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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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XPEDIOR INCORPORATED
(Exact name of registration as specified in its charter)
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DELAWARE 7379 76-0556713
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
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ONE NORTH FRANKLIN, SUITE 1500
CHICAGO, ILLINOIS 60606
(800) 462-6301
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
MARGARET G. REED
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL
METAMOR WORLDWIDE, INC.
4400 POST OAK PARKWAY, SUITE 1100
HOUSTON, TEXAS 77027-3413
(713) 548-3400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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ROBERT K. HATCHER SETH R. MOLAY, P.C.
VINSON & ELKINS L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD L.L.P.
1001 FANNIN, SUITE 2300 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201
(713) 758-2266 (214) 969-2800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this 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,
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, please 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 this prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, par value $.01
per share.................. 9,815,250 $15.00 $147,228,750 $40,930
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(1) Includes 1,280,250 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION -- OCTOBER 18, 1999
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PROSPECTUS
, 1999
[XPEDIOR LOGO]
8,535,000 SHARES OF COMMON STOCK
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XPEDIOR INCORPORATED:
- - We provide innovative and comprehensive eBusiness solutions to Global 2000
companies and emerging Internet businesses.
- - Xpedior Incorporated
One North Franklin, Suite 1500
Chicago, Illinois 60606
(800) 462-6301
PROPOSED SYMBOL & MARKET:
- - XPDR/Nasdaq National Market
THE OFFERING:
- - We are offering 8,535,000 shares of our common stock.
- - The underwriters have an option to purchase an additional 1,280,250 shares of
common stock from Metamor to cover over-allotments.
- - This is our initial public offering, and no public market currently exists for
our shares.
- - We anticipate that the initial public offering price will be between $13.00
and $15.00 per share.
- - We plan to use the proceeds from this offering to repay outstanding debt and
for general corporate purposes.
- - Closing: , 1999.
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PER SHARE TOTAL
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Public offering price: $ $
Underwriting fees:
Proceeds to Xpedior Incorporated:
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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DONALDSON, LUFKIN & JENRETTE FIRST UNION SECURITIES, INC.
J.P. MORGAN & CO.
THE ROBINSON-HUMPHREY COMPANY
DLJDIRECT INC.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS,
WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE DOCUMENTATION
FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED EFFECTIVE BY
THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THAT WOULD NOT BE PERMITTED OR LEGAL.
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[INFORMATION GRAPHIC OF THE XPEDIOR PROCESS -- IMAGINE, DEFINE, ARCHITECT, BUILD
AND DELIVER]
[TEXT ACCOMPANYING GRAPHIC]
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[SCREEN SHOT OF HEWLETT-PACKARD SHOPPING VILLAGE WEBSITE HOME PAGE]
[SCREEN SHOT OF BELL CANADA VIRTUAL STORE WEBSITE HOME PAGE]
[SCREEN SHOT OF ONLINEOFFICESUPPLIES.COM WEBSITE HOME PAGE]
[TEXT ACCOMPANYING EACH GRAPHIC]
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary............... 1
Risk Factors..................... 6
Special Note Regarding Forward-
Looking Statements............. 20
Where You Can Find More
Information.................... 21
Corporate Information............ 21
Use of Proceeds.................. 22
Dividend Policy.................. 22
Capitalization................... 23
Dilution......................... 24
Selected Consolidated Financial
Data........................... 25
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 27
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PAGE
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The Company...................... 38
Business......................... 40
Management....................... 55
Certain Transactions............. 62
Principal Stockholders........... 63
Description of Capital Stock..... 64
Shares Eligible for Future
Sale........................... 68
Underwriting..................... 70
Legal Matters.................... 72
Experts.......................... 72
Index to Financial Statements.... F-1
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. You should read this prospectus together
with the additional information described under the heading "Where You Can Find
More Information."
"Xpedior," "The Xpedior Process" and "eBusiness Xpediators" are trademarks
of Xpedior. This prospectus also contains trademarks and trade names of other
companies.
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PROSPECTUS SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
this entire prospectus carefully.
OUR COMPANY
Xpedior provides innovative and comprehensive eBusiness solutions to Global
2000 companies and emerging Internet businesses. We combine extensive technical
expertise with strategic consulting and creative services to build eBusiness
solutions that enable our clients to capitalize on the communications power and
transaction efficiency of the Internet. Our eBusiness solutions include one or
more of the following services, customized to fit our clients' needs:
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- - Digital Business Strategy
- - Electronic Commerce
- - Digital Branding and User
Experience Design
- - eBusiness Applications and Integration
- - eBusiness Technology Management
- - eBusiness Networks
- - eBusiness Intelligence
- - Enterprise Portals and Knowledge
Management
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We have developed the Xpedior Solution to execute and deliver eBusiness
solutions that meet our clients' needs for rapid implementation of reliable,
scaleable and sustainable eBusinesses. The Xpedior Solution consists of the
following key elements:
- The Xpedior Process. Our five-step methodology is designed to ensure the
development of reliable, innovative eBusiness solutions for our clients;
- Our eBusiness Xpediators. Our proven collection of reusable solutions,
including software architectures, components and applications, enhances
the quality of the eBusiness solutions we deliver and reduces the time
required to deliver such solutions;
- Our Solution Centers. Our five centralized, high-tech facilities enable
our professionals to share expertise and best practices, while
maintaining continuous online communication with our clients. This
facilitates rapid and efficient delivery of our eBusiness solutions; and
- Our Knowledge Management Systems. Through these systems, we share
institutional intellectual capital that we derive from our client
engagements. Our sharing of best practices increases the effectiveness of
our professionals and improves the eBusiness solutions we deliver.
We have over 1,000 employees at our 15 U.S. and three international
offices. We have delivered eBusiness solutions to a broad range of clients,
including major organizations such as the American Medical Association,
Citibank, GTE, Hewlett-Packard, MCI WorldCom, PepsiCo, Safeway and Sears, and
emerging Internet businesses such as CharitableWay, DigitalWork.com, Intershop
Communications and OnlineOfficeSupplies.com. Our 50 largest clients during the
year ended December 31, 1998 provided us with average annual pro forma revenues
per client of $1.4 million.
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OUR MARKET OPPORTUNITY
International Data Corporation estimates that the worldwide market for
Internet professional services will grow from $7.8 billion in 1998 to $78.5
billion in 2003. Despite the size of this market opportunity, we believe that
there are relatively few service providers that can effectively address the full
range of problems and challenges associated with developing and implementing
comprehensive eBusiness solutions. For example, boutique web design firms and
online agencies typically focus on user interfaces and front-end design and do
not have the expertise required for rapid development and deployment of high
transaction volume eBusiness systems. In addition, traditional information
technology services firms are focused primarily on enhancements to existing
technology infrastructure and the implementation of traditional business
applications, and lack the necessary focus and experience to execute innovative
eBusiness solutions efficiently and quickly.
We believe businesses will increasingly seek assistance from companies that
offer the comprehensive set of services necessary for them to achieve their
eBusiness objectives. In our view, a comprehensive service offering must include
three fundamental eBusiness disciplines -- strategic, technical and creative. To
create a comprehensive eBusiness solution, our eBusiness strategists work
closely with the client's senior executives to imagine and define the strategic
plan for the eBusiness. After development of the eBusiness strategy, our
eBusiness technology professionals build the systems and technology
infrastructure required to implement the strategy. At the same time, our
creative professionals work to define the interactive marketing strategy and to
create compelling user interfaces for the eBusiness. Historically, Internet
professional services firms have not been competent in all three of these
disciplines. The Xpedior Solution incorporates all three of these disciplines,
allowing our professionals to deliver comprehensive, reliable and scaleable
eBusiness solutions in the demanding timeframes often required in the Internet
professional services market.
OUR STRATEGY
Our goal is to become the provider of choice for Global 2000 companies and
emerging Internet businesses that require comprehensive, customized, integrated
eBusiness solutions. To achieve this goal, we plan to:
- extend relationships with existing clients and market to new clients;
- use our expertise in specific industries, including financial services,
healthcare, high technology, media and publishing, retail and
distribution, telecommunications and the eCommerce/Internet industries;
- refine, leverage and extend the Xpedior Solution by capturing our
professionals' broad range of knowledge and best practices and sharing
those resources throughout our organization;
- expand and leverage strategic industry alliances with leading technology
companies, including Microsoft, IBM, Sun Microsystems, Hewlett-Packard
and BroadVision;
- attract and retain qualified employees through aggressive recruiting, a
collaborative corporate culture and competitive compensation packages;
and
- build the identity and awareness of the Xpedior brand name to help
promote our comprehensive range of service offerings and fulfill our
corporate vision.
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RELATIONSHIP WITH METAMOR
We are currently a subsidiary of Metamor Worldwide (Nasdaq: MMWW). After
the completion of this offering, Metamor will own approximately 83% of our
outstanding common stock, or approximately 80% if the underwriters exercise
their over-allotment option in full. Metamor has announced that in 2000 it plans
to distribute all of its shares of Xpedior common stock to its stockholders.
Metamor expects to accomplish this distribution through one of the following:
- Split-Off. An exchange offer by Metamor in which holders of Metamor's
common stock would be invited to tender their shares in exchange for
shares of our common stock; or
- Spin-Off. A pro rata distribution by Metamor of its shares of our common
stock to holders of Metamor's common stock; or
- Combined Split-Off/Spin-Off. A combination of the above transactions.
Metamor has the sole discretion to determine the timing, structure and all
terms of its distribution of our common stock. We have agreed to cooperate with
Metamor in all respects to complete the divestiture because we believe that our
complete separation from Metamor will enhance our ability to pursue our business
strategy. Metamor intends to seek a private letter ruling from the IRS that the
distribution of its shares of Xpedior common stock to its stockholders would be
tax-free to Metamor and its stockholders for U.S. federal income tax purposes.
We cannot assure you that the IRS will provide Metamor with a favorable ruling.
While it expects to do so, Metamor is not obligated to complete the divestiture.
3
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THE OFFERING
Common stock offered by Xpedior....... 8,535,000 shares
Common stock to be outstanding after
the offering.......................... 50,000,000 shares(a)
Common stock to be held by Metamor
after the offering.................... 41,285,298 shares(b)
Use of proceeds....................... The net proceeds from this offering
are estimated to be approximately
$108.9 million. We will use the net
proceeds for:
- the repayment of approximately
$100.0 million of outstanding debt
due to Metamor; and
- general corporate purposes.
Proposed Nasdaq National Market
symbol................................ XPDR
Unless stated otherwise, the information in this prospectus (1) assumes
that our common stock will be sold at $14.00 per share, which is the mid-point
of the range set forth on the cover of this prospectus, (2) assumes that the
underwriters' over-allotment option is not exercised and (3) is presented on a
pro forma basis to give effect to all businesses acquired through September 30,
1999, as if such acquisitions were consummated as of the beginning of the
periods presented. Unless the context otherwise requires, all references to
Xpedior and its operations include the acquired companies and their operations
prior to their acquisition.
- ------------------------------
(a) The number of shares of common stock to be outstanding after this offering
excludes (1) options to purchase 9,237,600 shares of common stock granted
through October 15, 1999 at a weighted average exercise price of $7.28 per
share and (2) 5,582,698 shares of common stock reserved for issuance upon
exercise of options that may be granted in the future under our stock
plans.
(b) If the underwriters fully exercise their over-allotment option, Metamor
will own 40,005,048 shares of common stock after this offering.
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated historical and pro forma
financial data for our business. You should read the following summary
consolidated financial data together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and the notes thereto included elsewhere in this prospectus. The pro
forma information gives effect to all businesses acquired through September 30,
1999, as if such acquisitions were consummated as of the beginning of the
periods presented and should be read in conjunction with the pro forma condensed
consolidated financial statements included elsewhere in this prospectus. The pro
forma results of operations for the year ended December 31, 1998 include
pre-acquisition stock compensation charges of $30.8 million. The pro forma
results of operations are not necessarily indicative of the results that would
have occurred had the acquisitions been consummated as of the beginning of the
periods presented.
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INCEPTION YEAR ENDED
(MARCH 27,
SEVEN MONTHS ENDED JULY 31,
DECEMBER 31, -----------------------------
1997) TO ------------------- ACTUAL
DECEMBER 31, ACTUAL PRO FORMA ----------------- PRO FORMA
1997 1998 1998 1998 1999 1999
(IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Revenues............................. $12,588 $72,267 $100,500 $32,411 $69,915 $77,269
Gross profit......................... 4,414 30,337 42,858 13,703 29,526 33,427
Operating income (loss).............. (1,000) 6,956 (21,404) 3,187 7,976 8,353
Income (loss) from continuing
operations......................... (1,357) 530 (30,187) 225 810 327
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The following table presents summary consolidated balance sheet data as of
July 31, 1999. The pro forma information gives effect to the acquisition of
Kinderhook Systems, Inc. as if it was consummated as of July 31, 1999. The pro
forma as adjusted information gives effect to this offering and the application
of our estimated net proceeds. See "Use of Proceeds" and "Capitalization."
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AS OF JULY 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash........................................................ $ -- $ 1,436 $ 10,312
Working capital (includes amounts due to Metamor)........... (83,050) (80,089) 28,787
Total assets................................................ 164,700 189,380 198,256
Amounts due to Metamor...................................... 100,000 100,000 --
Long-term debt, net of current maturities................... -- 9,100 9,100
Stockholders' equity........................................ 45,011 59,911 168,787
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RISK FACTORS
Before you invest in our common stock, you should understand that such an
investment involves risk. You should carefully consider these risk factors as
well as all of the other information contained in this prospectus before you
decide to purchase shares of our common stock. If any of the following risks
actually occur, our business, financial condition and operating results could be
adversely affected. In such case, the trading price of our common stock could
decline and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE
Our quarterly operating results have varied in the past and are likely to
vary significantly from quarter to quarter. As a result, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance. A number of factors are likely to cause
these variations, including:
- our ability to obtain new client engagements and continue existing
engagements;
- the amount and timing of expenditures by our clients for eBusiness
services;
- our ability to attract, train and retain skilled management, strategic,
technical, design, sales, marketing and support professionals;
- our employee utilization rate, including our ability to transition
professionals quickly from completed projects to new engagements;
- the introduction of new services by us or our competitors;
- changes in our pricing policies or those of our competitors;
- our ability to manage costs, including personnel costs and support
services costs; and
- costs related to the expected opening or expansion of our offices.
We derive substantially all of our revenues from professional services.
Personnel and related costs constitute the substantial majority of our operating
expenses. We establish these expenses in advance of any particular quarter.
Accordingly, underutilization of our professional services employees may cause
significant reductions in our operating results for a particular quarter and
could result in losses for such quarter and the year.
We have experienced and expect to continue to experience seasonality in
revenues due to factors that include the number of billable days in a given
quarter and the budget cycles and budgeting decisions of our clients. These
seasonal trends may materially affect our quarter-to-quarter operating results.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OUR ABILITY TO ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES IS CRUCIAL TO OUR
RESULTS OF OPERATIONS AND FUTURE GROWTH
Our future success depends in large part on our ability to hire, train and
retain project and engagement managers, technical architects, strategists,
engineers, design professionals, other technical professionals, and sales and
marketing and other management personnel of various experience levels. Any
inability to hire, train and retain a sufficient number of qualified
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employees could hinder the growth of our business. Skilled personnel are in
short supply, and this shortage is likely to continue for some time. As a
result, competition for these people is intense, and the industry turnover rate
for them is high. In addition, we believe that prospective employees that we
target after the offering may perceive that the stock option component of our
compensation package is not as valuable as that component was prior to this
offering. Consequently, we may have difficulty hiring our desired numbers of
qualified employees after this offering. Moreover, even if we are able to expand
our employee base, the resources required to attract and retain such employees
may adversely affect our operating margins. In addition, some companies have
adopted a strategy of suing or threatening to sue former employees and their new
employers. As we hire new employees from our current or potential competitors we
are likely to become a party to one or more lawsuits involving the former
employment of our employees. Any future litigation against us or our employees,
regardless of the outcome, may result in substantial costs and expenses to us
and may divert management's attention away from the operation of our business.
WE DEPEND ON OUR KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL MAY ADVERSELY
AFFECT OUR BUSINESS
We believe that our success will depend in part on the continued employment
of our senior management team and key technical personnel. This dependence is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. Accordingly,
the loss of any member of our senior management team or key technical personnel
could have a direct adverse impact on our business. In addition, if any of these
key employees joins a competitor or forms a competing company, some of our
clients might choose to use the services of that competitor or new company
instead of our own. Furthermore, clients or other companies seeking to develop
in-house eBusiness capabilities may hire away some of our key employees. This
would not only result in the loss of key employees but could also result in the
loss of a client relationship or a new business opportunity. Any losses of
client relationships could seriously harm our business.
OUR LACK OF COMBINED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT HOW THE
COMBINED OPERATIONS OF OUR COMPANIES WILL PERFORM IN THE FUTURE
We commenced operations in March 1997 with the acquisition of Metamor
Technologies, Ltd. We acquired six other companies in 1998 and one additional
company in September 1999. Our limited operating history as a combined company
makes an evaluation of our business and prospects very difficult. Companies in
an early stage of development frequently encounter enhanced risks and unexpected
expenses and difficulties. These risks, expenses and difficulties apply
particularly to us because of the early stage of our integration and because our
market, eBusiness services, is new and rapidly evolving.
The pro forma financial information included in this prospectus is based on
the separate pre-acquisition financial information of the eight companies. As a
result, our historical results of operations and pro forma financial information
may not give you an accurate indication of what our actual results would have
been if the acquisition had been completed at the beginning of the periods
presented or of our future results of operations or prospects.
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IF WE ARE UNABLE TO SUCCESSFULLY COMPLETE THE INTEGRATION OF EACH OF THE
COMPANIES WE HAVE ACQUIRED, OUR FINANCIAL RESULTS WILL SUFFER
Although we have commenced the process of integrating the operations of our
constituent companies, the operations are not fully integrated. To date, we have
integrated most of our back office functions and initiated the creation of a
unified brand identity. We are still in the process of integrating our sales,
marketing and human resources functions, our knowledge management systems, the
Xpedior Process and our Xpediators. Our future profitability will depend heavily
on our continued ability to integrate the operations and management of our
constituent companies. Failure to successfully integrate any of the companies we
have acquired may cause significant operating inefficiencies and adversely
affect our profitability.
Although we may continue to grow our business through strategic
acquisitions from time to time in the future, we have no immediate plans or
current agreements to acquire any additional companies or businesses. If we
acquire additional companies in the future, however, we will face integration
risks similar to those described above. In addition, during our early stage of
operation as a unified company, we may encounter expenses and difficulties that
we may not expect or are beyond our control.
COMPETITION FROM BIGGER, MORE ESTABLISHED COMPETITORS WHO HAVE GREATER
FINANCIAL RESOURCES COULD RESULT IN PRICE REDUCTIONS, REDUCED PROFITABILITY AND
LOSS OF MARKET SHARE
Competition in the eBusiness services market is intense. If we fail to
compete successfully against current or future competitors, our business,
financial condition and operating results would be seriously harmed. Our current
competitors include:
- emerging web consulting firms such as Proxicom, Razorfish, Scient, USWeb
and Viant, which are focused on Internet-based, electronic business and
digital business solutions;
- systems integrators such as Andersen Consulting, Ernst & Young,
PricewaterhouseCoopers and Sapient;
- strategy and management consulting firms such as Bain, Boston Consulting
Group and Diamond Technology Partners;
- regional specialized information technology firms;
- vendor-based services organizations of companies such as IBM and Oracle;
and
- internal management and information technology departments of current and
future client organizations.
We expect competition to persist and intensify in the future. We cannot be
certain that we will be able to compete successfully with existing or new
competitors.
There are relatively low barriers to entry in the eBusiness services
market. In addition, we do not own any patented technology that stops
competitors from entering the eBusiness services market or providing services
similar to ours. Therefore, we expect that competition will continue to
intensify and increase in the future. In fact, some large information technology
consulting firms have announced that they will focus more resources on eBusiness
opportunities. Because we
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contract with our clients on an engagement-by-engagement basis, we compete for
engagements at each stage of our methodology. There is no guarantee that we will
be retained by our existing or future clients on later stages of work.
Some of our current competitors have longer operating histories, a larger
client base, larger professional staffs, greater brand recognition and greater
financial, technical, marketing and other resources than we do. This may place
us at a disadvantage in responding to our competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. In addition, many of our competitors have well-established
relationships with our current and potential clients and have extensive
knowledge of our industry. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements and they may also be able to devote more resources to the
development, promotion and sale of their services than we can. Competitors that
offer more standardized or less customized services than we do may have a
substantial cost advantage, which could force us to lower our prices, adversely
affecting our operating margins.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS
We have grown rapidly and expect to continue to grow rapidly both by hiring
new employees and serving new business and geographic markets. Our growth has
placed, and will continue to place, a significant strain on our management and
our operating and financial systems. Our project personnel, or professional,
headcount grew from 166 at December 31, 1997 to 695 at December 31, 1998 and 945
at September 30, 1999. Furthermore, our Chief Executive Officer has only
recently joined Xpedior.
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
engagements, the increased number of clients and the increased size of our
operations, we will need to hire, train and retain sufficient personnel to
manage our operations. We will also need to continually improve our financial
and management controls, reporting systems and operating systems as the size of
our company increases. We may encounter difficulties in developing and
implementing such controls and other systems. If we encounter such difficulties,
our business could be adversely affected.
OUR INTERNATIONAL OPERATIONS MAY BE EXPENSIVE AND MAY NOT SUCCEED
We may be unable to successfully market, sell, deliver and support our
services internationally. If we are unable to expand our international
operations successfully, our business, financial condition and operating results
could be seriously harmed. We will need to devote significant management and
financial resources to our international expansion. In particular, we will have
to attract and retain experienced management, strategic, technical, design,
sales, marketing and support personnel for our international offices.
Competition for such personnel is intense, and we may be unable to attract and
retain qualified personnel.
We have limited experience in marketing, selling and supporting our
services in foreign countries. Development of such skills may be more difficult
or take longer than we anticipate,
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especially due to language barriers, currency exchange risks and the fact that
the Internet infrastructure in foreign countries may be less advanced than the
United States' Internet infrastructure. We intend to expand our operations
internationally in future periods by opening additional international offices,
hiring additional international management, strategic, technical, design, sales,
marketing and support personnel, and will consider entering through
acquisitions.
Moreover, international operations are subject to a variety of additional
risks that could seriously harm our financial condition and operating results.
These risks include the following:
- the establishment of a market for eBusiness internationally;
- the impact of recessions in economies outside the United States;
- unexpected changes in regulatory requirements;
- longer payment cycles and problems collecting accounts receivable;
- fluctuations in currency exchange rates;
- reduced protection for intellectual property and proprietary rights in
some countries;
- restrictions on the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use; and
- seasonal declines in business activity in certain international regions.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CLIENTS
FOR A SIGNIFICANT PORTION OF OUR REVENUES
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. To the extent that any
significant client uses less of our services or terminates its relationship with
us, our revenues could decline substantially. As a result, the loss of any
significant client could seriously harm our business, financial condition and
operating results. For the year ended December 31, 1998, our ten largest clients
accounted for approximately 33% of our pro forma revenues, with no single client
accounting for more than 7% of our pro forma revenues. The volume of work that
we perform for a specific client is likely to vary from period to period, and a
significant client in one period may not use our services in a subsequent
period.
OUR CLIENTS GENERALLY RETAIN US ON AN ENGAGEMENT-BY-ENGAGEMENT BASIS, WHICH
REDUCES THE PREDICTABILITY OF OUR REVENUES
Our clients generally retain us on an engagement-by-engagement basis,
rather than under long-term contracts. As a result, our revenues are difficult
to predict. Our operating expenses are relatively fixed and cannot be reduced on
short notice to compensate for unanticipated variations in the number or size of
engagements in progress. Because we incur costs based on our expectations of
future revenues, our failure to predict our revenues accurately may seriously
harm our financial condition and results of operations. Since large client
projects involve multiple engagements or stages, there is a risk that a client
may choose not to retain us for additional stages of a project or that the
client will cancel or delay additional planned projects. Such cancellations or
delays could result from factors unrelated to our work product or the progress
of the project, but could be related to general business or financial conditions
of the client. A reduction in or the termination of our services could lead to
underutilization of our employees and could harm our operating results.
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Our existing clients can generally reduce the scope of or cancel their use
of our services without penalty and with little or no notice. If a client
defers, modifies or cancels an engagement or chooses not to retain us for
additional phases of a project, we must be able to rapidly redeploy our
employees to other engagements to minimize underutilization of employees and the
resulting harm to our operating results. If we are not successful in minimizing
underutilization of employees, our business could be adversely effected.
WE MAY LOSE MONEY ON FIXED-FEE CONTRACTS
Fixed-fee contracts have a significantly greater risk than
time-and-materials contracts. If we miscalculate the resources or time we need
to complete engagements with capped or fixed fees, our operating results could
be seriously harmed. The risk of such miscalculations for us is high because we
work with complex technologies in compressed timeframes. As a result, it is
difficult to judge the time and resources necessary to complete a project. To
date, we have generally entered into contracts with our clients on a
time-and-materials basis, though we sometimes work on a fixed-fee basis or cap
the amount of fees we may invoice on time-and-material contracts without client
consent. Therefore, we have a more limited history in estimating fixed-fee
contracts. We derived approximately 14% of our pro forma revenues in 1998 from
fixed-fee contracts, although this percentage may increase in the future. If we
fail to accurately price these fixed-fee contracts, our profitability could be
adversely effected.
WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS
We sometimes agree not to perform services for competitors of our clients
for limited periods of time. These non-compete agreements reduce the number of
our prospective clients and the number of potential sources of revenue. In
addition, these agreements increase the significance of our client selection
process because many of our clients compete in markets where only a limited
number of players gain meaningful market share. If we agree not to perform
services for a particular client's competitors and our client fails to capture a
significant portion of its market, we are unlikely to receive future revenues in
that particular market.
OUR EFFORTS TO DEVELOP BRAND AWARENESS OF OUR SERVICES MAY NOT BE SUCCESSFUL
An important element of our business strategy is to develop and maintain
widespread awareness of the Xpedior brand name. To promote our brand name,
beginning in the third quarter of fiscal 1999 we substantially increased our
marketing expenses, which may cause our operating margins to decline. Moreover,
our brand may be closely associated with the business success or failure of some
of our high-profile clients, some of whom are pursuing unproven business models
in competitive markets. As a result, the failure or difficulties of one of our
high-profile clients may damage our brand. If we fail to successfully promote
and maintain our brand name or incur significant additional expenses, our
operating margins and our growth may decline.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY
We create, implement and maintain eBusiness systems and other applications
that are often critical to our clients' businesses. Any defects or errors in
these applications or failure to meet clients' expectations could result in:
- delayed or lost revenues due to adverse client reaction;
- requirements to provide additional services to a client at no charge;
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- negative publicity regarding us and our services, which could adversely
affect our ability to attract or retain clients; and
- claims for substantial damages against us, regardless of our
responsibility for such failure.
Our contracts generally limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering services to our
clients. However, we cannot be sure that these contractual provisions will
protect us from liability for damages in the event we are sued. Furthermore, our
general liability insurance coverage may not continue to be available on
reasonable terms or in sufficient amounts to cover one or more large claims, or
the insurer may disclaim coverage as to any future claim. The successful
assertion of any such large claim against us could seriously harm our business,
financial condition and operating results. Even if not successful, such claims
could result in significant legal or other costs and may be a distraction to
management.
OUR BUSINESS IS DEPENDENT ON OUR ABILITY TO KEEP PACE WITH THE LATEST
TECHNOLOGICAL CHANGES
Our market and the enabling technologies used by our clients are
characterized by rapid technological change. Failure to respond successfully to
these technological developments, or to respond in a timely or cost-effective
way, will result in serious harm to our business and operating results. We have
derived, and we expect to continue to derive, a substantial portion of our
revenues from creating eBusiness systems that are based upon today's leading
technologies and that are capable of adapting to future technologies. As a
result, our success will depend, in part, on our ability to offer services that
keep pace with continuing changes in technology, evolving industry standards and
changing client preferences. In addition, we must hire, train and retain
technologically knowledgeable professionals so that they can fulfill the
increasingly sophisticated needs of our clients.
YEAR 2000 ISSUES COULD ADVERSELY AFFECT OUR BUSINESS
Year 2000 issues may adversely affect our business and our clients'
businesses. Many currently installed computer systems and software products are
coded to accept only two-digit year entries in the date code field.
Consequently, on or about January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish 21st century dates from
20th century dates. As a result, computer systems and software used by many
companies, including us, our clients and our potential clients, may need to be
upgraded to comply with such "Year 2000" requirements. Any failure on the part
of our principal internal systems or the products of third parties upon which we
rely could seriously harm our business, financial condition and operating
results and could disrupt our clients' and our business operations. Likewise, if
we fail to provide Year 2000 compliant systems to our clients, we could harm our
reputation and incur substantial legal liability which in turn could seriously
harm our business and operating results. For a more detailed description of our
Year 2000 assessment, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Readiness."
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual property.
In addition, we may not be able to detect unauthorized use of our intellectual
property and take appropriate steps to enforce our rights. If third parties
infringe or misappropriate our trade secrets, copyrights, trademarks or
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other proprietary information, our business could be seriously harmed. In
addition, although we believe that our proprietary rights do not infringe the
intellectual property rights of others, other parties may assert infringement
claims against us or claim that we have violated their intellectual property
rights. Such claims, even if not true, could result in significant legal and
other costs and may be a distraction to management. In addition, protection of
intellectual property in many foreign countries is weaker and less reliable than
in the United States, so if our international operations expand, risks
associated with protecting our intellectual property will increase.
Our business often involves the development of software applications for
specific client engagements. We often retain the right to use any intellectual
property that is developed during a client engagement that is of general
applicability and is not specific to the client's project. We also develop
software applications for our own internal use and we retain ownership of these
applications. There can be no assurance that clients will not demand assignment
of ownership or restrictions on our use of the work that we produce for clients
in the future. Issues relating to the ownership of and rights to use software
can be complicated and there can be no assurance that disputes will not arise
that affect our ability to reuse this software which could harm our business
results.
WE HAVE AGREED TO PAY ADDITIONAL CASH CONSIDERATION TO THE FORMER OWNERS OF THE
COMPANIES WE HAVE ACQUIRED, WHICH AMOUNTS ARE PAYABLE IN THE FIRST HALF OF 2000
Under the terms of their acquisition agreements, the former owners of five
of our acquired companies have the right to receive additional cash
consideration upon satisfaction of financial and operational conditions. Payment
of these obligations may substantially deplete our cash reserves or require us
to borrow funds. The additional consideration will create additional goodwill
and increase the related amortization expense. In mid-1999, the amounts of the
remaining contingent payments, with the exception of those relating to NDC Group
and New Technology Partners Consulting, were agreed to by the relevant parties.
The total amount of additional consideration will not exceed $36.2 million. All
remaining contingent payments are due in March and April 2000. In addition, we
have assumed liabilities associated with a guarantee of the value of
approximately 310,000 shares of Metamor common stock issued in connection with
the acquisition of the NDC Group. In the event the fair market value of these
shares is less than $14.0 million based upon the average market price during the
20 trading days preceding April 16, 2000, we will be obligated to pay the
difference to the former NDC Group shareholders.
THE INDEMNIFICATION PROVISIONS OF THE ACQUISITION AGREEMENTS MAY NOT FULLY
PROTECT US AND MAY RESULT IN UNEXPECTED LIABILITIES
Some of the former owners of each acquired company are required to
indemnify us against liabilities related to the operation of their company
before we acquired it. The acquisition agreements include provisions for the
indemnification of Xpedior by the former owners of each company for breaches of
their representations and warranties in the acquisition agreements, and
inaccuracy of the information provided by them for use in this prospectus. In
some cases these former owners may not have the financial ability to meet their
indemnification responsibilities.
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WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS
Once Metamor's ownership is reduced to a level where it no longer controls
Xpedior, certain provisions of our certificate of incorporation and bylaws may
still discourage, delay or prevent a change in control of Xpedior that a
stockholder may consider favorable. These provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- establishing a classified board of directors with staggered, three-year
terms, which may lengthen the time required to gain control of our board
of directors;
- prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
- requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
- limitations on who may call special meetings of stockholders;
- prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders; and
- establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock incentive plans may discourage, delay or prevent a change in control of
Xpedior. See "Management -- Employee Stock Plans" and "Description of Capital
Stock -- Anti-Takeover Effects of Provisions of our Certificate of Incorporation
and Bylaws."
RISKS RELATED TO OUR RELATIONSHIP WITH METAMOR
METAMOR WILL CONTROL THE OUTCOME OF STOCKHOLDER VOTING AND MAY EXERCISE ITS
VOTING POWER IN A MANNER ADVERSE TO YOU
Metamor currently owns substantially all of our outstanding common stock.
Following completion of this offering, Metamor will own approximately 83% of our
outstanding common stock, or 80% if the underwriters' over-allotment option is
exercised in full. To date, Metamor has appointed all of our directors.
Following this offering, as long as Metamor owns a majority of our outstanding
voting stock, Metamor will have the right to elect or replace all of our
directors. As a result, following this offering, Metamor will continue to have
the ability to control the policies, management and affairs of Xpedior and will
control the outcome of corporate actions requiring stockholder approval,
including the approval of transactions involving a change in control of Xpedior.
Metamor's interests may differ from those of our other stockholders. As a
result, Metamor may vote its Xpedior common stock in a manner adverse to our
other stockholders. See "Certain Transactions" and "Principal Stockholders."
FAILURE OF METAMOR TO COMPLETE ITS DIVESTITURE OF OUR COMPANY MAY ADVERSELY
AFFECT OUR BUSINESS
If Metamor fails to complete its divestiture of our company substantially
within the time contemplated, our business may be adversely affected.
Specifically, we would likely not realize
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the increased brand identity, improved relationships with our professionals and
other benefits we expect to achieve in connection with the divestiture during
the near term, all of which are important to our business strategy. Although
Metamor has advised us that it currently plans to complete its divestiture of
our company in 2000, it is not obligated to do so and we cannot assure you as to
whether or when the divestiture will occur. This means that we cannot assure you
when, or even if, we will obtain the expected benefits. For information about
Metamor's plan to divest Xpedior and the benefits we expect to achieve in
connection with the divestiture, see "The Company -- Separation from Metamor."
One of the principal benefits that we expect to achieve from our separation
from Metamor is increased competitiveness over time as a result of improving our
relationships with our professionals through the granting of stock options and
practices appropriate to an eBusiness services company. This is very important
to our business because our professionals place a high value on direct
participation in our company as well as working in a stimulating, creative
environment. However, we cannot assure you as to when or the extent to which we
will be able to achieve these benefits. Our current option program provides that
the options granted to our management and professionals may not be sold until
the earlier of a divestiture of Xpedior by Metamor or two years after our
initial public offering.
In addition, until the divestiture occurs, the risks relating to Metamor's
control of our company, the potential business conflicts of interest between our
company and Metamor and the potential conflicts of interest that may arise as a
result of our common board member will continue to be relevant to our
stockholders.
ONE OF OUR DIRECTORS IS THE CHIEF EXECUTIVE OFFICER AND A DIRECTOR OF METAMOR
Currently, one of our directors is also President, Chief Executive Officer
and a director of Metamor, a situation that may create conflicts of interest.
