shall provide the Seller with an irrevocable
written notice of acceptance specifying the number of Company Securities of the
Transfer Stock which the Company is agreeing to purchase pursuant to such First
Offer, which shall be binding on the Company for the number of Company
Securities in such notice of acceptance, which notice of acceptance must be
provided to the Seller within fifteen (15) business days after the date the
Transfer Notice is given (the "Notice Period").
(ii) Subject to the Seller's rights under Section 2(b)(iii), the
closing of the purchase of the Transfer Stock by the Company pursuant to this
Section 2(b) shall take place at the principal office of the Company on the
thirtieth (30th) business day after the expiration of the Notice Period (or
after the receipt of any required governmental consents or approvals). At such
closing, the Company shall deliver a certified check or checks in the
appropriate amount to the Seller against delivery of certificates representing
the Transfer Stock so purchased, duly endorsed
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<PAGE>
in blank by the person or persons in whose name a stock certificate is
registered or accompanied by a duly executed assignment separate from the
certificate with the signatures thereon guaranteed by a commercial bank or trust
company.
(iii) Notwithstanding the exercise by the Company of its rights
under this Section 2(b), if at the end of the Notice Period the Company shall
have agreed to purchase less than all of the Transfer Stock covered thereby (a
"Partial Purchase Commitment"), the Seller shall promptly notify the Company as
to whether or not it shall accept such Partial Purchase Commitment. If such
Partial Purchase Commitment is accepted, the closing for such purchase of a
portion of such Transfer Stock shall take place pursuant to Section 2(b)(ii)
hereof. Upon acceptance by the Seller of the Partial Purchase Commitment, the
Seller shall have the right within the time hereinafter specified to Transfer
any Transfer Stock not included in the Partial Purchase Commitment at a price
not less than and on terms no more favorable to the purchaser than were in the
Transfer Notice. If the Seller determines not to accept the Partial Purchase
Commitment, the Seller shall have the right within the time hereinafter
specified to Transfer any or all of the Transfer Stock at a price not less than
and on terms no more favorable to the purchaser than contained in the Transfer
Notice. If the Company notifies the Seller that it has decided not to purchase
any portion of the Transfer Stock, or the Seller has accepted a Partial Purchase
Commitment and desires to Transfer the remaining Transfer Stock, or the Seller
has rejected the Partial Purchase Commitment and desires to Transfer the
Transfer Stock, the Seller shall have 180 days from the end of the Notice Period
(the "Sales Period"), in which to Transfer any or all of the Transfer Stock at a
price not less than and on terms no more favorable than were contained in the
Transfer Notice. No sale may be made to any third party unless such third party
agrees in writing, in form and substance reasonably acceptable to the Company,
to be bound by the provisions of this Agreement, as a Holder. Promptly after any
sale pursuant to this Section 2(b), the Seller shall notify the Company of the
consummation thereof and shall furnish such evidence of the completion
(including time of completion) of such sale and of the terms thereof as the
Company may reasonably request. If, at the termination of the Sales Period, the
Seller has not completed the sale of all the Transfer Stock, such Seller shall
no longer be permitted to Transfer such Transfer Stock pursuant to this Section
2(b) without again fully complying with the provisions of this Section 2(b) and
all the restrictions on Transfer contained in this Agreement shall again be in
effect with respect to all such Seller's Transfer Stock.
(c) EXEMPT TRANSFER. The following transactions shall constitute
"Exempt Transfers" for the purpose of Section 2(b): (i) a Transfer of Company
Securities by a Holder to the Company, (ii) a Transfer by a Holder of Company
Securities by will or intestate succession to such Holder's executor's,
administrators, testamentary trustees, legatees or beneficiaries, (iii) a
Transfer of Company Securities by a Holder to any Related Party (as defined
below) of such Holder, (iv) a Transfer of Company Securities by a Holder to the
public pursuant to an effective registration statement under the Securities Act
or pursuant to Rule 144 promulgated thereunder, (v) a Transfer of Company
Securities that has been approved in writing as an Exempt Transfer by the
holders of a majority of the outstanding Common Stock and the holders of a
majority of the outstanding shares of Series A Preferred Stock, par value $.0l
per share, of the Company; or (vi) a Transfer of Company Securities from one of
the Holders to another of the Holders.
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<PAGE>
(d) RELATED PARTY. As used herein, the term "Related Party" with
respect to any Holder means: (A) any person or entity that directly or
indirectly, through one or more intermediaries, has control of or is controlled
by, or is under common control with, the person or entity specified (an
"Affiliate"); (B) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, or owners, or persons holding a
controlling interest of which consist of such Holder and/or such other persons
or entities referred to in the immediately preceding clause (A), (C) with
respect to any Holder which is an individual, such Holder's spouse, siblings,
children or parents, or (D) with respect to any Holder which is a partnership or
a limited liability company, such Holders' partners or members as of the date
hereof and those persons who become partners or members of such Holder in the
ordinary course of such Holder's business.
(e) TAG-ALONG RIGHT. At any time on or after the date hereof, if one or
more holders of Common Stock ("SELLING STOCKHOLDERS") propose to Transfer (in a
sale consummated in a single Transfer or a series of related Transfers to a
single purchaser or a group of purchasers as part of a single transaction)
shares of Common Stock representing 51% or more of the outstanding shares of
Common Stock, then each of the Holders shall have the right (the "TAG-ALONG
RIGHT") to require the proposed purchaser to purchase from such Holder the same
proportion of such Holder's shares of Common Stock as the proportion of the
Selling Stockholder's shares of Common Stock proposed to be Transferred bears to
the total number of shares of Common Stock. Any shares of Common Stock purchased
from a Holder pursuant to this Section __ shall be paid for at the same price
and upon the same terms and conditions as such proposed Transfer by the Selling
Stockholder(s) (the "TRANSFER TERMS").
The Company shall promptly notify in writing the Holders in the event
Selling Stockholders propose to make a Transfer giving rise to the Tag-Along
Right, and shall furnish the Holders with the Transfer Terms and a copy of any
written offer or agreement pertaining thereto. The Tag-Along Right may be
exercised by any Holder by delivery of a written notice to the Company (the
"TAG-ALONG NOTICE") within fifteen (15) days following its receipt of such
notice from the Company. The Tag-Along Notice shall state the number of shares
of Common Stock that such Tag-Along Member proposes to include in such Transfer
to the proposed purchaser. In the event that the proposed purchaser does not
purchase the specified amount of shares of Common Stock from the Tag-Along
Members on the Transfer Terms, then the Company shall not permit the Selling
Stockholders to sell any shares of Common Stock to the proposed purchaser in the
proposed transfer.
The provisions of this Section 2(e) shall not apply to Exempt
Transfers.
(f) DRAG-ALONG RIGHT. At any time on or after the date hereof, if one
or more Selling Stockholders propose to Transfer (in a sale consummated in a
single Transfer or a series of related Transfers to a single purchaser or a
group of purchasers as part of a single transaction), shares of Common Stock
representing 51% or more of the outstanding shares of Common Stock, then the
Selling Stockholders shall have the right (the "DRAG-ALONG RIGHT"), but not the
obligation, to cause each of the Holders to tender for purchase to such
purchaser(s), at the
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<PAGE>
Transfer Terms, the same proportion of their shares of Common Stock as the
proportion of the Selling Stockholders' shares of Common Stock proposed to be
Transferred bears to the total number of shares of Common Stock owned by the
Selling Stockholders.
If the Selling Stockholder(s) elect to exercise the Drag-Along Right,
then they shall so notify the Holders (the "DRAG-ALONG NOTICE"). Each Drag-Along
Notice shall set forth the name and address of the proposed purchaser, the
proposed amount and form of consideration and other terms and conditions of
Transfer offered by the proposed purchaser, the aggregate number of shares of
Common Stock proposed to be purchased by such purchaser, and the Transfer Terms.
All Transfers pursuant to the Drag-Along Right shall be effectuated
simultaneously with the Transfer by the Selling Stockholders. Upon the receipt
of a Drag-Along Notice, each Holder shall be entitled and obligated to Transfer
such shares of Common Stock and shall execute such instruments and documents as
may reasonably be requested to Transfer such shares of Common Stock to the
proposed purchaser on the terms and for the price set forth in subsection (a)
above.
The provisions of this Section 2(f) shall not apply to Exempt
Transfers.
Section 3. PIGGYBACK REGISTRATION RIGHTS.
(a) RIGHT TO PIGGYBACK. Subject to the last sentence of this subsection
(a), whenever the Company proposes to register any shares of Common Stock with
the Securities and Exchange Commission (the "Commission") under the Securities
Act (other than registrations on Form S-4 or Form S-8) and the registration form
to be used may be used for the registration of the Registrable Securities (as
defined in subsection (j) below) (a "Piggyback Registration"), the Company will
give written notice to all Holders, at least thirty (30) days prior to the
anticipated filing date, of its intention to effect such a registration, which
notice will specify the proposed offering price, the kind and number of
securities proposed to be registered, the distribution arrangements and such
other information that at the time would be appropriate to include in such
notice, and will, subject to subsection (b) below, include in such Piggyback
Registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within twenty (20) business days
after the delivery of the Company's notice. Except as may otherwise be provided
in this Agreement, Registrable Securities with respect to which such request for
registration has been received will be registered by the Company and offered to
the public in a Piggyback Registration pursuant to this Section 3 on the terms
and conditions at least as favorable as those applicable to the registration of
the shares of Common Stock to be sold by the Company and by any other person
selling under such Piggyback Registration.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. If the managing underwriter or
underwriters, if any, advise the holders of Registrable Securities in writing
that in its or their reasonable opinion or, in the case of a Piggyback
Registration not being underwritten, the Company shall reasonably determine (and
notify the holders of Registrable Securities of such determination), after
consultation with an investment banker of nationally recognized standing, that
the number
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<PAGE>
or kind of securities proposed to be sold in such registration (including
Registrable Securities to be included pursuant to subsection (a) above) will
materially adversely affect the success of such offering (including, without
limitation, an impact on the selling price), the Company will include in such
registration the number of securities, if any, which, in the opinion of such
underwriter or underwriters, or the Company, as the case may be, can be sold, as
follows: (i) first, the shares the Company proposes to sell, and (ii) second,
pro rata among the Holders, provided, however, if Company Securities are to be
included in a Piggyback Registration pursuant to registration rights contained
in the Shareholders' Agreement dated as of May 28, 1998 between the Company and
the parties thereto (the "Shareholders' Agreement"), then the Company will
include in such registration the number of securities, if any, which, in the
opinion of such underwriter or underwriters, or the Company, as the case may be,
can be sold, as set forth in Section 3(a)(2) of the Shareholders' Agreement,
treating the Holders for such purposes as "Stockholders" under the Shareholders'
Agreement.
(c) RESTRICTIONS ON PUBLIC SALE.
(1) PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES. To the
extent not inconsistent with applicable law, each Holder, if requested by the
managing underwriter or underwriters for any such Registration, agrees not to
effect any public sale or distribution of Company Securities including a sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, during the 15 business days prior to, and during the ninety
(90)-day period (or such shorter period as may be agreed to by such holders)
beginning on, the effective date of the applicable Registration Statement
(except as part of such Registration).