The directors and officers of Metamor have fiduciary duties to manage Metamor,
including its investments in subsidiaries and affiliates such as Xpedior, in a
manner beneficial to Metamor and its stockholders. Similarly, our directors and
officers have fiduciary duties to manage Xpedior in a manner beneficial to
Xpedior and its stockholders. In some circumstances, the duties of these
directors and officers of Metamor may conflict with their duties as directors of
Xpedior. In addition, other conflicts of interest exist and may arise in the
future as a result of the extensive relationships between Metamor and Xpedior.
See "Certain Transactions" and "Principal Stockholders."
CHANGES IN OUR RELATIONSHIP WITH METAMOR COULD INCREASE OUR COSTS BECAUSE WE
RELY ON METAMOR FOR CORPORATE SUPPORT SERVICES
We have entered into an agreement with Metamor pursuant to which Metamor
provides various corporate support services to us. We also may utilize Metamor's
mergers and acquisitions, legal, tax, risk and cash management departments. In
addition, Xpedior may continue to participate in Metamor's corporate insurance
program.
Our agreement with Metamor is for an indefinite term, but may be terminated
on 60 days' notice by either party. Further, following Metamor's divestiture of
our company, we would expect to terminate this agreement after some interim
transitional period. If the agreement is terminated, we expect that we would be
able to arrange alternate suppliers for all the services important to our
business. We expect that these services would be available from third parties at
costs similar to those we pay Metamor. However, if we have to replicate
facilities, services or employees that we are not using full time, our costs
would increase. It is not possible to predict
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the specific areas where our costs would increase, as that depends on the growth
and needs of our business at the time of any such termination.
WE MAY INCUR MATERIAL COSTS IN CONNECTION WITH OUR SEPARATION FROM METAMOR
We may incur costs and expenses, potentially including additional taxes and
employee costs, greater than those we have planned for in connection with our
separation from Metamor. In this regard, if 50% or more of the stock of Xpedior
or Metamor is acquired within two years of the separation, it is possible that a
significant tax liability could result. We cannot assure you that these costs
will not be material to our business.
WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH METAMOR WITH RESPECT
TO OUR PAST AND ONGOING RELATIONSHIPS
Unless and until Metamor completes its divestiture of our common stock, it
will continue to be our controlling stockholder. In addition, we currently have,
and after this offering and the divestiture will continue to have, contractual
arrangements with Metamor which require Metamor and its affiliates to provide
various transitional and other services to us. As a result, conflicts of
interest may arise between us and Metamor in a number of areas relating to our
past and ongoing relationships, including:
- the nature, quality and pricing of transitional services Metamor has
agreed to provide us;
- tax and other matters arising from the separation of our company from
Metamor;
- the incurrence of debt by our company;
- sales or distributions by Metamor of all or any portion of its ownership
interest in our company;
- business opportunities that may be attractive to both Metamor and our
company; and
- Metamor's ability to control the management and affairs of our company.
We cannot assure you that we will be able to resolve any potential conflicts or
that, if resolved, we would not be able to receive more favorable resolution if
we were dealing with an unaffiliated party. In addition, our ability to incur
indebtedness, make acquisitions and dispositions and issue stock is subject to
the terms of another agreement that we have entered into with Metamor described
elsewhere herein.
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS
AS A SEPARATE COMPANY
The historical financial information we have included in this prospectus
may not reflect what our results of operations, financial position and cash
flows would have been had we been a separate, stand-alone entity during the
periods presented or what our results of operations, financial position and cash
flows will be in the future. This is because:
- we have made certain adjustments and allocations since Metamor did not
account for us as, and we were not operated as, a single stand-alone
business for all periods presented; and
- the information does not reflect many significant changes that will occur
in our funding and operations as a result of our separation from Metamor,
including employee and tax matters.
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We cannot assure you that the adjustments and allocations we have made in
preparing our historical consolidated financial statements appropriately reflect
our operations during such period as if we had in fact operated as a stand-alone
entity or what the actual effect of our separation from Metamor will be.
Accordingly, we cannot assure you that our historical results of operations are
indicative of our future operating or financial performance. For additional
information, see "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our pro forma condensed consolidated financial statements included elsewhere in
this prospectus.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL AND LIQUIDITY REQUIREMENTS
A substantial portion of our cash flows from operations will be dedicated
to meet our contingent acquisition payment obligations and to the payment of
principal and interest on our indebtedness from time to time. As a result of
these obligations, our liquidity position may be adversely affected if we fail
to realize our expected cash flows from operations. For a discussion of these
and other factors affecting our liquidity, you should read "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Our working capital requirements and cash flow provided by operating
activities can vary greatly from quarter to quarter, depending on the volume of
business during the period and the payment terms with our customers. We cannot
assure you that we will be able to meet our future capital requirements in the
same manner and on the same terms as we did when we operated as a division of
Metamor. Until recently, our working capital needs were managed by Metamor
pursuant to its company-wide cash management policies.
RISKS RELATED TO THE EBUSINESS INDUSTRY
OUR SUCCESS WILL DEPEND ON THE DEVELOPMENT OF A MARKET FOR EBUSINESS SERVICES
We cannot be certain that a viable market for eBusiness services will
emerge or be sustainable. If a viable and sustainable market for our eBusiness
services does not develop, we will be adversely affected. Even if an eBusiness
services market develops, we may not be able to differentiate our services from
those of our competitors. If we are unable to differentiate our services from
those of our competitors, our revenue growth and operating margins may decline.
OUR SUCCESS DEPENDS ON INCREASED ADOPTION OF THE INTERNET AS A MEANS FOR
COMMERCE
Our future success depends heavily on the acceptance and use of the
Internet as a means for commerce. The widespread acceptance and adoption of the
Internet for conducting business is likely only in the event that the Internet
provides businesses with greater efficiencies and other advantages. If commerce
on the Internet does not continue to grow, or grows more slowly than expected,
our growth would decline and our business would be seriously harmed. Consumers
and businesses may reject the Internet as a viable commercial medium for a
number of reasons, including:
- potentially inadequate network infrastructure;
- delay in the development of Internet-enabling-technologies and
performance improvements;
- delay in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
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- delay in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
- change in, or insufficient availability of, telecommunications services
to support the Internet; and
- failure of companies to meet their customers' expectations in delivering
goods and services over the Internet.
INCREASING GOVERNMENT REGULATION COULD AFFECT OUR BUSINESS
We are subject not only to regulations applicable to businesses generally,
but also laws and regulations directly applicable to electronic commerce.
Although there are currently few such laws and regulations, both state, federal
and foreign governments may adopt a number of these laws and regulations. Any
such legislation or regulation could dampen the growth of the Internet and
decrease its acceptance as a communications and commercial medium. If such a
decline occurs, companies may decide in the future not to use our services to
create an electronic business channel. This decrease in the demand for our
services would seriously harm our business and operating results.
Any new laws and regulations may govern or restrict any of the following
issues:
- user privacy;
- the pricing and taxation of goods and services offered over the Internet;
- the content of websites;
- consumer protection; and
- the characteristics and quality of products and services offered over the
Internet.
For example, the Telecommunications Act of 1996 prohibits the transmission
of certain types of information and content over the Internet. The scope of the
Act's prohibition is currently unsettled. In addition, although courts recently
held unconstitutional substantial portions of the Communications Decency Act,
federal or state governments may enact, and courts may uphold, similar
legislation in the future. Future legislation could expose companies involved in
Internet commerce to liability.
RISKS RELATED TO THE SECURITIES MARKETS
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE
We expect that the net proceeds from this offering and the availability of
borrowings under our proposed credit facility will be sufficient to meet our
working capital and capital expenditure needs for at least the next 12 months.
After that, we may need to raise additional funds or sell equity and/or debt
securities, and we cannot be certain that we will be able to obtain additional
financing or sell securities on favorable terms or at all. Although Metamor has
agreed to provide funding for our working capital requirements until a credit
facility is in place, we may not be able to attract lenders for an appropriate
credit facility on terms acceptable to us. If we need additional capital and
cannot raise it on acceptable terms and Metamor is unwilling to provide
additional capital, we may not be able to:
- open new offices, in the United States or internationally;
- create additional market-specific business units;
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- enhance our infrastructure and leveragable assets;
- hire, train and retain professionals;
- respond to competitive pressures or unanticipated requirements; or
- pursue acquisition opportunities.
Our failure to do any of these things could seriously harm our financial
condition. Any additional capital raised through the sale of equity may dilute
your ownership percentage in us. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
OUR STOCK PRICE MAY BE VOLATILE BECAUSE OUR SHARES HAVE NOT BEEN PUBLICLY
TRADED PREVIOUSLY
Prior to this offering, you could not buy or sell our common stock
publicly. Accordingly, we cannot assure you that an active public trading market
for our stock will develop or be sustained after this offering. The market price
after this offering may vary significantly from the initial offering price in
response to any of the following factors, some of which are beyond our control:
- changes in financial estimates or investment recommendations by
securities analysts relating to our stock;
- changes in market valuations of other electronic commerce software and
service providers or electronic businesses;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major client;
- additions or departures of key personnel; and
- fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology sector.
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive less than
the price they paid for their common stock. In addition, because our success is
so heavily dependent on our ability to attract and retain talented personnel, we
expect to offer a significant number of stock options to employees in the
future. Such issuances may cause further dilution to investors. See "Dilution."
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SHARES BECOMING AVAILABLE FOR SALE COULD AFFECT OUR STOCK PRICE AND DILUTE YOUR
OWNERSHIP IN US
Sales of a substantial number of shares of common stock after this
offering, or the perception that such sales could occur, could adversely affect
the market price of our common stock and could impair our ability to raise
capital through the sale of additional equity securities. Immediately after this
offering, affiliates and holders of restricted securities, as defined in Rule
144 of the Securities Act, will own 41,465,000 shares, representing
approximately 83% of our outstanding common stock. A decision by such persons to
sell shares of common stock could adversely affect the trading price of the
common stock. For a description of the shares of our common stock that are
available for future sale, see "Shares Eligible for Future Sale."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." These factors may cause our actual results
to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform such statements to actual results and do not
intend to do so.
20
<PAGE> 26
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
being sold in this offering. This prospectus constitutes a part of that
registration statement. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits and schedules to the
registration statement because some parts have been omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to us and the common stock being sold in this offering, you should refer
to the registration statement and the exhibits and schedules filed as a part of
the registration statement. Statements contained in this prospectus regarding
the contents of any agreement, contract or other document referred to are not
necessarily complete; reference is made in each instance to the copy of the
contract or document filed as an exhibit to the registration statement. Each
statement is qualified in all respects by reference to the exhibit. The
registration statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained after payment of
fees prescribed by the Commission from the Commission's Public Reference Room at
the Commission's principal office, 450 Fifth Street, N.W., Washington, D.C.
20549, or at the Commission's regional offices in New York, located at 7 World
Trade Center, Suite 1300, New York, New York 10048, or in Chicago, located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain
information regarding the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants, including us, that file electronically with the Commission. The
address of the site is www.sec.gov.
We intend to furnish holders or our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish such other reports as we may determine or as may be
required by law.
CORPORATE INFORMATION
Xpedior Incorporated is a Delaware corporation. We incorporated in December
1997 under the name Metamor Solutions Holdings, Inc. In November 1998, we
changed our name to Metamor Consulting Solutions, Inc., and in August 1999, we
changed our name to Xpedior Incorporated. References in this prospectus to
"Xpedior," "we," "our" and "us" refer to Xpedior Incorporated and its
subsidiaries and predecessors. Our principal executive offices are located at
One North Franklin, Suite 1500, Chicago, Illinois 60606 and our telephone number
is (800) 462-6301. We invite you to visit our Internet site at www.xpedior.com.
The information on our web site does not constitute a part of this prospectus.
In addition, we have recently received publicity from several widely
disseminated publications. The information regarding us, our business and our
affiliates in these publications does not constitute a part of this prospectus.
21
<PAGE> 27
USE OF PROCEEDS
The net proceeds from the sale of the 8,535,000 shares of common stock
offered by us will be approximately $108.9 million, based on an assumed initial
public offering price of $14.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses. We will not receive
any proceeds from the sale of the shares to be sold by Metamor if the
underwriters exercise their over-allotment option.
The primary purposes of this offering are to provide a means of incentive
to our professionals through stock options, obtain additional equity capital,
create a public market for our common stock and facilitate future access to
public markets. We expect to use the net proceeds from this offering for:
- the repayment of $100.0 million of outstanding debt due to Metamor, plus
accrued interest since July 31, 1999; and
- general corporate purposes.
We currently owe $100.0 million to Metamor for notes issued by us in
connection with:
- the initial capitalization of each of the acquired companies and
additional consideration paid after closing those acquisitions based on
increases in earnings before interest and taxes; and
- advances for working capital.
These notes are payable on demand and bear interest at the prime rate plus
3%, which at July 31, 1999 was 11%.
Management will have broad discretion in the allocation of the net proceeds
after the retirement of debt. Pending such uses, the proceeds of this offering
will be invested in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not intend
to pay any cash dividends in the foreseeable future. Instead, we will retain our
earnings to finance the expansion of our business and for general corporate
purposes. Our board of directors will have the authority to declare and pay
dividends on the common stock, in its discretion, as long as there are funds
legally available to do so.
22
<PAGE> 28
CAPITALIZATION
The following table sets forth our short-term debt and capitalization as of
July 31, 1999. The pro forma information reflects the acquisition of Kinderhook
Systems, Inc. as if such acquisition was consummated as of July 31, 1999. The
pro forma as adjusted information reflects the receipt of the estimated net
proceeds from our sale of 8,535,000 shares of common stock at an assumed initial
offering price of $14.00 per share, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and
accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Cash................................................... $ -- $ 1,436 $ 10,312
======== ======== ========
Amounts due to Metamor................................. $100,000 $100,000 $ --
======== ======== ========
7% convertible subordinated notes...................... $ -- $ 9,100 $ 9,100
-------- -------- --------
Total long-term debt......................... -- 9,100 9,100
Stockholders' equity:
Common stock, $.01 par value per share, 100,000,000
shares authorized, 41,285,298 shares issued and
outstanding actual and pro forma; 49,820,298
shares outstanding pro forma as adjusted(a)....... 413 413 498
Additional paid-in capital........................... 39,240 54,140 162,931
Retained earnings.................................... 5,358 5,358 5,358
-------- -------- --------
Total stockholders' equity................... 45,011 59,911 168,787
-------- -------- --------
Total capitalization....................... $ 45,011 $ 69,011 $177,887
======== ======== ========
</TABLE>
- ------------------------------
(a) The number of shares of common stock to be outstanding after this offering
excludes (1) options to purchase 9,237,600 shares of common stock granted
through October 15, 1999 at a weighted average exercise price of $7.28 per
share, (2) 5,582,698 shares of common stock reserved for issuance upon
exercise of options that may be granted in the future under our stock plans
and (3) 179,702 shares of common stock, which were issued on September 9,
1999.
23
<PAGE> 29
DILUTION
The pro forma net tangible book value of our common stock as of July 31,
1999 was $(79.2) million or approximately $(1.92) per share. Pro forma net
tangible book value per share represents the amount of our stockholders' equity
less intangible assets, divided by 41,285,298 shares of common stock.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of common stock in
this offering and the pro forma net tangible book value per share of common
stock immediately after completion of this offering. After giving effect to our
sale of 8,535,000 shares of common stock in this offering at an assumed initial
offering price of $14.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses and the
application of the estimated net proceeds therefrom, our pro forma net tangible
book value as of July 31, 1999, would have been $29.7 million, or $0.60 per
share. This represents an immediate increase in net tangible book value of $2.52
per share to existing stockholders and an immediate dilution in net tangible
book value of $14.25 per share to purchasers of common stock in this offering.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
------
Pro forma net tangible book value per share as of July 31,
1999................................................... $(1.92)
Increase per share attributable to new investors.......... 2.52
------
Pro forma net tangible book value per share after this
offering.................................................. 0.60
------
Dilution per share to new investors......................... $13.40
======
</TABLE>
The following table sets forth on a pro forma basis as of July 31, 1999,
the difference between the number of shares of common stock purchased from us,
the total consideration paid to us and the average price paid by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, before deduction of estimated discounts and commission and estimated
offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 41,285,298 82.9% $ 54,553,000 31.3% $ 1.32
New stockholders........................ 8,535,000 17.1 119,490,000 68.7 14.00
---------- ----- ------------ -----
Total......................... 49,820,298 100.0% $174,043,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing table excludes (1) options to purchase 9,237,600 shares of
common stock granted through October 15, 1999 at a weighted average exercise
price of $7.28 per share, (2) 5,582,698 shares of common stock reserved for
issuance upon exercise of options that may be granted in the future under our
stock plans and (3) 179,702 shares of common stock, which were issued on
September 9, 1999.
24
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from our
consolidated financial statements and from the financial statements of Metamor
Technologies, Ltd., our predecessor company (the "Predecessor"). This data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and are qualified by reference
to the consolidated financial statements and notes thereto appearing elsewhere
in this prospectus. The selected financial data as of and for the years ended
December 31, 1994 and 1995 have been derived from the unaudited financial
statements of the Predecessor and the selected financial data as of and for the
year ended December 31, 1996, as of March 26, 1997 and for the period from
January 1, 1997 to March 26, 1997 have been derived from the audited financial
statements of the Predecessor included elsewhere in this prospectus. The
selected consolidated financial data as of December 31, 1997 and 1998 and July
31, 1999, and for the period from inception (March 27, 1997) to December 31,
1997, the year ended December 31, 1998 and the seven months ended July 31, 1999
have been derived from our audited consolidated financial statements included
elsewhere in this prospectus. The selected consolidated financial data as of and
for the seven months ended July 31, 1998 have been derived from our unaudited
consolidated financial statements included elsewhere in this prospectus. In the
opinion of management, the unaudited consolidated financial statements include
all adjustments, consisting of normal recurring adjustments, necessary for the
fair presentation of the results of operations for this period. Operating
results for the seven months ended July 31, 1999 are not necessarily indicative
of the results that may be expected for the entire year ending December 31,
1999.
The pro forma consolidated financial data give effect to all businesses
acquired through September 30, 1999 as if such acquisitions were consummated as
of the beginning of the periods presented. The pro forma consolidated financial
data should be read in conjunction with the pro forma condensed consolidated
financial statements included elsewhere in this prospectus. The pro forma
consolidated results of operations are not necessarily indicative of the results
that would have occurred had the acquisitions been consummated as of the
beginning of the periods presented or that might be attained in the future.
25
<PAGE> 31
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(A)
--------------------------------------
PERIOD FROM
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997 TO
------------------------ MARCH 26,
1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $3,729 $4,081 $6,605 $ 2,578
Cost of services..................... 2,737 3,719 4,256 1,853
------ ------ ------ -------
Gross profit......................... 992 362 2,349 725
Operating costs and expenses:
Selling, general and
administrative................... 841 704 1,825 404
Stock compensation................. -- -- -- 4,565
Depreciation and amortization...... 41 96 133 105
------ ------ ------ -------
Total operating costs and
expenses................... 882 800 1,958 5,074
------ ------ ------ -------
Operating income (loss).............. 110 (438) 391 (4,349)
Other expense........................ -- 49 34 7
------ ------ ------ -------
Income (loss) from continuing
operations before income taxes..... 110 (487) 357 (4,356)
Provision (benefit) for income
taxes.............................. -- (42) 8 7
------ ------ ------ -------
Income (loss) from continuing
operations......................... $ 110 $ (445) $ 349 $(4,363)
====== ====== ====== =======
Earnings (loss) from continuing
operations per share (diluted).....
Number of shares used in computing
diluted earnings (loss) per
share(b)...........................
<CAPTION>
XPEDIOR INCORPORATED
------------------------------------------------------------------
YEAR ENDED
INCEPTION DECEMBER 31, SEVEN MONTHS ENDED JULY 31,
(MARCH 27, ------------------- -----------------------------
1997) TO ACTUAL
DECEMBER 31, ACTUAL PRO FORMA ----------------- PRO FORMA
1997 1998 1998 1998 1999 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $12,588 $72,267 $100,500 $32,411 $69,915 $77,269
Cost of services..................... 8,174 41,930 57,642 18,708 40,389 43,842
------- ------- -------- ------- ------- -------
Gross profit......................... 4,414 30,337 42,858 13,703 29,526 33,427
Operating costs and expenses:
Selling, general and
administrative................... 4,904 20,558 29,271 9,219 18,542 21,721
Stock compensation................. -- -- 30,809 -- -- --
Depreciation and amortization...... 510 2,823 4,182 1,297 3,008 3,353
------- ------- -------- ------- ------- -------
Total operating costs and
expenses................... 5,414 23,381 64,262 10,516 21,550 25,074
------- ------- -------- ------- ------- -------
Operating income (loss).............. (1,000) 6,956 (21,404) 3,187 7,976 8,353
Other expense........................ 1,228 5,537 9,395 2,585 6,082 7,047
------- ------- -------- ------- ------- -------
Income (loss) from continuing
operations before income taxes..... (2,228) 1,419 (30,799) 602 1,894 1,306
Provision (benefit) for income
taxes.............................. (871) 889 (612) 377 1,084 979
------- ------- -------- ------- ------- -------
Income (loss) from continuing
operations......................... $(1,357) $ 530 $(30,187) $ 225 $ 810 $ 327
======= ======= ======== ======= ======= =======
Earnings (loss) from continuing
operations per share (diluted)..... $ (0.03) $ 0.01 $ (0.73) $ 0.01 $ 0.02 $ 0.01
Number of shares used in computing
diluted earnings (loss) per
share(b)........................... 41,285 41,285 41,285 41,285 41,285 41,285
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
XPEDIOR INCORPORATED
PREDECESSOR COMPANY --------------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31, AS ADJUSTED(C)
----------------------- --------------------- AS OF JULY 31, AS OF JULY 31,
1994 1995 1996 1997 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................................... $ -- $ -- $ 245 $ 2 $ 191 $ -- $ 10,312
Working capital (includes amounts due to
Metamor)................................. (200) 486 1,338 (25,332) (95,229) (83,050) 28,787
Total assets............................... 815 1,468 3,771 34,408 139,876 164,700 198,256
Amounts due to Metamor..................... -- -- -- 16,253 77,929 100,000 --
Long-term debt, net of current
maturities............................... -- -- -- -- -- -- 9,100
Stockholders' equity....................... 353 1,053 2,399 2,969 19,028 45,011 168,787
</TABLE>
- ------------------------------
(a) On March 27, 1997, Metamor acquired Metamor Technologies, Ltd., our
predecessor company. Metamor contributed the stock of this company to us on
April 30, 1999.
(b) Gives effect to a 41,285-for-1 stock split. See Note 2 to our consolidated
financial statements included elsewhere in this prospectus.
(c) Gives effect to (1) the acquisition of Kinderhook Systems, Inc. as if it
was consummated as of July 31, 1999 and (2) this offering and the
application of the estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
26
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's Pro Forma Condensed Consolidated
Financial Statements and Consolidated Financial Statements included elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Examples of forward-looking
statements include statements regarding our future financial results, operating
results, market positions, product and services successes, business strategies,
projected costs, future products, competitive positions and plans and objectives
of management for future operations. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of risks
and uncertainties and other important factors, including those set forth under
"Risk Factors" included elsewhere in this prospectus.
INTRODUCTION
We were formed by Metamor to be the holding company for its eBusiness
solutions unit. Metamor commenced operations of this unit with the acquisition
of Metamor Technologies, Ltd., our predecessor company, on March 27, 1997, and
acquired six additional companies in 1998 as part of the eBusiness solutions
unit. Effective April 30, 1999, Metamor contributed to Xpedior all the
outstanding capital stock of the seven companies comprising its eBusiness
solutions unit, all of which were wholly owned subsidiaries of Metamor. As the
entities were under common control, the contribution has been accounted for at
historical cost in a manner similar to a pooling of interests. In September
1999, we acquired one additional company, Kinderhook Systems, Inc.
Effective October 1, 1999, we distributed to Metamor a segment of our
business that provided non-eBusiness outsourcing services. This segment was a
services unit of Metamor Technologies. This segment has been reflected as
discontinued operations in our financial statements. Revenues from discontinued
operations were $13.2 million for the period from inception (March 27, 1997) to
December 31, 1997, $22.7 million for the year ended December 31, 1998, $13.3
million for the seven months ended July 31, 1998 and $12.4 million for the seven
months ended July 31, 1999.
All of the eBusiness unit companies were acquired in transactions that were
accounted for using the purchase method. The accompanying financial statements
reflect Metamor's purchase accounting adjustments to the acquired eBusiness
companies and include the results of operations of each of the companies from
the date of their acquisition. Our historical consolidated operating results
have been significantly affected by the number, timing, and size of the
acquisitions. Accordingly, pro forma financial data are provided herein for a
more meaningful period-to-period comparison of our operating results. The pro
forma financial data have been prepared and included in this prospectus to give
effect to the acquisitions as if they occurred at the beginning of the periods
presented.
The pro forma financial data are not necessarily indicative of results of
operations that would have occurred had the acquisitions of the eBusiness
companies been consummated as of the beginning of the periods presented or that
might be attained in the future.
Before Metamor acquired them, our eBusiness unit companies were managed as
independent, private companies. As a consequence, their operating procedures and
results reflected different financial objectives, business practices, service
offerings and tax structures
27
<PAGE> 33
(S corporations and C corporations), which influenced their historical
operations, client base and compensation levels. Since mid-1998, we have been
integrating our eBusiness companies to implement a collective corporate
strategy. The major initiative of our integration process has been to leverage
the success of our eBusiness companies by sharing our expertise and practices
over a unified platform. The Xpedior Process and our best practices and
procedures have been refined and are being implemented throughout our company.
We have also analyzed and reviewed our internally developed solutions to develop
our Xpediators. This integration of methodologies and reusable solutions from
the best practices found within our organization may present opportunities to
increase revenues and reduce costs, but may also necessitate additional costs
and expenditures for corporate administration, including expenses necessary to
continue to train our professionals and implement our unified Xpedior Process.
These various costs and possible cost-saving and revenue enhancements may make
historical operating results difficult to compare with, and not indicative of,
future performance.
We contract on the basis that best fits our clients' needs. Our primary
form of offering services is on a time-and-materials basis. In this form of
contracting, we get paid at an agreed upon hourly rate for the time that we
expend on our clients' projects, and revenues are recorded at the time services
are performed. We also offer our services on a fixed-fee basis. This form of
contracting represented approximately 14% of our total pro forma revenues for
the year ended December 31, 1998. When we contract on a fixed-fee basis, we
realize revenues on a percentage of completion basis. Payments on our fixed-fee
contracts usually require an advance payment from the client with additional
payments due on either a milestone or a predetermined schedule. Payments billed
in excess of revenues earned are recorded as deferred revenues. Revenues earned
but not yet billed are recorded as work in process.
During the year ended December 31, 1998, our largest ten clients
represented approximately 33% of our pro forma revenues and have provided us
with average annual pro forma revenues per client of $3.3 million. Our largest
50 clients during the year ended December 31, 1998 represented approximately 70%
of our pro forma revenues and provided us with average annual pro forma revenues
per client of $1.4 million. Historically, we begin a client relationship with a
single project and, as our relationship grows, we increase both the number of
projects that we perform for a particular client and the size of the engagement.
Our most significant expense is cost of services, which consists primarily
of project personnel salaries, benefits and non-reimbursed direct expenses
incurred to complete projects. The number of professionals assigned to a project
will vary according to the size, complexity, duration and demands of the
project. An unanticipated termination of a significant project could also cause
us to experience lower revenues and gross profit.
To sustain our growth and improve profitability, we have made and continue
to make substantial investments in our business. These investments include the
addition of senior management, administrative personnel, business development
managers, facilities and recruiting capabilities. Selling, general and
administrative expenses, or SG&A, include the costs of recruiting, training,
marketing, facilities, as well as administrative and executive compensation
consisting of salaries, bonuses and benefits.
Pre-acquisition stock compensation expenses or stock compensation charges
consist of non-cash compensation expenses incurred in connection with the
issuances, exchanges or cancellations of stock options and other stock awards.
28
<PAGE> 34
RESULTS OF OPERATIONS
SEVEN MONTHS ENDED JULY 31, 1999 COMPARED WITH THE SEVEN MONTHS ENDED JULY 31,
1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SEVEN MONTHS ENDED SEVEN MONTHS ENDED
JULY 31, JULY 31,
------------------- ------------------
1998 1999 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $32,411 $69,915 $ 54,178 $77,269
Cost of services...................................... 18,708 40,389 30,702 43,842
------- ------- -------- -------
Gross profit.......................................... 13,703 29,526 23,476 33,427
Operating costs and expenses:
Selling, general and administrative................. 9,219 18,542 15,362 21,721
Stock compensation.................................. -- -- 30,809 --
Depreciation and amortization....................... 1,297 3,008 2,350 3,353
------- ------- -------- -------
Total operating costs and expenses.......... 10,516 21,550 48,521 25,074
------- ------- -------- -------
Operating income (loss)............................... 3,187 7,976 (25,045) 8,353
Other expense......................................... 2,585 6,082 5,567 7,047
Provision (benefit) for income taxes.................. 377 1,084 (821) 979
------- ------- -------- -------
Income (loss) from continuing operations.............. $ 225 $ 810 $(29,791) $ 327
======= ======= ======== =======
AS A PERCENTAGE OF REVENUES:
Revenues.............................................. 100.0% 100.0% 100.0% 100.0%
Cost of services...................................... 57.7 57.8 56.7 56.7
------- ------- -------- -------
Gross profit.......................................... 42.3 42.2 43.3 43.3
Operating costs and expenses:
Selling, general and administrative................. 28.4 26.5 28.4 28.1
Stock compensation.................................. -- -- 56.9 --
Depreciation and amortization....................... 4.0 4.3 4.3 4.3
------- ------- -------- -------
Operating income (loss)............................... 9.8 11.4 (46.2) 10.8
</TABLE>
HISTORICAL OPERATING RESULTS FOR THE SEVEN MONTHS ENDED JULY 31, 1999 COMPARED
WITH THE SEVEN MONTHS ENDED JULY 31, 1998
Revenues. Revenues increased 115.7% to $69.9 million for the seven months
ended July 31, 1999 from $32.4 million for the seven months ended July 31, 1998.
The increase in revenues was primarily a result of a 52.0% increase in project
personnel to 839 at July 31, 1999 from 552 at July 31, 1998. The growth in
headcount was primarily a result of the acquisition of the five businesses
during the seven months ended July 31, 1998.
Cost of Services. Cost of services increased 115.9% to $40.4 million for
the seven months ended July 31, 1999 from $18.7 million for the seven months
ended July 31, 1998. The increase in cost of services was primarily a result of
the growth in headcount noted above.
Operating Costs and Expenses. SG&A expenses increased 101.1% to $18.5
million for the seven months ended July 31, 1999 from $9.2 million for the seven
months ended July 31, 1998. The increase in SG&A expenses primarily resulted
from infrastructure costs primarily related to the acquired businesses and
investments in infrastructure necessary to support growth of the business. SG&A
decreased as a percentage of revenues to 26.5% for the seven months ended July
31, 1999 from 28.4% for the seven months ended July 31, 1998. The decrease in
SG&A expenses as a percentage of revenues primarily related to improved
operating leverage and lower expense margins of the businesses acquired in 1998.
29
<PAGE> 35
Depreciation increased to $1.5 million for the seven months ended July 31,
1999 from $0.5 million for the seven months ended July 31, 1998. The increase in
depreciation primarily related to the fixed assets of the businesses acquired
and, to a lesser extent, depreciation on capital expenditures made
post-acquisition. Amortization increased to $1.5 million for the seven months
ended July 31, 1999 from $0.8 million for the seven months ended July 31, 1998.
The increase in amortization related to amortization of intangible assets of the
acquired businesses. Depreciation and amortization increased as a percentage of
revenues to 4.3% for the seven months ended July 31, 1999 from 4.0% for the
seven months ended July 31, 1998.
Other Expense. Interest expense increased 131.6% to $6.0 million for the
seven months ended July 31, 1999 from $2.6 million for the seven months ended
July 31, 1998. The increase in interest expense related to borrowings from
Metamor to fund the purchase of the acquired companies and the payments of the
post-closing contingent consideration, or earnouts, paid to the sellers of the
acquired companies and our working capital requirements.
Provision (Benefit) for Income Taxes. The provision for income taxes for
the seven months ended July 31, 1999 was $1.1 million, compared with $0.4
million for the seven months ended July 31, 1998. The provision for income taxes
for the seven months ended July 31, 1999 and 1998 represented an effective tax
rate of 57.2% and 62.6%, respectively. Our effective tax rate includes the
effects of state income taxes and the portion of goodwill amortization not
deductible for federal income tax purposes.
PRO FORMA OPERATING RESULTS FOR THE SEVEN MONTHS ENDED JULY 31, 1999 COMPARED
WITH THE SEVEN MONTHS ENDED JULY 31, 1998
Revenues. Revenues increased 42.6% to $77.3 million for the seven months
ended July 31, 1999 from $54.2 million for the seven months ended July 31, 1998.
The increase in revenues primarily related to the increase in project personnel
headcount and, to a lesser extent, increases in billing rates. Headcount
increased 38.4% to 894 at July 31, 1999 from 646 at July 31, 1998.
Cost of Services. Cost of services increased 42.8% to $43.8 million for
the seven months ended July 31, 1999 from $30.7 million for the seven months
ended July 31, 1998. The increase in cost of services was primarily a result of
the growth in headcount noted above. Cost of services as a percentage of
revenues remained constant at 56.7% for the seven months ended July 31, 1999 and
1998, respectively.
Operating Costs and Expenses. SG&A expenses increased 41.4% to $21.7
million for the seven months ended July 31, 1999 from $15.4 million for the
seven months ended July 31, 1998. The increase in SG&A expenses primarily
resulted from investments in infrastructure necessary to support growth of the
business. SG&A expenses decreased as a percentage of revenues to 28.1% for the
seven months ended July 31, 1999 from 28.4% for the seven months ended July 31,
1998. The modest decrease in SG&A expenses as a percentage of revenues primarily
resulted from improved operating leverage. During the seven months ended July
31, 1998, three constituent companies incurred pre-acquisition stock
compensation charges totaling $30.8 million.
Depreciation increased to $1.5 million for the seven months ended July 31,
1999 from $0.9 million for the seven months ended July 31, 1998. The increase in
depreciation related to the increased capital expenditures necessary to support
growth in the business. Amortization increased to $1.9 million for the seven
months ended July 31, 1999 from $1.5 million for the seven months ended July 31,
1998. The increase in amortization related to amortization of intangible assets
of the acquired businesses. Depreciation and amortization as a percentage of
revenues remained constant at 4.3% for the seven months ended July 31, 1999 and
1998, respectively.
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<PAGE> 36
Other Expense. Interest expense increased 23.9% to $7.0 million for the
seven months ended July 31, 1999 from $5.6 million for the seven months ended
July 31, 1998. The increase in interest expense related to borrowings from
Metamor to fund earnouts of the acquired companies and our working capital
requirements during the seven months ended July 31, 1999.
Provision (Benefit) for Income Taxes. The provision for income taxes for
the seven months ended July 31, 1999 was $1.0 million compared with a benefit of
$(0.8) million for the seven months ended July 31, 1998. The provision (benefit)
for income taxes for the seven months ended July 31, 1999 and 1998 represented
an effective tax rate of 75.0% and (2.7)%, respectively. Our effective tax rate
includes the effects of state income taxes and the portion of goodwill
amortization and the stock compensation charges not deductible for federal
income tax purposes.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
The historical statement of operations data for the year ended December 31,
1997 was derived by combining the predecessor's results of operations for the
period from January 1, 1997 to March 26, 1997 with Xpedior's results of
operations from inception (March 27, 1997) to December 31, 1997. The results of
operations for the period from inception (March 27, 1997) to December 31, 1997
reflect Metamor's purchase accounting adjustments. These results are not
necessarily indicative of operations that would have occurred had the
acquisition occurred as of the beginning of the period presented.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ----------------------
1997 1998 1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $15,166 $72,267 $61,088 $100,500
Cost of services................................. 10,027 41,930 36,350 57,642
------- ------- ------- --------
Gross profit..................................... 5,139 30,337 24,738 42,858
Operating costs and expenses:
Selling, general and administrative............ 5,308 20,558 18,285 29,271
Stock compensation............................. 4,565 -- 6,134 30,809
Depreciation and amortization.................. 615 2,823 3,297 4,182
------- ------- ------- --------
Total operating costs and expenses..... 10,488 23,381 27,716 64,262
Operating income (loss).......................... (5,349) 6,956 (2,978) (21,404)
Other expense.................................... 1,235 5,537 9,185 9,395
Provision (benefit) for income taxes............. (864) 889 (5,966) (612)
------- ------- ------- --------
Income (loss) from continuing operations......... $(5,720) $ 530 $(6,197) $(30,187)
======= ======= ======= ========
AS A PERCENTAGE OF REVENUES:
Revenues......................................... 100.0% 100.0% 100.0% 100.0%
Cost of services................................. 66.1 58.0 59.5 57.4
------- ------- ------- --------
Gross profit..................................... 33.9 42.0 40.5 42.6
Operating costs and expenses:
Selling, general and administrative............ 35.0 28.4 29.9 29.1
Stock compensation............................. 30.1 -- 10.0 30.7
Depreciation and amortization.................. 4.1 3.9 5.4 4.2
------- ------- ------- --------
Operating income (loss).......................... (35.3) 9.6 (4.9) (21.3)
</TABLE>
HISTORICAL OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED
WITH THE HISTORICAL COMBINED OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31,
1997
Revenues. Revenues increased 376.5% to $72.3 million for the year ended
December 31, 1998 from $15.2 million for the year ended December 31, 1997. The
increase in revenues was
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<PAGE> 37
primarily a result of a 318.7% increase in project personnel to 695 at December
31, 1998 from 166 at December 31, 1997. The growth in headcount was primarily a
result of the acquisition of the six businesses acquired in 1998.
Cost of Services. Cost of services increased 318.1% to $41.9 million for
the year ended December 31, 1998 from $10.0 million for the year ended December
31, 1997. The increase in cost of services was primarily a result of the growth
in headcount noted above. Cost of services decreased as a percentage of revenues
to 58.0% for the year ended December 31, 1998 from 66.1% for the year ended
December 31, 1997. This improvement primarily related to (1) the higher gross
margins of the businesses acquired in 1998 compared with the gross margins of
the predecessor in 1997 and (2) expansion in the gross margins of the
predecessor primarily due to improved utilization and billing rate increases.
Operating Costs and Expenses. SG&A expenses increased 287.3% to $20.6
million for the year ended December 31, 1998 from $5.3 million for the year
ended December 31, 1997. The increase in SG&A expenses primarily related to the
acquired businesses and, to a lesser extent, investments in infrastructure
necessary to support growth of the business. SG&A expenses decreased as a
percentage of revenues to 28.4% for the year ended December 31, 1998 from 35.0%
for the year ended December 31, 1997. The decrease in SG&A expenses as a
percentage of revenues primarily resulted from (1) acquisitions of businesses
that had lower SG&A expense margins and (2) our improved operating leverage.
During 1997, our predecessor incurred pre-acquisition stock compensation charges
totaling $4.6 million.
Depreciation increased to $1.2 million for the year ended December 31, 1998
from $0.4 million for the year ended December 31, 1997. The increase in
depreciation primarily related to the fixed assets of the businesses acquired
and, to a lesser extent, depreciation on capital expenditures made
post-acquisition. Amortization increased to $1.6 million for the year ended
December 31, 1998 from $0.2 million for the year ended December 31, 1997. The
increase in amortization related to amortization of intangible assets of the
acquired businesses. Depreciation and amortization decreased as a percentage of
revenues to 3.9% for the year ended December 31, 1998 from 4.1% for the year
ended December 31, 1997.
Other Expense. Interest expense increased 349.6% to $5.6 million for the
year ended December 31, 1998 from $1.2 million for the year ended December 31,
1997. The increase in interest expense related to borrowings from Metamor to
fund the purchase of the acquired companies, including earnouts, and our working
capital requirements.
Provision (Benefit) for Income Taxes. The provision for income taxes for
the year ended December 31, 1998 was $0.9 million, compared with a benefit of
$(0.9) million for the year ended December 31, 1997. The provision (benefit) for
income taxes for the years ended December 31, 1998 and 1997 represented an
effective tax rate of 62.7% and (13.1)%, respectively. Our effective tax rate
includes the effects of state income taxes and the portion of goodwill
amortization not deductible for federal income tax purposes. The effective tax
rate for 1997 includes the pre-acquisition period of the predecessor, which was
an S corporation and therefore not subject to federal income tax.
PRO FORMA OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED WITH
THE YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased 64.5% to $100.5 million for the year ended
December 31, 1998 from $61.1 million for the year ended December 31, 1997. The
increase in revenues primarily related to the increase in project personnel
headcount and, to a lesser extent, increases
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<PAGE> 38
in billing rates. Headcount increased 44.6% to 756 at December 31, 1998 from 523
at December 31, 1997.
Cost of Services. Cost of services increased 58.6% to $57.6 million for
the year ended December 31, 1998 from $36.4 million for the year ended December
31, 1997. The increase in cost of services was primarily a result of the growth
in headcount noted above. Cost of services decreased as a percentage of revenues
to 57.4% for the year ended December 31, 1998 from 59.5% for the year ended
December 31, 1997. This improvement primarily related to increased utilization
and billing rate increases in excess of the related increase in personnel costs.
Operating Costs and Expenses. SG&A expenses increased 60.1% to $29.3
million for the year ended December 31, 1998 from $18.3 million for the year
ended December 31, 1997. The increase in SG&A expenses primarily resulted from
investments in infrastructure necessary to support the growth of the business.
SG&A expenses decreased as a percentage of revenues to 29.1% for the year ended
December 31, 1998 from 29.9% for the year ended December 31, 1997, as a result
of improved operating leverage. During the years ended December 31, 1998 and
1997, four of the acquired companies incurred pre-acquisition stock compensation
charges totaling $30.8 million and $6.1 million, respectively.
Depreciation increased to $1.6 million for the year ended December 31, 1998
from $1.1 million for the year ended December 31, 1997. The increase in
depreciation related to the increased capital expenditures necessary to support
growth in the business. Amortization increased to $2.6 million for the year
ended December 31, 1998 from $2.2 million for the year ended December 31, 1997.
The increase in amortization related to amortization of intangible assets of the
acquired businesses. Depreciation and amortization decreased as a percentage of
revenues to 4.2% for the year ended December 31, 1998 from 5.4% for the year
ended December 31, 1997.
Other Expense. Interest expense increased 1.3% to $9.5 million for the
year ended December 31, 1998 from $9.4 million for the year ended December 31,
1997. The increase in interest expense related to borrowings from Metamor to
fund (1) earnout payments related to the acquired companies and (2) our working
capital requirements.
Provision (Benefit) for Income Taxes. The benefit for income taxes for the
year ended December 31, 1998 was $(0.6) million, compared with a benefit of
$(6.0) million for the year ended December 31, 1997. The benefit for income
taxes for the years ended December 31, 1998 and 1997 represented an effective
tax rate of (2.0)% and (49.1)%, respectively. Our effective tax rate includes
the effects of state income taxes and the portion of goodwill amortization and
stock compensation charges not deductible for federal income tax purposes.
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<PAGE> 39
HISTORICAL COMBINED OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997
COMPARED WITH THE HISTORICAL OPERATING RESULTS OF THE PREDECESSOR FOR THE YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED
DECEMBER 31,
---------------------
1996 1997
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $6,605 $15,166
Cost of services............................................ 4,256 10,027
------ -------
Gross profit................................................ 2,349 5,139
Operating costs and expenses:
Selling, general and administrative....................... 1,825 5,308
Stock compensation........................................ -- 4,565
Depreciation and amortization............................. 133 615
------ -------
Total operating costs and expenses................ 1,958 10,488
Operating income (loss)..................................... 391 (5,349)
Other expense............................................... 34 1,235
Provision (benefit) for income taxes........................ 8 (864)
------ -------
Income (loss) from continuing operations.................... $ 349 $(5,720)
====== =======
AS A PERCENTAGE OF REVENUES:
Revenues.................................................... 100.0% 100.0%
Cost of services............................................ 64.4 66.1
------ -------
Gross profit................................................ 35.6 33.9
Operating costs and expenses:
Selling, general and administrative....................... 27.6 35.0
Stock compensation........................................ -- 30.1
Depreciation and amortization............................. 2.0 4.1
------ -------
Operating income (loss)..................................... 5.9 (35.3)
</TABLE>
Revenues. Revenues increased 129.6% to $15.2 million for the year ended
December 31, 1997 from $6.6 million for the year ended December 31, 1996. The
increase in revenues primarily related to the increase in project personnel
headcount and, to a lesser extent, increases in billing rates. Headcount
increased 104.9% to 166 at December 31, 1997 from 81 at December 31, 1996.
Cost of Services. Cost of services increased 135.6% to $10.0 million for
the year ended December 31, 1997 from $4.3 million for the year ended December
31, 1996. The increase in cost of services was primarily a result of the growth
in headcount noted above. Cost of services increased as a percentage of revenues
to 66.1% for the year ended December 31, 1997 from 64.4% for the year ended
December 31, 1996. This increase was primarily due to personnel cost increases
in excess of the related billing rate increases.
Operating Costs and Expenses. SG&A expenses increased 190.8% to $5.3
million for the year ended December 31, 1997 from $1.8 million for the year
ended December 31, 1996. The increase in SG&A expenses and SG&A expenses as a
percentage of revenues was primarily due to investments in infrastructure
necessary to support the growth in the business. During the year ended December
31, 1997, the predecessor incurred pre-acquisition stock compensation charges
totaling $4.6 million. SG&A expenses increased as a percentage of revenues to
35.0% for the year ended December 31, 1997 from 27.6% for the year ended
December 31, 1996.
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<PAGE> 40
Depreciation totaled $0.4 million and $0.1 million for the years ended
December 31, 1997 and 1996, respectively. Amortization expense totaled $0.2
million for the year ended December 31, 1997 and related to the acquisition of
the predecessor. Depreciation and amortization increased as a percentage of
revenues to 4.1% for the year ended December 31, 1997 from 2.0% for the year
ended December 31, 1996.
Other Expense. Interest expense for the year ended December 31, 1997
totaled $1.2 million and related to the interest on debt in connection with the
acquisition of the predecessor.
Provision (Benefit) for Income Taxes. The benefit for income taxes for the
year ended December 31, 1997 was $(0.9) million. The benefit for income taxes
for the year ended December 31, 1997 represented an effective tax rate of
(13.1%). The predecessor was an S corporation and, accordingly, federal income
taxes were the responsibility of the individual stockholders.
LIQUIDITY AND CAPITAL RESOURCES
Our capital requirements have principally related to the acquisitions of
businesses, working capital and capital expenditures. These requirements have
been met primarily through funds provided by Metamor and cash flows from
operations.
As of July 31, 1999, we had outstanding borrowings from Metamor of $100.0
million at a weighted average interest rate of 11%. These borrowings primarily
relate to acquisition costs and, to a lesser extent, working capital
requirements. We intend to repay the amounts due to Metamor with a portion of
the proceeds from this offering.
Metamor allocates its corporate overhead to its operating units based on
revenues of the units. This allocation includes costs associated with services
Metamor provides to the business units such as mergers and acquisitions, legal,
tax, risk and cash management. The overhead allocation from Metamor is included
in our SG&A expenses and totaled $1.4 million for the year ended December 31,
1998 and $1.3 million for the seven months ended July 31, 1999. Following the
completion of this offering, Metamor will continue to provide us with these
services. However, it will cease making a general allocation of its overhead to
us and allocate only those expenses related to actual services provided.
For the year ended December 31, 1998, cash paid for acquisitions and
related earnouts totaled $61.7 million. For the seven months ended July 31,
1999, cash paid for acquisitions and related earnouts totaled $33.2 million. In
September 1999, we acquired Kinderhook Systems, Inc. for $14.9 million in cash
provided by Metamor and $9.1 million in 7% subordinated convertible notes issued
to the former stockholders of Kinderhook. The notes are convertible at the
option of the holders into our common stock at the initial public offering price
during a 30-day period after the earlier of the Xpedior distribution or the
second anniversary of an initial public offering. The notes mature on September
24, 2002, but we may call them for cash under certain circumstances after
September 24, 2000.
We had working capital, excluding amounts due to Metamor, of $17.0 million
at July 31, 1999. Our operating cash flows and working capital requirements are
significantly affected by the timing of payroll and the receipt of payment from
our clients. Generally, we pay our professionals semi-monthly and receive
payments from our clients, currently averaging 90 days from the date services
were performed. Cash flows provided by (used in) operating activities were
$(8.4) million and $0.7 million for the seven months ended July 31, 1999 and
1998. The use of cash in operations in 1999 reflected investments in working
capital (principally accounts receivable) related to our growth during this
period.
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<PAGE> 41
Over the next twelve months, we anticipate that we will spend (1)
approximately $16.0 million in incremental branding and marketing expenses, (2)
up to $36.2 million in earnouts payable in March and April 2000, of which $16.3
million is contingent upon the performance of two of the acquired companies and
(3) approximately $12.0 million in capital expenditures to support the growth of
the business. In addition, we have assumed liabilities associated with a
guarantee of the value of approximately 310,000 shares of Metamor common stock
issued in connection with the acquisition of NDC Group, Inc. In the event the
fair market value of these shares is less than $14.0 million based upon the
average market price for the 20 trading days preceding April 16, 2000, we will
be obligated to pay the difference to the former NDC shareholders.
We are currently in preliminary discussions with commercial banks for a
credit facility to fund our working capital requirements over the next twelve
months. We expect to have a credit facility in place prior to the end of 1999.
In the interim, Metamor has agreed to provide funding for our working capital
requirements. Metamor has agreed to reduce the interest rate on our outstanding
intercompany indebtedness to Metamor's incremental borrowing rate under its
senior credit agreement, which at July 31, 1999 was LIBOR plus 1.5%, or
approximately 7.25%.
We believe that the cash proceeds from this offering, the availability of
borrowings from our proposed credit facility and cash flow from operating
activities will be sufficient to meet our working capital and capital
expenditure requirements for at least the next twelve months. However, we could
elect, or we could be required, to raise additional funds during that period and
we may need to raise additional capital in the future. Additional capital may
not be available at all, or may not be available on terms favorable to us. Any
additional issuance of equity or equity-related securities will be dilutive to
our stockholders.
YEAR 2000 READINESS
Historically, many computer systems, software applications and products
have been programmed to only accept a two-digit code for the date. This will
become an issue as we enter the year 2000 and these type of systems do not have
the ability to differentiate between 1900 and 2000. As a result of this problem,
many systems that are not capable of four-digit year recognition have either
been modified or replaced.
The inability of computer systems to differentiate between centuries could
have a negative business impact on us, our clients and our vendors.
We have reviewed and, where appropriate, upgraded the principal internal
systems that we rely upon to operate our business and believe that these systems
are Year 2000 compliant. To date, the amounts we have spent preparing for the
effects of the Year 2000 issue have not been material and we do not expect to
incur material costs in the future. While we believe that all of the systems
critical to the operations of our business will function properly, we cannot
provide assurance that these systems will in fact operate correctly. See "Risk
Factors -- Year 2000 issues could adversely affect our business."
We do not currently have any information concerning the general Year 2000
compliance status of our clients, nor do we intend to examine our clients' Year
2000 readiness. If our clients are not Year 2000 compliant, they may experience
material costs to remedy Year 2000 problems. In such case, Year 2000 issues
could reduce or eliminate the budgets that current or potential clients allocate
for purchasing our services. In addition, we anticipate that many of our clients
may limit spending on our services as they attend to Year 2000 issues. As a
result, our business, financial condition and operating results could be harmed.
36
<PAGE> 42
We rely on the products and services provided by many external vendors in
order to provide our services. These products and services include, but are not
limited to, utilities, telecommunications, software products, and computer
hardware. We are in the process of obtaining certifications from key vendors of
software products and computer hardware. We most likely will not be able to
obtain certificates of compliance from all of these vendors. Additionally, we
will not be able to and do not intend to receive compliance certifications from
the providers of utilities, telecommunications or other services. If we fail to
provide Year 2000 compliant eBusiness solutions to our clients, our reputation
could be harmed and we could incur substantial legal liability which in turn
could seriously harm our business and operating results.
We believe that, although our risk of operational disruption from systems
failures due to Year 2000 issues is minimal, we could suffer adverse
consequences as a result of interruptions in electrical power,
telecommunications or other critical third party infrastructure services. In a
worst case scenario, our computer systems could be rendered inoperable, and we
could be unable to develop or support our eBusiness solutions. We have reviewed
this most reasonably likely worst case scenario and have developed contingency
plans to address our critical applications. These contingency plans involve,
among other actions, manual workarounds and adjusting personnel deployment
strategies.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. We have not entered into any
derivative financial instruments and do not believe that the adoption of
Financial Accounting Standards No. 133 will have an impact on our results of
operations, financial position of cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We currently are exposed to market risks related to changes in interest
rates. Investment of proceeds from this offering will be invested short term in
financial instruments, the value of which will be subject to interest rate risk
and could fall in value if interest rates rise. Additionally, our future
borrowings will have a variable component that will fluctuate as interest rates
change. If market interest rates were to increase immediately and uniformly by
10%, there would not be a material impact on the results of operations or on our
balance sheet.
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<PAGE> 43
THE COMPANY
OUR HISTORY
We were formed by Metamor in December 1997 to be the holding company for
its eBusiness solutions unit. Metamor commenced operations of this unit with the
acquisition of Metamor Technologies, Ltd., our predecessor company, on March 27,
1997, and acquired six additional companies in 1998 that became a part of the
eBusiness solutions unit. These acquisitions include Sage I.T. Partners, Inc.
and Workgroup Productivity Corp. in January 1998, NDC Group, Inc. in April 1998,
Virtual Solutions, Inc. in June 1998, Advanced Information Solutions, Inc. in
July 1998 and New Technology Partners Consulting in November 1998. Effective
April 30, 1999, Metamor contributed to us all the outstanding capital stock of
the seven companies comprising its eBusiness solutions unit, all of which were
wholly owned subsidiaries of Metamor. As the entities were under common control,
the contribution has been accounted for at historical cost in a manner similar
to a pooling of interests. In September 1999, we acquired Kinderhook Systems,
Inc. These companies have brought complementary skills, customer relationships
and geographic coverage to our business.
In connection with the acquisition of certain of these companies, Metamor
agreed to make contingent purchase price payments based on the performance of
the companies after the date of acquisition. While our efforts to integrate each
company into our operations began immediately upon its acquisition, our
continuing obligations relating to the contingent acquisition payments limited
our integration efforts, particularly the sales and marketing functions. In July
and August 1999, all of the remaining contingent payments, with the exception of
those relating to NDC Group and New Technology Partners Consulting, were fixed,
thereby eliminating many of the obstacles to more completely integrating these
businesses.
SEPARATION FROM METAMOR
METAMOR'S PLAN TO DIVEST XPEDIOR. We are currently a subsidiary of Metamor
Worldwide. After the completion of this offering, Metamor will own approximately
83% of our outstanding common stock, or approximately 80% if the underwriters
exercise their over-allotment option in full. Metamor has announced that in 2000
it plans to distribute all of its shares of Xpedior common stock to its
stockholders. Metamor expects to accomplish this distribution through one of the
following:
- Split-Off. An exchange offer by Metamor in which holders of Metamor's
common stock would be invited to tender their shares in exchange for
shares of our common stock; or
- Spin-Off. A pro rata distribution by Metamor of its shares of our common
stock to holders of Metamor's common stock; or
- Combined Split-Off/Spin-Off. A combination of the above transactions.
We refer to this distribution, in whatever form it may take, as the
"Xpedior distribution."
Metamor has also advised us that, based on its current plans, in the event
it decides to effect the Xpedior distribution through a split-off exchange offer
and not enough of its common stockholders tender their shares to enable Metamor
to divest itself of all of its shares of Xpedior common stock, it would
distribute its remaining shares of Xpedior common stock to its stockholders in a
spin-off.
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<PAGE> 44
Metamor has the sole discretion to determine the timing, structure and all
terms of its distribution of our common stock. Metamor has advised us that it
believes it would be desirable to have an intervening period of several months
between this offering and the Xpedior distribution, and that Metamor accordingly
does not currently expect that it would complete the Xpedior distribution prior
to mid-2000. We have agreed to cooperate with Metamor in all respects to
complete the divestiture because we believe that our complete separation from
Metamor will enhance our ability to pursue our business strategy. Metamor
intends to seek a private letter ruling from the IRS that the distribution of
its shares of Xpedior common stock to its stockholders would be tax-free to
Metamor and its stockholders for U.S. federal income tax purposes. We cannot
assure you that the IRS will provide Metamor with a favorable ruling. Metamor is
not obligated to complete the divestiture and we cannot assure you as to whether
or when it will occur.
Metamor has also advised us that it would not complete the Xpedior
distribution if its board of directors determines that the Xpedior distribution
is no longer in the best interests of Metamor and its stockholders. Metamor has
further advised us that it currently expects the principal factors it would
consider in making this determination, as well as the principal factors it would
consider in making the determination as to the timing, structure and terms of
the Xpedior distribution, to be:
- the market price of our common stock;
- the market price of Metamor's common stock;
- satisfaction that the Xpedior distribution will be tax-free to Metamor
and its stockholders and as to the other tax consequences of the
transactions;
- the absence of any court orders or regulations prohibiting or restricting
the completion of the Xpedior distribution; and
- other conditions affecting the businesses of Xpedior or Metamor that make
it no longer in the best interests of such businesses to be fully
separated.
BENEFITS OF THE SEPARATION. We believe that we will realize certain
benefits from our complete separation from Metamor. As an independent eBusiness
company, we expect to be better able to retain and attract motivated and
talented management and professional personnel. In addition, the separation will
allow us to develop and evaluate an eBusiness focused strategy independent of
Metamor's broader approach to the information technology services market. We
believe that our management's and professionals' focus will be strengthened by
incentive programs tied to the market performance of our common stock.
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<PAGE> 45
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
OVERVIEW
Xpedior provides innovative and comprehensive eBusiness solutions to Global
2000 companies and emerging Internet businesses. We use our Xpedior Process and
our reusable solutions, or Xpediators, to deliver a broad range of services
designed to help our clients succeed in the emerging networked economy. We
combine extensive technical expertise with strategy consulting and creative
design services to enable our clients to capitalize on the communications power
and transaction efficiency of the Internet. Since 1994, we have demonstrated our
ability to develop eBusiness solutions that allow our clients to generate new
revenue opportunities and operate more efficiently.
Our extensive experience providing eBusiness solutions has enabled us to
develop and evolve our Xpedior Process and suite of Xpediators. The Xpedior
Process is our five-stage methodology for delivering eBusiness solutions to our
clients. Our Xpediators are a collection of proven, reusable solutions,
including software architectures, components and applications, that we leverage
in delivering a broad range of services. Our professionals collaborate at our
Solution Centers in San Francisco, Chicago, Dallas, New York and Alexandria,
Virginia where they are able to share expertise and best practices to develop
and deliver Internet technology solutions. By combining our Xpedior Process and
Xpediators with our Solution Centers, we are able to reduce our clients'
time-to-market and maximize the quality of our solutions.
Our eBusiness solutions integrate one or more of the following services,
customized to fit a client's needs:
<TABLE>
<S> <C>
- - Digital Business Strategy
- - Electronic Commerce
- - Digital Branding and User
Experience Design
- - eBusiness Applications and Integration
- - eBusiness Technology Management
- - eBusiness Networks
- - eBusiness Intelligence
- - Enterprise Portals and Knowledge
Management
</TABLE>
We have over 1,000 employees at our 15 U.S. and three international
offices. We have developed extensive expertise in the financial services,
healthcare, media and publishing, retail and distribution and telecommunications
industries. We can leverage this expertise in delivering our solutions and
marketing our services to potential new clients. We have delivered innovative
and scaleable eBusiness solutions to a broad range of clients, including major
organizations such as the American Medical Association, Citibank, GTE,
Hewlett-Packard, MCI WorldCom, PepsiCo, Safeway and Sears, and emerging Internet
businesses such as CharitableWay, DigitalWork.com, Intershop Communications and
OnlineOfficeSupplies.com. Our 50 largest clients during the year ended December
31, 1998 provided us with average annual pro forma revenues per client of $1.4
million.
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INDUSTRY BACKGROUND
OUR CLIENTS' MARKETPLACE
International Data Corporation, or IDC, estimates that the number of
Internet users worldwide will grow from approximately 104 million in 1998 to
more than 510 million in 2003. This growth has fundamentally changed the way
that customers and businesses communicate, obtain information and purchase goods
and services. Forrester Research estimates that the market for
business-to-business eCommerce will grow from $43 billion in 1998 to $1.3
trillion in 2003 and that business-to-consumer eCommerce will grow from $8
billion to $108 billion over the same period.
The emergence of eBusiness has created a new competitive environment for
businesses, one in which many traditional barriers to competition no longer
exist. The Internet has enabled organizations of all types and sizes to create
new sales opportunities, enhance customer service, improve efficiencies, reduce
costs and improve communication. Buyers are now able to choose products and
services by electronically researching data from a wide spectrum of vendors,
often without regard to geographic location. In light of these factors, we
believe that eBusiness strategies are critical to success in today's
marketplace.
A substantial amount of capital is being invested to make businesses more
efficient and competitive through the use of the Internet and electronic
communications. Competition in virtually all industries is increasing, often
from the emergence of companies with radical new business models that challenge
established industry players. These traditional businesses must redefine or
refocus their businesses to succeed in this new economy or risk being overtaken
by upstart competitors. To respond with sufficient speed to these new
competitive pressures, both established companies and industry upstarts
increasingly find it necessary to turn to outside services organizations such as
Xpedior to provide insight and scarce expertise or to complement their internal
capabilities.
THE EBUSINESS SERVICES MARKET OPPORTUNITY
IDC estimates that the worldwide market for Internet professional services
will grow from $7.8 billion in 1998 to $78.5 billion in 2003. Despite the size
of this market opportunity, we believe that there are relatively few companies
that effectively develop and implement eBusiness models. For example, boutique
web design firms and online agencies typically focus on user interface and
front-end design and do not have the expertise required for rapid development
and deployment of high transaction volume eBusiness systems. In addition,
traditional information technology services firms are focused primarily on
enhancements to existing technology infrastructure and the implementation of
traditional business applications, and lack the necessary focus and experience
to execute eBusiness solutions efficiently and quickly.
The delivery of comprehensive eBusiness solutions requires expertise in
three fundamental service disciplines -- strategic, technical and creative.
Professionals from each of the three disciplines must work together to maximize
the speed at which a solution can be imagined, designed and delivered.
Initially, our eBusiness strategists work closely with the client's senior
executives to help them imagine and define strategic eBusiness plans. Unlike
traditional strategy consultants, however, eBusiness strategists must understand
technology and the capabilities of the Internet and electronic communications,
since these technologies allow the creation of business strategies that might be
inconceivable in the traditional economy. Following the development of an
eBusiness strategy, our eBusiness technology professionals build the systems and
technology infrastructure required to implement the strategy. These
professionals, including experts in
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software, networking, technology integration and operations, must be able to
build systems that leverage the clients' existing technology infrastructure and
serve as platforms for continued development of the eBusiness. Concurrent with
the development of the eBusiness strategy and implementation of the necessary
technology infrastructure, our creative professionals work with the client and
the strategy and technology professionals to define the interactive marketing
strategy and to create compelling user interfaces for the client's eBusiness.
Historically, eBusiness service providers have not been able to offer their
clients expertise in each of these three disciplines, nor have these providers
been capable of performing their services in the demanding timeframes often
required for Internet initiatives. We believe organizations of all types will
increasingly seek assistance from providers that offer the comprehensive set of
services needed for them to achieve their eBusiness objectives in the necessary
timeframes.
THE XPEDIOR SOLUTION
We have developed the Xpedior Solution to execute our engagements and meet
our clients' needs for rapid implementation of reliable, scaleable and
sustainable eBusinesses. The core of the Xpedior Solution is the five-stage
Xpedior Process, which we leverage through the use of our Solution centers, our
Xpediators and our knowledge management systems.
THE XPEDIOR PROCESS
The Xpedior Process is our five-stage methodology for developing reliable,
innovative eBusiness solutions for our clients. The Xpedior Process is the
result of our extensive experience and helps to ensure quality delivery of our
services to our clients. We customize the Xpedior Process to meet each client's
particular needs and support each of our service lines, which span the
strategic, technical and creative disciplines. The process is highly iterative.
It is designed to be used initially as a basis for constructing a robust,
expandable eBusiness platform for a client. Thereafter, it can serve as a
framework for continued evolution of that platform. Unlike other processes,
which often rely almost exclusively on written specifications, the Xpedior
Process makes extensive use of interactive workshops and visualization
techniques such as storyboards and prototypes. We use the information learned
through our client engagements to update and improve our process.
The Xpedior Process is comprised of the following stages:
- Imagine. In the Imagine stage, our professionals work extensively with
our client's senior business and technical personnel to explore the
possible opportunities and impacts of the emerging networked economy on
the client's business. During the Imagine stage, we quickly develop
eBusiness strategies for our clients and identify potential solutions
that can be developed to implement those strategies.
- Define. In the Define stage, we continue to work closely with our
client's business and technical personnel to further define one or more
of the solutions identified in the Imagine stage. Alternatively, in some
instances our clients will come to us with a specific solution in mind.
In those circumstances, our process begins with the Define stage. In
either case, during this stage we define the user experience of the
system using prototypes and storyboards and identify the functionality to
be implemented.
- Architect. In the Architect stage, our professionals work closely with
our client's technical personnel to define the technical environment that
will support the client's eBusiness. This includes understanding the
client's existing technology infrastructure in an
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effort to maximize its use and ensure that new eBusiness applications are
compatible with the client's existing infrastructure. In addition, our
professionals evaluate the suitability of our Xpediators, as well as
third-party software, for construction of the client's solution.
At the end of the Define and Architect stages, which may be
undertaken concurrently, the client is presented with a blueprint of the
solution. Typically, we then construct the solution at one of our
Solution Centers or at the client's facilities.
- Build. During the Build stage, the client's eBusiness solution is
constructed and extensively tested. This process consists of a series of
planned iterations during which the solution blueprint is programmed and
refined. Upon completion of numerous iterations, the system goes through
a final system test to ensure that the developed solution meets the
requirements of the client that were identified in the Define stage. The
result of the Build stage is a complete eBusiness computing platform that
meets the client's specifications and will serve as a platform for
continued evolution of the client's eBusiness.
- Deliver. During the Deliver stage, we implement the solution and
transition the ongoing operation, maintenance and support of the solution
to the client. Delivering the solution typically entails installation of
hardware and software systems, managing business process changes,
educating system users and implementing a support structure for the
client. Alternatively, we can assume responsibility for these functions
through our eBusiness outsourcing practice.
Typically, upon completion of the Deliver stage, Xpedior is retained to
evolve the delivered eBusiness solution to meet changing business needs and
capitalize on technological advances. To accomplish this, we repeat the Xpedior
Process, progressing through each stage as necessary.
EBUSINESS XPEDIATORS
Our Xpediators are reusable solutions that we leverage to reduce the time
required to deliver solutions to our clients, while simultaneously providing
increased quality due to their proven nature. We devote significant resources to
our Xpediators, including maintaining a full-time team dedicated to their
development and promoting and supporting their use throughout the company. Our
Xpediators are grouped into three categories:
- Xpediator Frameworks. Our Xpediator Frameworks are comprehensive
software architectures for developing large-scale eBusiness applications
that complement leading application server environments such as the
Sun-Netscape Alliance's Application Server, BEA's Web Logic Server,
SilverStream and the Forte Application Development Environment. Xpediator
Frameworks provide robust, scaleable and extendible software architecture
that serves as a base for evolution of a client's eBusiness systems.
- Xpediator Components. Our Xpediator Components are reusable software
components used to implement common eBusiness functions, such as shopping
cart and credit card processing. Our components provide functionality for
eBusiness areas such as payment processing and high volume eBusiness
transaction processing.
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- Xpediator Solutions. Our Xpediator Solutions are comprehensive
applications for specific eBusiness functions such as interactive user
interface systems that provide access to information and knowledge across
entire enterprises and care management systems that control judicial
dockets using the Internet. Xpediator Solutions are typically solutions
that we developed in conjunction with specific clients and retained the
rights to use in connection with future client engagements.
SOLUTION CENTERS
We develop a significant portion of our solutions at our Solution Centers
in San Francisco, Chicago, Dallas, New York and Alexandria, Virginia. Our
Solution Centers provide a high-tech environment where our professionals and
teams of Solution Center specialists are able to share expertise and best
practices across client engagements, while maintaining continuous communication
with our clients. When development has been completed, the work returns to the
appropriate client or hosting facility for final implementation.
The Solution Centers are focused on the development and delivery of
repeatable, scaleable solutions that can be customized as needed. This approach
ultimately reduces the time-to-market for our solutions. In addition, we believe
that the opportunity to work in our Solution Centers represents a compelling
alternative for professionals seeking to be in a collaborative environment and
maintain a more stable lifestyle with reduced travel requirements.
KNOWLEDGE MANAGEMENT
We employ knowledge management systems that we intend to consolidate and
expand throughout the organization, allowing us to continue our commitment to
sharing best practices throughout the company. We have found that while each
engagement has certain unique elements, most solutions employ information and
processes that can be used in other solutions. Our experience with particular
industries, business processes and technologies generates institutional
intellectual capital that can be reused to continuously improve the solutions we
provide to our clients and sharpen the effectiveness of our professionals. This
intellectual capital includes the products of each stage of the Xpedior Process,
including strategies, technical and functional designs and plans, and reusable
source code to which Xpedior has retained the intellectual property rights.
An important factor in leveraging the power of the knowledge management
system is the establishment of a culture that encourages and rewards
contribution to and use of the system. To this end, use of and contribution to
the knowledge management systems will be a key element of the professional
advancement criteria for all Xpedior professionals.
STRATEGY
Our objective is to be the provider of choice for comprehensive,
customized, integrated eBusiness solutions to Global 2000 companies and emerging
Internet businesses. Our strategy to achieve this objective includes the
following key elements:
EXTEND RELATIONSHIPS WITH EXISTING CLIENTS AND AGGRESSIVELY MARKET TO POTENTIAL
NEW CLIENTS
We intend to increase our sales to current clients by cross-selling
existing services to them and assisting them as their eBusiness strategies
evolve. We plan to broaden our client base by aggressively investing in brand
recognition and continuing to expand geographically. Our 50 largest clients
during the year ended December 31, 1998 provided us with average annual pro
forma revenues per client of $1.4 million.