(2) PUBLIC SALE BY THE COMPANY AND OTHERS. If requested by the
managing underwriter or underwriters for any underwritten Registration, (i) the
Company will not effect any public sale or distribution of Company Securities
during the fifteen (15) business days prior to, and during the ninety (90)-day
period beginning on the effective date of such Registration and (ii) the Company
will cause each holder of Company Securities purchased from the Company at any
time alter the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period described in clause (i) above (except as part of
such Registration, if otherwise permitted).
(d) REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement will be borne by the Company,
including, without limitation, all registration and filing fees, the fees and
expenses of the counsel and accountants for the Company (including the expenses
of any "cold comfort" letters and special audits required by or incident to the
performance of such persons), all other costs and expenses of the Company
incident to the preparation, printing and filing under the Securities Act of the
Registration Statement (and all amendments and supplements thereto) and
furnishing copies thereof and of the Prospectus included therein, the costs and
expenses incurred by the Company in connection with the qualification of the
Registrable Securities under the state securities or "blue sky" laws of various
jurisdictions, the costs and expenses associated with filings required to be
made with the NASD (including, if applicable, the fees and expenses of any
"qualified independent
-6-
<PAGE>
underwriter" and its counsel as may be required by the rules and regulations of
the NASD), the costs and expenses of listing the Registrable Securities for
trading on a national securities exchange or authorizing them for trading on
NASDAQ and all other costs and expenses incurred by the Company in connection
with any Registration hereunder; PROVIDED, that, except as otherwise provided in
subsection (2) below, each Holder shall bear the costs and expenses of any
underwriters' commissions, brokerage fees or transfer taxes relating to the
Registrable Securities sold by such Holders and the fees and expenses of any
counsel, accountants or other representative retained by Holder.
(e) INDEMNIFICATION.
(1) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, each Holder, its officers,
directors, partners and agents and each person who controls such Holder (within
the meaning of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or preliminary Prospectus or
any omission or alleged omission to state therein a material fact necessary to
make the statements therein (in the case of a Prospectus or any preliminary
Prospectus, in light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information with respect to such Holder furnished in writing to the Company by
such Holder or its representative expressly for use therein. The Company will
also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each person who controls such persons (within the
meaning of the Securities Act) to the same extent as provided above with respect
to the indemnification of the holders of Registrable Securities; PROVIDED,
HOWEVER, if pursuant to an underwritten public offering of Registrable
Securities, the Company and any underwriters enter into an underwriting or
purchase agreement relating to such offering that contains provisions relating
to indemnification and contribution between the Company and such underwriters,
such provisions shall be deemed to govern indemnification and contribution as
between the Company and such underwriters.
(2) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any Registration in which a Holder is participating, each such
Holder will furnish to the Company in writing such information with respect to
such Holder as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify, to the full extent
permitted by law, the Company, the directors and officers of the Company signing
the Registration Statement and each person who controls the Company (within the
meaning of the Securities Act and the Exchange Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement of a
material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements in the Registration Statement or
Prospectus or preliminary Prospectus (in the case of the Prospectus or any
preliminary Prospectus, in light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is
-7-
<PAGE>
contained in any information with respect to such Holder so furnished in writing
by such Holder or its representative specifically for inclusion therein;
PROVIDED, HOWEVER, that the Holder's liability shall in no event exceed the net
proceeds received by such Holder from the sale of shares pursuant to such
Registration Statement. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent as
provided above with respect to information with respect to such persons or
entities so furnished in writing by such persons or entities or their
representatives specifically for inclusion in any Prospectus or Registration
Statement.
(3) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or entity
entitled to indemnification hereunder will (i) give prompt written notice to the
indemnifying party after the receipt by the indemnified party of a written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party will claim
indemnification or contribution pursuant to this Agreement; PROVIDED, HOWEVER,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the preceding
clauses (1) and (2), except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist between
such indemnified and indemnifying parties with respect to such claim, permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will consent to the entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel in any one jurisdiction for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels.
(4) CONTRIBUTION. If for any reason the indemnification provided
for in the preceding clauses (1) and (2) is unavailable to an indemnified party
as contemplated by the preceding clauses (1) and (2), then the indemnifying
party in lieu of indemnification shall contribute to the amount paid or payable
by the indemnified party as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided that no Holder shall be
required to contribute in an amount greater than the difference between the net
proceeds received by such Holder with respect to the sale of any Shares and all
amounts already contributed by such Holder with respect to such claims,
including amounts paid for any legal or other fees or expenses incurred by such
Holder.
-8-
<PAGE>
(f) RULE 144. The Company agrees that at all times after it has filed a
registration statement pursuant to the requirements of the Securities Act
relating to any class of equity securities of the Company, it will file in a
timely manner all reports required to be filed by it pursuant to the Securities
Act and the Exchange Act and will take such further action as any holder of
Registrable Securities may reasonably request in order that such holder may
effect sales of Company Securities pursuant to Rule 144. At any reasonable time
and upon request of any Holder, the Company will furnish such Holder and others
with such information as may be necessary to enable the Holder to effect sales
of Company Securities pursuant to Rule 144 under the Securities Act and will
deliver to such Holder a written statement as to whether it has complied with
such requirements. Notwithstanding the foregoing, the Company may deregister any
class of its equity securities under Section 12 of the Exchange Act or suspend
its duty to file reports with respect to any class of its securities pursuant to
Section 15(d) of the Exchange Act if it is then permitted to do so pursuant to
the Exchange Act and the rules and regulations thereunder.
(g) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten Registration hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting arrangements, and (ii) accurately completes in a timely manner and
executes all questionnaires, powers of attorney, underwriting agreements and
other documents customarily required under the terms of such underwriting
arrangements, provided that the representations and warranties of any Holder
therein shall be limited to its title to the Registrable Securities to be sold
and other matters within its knowledge.
(h) DEFINITION OF REGISTRABLE SECURITIES. "Registrable Securities"
means any shares of Common Stock which shall have been issued upon exercise of
the Warrants pursuant to the terms thereof, but with respect to any share, only
until such time as such share (i) has been effectively registered under the
Securities Act and disposed of in accordance with the Registration Statement
covering it or (ii) has been sold to the public pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act and the Legend
referred to in Section 5(a) has been removed from the certificate representing
such share.
Section 4. TERMINATION AND AMENDMENT.
The provisions of Sections 2 of this Agreement shall terminate upon the
earlier of (i) the consummation of an underwritten public offering of Common
Stock designed to achieve broad distribution of such Common Stock and resulting
in the listing of such Common Stock on a national securities exchange or NASDAQ,
or (ii) the consummation of any merger of the Company with and into a company
whose common stock is publicly traded on a national securities exchange or
NASDAQ (each an "Exchange"), in which at least 90% of the merger consideration
is composed of registered securities listed on an Exchange and/or cash, and
where as a result of such merger the holders of the Company's equity securities
immediately prior to the merger own equity securities of the surviving publicly
traded company with less than 50% of the
-9-
<PAGE>
voting power of its outstanding securities. The provisions of this Agreement may
be modified or amended by the written agreement of the Holders and the Company.
Section 5. MISCELLANEOUS.
(a) LEGEND. The certificates representing the capital stock of the
Company held by each of the Holders shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT COVERING SUCH SECURITIES OR SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT AND ANY SIMILAR REQUIREMENTS OF ANY APPLICABLE STATE SECURITIES
LAW. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A WARRANTHOLDERS' AGREEMENT DATED AS OF
________________, 1998, A COPY OF WHICH IS AVAILABLE UPON REQUEST FROM THE
SECRETARY OF THE COMPANY."
If any capital stock of the Company becomes eligible for sale pursuant to Rule
144(k) promulgated under the Securities Act, the Company shall, upon the request
of any holder of such capital stock, remove the legend set forth in this Section
5(a) from the certificates evidencing the shares of such capital sock held by
such holder. In addition, (i) in connection with any Transfer of shares of any
capital stock of the Company pursuant to any public offering registered under
the Securities Act or pursuant to Rule 144 or Rule 144A (or any similar rule or
rules then in effect promulgated under the Securities Act) if such rule is
available or (ii) if the holder of any shares of capital stock of the Company
delivers to the Company an opinion of counsel reasonably acceptable to the
Company that no subsequent Transfer of such shares shall require registration
under the Securities Act, the Company shall promptly upon such Transfer deliver
new certificates for such shares which do not bear the legend set forth in this
Section 5(a).
(b) SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their respective
legal representatives, heirs, legatees, successors and permitted assigns
(including any party to which any Holder has Transferred Shares if such party is
required under Section 2(a) to become bound hereby).
(c) SPECIFIC PERFORMANCE, ETC. The Company and each Holder, in addition
to being entitled to exercise all rights provided herein, in the Company's
Certificate of Incorporation or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement,
without the requirement of bond. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a
-10-
<PAGE>
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(d) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal law of the State of Delaware.
(e) INTERPRETATION. The headings of the sections contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
(f) NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, or sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, three (3) business days after the date of deposit in the United
States mail, by certified mail return receipt requested, as follows:
(i) If to the Company to:
USinternetworking, Inc.
175 Admiral Cochrane Drive
Suite 400
Annapolis, MD 21401
Attention: Christopher R. McCleary
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004-2505
Attention: James F. Rogers, Esq.
(ii) If to _________________________:
(g) INSPECTION AND COMPLIANCE WITH LAW. Copies of this Agreement will
be available for inspection or copying by any Holder at the offices of the
Company through the Secretary of the Company.
(h) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this paragraph (h), may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given, except by a written
-11-
<PAGE>
instrument executed by all of the parties hereto. No action taken pursuant to
this Agreement, including, without limitation, any investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
(i) TRANSFERS VOID. Any Transfer of any security of the Company in
violation of this Agreement shall be null and void.
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, by the original parties hereto and any successor in interest, each
of which shall be deemed to be an original and all of which together shall be
deemed to constitute one and the same agreement.
(k) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
(l) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Shareholders'
Agreement as of the date first above written.
THE COMPANY:
USINTERNETWORKING, INC.
a Delaware corporation
By:
--------------------------------------
Christopher R. McCleary, President
THE HOLDERS:
By:
--------------------------------------
-13-
<PAGE>
SCHEDULE 4.1
JURISDICTIONS WHERE EACH OF THE ACQUIRED COMPANIES IS QUALIFIED TO DO
BUSINESS
<TABLE>
<CAPTION>
STATES WHERE REGISTERED
COMPANY STATE OF INCORPORATION TO DO BUSINESS
- --------------------------------------------------------------------------------
<S> <C> <C>
IIT Holding, Inc. Florida Florida
(Parent Company)
International California California
Information Florida
Technology, Inc. Illinois
(Owned 100% by IIT Holding,
Inc.)
International Caracas, Venezuela Venezuela
Information
Technology, IIT, C.A
(Owned 100% by IIT Holding,
Inc.)
I.I.T. Technology Florida Florida
Solutions, Inc.
(Owned 100% by IIT Holding,
Inc.)
</TABLE>
Note: Inactive shell company with no assets and no operations
<PAGE>
SCHEDULE 4.2
LISTINGS OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION STATES WHERE REGISTERED
TO DO BUSINESS
- --------------------------------------------------------------------------------
<S> <C> <C>
International California California
Information Florida
Technology, Inc. Illinois
(Owned 100% by IIT Holding,
Inc.)