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EXPLOIT INDUSTRY-SPECIFIC EXPERTISE
Through our experience designing, developing, implementing and managing
eBusiness solutions for a wide variety of companies, we have developed extensive
experience with industry-specific solutions. We believe that our expertise in
these areas enables our teams to provide more valuable strategic and technical
insights. It also significantly enhances our ability to help other companies in
the same industries successfully adopt their own eBusiness solutions. To date,
our expertise includes the financial services, healthcare, media and publishing,
retail and distribution, telecommunications and Internet-based business
industries. We intend to continue to focus our sales and marketing efforts on
these industries.
REFINE, LEVERAGE AND EXTEND THE XPEDIOR SOLUTION
Our professionals have developed a broad base of institutional knowledge
and best practices through extensive and varied service engagements. Our
strategy is to capture and deploy this intellectual capital through our
knowledge management systems and by continuing to refine the Xpedior Process.
During the course of our client engagements, we also seek to identify distinct
solutions which can be developed into and distributed as new Xpediators. These
proven, reusable solutions provide us with speed and quality advantages over our
competitors that have not developed similar assets. Our Solution Centers have
also played a role, and are expected in the future to play a more critical role,
in the dissemination process. By sharing resources, including scarce technology
expertise, and using state-of-the-art computing facilities, we are able to
develop solutions with greater efficiency than if we were to develop the
equivalent solution at a client site. As we expand geographically and increase
the number of professionals employed on client engagements, our ability to share
resources among our professionals will be critical to the successful growth of
our business.
EXPAND AND LEVERAGE STRATEGIC INDUSTRY ALLIANCES
We have established strategic alliances with leading technology companies,
including Microsoft, IBM, Sun Microsystems, Hewlett-Packard and BroadVision.
Through these alliances, we join with the marketing and sales organizations of
these alliance partners to pursue sales opportunities and better fulfill client
needs. We intend to continue to strengthen these relationships and pursue
additional strategic industry alliances.
ATTRACT AND RETAIN QUALIFIED EMPLOYEES
We believe that our ability to retain and attract top industry
professionals will continue to be essential to our success in delivering
innovative eBusiness solutions. We intend to continue to recruit aggressively
and to focus on the retention of our employees through a collaborative corporate
culture, the cohesive nature and lifestyle benefits of our Solution Center
approach, our established training and development and competitive compensation
programs.
BUILD THE IDENTITY AND AWARENESS OF THE XPEDIOR BRAND
We are adopting a single corporate vision, name, identity and brand across
our organization. Our management and employees will receive incentive
compensation that is based on overall corporate performance. We believe it is
critical to establish strong, internal management systems
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and processes to maintain a high, uniform level of client service and efficient
utilization of our resources.
SERVICES
Our eBusiness solutions include one or more of the following services,
customized to fit our clients' needs.
DIGITAL BUSINESS STRATEGY
We help our clients create competitive advantage through the development of
clear, innovative and executable eBusiness strategies. We do this by helping
them to imagine how the emerging networked economy provides opportunities for,
or potentially threatens, their existing businesses. We then deliver digital
business plans, retool business processes for the digital economy and develop
executable action plans for our clients' businesses. Our capabilities are based
upon our industry knowledge, our broad experience in the digital economy and our
commitment to our clients' success.
ELECTRONIC COMMERCE
We work with our clients to implement electronic commerce applications and
systems that enable them to create new revenue streams, reduce costs and compete
more effectively. The applications we build include business-to-business
applications which enable our customers to work more effectively with their
partners, suppliers and customers, as well as business-to-consumer applications
enabling retailers to sell directly to consumers. We specialize on applications
for personalized selling and marketing as well as high volume and high
availability transaction processing systems.
DIGITAL BRANDING AND USER EXPERIENCE DESIGN
We design online brands for our clients through our experienced team of
creative visual designers and interactive marketing experts, and by managing the
branding and design process in partnership with third party designers. In
addition, our team of experts works to extend our customers' existing brand
identities into the online and interactive mediums such as the Internet. Our
user experience design group also works closely with each of our practice areas
to apply their skills in interactive design, information architecture and
creative design to enhance the user experience.
EBUSINESS APPLICATIONS AND INTEGRATION
We integrate the eBusiness systems we build with the client's existing back
office and front office infrastructure, and develop systems that enable our
customers to capitalize on digital business strategies. We do this by extending
our clients' enterprise resource management systems to trading partners over the
Internet, by integrating their front office systems, such as customer care, with
web-based eBusiness facilities, and by extending to the Internet
business-to-business or business-to-consumer transactions that execute in their
traditional systems.
EBUSINESS TECHNOLOGY MANAGEMENT
We provide a wide range of eBusiness technology management services
including managing private networks, operating data warehousing facilities and
managing complex eBusiness applications, as well as the outsourcing of a
client's entire technology environment. We perform
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these services by providing teams that manage and execute our clients' technical
eBusiness functions.
EBUSINESS NETWORKS
We provide a broad complement of networking services including local and
wide area network design, server and application infrastructure support and
network rollout and support. We leverage our experience in managing nationwide
private networks, and our alliances with leading Internet service providers, or
ISPs, hosting companies and equipment providers, to deliver sophisticated
networking services.
EBUSINESS INTELLIGENCE
We provide eBusiness intelligence services focused on the design and
development of solutions for the collection, retention and use of valuable
customer and market data. These services include building data warehouses, data
marts, decision support systems, one-to-one marketing facilities and
permission-based marketing systems. As more and more of our clients' interaction
with their customers takes place in the digital domain, the ability to manage
and capitalize on the vast amounts of data generated by eBusiness is
increasingly a key element of our eBusiness solutions.
ENTERPRISE PORTALS AND KNOWLEDGE MANAGEMENT
We provide services that allow our clients to capture, consolidate and
redeploy institutional knowledge stored throughout their digital enterprise and
use that knowledge to their competitive advantage. We do this through the
design, construction and installation of a broad range of knowledge management
services. We develop systems that allow our clients to collaborate more
efficiently with their employees, customers and partners to reduce
time-to-market for their products and improve quality.
CLIENT CASE STUDIES
The following client case studies illustrate the value of our services and
our unique capabilities to deliver innovative, reliable solutions in rapid
timeframes.
ONLINEOFFICESUPPLIES.COM
In 1998, the founder of OnlineOfficeSupplies.com determined that only a
small percentage of office supply purchases were being made online. While the
major retailers had web sites, they were geared to drive foot traffic to their
stores or to allow customers to register for paper-based catalogs. Fears
regarding cannibalization, site maintenance, the number of potential accounts
and varying price structures presented large obstacles for traditional office
supply superstores trying to develop an Internet strategy. Traditional
catalog-based retailers were not meeting the needs of manufacturers, as it could
take up to 18 months for a new product to be featured in a catalog.
Given the size of the potential market and industry analysts' forecasts of
growth, OnlineOfficeSupplies.com engaged us to design, build and deploy an
innovative online office supply superstore. We worked in tandem with
OnlineOfficeSupplies' partner, United Stationers, to develop and implement an
integrated order fulfillment process. Since this partner lacked the internal
expertise to develop new Internet technology, we utilized an electronic data
interchange model to transfer orders to the fulfillment center and obtain
customer order information.
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The initial site was deployed in only 14 weeks and OnlineOfficeSupplies.com
transformed the office supply procurement process for small businesses, home
offices and corporate customers.
Our solution for OnlineOfficeSupplies.com was recognized recently as "Best
Electronic Commerce Solution of the Year" at Microsoft's worldwide business
symposium for Microsoft Certified Solutions Providers. The entry was chosen from
more than 450 solutions submitted by a worldwide community of 19,500 Microsoft
Certified Solutions Providers.
COMPUTER MANUFACTURER
A top three worldwide computer manufacturer's competitors were beginning to
provide direct sales to consumers via the Internet. [It] realized the potential
of eBusiness and the need to move quickly. [Its] objective was to sell its full
range of computers, supplies and peripherals directly to its customers online,
in addition to its sales through traditional distribution channels.
In response to [its] need to implement a creative solution that would
provide a competitive advantage in marketing its products, we developed a
solution that linked [its] SAP Enterprise order management and inventory systems
with FedEx to assure fulfillment and product availability. To expedite [its]
time-to-market, the Xpedior Solution was built using reliable software
technology from BroadVision, customized and integrated by our project team.
Powerful One-to-One Marketing(R) features of the system enabled [it] to present
shoppers with personalized promotions and coupons, customized to their ordering
history and specific needs.
Construction of [its website], [website address], was completed in just 14
weeks and allows customers to order products, review order status and receive
account information online. As a result of its successful experience with
Xpedior, [it] has engaged us to help it develop and implement another eBusiness
solution for its small business sales channel, the [website].
BELL CANADA
Bell Canada was quickly shifting its business from a product focus to a
market focus. To achieve its goal of creating a comprehensive electronic channel
with the ability to handle transactions and allow direct communications with
corporate, small business and residential customers, Bell needed a solution that
would allow French and English speaking customers a way to learn about their
products and services quickly and easily. Of over 50 million customer sales and
service transactions during 1998, roughly 20% were coming through the web and
voice-response channels. Research showed that the percentage of high-value
customers of those who chose to interact with the Bell Canada via the Internet
was three times higher than non-interactive channel customers.
Our task was to develop a comprehensive site that would enable Bell Canada
to better communicate with its customers, learn about preferences and interests
and lead them through a secure electronic transaction. We created the Bell
Virtual Store, a catalog-based transaction system that allows for management
promotion and online sale of Bell Canada products and services. Our design of a
site with easy to use and convenient features such as the shopping basket, the
order summary and the secure and rapid credit card payment option made shopping
online easy for even the most novice computer user. Transactions can be charged
directly to credit cards or, for some services, can be added to the next
customer bill. Products are maintained remotely and product pricing and
description can be modified in real time. The online catalog provides different
product descriptions for each of Bell Canada's four markets -- residential,
small office, home office and large business.
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We also developed a customer profiling system. By capturing user data and
preferences, the site targets one-to-one marketing promotions to get the right
offer to the right customer at the appropriate time. By emphasizing easy
ordering, complete client confidentiality and security, and accessible product
information, the site has created consumer confidence that sets Bell Canada's
products and services apart from their competition.
A MAJOR MEDICAL ASSOCIATION
As the healthcare industry moved to implement eBusiness strategies, [an
advocacy group for physicians and healthcare-related topics] needed to adapt in
order to fulfill its mission. Since 1994, we have been [its] key provider in the
establishment and expansion of its comprehensive eBusiness strategy. Through its
Internet site, [it] provides information to its membership, the ability to
search relevant publications, and continuing medical education subscription and
sign up, as well as links to additional sites such as the [website]. Members can
also purchase [its] products and services on the site. We have been the prime
provider of strategy, design and technology for [it] in the development of its
end-to-end Internet solutions.
[Its] website has been recognized by PC Magazine 100, Yahoo, USA Today Hot
Site, and others as a top site in its field. [Its website], in particular, has
been featured on Good Morning America and other national morning talk shows,
enhancing and extending [its] leading position in the health care information
advocacy space.
DESIGN AUTOMATION SOFTWARE AND SERVICES PROVIDER
As a leading provider of design automation software and services for
electronic products, [it] must constantly strive to provide new technology,
software innovations and best-practices to its customers worldwide. During 1998,
the company reorganized its operations to reflect both product-line solutions
including services, consulting, and software products, as well as a customer's
design process orientation.
Keeping a large enterprise ahead of the demanding technology cycle of the
semiconductor business is a challenging task. We were engaged to help [it] set
up an enterprise portal, designed to provide access to knowledge, technical
materials, customer information, sales and marketing presentations and online
newsfeeds relevant to its industry, its sales and marketing personnel, engineers
and managers.
Key attributes of [its] OnTrack solution include:
- using information about the user's interests, job function and geographic
location, which enables searches to be performed faster with more
relevant information;
- keeping profile information in dynamic status that users themselves can
create and change, and allowing users to customize a homepage type of
format to increase relevance and usability;
- providing revision, approval and multiple links and notifications through
more powerful information management capabilities to determine when
information is redundant or out of date;
- establishing levels of document types to provide a mechanism for
specifying documents that have stringent editing or validation
requirements, such as engineering documents, from those with less
stringent requirements, such as real-time newsfeeds; and
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- providing extensive online assistance for new users and users who wish to
publish information for the first time.
Design requirements of the new portal stated that anyone with valid
information to share be able to easily publish in almost any format, as the
system supports templates for PowerPoint, real-time newsfeeds, email, HTML and
almost 30 other common file formats. Typically, the process of browsing through
the immense search space of today's Internet portals can be extremely
frustrating. After reviewing available technologies, [it] and Xpedior chose
BroadVision One-to-One technology to re-architect a solution robust enough to
serve the enterprise's needs. Key attributes were its content management
infrastructure, scaleability, extensibility, and hooks for future development.
The flexible architecture allowed Xpedior engineers to build an information
hierarchy and security model tailored to support [its] worldwide sales
operations.
The site, released in just three months, catalogs over two terabytes of
information, and may be accessed in 40 countries through a user-customizable
portal.
SALES AND MARKETING
Through our sales force and marketing organization, we market and sell our
services to Global 2000 companies and emerging Internet businesses. As of
September 30, 1999, our sales force totaled 39 people. Each of our offices has
its own sales representatives who sell our services to the clients and
prospective clients located in their geographic region. These local
representatives report to a regional vice president. Our commission-based sales
representatives work closely with our senior professionals to tailor our sales
efforts and manage client relationships. In addition, our sales representatives
work closely with our alliance partners to extend our sales and marketing
efforts.
Our marketing efforts are intended to promote Xpedior as a leading provider
of innovative and reliable eBusiness solutions to an audience of senior business
and technology executives at Global 2000 companies and emerging Internet
businesses. As of September 30, 1999, our marketing organization consisted of
seven personnel at the national level and 11 regional field marketing personnel.
Going forward, we intend to focus on two primary strategies to expand our
customer base and increase sales to existing customers:
BUILD THE BRAND
We believe that we will benefit from increased brand awareness by executing
a national branding campaign with a consistent message across our markets. We
plan to build brand awareness through:
- advertising in leading business and technology publications;
- industry tradeshow marketing;
- summits and seminars with existing and potential clients;
- public relations activities aimed at positioning the company in industry
related publications; and
- various direct marketing activities.
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EXPAND SALES ORGANIZATION
We currently have business development professionals located in 15 domestic
and three international offices. In addition to expanding our local,
geographic-based sales organization, we have established and intend to expand
our national sales organization. Our national sales organization is primarily
focused on the development of strategic services targeting specific industries,
including financial services, healthcare, high technology, media and publishing,
retail and distribution, telecommunications and eCommerce/Internet. This
organization works closely with our strategic service professionals to market
and develop additional business.
CLIENTS
Set forth below is a partial list of our recent clients, categorized by
vertical industry. For the year ended December 31, 1998, our ten largest clients
represented approximately 33% of our pro forma revenues and our 50 largest
clients represented approximately 70% of our pro forma revenues. No single
client represented 7% or more of our pro forma revenues during 1998.
<TABLE>
<CAPTION>
TELECOMMUNICATIONS RETAIL AND DISTRIBUTION ECOMMERCE/INTERNET
<S> <C> <C>
AT&T FedEx AsiaMail.com
Bell Atlantic HEB Stores CareerBuilder.com
Bell Canada Longs Drug Stores CharitableWay.com
GTE Marketing Specialists CreditLand.com
Level 3 Communications Memec DigitalWork.com
MCI WorldCom NutraLite Ineto.com
Nextel PepsiCo Internet Engineering Task Force
Telus Safeway Medical-Records.com
USWest Sears MODE (Music on Demand Europe)
Williams Conferencing Wyle OnlineOfficeSupplies.com
Winstar PRIO
HIGH TECHNOLOGY VCN (Virtual Creative Network)
FINANCIAL SERVICES
BEA Systems MEDIA AND PUBLISHING
Allianz Cadence Design Systems
Aon Insurance Hewlett-Packard Dearborn Financial Publishing
Bank of America IBM Stanley Kaplan & Associates
Charles Schwab Lucent Tribune Company
Citibank Macromedia GOVERNMENTAL AND HIGHER EDUCATION
Discover Card Netscape Alameda County, California
Fireman's Fund Rogerson Aircraft Commonwealth of Massachusetts
First American Real Estate Sun Microsystems City of Chicago
ING Barings Cook County (Illinois) Assessors
Moneygram HEALTHCARE Office
SNS RAAEL St. John's University
State Farm American Medical Association University of Minnesota
Strong Capital Management Amgen
Zurich American Dialysis Clinics Incorporated
</TABLE>
STRATEGIC ALLIANCES
We pursue strategic alliances with leaders in the technology industry to
generate incremental sales opportunities and leverage current product knowledge.
We choose our alliance partners based on their leadership in a particular
product or service category and our ability to obtain
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preferential access to new technologies created by these companies. We have
entered into alliances with the following companies:
SOFTWARE PARTNERS
Allaire
BEA Systems
BroadVision
Forte Software
Microsoft
NetscapeSun Alliance
SilverStream Software
HARDWARE PARTNERS
Hewlett-Packard
IBM
Sun Microsystems
WEB HOSTING PARTNERS
Exodus Communications
Frontier Global Center
GTE Internetworking
Telus Advanced
Communications
UUNet
We have developed many of these alliances into beneficial, long-term
relationships. For example, as a result of our alliances we have gained early
access to advanced technologies from Microsoft, BroadVision and SilverStream. In
addition, we have received awards and recognition from our alliance partners. We
have been a Microsoft Certified Solution Provider at the Partner Level since
1995 and we were the Microsoft Solution Provider Partner of the Year, Worldwide
for 1997. In 1999, Microsoft recognized us as having provided the "Best
Electronic Commerce Solution of the Year" for our work on
OnlineOfficeSupplies.com. We are also one of only seven IBM Alliance Partners in
the U.S. (one of 20 worldwide) and a BroadVision Integration Partner. As a
result of our elevated position with these companies, we also benefit from joint
sales, marketing, training and sales support programs.
OUR PEOPLE AND CULTURE
As of September 30, 1999, we had 1,164 full-time employees, comprised of
945 professionals and 219 administrative and support employees. We believe we
pay competitive salaries and provide other awards for performance and
achievement. None of the our employees are represented by unions and, except for
senior management and certain other employees, our employees are retained on an
at-will basis. We believe our relations with our employees are good. Recognizing
that our employees are key to our success, we believe the following strategies
will enable us to continue to attract and retain the necessary personnel:
RECRUITING
We believe our ongoing success depends upon our continued ability to
recruit and retain professionals with outstanding skills and abilities. To
attract qualified candidates, we maintain a recruiting organization consisting
of 14 professionals as of September 30, 1999. Employee referrals are the single
largest source for employee candidates. We reward our employees for referring
candidates through our employee referral programs. In addition to being a
cost-effective means of recruiting, we believe this is a positive indication of
the employee's attitude toward us. Additional sources for employee candidates
include advertising, college recruiting and employment placement firms.
CULTURE
We believe that we have established a culture that fosters innovation and
professional development, and rewards both individual accomplishment and
collaborative contributions. We provide career advancement opportunities for
individuals based primarily on merit, rather than
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tenure, which we believe provides an attractive environment for individuals who
are committed to succeeding.
EDUCATION AND PROFESSIONAL DEVELOPMENT
Our educational and professional development programs are designed to
advance the skills of our professionals. Our employees routinely receive
feedback on their professional advancement so that decisions on project
assignments and educational opportunities can be made. Our education programs
begin with company orientation as well as a variety of technical, industry and
professional training.
COMPENSATION
We believe that our salaries are competitive. We also provide other awards
for performance and achievement. In addition to cash compensation, we have
recently instituted a stock option program that we anticipate will have a
positive impact on our ability to attract and retain professionals. All of our
employees receive stock options and are eligible to receive additional stock
options based on performance.
COMPETITION
Competition in the eBusiness services market and its component markets is
intense. Our current competitors include:
- emerging web consulting firms such as Proxicom, Razorfish, Scient, USWeb
and Viant, which are focused on Internet-based, electronic business and
digital business solutions;
- systems integrators such as Andersen Consulting, Ernst & Young,
PricewaterhouseCoopers and Sapient;
- strategy and management consulting firms such as Bain, Boston Consulting
Group and Diamond Technology Partners;
- regional specialized information technology firms;
- vendor-based services organizations of companies such as IBM and Oracle;
and
- internal management and information technology departments of current and
future client organizations.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address client needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
FACILITIES
Our headquarters are located in Chicago, Illinois. Our Solution Centers are
located in Chicago, Illinois; San Francisco, California; Dallas, Texas; New
York, New York; and Alexandria, Virginia. In addition to our Solution Centers
and headquarters which are leased, we lease offices in the following locations:
Houston, Texas; Landover, Maryland; Brentwood, Tennessee; El Segundo,
California; Bedford, New Hampshire; Jacksonville, Florida; Downers Grove,
Illinois; San Ramon, California; Englewood, Colorado; Troy, Michigan; London,
England;
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Perth, Australia and Toronto, Ontario. We anticipate that we will continue to
expand our offices and open offices in new locations as business conditions
require. We expect that we will need additional space as we expand our business
and believe that we will be able to obtain suitable space as needed.
LEGAL PROCEEDINGS
Metamor and NDC Group, Inc., one of our subsidiaries, filed suit in May
1999 against certain former officers and shareholders of NDC and other parties
in the Circuit Court of the City of Alexandria, Virginia for several causes of
action, including breaches of fiduciary duties and numerous covenants and
agreements. In this suit, Metamor and NDC are seeking monetary and injunctive
relief against the defendants. One of the defendants, Mr. Noce, has filed a
Cross-Bill alleging breach of his employment agreement and duties of good faith
and fair dealings against NDC and Metamor.
A trial of this action is currently anticipated to begin in April 2000. We
believe that NDC and Metamor have a strong case in these matters and strong
defenses against the Cross-Bill. However, NDC and Metamor may not prevail in
this litigation because litigation is subject to inherent uncertainties.
We are not aware of any pending legal proceedings against us, including the
litigation with the former officers and shareholders of NDC, that, individually
or in the aggregate, would have a material adverse effect on our results of
operations or financial condition. We may in the future be party to litigation
arising in the course of our business. These claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources.
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MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of Xpedior and their ages and
positions as of the initial public offering are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David N. Campbell......................... 58 President, Chief Executive Officer and
Director
J. Brian Farrar........................... 36 Executive Vice President, Chief Operating
Officer and Director
Eugene Rooney............................. 34 Executive Vice President and Director
Steven M. Isaacson........................ 45 Senior Vice President and Chief Financial
Officer
James W. Crownover........................ 56 Chairman of the Board of Directors
Peter T. Dameris.......................... 39 Director
John M. Whiteside......................... 43 Director
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
David N. Campbell has served as our President and Chief Executive Officer
since joining us in September 1999 and will be a director upon consummation of
this offering. From January 1999 to September 1999, Mr. Campbell was President
of GTE Technology Organization, the centralized technology unit of GTE. From
1995 to January 1999, he served as President of BBN Technologies, the Internet
technology development and services organization of BBN Corporation, which was
acquired by GTE in 1997. Prior to that time, he served as Chairman and Chief
Executive Officer of Computer Task Group, Inc., an international integrated
information technology services company. Mr. Campbell is also a director of
Tektronix, Inc. and Gibraltar Steel, Inc., and was appointed by President
Clinton to the Advisory Board of the President's Commission on Critical
Infrastructure Protection. He holds a Bachelor of Science degree from Niagara
University and a Master of Science degree from State University of New York at
Buffalo.
J. Brian Farrar has served as our Executive Vice President and Chief
Operating Officer since July 1999 and will be a director upon consummation of
this offering. Since March 1998, Mr. Farrar has served as President of Metamor
Technologies, Ltd., a subsidiary of Xpedior which was acquired by it in March
1997. From October 1994 until March 1998, Mr. Farrar was a Vice President and
Principal of Metamor Technologies, eBusiness services. Mr. Farrar has published
numerous books on Internet and technology-related topics translated into a
variety of languages around the world. He holds a Master of Business
Administration degree from Indiana University and a Bachelor of Arts degree from
Wabash College.
Eugene Rooney has served as our Executive Vice President since October 1999
and will become a director upon consummation of this offering. Since 1994, Mr.
Rooney has been the President of Sage I.T. Partners, Inc., a subsidiary of
Xpedior which was acquired by it in January 1998. Prior to that time, he served
as Vice President of Product Development for Metropolis Software, a leading
vendor of field sales automation software. Mr. Rooney is also a director of
Medical-Records.com. He received a Bachelor of Science degree in Management in
1987 at Rensselaer Polytechnic Institute in Troy, New York.
Steven M. Isaacson has served as our Chief Financial Officer since April
1998 and as a Senior Vice President since October 1999. Mr. Isaacson has served
as Chief Operating Officer and Chief Financial Officer of Metamor Technologies,
Ltd. since June 1996. Prior to that time,
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he served as Executive Vice President and Chief Financial Officer of American
Classic Voyages Co., a cruise line with operations in North America. Mr.
Isaacson is a Certified Public Accountant. He holds a Bachelor of Science degree
in Accounting from the University of Illinois and Master of Science degree in
Taxation from DePaul University in Chicago, Illinois.
James W. Crownover has served as our Chairman of the Board since joining us
in September 1999. Mr. Crownover joined McKinsey & Company, Inc. in 1968. He
served as the managing director of the Southwest practice of McKinsey from 1984
to 1994 and as a member of McKinsey's Shareholders' Committee, its elected board
of directors, from 1990 to 1998. Mr. Crownover is also a director of Unocal
Corporation and Altra Energy Technologies. He is an honors graduate of Rice
University and received his Master of Business Administration degree from the
Stanford Graduate School of Business.
Peter T. Dameris has served as one of our directors since December 1997.
Mr. Dameris has been President, Chief Executive Officer and Secretary and has
served as a director of Metamor Worldwide, Inc. since October 1999. From January
1999 to September 1999, he served as Executive Vice President -- Corporate
Development and Secretary of Metamor. Mr. Dameris joined Metamor in January 1995
as Vice President, General Counsel and Secretary and was promoted to Senior Vice
President in September 1996. Prior to that time, he was a partner with the law
firm of Cochran, Rooke and Craft, LLP. Mr. Dameris is also a director of U.S.
Concrete, Inc., a provider of ready-mixed concrete and related products and
services. He received his Bachelor of Arts degree from Southern Methodist
University and his law degree from the University of Texas.
John M. Whiteside will become a director upon consummation of this
offering. In May 1999, Mr. Whiteside launched netASPx, an application service
provider. Prior to launching netASPx, Mr. Whiteside was President and Chief
Executive Officer of Service Net since March 1997. Prior to 1997, he served as
General Manager of IBM Global Network and as Senior Vice President of Global
Alliance Management at MCI Communications Corporation. He holds a Bachelor of
Science degree in Geophysics from Yale College and a Master of Business
Administration degree from Harvard Graduate School.
BOARD OF DIRECTORS
Xpedior currently has two directors. Upon the completion of this offering,
the terms of the office of the board of directors will be divided into three
classes: Class I, whose term will expire at the annual meeting of the
stockholders to be held in 2000; Class II, whose term will expire at the annual
meeting of stockholders to be held in 2001; and Class III, whose term will
expire at the annual meeting of stockholders to be held in 2002. Upon completion
of this offering, the Class I directors will be Messrs. Crownover and Dameris;
the Class II directors will be Messrs. Campbell and Rooney; and the Class III
directors will be Messrs. Whiteside and Farrar. At each annual meeting of
stockholders after the initial classification, each elected director will serve
from the time of his election and qualification until the third annual meeting
following his election. This classification of the board of directors may have
the effect of delaying or preventing changes in control of Xpedior or its
management. All of our officers serve at the discretion of the board of
directors. There are no family relationships among the directors and officers of
Xpedior.
Board Committees. Our board of directors will have an audit committee and
a compensation committee. The audit committee will consist exclusively of
outside directors. The audit committee makes recommendations to the board of
directors regarding the selection of
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<PAGE> 62
independent accountants, reviews the results and scope of audit and other
services provided by our independent accountants and reviews and evaluates our
audit and control functions. The compensation committee will consist exclusively
of outside directors. The compensation committee administers our stock plans and
makes decisions concerning salaries and incentive compensation for our
employees.
DIRECTOR COMPENSATION
The Chairman of the Board receives $100,000 in annual cash compensation and
received options to purchase 200,000 shares of common stock which will vest over
three years in equal installments. The remaining outside directors will receive
an initial grant of options to purchase 30,000 shares of common stock which will
vest over three years in equal installments and subsequent annual grants of
options to purchase 5,000 shares which will vest immediately upon issuance.
Directors who are also executive officers will not receive any compensation for
their services as directors other than reimbursement of all reasonable
out-of-pocket expenses for attendance at board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is currently or has been
at any time since the formation of Xpedior, an officer or employee of Xpedior.
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
INDEMNIFICATION
Xpedior has entered into indemnification agreements with each of our
directors and executive officers. The form of indemnity agreement provides that
we will indemnify our directors or executive officers for expenses incurred
because of their status as a director or executive officer, to the fullest
extent permitted by Delaware law.
Xpedior's certificate of incorporation and bylaws contain provisions
relating to the limitation of liability and indemnification of our directors and
officers. The certificate of incorporation provides that directors shall not be
personally liable to Xpedior or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability for:
- any breach of a director's duty of loyalty to Xpedior or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- any transaction from which the director derives any improper personal
benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of directors after our stockholders approve the
certificate of incorporation, then the liability of our directors shall be
eliminated or limited to the fullest extent permitted by the amended Delaware
General Corporation Law. The foregoing provisions of our certificate of
incorporation are not intended to limit the liability of directors or officers
for any violation of applicable federal
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securities laws. In addition, as permitted by Section 145 of the Delaware
General Corporation Law, our bylaws provide that:
- we are required to indemnify our directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law;
- we may, in our discretion, indemnify other officers, employees and agents
to the fullest extent permitted by the Delaware General Corporation Law;
- we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions;
- the rights conferred in the bylaws are not exclusive;
- we may, in our discretion, enter into indemnification agreements with our
directors, officers, employees and agents; and
- we may not retroactively amend the bylaw provisions relating to indemnity
in a way that would adversely affect the rights of our directors or
executive officers.
Our bylaws further provide that we shall indemnify our directors to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain summary
information concerning the compensation earned during 1998 by the Chief
Executive Officer and the other most highly compensated officers. The chief
executive officer of Xpedior served in this capacity as part of his position as
an officer of Metamor and, as such, his compensation was paid by Metamor, not by
Xpedior. Mr. Campbell was elected as our President and Chief Executive Officer
in September 1999. We use the term "named executive officers" to refer to these
people in this prospectus. The table excludes certain perquisites and other
personal benefits received by a named executive officer that do not exceed the
lesser of $50,000 or 10% of any such officer's salary and bonus disclosed in the
table.
<TABLE>
<CAPTION>
1998
ANNUAL
COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
<S> <C> <C>
Kenneth R. Johnsen.......................................... $ -- $ --
President and Chief Operating Officer of Metamor and
Chief Executive Officer of Xpedior
David M. Pickrell........................................... 250,000 187,500
President of Xpedior
J. Brian Farrar............................................. 156,250 193,723
President of Metamor Technologies, Ltd.
Steven M. Isaacson.......................................... 156,250 159,687
Chief Financial Officer and Chief Operating Officer of
Metamor Technologies, Ltd.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
In the fiscal year ended December 31, 1998, none of the named executive
officers received options to purchase common stock, nor were they able to
exercise any stock options.
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EMPLOYMENT AGREEMENTS
In September 1999, Mr. Campbell entered into an employment agreement with
us and we elected him our President and Chief Executive Officer. The agreement
provides that Mr. Campbell will receive a minimum annual base salary of
$375,000. Under the agreement, Mr. Campbell also may receive bonuses up to 150%
of his base salary based upon his meeting or exceeding performance objectives.
At the same time, we granted him an option to purchase 1,000,000 shares of our
common stock pursuant to an option agreement. In addition, we issued Mr.
Campbell 50,000 shares of common stock subject to forfeiture upon termination of
employment within certain time frames. The forfeiture restrictions lapse with
respect to, 25,000 of such shares after 24 full months of employment, an
additional 12,500 of such shares after 36 full months of employment and the
remaining 12,500 shares after 48 full months of employment. Mr. Campbell also
purchased 129,702 shares of common stock at $7.71 per share. Mr. Campbell is
restricted from selling any of his common stock until the earlier of the second
anniversary of our initial public offering or the distribution to the
stockholders of Metamor of its remaining interest in Xpedior. Mr. Campbell's
employment agreement provides that if he terminates his employment with us on or
before September 9, 2001, we can require him to sell back to us the 129,702
shares of common stock for an amount equal to the actual cost plus $400,000.
In addition, as part of Mr. Campbell's employment with us, we have agreed
to provide Mr. Campbell the benefits which he is entitled to receive under a
non-competition agreement between Mr. Campbell and Computer Task Group ("CTG")
dated as of March 1, 1984 and under the CTG Executive Benefit Plan, as restated
and effective January 31, 1997, in each case in the event CTG ceases to make the
payments described in these instruments. The agreements provide that through
November 4, 2001, Mr. Campbell will receive monthly payments, reimbursement for
COBRA or other medical premiums, premiums for a life insurance policy and
continued benefits under the CTG Executive Benefit Plan. In addition, we have
agreed to indemnify Mr. Campbell in the event his employment with us violates
any legal obligations owed to CTG. CTG has indicated that while CTG will not
seek any injunctive relief relating to Mr. Campbell's employment with Xpedior,
CTG is terminating all of the benefits owed to Mr. Campbell, including those
which we have agreed to undertake.
Either we or Mr. Campbell can terminate the employment agreement at any
time. If the employment agreement is not terminated on or before September 9,
2001, the term of the agreement will be extended for one additional year. If we
terminate the agreement prior to the expiration of the initial term without
cause, then we will pay him an amount equal to two years salary plus certain
health benefits. If Mr. Campbell's employment terminates because of his death or
disability or we fail to renew the term for an additional year beyond the
initial term, then we will pay him (or his estate) an amount equal to one year's
salary (plus his most recent incentive bonus in the case of death). We have also
agreed to pay other benefits offered to Mr. Campbell by his former employer as
further described under "Certain Transactions."
Mr. Farrar entered into an employment agreement with us effective October
13, 1999. The agreement provides that Mr. Farrar will receive a minimum annual
base salary of $250,000. Under the agreement, Mr. Farrar also may receive
bonuses up to 150% of his base salary based upon his meeting or exceeding
performance objectives, and will be allowed to participate in all benefit plans
offered by us to similarly situated employees.
Either we or Mr. Farrar can terminate the employment agreement at any time.
If the employment agreement is not terminated on or before October 13, 2001, the
term of the
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agreement will be extended for one additional year. If we terminate the
agreement prior to the expiration of the initial term without cause, then we
will pay him an amount equal to two years salary plus health benefits. If Mr.
Farrar's employment terminates because of death or disability or we fail to
renew the term for an additional year beyond the initial term, then we will pay
him (or his estate) an amount equal to one year's salary (plus his most recent
incentive bonus in the case of death).