International Caracas, Venezuela Venezuela
Information
Technology, IIT, C.A
(Owned 100% by IIT Holding,
Inc.)
I.I.T. Technology Florida Florida
Solutions, Inc.
(Owned 100% by IIT Holding,
Inc.)
</TABLE>
Note: Inactive shell company with no assets and no operations
<PAGE>
SCHEDULE 4.6
FINANCIAL STATEMENTS
ATTACHED
1) Audited Financials, for the periods ending December 31, 1997 and 1996 for
IIT, Inc. (9 pages)
2) Reviewed Financials, for the 6 month period ending June 30, 1998 for IIT,
Inc. (9 pages)
3) Unaudited Financial Statements for the 7 month period ending July 31, 1998
for IIT, Inc.
4) Unaudited Financials (Non-U.S. Accounting Audit but not signed), for the
periods ending December 31, 1997 and 1996 for International Information
Technology IIT, C.a. (IIT, C.A.) (23 pages)
5) Unaudited Financial Statements for the 6 month period ending June 30, 1998
for IIT, C.A. (6 pages)
<PAGE>
INTERNATIONAL INFORMATION
TECHNOLOGY, INC.
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997 AND 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Independent Auditors' Report ........................................ 1
Financial Statements
Balance sheets .................................................... 2
Statements of Operations and Retained Earnings .................... 3
Statements of Cash Flows .......................................... 4
Notes to Financial Statements ..................................... 5-7
</TABLE>
<PAGE>
[LETTERHEAD OF VERDEJA & GRAVIER]
INDEPENDENT AUDITORS' REPORT
Board of Directors
International Information Technology, Inc.
Coral Gables, Florida
We have audited the accompanying balance sheets of International Information
Technology, Inc. at December 31, 1997 and 1996, and the related statements of
operations and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 financial position of International Information
Technology, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Verdeja & Gravier
CERTIFIED PUBLIC ACCOUNTANTS
Coral Gables, Florida
July 22, 1998
<PAGE>
ASSETS
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 9,520 $ 12,379
Accounts receivable 590,246 153,769
Due from related company in Venezuela 186,030 --
Other current assets 17,690 470
-------- --------
TOTAL CURRENT ASSETS 803,486 166,618
PROPERTY AND EQUIPMENT
Computer equipment 43,954 21,578
Vehicles 45,119 45,119
-------- --------
89,073 66,697
Less accumulated depreciation (46,547) (25,650)
-------- --------
42,526 41,047
-------- --------
$846,012 $207,665
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $187,121 $ --
Accounts payable and accrued expenses 311,935 75,740
Income taxes payable 11,000 --
Unsecured loan payable to stockholder,
non-interest bearing 30,060 60,061
Deferred income taxes 78,890 --
-------- --------
TOTAL CURRENT LIABILITIES 619,006 135,801
STOCKHOLDERS' EQUITY
Capital stock, $1 par value per share,
authorized issued and outstanding
1,000 shares 1,000 1,000
Retained Earnings 226,006 70,864
-------- --------
227,006 71,864
-------- --------
$846,012 $207,665
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Revenue
Consulting $2,963,702 $854,026
Cost of revenues 1,564,591 689,602
---------- --------
GROSS PROFIT 1,399,111 164,426
Operating expenses
General and administrative 1,072,014 99,879
Sales and marketing 62,943 73,305
Depreciation 20,897 12,940
---------- --------
1,155,854 186,124
---------- --------
243,257 (21,698)
Other income 1,775 --
---------- --------
INCOME (LOSS) BEFORE INCOME TAXES 245,032 (21,698)
Applicable income taxes (89,890) --
---------- --------
NET INCOME (LOSS) 155,142 (21,698)
Retained earnings at beginning of year 70,864 92,562
---------- --------
Retained earnings at end of year $ 226,006 $ 70,864
---------- --------
---------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
- -------------------------------------------------------------------------------
For the years ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 155,142 $(21,698)
--------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 20,897 12,940
Change in Assets and Liabilities:
Increase in accounts receivable (436,477) (1,206)
Increase in due from related company (186,030) --
Increase (decrease) in other assets (17,220) 798
Increase in cash overdraft 187,121 --
Increase in accounts payable 236,195 74,940
Increase in income taxes payable 11,000 --
Increase in deferred taxes 78,890 --
--------- --------
Total Adjustments (105,624) 87,472
--------- --------
Net Cash Provided by Operating Activities 49,518 65,774
Cash Flows from Investing Activities:
Acquisition of property and equipment (22,376) (10,545)
--------- --------
Net Cash Used by Investing Activities (22,376) (10,545)
Cash Flows from Financing Activities:
Increase in stockholder loan -- 29,000
Repayment of stockholder loan (30,001) --
Decrease in notes payable -- (21,117)
--------- --------
Net Cash Provided (Used) by Financing Activities (30,001) 7,883
--------- --------
Net increase (decrease) in cash (2,859) 63,112
Cash (overdraft) at beginning of year 12,379 (50,733)
--------- --------
Cash at end of year $ 9,520 $ 12,379
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1997 AND 1996
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization:
International Information Technology, Inc. (hereinafter referred to
as the "Company") provides Internet and Intranet consulting, integration,
and support services principally to commercial companies located
throughout the United States and South America. International Information
Technology, Inc. was incorporated, under the laws of the State of
California in May 1994.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed
principally on the straight-line method over the estimated useful lives of
the assets which range from 5 to 7 years for property and equipment.
Income taxes:
The Company provides for income taxes currently payable as well as
deferred taxes resulting from temporary differences between reporting
assets and liabilities for tax purposes and for financial statement
purposes using provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Under these standards, deferred
taxes and liabilities represent the tax effects, based on current tax laws
of future deductibles or taxable amounts attributable to events that have
been recognized in the financial statements.
Supplement to Statement of cash flows:
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments, including certificates of deposit,
purchased with a maturity of three months or less to be cash equivalents.
Interest and tax payments were approximately $2,500 and $3,500 for 1997
and $0 and $0 for 1996, respectively.
Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Concentration of Credit Risk:
Financial instruments that subject the Company to concentrations of
credit risks consist primarily of accounts receivable. In addition, the
Company grants credit terms in the normal course of business to its
customers. As part of its ongoing procedures, the Company monitors the
creditworthiness of its customers. The Company does not believe that it is
subject to any unusual credit risk beyond the normal credit risk inherent
in its business.
5
<PAGE>
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
For the year ended December 31, 1997, three customers accounted for
31%, 16%, and 10% of total revenues, and three customers accounted for
40%, 14%, and 11% of accounts receivable at December 31, 1997.
For the year ended December 31, 1996, three customers accounted for
50%, 25%, and 10% of total revenues, and three customers accounted for
39%, 29%, and 11% of accounts receivable at December 31, 1996.
Revenue Recognition:
Revenue is recognized in the period services are performed.
Advertising Costs:
The Company expenses advertising costs as incurred. Advertising
expense totaled $63,000 and $28,000 in 1997 and 1996, respectively.
NOTE 2 - INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ -- $30,000
---- -------
Total deferred tax assets -- 10,000
Valuation allowance for deferred tax assets -- 10,000
---- -------
Net deferred tax asset -- $ --
---- -------
---- -------
</TABLE>
A Company's effective income tax rate may differ from what would be
expected if the Federal statutory rate were applied to income from
continuing operations primarily because of expenses deductible for
financial reporting purposes that are not deductible for tax purposes. For
the years ended December 31, 1997 and 1996, there were no such expenses.
NOTE 3 - LEASES
Future minimum payments under noncancelable operating leases with
initial terms of one year or more consisted of the following at December
31, 1997:
<TABLE>
<S> <C>
1998 $34,000
1999 34,000
2000 27,000
-------
Total minimum lease payments $95,000
-------
-------
</TABLE>
Rental expense for all operating leases was $21,000 and $15,000 for
1997 and 1996, respectively, and $14,000 for the six months ending June
30, 1998.
NOTE 4 - DUE FROM RELATED COMPANY IN VENEZUELA
International Information Technology, Inc. has advanced funds to a
Venezuelan company related by common ownership. These funds are unsecured
and non-interest bearing.
6
<PAGE>
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE 5 - EMPLOYEE BENEFIT PLAN
The Company established a defined contribution benefit plan
effective January 1, 1998. The plan covers substantially all employees of
the Company who are 21 years old. Participants may contribute up to 15% of
their annual compensation to the plan. The Company matches up to 3% of
annual compensation.
NOTE 6 - IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
Based on a recent assessment, the Company has determined that it
will not be required to modify or replace any portion of its software so
that its computer systems will function properly with respect to dates in
the year 2000 and thereafter.
NOTE 7 - SUBSEQUENT EVENTS
Sale of Stock and Assets:
Subsequent to year end, the Company entered into a letter of intent
with an unrelated entity to sell all of its stock for cash and warrants of
the acquiring company's stock.
Agreement with People Soft, Inc.:
Subsequent to year end, the Company entered into an Implementation
Partner Agreement with People Soft, Inc. for a period of one year. Under
this agreement, the Company agreed to pay People Soft, Inc., $20,000, and
serve as their implementation partner. Prior to this agreement, the
Company served as a distributor for People Soft.
Insurance:
Subsequent to year end, the Company obtained an Errors and Omissions
Policy. Prior to February 1998, the Company was not insured against errors
and omissions.
7
<PAGE>
INTERNATIONAL INFORMATION
TECHNOLOGY, INC.
FINANCIAL STATEMENTS
AND ACCOUNTANTS' REVIEW REPORT
JUNE 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Accountants' Review Report .......................................... 1
Financial Statements
Balance Sheet ..................................................... 2
Statement of Income and Retained Earnings ......................... 3
Statement of Cash Flows ........................................... 4
Notes to Financial Statements ..................................... 5-7
</TABLE>
<PAGE>
[LETTERHEAD OF VERDEJA & GRAVIER]
ACCOUNTANTS' REVIEW REPORT
Board of Directors
International Information Technology, Inc.
Coral Gables, Florida
We have reviewed the accompanying balance sheet of International Information
Technology, Inc. as of June 30, 1998, and the related statements of income and
retained earnings, and cash flows for the six months then ended, in accordance
with Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of
International Information Technology, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Verdeja & Gravier
CERTIFIED PUBLIC ACCOUNTANTS
Coral Gables, Florida
July 30, 1998
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 147,495
Trade accounts receivable 813,753
Due from related company in Venezuela 106,876
Other current assets 29,968
----------
TOTAL CURRENT ASSETS 1,098,092
PROPERTY AND EQUIPMENT
Furniture and fixtures 27,884
Computer equipment 50,087
----------
77,971
Less accumulated depreciation (25,570)
----------
52,401
SECURITY DEPOSITS 11,613
----------
$1,162,106
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses $ 686,016
Income taxes payable 106,689
Unsecured loan payable to stockholder,
non-interest bearing 22,284
Deferred income taxes 26,389
----------
TOTAL CURRENT LIABILITIES 841,378
STOCKHOLDERS' EQUITY
Capital stock, $1 par value per share,
authorized issued and outstanding
1,000 shares 1,000
Retained Earnings 319,728
----------
320,728
----------
$1,162,106
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the six months ended June 30, 1998
<TABLE>
<S> <C>
Revenue
Consulting $2,669,187
Cost of revenue 1,351,596
----------
GROSS PROFIT 1,317,591
Operating expenses
General and administrative 1,146,678
Sales and marketing 16,336
Depreciation 6,667
----------
1,169,681
----------
INCOME BEFORE INCOME TAXES 147,910
Applicable income taxes 54,188
----------
NET INCOME 93,722
Retained earnings at beginning of period 226,006
----------
Retained earnings at end of period $ 319,728
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 93,722
---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 6,667
Change in Assets and Liabilities:
Increase in accounts receivable (223,507)
Decrease in due from related company 79,154
Increase in other assets (23,891)
Decrease in cash overdraft (187,121)
Increase in accounts payable and accrued expenses 374,081
Increase in income taxes payable 95,689
Decrease in deferred taxes (52,501)
---------
Total Adjustments 68,571
---------
Net Cash Provided by Operating Activities 162,293
Cash Flows from Investing Activities:
Acquisition of property and equipment (34,017)
---------
Net Cash Used by Investing Activities (34,017)
Cash Flows from Financing Activities:
Increase in stockholder loan 9,699
---------
Net Cash Provided by Financing Activities 9,699
---------
Net increase in cash 137,975
Cash at beginning of period 9,520
---------
Cash at end of period $ 147,495
---------
---------
</TABLE>
Investing and Financing Activities not Requiring Cash:
During the period ended June 30, 1998, a vehicle reported in Company books was
removed from the Company reducing property and equipment net of accumulated
depreciation in the amount of $17,475 and reducing stockholder loans and notes
payable in the amount of $7,776 and $9,669 respectively.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization:
International Information Technology, Inc. (hereinafter referred to
as the "Company") provides Internet and Intranet consulting, integration,
and support services principally to commercial companies located
throughout the United States and South America. International Information
Technology, Inc. was incorporated, under the laws of the State of
California in May 1994.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed
principally on the straight-line method over the estimated useful lives of
the assets which range from 5 to 7 years for property and equipment.
Income taxes:
For income tax purposes, the Company reports on the cash basis of
accounting; revenue is considered earned only when collected and expenses
recognized when paid. For financial statement purposes, the Company
reports under the accrual basis of accounting.
The Company provides for income taxes currently payable as well as
deferred taxes resulting from temporary differences between reporting
assets and liabilities for tax purposes and for financial statement
purposes using provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Under these standards, deferred
taxes and liabilities represent the tax effects, based on current tax laws
of future deductibles or taxable amounts attributable to events that have
been recognized in the financial statements.
Supplement to Statement of cash flows:
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments, including certificates of deposit,
purchased with a maturity of three months or less to be cash equivalents.
Interest and tax payments were approximately $0 and $11,000 for the six
months ended June 30, 1998, respectively.
Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Concentration of Credit Risk:
Financial instruments that subject the Company to concentrations of
credit risks consist primarily of accounts receivable. In addition, the
Company grants credit terms in the normal course of business to its
customers. As part of its ongoing procedures, the Company monitors the
creditworthiness of its customers. The Company does not believe that it is
subject to any unusual credit risk beyond the normal credit risk inherent
in its business.
5
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, two customers accounted for
31% and 13% of total revenues, and two customers accounted for 34% and 21%
of accounts receivable at June 30, 1998.
Revenue Recognition:
Revenue is recognized in the period services are performed.
Advertising Costs:
The Company expenses advertising costs as incurred. Advertising
expense totaled $3,985 for the six months then ended.
NOTE 2 - LEASES
Future minimum payments under noncancelable operating leases with
initial terms of one year or more consisted of the following at June 30,
1998:
<TABLE>
<S> <C>
1999 $34,000
2000 27,000
-------
Total minimum lease payments $61,000
-------
-------
</TABLE>
Rental expense for all operating leases was $14,000 for the six
months ending June 30, 1998.
NOTE 3 - DUE FROM RELATED COMPANY IN VENEZUELA
International Information Technology, Inc. has advanced funds to a
Venezuelan company related by common ownership. These funds are unsecured
and non-interest bearing.
NOTE 4 - EMPLOYEE BENEFIT PLAN
The Company established a defined contribution benefit plan
effective January 1, 1998. The plan covers substantially all employees of
the Company who are 21 years old. Participants may contribute up to 15% of
their annual compensation to the plan. The Company matches up to 3% of
annual compensation. The Company's contribution to the 401k plan during
the six months ended June 30, 1998 amounted to $27,848.
NOTE 5 - IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
Based on a recent assessment, the Company has determined that it
will not be required to modify or replace any portion of its software so
that its computer systems will function properly with respect to dates in
the year 2000 and thereafter.
6
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 6 - LETTER OF INTENT TO SELL THE COMPANY'S STOCK
The Company entered into a letter of intent with an unrelated entity
to sell all of its stock for cash and warrants of the acquiring company's
stock.
NOTE 7 - AGREEMENT WITH PEOPLE SOFT, INC.
The Company entered into an Implementation Partner Agreement with
People Soft, Inc. for a period of one year. Under this agreement, the
Company agreed to pay People Soft, Inc., $20,000, and serve as their
implementation partner. Prior to this agreement, the Company served as a
distributor for People Soft.
7
<PAGE>
Schedule 4.6
International Information Technology, Inc. (USA ONLY)
Statements of Operations And Retained Earnings
For the seven months ended July 31, 1998 & Projection for YTD August 31, 1998
<TABLE>
<CAPTION>
ESTIMATED
YTD YTD DAILY AVERAGE
JULY 31, 1998 AUGUST 31,1998 AUGUST 31, 1998
<S> <C> <C> <C>
REVENUES:
Consulting 3,203,559 3,883,559 15,982
Cost of revenues 1,591,054 1,864,242 7,672
------------------------------------------------
GROSS PROFIT 1,612,505 2,019,317 8,310
-------------------------------------------------
-------------------------------------------------
GROSS PROFIT % 50.33% 52.00% 52.00%
------------------------------------------------
OPERATING EXPENSES:
General and admin. (includes Partners
Bonuses Jan 1 - Jun 30) 1,313,465 1,485,284 6,112
Sales and marketing 30,100 36,100 149
Depreciation expense 6,667 8,667 36
-------------------------------------------------
-------------------------------------------------
TOTAL EXPENSES 1,350,231 1,530,050 6,297
-------------------------------------------------
-------------------------------------------------
TOTAL EXPENSES % 42.15% 39.40% 39.40%
------------------------------------------------
Other income 0
------------------------------------------------
INCOME/(LOSS) BEFORE INCOME TAX EXPENSE 262,273 489,267 2,013
-------------------------------------------------
-------------------------------------------------
8.19% 12.60% 12.60%
------------------------------------------------
Applicable Income tax expense 134,976 195,707 805
------------------------------------------------
NET INCOME 127,297 293,560 1,208
-------------------------------------------------
-------------------------------------------------
NET INCOME % 3.97% 7.56% 7.56%
------------------------------------------------
Retained Earnings at Beginning of period 226,006 226,006 226,006
------------------------------------------------
RETAINED EARNINGS AT END OF PERIOD 353,303 519,566 227,214
------------------------------------------------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ESTIMATED
YTD YTD DAILY AVERAGE
ASSETS JULY 31, 1998 AUGUST 31, 1998 AUGUST 31, 1998
<S> <C> <C> <C>
CURRENT ASSETS
Cash 184,553 242,761 999
Accounts Receivable 1,004,760 1,067,106 4,391
Due from Venezuela 107,538 107,538 443
Other Current Assets 37,766 37,766 155
-------------------------------------------------
TOTAL CURRENT ASSETS 1,334,617 1,455,171 5,988
-------------------------------------------------
PROPERTY AND EQUIPMENT
Furniture & Fixtures / Computer equipment 79,302 79,302 326
Vehicles 0 0 0
Less accumulated depreciation (25,570) (27,570) (113)
-------------------------------------------------
TOTAL PROPERTY & EQUIPMENT 53,731 51,731 213
-------------------------------------------------
-------------------------------------------------
TOTAL ASSETS 1,388,348 1,506,903 6,201
-------------------------------------------------
-------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash Overdraft 0 0 0
Accounts payable and accrued expenses (Includes accrued 798,761 712,605 2,933
unpaid Partners Bonuses for second Quarter)
Income taxes payable 213,000 273,731 1,126
Loan payable to stockholder 22,284 0 0
Preferred Income taxes 0 0 0
-------------------------------------------------
TOTAL CURRENT LIABILITIES 1,034,045 986,336 4,059
-------------------------------------------------
Stockholders' Equity
Capital Stock, $1 par value per share 1,000 1,000 4
Authorized issued and outstanding
shares
RETAINED EARNINGS 353,303 519,566 2,138
-------------------------------------------------
TOTAL CAPITAL 354,303 520,566 2,142
-------------------------------------------------
-------------------------------------------------
TOTAL LIABILITIES & CAPITAL 1,388,348 1,506,902 6,201
-------------------------------------------------
-------------------------------------------------
</TABLE>
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ESTIMATED
YTD YTD
JULY 31,1998 AUGUST 31, 1998
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income 127,297 293,560
------------------------------
------------------------------
Adjustments to reconcile net income (Loss)
to net cash provided by operating
activities:
Depreciation 6,667 8,667
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in Accounts receivable (414,514) (476,860)
Increase (decrease) in Intercompany accounts 78,492 78,492
Increase in (decrease) in other assets (20,076) (20,076)
Increase (decrease) in cash overdraft (187,121) (187,121)
Increase in accounts payable 486,826 400,670
Increase (decrease) in income taxes payable 202,000 262,731
Increase in deferred Income taxes (78,890) (78,890)
------------------------------
Total Adjustments 73,383 (12,387)
------------------------------
NET CASH PROVIDE BY/(USED IN) OPERATING ACTIVITIES 200,681 281,173
------------------------------
------------------------------
Cash Flow from Investing Activities:
Acquisition of property and equipment 9,771 9,771
------------------------------
NET CASH USED IN INVESTING ACTIVITIES 9,771 9,771
------------------------------
------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in stockholder loan
Repayment of stockholder loan (7,776) (30,060)
Decrease in notes payable 0 0
------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (30,060)
------------------------------
------------------------------
NET INCREASE/(DECREASE) IN CASH 175,033 233,241
Cash (overdraft) at beginning of year 9,520 9,520
------------------------------
CASH AT END OF YEAR 184,553 242,761
------------------------------
------------------------------
</TABLE>
<PAGE>
[LETTERHEAD OF BASSAN Y ASOCIADOS CONTADORES PUBLICOS]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
U.S. INTERNETWORKING, INC.
We have audited the accompanying balance sheets of INTERNATIONAL
INFORMATION TECHNOLOGY IIT, C.A. (incorporated in Venezuela) as of December 31,
1997 and 1996, and the related statements of income (loss), changes in
shareholder's equity end changes in financial position, for the periods then
ended. These financial statements have been prepared in accordance with
generally accepted accounting principles in Venezuela, and therefore, have been
expressed in Venezuelan bolivares with purchasing power as of December 31, 1997
and 1996. 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 in Venezuela. Those standards require that we plan and perform theses
audits 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. Accounting practices used by the Company in preparing the
accompanying financial statements conform with generally accepted accounting
principles in Venezuela. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in Note 2 to the financial statements, the Company has not
recorded operations with Citibank.