EMPLOYEE STOCK PLANS
XPEDIOR STOCK INCENTIVE PLAN
On August 5, 1999, in connection with this offering and the expected
divestiture, our board of directors approved and adopted the Xpedior Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to provide our
directors, employees, advisors and professionals additional incentive and reward
opportunities to enhance our profitable growth. The Plan provides for the
granting of incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code, options that do not constitute incentive stock options,
restricted stock awards, and stock appreciation rights. The Plan is administered
by a committee of the board of directors (the "Committee"). The Committee will
consist of two or more outside directors within the meaning of section 162(m) of
the Code. In general, the Committee is authorized to select the recipients of
awards and to establish the terms and conditions of those awards.
The number of shares of common stock that may be issued under the Plan may
not exceed 15,000,000 shares, subject to adjustment to reflect stock dividends,
stock splits, recapitalizations, and similar changes in our capital structure.
Shares of common stock which are attributable to awards that have expired,
terminated, or been canceled or forfeited are available for issuance or use in
connection with future awards. The maximum number of shares of common stock that
may be subject to awards granted under the Plan to any one individual during any
calendar year may not exceed 2,000,000, subject to adjustment to reflect stock
dividends, stock splits, recapitalizations and similar changes in our capital
structure.
The price at which a share of common stock may be purchased upon exercise
of an option granted under the Plan will be determined by the Committee, but (a)
in the case of an incentive stock option, such purchase price will not be less
than the fair market value of a share of common stock on the date such option is
granted, and (b) in the case of an option that does not constitute an incentive
stock option, such purchase price will not be less than 85% of the fair market
value of a share of common stock on the date such option is granted.
Additionally, a stock appreciation right may be granted in connection with the
grant of an option. A stock appreciation right allows the holder to surrender
the right to purchase shares under the related option in return for a payment in
cash, shares of common stock, or a combination thereof, in an amount equal to
the difference between the fair market value of the shares of common stock on
the date such right is exercised over the purchase price for such shares under
the related option.
Stock options granted under the Plan are not freely transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by the optionee. Options granted under the Plan must generally be exercised
within three months of the optionee's separation of service with us or within
twelve months after the optionee's termination by death or disability, but in no
event earlier than the date of a complete spin-off of all our common stock held
by Metamor or, two years after a public offering of our common stock.
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Shares of common stock that are the subject of a restricted stock award
under the Plan will be subject to restrictions on disposition by the holder of
such award and an obligation of such holder to forfeit and surrender the shares
to us under certain circumstances (the "Forfeiture Restrictions"). The
Forfeiture Restrictions will be determined by the Committee in its sole
discretion, and the Committee may provide that the Forfeiture Restrictions will
lapse upon:
- the attainment of one or more performance goals or targets established by
the Committee which are based on:
- the price of a share of common stock,
- our earnings per share,
- our market share,
- the market share of one of our business units designated by the
Committee,
- our sales,
- the sales of one of our business units designated by the Committee,
- our net income (before or after taxes) or the net income of any one
of our business units designated by the Committee,
- our cash flow return on investment or the cash flow return on
investment of any one of our business units designated by the
Committee,
- our earnings before or after interest, taxes, depreciation and/or
amortization or the earnings before or after interest, taxes,
depreciation and/or amortization of any one of our business units
designated by the Committee,
- the economic value added, or
- the return on stockholders' equity achieved by us,
- the award holder's continued employment with us or continued service as a
consultant or director for a specified period of time;
- the occurrence of any event or the satisfaction of any other condition
specified by the Committee in its sole discretion; or
- a combination of any of the foregoing.
No awards under the Plan may be granted after ten years from the date the
Plan was adopted by the board of directors. The Plan will remain in effect until
all options granted under the Plan have been satisfied or expired, and all
shares of restricted stock granted under the Plan have vested or been forfeited.
The board of directors in its discretion may terminate the Plan at any time with
respect to any shares of common stock for which awards have not been granted.
The Plan may be amended, other than to increase the maximum aggregate number of
shares that may be issued under the Plan or to change the class of individuals
eligible to receive awards under the Plan, by the board of directors without the
consent of our stockholders. No change in any award previously granted under the
Plan may be made that would impair the rights of the holder of such award
without the approval of the holder.
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CERTAIN TRANSACTIONS
In 1999, there were significant transactions between us and Metamor. For
purposes of governing these ongoing relationships, we will enter into, or
continue in effect, on a transitional basis, various agreements and
relationships, including those described below. Some of the agreements
summarized below will be included as exhibits to the registration statement of
which this prospectus is a part. The following summaries of these agreements
discuss the material provisions of these agreements and are qualified completely
by reference to such exhibits, which we incorporate in this prospectus by
reference. See "Risk Factors -- Risks Related to Our Relationship with Metamor."
Metamor currently provides various support services to us such as mergers
and acquisitions, legal, tax, risk and cash management. Costs are allocated to
us based upon usage, or where no direct method can be efficiently applied due to
administrative burden, upon factors such as annualized payroll or employee
headcount. We will enter into an agreement regarding the services Metamor will
continue to provide us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
We entered into an agreement with Metamor pursuant to which Metamor
assigned all of its rights and obligations under the agreements relating to
Metamor's acquisition of the companies comprising Xpedior, effective upon the
closing of this offering. As part of this agreement, we have agreed to indemnify
Metamor for any liabilities resulting from or arising out of the acquisitions or
the operations of the acquired companies.
For a description of transactions with directors and officers, see
"Management -- Employment Agreements."
Following completion of this offering, Metamor will own approximately 83%
of our outstanding common stock, or 80% if the underwriters' over-allotment
option is exercised in full.
Currently, one of our directors is also a director and the Chief Executive
Officer of Metamor, a situation that may create conflicts of interest.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 15, 1999, information with
respect to shares beneficially owned by our stockholders:
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED(B)
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
STOCKHOLDERS OWNED(A) OFFERING OFFERING
<S> <C> <C> <C>
Metamor Worldwide, Inc.(b) ................................. 41,285,298 99.6% 82.6%
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027
David N. Campbell........................................... 179,702 * *
One North Franklin, Suite 1500
Chicago, Illinois 60606
</TABLE>
- ------------------------------
* Less than one percent
(a) Assumes no exercise of the underwriters' over-allotment option to purchase
up to 1,280,250 shares of common stock from Metamor. If the underwriters'
over-allotment option is exercised in full, upon completion of this offering
Metamor would beneficially own 40,005,048 shares of common stock
representing approximately 80% of the outstanding common stock.
(b) The calculations in this table of the percentage of outstanding shares are
based on 41,465,000 shares of our common stock outstanding as of October 15,
1999, and 50,000,000 shares outstanding immediately following the completion
of this offering and assumes no exercise of the underwriters' over-allotment
option.
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<PAGE> 69
DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation, the filing of which
will occur immediately prior to the closing of this offering, authorizes the
issuance of up to 100,000,000 shares of common stock, par value $.01 per share,
and 5,000,000 shares of preferred stock, par value $.01 per share, the rights
and preferences of which may be established from time to time by our board of
directors. Prior to this offering, 41,465,000 shares of common stock were issued
and outstanding. No shares of preferred stock have been issued.
The following summarizes the material provisions of our capital stock and
anti-takeover provisions of our certificate of incorporation and bylaws. This
summary is qualified by our certificate of incorporation and bylaws, copies of
which have been filed as exhibits to the registration statement of which this
prospectus is a part and by the provisions of applicable law.
COMMON STOCK
Immediately following this offering, 50,000,000 shares of common stock will
be issued and outstanding. Holders of common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Because holders of
common stock do not have cumulative voting rights, the holders of a majority of
the shares of common stock can elect all of the members of the board of
directors standing for election. Subject to preferences of any preferred stock
that may be issued in the future, the holders of common stock are entitled to
receive such dividends as may be declared by the board of directors. The common
stock is entitled to receive pro rata all of our assets available for
distribution to its stockholders. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and non-assessable.
PREFERRED STOCK
Subject to the provisions of the certificate of incorporation and
limitations prescribed by law, the board of directors has the authority to issue
up to 5,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, which may be superior to those of
the common stock, without further vote or action by the stockholders. There will
be no shares of preferred stock outstanding upon the closing of the offering and
we have no present plans to issue any preferred stock.
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage an attempt to
obtain control of us by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of our management. The issuance
of shares of the preferred stock pursuant to the board of directors' authority
described above may adversely affect the rights of the holders of common stock.
For example, preferred stock issued by us may rank prior to the common stock as
to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of common stock. Accordingly,
the issuance of shares of preferred stock may discourage bids for the common
stock or may otherwise adversely affect the market price of the common stock.
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<PAGE> 70
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
CLASSIFIED BOARD OF DIRECTORS AND LIMITATIONS ON REMOVAL OF DIRECTORS
Our board of directors is divided into three classes. The directors of each
class are elected for three-year terms, with the terms of the three classes
staggered so that directors from a single class are elected at each annual
meeting of the stockholders. Until such time, called the "Trigger Date," as
Metamor together with its subsidiaries does not own a majority of the
outstanding voting stock of Xpedior, the holders of a majority of our
outstanding voting stock may remove a director with or without cause and may
appoint persons to fill vacancies on the board of directors. On and after the
Trigger Date, stockholders may remove a director only for cause and to do so, at
least 66 2/3% of the voting power of the outstanding voting stock must vote for
removal. The board of directors, not the stockholders, will have the right to
appoint persons to fill vacancies on the board of directors after the Trigger
Date.
WRITTEN CONSENT OF STOCKHOLDERS
Our certificate of incorporation provides that prior to the Trigger Date
any action required or permitted to be taken by our stockholders may be taken at
a duly called meeting of stockholders or by written consent of stockholders
owning the minimum number of shares required to approve such action. On and
after the Trigger Date, any action by our stockholders must be taken at an
annual or special meeting of stockholders. Special meetings of the stockholders
may be called only by the board of directors. This provision, which requires a
vote of at least 66 2/3% of the voting power of the outstanding shares of common
stock to be amended, could have the effect of deterring hostile takeovers or
delaying changes in control.
ADVANCE NOTICE PROCEDURE FOR STOCKHOLDER PROPOSALS
Our bylaws establish an advance notice procedure for the nomination of
candidates for election as directors as well as for stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director must be delivered to or mailed and received at our principal
executive offices as follows:
- with respect to an election to be held at the annual meeting of
stockholders, 120 days prior to the anniversary date of the proxy
statement for the immediately preceding annual meeting of stockholders;
and
- with respect to an election to be held at a special meeting of
stockholders for the election of directors, not later than the close of
business of the 10th day following the day on which such notice of the
date of the meeting was mailed or public disclosure of the date of the
meeting was made, whichever first occurs, and must contain specified
information concerning the person to be nominated.
Notice of stockholders' intent to raise business at an annual meeting must
be delivered to or mailed and received at our principal executive offices not
less than 120 days prior to the anniversary date of the proxy statement for the
preceding annual meeting of stockholders. These procedures may operate to limit
the ability of stockholders to bring business before a stockholders meeting,
including with respect to the nomination of directors of considering any
transaction that could result in a change in control. These advance notice
procedures are not applicable prior to the Trigger Date.
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<PAGE> 71
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our certificate of incorporation provides that no director shall be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability as follows:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of laws;
- for unlawful payment of a dividend or unlawful stock purchase or stock
redemption; and
- for any transaction from which the director derived an improper personal
benefit.
The effect of these provisions is to eliminate our rights and those of our
stockholders, through stockholders' derivative suits on our behalf, to recover
monetary damages against a director for breach of fiduciary duty as a director,
including breaches resulting from grossly negligent behavior, except in the
situations described above. These provisions will not change after the Trigger
Date.
DELAWARE TAKEOVER STATUTE
Under the terms of our certificate of incorporation and as permitted under
Delaware law we have elected not to be subject to Delaware's anti-takeover law.
This law provides that specified persons who, together with affiliates and
associates, own, or within three years did own, 15% or more of the outstanding
voting stock of a corporation may not engage in certain business combinations
with the corporation for a period of three years after the date on which the
person became an interested stockholder. The law does not include interested
stockholders prior to the time our common stock is authorized for quotation on
the Nasdaq National Market. This includes Metamor. The law defines the term
"business combination" to encompass a wide variety of transactions with or
caused by an interested stockholder, including mergers, asset sales and other
transactions in which the interested stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders. With approval of
our stockholders, we could amend our certificate of incorporation in the future
to become subject to the anti-takeover law. This provision would then have an
anti-takeover effect with respect to transactions not approved in advance by our
Board of Directors, including discouraging takeover attempts that might result
in a premium over the market price for the shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is , and
its telephone number is ( ) .
REGISTRATION RIGHTS AGREEMENT
We have entered into an agreement with Metamor that allows Metamor to
require us to register shares of our common stock owned by Metamor following
this offering. Beginning six months after this offering, Metamor has the right
to demand a total of three such registrations. In addition, Metamor has the
right, which it may exercise at any time, to include its shares in any
registration of common stock made by us in the future. Metamor also has the
right to request that we file a registration statement registering shares of our
common stock held by Metamor for resale in a public offering. In this case, the
number of shares requested to be
66
<PAGE> 72
registered shall have an aggregate offering price of at least $5 million. We
have agreed to cooperate fully in connection with any registration for Metamor's
benefit and with any offering made under the registration rights agreement and
to pay all costs and expenses, other than underwriting discounts and
commissions, related to shares sold by Metamor in connection with any
registration covered by the agreement. The rights of Metamor under the
registration rights agreement are transferable by Metamor. The agreement is for
an indefinite term. See "Risk Factors -- Shares becoming available for sale
could affect our stock price and dilute your ownership in us" and "Shares
Eligible for Future Sale."
67
<PAGE> 73
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 50,000,000 shares of common
stock outstanding. Of the 50,000,000 shares outstanding, all of the shares which
are offered hereby will be available for immediate sale in the public market as
of the date of this prospectus, up to 41,465,000 shares will be subject to a
lock-up period ending 180 days after the date of this prospectus (the "180-day
lock-up period"), after which they will be available for sale in the public
market, subject in some cases to compliance with volume and other limitations of
Rule 144. See "Underwriting." The foregoing is summarized in the following
table:
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
<S> <C> <C>
On effectiveness................... 8,535,000 Freely tradeable shares sold in
this offering
180 days after offering............ 41,465,000 180-day lock-up expires; shares
saleable under Rule 144 or 701
</TABLE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned shares for at least one year is entitled to sell
within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 500,000 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale requirements, and
depending on the amount sold, the filing of a Form 144 with respect to the sale.
Under Rule 144(k), a person, or persons whose shares are aggregated, is
entitled to sell his or her shares without regard to the limitations described
above if:
- the person has not been an affiliate of ours, such as an officer,
director of 10%-or-greater stockholder, at any time during the 90 days
immediately preceding the sale; and
- the person has beneficially owned his or her shares for at least two
years.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered hereby.
We, our directors and executive officers and Metamor have agreed not to
sell any common stock without the prior consent of Donaldson, Lufkin & Jenrette
Securities Corporation for the 180-day lock-up period, except that we may,
without such consent, grant options and sell shares pursuant to our stock plans.
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<PAGE> 74
Any of our employees or professionals who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. Through October 15, 1999, the holders of options exercisable into
approximately 9,237,600 shares of common stock will be eligible to sell their
shares after the vesting of their options subject to the expiration of the
180-day lock-up period.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered pursuant to
the Xpedior Stock Incentive Plan within 180 days after the date of this
prospectus, thus permitting the resale of such shares by non-affiliates in the
public market without restriction under the Securities Act.
In addition, after this offering, Metamor will be entitled to rights with
respect to registration of its shares under the Securities Act. Registration of
such shares under the Securities Act would result in such shares, except for
shares purchased by our affiliates, becoming freely tradable without restriction
under the Securities Act immediately on the effectiveness of such registration.
See "Description of Capital Stock -- Registration Rights Agreement."
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<PAGE> 75
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, First Union Securities,
Inc., J.P. Morgan Securities Inc., The Robinson-Humphrey Company, LLC and
DLJdirect Inc., have severally agreed to purchase from us the number of shares
of common stock set forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITERS: NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......
First Union Securities, Inc...............................
J.P. Morgan Securities Inc................................
The Robinson-Humphrey Company, LLC........................
DLJdirect Inc. ...........................................
---------
Total............................................. 8,535,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock in
this offering are subject to approval by their counsel of legal matters
concerning this offering and to conditions precedent that must be satisfied by
us. The underwriters are obligated to purchase and accept delivery of all the
shares of common stock in this offering, other than those shares covered by the
over-allotment option described below, if any are purchased.
The underwriters initially propose to offer some of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and some of the shares to dealers at the
initial public offering price less a concession not in excess of $ per
share. The underwriters may allow, and those dealers may re-allow, a concession
not in excess of $ per share on sales to other dealers. After the
initial offering of the common stock to the public, the representatives may
change the public offering price and concessions. The underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.
The following table shows the underwriting fees to be paid by us in
connection with this offering. This information is presented assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
We will pay the offering expenses, estimated to be approximately $2.3
million. We will pay to the underwriters underwriting discounts and commissions
in an amount equal to the public offering price per share of common stock less
the amount the underwriters pay to us for each share of common stock.
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<PAGE> 76
Metamor has granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase up to 1,280,250 additional shares
of common stock at the initial public offering price less the underwriting
discounts and commissions. The underwriters may exercise this option solely to
cover over-allotments, if any, made in connection with this offering. To the
extent the underwriters exercise this option, each underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares approximately proportionate to that underwriter's initial purchase
commitments.
We, together with Metamor, have granted the underwriters an option, have
agreed to indemnify the underwriters against liabilities, including liabilities
under the Securities Act, or to contribute to payments that the underwriters may
be required to make for these liabilities.
For a period ending 180 days from the date of this prospectus, we and our
executive officers, directors and Metamor have agreed not to, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation:
- offer, pledge, sell, contract to sell or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock, whether any such transaction described above is to be settled by
delivery of common stock or other securities, in cash, or otherwise.
In addition, during such lock-up period, we have also agreed not to file
any registration statement with respect to, and each of our executive officers,
directors and stockholders have agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
Prior to this offering, no public market has existed for our common stock.
We will negotiate the initial public offering price for our common stock with
the representatives, but the price may not reflect the market price for our
common stock after this offering. The factors considered in determining the
initial public offering price include:
- the history of and prospects for our industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future operational results;
- the recent market prices of securities of generally comparable companies;
and
- the general conditions of the securities market at the time of this
offering.
We are applying to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "XPDR."
Other than in the United States, no action has been taken by us, the
selling stockholders or the underwriters that would permit a public offering of
the shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
71
<PAGE> 77
other offering material or advertisements in connection with the offer and sale
of any shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons who receive this prospectus
are advised to inform themselves about and to observe any restrictions relating
to this offering and the distribution of this prospectus. This prospectus is not
an offer to sell or a solicitation of an offer to buy any shares of common stock
in any jurisdiction where that would not be permitted or legal.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
our shares of common stock in the open market to cover such syndicate short
positions or to stabilize the price of our common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed common stock in
syndicate covering transactions, in stabilizing transactions or otherwise, or if
Donaldson, Lufkin & Jenrette Securities Corporation receives a report which
indicates that the clients of such syndicate members have "flipped" our common
stock. These activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares of common stock offered by this
prospectus for sale to our officers, directors, employees and their family
members and to business associates of Xpedior, including clients, consultants
and other friends. These persons must commit to purchase no later than the close
of business on the day following the date of this prospectus. The number of
shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Vinson & Elkins LLP, Houston, Texas. Legal matters in
connection with this offering will be passed upon for the underwriters by Akin,
Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements of Xpedior Incorporated at July 31, 1999, December 31, 1998
and 1997 and for the seven-month period ended July 31, 1999, the year ended
December 31, 1998 and the period from inception (March 27, 1997) to December 31,
1997 as set forth in their report. Ernst & Young LLP has also audited the
financial statements of Metamor Technologies, Ltd. (predecessor company) at
March 26, 1997 and for the period from January 1, 1997 to March 26, 1997, the
financial statements of NDC Group, Inc. at April 15, 1998 and for the period
from July 1, 1997 to April 15, 1998, the financial statements of Sage I.T.
Partners, Inc. at January 6, 1998 and for the period from January 7, 1997 to
January 6, 1998, the financial statements of Workgroup Productivity Corporation
at January 1, 1998 and for the period from January 2, 1997 to January 1, 1998,
and the financial statements of Virtual Solutions, Inc. at December 29, 1996 and
for the year ended December 29, 1996 as set forth in their reports. We've
included our financial statements and the other financial statements referenced
above in the prospectus and
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<PAGE> 78
elsewhere in the registration statement in reliance on Ernst & Young LLP
reports, given on their authority as experts in accounting and auditing.
The financial statements of Virtual Solutions, Inc. as of December 28, 1997
and for the year then ended included in this prospectus and registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and is included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
Morrison & Morrison, Ltd., independent auditors, have audited the financial
statements of Metamor Technologies, Ltd. at December 31, 1996 and for the year
then ended, as set forth in their report. We have included these financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Morrison & Morrison, Ltd.'s report given on their authority as
experts in accounting and auditing.
The financial statements of Kinderhook Systems, Inc. as of December 31,
1998 and 1997 and for each of the two years in the period ended December 31,
1998 included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
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<PAGE> 79
XPEDIOR INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
XPEDIOR INCORPORATED AND SUBSIDIARIES
Pro Forma Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet......... F-2
Pro Forma Condensed Consolidated Statements of
Operations............................................ F-3
Notes to Unaudited Pro Forma Financial Statements...... F-6
Consolidated Financial Statements:
Report of Independent Auditors......................... F-9
Consolidated Balance Sheets............................ F-10
Consolidated Statements of Operations.................. F-11
Consolidated Statements of Stockholder's Equity........ F-12
Consolidated Statements of Cash Flows.................. F-13
Notes to Consolidated Financial Statements............. F-14
METAMOR TECHNOLOGIES, LTD.
Report of Independent Auditors............................ F-23
Report of Independent Certified Public Accountants........ F-24
Balance Sheets............................................ F-25
Statements of Operations.................................. F-26
Statements of Stockholders' Equity........................ F-27
Statements of Cash Flows.................................. F-28
Notes to Financial Statements............................. F-29
WORKGROUP PRODUCTIVITY CORPORATION
Report of Independent Auditors............................ F-34
Balance Sheet............................................. F-35
Statement of Operations................................... F-36
Statement of Stockholders' Equity......................... F-37
Statement of Cash Flows................................... F-38
Notes to Financial Statements............................. F-39
SAGE I.T. PARTNERS, INC.
Report of Independent Auditors............................ F-43
Balance Sheet............................................. F-44
Statement of Operations................................... F-45
Statement of Stockholders' Equity......................... F-46
Statement of Cash Flows................................... F-47
Notes to Financial Statements............................. F-48
NDC GROUP, INC.
Report of Independent Auditors............................ F-53
Balance Sheet............................................. F-54
Statement of Operations................................... F-55
Statement of Stockholders' Equity......................... F-56
Statement of Cash Flows................................... F-57
Notes to Financial Statements............................. F-58
VIRTUAL SOLUTIONS, INC.
Report of Independent Public Accountants.................. F-63
Report of Independent Auditors............................ F-64
Balance Sheets............................................ F-65
Statements of Operations and Retained Earnings............ F-66
Statements of Cash Flows.................................. F-67
Notes to Financial Statements............................. F-68
KINDERHOOK SYSTEMS, INC.
Report of Independent Accountants......................... F-74
Balance Sheets............................................ F-75
Statements of Operations and Retained Earnings............ F-76
Statements of Cash Flows.................................. F-77
Notes to Financial Statements............................. F-78
</TABLE>
F-1
<PAGE> 80
XPEDIOR INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
HISTORICAL
----------------------------
XPEDIOR KINDERHOOK ADJUSTMENTS
INCORPORATED SYSTEMS, INC. (NOTE 4) PRO FORMA
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................... $ -- $1,436 $ -- $ 1,436
Accounts receivable, net.................... 33,186 2,072 -- 35,258
Other....................................... 1,563 110 -- 1,673
-------- ------ ------- --------
Total current assets................ 34,749 3,618 -- 38,367
Net Assets of Discontinued Operations......... 1,604 -- -- 1,604
Fixed Assets, net............................. 9,657 170 -- 9,827
Intangible Assets, net........................ 118,300 -- 20,818(a) 139,118
Other......................................... 390 74 -- 464
-------- ------ ------- --------
Total Assets........................ $164,700 $3,862 $20,818 $189,380
======== ====== ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Amounts due to Parent....................... $100,000 $ -- $ -- $100,000
Accounts payable and accrued expenses....... 1,334 197 -- 1,531
Payroll and related taxes................... 6,323 -- -- 6,323
Amounts due sellers of acquired
businesses............................... 8,788 -- -- 8,788
Deferred revenues........................... 1,298 -- -- 1,298
Deferred income taxes and other............. 56 460 -- 516
-------- ------ ------- --------
Total current liabilities........... 117,799 657 -- 118,456
Convertible Subordinated Notes................ -- -- 9,100(a) 9,100
Deferred Income Taxes and Other............... 1,890 23 -- 1,913
Commitments and Contingencies
Stockholder's Equity:
Common stock................................ 413 72 (72) 413
Additional paid-in capital.................. 39,240 154 14,746(a) 54,140
Retained earnings........................... 5,358 2,956 (2,956) 5,358
-------- ------ ------- --------
Total stockholder's equity.......... 45,011 3,182 11,718 59,911
-------- ------ ------- --------
Total Liabilities and Stockholder's
Equity............................ $164,700 $3,862 $20,818 $189,380
======== ====== ======= ========
</TABLE>
See notes to unaudited pro forma statements.
F-2
<PAGE> 81
XPEDIOR INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------------------------
WORKGROUP ADVANCED
XPEDIOR PRODUCTIVITY SAGE I.T. NDC VIRTUAL INFORMATION
INCORPORATED CORP. PARTNERS, INC. GROUP, INC. SOLUTIONS, INC. SOLUTIONS, INC.
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $72,267 $ -- $ 126 $ 3,480 $6,407 $3,258
Cost of Services............... 41,930 12 113 1,877 4,299 1,638
------- ---- ------- -------- ------ ------
Gross Profit................... 30,337 (12) 13 1,603 2,108 1,620
Operating Costs and Expenses:
Selling, general and
administrative............. 20,558 8 41 1,072 1,957 651
Stock compensation........... -- -- 1,759 28,213 837 --
Depreciation and
amortization............... 2,823 -- 3 101 68 33
------- ---- ------- -------- ------ ------
23,381 8 1,803 29,386 2,862 684
------- ---- ------- -------- ------ ------
Operating Income (Loss)........ 6,956 (20) (1,790) (27,783) (754) 936
Other Income (Expense):
Interest expense............. (5,562) -- -- -- -- --
Other, net................... 25 -- -- 12 9 2
------- ---- ------- -------- ------ ------
(5,537) -- -- 12 9 2
Income (Loss) from Continuing
Operations before Income
Taxes........................ 1,419 (20) (1,790) (27,771) (745) 938
Provision (Benefit) for Income
Taxes........................ 889 -- (698) (464) (277) --
------- ---- ------- -------- ------ ------
Income (Loss) from Continuing
Operations................... $ 530 $(20) $(1,092) $(27,307) $ (468) $ 938
======= ==== ======= ======== ====== ======
Earnings (Loss) from Continuing
Operations per Share (Basic
and Diluted)................. $ 0.01
=======
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
=======
<CAPTION>
HISTORICAL
------------------------------
NEW TECHNOLOGY
PARTNERS KINDERHOOK ADJUSTMENTS
CONSULTING SYSTEMS, INC. (NOTE 4) PRO FORMA
<S> <C> <C> <C> <C>
Revenues....................... $4,754 $10,208 $ -- $100,500
Cost of Services............... 2,749 5,024 -- 57,642
------ ------- ------- --------
Gross Profit................... 2,005 5,184 -- 42,858
Operating Costs and Expenses:
Selling, general and
administrative............. 1,160 4,213 (389)(b) 29,271
Stock compensation........... -- -- -- 30,809
Depreciation and
amortization............... 98 63 993(c) 4,182
------ ------- ------- --------
1,258 4,276 604 64,262
------ ------- ------- --------
Operating Income (Loss)........ 747 908 (604) (21,404)
Other Income (Expense):
Interest expense............. (28) (9) (3,907)(d) (9,506)
Other, net................... 19 44 -- 111
------ ------- ------- --------
(9) 35 (3,907) (9,395)
Income (Loss) from Continuing
Operations before Income
Taxes........................ 738 943 (4,511) (30,799)
Provision (Benefit) for Income
Taxes........................ -- 89 (151)(e) (612)
------ ------- ------- --------
Income (Loss) from Continuing
Operations................... $ 738 $ 854 $(4,360) $(30,187)
====== ======= ======= ========
Earnings (Loss) from Continuing
Operations per Share (Basic
and Diluted)................. $ (0.73)
========
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
========
</TABLE>
See notes to unaudited pro forma statements.
F-3
<PAGE> 82
XPEDIOR INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
SEVEN MONTHS ENDED JULY 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
XPEDIOR KINDERHOOK ADJUSTMENTS
INCORPORATED SYSTEMS, INC. (NOTE 4) PRO FORMA
<S> <C> <C> <C> <C>
Revenues..................................... $69,915 $7,354 $ -- $77,269
Cost of Services............................. 40,389 3,453 -- 43,842
------- ------ ------- -------
Gross Profit................................. 29,526 3,901 -- 33,427
Operating Costs and Expenses:
Selling, general and administrative........ 18,542 3,179 -- 21,721
Depreciation and amortization.............. 3,008 41 304(c) 3,353
------- ------ ------- -------
21,550 3,220 304 25,074
------- ------ ------- -------
Operating Income............................. 7,976 681 (304) 8,353
Other Income (Expense):
Interest expense........................... (6,008) (1) (980)(d) (6,989)
Other, net................................. (74) 16 -- (58)
------- ------ ------- -------
(6,082) 15 (980) (7,047)
Income from Continuing Operations before
Income Taxes............................... 1,894 696 (1,284) 1,306
Provision for Income Taxes................... 1,084 59 (164)(e) 979
------- ------ ------- -------
Income from Continuing Operations............ $ 810 $ 637 $(1,120) $ 327
======= ====== ======= =======
Earnings from Continuing Operations per Share
(Basic and Diluted)........................ $ 0.02 $ 0.01
======= =======
Number of Shares Used to Compute Earnings per
Share...................................... 41,285 41,285
======= =======
</TABLE>
See notes to unaudited pro forma statements.
F-4
<PAGE> 83
XPEDIOR INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
SEVEN MONTHS ENDED JULY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------------------------
WORKGROUP ADVANCED
XPEDIOR PRODUCTIVITY SAGE I.T. NDC VIRTUAL INFORMATION
INCORPORATED CORP. PARTNERS, INC. GROUP, INC. SOLUTIONS, INC. SOLUTIONS, INC.
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $32,411 $ -- $ 126 $ 3,480 $6,407 $3,258
Cost of Services............... 18,708 12 113 1,877 4,299 1,638
------- ---- ------- -------- ------ ------
Gross Profit................... 13,703 (12) 13 1,603 2,108 1,620
Operating Costs and Expenses:
Selling, general and
administrative............. 9,219 8 41 1,072 1,957 651
Stock compensation........... -- -- 1,759 28,213 837 --
Depreciation and
amortization............... 1,297 -- 3 101 68 33
------- ---- ------- -------- ------ ------
10,516 8 1,803 29,386 2,862 684
------- ---- ------- -------- ------ ------
Operating Income (Loss)........ 3,187 (20) (1,790) (27,783) (754) 936
Other Income (Expense):
Interest expense............. (2,594) -- -- -- --
Other, net................... 9 -- -- 12 9 2
------- ---- ------- -------- ------ ------
(2,585) -- -- 12 9 2
Income (Loss) From Continuing
Operations before Income
Taxes........................ 602 (20) (1,790) (27,771) (745) 938
Provision (Benefit) for Income
Taxes........................ 377 -- (698) (464) (277) --
------- ---- ------- -------- ------ ------
Income (Loss) From Continuing
Operations................... $ 225 $(20) $(1,092) $(27,307) $ (468) $ 938
======= ==== ======= ======== ====== ======
Earnings (Loss) From Continuing
Operations per Share (Basic
and Diluted)................. $ 0.01
=======
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
=======
<CAPTION>
HISTORICAL
------------------------------
NEW TECHNOLOGY
PARTNERS KINDERHOOK ADJUSTMENTS
CONSULTING SYSTEMS, INC. (NOTE 4) PRO FORMA
<S> <C> <C> <C> <C>
Revenues....................... $2,929 $5,567 $ -- $ 54,178
Cost of Services............... 1,676 2,379 -- 30,702
------ ------ ------- --------
Gross Profit................... 1,253 3,188 -- 23,476
Operating Costs and Expenses:
Selling, general and
administrative............. 632 2,171 (389)(b) 15,362
Stock compensation........... -- -- -- 30,809
Depreciation and
amortization............... 68 51 729(c) 2,350
------ ------ ------- --------
700 2,222 340 48,521
------ ------ ------- --------
Operating Income (Loss)........ 553 966 (340) (25,045)
Other Income (Expense):
Interest expense............. (18) (4) (3,026)(d) (5,642)
Other, net................... 15 28 -- 75
------ ------ ------- --------
(3) 24 (3,026) (5,567)
Income (Loss) From Continuing
Operations before Income
Taxes........................ 550 990 (3,366) (30,612)
Provision (Benefit) for Income
Taxes........................ -- 44 197(e) (821)
------ ------ ------- --------
Income (Loss) From Continuing
Operations................... $ 550 $ 946 $(3,563) $(29,791)
====== ====== ======= ========
Earnings (Loss) From Continuing
Operations per Share (Basic
and Diluted)................. $ (0.72)
========
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
========
</TABLE>
See notes to unaudited pro forma statements.
F-5
<PAGE> 84
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. GENERAL
Xpedior Incorporated ("Xpedior" or the "Company") was formed by Metamor
Worldwide, Inc. ("Metamor" or the "Parent") to be the holding company for its
eBusiness solutions unit. Metamor commenced operations of this unit with the
acquisition of Metamor Technologies, Ltd. on March 27, 1997 and acquired six
additional companies in 1998 (see note 3). Effective April 30, 1999, Metamor
contributed to Xpedior all the outstanding capital stock of the seven companies
comprising its eBusiness solutions unit (the "Acquired Companies"), all of which
were wholly owned subsidiaries of Metamor. As the entities were under common
control, the contribution has been accounted for at historical cost in a manner
similar to a pooling of interest. The historical consolidated financial
statements of Xpedior reflect the "push down" of Metamor's purchase accounting
adjustments to the Acquired Companies.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial
statements are based on adjustments to the historical consolidated financial
statements of Xpedior Incorporated to give effect to the acquisitions described
in Note 3 (the "Acquired Companies"). The pro forma condensed consolidated
balance sheet assumes the acquisition made after July 31, 1999 was consummated
on that date. The pro forma condensed consolidated statements of operations
assume the acquisitions were consummated as of the beginning of the periods
presented. The pro forma condensed consolidated statements of operations are not
necessarily indicative of results that would have occurred had the acquisitions
been consummated as of the beginning of the periods presented or that might be
attained in the future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Pro Forma Financial Statements should be read in conjunction
with the historical consolidated financial statements of Xpedior, the historical
financial statements of the Acquired Companies and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
3. ACQUISITIONS
All the companies comprising Xpedior were acquired in acquisitions that
were accounted for as purchases. Accordingly the operating results are reflected
in the consolidated results of Xpedior from the date of acquisition. Summary
information on the acquisitions follows:
On March 27, 1997, the Parent acquired Metamor Technologies, Ltd., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $37.0
million in cash, which included purchase consideration paid after closing based
on the increase in earnings before interest and taxes ("EBIT"), as defined
("Earnouts"). The sellers are not entitled to any future Earnouts.
On January 2, 1998, Metamor acquired Workgroup Productivity Corp., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $10.0
million in cash, which included Earnouts for 1998. In August 1999, the sellers
entered into an agreement with Metamor whereby all future Earnouts were fixed at
$4.8 million and are payable in March 2000.
F-6
<PAGE> 85
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
On January 7, 1998, Metamor acquired Sage I.T. Partners, Inc., a
California-based eBusiness solutions company. Purchase consideration totaled
$16.6 million in cash, which included Earnouts for 1998. In July 1999, the
sellers entered into an agreement with Metamor whereby all future Earnouts were
fixed at $8.8 million and are payable in March 2000.
On April 16, 1998, Metamor acquired NDC Group, Inc., a Virginia-based
eBusiness solutions company, for $18.3 million in cash and 0.4 million shares of
Metamor's common stock valued at $15.5 million, 0.3 million shares which are
subject to a price guarantee (the "Issued Stock"). The guarantee on the Issued
Stock provides that the fair market value, as defined, will not be less than
$14.0 million as of April 16, 2000. In the event that the fair market value of
the Issued Stock is less than $14.0 million, the Company will pay the sellers in
cash for the difference. The guarantee will be adjusted for any Issued Stock
sold prior to the measurement date. The purchase consideration included Earnouts
for 1998. The sellers are entitled to future Earnouts of up to $15.0 million in
cash based on the increase in EBIT as defined.
On June 17, 1998, Metamor acquired Virtual Solutions, Inc., a Texas-based
eBusiness solutions company. Purchase consideration totaled $15.0 million in
cash, which included Earnouts for 1998. In August 1999, the sellers entered into
an agreement with Metamor whereby all future Earnouts were fixed at $6.3 million
and are payable in April 2000.
On July 15, 1998, Metamor acquired Advanced Information Solutions, Inc., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $7.5
million in cash.
On November 12, 1998, Metamor acquired New Technology Partners Consulting,
a Massachusetts-based eBusiness solutions company. Purchase consideration
totaled $7.8 million in cash and the sellers are entitled to Earnouts of up to
$1.3 million.
On September 24, 1999, the Company acquired Kinderhook Systems, Inc.
("Kinderhook"), a New York-based eBusiness services company, for $14.9 million
in cash, and subordinated convertible notes (the "notes") of the Company valued
at $9.1 million. The notes bear interest at 7.0 percent and are convertible into
common stock of the Company at the initial public offering price. The note is
guaranteed by Metamor until the completion of the initial public offering.
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated balance sheet of Xpedior to give effect to the
acquisition of Kinderhook described in Note 3 as if it had occurred as of July
31, 1999 and to the historical condensed consolidated statements of operations
as if the acquisitions described in Note 3 were consummated as of the beginning
of the periods presented:
(a) To reflect the (i) payment of $14.9 million in cash and issuance
of $9.1 million in subordinated convertible notes to the Kinderhook
stockholders, (ii) capital contribution made by Metamor related to its
funding of the cash portion of the purchase price and (iii) purchase price
allocated to goodwill.
F-7
<PAGE> 86
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(b) To reduce expenses for the difference between compensation of
certain sellers prior to consummation of the acquisitions and their
compensation following the acquisitions as stipulated in the respective
employment agreements with Xpedior.
(c) To reflect amortization (on a straight-line basis over 40 years)
of goodwill related to the purchase of the Acquired Companies.
(d) To reflect interest expense on amounts due to Parent related to
its funding of the cash portion of the purchase price of the Acquired
Companies.
(e) To reflect (i) the change in income taxes related to pro forma
adjustments, and (ii) income taxes on the Acquired Companies that were S
corporations as if they were C corporations for federal income tax
purposes.
F-8
<PAGE> 87
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Xpedior Incorporated
We have audited the accompanying consolidated balance sheets of Xpedior
Incorporated and subsidiaries (the "Company") as of December 31, 1997 and 1998
and July 31, 1999, and the related consolidated statements of operations,
stockholder's equity and cash flows for the period from inception (March 27,
1997) to December 31, 1997, the year ended December 31, 1998 and the seven
months ended July 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Xpedior
Incorporated and subsidiaries at December 31, 1997 and 1998 and July 31, 1999
and the consolidated results of their operations and their cash flows for the
period from inception (March 27, 1997) to December 31, 1997, the year ended
December 31, 1998, and the seven months ended July 31, 1999, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
September 15, 1999
except for Notes 2 and 11
as to which the date is October 18, 1999
F-9
<PAGE> 88
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Current Assets:
Cash $ 2 $ 191 $ --
Accounts receivable, net of allowance of $47, $560 and
$437................................................... 5,529 23,570 33,186
Prepaid expenses and other................................ 576 921 1,563
------- -------- --------
Total current assets.............................. 6,107 24,682 34,749
Net Assets of Discontinued Operations....................... 1,568 731 1,604
Fixed Assets, net........................................... 1,997 7,747 9,657
Intangible Assets, net of accumulated amortization of $247,
$1,793 and $3,274......................................... 24,705 106,204 118,300
Other....................................................... 31 512 390
------- -------- --------
Total Assets...................................... $34,408 $139,876 $164,700
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Amounts due to Parent..................................... $16,253 $ 77,929 $100,000
Accounts payable.......................................... 599 1,447 1,334
Payroll and related taxes................................. 772 6,915 6,323
Amounts due sellers of acquired companies................. 12,086 29,651 8,788
Deferred revenues......................................... 1,729 3,698 1,298
Other..................................................... -- 271 56
------- -------- --------
Total current liabilities......................... 31,439 119,911 117,799
Deferred Income Taxes and Other............................. -- 937 1,890
Commitments and Contingencies
Stockholder's Equity:
Common stock, par value $.01; 100,000,000 shares
authorized, 41,285,298 shares issued and outstanding... 413 413 413
Additional paid-in capital................................ 2,254 15,253 39,240
Retained earnings......................................... 302 3,362 5,358
------- -------- --------
Total stockholder's equity........................ 2,969 19,028 45,011
------- -------- --------
Total Liabilities and Stockholder's Equity........ $34,408 $139,876 $164,700
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 89
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27, SEVEN MONTHS
1997) TO YEAR ENDED ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ----------------------
1997 1998 1998
(UNAUDITED) 1999
<S> <C> <C> <C> <C>
Revenues.................................... $12,588 $72,267 $32,411 $69,915
Cost of Services............................ 8,174 41,930 18,708 40,389
------- ------- ------- -------
Gross Profit................................ 4,414 30,337 13,703 29,526
Operating Costs and Expenses:
Selling, general and administrative....... 4,904 20,558 9,219 18,542
Depreciation and amortization............. 510 2,823 1,297 3,008
------- ------- ------- -------
5,414 23,381 10,516 21,550
------- ------- ------- -------
Operating Income (Loss)..................... (1,000) 6,956 3,187 7,976
Other Income (Expense):
Interest expense.......................... (1,231) (5,562) (2,594) (6,008)
Other, net................................ 3 25 9 (74)
------- ------- ------- -------
(1,228) (5,537) (2,585) (6,082)
------- ------- ------- -------
Income (Loss) from Continuing Operations
before Income Taxes....................... (2,228) 1,419 602 1,894
Provision (Benefit) for Income Taxes........ (871) 889 377 1,084
------- ------- ------- -------
Income (Loss) from Continuing Operations.... (1,357) 530 225 810
Income from Discontinued Operations, net of
income taxes of $1,095, $1,669, $918
(unaudited), and $783, respectively....... 1,659 2,530 1,389 1,186
------- ------- ------- -------
Net Income.................................. $ 302 $ 3,060 $ 1,614 $ 1,996
======= ======= ======= =======
Earnings (Loss) per Share:
Income (Loss) from continuing
operations............................. $ (0.03) $ 0.01 $ 0.01 $ 0.02
Income from discontinued operations....... 0.04 0.06 0.03 0.03
------- ------- ------- -------
Net income................................ $ 0.01 $ 0.07 $ 0.04 $ 0.05
======= ======= ======= =======
Number of Shares used to Calculate Earnings
(Loss) per Share.......................... 41,285 41,285 41,285 41,285
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 90
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C>
INITIAL CAPITALIZATION OF XPEDIOR --
Issuance of 41.3 million shares of common stock to
Parent and contribution from Parent............ $413 $ 2,254 $ -- $ 2,667
Net income.......................................... -- -- 302 302
---- ------- ------ -------
BALANCE AT DECEMBER 31, 1997........................ 413 2,254 302 2,969
Contribution from Parent............................ -- 12,999 -- 12,999
Net income.......................................... -- -- 3,060 3,060
---- ------- ------ -------
BALANCE AT DECEMBER 31, 1998........................ 413 15,253 3,362 19,028
Contribution from Parent............................ -- 23,987 -- 23,987
Net income.......................................... -- -- 1,996 1,996
---- ------- ------ -------
BALANCE AT JULY 31, 1999............................ $413 $39,240 $5,358 $45,011
==== ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 91
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SEVEN MONTHS
(MARCH 27, ENDED
1997) TO YEAR ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ----------------------
1997 1998 1998
(UNAUDITED) 1999
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 302 $ 3,060 $ 1,614 $ 1,996
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 779 3,224 1,568 3,157
Deferred income tax provision
(benefit).............................. (106) 829 1,074 824
Provision for doubtful accounts.......... 27 513 334 (123)
Changes in assets and liabilities net of
effects of acquisitions:
Accounts receivable.................... (2,680) (9,095) (8,574) (10,185)
Prepaid expenses and other............. (164) 1,392 89 (594)
Accounts payable....................... (951) (843) (45) (260)
Accrued liabilities.................... 2,482 7,813 4,595 (3,170)
------- -------- ------- --------
Net cash provided by (used in)
operating activities.............. (311) 6,893 655 (8,355)
------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (1,774) (5,261) (2,252) (3,526)
Other....................................... 7 (358) 36 122
------- -------- ------- --------
Net cash used in investing
activities........................ (1,767) (5,619) (2,216) (3,404)
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Working capital advances from (payments to)
Parent, net.............................. 2,080 (1,085) 3,921 11,568
------- -------- ------- --------
Net cash provided by (used in)
financing activities.............. 2,080 (1,085) 3,921 11,568
------- -------- ------- --------
Net increase (decrease) in cash............... 2 189 2,360 (191)
Cash, beginning of period..................... -- 2 2 191
------- -------- ------- --------
Cash, end of period........................... $ 2 $ 191 $ 2,362 $ --
======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 92
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND OPERATIONS
Xpedior Incorporated ("Xpedior" or the "Company") was formed by Metamor
Worldwide, Inc. ("Metamor" or the "Parent") to be the holding company for its
eBusiness solutions unit. Metamor commenced operations of this unit with the
acquisition of Metamor Technologies, Ltd. on March 27, 1997 and acquired six
additional companies in 1998 (see note 3). Effective April 30, 1999, Metamor
contributed to Xpedior all the outstanding capital stock of the seven companies
comprising its eBusiness solutions unit (the "Acquired Companies"), all of which
were wholly owned subsidiaries of Metamor. As the entities were under common
control, the contribution has been accounted for at historical cost in a manner
similar to a pooling of interest.
Xpedior provides eBusiness solutions to clients in the following service
areas: (i) digital business strategy; (ii) electronic commerce; (iii) digital
branding and user experience design; (iv) eBusiness systems and integration; (v)
eBusiness technology management; (vi) network design and security; (vii)
eBusiness intelligence; and (viii) enterprise portals, collaboration and
knowledge management.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present on a consolidated basis the
accounts of Xpedior and the Acquired Companies. All significant intercompany
transactions have been eliminated.
The Acquired Companies were all acquired by Metamor in transactions that
were accounted for using the purchase method. The accompanying financial
statements reflect the "push down" of Metamor's purchase accounting adjustments
to the Acquired Companies and include the results of operations of the Acquired
Companies from the date of acquisition.
Effective October 1, 1999, the Company distributed to Metamor a segment
that provided non-eBusiness outsourcing services. This segment was a services
unit of Metamor Technologies, Ltd., which was acquired in March 1997. This
segment is reflected as discontinued operations in the accompanying financial
statements. Revenues from discontinued operations were $13.2 million for the
period from inception (March 27, 1997) to December 31, 1997, $22.7 million for
the year ended December 31, 1998 and $13.3 million and $12.4 million for the
seven months ended July 31, 1998 and 1999, respectively. Net assets from
discontinued operations consist primarily of accounts receivables, fixed assets,
intangibles and liabilities to be distributed to Metamor.
The consolidated financial statements for the seven months ended July 31,
1998 included herein have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted.
The Company believes that the presentations and disclosures herein are adequate
to make the information not misleading. The consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of that interim period.
F-14
<PAGE> 93
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fixed Assets
Fixed assets, which consist primarily of computer equipment and furniture
and fixtures, are recorded at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets, which range from 3 to 7
years. Amortization of leasehold improvements is computed on a straight-line
basis over the useful life of the asset or lease term, whichever is shorter.
Accumulated depreciation and amortization was $0.5 million and $2.2 million at
December 31, 1997 and 1998 respectively, and $2.4 million at July 31, 1999. The
Company believes all fixed assets are fully realizable.
Intangible Assets
Intangible assets primarily consist of goodwill associated with the
acquired businesses. Goodwill is amortized on a straight-line basis over 40
years. In the event that facts and circumstances indicate intangible or other
long-lived assets may be impaired, the Company evaluates the recoverability of
such assets. The estimated future undiscounted cash flows associated with the
asset are compared to the asset's carrying amount to determine if a write-down
to fair value or discounted cash flow value is necessary. The Company believes
all intangible assets are fully realizable.
Revenue Recognition
Revenues are recorded at the time services are performed, except for
fixed-price contracts, which are accounted for using the
percentage-of-completion method. Estimated losses on fixed-price contracts are
recorded in the period the losses are determinable.
Income Taxes
The Company and its subsidiaries are included in the consolidated federal
income tax return of Metamor. Income taxes for Xpedior have been calculated as
if it had filed a separate consolidated return with its subsidiaries.
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Benefits from operating losses have
been utilized by the Parent in its consolidated return and have been recorded as
a reduction in the amounts due to Parent. The Company's interim provisions for
income taxes were computed using its estimated effective tax rate for the year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-15
<PAGE> 94
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Split
Effective August 26, 1999, the Company's common stock was split
41,285.298-for-1. The Company's common share amounts have been restated to give
effect to the split.
Earnings Per Common Share
Earnings per common share were computed using the weighted-average number
of common shares outstanding during the periods. During the periods, the Company
had no outstanding common stock equivalents, convertible securities or nominal
issuances.
New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). The Company is required to adopt
FAS 133 effective January 1, 2000. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. The Company does
not anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.
3. ACQUISITIONS
Xpedior is comprised of seven eBusiness solutions companies that were
acquired by Metamor in transactions that were accounted for using the purchase
method. The effects of these acquisitions by Metamor have been pushed down to
the Acquired Companies. The results of operations of the Acquired Companies are
included in the Company's consolidated results of operations from the date of
acquisition. Summary information of the Acquired Companies follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27,
1997) TO YEAR ENDED SEVEN MONTHS
DECEMBER 31, DECEMBER 31, ENDED JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Acquisitions completed:........................ 1 6 --
===== ===== =====
Purchase consideration (in millions):
Cash paid by Metamor, net of amounts
previously accrued........................ $16.1 $50.9 $ 3.5
Fair value of Metamor common stock issued.... -- 13.9 1.6
Amounts due sellers of Acquired Companies.... 12.1 29.7 8.8
Liabilities assumed.......................... 3.9 5.4 --
----- ----- -----
Fair value of assets acquired (including
intangible assets)........................ $32.1 $99.9 $13.9
===== ===== =====
</TABLE>
On March 27, 1997, Metamor acquired Metamor Technologies, Ltd., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $37.0
million in cash, which included purchase consideration paid after closing based
on the increase in earnings before interest and taxes ("EBIT"), as defined
("Earnouts"). The sellers are not entitled to any additional purchase
consideration.
F-16
<PAGE> 95
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 2, 1998, Metamor acquired Workgroup Productivity Corp., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $10.0
million in cash, which included Earnouts for 1998. In August 1999, the sellers
entered into an agreement with Metamor whereby all future Earnouts were fixed at
$4.8 million and are payable in March 2000.
On January 7, 1998, Metamor acquired Sage I.T. Partners, Inc., a
California-based eBusiness solutions company. Purchase consideration totaled
$16.6 million in cash, which included Earnouts for 1998. In July 1999, the
sellers entered into an agreement with Metamor whereby all future Earnouts were
fixed at $8.8 million and are payable in March 2000.
On April 16, 1998, Metamor acquired NDC Group, Inc. ("NDC"), a
Virginia-based eBusiness solutions company, for $18.3 million in cash and 0.4
million shares of Metamor's common stock valued at $15.5 million, 0.3 million
shares which are subject to a price guarantee (the "Issued Stock"). The purchase
consideration included Earnouts for 1998. The guarantee on the Issued Stock
provides that the fair market value, as defined, will not be less than $14.0
million as of April 16, 2000. In the event that the fair market value of the
Issued Stock is less than $14.0 million, the Company will pay the sellers in
cash for the difference. The guarantee will be adjusted for any Issued Stock
sold prior to the measurement date. The sellers are also entitled to future
Earnouts of up to $15.0 million in cash based on the increase in EBIT as
defined.
On June 17, 1998, Metamor acquired Virtual Solutions, Inc., a Texas-based
eBusiness solutions company. Purchase consideration totaled $15.0 million in
cash, which included Earnouts for 1998. In August 1999, the sellers entered into
an agreement with Metamor whereby all future Earnouts were fixed at $6.3 million
and are payable in April 2000.
On July 15, 1998, Metamor acquired Advanced Information Solutions, Inc., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $7.5
million in cash.
On November 12, 1998, Metamor acquired New Technology Partners Consulting,
a Massachusetts-based eBusiness solutions company. Purchase consideration
totaled $7.8 million in cash and the sellers are entitled to Earnouts of up to
$1.3 million.
Earnouts are accrued in the period they become probable and can be
reasonably estimated. The accrual of Earnouts increases the amount of goodwill
related to an acquisition.
The following unaudited results of operations have been prepared assuming
all acquisitions consummated on or before July 31, 1999 had occurred as of the
beginning of the periods presented. These results are not necessarily indicative
of results of future operations nor of results that would have occurred had the
acquisitions been consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1997 1998
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues................................................. $54,818 $ 90,292
Net loss................................................. $(7,547) $(29,195)
Loss per share (Basic and Diluted)....................... $ (0.18) $ (0.71)
</TABLE>
F-17
<PAGE> 96
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. AMOUNTS DUE TO PARENT AND TRANSACTIONS WITH PARENT
Amounts due to Parent consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Notes payable, interest at bank's base rate plus 3%
(11.00% at July 31, 1999), payable on demand --
Acquisition notes...................................... $13,333 $75,921 $ 86,811
Advances for working capital........................... 2,920 2,008 13,189
------- ------- --------
Total........................................ $16,253 $77,929 $100,000
======= ======= ========
</TABLE>
The acquisition notes were issued to Metamor by Xpedior in connection with
(i) the initial capitalization of each of the Acquired Companies, and (ii) the
subsequent payment of Earnouts by Metamor. Effective July 31, 1999, Metamor
contributed $17.0 million of this indebtedness to the capital of Xpedior.
Advances for working capital relate to net cash transfers between Xpedior and
Metamor, expense allocations from Metamor (including income taxes) and interest
on intercompany indebtedness with Metamor. All the interest expense of Xpedior
was charged by Metamor. Xpedior expects to repay the amounts due to Parent out
of the proceeds of its initial public offering.
Xpedior expects to obtain a separate credit facility prior to completion of
its initial public offering. Until this facility is obtained, Metamor will
continue to fund Xpedior's cash requirements. Following the offering, Metamor
will reduce the interest rate on outstanding intercompany indebtedness with
Xpedior, if any, to its incremental borrowing rate under its senior credit
agreement, which at July 31, 1999 was LIBOR plus 1.5 percent.
The Company participates in the centralized cash management program of
Metamor. Under this program, the Company's cash balances are transferred daily
to Metamor accounts and its daily cash requirements are funded by Metamor. The
advances for working capital are adjusted for the net cash transfers between the
two companies. Metamor allocates to Xpedior a portion of the expenses that are
charged by the commercial banks for operating the program.
Metamor allocates its corporate overhead to its operating units based on
revenues of the units. This allocation includes costs associated with services
Metamor provides to the business units such as mergers and acquisitions, legal,
tax, risk and cash management. The overhead allocation from Metamor is included
in selling, general and administrative expenses of Xpedior and totaled $1.0
million for the period from inception to December 31, 1997, $1.4 million for the
year ended December 31, 1998 and $1.3 million for the seven months ended July
31, 1999. Following completion of Xpedior's initial public offering, Metamor
will cease making a general allocation of its overhead to Xpedior and allocate
only those expenses related to actual services provided.
Xpedior participates in Metamor's long-term incentive plan and its employee
stock purchase plan. Xpedior's share of costs of those programs is included in
the expense allocations from Metamor. Upon a distribution of Xpedior stock to
Metamor Stockholders, employees of Xpedior would cease participation in
Metamor's long-term incentive plan. Stock options in Metamor held
F-18
<PAGE> 97
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by Xpedior employees may be converted into Xpedior stock options. Xpedior's
employees would also cease participation in Metamor's employee stock purchase
plan.
5. INCOME TAXES
The provision (benefit) for income taxes from continuing operations
consisted of the following (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27,
1997) TO YEAR ENDED SEVEN MONTHS
DECEMBER 31, DECEMBER 31, ENDED JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal.................................... $(673) $ 433 $ 200
State...................................... (92) (373) 60
----- ----- ------
(765) 60 260
----- ----- ------
Deferred:
Federal.................................... (94) 332 754
State...................................... (12) 497 70
----- ----- ------
(106) 829 824
----- ----- ------
$(871) $ 889 $1,084
===== ===== ======
</TABLE>
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27,
1997) TO YEAR ENDED SEVEN MONTHS
DECEMBER 31, DECEMBER 31, ENDED JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Income tax expense (benefit) computed at
federal statutory income tax rate............ $(780) $496 $ 662
State income tax expense(benefit), net of
federal benefit.............................. (104) 124 130
Non-deductible portion of business meals,
entertainment and other...................... 13 69 71
Amortization of nondeductible goodwill......... -- 200 221
----- ---- ------
Provision (benefit) for income taxes........... $(871) $889 $1,084
===== ==== ======
</TABLE>
The net current and noncurrent components of deferred income taxes
reflected in the consolidated balance sheets follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Net current asset (liability).............................. $ 82 $ (204) $ (8)
Net noncurrent asset (liability)........................... 24 (903) (1,861)
---- ------- -------
Net asset (liability)...................................... $106 $(1,107) $(1,869)
==== ======= =======
</TABLE>
F-19
<PAGE> 98
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities were comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Deferred tax assets:
Accrued vacation........................................ $143 $ 486 $ 321
Deferred compensation................................... 201 263 --
Bad debt................................................ 18 190 142
Other................................................... 104 394 451
---- ------- -------
Total deferred tax assets....................... 466 1,333 914
---- ------- -------
Deferred tax liabilities:
Goodwill................................................ 273 874 1,323
Excess financial over tax basis of acquisitions......... -- 958 705
Other................................................... 87 608 755
---- ------- -------
Total deferred tax liabilities.................. 360 2,440 2,783
---- ------- -------
Net deferred tax asset (liability).............. $106 $(1,107) $(1,869)
==== ======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases various office space and equipment under noncancelable
operating leases expiring through 2006. Rent expense was $194,991 for the period
from inception (March 27, 1997) through December 31, 1997, $1,370,404 for the
year ended December 31, 1998 and $1,716,607 for the seven months ended July 31,
1999. The related future minimum lease payments as of July 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING:
<S> <C>
1999................................................... $ 2,345,284
2000................................................... 4,193,365
2001................................................... 4,035,827
2002................................................... 4,071,597
2003................................................... 4,048,975
Thereafter............................................. 7,111,378
-----------
$25,806,426
===========
</TABLE>
Certain of the Company's executives are covered by employment agreements
covering, among other things, base compensation, incentive-bonus determinations
and payments in the event of termination or a change in control of the Company.
Under terms of certain acquisitions, the Parent is required to make
additional payments to sellers generally to the extent future earnings, as
defined, exceed certain stipulated levels. The provisions of these contingent
payments (Earnouts) are described in Note 3.
Both Metamor and the Company are defendants in various lawsuits and claims
arising in the normal course of business. Management believes it has valid
defenses in these cases and is defending them vigorously. While the results of
litigation cannot be predicted with certainty, management believes the final
outcome of such litigation will not have a material effect on the financial
position or results of operations of the Company.
F-20
<PAGE> 99
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Metamor's senior credit agreement is secured by a pledge of the common
stock of its material subsidiaries. Shares of Xpedior not held by Metamor,
including those to be sold to the public or issued under Xpedior's incentive
programs, are not subject to the pledge. Metamor's senior credit agreement
contains covenants, which among other things, limit total indebtedness of
Metamor to 4.5 times earnings before interest, taxes, depreciation and
amortization, limit the payment of dividends and require the maintenance of
certain financial ratios. As of July 31, 1999, Metamor was in compliance with
the terms of this agreement.
7. SUPPLEMENTAL CASH FLOW INFORMATION
The Acquired Companies comprising Xpedior were all acquired by Metamor in
all cash transactions, except for NDC in which Metamor issued a combination of
cash and its common stock (see note 3). In pushing down the effects of these
acquisitions to Xpedior, Metamor made a capital contribution to Xpedior for a
portion of the purchase consideration and Xpedior issued notes to Metamor for
the remainder (see note 4). These non-cash transactions of Xpedior are
summarized below (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27,
1997) TO YEAR ENDED SEVEN MONTHS
DECEMBER 31, DECEMBER 31, ENDED JULY 31,
1997 1998 1999
<S> <C> <C> <C>
Consideration (including Earnouts) paid by
Metamor for Acquired Companies --
Cash......................................... $16,000 $61,691 $33,238
Fair value of stock issued................... -- 13,896 1,639
------- ------- -------
Total................................ $16,000 $75,587 $34,877
======= ======= =======
Capitalization of Xpedior with respect to
purchase of
Acquired Companies:
Capital contributions by Metamor............. $ 2,667 $12,999 $ 6,974
Notes issued to Metamor(1)................... 13,333 62,588 27,903
------- ------- -------
Total................................ $16,000 $75,587 $34,877
======= ======= =======
</TABLE>
- ---------------
(1) Effective July 31, 1999, Metamor contributed to the capital of Xpedior $17.0
million of the amounts due Metamor by Xpedior. This contribution is not
reflected in these amounts.
Xpedior is included in the consolidated income tax return of Metamor and it
participates in Metamor's cash management program (see notes 2 and 4). Metamor
allocates to Xpedior its share of consolidated income taxes and adjusts
intercompany indebtedness for the current portion. All of Xpedior's interest
expense relates to indebtedness with Metamor. Accrued interest on this
indebtedness is included in advances for working capital from Metamor.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying value of accounts
receivable and accounts payable approximate fair value due to the short-term
maturity of the instruments. The carrying value of the amounts due to Parent
F-21
<PAGE> 100
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximates fair value because the interest rates under the agreement are
variable, based on current market.
9. SEGMENT REPORTING
The Company operates in one reportable segment and its foreign-based
revenues and assets represented less than 10 percent of the Company's
consolidated revenues and assets.
10. CREDIT RISK
The Company believes its portfolio of accounts receivable is well
diversified and, as a result, its credit risks are minimal. The Company
continually evaluates the creditworthiness of its customers and monitors
accounts on a periodic basis, but typically does not require collateral.
11. SUBSEQUENT EVENTS
On September 24, 1999, the Company acquired Kinderhook Systems, Inc., a New
York-based eBusiness solutions business for $14.9 million in cash and $9.1
million of 7% subordinated convertible notes of the Company. These notes are
convertible at the option of the holders into common stock of the Company at the
initial public offering price during a 30-day period after the earlier of the
distribution of Xpedior stock by Metamor or the second anniversary of an initial
public offering. The notes are guaranteed by Metamor until the completion of the
initial public offering.
On October 18, 1999, the Company filed a registration statement with the
Securities and Exchange Commission on Form S-1 covering the sale of up to 8.5
million shares to the public (9.8 million shares assuming the underwriters'
over-allotment option is exercised). Proceeds from the sale will be used to
repay amounts due to Parent and for general working capital needs of the
Company.
In August 1999, the Company's Board of Directors approved the Xpedior Stock
Incentive Plan (the "Plan"), under which 15 million shares of the Company's
common stock were reserved for issuance. The Stock Incentive Plan Committee (the
"Committee") administers the Plan. The terms of the Plan permit the granting of
stock options, stock appreciation rights, restricted stock, performance share
awards, stock value equivalent awards and cash awards to all full time employees
and directors of the Company or its affiliates. Stock options can be either
incentive stock options or nonqualified stock options, as determined by the
Committee.
Through October 15, 1999, the Company granted nonqualified options under
the Plan to purchase 9.2 million shares of common stock at exercise prices
ranging from $6.91 to $10.71 per share. These options vest over a three-year
period.
F-22
<PAGE> 101
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Xpedior Incorporated
We have audited the accompanying balance sheet of Metamor Technologies,
Ltd. (the "Company"), as of March 26, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the period from January 1,
1997 to March 26, 1997. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metamor Technologies, Ltd.,
at March 26, 1997, and the results of its operations and its cash flows for the
period from January 1, 1997 to March 26, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 3, 1999
except for Note 1
as to which the date is August 31, 1999
F-23
<PAGE> 102
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Metamor Technologies, Ltd.
We have audited the accompanying balance sheet of Metamor Technologies,
Ltd. (the "Company"), as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metamor Technologies, Ltd.
as of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
MORRISON & MORRISON, LTD.
Chicago, Illinois
February 4, 1997
except for Notes 1 and 12
as to which the date is September 16, 1999
F-24
<PAGE> 103
METAMOR TECHNOLOGIES, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 244,520 $ 2,660
Accounts receivable, net of allowance of $20,000.......... 2,156,094 3,909,561
Prepaid expenses and other receivables.................... 224,556 283,215
---------- -----------
Total current assets.............................. 2,625,170 4,195,436
Net assets of discontinued operations....................... 401,018 228,337
Equipment and leasehold improvements, net................... 724,596 1,165,004
Deposits and other assets................................... 20,367 13,662
---------- -----------
Total assets...................................... $3,771,151 $ 5,602,439
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable.............................................. $ 500,000 $ 750,000
Accounts payable and accrued expenses..................... 597,912 1,697,912
Deferred revenue.......................................... 189,752 77,342
---------- -----------
Total current liabilities......................... 1,287,664 2,525,254
Deferred compensation and other............................. 84,720 11,696
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized,
2,500,000 shares issued and outstanding................ 1,000 1,000
Additional paid-in capital................................ -- 8,467,913
Retained earnings (accumulated deficit)................... 2,397,767 (5,403,424)
---------- -----------
Total stockholders' equity........................ 2,398,767 3,065,489
---------- -----------
Total liabilities and stockholders' equity........ $3,771,151 $ 5,602,439
========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE> 104
METAMOR TECHNOLOGIES, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
Revenues.................................................... $6,604,648 $ 2,578,176
Cost of services............................................ 4,256,277 1,852,803
---------- -----------
Gross profit................................................ 2,348,371 725,373
Operating expenses:
Selling, general, and administrative...................... 1,825,227 404,150
Depreciation and amortization............................. 132,607 104,695
Stock compensation........................................ -- 4,564,781
---------- -----------
1,957,834 5,073,626
---------- -----------
Income (loss) from operations............................... 390,537 (4,348,253)
Other expense (income):
Deferred compensation..................................... 31,185 --
Other expense............................................. 1,980 1,591
Interest expense.......................................... 3,940 6,179
Interest income........................................... (3,123) (1,003)
---------- -----------
Total other expense............................... 33,982 6,767
---------- -----------
Income (loss) from continuing operations before taxes....... 356,555 (4,355,020)
Provision for state replacement tax......................... 7,900 7,501
---------- -----------
Income (loss) from continuing operations.................... 348,655 (4,362,521)
Income (loss) from discontinued operations.................. 1,782,686 (3,351,170)
---------- -----------
Net income (loss)........................................... $2,131,341 $(7,713,691)
========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 105
METAMOR TECHNOLOGIES, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
<S> <C> <C> <C> <C>
Balance at January 1, 1996.................... $1,000 $ -- $ 1,004,483 $ 1,005,483
Net income.................................. -- -- 2,131,341 2,131,341
Distributions............................... -- -- (738,057) (738,057)
------ ---------- ----------- -----------
Balance at December 31, 1996.................. 1,000 -- 2,397,767 2,398,767
Conversion of phantom stock and buy-out of
stock options............................ -- 8,467,913 -- 8,467,913
Net loss.................................... -- -- (7,713,691) (7,713,691)
Distributions............................... -- -- (87,500) (87,500)
------ ---------- ----------- -----------
Balance at March 26, 1997..................... $1,000 $8,467,913 $(5,403,424) $ 3,065,489
====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-27
<PAGE> 106
METAMOR TECHNOLOGIES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $2,131,341 $(7,713,691)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 404,906 104,695
Stock compensation..................................... 94,736 8,467,913
Changes in assets and liabilities:
Accounts receivable.................................. (1,614,219) (1,897,786)
Unbilled receivables................................. (345,493) (183,668)
Prepaid expenses and other receivables............... (40,831) (58,659)
Other assets......................................... 7,292 6,705
Accounts payable and accrued expenses................ 680,155 1,577,185
Deferred revenue..................................... 51,483 (13,484)
Deferred compensation and other...................... -- (192,169)
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (517,820) --
---------- -----------
Net cash provided by operating activities................... 851,550 97,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment and leasehold additions......................... (592,438) (501,401)
---------- -----------
Net cash used in investing activities....................... (592,438) (501,401)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit.......................... 500,000 250,000
Distributions to shareholder.............................. (738,057) (87,500)
---------- -----------
Net cash (used in) provided by financing activities......... (238,057) 162,500
---------- -----------
Net increase (decrease) in cash and cash equivalents........ 21,055 (241,860)
Cash and cash equivalents at beginning of period............ 223,465 244,520
---------- -----------
Cash and cash equivalents at end of period.................. $ 244,520 $ 2,660
========== ===========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 11,970 $ 6,179
========== ===========
Income taxes paid......................................... $ 17,175 $ --
========== ===========
</TABLE>
See accompanying notes.
F-28
<PAGE> 107
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 26, 1997
1. BASIS OF PRESENTATION
Metamor Technologies, Ltd. (the "Company") is the predecessor company of
Xpedior Incorporated ("Xpedior"). Effective August 31, 1999, the Company
distributed to Metamor Worldwide, Inc. ("Metamor"), the Parent of Xpedior, Inc.,
a non-eBusiness outsourcing services segment. Accordingly, the accompanying
financial statements reflect this segment as discontinued operations. Revenues
from discontinued operations were approximately $13.5 million for the year ended
December 31, 1996 and $3.6 million for the period from January 1, 1997 to March
26, 1997. Net assets of the discontinued operations consist primarily of
accounts receivable, fixed assets and liabilities.