As discussed in Note 4 to the financial statements, the Company has not
recorded liability in regard to severance payments for terminated employees
according to labor legislation in Venezuela.
As discussed in Note 5 to the financial statements, the Company did not
register at the time, transactions regarding accounts payable to shareholders
and related companies in the amount of US $37,703, which have been included in
these financial statements.
In our opinion, except for the above mentioned third and fourth
paragraphs, the financial statements referred to above, present fairly in all
material respects, the financial position of INTERNATIONAL INFORMATION
TECHNOLOGY IIT, C.A., at December 31, 1997 and 1996, and the result of its
operations for the years then ended in accordance with generally accepted
accounting principles accepted in Venezuela.
At December 31, 1997 and 1996, the accompanying financial statements have
been prepared assuming that the Company will continue its ongoing operations,
despite of the negative stockholder's equity, which shows uncertainty about the
Company's ability to continue in operation. These financial statements do not
include any adjustments that could result as a
<PAGE>
2
The Company had not registered, or had reported operations with the town
council where it operates, and therefore has not paid municipal taxes or
recorded any provision in case of future liability in regard to this matter.
Our examination has been performed with the purpose of expressing an
opinion of the basic financial statements considered as a whole. The
supplementary financial statements in historical bolivares, annex marked I - IV
and financial statements translated to US Dollars, annex marked V - VIII, are
included for additional information or analysis, on the basis set forth in Note
1 of the annex of the supplementary information. This information is not
required as part of the basic financial statements, nor does it pretend to
comply with generally accepted accounting principles accepted in Venezuela,
since the inflationary effect is not included in this financial information.
BASSAN & ASOCIADOS S.C.
Ana Escudero de D'Aguiar
Certified Public Accountant
CPA D.F. Venezuela No. 7558
August 20, 1998
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
BALANCE SHEETS
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES ADJUSTED FOR PURCHASING POWER)
<TABLE>
<CAPTION>
1997 1996
-------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash end cash equivalents 19.676.797 4.126.738
Accounts receivable 17.173.250
Other accounts receivables 195.844 259.179
Advances to suppliers 32.810.533
Income tax witholdings 1.108.950 1.325.490
----------- ----------
Total Current Assets 38.157.841 38.521.940
Fired assets (net) 14.898.294 6.136.413
Other assets 311.900 429.203
----------- ----------
TOTAL ASSETS 53.368.035 46.087.566
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable suppliers 1.268.072 44.477
Accounts payable to related companies 91.913.577
Taxes payable 1.132.192 62.435
Advances received from clients 36.623.315
----------- ----------
Total Current Liabilities 94.313.841 36.730.227
Accounts payable stockholders 16.154.325 25.128.521
----------- ----------
TOTAL LIABILITIES 110.468.166 61.858.748
SHAREHOLDERS EQUITY:
Common stock 2.500.000 2.500.000
Accounts receivable common stock (2.000.000) (2.000.000)
----------- ----------
Common stock paid 500.000 500.000
Common stock restatement 628.296 628.296
Accumulated loss (62.391.040) (22.062.101)
Inflationary Exposure Result 4.162.613 4.162.613
----------- ----------
TOTAL SHAREHOLDER'S EQUITY (57.100.131) (18.771.192)
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 53.368.035 45.087.556
----------- ----------
----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
STATEMENT OF OPERATIONS
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES ADJUSTED FOR PURCHASING POWER)
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
OPERATING INCOME
Professional Fees 966.032 2.496.228
Services 83.489.894
------------ -----------
TOTAL OPERATING INCOME 84.455.926 2.496.228
OPERATING EXPENSES
Selling, general and administrative expenses (137.937.822) (24.684.814)
------------ -----------
TOTAL OPERATING EXPENSES (137.937.822) (24.684.814)
OTHER INCOME (EXPENSE)
Finance expenses (56.598) (2.639)
Finance income 1.582.314 129.124
Gain from monetary position 11.629.241
------------ -----------
TOTAL OTHER INCOME (EXPENSE) 13.152.957 126.465
------------ -----------
------------ -----------
NET LOSS FOR THE YEAR (40.328.939) (22.062.101)
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES OF PURCHASING POWER)
<TABLE>
<CAPTION>
Acct. Receivable Common Stock Accumulated Inflationary
Common Stock Stockholders Paid Stock Restatement Loss Exposure Result
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of March 5, 1,996
Common stock contribution 2.500.000 (2.000.000) 500.000
Net (loss) of the period (22.062.101)
Inflationary exposure result 628.296 4.162.613
----------------------------------------------------------------------------------------
Balance as of December 31, 1,996 2.500.000 (2.000.000) 500.000 628.296 (22.062.101) 4.162.613
Net (loss) of the year (40.328.939)
----------------------------------------------------------------------------------------
Balance as of December 31, 1,997 2.500.000 (2.000.000) 500.000 628.296 (62.391.040) 4.162.613
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shareholder's
Equity
-------------
<S> <C>
Balance as of March 5, 1,996
Common stock contribution 500.000
Net (loss) of the period (22.062.101)
Inflationary exposure result 4.790.909
-------------
Balance as of December 31, 1,996 (16.771.192)
Net (loss) of the year (40.328.939)
-------------
Balance as of December 31, 1,997 (57.100.131)
-------------
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CASH FLOW
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN BOLIVARES ADJUSTED FOR PURCHASING POWER)
<TABLE>
<CAPTION>
1,997 1,996
-------------------------
<S> <C> <C>
RESOURCES GENERATED BY (USED IN) OPERATIONS:
Net loss of the year (40.328.939) (22.082.101)
Add - Items that do not affect cash:
Inflationary Exposure Result 4.162.613
Depreciation 2.370.694 650.693
-------------------------
(37.958.245) (17.246.795)
RESOURCES GENERATED BY (USED) IN WORKING CAPITAL:
(Increase) decrease of assets:
Accounts receivable (17.173.250)
Other accounts receivables 60.335 (259.179)
Advances to suppliers 32.810.533 (32.810.533)
Income tax witholdings 216.540 (1.325.490)
Other assets 117.303 (429.203)
Increase (decrease) of liabilities:
Accounts payable suppliers 1.223.595 44.477
Accounts payable to related companies 91.913.577
Taxes payable 1.069.757 62.435
Advances received from clients (36.623.315) 36.623.315
Accounts payable stockholders (8.974.196) 25.128.521
-------------------------
RESOURCES GENERATED BY OPERATIONS 26.682.634 9.785.548
INVESTING ACTIVITIES:
Contribution to shareholder's equity 1.128.296
Additions to fixed assets (11.132.575) (6.787.106)
-------------------------
RESOURCES USED IN INVESTING ACTIVITIES (11.132.575) (5.658.810)
-------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 15.550.059 4.126.738
CASH AN CASH EQUIVALENTS:
Beginning of year 4.126.738
-------------------------
End of year 19.676.797 4.126.738
-------------------------
-------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
3
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1,997 AND 1,996
Note 1 -- Summary of significant accounting policies:
a) Incorporation and principal activity:
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A. was incorporated under the
laws of Venezuela, and corporate existence began on the date on which the
Articles of Incorporation were filed with the Federal District and
Miranda's state Second Mercantile Registry on March 5, 1,996, registered
as Number 48, Tomo 95-A.
The Company's principal activity is serving as commission agent in the
buying of products or processes related to systems, as well as giving
professional service and assistance in the implementation and planning of
communication and information systems and projects.
b) Cash and cash equivalents:
Cash equivalents include short-term highly liquid investments with an
original maturity of three months or less.
c) Fixed assets:
Fixed assets are restated in bolivares with purchasing power as at
December 31, 1,996, net of accumulated depreciation, adjusted by the
General Price Index (GPI) factor. Depreciation is based on the estimated
useful lives of depreciable assets and is calculated by the straight-line
method. Maintenance and repair costs are charged as expenses as they are
incurred, and major repairs and costs are capitalized. When these assets
are sold, the corresponding cost and depreciation are eliminated of the
Balance Sheet and any gain or loss is reflected in the period's results.
d) Income:
Income for sales and assessor's fees are recorded when dispatched or the
assessing service is provided.
a) Transactions in foreign currency:
Transactions in foreign currency are recorded at the applicable (free
market exchange rate at the time they take place, and assets and
liabilities denominated in foreign currency are valued using an exchange
rate of Bs. 476.50 to the US Dollar, which corresponds to the official
rate published by the Central Bank of Venezuela at December 31, 1,996.
The Company's management did not value assets and liabilities denominated
in foreign currency at December 31, 1,997 and 1,996, using the official
rate of Bs. 504.75 and Bs. 476.75 to the US Dollar.
<PAGE>
4
f) Income tax:
The provisions for income taxes are calculated based upon taxable income,
applying current Venezuelan fiscal law.
g) Deferred Income taxes:
The tax effect of temporary differences that generate deferred tax assets
(liabilities) under SFAS No. 109, arise when there is a discrepancy
between accounting and fiscal criteria, in regard to the moment of
recognition of the results. Deferred tax assets ire recorded only if there
is a certainty that they will be recovered at a future time.
Company's management did not register any deferred income tax as of
December 31, 1,996.
h) Initial registration in the "Asset Restatement Registry" tax:
The Company recorded during 1,997, an expense of Bs. 6,899 belonging to
the first portion of the Asset Restatement Registry (RAR) tax. For fiscal
1,996, the Company complied with its initial registration in the Registry,
in accordance to Income Tax Law, article 92, and determined a tax payment
of 3% based on the net increase of the restatement of depreciable fixed
assets.
i) Recognition of the effects of inflation in the financial statements:
The Company restates its financial statements to reflect the purchasing
power of the Venezuelan bolivar (Bs.) as of December 31, 1,996, thereby
comprehensively recognizing the effects of inflation, in accordance to the
Bulletin DPC-10, issued by the Venezuelan Federation of Public Accountants
issued on August 9, 1,991, and subsequent bulletins.
To recognize the effects of inflation in terms of Venezuelan bolivares
with purchasing power as of December 31, 1,996 the Company restated the
financial statements applying the General Price Index (GPI) factor,
published by the Venezuelan Central Bank, by the General Price Level
method.
The GPI factors published by the Venezuelan Central Bank, used in the
recognition of the effects of inflation were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
December 31, 11,702.70 8,504.30
Period's average 10,048.72 7,095.99
</TABLE>
A summary of the method used for restatement of the financial statements
to recognize the effects of inflation in terms of Venezuelan bolivares
with purchasing power, are as follows:
o Monetary assets and liabilities represented in cash, accounts
receivable, and accounts payable are shown at their face value,
since they represent their true monetary value at the time of the
balance sheet.
o Non-monetary assets represented by the fixed assets, were restated
applying the GPI factor at the time of purchase.
o Shareholder's equity are restated using the GPI factor, cumulative
from the date of contribution or generation.
<PAGE>
6
Note 2 -- Cash and cash equivalents:
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1,997 1,996
----- -----
<S> <C> <C>
Cash Bs. 59,667 82,566
Bank 835,304 3,108,420
Investments 680,000 935,742
--------- ---------
Total cash end equivalents Bs. 1,574,971 4,126,738
--------- ---------
--------- ---------
</TABLE>
The investment is a short term interest bearing time deposit in a national
banking institution, which yields interest at the current market rates, and
guarantees the obligations set forth in the office lease contract.
The company had not registered transactions with citibank as of December 31,
1,997 and 1,996, in the amounts of US$ 1,802 and US$ 50,894 respectively, of
which as of December 31, 1,996, the amount of US$ 50.000 appeared in the
financial statements misstated as an advance to suppliers- IIT Inc.
Note 3 -- Fixed assets:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1,997 1,996 %
----- ----- ---
<S> <C> <C> <C>
Office furniture Bs. 5,789,700 571,956 20%
Office equipment 5,873,775 536,454 33,33%
Fixtures 6,256,206 5,678,696 20%
---------- ---------
Total fixed assets 17,919,681 6,787,106
Accum. Depreciation (3,021,387) (650.693)
---------- ---------
Net fixed assets Bs. 14,898,294 6,136,413
---------- ---------
---------- ---------
Depreciation expense Bs. 2,370,694 650,693
---------- ---------
---------- ---------
</TABLE>
Note 4 -- Other assets:
Other assets consist of the following:
<TABLE>
<CAPTION>
1,997 1,996
----- -----
<S> <C> <C>
Pre-operational costs (1) Bs. 166.900 229.670
Security bank deposit (2) 145.000 199.533
------- -------
Total other assets Bs. 311.900 429.203
------- -------
------- -------
</TABLE>
<PAGE>
7
(1) The Company has not amortized pre-operational costs at December 31,
1,997 and 1,996.
(2) We could not verify this amount.
Note 5- Accounts payable to related companies and shareholders
As of December 31, 1,997, the Company had not registered in its books the amount
of US$ 37,703 nor had separated the corresponding amounts or transactions of
accounts payable shareholders an related companies. These amounts have been
separated for reporting purposes as follows:
<TABLE>
<CAPTION>
Average
-------
Exchange
--------
US$ Rate Bs.
--- ---- ---
<S> <C> <C> <C>
Book Value: 177.037 490,46 86.830.261
Plus:
Amounts not recorded during 1,997 belonging to
transactions with the Citibank 37.703 480,12 18.101.826
------- -----------
214.740 488.65 104.932.067
Minus:
Payments made By Mr. Alegrett 32.100 510.34 16.382.054
------- -----------
182.640 484.83 88.650.033
Minus:
Money transferred from ITT Inc. not Recorded in
IIT Vzla. C.A. 3.000
Difference in invoice #001 from IIT Vzla. C.A. To IIT
Inc. 390
-----
Balance according to IIT, Inc. 186.030
-------
</TABLE>
Note 6 -- Labor legislation:
On June 19, 1,997 the National Executive published in the Extraordinary Official
Journal No. 5,152 the reform of the Labor Legislation Law. The most significant
changes were:
1. It eliminates retroactive labor severance due by seniority and new
parameters are set forth in the determination of severance payments based
on the employees seniority and salary.
<PAGE>
8
2. A unique and one time only compensation for "transference" to the new
system is established. Payment is based on the employee's normal salary at
December 31, 1,996. A compensation for "seniority" based on the employees
normal salary at May 30, 1,997 is also established. These compensations
can be paid up to five (5) years, the Company only having an obligation of
paying 25% of these amounts by December 18, 1,997.
3. The new "seniority compensation" will be deposited on a monthly basis, by
option of the employee in one of the following; individual financial trust
fund; severance fund; or recorded in the Company's accounting, of which
the last will bear monthly capitalized interest at the average rate
published by the Venezuelan Central Bank.
4. In case of an unjustified terminated employee, the employee has additional
compensations based on his seniority and on his salary taken into account
as a whole.
The Company has not recorded liability in regard to severance payments for
terminated employees, according to labor legislation in Venezuela.
Note 7 -- Tax environment in Venezuela:
a) Income tax regulations:
The main difference between the income and expenses for tax and book
purposes for INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A., was the
effect of the extraterritorial items. According to fiscal law and
regulations, the Company can carryforward tax losses for three (3) years,
at which time they expire.
Beginning fiscal year starting on January 1, 1,997, the Company is subject
to annual income tax, taking into consideration the taxable and deductible
effects of inflation, which indexes the non-monetary assets and
liabilities according to the GPI factor published by the Central Bank in
Venezuela, in accordance to current legislation. Taxable income is
increased or reduced by the effects of inflation on the non-monetary
items, through the inflationary component, that will be considered as
taxable income or deductible expense.
a) Business asset tax regulations:
The business asset tax (BAT) is computed at an annual rate of 1% of the
average of the tangible and intangible assets at the beginning and end of
the fiscal year. The tax is paid only to the extent that it exceeds the
income tax of the year. Any required payment of asset tax is creditable
against the excess of income taxes for the following three (3) years.
Although, in accordance with the provisions of article 3. section 5 of the
BAT and in conformity with article 7 of its regulations, the Company is
exempt from paying BAT until such time that it has completed its
pre-operating stage (which is marked by the issuance of its first invoice)
and for the following two (2) years of operations, the Company chose to
file a BAT tax form, which resulted in the payment of Bs. 18.242.
9
b) Tax loss carryforwards and recoverable asset tax:
At December 31, 1,996 the Company had tax loss carryforwards and
recoverable business asset tax carryforwards, both of which are expressed
in historical bolivares. Such carryforwards, expire as follows:
<TABLE>
<CAPTION>
Tax Loss Recoverable
Origin Carryforward Business Asset Tax Expiration
------ ------------ ------------------ ----------
<S> <C> <C> <C>
1,996 14,374,375(1) 18,242 1,999
1,997 41,228,633(1) 154,603 2,000
</TABLE>
(1) We could not verify the determination of the tax loss carryforward
according to Venezuelan fiscal legislation Fiscal tax law and
regulations, that stipulate that the percentage of non-taxable
income in relation to the total income, be applied to the total
deductible expense to determine the percentage of non-deductible
expense.
a) Municipal tax:
The Company had not registered, or had reported operations with the town
council where it operates, and therefore has not paid municipal taxes or
recorded any provision in case of future liability in regard to this
matter.
b) Value added tax (VAT):
Apples to sales of goods and services, importation of goods and services
performed in Venezuela. The statutory rates of VAT tax as of December 31,
1,997 and 1,996 are 16,5% and 12,5%, respectively, for territorial sales
and 0% for exportation of goods and services.
Note 8 - Shareholder's equity:
a) Common stock:
The number of shares outstanding at December 31, 1,996 was 500 shares with
a face value of Bs. 5,000 each, fully subscribed, 2O% paid.
Shareholders as of December 31, 1,997 and 1,996:
<TABLE>
<S> <C>
Sebastian Alegrett 499 shares
Real Alegrett 1 share
---
Total 500 shares
</TABLE>
<PAGE>
10
The net income of the company is subject to a legal provision that
requires 5% of net income for each year to be transferred to a legal
reserve, unit it equals 10% of capital stock. The reserve cannot be
distributed to the stockholders. Due to the period's loss, the Company had
no reserve at December 31, 1,997 and 1,996.
b) Net accumulated loss:
At December 31, 1,997 and 1,996 the financial statements show accumulated
net losses of Bs. 59,225,324 and Bs. 22,062,101 expressed in bolivares
with purchasing power. This amount exceeds the capital stock, and
according to the Venezuelan Civil Codicil, article 264, the Company should
declare liquidation, unless the stockholder's decide to repay the negative
shareholder's equity.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
ANNEX
I - VIII
The supplementary financial statements
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY ITT, C.A.
BALANCE SHEETS Annex I
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 19.676.797 2.998.882
Accounts receivable 17.173.250
Other accounts receivables 198.844 188.344
Advances to suppliers 23.843.268
Income tax witholdings 1.108.950 963.228
------------ ------------
Total Current Assets 38.157.841 27.993.722
Fixed assets (net) 11.805.902 3.769.390
Other assets 311.900 311.900
------------ ------------
TOTAL ASSETS 50.275.643 32.075.012
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable suppliers 1.268.072 32.321
Accounts payable to related companies 88.550.033
Taxes payable 1.132.192 45.371
Advances received 26.614.000
------------ ------------
Total Current Liabilities 90.950.297 26.691.692
Accounts payable stockholders 16.382.153 18.260.785
------------ ------------
TOTAL LIABILITIES 107.332.450 44.952.477
SHAREHOLDERS' EQUITY:
Common stock 2.500.000 2.500.000
Accounts receivable common stock (2.000.000) (2.000.000)
------------ ------------
Common stock paid 500.000 500.000
Accumulated loss (57.556.807) (13.377.465)
------------ ------------
TOTAL SHAREHOLDER'S EQUITY (57.056.807) (12.877.465)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 50.275.643 32.075.012
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
STATEMENT OF OPERATIONS Annex II
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,998
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
OPERATING INCOME
Professional Fees 829.500 1.513.600
Services 71.690.000
------------ ------------
TOTAL OPERATING INCOME 72.519.500 1.513.600
OPERATING EXPENSES
Selling, general and administrative expenses (116.007.206) (14.967.759)
------------ ------------
TOTAL OPERATING EXPENSES (118.007.206) (14.967.759)
OTHER INCOME (EXPENSE)
Finance expenses (50.317) (1.600)
Finance income 1.358.681 78.294
------------ ------------
TOTAL OTHER INCOME (EXPENSE) 1.308.364 76.694
------------ ------------
------------ ------------
NET LOSS FOR THE YEAR (44.179.342) (13.377.465)
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1,997 AND 1,996 Annex III
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Acct. Receivable Accumulated Shareholder's
Common Stock Stockholders Paid Stock Loss Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of March 5, 1,996
Common stock contribution 2.500.000 (2.000.000) 500.00 500.000
Net (loss) of the period (13.377.465) (13.377.465)
-------------------------------------------------------------------------------
Balance as of December 31, 1,996 2.500.000 (2.000.000) 500.00 (13.377.465) (12.877.465)
Net (loss) of the year (44.179.342) (44.179.342)
-------------------------------------------------------------------------------
Balance as of December 31, 1,997 2.500.000 (2.000.000) 500.00 (57.556.807) (57.056.807)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CASH FLOW Annex IV
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN HISTORIC BOLIVARES)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1,997 1,996
----------------------------
<S> <C> <C>
RESOURCES GENERATED BY (USED IN) OPERATIONS:
Net loss of the year (44.179.342) (13.377.465)
Add - Items, that do not affect cash:
Depreciation 1.600.214 394.246
----------------------------
(42.579.128) (12.983.219)
RESOURCES GENERATED BY (USED) IN WORKING CAPITAL:
(Increase) decrease of assets:
Accounts receivable (17.173.250)
Other accounts receivables (10.500) (188.344)
Advances to suppliers 23.843.268 (23.843.268)
Income tax witholdings (145.722) (963.228)
Other assets (311.900)
Increase (decrease) of liabilities:
Accounts payable suppliers 1.235.750 32.321
Accounts payable to related companies 88.550.033
Taxes payable 1.086.821 45.372
Advances received from client (26.614.000) 26.614.000
Accounts payable stockholders (1.878.631) 18.260.784
----------------------------
RESOURCES GENERATED BY OPERATIONS 26.314.641 6.662.618
INVESTING ACTIVITIES:
Contribution to shareholder's equity 500.000
Additions to fixed assets (9.636.726) (4.163.636)
----------------------------
RESOURCES USED IN INVESTING ACTIVITIES (9.636.726) (3.663.636)
----------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 16.677.915 2.998.882
CASH AN CASH EQUIVALENTS:
Beginning of year 2.998.882
----------------------------
End of year 19.676.797 2.998.882
----------------------------
----------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
BALANCE SHEETS Annex V
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 40,823 6,290
Accounts receivable 34,023
Other accounts receivables 394 395
Advances to suppliers 50,012
Income tax withholdings 2,197 2,020
-------- --------
Total Current Assets 77,438 58,718
Fixed assets (net) 24,261 7,993
Other assets 618 854
-------- --------
TOTAL ASSETS 102,316 67,365
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable suppliers 2,512 68
Accounts payable to related companies 182,640
Taxes payable 2,243 95
Advances received from clients 55,824
-------- --------
Total Current Liabilities 187,395 55,987
Accounts payable stockholders 32,100 38,303
-------- --------
TOTAL LIABILITIES 219,495 94,289
SHAREHOLDERS' EQUITY:
Common stock 8,621 8,621
Accounts receivable common stock (6,897) (6,897)
-------- --------
Common stock paid 1,724 1,724
Accumulated losses (119,559) (29,448)
Translation adjustment 656 799
-------- --------
TOTAL SHAREHOLDER'S EQUITY (117,179) (20,925)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 102,316 67,365
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
STATEMENT OF OPERATIONS Annex VI
YEARS ENDED ON DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
OPERATING INCOME
Professional Fees 1,691 3,336
Services 146,106
-------- --------
TOTAL OPERATING INCOME 147,797 3,336
OPERATING EXPENSES
Selling, general and administrative expenses (240,575) (32,953)
-------- --------
TOTAL OPERATING EXPENSES (240,575) (32,953)
OTHER INCOME (EXPENSE)
Finance expense (103) (4)
Finance income 2,769 173
-------- --------
TOTAL OTHER INCOME (EXPENSE) 2,666 169
-------- --------
-------- --------
NET LOSS FOR THE YEAR (90,112) (29,448)
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
Schedule 4.24
Insurance
IIT, Inc.