2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Business
The Company, is an Illinois-based provider of eBusiness consulting
services. The Company was acquired by Metamor (the "Acquisition") on March 27,
1997 (see Note 12).
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are predominantly generated from contracts for
consulting services. The Company recognizes revenue on time and materials
contracts as the services are performed for clients. Revenues on major
fixed-price contracts are recognized using the percentage-of-completion method.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Income Taxes
The Company's shareholders have elected to be taxed as a small business
corporation under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, federal income tax is the responsibility of the individual
shareholder, and no provision for federal income tax is shown in the
accompanying financial statements.
State replacement tax is the responsibility of the Company, and provision
for those taxes is shown in the financial statements. The Company has elected to
report its income for tax purposes on a cash basis. As a result, certain income
and expense items are accounted for in different periods for income tax
reporting purposes than for financial reporting purposes.
F-29
<PAGE> 108
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options
The Company follows Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee stock options plan.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment are recorded at cost. Depreciation is provided
utilizing accelerated methods over the estimated useful lives of five and seven
years. Leasehold improvements are amortized on a straight-line basis over the
terms of the lease, and computer software is amortized on a straight-line basis
over a three-year period.
Equipment and leasehold improvements consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
Computer equipment.................................. $ 904,277 $1,077,921
Office and other equipment.......................... 244,973 490,983
Computer software................................... 97,624 221,250
Leasehold improvements.............................. 33,487 69,641
---------- ----------
1,280,361 1,859,795
Less accumulated depreciation and amortization...... 555,765 694,791
---------- ----------
$ 724,596 $1,165,004
========== ==========
</TABLE>
4. OPERATING LEASES
The Company conducts operations in leased office facilities in Chicago,
Illinois. The leases expire at various dates through 2005. Rental expense from
continuing operations, inclusive of real estate taxes and operating expenses
under these leases for the year ended December 31, 1996 and the period from
January 1, 1997 to March 26, 1997, net of reimbursement from subleased space,
was approximately $287,000 and $7,000, respectively. The sublease expired on
March 30, 1997.
The leases for office space in Chicago, Illinois, include rent abatements
and scheduled base rent increases over the term of the leases. The total amount
of the base rent payments is being charged to expense on the straight-line
method over the term of the leases. The Company has recorded as accrued rent the
excess of rent expense over cash payments since inception of the leases. Accrued
rent at December 31, 1996 and March 26, 1997 was $97,944 and $105,987,
respectively.
F-30
<PAGE> 109
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of March 26, 1997, approximate future minimum cash lease payments for
each succeeding fiscal year under the leases are as follows:
<TABLE>
<S> <C>
1997.................................................... $ 311,499
1998.................................................... 415,332
1999.................................................... 415,332
2000.................................................... 415,332
2001.................................................... 415,332
Thereafter.............................................. 1,557,495
----------
Total future minimum lease payments........... $3,530,322
==========
</TABLE>
The Company leases certain property and equipment under agreements which
are classified as operating leases. Rent expense from continuing operations
incurred under these leases was approximately $45,000 and $39,000 for the year
ended December 31, 1996 and the period from January 1, 1997 to March 26, 1997,
respectively. As of March 26, 1997, approximate future minimum lease payments
under operating leases are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 90,226
1998..................................................... 111,410
1999..................................................... 34,296
2000..................................................... 31,362
2001..................................................... 7,596
--------
Total future minimum lease payments............ $274,890
========
</TABLE>
5. NOTES PAYABLE
The Company has a line of credit with a bank, whereby it may borrow up to
$800,000. Borrowings under this agreement bear interest at the bank's prime rate
and expired on April 30, 1997. There were borrowings under this agreement at
December 31, 1996 and March 26, 1997 in the amount of $500,000 and $750,000 with
an interest rate of 8.25% at March 26, 1997.
6. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing plan and trust pursuant to the Internal
Revenue Code of 1986 which covers all eligible employees. The plan includes an
employee savings plan with employer participation in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The plan allows
participants to make pretax contributions with the Company matching a certain
percentage of employee contributions. In addition, the Company, at its
discretion, may make additional contributions. The contribution for the year
ended December 31, 1996 and the period from January 1, 1997 to March 26, 1997,
which included only matching contributions, amounts to approximately $10,300 and
$4,800, respectively.
7. PHANTOM STOCK PURCHASE PLAN
The Company has a Phantom Stock Purchase Plan to provide deferred
compensation for the benefit of certain employees. The plan is designed to
provide the participants the limited right to participate in future capital
appreciation, profits, and dividends. Under this plan, units corresponding to
shares of stock are credited to a participant's account. The value of these
shares
F-31
<PAGE> 110
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
is to be measured by the increase in book value of the shares of the Company's
stock between the respective assignment dates and the date of such retirement,
death, or disability. Plan contributions will only be made if the Plan is
terminated in connection with a merger, consolidation, reorganization of the
Company into or with another company or affiliate, sale of substantially all of
the Company's assets, or a public stock offering of the Company's stock. At
December 31, 1996, the Company has reflected a liability for deferred
compensation of $73,024.
As part of the Acquisition, all of the phantom stock was converted to
common stock. The primary shareholder of the Company provided common shares for
the total 525,000 phantom shares to convert into 525,000 common shares on March
26, 1997 and, therefore, shares outstanding did not change. The Company recorded
a compensation charge of $6,800,663, of which $3,055,798 was included in
discontinued operations due to the conversion based on the Acquisition price per
share.
8. COMMITMENTS AND CONTINGENCIES
At March 26, 1997, the Company had an outstanding standby letter of credit
for $490,000 to guarantee payment of certain leases.
9. MAJOR CUSTOMER INFORMATION
Sales to two major customers for the period from January 1, 1997 to March
26, 1997 accounted for approximately 80% of total sales from continuing
operations. The accounts receivable balance for the above major customers was
approximately $2,350,000 at March 26, 1997.
Sales to two major customers in 1996 accounted for 41% of total sales from
continuing operations in 1996. The accounts receivable balance for the above
major customers was approximately $900,000 at December 31, 1996.
10. COMMON STOCK
On July 1, 1996, the Board of Directors authorized a 247.5-to-1 stock
split, thereby increasing the number of issued and outstanding shares to
2,500,000. In conjunction with the split, the Company issued 2,489,899 shares
and increased the number of authorized shares from 15,000 to 10,000,000.
Additionally, 51 shares were issued by the Company.
11. COMMON STOCK OPTIONS
The Company adopted incentive and non-qualified stock option plans for
employees effective as of July 1, 1996. The incentive stock option plan is
intended to qualify under Section 422 of the Internal Revenue Code. Under the
terms of the plan, options to purchase common stock are granted at not less than
the estimated fair value at the date of the grant and are exercisable during
specific future periods. These options may not be exercised in whole or in part
until the Company has registered its common stock for sale to the public,
therefore, the incentive stock plan is a variable plan.
As part of the Acquisition the Company bought out the stock options for
$14.08 per stock option which represented a substantial change to the plan and
triggered a compensation charge.
F-32
<PAGE> 111
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded a one-time compensation charge of $1,667,250, of which
$847,334 was included in discontinued operations as a result of this
transaction.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER OPTION PRICE
OPTION PER SHARE
<S> <C> <C>
Outstanding at January 1, 1996......................... -- $ --
Options granted...................................... 88,000 10.80
------- ------------
Outstanding at December 31, 1996....................... 88,000 10.80
Options granted...................................... 23,489 12.00
Options canceled..................................... 6,115 10.80
Options bought out by the Company as part of
Acquisition....................................... 105,374 10.86
------- ------------
Outstanding at March 26, 1997.......................... -- $ --
======= ============
</TABLE>
At March 26, 1997, no options were outstanding and all stock-based
compensation related to options that were cashed out has been recorded in the
amounts reported. Assuming the Company had used the alternative fair value
method of accounting for stock-based compensation under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, net
income would not have been affected.
12. SUBSEQUENT EVENT
Effective March 27, 1997, the Company was acquired by Metamor in exchange
for approximately $16.0 million in cash. In connection with the merger, all
phantom stock was converted into common shares and the Company bought out and
canceled all stock options. As of June 1999, the previous stockholders of the
Company have received an additional $21.0 million of contingent consideration
based on earnings before interest and taxes, as defined in the merger agreement.
There is no additional contingent consideration due to the sellers.
F-33
<PAGE> 112
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Xpedior Incorporated
We have audited the accompanying balance sheet Workgroup Productivity
Corporation (the "Company") as of January 1, 1998, and the related statements of
operations, changes in stockholders' equity, and cash flows for the period from
January 2, 1997 to January 1, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Workgroup Productivity
Corporation at January 1, 1998, and the results of its operations and its cash
flows for the period from January 2, 1997 to January 1, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
August 19, 1999
F-34
<PAGE> 113
WORKGROUP PRODUCTIVITY CORPORATION
BALANCE SHEET
JANUARY 1, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 256,207
Accounts receivable, net of allowance for doubtful
accounts of $48,759.................................... 925,816
Other current assets...................................... 32,471
----------
Total current assets.............................. 1,214,494
Fixed assets, net of accumulated depreciation and
amortization.............................................. 419,980
----------
Total assets...................................... $1,634,474
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 354,481
Accrued expenses.......................................... 120,299
Accrued payroll........................................... 186,722
Accrued severance......................................... 103,343
Note payable to officer................................... 323,895
Other current liabilities................................. 68,823
----------
Total current liabilities......................... 1,157,563
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 1,500,000 shares authorized;
1,052,631 shares issued and outstanding................ 487,400
Additional paid-in capital................................ 221,853
Accumulated deficit....................................... (232,342)
----------
Total stockholders' equity........................ 476,911
----------
Total liabilities and stockholders' equity........ $1,634,474
==========
</TABLE>
See accompanying notes.
F-35
<PAGE> 114
WORKGROUP PRODUCTIVITY CORPORATION
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 2, 1997 TO JANUARY 1, 1998
<TABLE>
<S> <C>
Revenues.................................................... $4,504,017
Cost of services............................................ 1,740,709
----------
Gross profit................................................ 2,763,308
Operating costs and expenses:
Selling, general, and administrative...................... 2,106,969
Stock compensation charge................................. 509,753
Depreciation and amortization............................. 61,684
----------
Total operating costs and expenses................ 2,678,406
----------
Operating income............................................ 84,902
Other expense, net.......................................... 8,941
----------
Net income.................................................. $ 75,961
==========
</TABLE>
See accompanying notes.
F-36
<PAGE> 115
WORKGROUP PRODUCTIVITY CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
-------------------- PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 2, 1997............ 1,000,000 $199,500 $ -- $ 321,144 $ 520,644
Stock compensation charge for:
Issuance of common stock....... 52,631 287,900 -- -- 287,900
Issuance of stock options...... -- -- 221,853 -- 221,853
Distributions.................. -- -- -- (629,447) (629,447)
Net income..................... -- -- -- 75,961 75,961
--------- -------- -------- --------- ---------
BALANCE, JANUARY 1, 1998............ 1,052,631 $487,400 $221,853 $(232,342) $ 476,911
========= ======== ======== ========= =========
</TABLE>
See accompanying notes.
F-37
<PAGE> 116
WORKGROUP PRODUCTIVITY CORPORATION
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 2, 1997 TO JANUARY 1, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 75,961
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 61,684
Provision for doubtful accounts........................ 24,830
Stock compensation charge.............................. 509,753
Changes in operating assets and liabilities:
Accounts receivable.................................. (689,027)
Other current assets................................. (21,879)
Accounts payable..................................... 243,052
Accrued expenses..................................... 317,226
Other liabilities.................................... 262,550
---------
Net cash provided by operating activities................... 784,150
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (344,274)
---------
Net cash used in investing activities....................... (344,274)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable to officer......... 485,662
Payments on note payable to officer....................... (161,767)
Distributions............................................. (629,447)
---------
Net cash used in financing activities....................... (305,552)
---------
Net increase in cash and cash equivalents................... 134,324
Cash and cash equivalents at beginning of period............ 121,883
---------
Cash and cash equivalents at end of period.................. $ 256,207
=========
Cash paid during the period for interest.................. $ 18,029
=========
</TABLE>
See accompanying notes.
F-38
<PAGE> 117
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Workgroup Productivity Corporation (the "Company") is an Illinois-based
provider of eBusiness consulting services. The Company was acquired by Metamor
Worldwide, Inc. ("Metamor") on January 2, 1998 (see Note 8).
Cash and Cash Equivalents
All short term investments with an original maturity of 90 days or less are
considered to be cash equivalents.
Revenue Recognition
Revenues are recorded at the time services are performed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Company's shareholders have elected to be taxed as a small business
corporation under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, federal income tax is the responsibility of the individual
shareholders and no provision for federal income tax is shown in the
accompanying financial statements.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term maturities of these
instruments. The carrying value of borrowings under the notes payable
approximates fair value because the interest rates under the agreement
approximate current market.
Stock Split
On September 18, 1997, the Company's Board of Directors authorized a
1,000-for-1 split of its common stock. All share amounts in the accompanying
financial statements have been restated to give effect to the stock split. In
conjunction with the stock split, the Company's Board of Directors authorized an
increase in the number of authorized shares of common stock from 1,000 to
1,500,000 in order to give effect to the stock split.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee
F-39
<PAGE> 118
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock options plan. The pro forma disclosures required by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("FAS
123"), which established a fair-value based method of accounting for stock-based
compensation plans, are set forth in Note 7.
2. FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided utilizing the
straight-line method over the estimated useful lives of five and seven years.
Amortization of leasehold improvements is computed on a straight-line basis over
the lease term.
Fixed assets at January 1, 1998 consisted of the following:
<TABLE>
<S> <C>
Furniture and fixtures................................... $ 251,288
Office equipment......................................... 223,045
Leasehold improvements................................... 89,167
---------
563,500
Less accumulated depreciation and amortization........... (143,520)
---------
$ 419,980
=========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities in Chicago, Denver and Los
Angeles, and certain computer equipment under operating leases expiring at
various times during the next five years. Certain lease agreements provide for
periodic increases in lease payments. Rental expense under the leases was
$88,178 for the period ended January 1, 1998. As of January 1, 1998, the related
future minimum lease payments under these operating leases were as follows:
<TABLE>
<S> <C>
1999..................................................... $ 314,936
2000..................................................... 349,712
2001..................................................... 313,366
2002..................................................... 298,682
2003..................................................... 290,852
Thereafter............................................... 246,114
----------
$1,813,662
==========
</TABLE>
Certain of the Company's executives are covered by employment agreements
covering, among other things, base compensation, incentive-bonus determinations
and payments in the event of termination or change in control of the Company.
4. EMPLOYEE BENEFIT PLAN
The Company sponsors a profit sharing plan with a tax deferred savings
401(k) feature. Under provisions of the Plan, employees are permitted to make
tax-deferred contributions to the plan up to the limits established by the
Internal Revenue Service. The Company may also make deductible contributions to
the plan at management's discretion. The Company made no contributions to the
plan during the period ended January 1, 1998.
F-40
<PAGE> 119
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
At January 1, 1998, the Company had a note payable to the majority
stockholder in the amount of $323,895, bearing interest at 5.6%. The Company
paid interest of approximately $18,029 related to this note during 1997.
Payments are equal to or greater than $1,000 over the course of five years at
the discretion of the majority stockholder.
6. CREDIT RISK
A majority of the Company's revenues are from a few customers. There are no
geographic or industry concentrations in the Company's customers. Sales to two
major customers for the period ended January 1, 1998 each accounted for 19% of
the Company's revenues. Accounts receivable balance from these customers totaled
$248,864 at January 1, 1998.
7. STOCK PLANS
During the year ended January 1, 1998, the Company adopted the Workgroup
Productivity Corporation 1997 Stock Option Plan (the "Plan") under which
incentive or nonqualified stock options may be granted to key employees for the
purchase of an aggregate of 100,000 shares of common stock of the Company (the
"Common Stock"). The Plan is administered by the Board of Directors. Under terms
of the Plan, stock options vest over a four-year period from the date of grant
and expire after ten years.
In September 1997, the Company granted 76,884 nonqualified stock options to
purchase Common Stock with an exercise price of $1.95 per common share. In
December 1997, the Company also granted 9,569 nonqualified stock options to
purchase Common Stock with an exercise price of $4.95 per common share. The
grant of options resulted in compensation expense of $221,853 for the excess of
the fair value of the Common Stock over the exercise price at the date of the
grant. Due to the acquisition of the Company as discussed in Note 8, all stock
options were bought out by Metamor and any remaining deferred compensation was
recorded in the current period financial statements.
In September 1997, the Company granted 52,631 shares of Common Stock to a
key employee. The Company recorded a compensation charge of $287,900, based on
the fair value of the Common Stock at the date of grant.
The following is a summary of stock option activity for the period ended
January 1, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR VALUE
OPTIONS PRICE PER SHARE
<S> <C> <C> <C>
Outstanding at January 1, 1997................. -- $ -- $ --
Granted...................................... 86,453 2.28 3.90
Forfeited.................................... (31,884) $1.95 $3.55
------- ----- -----
Outstanding at January 1, 1998................. 54,569 $2.48 $4.10
======= ===== =====
</TABLE>
The Company has elected to follow APB 25 and related interpretations in
accounting for stock-based compensation arrangements.
F-41
<PAGE> 120
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company had accounted
for its employee stock options granted under the fair value method of FAS 123.
The fair value for these options was estimated at the date of grant using the
minimum value option pricing model using the following assumptions: dividend
yield of 0.0%, risk-free interest rate of 6.0%, and a weighted average expected
life of 3 months. The Company's pro forma information for the period ended
January 1, 1998, as if the Company had accounted for its employee stock options
granted under the fair value method prescribed by FAS 123, is the same as
reported in the accompanying financial statements.
8. SUBSEQUENT EVENT
Effective January 2, 1998, all of the outstanding common stock of the
Company was acquired by Metamor for approximately $5.8 million in cash. Under
terms of the merger agreement, the previous stockholders of the Company are
entitled to contingent consideration of up to $16.0 million based on the
increase in earnings before interest and taxes, as defined.
F-42
<PAGE> 121
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Xpedior Incorporated
We have audited the accompanying balance sheet of Sage I.T. Partners, Inc.
(the "Company"), as of January 6, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the period from January 7,
1997 to January 6, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sage I.T. Partners, Inc., at
January 6, 1998, and the results of its operations and its cash flows for the
period from January 7, 1997 to January 6, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 6, 1999
F-43
<PAGE> 122
SAGE I.T. PARTNERS, INC.
BALANCE SHEET
JANUARY 6, 1998
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents................................. $ 76,987
Accounts receivable, net of allowance of $15,000.......... 1,646,384
Deferred tax assets....................................... 576,231
Other current assets...................................... 19,476
-----------
Total current assets.............................. 2,319,078
Fixed assets:
Furniture and fixtures.................................... 174,156
Computer equipment........................................ 239,936
Leasehold improvements.................................... 22,612
Assets under capital lease................................ 163,434
-----------
600,138
Less accumulated depreciation and amortization............ (267,927)
-----------
332,211
Other assets................................................ 51,307
-----------
Total assets...................................... $ 2,702,596
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 274,433
Line of credit............................................ 500,000
Current portion of capital lease obligation............... 54,070
Accrued liabilities....................................... 149,903
Deferred revenues......................................... 26,909
Accrued bonuses........................................... 130,398
-----------
Total current liabilities......................... 1,135,713
Equipment line of credit.................................... 121,377
Capital lease obligation, net of current portion............ 30,978
Commitments and contingencies
Stockholders' equity:
Common stock -- no par value, 10,000,000 shares
authorized, 2,000,000 shares issued and outstanding.... 20,000
Additional paid-in capital................................ 2,418,371
Accumulated deficit....................................... (1,023,843)
-----------
Total stockholders' equity........................ 1,414,528
-----------
Total liabilities and stockholders' equity........ $ 2,702,596
===========
</TABLE>
See accompanying notes.
F-44
<PAGE> 123
SAGE I.T. PARTNERS, INC.
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 7, 1997 TO JANUARY 6, 1998
<TABLE>
<S> <C>
Revenues.................................................... $ 7,470,957
Cost of services............................................ 5,117,868
-----------
Gross profit................................................ 2,353,089
Operating costs and expenses:
Selling, general, and administrative...................... 1,900,804
Stock compensation charge................................. 2,418,371
Depreciation and amortization............................. 139,632
-----------
4,458,807
-----------
Operating loss.............................................. (2,105,718)
Interest expense............................................ 63,218
-----------
Loss before income taxes.................................... (2,168,936)
Benefit for income taxes.................................... 820,192
-----------
Net loss.................................................... $(1,348,744)
===========
</TABLE>
See accompanying notes.
F-45
<PAGE> 124
SAGE I.T. PARTNERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 7, 1997.......... 2,000,000 $20,000 $ -- $ 324,901 $ 344,901
Stock compensation charge
related to issuance of stock
options...................... -- -- 2,418,371 -- 2,418,371
Net loss........................ -- -- -- (1,348,744) (1,348,744)
--------- ------- ---------- ----------- -----------
BALANCE, JANUARY 6, 1998.......... 2,000,000 $20,000 $2,418,371 $(1,023,843) $ 1,414,528
========= ======= ========== =========== ===========
</TABLE>
See accompanying notes.
F-46
<PAGE> 125
SAGE I.T. PARTNERS, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 7, 1997 TO JANUARY 6, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(1,348,744)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 139,632
Deferred income tax benefit............................... (825,249)
Stock compensation charge................................. 2,418,371
Changes in operating assets and liabilities:
Accounts receivable.................................... (711,250)
Accounts payable....................................... 151,257
Accrued liabilities.................................... 262,372
Deferred revenue....................................... (48,514)
Other assets........................................... (53,838)
-----------
Net cash used in operating activities....................... (15,963)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (312,472)
-----------
Net cash used in investing activities....................... (312,472)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit............................ 421,377
Payments on capital lease obligations....................... (43,956)
-----------
Net cash provided by financing activities................... 377,421
-----------
Net increase in cash and cash equivalents................... 48,986
Cash and cash equivalents at beginning of period............ 28,001
-----------
Cash and cash equivalents at end of period.................. $ 76,987
===========
Cash paid during the period for:
Interest.................................................. $ 64,466
===========
Income taxes.............................................. $ 11,379
===========
</TABLE>
During the period, the Company financed certain equipment acquisitions, totaling
$12,600, with capital lease obligations. See Note 2.
See accompanying notes.
F-47
<PAGE> 126
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 6, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Sage I.T. Partners, Inc. (the "Company"), is a California-based provider of
eBusiness consulting services. The Company was acquired by Metamor Worldwide,
Inc. ("Metamor") on January 7, 1998 (see Note 9).
Cash and Cash Equivalents
All short-term investments with an original maturity of 90 days or less are
considered cash equivalents.
Revenue Recognition
Revenues are recorded at the time services are performed, except for
fixed-price contracts for which revenues are recognized under the
percentage-of-completion method. Estimated losses on fixed-price contracts are
recorded in the period the losses are determinable.
Fixed Assets
Fixed assets are recorded at cost. Certain equipment was acquired under
capital lease arrangements (see Note 2). Depreciation of property and equipment
and amortization of assets under capital leases are provided using accelerated
methods for financial reporting purposes over estimated useful lives of three to
seven years.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs were
approximately $324,000 during the period.
Income Taxes
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term maturities of these
instruments. The carrying value of
F-48
<PAGE> 127
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
borrowings under the notes payable approximates fair value because the interest
rates under the agreement approximate current market.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee stock options plan. The pro forma disclosures
required by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("FAS 123"), which established a fair-value based
method of accounting for stock-based compensation plans, are set forth in Note
6.
2. CAPITAL LEASES
The Company leases computer equipment under various capital lease
agreements. Interest was imputed at rates ranging from 15% to 25% on the
computer equipment leases. The related future minimum lease payments as of
January 6, 1998 are as follows:
<TABLE>
<S> <C>
1999...................................................... $67,174
2000...................................................... 31,270
2001...................................................... 1,088
-------
Total minimum lease payments.............................. 99,532
Less amount representing interest......................... 14,484
-------
Present value of net minimum lease payments............... 85,048
Less current portion...................................... 54,070
-------
$30,978
=======
</TABLE>
Assets under capital lease shown at January 6, 1998 are net of accumulated
amortization of $120,254.
3. COMMITMENTS AND CONTINGENCIES
The Company leases various office space and equipment under noncancelable
operating leases. Rent expense was $220,705 during the period. The related
future minimum lease payments as of January 6, 1998 follows:
<TABLE>
<S> <C>
1999..................................................... $317,410
2000..................................................... 229,529
2001..................................................... 80,447
2002..................................................... 40,263
--------
$667,649
========
</TABLE>
4. RETIREMENT PLAN
The Company sponsors a 401(k) profit sharing plan for the benefit of its
employees. Employees are permitted to make tax-deferred contributions to the
plan up to limits established by the Internal Revenue Service. The Company may
also make deductible contributions to the
F-49
<PAGE> 128
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Plan at management's discretion. There were no Company contributions to the plan
during the period.
5. CREDIT RISK
A majority of the Company's revenues are from a few customers. There are no
geographic or industry concentrations in the Company's revenues. The Company had
three customers which comprised 15%, 13%, and 11% of revenues for the period
ended January 6, 1998.
6. STOCK PLANS
The Company adopted a stock plan (the "Plan") in 1994 under which
incentive, nonstatutory stock options, or stock purchase rights may be granted
to employees and consultants for the purchase of an aggregate of 900,000 shares
of common stock of the Company (the "Common Stock"). The Plan is administered by
the Board of Directors. Under terms of the Plan, stock options vest over a four
year period from the date of grant and expire after ten years.
During the current year, the Company granted 393,000 stock options to
purchase Common Stock with an exercise price ranging from $0.20 -- 0.35 per
common share. The grant of options resulted in compensation expense of
$2,418,371 for the excess of the fair value of the Common Stock over the
exercise price at the date of the grant. Due to acquisition by Metamor as
discussed in Note 9, all stock options were bought out by Metamor and any
remaining deferred compensation was recorded in the current period financial
statements.
The following is a summary of stock option activity for the period ended
January 6, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE FAIR
EXERCISE VALUE PER
OPTIONS PRICE SHARE
<S> <C> <C> <C>
Outstanding at January 7, 1997........................ 315,000 $.14 $ .02
Granted............................................. 393,000 .35 6.16
Canceled............................................ (14,000) .20 .02
------- ---- -----
Outstanding at January 6, 1998........................ 694,000 $.26 $3.50
======= ==== =====
</TABLE>
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company had accounted
for its employee stock options granted under the fair value method of FAS 123.
The fair value for these options was estimated at the date of grant using the
minimum value option pricing model using the following assumptions: dividend
yield of 0.0%, risk-free interest rate of 6.0%, and a weighted average
contractual expected life of 18 months. The Company's pro forma information for
the period ended January 6, 1998, as if the Company had accounted for its
employee stock options granted under the fair value method prescribed by FAS 123
is the same as reported in the accompanying financial statements.
F-50
<PAGE> 129
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<S> <C>
Federal current.......................................... $ 94
State current............................................ 4,963
Federal and state deferred............................... (825,249)
---------
$(820,192)
=========
</TABLE>
The Company recognizes taxable income on a cash basis. The deferred income
taxes reflect the temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. Deferred tax
assets (liabilities) were comprised of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Bad debts.............................................. $ 5,843
Accounts payable....................................... 106,892
Accrued liabilities.................................... 82,311
Deferred revenue....................................... 10,481
Other.................................................. 2,532
Accrued vacation....................................... 26,866
Net operating loss carryforwards....................... 988,415
----------
Total deferred tax assets...................... 1,223,340
Deferred tax liability:
Accounts receivable.................................... (647,109)
----------
Net deferred tax asset......................... $ 576,231
==========
</TABLE>
There was no valuation reserve against deferred tax assets since all are
expected to be realized in future years.
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes follow:
<TABLE>
<S> <C>
Income tax benefit computed at federal statutory income
tax rate............................................... $(737,438)
State income taxes (net of federal benefit).............. (101,603)
Non-deductible portion of business meals and
entertainment.......................................... 9,412
Other.................................................... 9,437
---------
$(820,192)
=========
</TABLE>
As of January 6, 1998, the Company has net operating loss carryforwards of
approximately $2,540,900 for federal and state income taxes, expiring in 2012.
8. LINES OF CREDIT
The Company maintains a $500,000 revolving line of credit, secured by
certain equipment, accounts receivable, inventory, contract rights, and general
intangibles. Under this arrangement, the Company can borrow up to 70% of the
Company's qualifying receivables. Interest is payable at the bank's prime rate
plus 1.75% (10.25% at January 6, 1998).
F-51
<PAGE> 130
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also had a $150,000 equipment line of credit that provides for
a six-month drawdown period prior to amortization and matures June 30, 2000. The
Company pays interest on borrowings under the equipment line at the bank's prime
rate plus 2.25% (10.75% at January 6, 1998).
The loan and security agreements with the bank require the Company to meet
certain liquidity and profitability covenants.
9. SUBSEQUENT EVENT
Effective January 7, 1998, the Company was acquired by Metamor for
approximately $11.0 million in cash. Under terms of the merger agreement, the
previous stockholders of the Company are entitled to contingent consideration of
up to $35.0 million based on the increase in earnings before interest and taxes,
as defined.
F-52
<PAGE> 131
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Xpedior Incorporated
We have audited the balance sheet of NDC Group, Inc. as of April 15, 1998
and the related statements of operations, stockholders' equity, and cash flows
for the period from July 1, 1997 to April 15, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 Company's financial statements referred to above
present fairly, in all material respects, the financial position of NDC Group,
Inc. at April 15, 1998, and the results of its operations and its cash flows for
the period from July 1, 1997 to April 15, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
September 15, 1999
F-53
<PAGE> 132
NDC GROUP, INC.
BALANCE SHEET
APRIL 15, 1998
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash...................................................... $ 18,450
Accounts receivable, net of allowance of $219,000......... 2,630,510
Notes from stockholders................................... 429,896
Prepaid expenses.......................................... 46,909
------------
Total current assets.............................. 3,125,765
Property and equipment, net of accumulated depreciation and
amortization of $312,880.................................. 742,238
Other assets................................................ 43,116
------------
Total assets...................................... $ 3,911,119
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit............................................ $ 960,000
Accounts payable.......................................... 381,136
Accrued payroll and related taxes......................... 343,636
Other accrued expenses.................................... 233,081
Income taxes payable...................................... 437,205
------------
Total current liabilities......................... 2,355,058
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 4,000,000 shares authorized;
1,775,000 shares issued and outstanding................ 17,221,000
Additional paid-in capital................................ 11,492,000
Accumulated deficit....................................... (27,156,939)
------------
Stockholders' equity........................................ 1,556,061
------------
Total liabilities and stockholders' equity........ $ 3,911,119
============
</TABLE>
See accompanying notes.
F-54
<PAGE> 133
NDC GROUP, INC.
STATEMENT OF OPERATIONS
PERIOD FROM JULY 1, 1997 TO APRIL 15, 1998
<TABLE>
<S> <C>
Revenues.................................................... $ 7,902,384
Cost of services............................................ 4,856,670
------------
Gross profit................................................ 3,045,714
Operating costs and expenses:
Selling, general, and administrative expenses............. 2,459,163
Depreciation and amortization............................. 148,000
Stock compensation charge................................. 28,613,000
------------
31,220,163
------------
Operating loss.............................................. (28,174,449)
Other income (expense):
Interest expense.......................................... (41,977)
Interest income........................................... 32,111
------------
(9,866)
------------
Loss before income taxes.................................... (28,184,315)
Benefit from income taxes................................... 105,308
------------
Net loss.................................................... $(28,079,007)
============
</TABLE>
See accompanying notes.
F-55
<PAGE> 134
NDC GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JULY 1, 1997 TO APRIL 15, 1998
<TABLE>
<CAPTION>
RETAINED
SHARES OF ADDITIONAL EARNINGS
COMMON COMMON PAID-IN (ACCUMULATED
STOCK STOCK CAPITAL DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997............... 520,000 $ 50,000 $ -- $ 922,068 $ 972,068
Exercise of stock options.......... 30,000 50,000 50,000
Stock compensation charge for:
Issuance of common stock......... 1,225,000 17,121,000 -- 17,121,000
Issuance of stock options........ -- -- 11,492,000 -- 11,492,000
Net loss........................... -- -- -- (28,079,007) (28,079,007)
--------- ----------- ----------- ------------ -------------
BALANCE, APRIL 15, 1998.............. 1,775,000 $17,221,000 $11,492,000 $(27,156,939) $ 1,556,061
========= =========== =========== ============ =============
</TABLE>
See accompanying notes.
F-56
<PAGE> 135
NDC GROUP, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JULY 1, 1997 TO APRIL 15, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(28,079,007)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 148,000
Provision for doubtful accounts........................... 128,000
Deferred income tax benefit............................... (543,192)
Stock compensation charge................................. 28,613,000
Changes in operating assets and liabilities:
Accounts receivable.................................... (585,990)
Prepaid expenses and other............................. (77,699)
Accounts payable....................................... 119,153
Income taxes payable................................... 435,337
Accrued liabilities.................................... 25,269
------------
Net cash provided by operating activities................... 182,871
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (442,061)
Advances to stockholder..................................... (376,774)
------------
Net cash used in investing activities....................... (818,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations............. (21,857)
Net proceeds on line of credit.............................. 610,000
Proceeds from sale of common stock.......................... 50,000
------------
Net cash provided by financing activities................... 638,143
Net increase in cash........................................ 2,179
Cash at beginning of period................................. 16,271
------------
Cash at end of period....................................... $ 18,450
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during period for interest........................ $ 41,977
============
Cash paid during period for taxes........................... $ --
============
</TABLE>
See accompanying notes.
F-57
<PAGE> 136
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 15, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
NDC Group, Inc. (the "Company") is a Virginia-based provider of eBusiness
consulting services. The Company was acquired by Metamor Worldwide, Inc.
("Metamor") on April 16, 1998 (see Note 10).
Revenue Recognition
The majority of the Company's revenues are derived from time and material
contracts and revenues are recognized as the services are performed. Revenues
from fixed fee contracts are recognized on a percentage of completion basis and
estimated losses on these contracts are recorded in the period the losses are
determinable.
Property, Equipment, and Depreciation
Property and equipment, which consists primarily of computer equipment and
furniture and fixtures, are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets of three to
five years. Amortization of leasehold improvements is computed on a
straight-line basis over the useful life of the asset or lease term, whichever
is shorter.
Income Taxes
The Company follows the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from these estimates.
Stock-based Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations ("APB 25") in
accounting for its employee stock options and other stock based awards and
transactions. The pro forma disclosures required by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("FAS
123"), which established a fair-value based method of accounting for stock-based
compensation plans, are set for in Note 5.
F-58
<PAGE> 137
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LINE OF CREDIT
The Company has a revolving credit agreement with a financial institution
which provides for borrowings up to $1,000,000 with a variable interest rate
(10% at April 15, 1998). The line of credit is collateralized by substantially
all assets of the Company and is guaranteed by the principal stockholder of the
Company. At April 15, 1998, the Company has total borrowings of $960,000 and
unused available borrowings of $40,000. The line of credit was repaid and
retired upon the consummation of the merger of the Company with Metamor (See
Note 10).