Commercial, Property, General Liability, Business Auto, Umbrella & Workman's
Compensation through agent Supple-Merrill & Driscoll Inc. For Traveler's,
Summary of insurance attached. (2 pages)
IIT Venezuela
Theft, malicious damage, labor disturbances, fire, property damage, attached. (5
pages)
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF INSURANCE Page 1
Prepared: 08/26/98
Supple-Merrill & Driscoll Inc.
For: International Information Tech Insurance Agents and Brokers
Richard Rodriguez P.O. Box 2408
2333 Ponce De Leon, Suite 1108 Pasadena, CA
Coral Gables, FL 91102 626-795-9921
33134- 305-460-6855
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Coverage Amount Company Policy No Eff Exp
<S> <C> <C> <C> <C> <C>
Commercial Application Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
Premise 1 Building 1
2333 Ponce De Leon Blvd., # 1108
Coral Gables, FL
33134
Premise 1 Building 1
1 Centerpoints Dr. #440
La Palma, CA
90626
Property Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
Premises 1 Building 1
Contents 15,000
Coins % NIL
Valuation RC
Cause of Loss Special
Deductible 500
EDP/Computers 15,000
Coins % NIL
Valuation RC
Cause of Loss Special
Deductible 500
Biz Income 100,000
Coins % NIL
Cause of Loss Special
Premises 2 Building 1
Contents 25,000
Coins % NIL
Valuation RC
Cause of Loss Special
Deductible 500
General Liability Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
E & O (Claims Made)*
General Aggregate 2,000,000
Products/Completed Oper. Aggr. 2,000,000
Personal & Advertising Injury 1,000,000
Each Occurrence 1,000,000
Fire Damage (Any One Fire) included
Medical Expense (Any One Person) 10,000
E & O Coverage is written on a "claims made form"
and subject to a deductible.
All Computer Software Development
-Flat Premium - Not Auditable
Premium Basis: 3,500,000
(S) GROSS SALES - PER $1,000/SALES
Business Auto Federal Insurance Company 3536-68-84 TIG 03/10/98 03/10/99
Liability
CSL 1,000,000
Hired Autos
Non-Owned Autos
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF INSURANCE Page 2
Prepared: 08/26/98
Supple-Merrill & Driscoll Inc.
For: International Information Tech Insurance Agents and Brokers
Richard Rodriguez P.O. Box 2408
2333 Ponce De Leon, Suite 1108 Pasadena, CA
Coral Gables, FL 91102 626-795-9921
33134- 305-460-6855
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Coverage Amount Company Policy No Eff Exp
<S> <C> <C> <C> <C> <C>
Business Auto (Continued)
Other Coverages
HIRED AUTO 25,000
9
Hired Auto Physical Damage
Comprehensive Deductible 500
Collision Deductible 500
Umbrella Federal Insurance Company 7977-19-55 03/10/98 03/10/99
Liability Limit Each Occurrence 2,000,000
Liability Aggregate Limit 2,000,000 > EXCLUDES E & O
Retained Limit -0-
Workers Compensation Agricultural Insurance Co WC-9548579-00 03/10/98 03/10/99
Named States: CA FL IL
Employer's Liability
Each Accident 1,000,000
Disease - Policy Limit 1,000,000
Disease - Each Employee 1,000,000
Other States: CA FL IL
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
CLAUSULA DE MOTIN,
DISTURBIOS LABORALES Y DANOS MALICIOSOS
1 RIESGOS CUBIERTOS
En consideracion al pago de prima adicional correspondiente a esta cobertura y
contrariamente a lo indicado en la Clausula No. 2 de las Condiciones
Particulares de la Poliza de Incendio, LA COMPANIA indemnizara los danos o
perdidas (incluyendo los causados por Incendio o Explosion) que ocurran a los
bienes asegurados y que sean ocasionados por, o a consecuencia de:
a) Personas que tomen parte en Motines, Conmocion Civil, Disturbios Populares
o Saqueos, que no asumieren las proporciones de, o llegasen a constituir
unlevantamiento de cualquier tipo dirigido al derrocamiento del gobierno.
b) Disturbios laborales, Huelguistas, Obreros en cierre patronal, o personas
que tomen parte en conflictos de trabajo.
c) El acto malicioso de cualquier persona o grupo de personas, sea que tal
acto ocurra durante una alteracion del orden publico o no.
d) Las medidas para reprimir los actos antes mencionados que fuesen tomadas
por las autoridades constituidas.
2. DEDUCIBLES
Toda reclamacion o perdida indemnizable estara sujeta a un deducible del uno por
ciento (1%) sobre el monto de la suma asegurada bajo esta Clausula o el veinte
por ciento (20%) sobre el monto de la reclamacion o perdida, lo que resulte
mayor, sujeto a un minimo de bolivares equivalente a quince (15) veces el
salario minimo basico urbano decretado por el Gobierno Nacional.
3. INICIO DE LA COBERTURA.
La cobertura otorgada por esta Clausula tendra efecto una vez transcurridos
quince (15) dias continuos desde su contratacion, para cada uno le los casos
indicados:
a) Fecha de su inclusion en la poliza. Este plazo de espera no regira para
reemplazo o sustitucion de la poliza que incluya la cobertura otorgada por
una Clausula de Motin, Disturbios Laborales y Danos Maliciosos en la misma
u otra entidad aseguradora; por lo que dicho plazo no se aplicara en estos
casos existiendo la continuidad de la cobertura una vez que el mismo se
haya agotado.
b) Incremento de la suma asegurada por concepto de actualizacion de valores
del bien asegurado descrito en la presente poliza.
4. PERIODO DE EXPOSICION
Los danos o perdidas ocasionados por cualesquiera de los riesgos citados en el
punto Uno (1) de esta Clausula, daran origen a una reclamacion separada por cada
uno de ellos. Si varios de estos danos o perdidas, ocurren dentro del periodo de
setenta y dos (72) horas consecutivas a partir de la primera reclamacion por la
poliza a la cual se adhiere esta Clausula, los danos o perdidas ocurridos
durante tal periodo de setente y dos (72) horas seran considerados como un solo
siniesto.
5 EXCLUSIONES
a) Perdidas o dafios ocasionados por cualquiera de los riesgos que se
aseguren mediante esta cobertura, si dichas perdidas o danos en su origen
o extension fuesen ocasionados directa o indirectamente o se den en el
curso de: guerra, invasion, acto de enemigo extranjero, hostilidades u
operaciones belicas (haya habido declaracion de guerra a no),
insubordinacion militar, levantemiento militar, insurreccion, rebelion,
revolucion, guerra de guerrillas, guerra civil, poder militar o usurpacion
de poder, o cualquier acto de cualquier persona que actue en nombre de o
en relacion con cualquier organizacion con actividades dirigidas a la
destitucion por la fuerza del gobierno de jure o de facto o influenciario
mediante el terrorismo o la violencia; o fuesen la consecuencia directa o
indirecta de cualquiera de dichos eventos o sucedan en conexion con ellos.
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
CUADRO DE POLIZA
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 1
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
Asegurado: INFORMATION TECHNOLOGY
Vigencia: desde el 12/02/1998 a las 12 m.
hasta el 12/02/1999 a las 12 m.
Domicilio: AV. FCO. MIRANDA. C/PPAL. CASTELLANA
EDIF. SEDE GER. LA CASTELLA, P-3, L-3B
Productor: 7918 SANCHEZ LOPEZ, LUIS ALBERTO
Quedan cubiertos los conceptos relancionados a continuacion para los que se
inserta un limite especifico de Responsabilidad de la Compania en el renglon
correspondiente.
<TABLE>
<CAPTION>
PARTIDAS/COBERTURAS VALOR A PRIMER SUMA PRIMA
RIESGO RIESGO ASEGURADA
<S> <C> <C> <C> <C>
EDIFICACIONES 1,194,774 4,637.21
Incendio 1,194,774
Motin, lab, d. Malic. 1,194,774
Extension Cobertura 1,194,774
Danos Por Agua. 1,194,774
EXIS. Y DEMAS CONTEN. 23,390,814 90,785.59
Incendio 23,390,814
Motin, lab, d. Malic. 23,390,814
Extension Cobertura 23,390,814
Danos Por Agua 23,390,814
Conbertura Automatica 10% 2,339,081
Perd Indir Ind Y Com 10% 2,572,990
EXISTENCIAS (ROBO) 23,390,814 96,074.85
Robo 23,390,814
Asalto Y Atraco 23,390,814
Cob. Automatica Robo 10% 2,339,081
COBERTURAS ADICIONALES:
GTOS. EXTRAORDINARIOS 50,000 .00
DANOS INT. EQ. ELECTR. 16,494,787 44,535.92
</TABLE>
- Deductible(s): Segun condiciones particulares excepto:
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
CUADRO DE POLIZA
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 2
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
PARTIDAS/COBERTURAS VALOR A PRIMER SUMA PRIMA
RIESGO RIESGO ASEGURADA
Danos Int. Eq. Electr. 10% sobre la Perdida Indemnizable
sujeto a un minimo de 50000 Bs
aplicado a cada siniestro indemnizable.
Suma Asegurada : 29,547,659
Prima a Cobrar : 236,033.55
Prima Futura : 236,033.57
/s/ [ILLEGIBLE]
- ------------------ ------------------------------
El Asegurado Seguros La Seguridad. C.A.
[SEAL OF SEGUROS LA SEQURIDAD, C.A.]
NOTA: El presente cuadro sustituya los de fecha anterior.
Aprobado por la Superintendencia de Seguros, segun Oficio No. 0434 de fecha
11/02/83.
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
HOJA DE ESPECIFICACIONES
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 3
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
CARACTER STICAS DEL INMUEBLE ASEGURADO:
- Indole de Actividad del Asegurado:
PROCESAMIENTO ELECTRONICO DE DATOS VENTAS DE EQUIPOS
- Valcres a Riesgo de los Intereses Asegurados:
Partida Interes Asegurado Valores a Riesgo
Edificaciones Edificio 1,194,774
Exis.Y Demas Conten. Mobiliario 6,896,027
Equipo Electronico 16,494,787
Existencias (robo) Mobiliario 6,896,027
Equipo Electronico 16,494,787
- Localidad Principal:
Predios: AV.FCO.MIRANDA, C/PPAL. CASTELLANA
EDIF. SEDE GER. LA CASTELLA, P-3, L-3B
Tipos de Construccion para Incendio:
Estructura: RESISTENTE AL FUEGO
Techo: RESISTENTE AL FUEGO
Paredes: RESISTENTE AL FUEGO
Cantidad de Pisos: 10
Linderos. Norte: ESTACIONAMIENTO
Sur: PASILLO CIRCULACION
Este: ESCALERAS
Oaste: OFICINA 3A
Cantidad de localidades: 1
- Condiciones Especiales:
<PAGE>
[LOGO OF SEGUROS LA SEQURIDAD, C.A.]
HOJA DE ESPECIFICACIONES
Renovable x Lapsos: ANUALES Poliza: 559057280
Forma de Pago : ANUAL CON RENOVACION EN FEBREROR Pagina: 4
Emision : 12/02/1998 EMISION
Equipo : 044506 Unidad 6 No Corporativas Patr-Reg. Capita
Tipo de Moneda : BOLIVARES Fecha: 18/02/1998
DORADA DE INDUSTRIA Y COMERCIO
INDOLE DE ACTIVIDAD: COMERCIALIZACION SOFTWARE.
NOTA: SE ADHIERE LA CLAUSULA DE MOTIN APROBADA POR LA SUPERINTENDENCIA DE
SEGUROS, SEGUN RESOLUCION No. 35873, EN SUSTITUCION A LA DEL
CONDICIONADO GENERAL.
NOTA: El presente cuadro sustituya los de fecha anterior.
Aprobado por la Superintendencia de Seguros, segun Oficio No. 0434 de fecha
<PAGE>
SCHEDULE 4.27
TRANSACTIONS WITH CERTAIN PERSONS AND OTHER DISCLOSURES
DISCLOSURE OF OTHER BUSINESS INTERESTS
Shareholders Michael Mai and Vicente Perez de Tudela currently have an interest
in a separate company, MBR Inc. Their stockholdings in such company are:
o Michael Mai -- 200,000 shares (20% of the outstanding stock)
o Vicente Perez de Tudela -- 150,000 shares (15% of the outstanding
stock)
MBR is in the business of Help Desk Software Development and does not present a
conflict of interest with the operations of IIT Holding Inc. and its
subsidiaries. Messrs. Mai and Perez de Tudela are both Directors of MBR Inc. and
have no day to day participation on the operations. The president of MBR Inc. is
John Rocha, a former employee of International Information Technology, Inc.
Neither Sebastian Alegrett nor Carlos E. Bravo have any ownership or involvement
past or present in MBR Inc.
DISCLOSURE OF ANY OF SELLER'S FAMILY INVOLVEMENT IN ANY OF THE ACQUIRED
COMPANIES
Eduardo Alegrett, Sebastian Alegrett's brother, acts as Director of Corporate
Relations in the Venezuelan operations. His compensation is $1000 per month plus
5% of new sales.
Jose Raul Alegrett, Sebastian Alegrett's brother, was a minority shareholder of
International Information Technology IIT, C.A., prior to May 1998. He now has no
ownership interest in any of the acquired companies.
He is currently operating as a Treasurer and has a monthly Director's salary of
$1000.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1,997 AND 1,996 Annex VII
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Common Acct. Receivable Accumulated Translation Shareholder's
Stock Stockholders Paid Stock Loss Adjustment Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of March 5, 1,996
Common stock contribution 8,621 (6,897) 1,724 1,724
Net (loss) of the period (29,448) (29,448)
Translation adjustment 799 799
-----------------------------------------------------------------------------------------
Balance as of December 31, 1,996 8,621 (6,897) 1,724 (29,448) 799 (26,925)
Net (loss) of the year (90,112) (90,112)
Translation adjustment (143) (143)
-----------------------------------------------------------------------------------------
Balance as of December 31, 1,997 8,621 (6,897) 1,724 (119,559) 656 (117,179)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
CASH FLOW Annex VII
YEARS ENDED DECEMBER 31, 1,997 AND 1,996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1,997 1,996
---------------------------
---------------------------
<S> <C> <C>
RESOURCES GENERATED BY (USED IN) OPERATIONS:
Net loss of the year (90,112) (29,448)
Add - items that do not effect cash:
Exchange rate variations (143) 799
Depreciation 3,335 836
---------------------------
---------------------------
(86,920) (27,813)
RESOURCES GENERATED BY (USED) IN WORKING CAPITAL:
(Increase) decrease of assets:
Accounts receivable (34,023)
Other accounts receivables 1 (395)
Advances to suppliers 50,012 (50,012)
Income tax witholdings (177) (2,020)
Other assets 36 (654)
Increase (decrease) of liabilities:
Accounts payable suppliers 2,444 68
Accounts payable to related companies 182,640
Taxes payable 2,148 95
Advances received from clients (55,824) 55,824
Accounts payable stockholders (6,203) 38,303
---------------------------
---------------------------
RESOURCES GENERATED BY OPERATIONS 54,134 13,396
INVESTING ACTIVITIES:
Contribution to shareholder's equity 1,724
Additions to fixed assets (19,601) (8,830)
---------------------------
---------------------------
RESOURCES USED IN INVESTING ACTIVITIES (19,601) (7,106)
---------------------------
---------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 34,533 6,290
CASH AN CASH EQUIVALENTS:
Beginning of year 6,290
---------------------------
---------------------------
End of year 40,823 6,290
---------------------------
---------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
12
INTERNATIONAL INFORMATION TECHNOLOGY IIT, C.A.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1,997 AND 1,996
BASIS OF PRESENTATION:
Financial statements in historical bolivares:
The supplementary financial statements in the annexed financial statements
marked I - IV have been prepared according to the same accounting practices
summarized in Note 1 to the financial statements prepared in bolivares with
purchasing power, except that do not include the effect of the inflation in the
financial reports, but do not conform with accounting principles generally
accepted in Venezuela.
Financial statements in US Dollars:
US Dollar amounts shown in the annexed financial statements marked V -- VII have
been included solely for the convenience of the reader and are translated from
historical Venezuelan bolivares to US Dollars at the Central Venezuelan Bank's
official rates of:
<TABLE>
<CAPTION>
1,997 1996
----- ----
<S> <C> <C>
December 31, 504.75 476.75
Period's average 490.67 453.77
</TABLE>
A summary of the method of restatement of the financial statements translated to
US Dollars, is as follows:
- - Monetary assets and liabilities were restated at the end period rate of
Bs. 504.75 and 476.75 to the US Dollar.
- - Non-monetary assets and liabilities were restated at the their historical
rates of purchase, contribution or generation.
- - The statement of operations was restated at the short-term average rate of
Bs. 490.67 Bs. 453.77 to the US Dollar, except for the depreciation of
fixed assets which was restated at its corresponding historical exchange
rates.
<PAGE>
SCHEDULE 4.9
UNDISCLOSED LIABILITIES
None
<PAGE>
SCHEDULE 4.10
CERTAIN CHANGES OR EVENTS OF THE COMPANY
SPECIAL COMPENSATION OBLIGATIONS
Graig Theobald, Managing Consultant, $5,000 Bonus earned on June 30, 1999,
subject to continued employment up to and including such date.
SALES MANAGER COMPENSATION:
Cynthia Kenny, Western Region Sales Manager
Howard Elfman, Eastern Region Sales Manager
In addition to a Base Salary the sales manager receive a quarterly sales
commission.
The commission schedules are as follows:
2% of all new sales.
.5% of continuing sales
Continuing sales are sales for clients that we have serviced over 12 months.
VENEZUELAN GENERAL MANAGER COMPENSATION:
Jonas Ayala, IIT Venezuela General Manager, is paid $4,000 per month and a Bonus
equal to 20% of the EBITDA of the Venezuelan operations. This is effective as of
July 1, 1998. He works as an independent contractor.
Prior to July 1, 1998 he was receiving a base salary of $2000 per month plus a
bonus equal to 30% of the EBITDA of the Venezuelan operations.
CHANGE IN ACCOUNTING METHODS OR PRACTICES
As of January 1st, 1998 International Information Technology, Inc. tax
accounting method has been changed to an accrual accounting method internally.
The tax filing has not been changed at this point.
<PAGE>
SCHEDULE 4.12
Listing of the Acquired Companies' Current Government Contracts
None
<PAGE>
SCHEDULE 4.14(C)
PATENT REGISTRATION & TRADEMARKS
List of Patent Registration issued to each of the Acquired Companies
Not Applicable
List of each license, agreement or other permission granted to any third party
by any of the Acquired Companies
Not Applicable
List of Trade Names or Unregistered trademarks used by each of the
Acquired Companies
IIT
International Information Technology
Facsimile of IIT Logo:
[LOGO OMITTED]
<PAGE>
SCHEDULE 4.14(D)
Intellectual Property of third parties used by Acquired Companies
pursuant to License, Sublicense, Agreement or permission
1) PeopleSoft Software License
2) Various copies of Microsoft Applications Software Licenses (MS Office
97, etc.)
3) Various copies of Visio Software
4) Various copies of other "shrink-wrapped" software typically used by the
employees of the Acquired Companies such as anti-virus, Windows,
backup, etc.
<PAGE>
SCHEDULE 4.15
The three Corporate Office Leases described in Schedule 4.11
<PAGE>
SCHEDULE 4.17
EMPLOYEE BENEFIT PLANS
(c) Representations
(i) Pension Plans
(A) The company's profit sharing & 401(K) plan are subject to ERISA.
(C) The company did not receive an IRS determination. The company's profit
sharing & 401(K) plan used a standard plan under the carrier AETNA.
(E) None
Welfare Plans
(c) To be determined.
<PAGE>
SCHEDULE 4.21
TAX RETURNS
IIT, Inc.
1994-1997 - Federal Income Tax Returns
1994-1997 - State of California Income Returns
1997 - State of Florida Income Tax Returns
<PAGE>
SCHEDULE 4.23
LICENSES, PERMITS AND AUTHORIZATIONS
1) City of Coral Gables Occupational License for International Information
Technology, Inc.
2) Illinois Certificate of Authority for International Information
Technology, Inc.
3) City of Newport Beach Business Tax Certificate for International
Information Technology, Inc.