3. RETIREMENT PLAN
The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code. The plan provides retirement benefits for employees who meet
certain age and service eligibility requirements. The Company may make
discretionary contributions. During the period from July 1, 1997 to April 15,
1998 no contributions were made by the Company.
4. LEASE COMMITMENTS
The Company leases its office and certain equipment under noncancelable
operating leases. Rent expense for the period from July 1, 1997 to April 15,
1998 was $150,051. The related future minimum rental payments for the
twelve-month period ending April 15 are as follows:
<TABLE>
<S> <C>
1999.................................................... $ 243,305
2000.................................................... 250,480
2001.................................................... 257,866
2002.................................................... 262,435
2003.................................................... 188,903
----------
Total................................................... $1,202,989
==========
</TABLE>
5. STOCK-BASED COMPENSATION
In fiscal year ended June 30, 1997, the Company adopted three stock option
plans authorizing the granting to employees and others, of options to purchase
common stock at exercise prices no less than 100% of the fair market value of
the common stock on the date of the grant. Options for up to 200,000 shares may
be granted under the Company's "Continuous Service Plan." Options under this
plan become exercisable at dates ranging between three and one-half and five
years after the date of the grant and expire thirty days after the exercisable
date. Under the "Senior Executive and Members of the Board Plan" and the
"Advisory Group Plan," options may be granted for 100,000 and 150,000 shares of
stock, respectively. Under both of these two plans, options are exercisable as
of the effective date of the grant and expire two years after the date of the
grant.
On April 10, 1998, all vested and unvested stock options under the three
plans mentioned above were canceled, and new vested options were granted to
certain executives and employees of the Company in accordance with the "New
Vested Option Exchange Agreement." This agreement allowed the holders of the new
vested options the right to participate in the proceeds of the merger agreement
between the Company and Metamor discussed in Note 10 in exchange for the
cancellation of the new vested options. In connection with these grants, the
Company
F-59
<PAGE> 138
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recognized $11,492,000 of compensation expense for the excess of the fair value
of the options over the exercise price of the options.
The following tables summarize option activities of the four stock option
plans:
<TABLE>
<CAPTION>
CONTINUOUS SERVICE PLAN ADVISORY BOARD PLAN
----------------------------- -----------------------------
NUMBER OF WEIGHTED- NUMBER OF WEIGHTED-
SHARES UNDER AVERAGE SHARES UNDER AVERAGE
OPTION EXERCISE PRICE OPTIONS EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997.............. -- $ -- 142,500 $2.39
Granted................................... 50,000 3.00 -- --
Exercised................................. -- -- -- --
Cancelled................................. 50,000 3.00 142,500 2.39
------ ----- ------- -----
Outstanding at April 15, 1998............. -- $ -- -- $ --
====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
SENIOR EXECUTIVE AND MEMBERS NEW VESTED OPTION EXCHANGE
OF THE BOARD PLAN AGREEMENT
----------------------------- -----------------------------
NUMBER OF WEIGHTED- NUMBER OF WEIGHTED-
SHARES UNDER AVERAGE SHARES UNDER AVERAGE
OPTION EXERCISE PRICE OPTIONS EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997.............. $ -- $ -- $ -- $ --
Granted................................... 225,000 3.00 2,064,050 8.09
Exercised................................. -- -- -- --
Cancelled................................. 225,000 3.00 -- --
-------- ----- ---------- -----
Outstanding at April 15, 1998............. $ -- $ -- $2,064,050 $8.09
======== ===== ========== =====
</TABLE>
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company had accounted
for its employee stock options granted under the fair value method of FAS 123.
The fair value for these options was estimated at the date of grant using the
minimum value option pricing model using the following assumptions: dividend
yield of 0.0%, risk free interest rate of 6.0%, and a weighted average expected
life of 0 months (due to the Metamor acquisition -- see Note 10). The Company's
pro forma information for the period ended April 15, 1998, as if the Company had
accounted for its employee stock options granted under the fair value method
prescribed by FAS 123, is the same as reported in the accompanying financial
statements.
6. INCOME TAXES
The provision for income taxes for the period from July 1, 1997 to April
15, consists of the following:
<TABLE>
<S> <C>
Current:
Federal.............................................. $ 364,727
State................................................ 73,157
Deferred:
Federal.............................................. (543,192)
-----------
Income tax benefit..................................... $ (105,308)
===========
</TABLE>
F-60
<PAGE> 139
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes for the period from July 1,
1997 to April 15, 1998 follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Tax benefit at statutory federal income tax rate............ $(9,582,671)
Valuation allowance......................................... 9,419,548
Nondeductible expenses...................................... 9,531
State income taxes, net of federal income tax benefit....... 48,284
-----------
Income tax benefit.......................................... $ (105,308)
===========
</TABLE>
The deferred tax assets and liabilities as of April 15, 1998 are composed
of the following:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Bad debt expense...................................... $ 98,600
Stock compensation.................................... 9,728,140
----------
Total deferred tax assets..................... $9,826,740
----------
DEFERRED TAX LIABILITIES:
Conversion from cash basis to accrual basis........... $ (371,192)
Property and equipment................................ (36,000)
----------
Total deferred tax liabilities................ (407,192)
----------
Valuation allowance........................... (9,419,548)
----------
Net deferred tax assets....................... $ --
==========
</TABLE>
The Company has recorded a valuation allowance due to the uncertainty of
the ability to utilize the net deferred tax assets in the future.
7. COMMON STOCK
During the period from July 1, 1997 to April 15, 1998 the Company increased
the number of authorized shares from 1,000,000 to 4,000,000. The Company granted
1,225,000 shares of common stock to certain employees. In connection with the
stock issuances, the Company recognized $17,121,000 of compensation expense
based on the fair value of the common stock.
In fiscal year ended June 30, 1997 the Company entered into an agreement
with a consultant in which the consultant was granted an option to purchase
30,000 shares of common stock for a total of $50,000 and the option was
exercised in 1998.
8. RELATED PARTY TRANSACTIONS
At April 15, 1998, the Company had unsecured notes receivable from
stockholders totaling $429,896. These notes bear interest at 7% and are due on
demand. Interest income from these notes for the period from July 1, 1997 to
April 15, 1998 was $32,111.
On October 1, 1997, the Company entered into an employment search and
placement services agreement with an affiliate company owned by two stockholders
of the Company. The term of the agreement was for 39 months, and the
compensation paid to the affiliate company was based on the monthly projected
hiring needs of the Company. For the period from July 1,
F-61
<PAGE> 140
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 to April 15, 1998 total payments made to the affiliate company for
employment search and placement services were $217,607.
9. FINANCIAL CREDIT RISK
All accounts receivable are made on an unsecured basis. The Company
believes it is not exposed to any significant credit risk on accounts
receivable.
A significant amount of the Company's revenues are from three companies.
Revenues from these customers for the period from July 1, 1997 to April 15,
1998, were 24%, 21%, and 11% of revenue.
10. SUBSEQUENT EVENTS
Effective April 16, 1998, all of the outstanding Common Stock of the
Company was acquired by Metamor for approximately $20.5 million. Under terms of
the merger agreement, the previous stockholders and option holders of the
Company are entitled to contingent consideration of up to $26.0 million based on
the increase in earnings before interest and taxes, as defined.
F-62
<PAGE> 141
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Virtual Solutions, Inc.:
We have audited the accompanying balance sheet of Virtual Solutions, Inc.
as of December 28, 1997, and the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Virtual Solutions, Inc. at
December 28, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 2, 1998
F-63
<PAGE> 142
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Virtual Solutions, Inc.
We have audited the accompanying balance sheet of Virtual Solutions, Inc.
as of December 29, 1996, and the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Virtual Solutions, Inc. at
December 29, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Fort Worth, Texas
April 10, 1997
F-64
<PAGE> 143
VIRTUAL SOLUTIONS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, MARCH 29,
1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $1,095,290 $1,224,215 $ 724,621
Accounts receivable:
Billed, net of allowance for doubtful accounts of
$32,157, $29,344 and $33,214..................... 1,338,225 2,078,879 2,308,372
Unbilled........................................... 176,755 180,061 156,074
Other.............................................. 2,139 21,952 129,362
Prepaid expenses and other current assets............. 76,099 194,066 261,139
---------- ---------- ----------
Total current assets.......................... 2,688,508 3,699,173 3,579,568
Property and equipment, at cost:
Computer equipment.................................... 324,288 494,860 578,459
Furniture and fixtures................................ 67,650 110,503 140,799
Office equipment...................................... 2,941 21,347 24,069
Leasehold improvements................................ 5,600 5,600 5,600
---------- ---------- ----------
400,479 632,310 748,927
Less accumulated depreciation......................... 144,368 227,137 259,664
---------- ---------- ----------
256,111 405,173 489,263
Intangible and other assets, net of accumulated
amortization of $5,014, $17,596 and $20,974........... 131,016 88,189 95,871
---------- ---------- ----------
Total assets.................................. $3,075,635 $4,192,535 $4,164,702
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade............................... $ 351,989 $ 487,294 $ 437,340
Accrued expenses...................................... 402,224 675,337 674,372
Unearned revenue...................................... 31,100 -- --
Due to officer........................................ 25,000 -- --
Revolving line of credit.............................. 225,000 -- --
Deferred income taxes................................. 141,382 417,400 495,142
---------- ---------- ----------
Total current liabilities..................... 1,176,695 1,580,031 1,606,854
Deferred income taxes................................... -- 24,403 24,403
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 500,000 shares
authorized, 7,525 shares issued and outstanding.... 75 75 75
Common stock, $.01 par value, 500,000 shares
authorized, 100,000 shares issued and
outstanding........................................ 1,000 1,000 1,000
Additional paid-in capital............................ 1,901,425 1,901,425 1,901,425
Retained earnings..................................... 221,440 898,101 830,945
---------- ---------- ----------
2,123,940 2,800,601 2,733,445
Less:
Note receivable from officer.......................... 187,500 187,500 187,500
Unvested restricted stock............................. 37,500 25,000 12,500
---------- ---------- ----------
Total shareholders' equity.................... 1,898,940 2,588,101 2,533,445
---------- ---------- ----------
Total liabilities and shareholders' equity.... $3,075,635 $4,192,535 $4,164,702
========== ========== ==========
</TABLE>
See accompanying notes.
F-65
<PAGE> 144
VIRTUAL SOLUTIONS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED QUARTER ENDED QUARTER ENDED
DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Service fees.............................. $7,901,288 $12,456,408 $2,557,787 $3,201,104
Cost of services.......................... 5,733,790 7,748,053 1,565,764 2,354,595
---------- ----------- ---------- ----------
Gross Profit.............................. 2,167,498 4,708,355 992,023 846,509
Operating Costs and Expenses:
Selling, general and administrative..... 2,370,617 3,599,156 848,077 933,304
Depreciation and amortization........... 56,085 95,350 21,113 35,906
---------- ----------- ---------- ----------
2,426,702 3,694,506 869,190 969,210
---------- ----------- ---------- ----------
(Loss) income from operations............. (259,204) 1,013,849 122,833 (122,701)
Interest income........................... 15,494 67,169 12,787 15,423
---------- ----------- ---------- ----------
(Loss) income before income taxes......... (243,710) 1,081,018 135,620 (107,278)
Income tax (benefit) provision............ (66,118) 404,357 50,722 (40,122)
---------- ----------- ---------- ----------
Net (loss) income......................... (177,592) 676,661 84,898 (67,156)
Retained earnings at beginning of
period.................................. 399,032 221,440 221,440 898,101
---------- ----------- ---------- ----------
Retained earnings at end of period........ $ 221,440 $ 898,101 $ 306,338 $ 830,945
========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-66
<PAGE> 145
VIRTUAL SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED QUARTER ENDED QUARTER ENDED
DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.......................... $ (177,592) $ 676,661 $ 84,898 $ (67,156)
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization............ 56,085 95,350 21,113 35,906
Vesting of restricted stock for
consulting fees....................... 12,500 12,500 12,500 12,500
Deferred tax (benefit) provision......... (66,118) 300,421 50,722 77,742
Changes in working capital accounts --
Accounts receivable, net.............. (428,501) (763,773) (298,966) (312,916)
Prepaid expenses and other current
assets.............................. (71,185) (117,967) (88,855) (67,074)
Intangibles and other assets.......... (127,093) 30,246 30,740 (11,060)
Accounts payable, trade............... (854) 135,305 (29,460) (49,954)
Accrued expenses and other
liabilities......................... 293,039 273,113 27,753 (965)
Unearned revenue...................... 31,100 (31,100) -- --
---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities............................... (478,619) 610,756 (189,555) (382,977)
INVESTING ACTIVITY
Purchase of property and equipment......... (176,370) (231,831) (4,109) (116,617)
FINANCING ACTIVITIES
Net borrowings (payments) under revolving
line of credit........................... 100,000 (225,000) -- --
Borrowings from officer.................... 25,000 -- -- --
Repayments of note from officer............ -- (25,000) (25,000) --
Payments on notes payable.................. (45,949) -- -- --
Proceeds from issuance of preferred
stock.................................... 1,500,000 -- -- --
Proceeds from issuance of common stock..... 139,000 -- -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities............................... 1,718,051 (250,000) (25,000) --
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents.............................. 1,063,062 128,925 (218,664) (499,594)
Cash and cash equivalents at beginning of
period................................... 32,228 1,095,290 1,095,290 1,224,215
---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period................................... $1,095,290 $1,224,215 $ 876,626 $ 724,621
========== ========== ========== ==========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest... 2$3,740..... $ 5,564
========== ==========
Cash paid during the period for taxes...... -$-......... $ 190,400
========== ==========
</TABLE>
See accompanying notes.
F-67
<PAGE> 146
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Virtual Solutions, Inc. (the "Company") is an integrated technology
consulting and custom software development company serving customers in a
variety of industries throughout the United States. The Company's customized
technology implementation services include, distributed computing,
object-oriented development, N-tier client/server systems, data warehousing,
middle-ware, advanced operating systems, and systems management technologies.
The Company's principal offices are located in Irving, Texas.
The Company uses a 52 or 53 week year ending on the Sunday closest to
December 31.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand, demand deposits, money
market accounts, and short-term investments with original maturities of three
months or less.
Property and Equipment
Property and equipment, which is stated at cost, is depreciated using
accelerated methods over the estimated useful lives of the property and
equipment as follows:
<TABLE>
<S> <C>
Computer equipment...................................... 3 to 5 years
Furniture and fixtures.................................. 7 years
Office equipment........................................ 7 years
</TABLE>
Long-lived assets are reviewed periodically for recoverability in
accordance with Statement of Financial Accounting Standards No. 121 and carrying
values are adjusted as necessary.
Intangible and Other Assets
Intangible and other assets consists of refundable deposits, organization
costs and trademarks. Capitalized amounts for intangibles and other assets are
being amortized on a straight-line basis over periods ranging from 12 to 60
months.
Revenue Recognition
Service fees, based on time and expenses incurred, are recorded as revenue
when the service has been provided. Service fees from fixed price contracts are
recognized in earnings proportionately over the contract periods or as services
are provided. Estimated losses on fixed price contracts are recorded in the
period the losses are determinable.
Income Taxes
Deferred income taxes are recognized using the liability method. Under this
method of accounting, deferred income taxes are recorded for the difference
between the financial reporting and income tax bases of assets and liabilities
using enacted tax rates in effect for the period in which the differences are
expected to reverse. The Company's interim provisions for income taxes were
computed using its estimated effective tax rate for the year.
F-68
<PAGE> 147
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Incentive Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related interpretations in
accounting for its incentive compensation plan.
Interim Financial Information
The financial statements for the quarters ended March 30, 1997 and March
29, 1998 are unaudited. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from the unaudited
interim financial information. In the opinion of management, the unaudited
interim financial statements include all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation.
The results of operations for the interim periods are not necessarily
indicative of the results of operations for the respective full years.
3. MAJOR CUSTOMERS
During 1996, service fees from four customers approximated $6,081,000, or
77% of total service fees (30%, 17%, 17% and 13%, respectively). During 1997,
service fees from three customers approximated $6,942,000, or 55% of total
service fees (25%, 16% and 14%, respectively). These customers' balances
approximated $1,068,000 and $1,315,000 of accounts receivable at December 29,
1996 and December 28, 1997, respectively. The Company routinely assesses the
financial strength of its customers and generally collateral is not required.
Historically, the Company's credit losses have been insignificant and within
management's expectations. One of these customers, representing 30% and 25% in
service fees during 1996 and 1997, respectively, is a preferred shareholder in
the Company (see Note 10).
4. REVOLVING LINE OF CREDIT
The Company has a $500,000 revolving line of credit ("revolver") with a
bank which matures April 30, 1998. At December 29, 1996 and December 28, 1997,
borrowings under the revolver were $225,000 and $0. Interest is payable monthly
at prime plus 1/2% (9.0% at December 28, 1997). The revolver is collateralized
by the Company's accounts receivable and guaranteed by the officers and
shareholders of the Company.
F-69
<PAGE> 148
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. FEDERAL INCOME TAXES
Income tax (benefit) provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 29, DECEMBER 28,
1996 1997
<S> <C> <C>
Current............................................. $ -- $103,936
Deferred............................................ (66,118) 300,421
-------- --------
Total income tax (benefit) provision...... $(66,118) $404,357
======== ========
</TABLE>
The components of the net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
<S> <C> <C>
Deferred tax assets:
Accounts payable and accrued expenses............. $ 257,626 $ 394,687
Net operating loss carryforward................... 149,325 --
--------- ---------
Total deferred tax assets................. 406,951 394,687
Deferred tax liabilities:
Accounts receivable............................... (504,160) (775,503)
Prepaid expense and other assets.................. (36,961) (36,584)
Property and equipment............................ (7,212) (24,403)
--------- ---------
Total deferred tax liabilities............ (548,333) (836,490)
--------- ---------
Net deferred tax liabilities.............. $(141,382) $(441,803)
========= =========
</TABLE>
The net deferred tax liabilities are a result of the Company filing its tax
return on the cash receipts and disbursements basis of accounting and relate
principally to differences in the carrying value of receivables, payables and
other accrued expenses. At December 29, 1997, the Company has a net operating
loss carryforward of approximately $439,000, which will, if unused, expire in
2011. The difference between the federal income tax benefit and income taxes
computed using the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 29, DECEMBER 28,
1996 1997
<S> <C> <C>
Federal income tax (benefit) provision at statutory
rate.............................................. $(82,861) $367,546
Nondeductible expenses.............................. 15,780 16,215
Other............................................... 963 20,596
-------- --------
Federal income tax (benefit) provision.............. $(66,118) $404,357
======== ========
</TABLE>
6. LEASES
The Company leases its office facilities, certain computer and office
equipment, and furniture under operating leases expiring at various times during
the next five years. Certain lease agreements provide for periodic increases in
lease payments. Rental expense under the leases approximated $352,000 and
$559,000 in 1996 and 1997, respectively. During 1996, the Company relocated its
corporate offices and entered into a new noncancelable operating lease
agreement. A portion of the Company's previous office space was sub-leased to a
third party for the remainder of the lease term. Subsequent to December 29,
1996, the Company sub-leased to a third party
F-70
<PAGE> 149
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
under an operating lease expiring in April 1999. Sublease rental income was
approximately $17,000 and $75,000 in 1996 and 1997, respectively. Certain lease
agreements are personally guaranteed by officers and shareholders of the
Company.
Future minimum lease payments and sublease rental income as of December 28,
1997 under operating leases that have initial or remaining noncancelable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
LEASE SUB-LEASE NET
COMMITMENT RENTAL INCOME COMMITMENTS
<S> <C> <C> <C>
1998........................................... $ 617,688 $(62,033) $ 555,655
1999........................................... 432,627 $(11,227) $ 421,400
2000........................................... 356,932 -- $ 356,932
2001........................................... 127,138 -- $ 127,138
2002........................................... -- -- --
---------- -------- ----------
Total................................ $1,534,385 $(73,260) $1,461,125
========== ======== ==========
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) benefit plan (the "Plan") covering
substantially all employees. Employees are eligible to participate after
completing six months of service and can make voluntary contributions of up to
15% of their compensation each year subject to Internal Revenue Code
limitations. The Plan provides for matching contributions by the Company at the
discretion of the Board of Directors. Total plan expense for the years ended
December 29, 1996 and December 28, 1997 was approximately $30,000 and $48,000,
respectively.
8. OFFICERS' LIFE INSURANCE
The Company pays the premium on three officers' life insurance policies for
which the Company is the beneficiary. The proceeds are to be used to purchase
the officers' stock from any holders who may inherit it. Premiums paid during
1996 and 1997 were approximately $39,000 and $39,000.
9. CAPITAL STOCK
In June 1996, the Company amended its Articles of Incorporation to increase
the number of Company common shares authorized to 500,000 and to change the par
value to $.01. The shareholders subsequently entered into a new shareholders'
agreement which provided for an increase in the number of issued and outstanding
shares to 100,000, of which 3,000 are restricted at December 29, 1996.
In August 1996, the Company entered into a Restricted Stock Agreement with
an officer and his wholly-owned S corporation, which provides for the issuance
of 3,000 restricted shares of the Company's common stock in lieu of payment for
consulting services provided by the officer's S corporation in the amount of
$50,000. The restricted shares vest ratably over four years. At December 29,
1996 and December 28, 1997, 750 and 1,500 restricted shares are vested and the
remaining 2,250 and 1,500 are unvested, respectively.
F-71
<PAGE> 150
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In October 1996, the Company issued 7,525 shares of preferred stock to a
significant customer for $1,500,000 in cash. The shares have been designated by
the Company as Series A Preferred Stock (Preferred Stock) and are convertible
into common stock at any time at the holders' option, or automatically upon a
change in control of the Company. Accordingly, 7,525 shares of common stock are
reserved for issuance upon conversion.
The Company can repurchase the Preferred Stock at par no sooner than
September 30, 2001 at a price of $199.34 per share. Holders of the Preferred
Stock are entitled to a Liquidation Preference, as defined, of $199.34 per share
and dividends at a rate of $19.93 per share when dividends are declared on the
common stock.
10. RELATED PARTY TRANSACTIONS
At December 29, 1996 and December 28, 1997, the Company has a note
receivable from an officer in the amount of $187,500, bearing interest at 6.83%.
This note represents partial consideration for the purchase of 15,000 shares of
common stock for $351,500.
The Company has a note payable to an officer in the amount of $25,000 at
December 29, 1996. The note bears interest at 10% and is payable upon demand.
This note including interest was repaid by the Company during 1997.
Fees for services provided to the preferred stockholder were $2.4 million
and $3.1 million in 1996 and 1997, respectively. Included in accounts receivable
at December 29, 1996 and December 28, 1997 are approximately $619,000 and
$600,000, respectively, due from the preferred stockholder for services rendered
in the normal course of business.
11. INCENTIVE COMPENSATION PLAN
During 1995, the Company adopted a Stock Appreciation Rights Plan (the SAR
Plan) whereby individual employees can be granted stock appreciation rights
(Rights). The effects of the SAR Plan were insignificant to the financial
statements.
During April 1997, the Company replaced the SAR Plan with a Performance
Stock Plan (the "PS Plan") under which 6,000 shares of performance stock that
imitate the performance of the Company's common stock can be granted to
individual key employees. Eligibility in the PS Plan is subject to the
discretion of the Board of Directors on an annual basis. The performance stock
vests ratably over a period of three years from the date of issuance but is not
exercisable until the occurrence of a "triggering event" (see below). If
employment of a participant is terminated for any reason other than death or
disability, the rights of that participant lapse without notice 30 days from the
date of termination. In the case of termination of a participant by death or
disability, the rights of that participant lapse without notice 12 months after
the date of termination. The right of a participant to convert shares of
performance stock into cash or other consideration is subject to the occurrence
of a "triggering event" (a change in control of the Company), as specified in
the PS Plan document. The amount of cash or other consideration the participant
is eligible to receive upon the occurrence of a "triggering event" is equal to
(i) the aggregate current market value of the shares converted on the conversion
date less (ii) the aggregate award value of the shares converted. As a result of
the specific provisions of the PS Plan, the liability and related compensation
expense, if any, will be recognized in the
F-72
<PAGE> 151
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial statements when a "triggering event" occurs. All shares of performance
stock will lapse if a "triggering event" does not occur within 10 years of the
date of grant.
12. SUBSEQUENT EVENT (UNAUDITED)
In June 1998, the Company was acquired by Metamor Worldwide, Inc. for
approximately $10.3 million in cash. Under terms of the purchase agreement, the
previous stockholders of the Company are entitled to contingent consideration of
up to $18.0 million based on the increase in earnings before interest and taxes,
as defined.
F-73
<PAGE> 152
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Kinderhook Systems, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, retained earnings, and cash flows present fairly, in all material
respects, the financial position of KINDERHOOK SYSTEMS, INC. (the "Company") at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 5, 1999
F-74
<PAGE> 153
KINDERHOOK SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JULY 31,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 118,906 $ 50,073 $1,436,415
Accounts receivable, net of allowance for doubtful
accounts of $187,806 and $369,474................... 1,729,644 2,900,193 2,071,616
Other receivables...................................... 37,683 32,876 50,402
Prepaid expenses....................................... 50,719 90,262 59,498
---------- ---------- ----------
Total current assets........................... 1,936,952 3,073,404 3,617,931
Furniture and equipment, net............................. 108,352 187,109 170,217
Security deposit......................................... 24,424 55,442 74,071
---------- ---------- ----------
Total assets................................... $2,069,728 $3,315,955 $3,862,219
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses.................. $ 80,885 $ 333,776 $ 196,885
Other payables......................................... 44,873 220,087 314,326
Deferred income tax.................................... 142,483 219,327 145,865
---------- ---------- ----------
Total current liabilities...................... 268,241 773,190 657,076
---------- ---------- ----------
Deferred rent expense.................................... 25,911 24,581 22,716
---------- ---------- ----------
Total liabilities.............................. 294,152 797,771 679,792
---------- ---------- ----------
Commitments
Stockholder's equity
Capital stock -- $.01 per share par value; 20,000,000 and
12,000,000 shares authorized December 31, 1998 and
1997, respectively, 7,200,000 issued and outstanding... 10 72,000 72,000
Additional paid-in capital............................... 225,490 153,500 153,500
Unearned compensation.................................... (115,000) (57,500) (23,956)
Unrealized gain on securities available for sale......... 1,658 -- --
Retained earnings........................................ 1,663,418 2,350,184 2,980,883
---------- ---------- ----------
Total stockholder's equity..................... 1,775,576 2,518,184 3,182,427
---------- ---------- ----------
Total liabilities and stockholder's equity..... $2,069,728 $3,315,955 $3,862,219
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 154
KINDERHOOK SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, JULY 31,
------------------------ -----------------------
1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
Consulting Services Revenue................. $6,270,087 $10,207,913 $5,566,904 $7,353,785
Cost of Services............................ 2,658,882 5,024,209 2,379,289 3,452,583
---------- ----------- ---------- ----------
Gross Profit.............................. 3,611,205 5,183,704 3,187,615 3,901,202
Selling, general and administrative
expenses.................................. 2,783,645 4,212,162 2,171,579 3,179,716
Depreciation and Amortization............... 83,281 62,945 50,500 41,632
---------- ----------- ---------- ----------
Operating Income (Loss)..................... 744,279 908,597 965,536 679,854
Interest Expense............................ (6,124) (9,502) (4,049) (889)
Other Income................................ 53,839 44,206 27,916 16,320
---------- ----------- ---------- ----------
Income before provision for income
taxes.................................. 791,994 943,301 989,403 695,285
Provision for income taxes.................. 48,805 89,555 44,043 58,737
---------- ----------- ---------- ----------
Net income................................ 743,189 853,746 945,360 636,548
Retained earnings, beginning of period...... 1,124,128 1,663,418 1,663,418 2,350,184
Less: Distribution to stockholder........... (203,899) (166,980) (166,977) (5,849)
---------- ----------- ---------- ----------
Retained earnings, end of period............ $1,663,418 $ 2,350,184 $2,441,801 $2,980,883
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 155
KINDERHOOK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, JULY 31,
----------------------- ------------------------
1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 743,189 $ 853,746 $ 945,360 $ 636,548
--------- ----------- ----------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense....................... 83,281 62,945 50,500 41,632
Compensation expense....................... 57,500 57,500 -- 33,542
Changes in assets and liabilities:
Deferred rent........................... 1,100 (1,330) -- (1,865)
Accounts receivable..................... (528,644) (1,170,549) (1,108,093) 828,577
Other receivables....................... (37,683) 4,807 24,671 (17,526)
Prepaid expenses and Other expenses..... (31,357) (39,543) (15,512) 30,764
Accounts payables and accrued
expenses.............................. 23,936 252,891 12,686 (140,345)
Other payables.......................... (3,561) 175,214 255,451 94,240
Deferred taxes.......................... -- 76,844 -- (73,462)
--------- ----------- ----------- ----------
Total adjustments.................. (435,428) (581,221) (780,297) 795,557
--------- ----------- ----------- ----------
Net cash provided by operating
activities....................... 307,761 272,525 165,063 1,432,105
--------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment........ (117,805) (141,702) (63,952) (21,285)
Security deposits.......................... (24,424) (31,018) (10,925) (18,629)
Sale of investments in marketable
securities.............................. 11,658 (1,658) -- --
--------- ----------- ----------- ----------
Net cash used for investing
activities....................... (130,571) (174,378) (74,877) (39,914)
--------- ----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to stockholder.................... (203,899) (166,980) (166,977) (5,849)
--------- ----------- ----------- ----------
Net cash used for financing
activities....................... (203,899) (166,980) (166,977) (5,849)
--------- ----------- ----------- ----------
Net increase (decrease) in cash.............. (26,709) (68,833) (76,791) 1,386,342
Cash and cash equivalents, beginning of
year....................................... 145,615 118,906 118,906 50,073
--------- ----------- ----------- ----------
Cash and cash equivalents, end of
year............................. $ 118,906 $ 50,073 $ 42,115 $1,436,415
========= =========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Taxes.............................. $ 37,189 $ 66,903 $ -- $ --
Interest........................... $ 6,124 $ 9,504 $ 4,049 $ 889
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 156
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
Kinderhook Systems, Inc. (the "Company"), a Delaware Corporation, is a
software consulting and application development company specializing in
eBusiness including internet, extranet, intranet sites and groupware solutions.
The Company has developed a wide range of automated solutions including sales
force automation, project management, budgeting, resource allocation and
scheduling, financial management, purchasing, and publishing. The Company
partners with leading software firms such as IBM, Lotus, Microsoft and Netscape.
By working with the sales forces of these partners, the Company is able to reach
a wide range of large corporate clients in industries which include financial
services, telecommunications, pharmaceuticals, manufacturing, consumer products,
and media and information technology.
Revenue Recognition:
Revenue is billed on a time and materials basis and is recognized as
services are performed.
Cash and Cash Equivalents:
The Company considers all highly liquid instruments purchased with original
maturities of three months or less to be cash equivalents.
Fixed Assets:
Depreciation of computer equipment, office equipment, and furniture and
fixtures is provided for by the straight-line method over their estimated lives
ranging from three to seven years. Depreciation of computer software is
depreciated by the straight-line method over three years. Amortization of
leasehold improvements is provided for over the lesser of the term of the
related lease or estimated useful lives. Accumulated amortization includes the
amortization of assets recorded under capital lease. The cost of additions and
betterments is capitalized, and repairs and maintenance costs are charged to
operations in the periods incurred. When depreciable assets are retired or sold,
the cost and related allowances for depreciation are removed from the accounts
and the gain or loss is recognized.
Income Taxes:
The Company provides for income taxes on the basis of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of differences between the financial
statement and tax basis of assets and liabilities at enacted tax rates
applicable to the years in which the differences are expected to reverse.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported
F-78
<PAGE> 157
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Stock-Based Employee Compensation:
The accompanying financial statements have been prepared in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under
APB 25, generally no compensation expense is recognized in the accompanying
financial statements in connection with the awarding of stock option grants to
employees provided that, as of the grant date, all terms associated with the
award are fixed and the minimum value of the Company's stock, as of the grant
date, is not greater than the amount an employee must pay to acquire the stock
as defined; however, to the extent that stock options are granted to
non-employees for goods or services, the fair value of these options is included
in operating results as an expense.
Disclosures required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation ("SFAS No. 123"), have been
included in Note 7.
Interim Financial Data
The financial data at July 31, 1999 and for the seven months ended July 31,
1999 and 1998 are unaudited. In the opinion of management, they include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the results of operations and cash flows. The results of operations for
the seven months ended July 31, 1999 are not necessarily indicative of the
operating results to be expected for the entire year ending December 31, 1999.
2. COMMITMENTS:
The Company generally leases its office facilities, office equipment and
computer equipment under operating leases that expire between 1999 and 2002. The
future minimum noncancelable lease commitments at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
OFFICE
SPACE EQUIPMENT TOTAL
<S> <C> <C> <C>
1999...................................... $ 640,473 $308,715 $ 949,188
2000...................................... 609,559 170,791 780,350
2001...................................... 581,185 45,860 627,045
2002...................................... 326,667 27,652 354,319
---------- -------- ----------
$2,157,884 $553,018 $2,710,902
========== ======== ==========
</TABLE>
Rent expense amounted to $584,650 and $271,097 for the years ended December
31, 1998 and 1997, respectively.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable. Three
customers accounted for 21%, 11% and 10% of the Company's total revenues for the
fiscal year ended December 31, 1998 and 23%, 19% and
F-79
<PAGE> 158
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6% for the fiscal year ended December 31, 1997. The Company generally requires
no collateral from its customers.
4. FIXED ASSETS:
Fixed assets at December 31, 1997 and 1998, consist of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Computer equipment.................................... $ 210,840 $ 340,256
Office equipment...................................... 22,375 29,249
Leasehold improvements................................ 15,674 21,086
--------- ---------
248,889 390,591
Less, Accumulated depreciation and amortization....... (140,537) (203,482)
--------- ---------
$ 108,352 $ 187,109
========= =========
</TABLE>
Depreciation expense amounted to $62,945, and $83,281, for the years ended
December 31, 1998 and 1997, respectively.
5. DEFINED CONTRIBUTION SAVINGS PLAN:
The Company sponsors a defined contribution employee savings plan (the
"Plan") covering substantially all of its employees. An employee becomes
eligible to participate in the Plan immediately upon employment after reaching
the age of 21. The Plan provides for employee contributions between 1% and 15%
of eligible compensation, as defined. The Company contributed approximately
$71,000 to the savings plan for the year ended December 31, 1998 and no such
contributions were made for the year ended December 31, 1997.
The Company may make discretionary contributions to the Plan which vest
over a period of three years.
6. INCOME TAXES:
The Company is an "S" Corporation for Federal and New York State income tax
purposes. Accordingly, the Company is not subject to Federal income taxes;
however, it is subject to the New York State "S" Corporation Franchise Tax and
New York City General Corporation Tax. As an "S" Corporation, the Company's
profits and losses are passed directly to its shareholder for inclusion in the
shareholder's personal income tax return for Federal and New York State income
tax purposes.
Deferred income taxes are recognized for differences between the financial
statement and tax bases of assets and liabilities ("temporary differences") at
enacted tax rates in effect for the year in which such temporary differences are
expected to reverse. Accordingly, the effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The income tax provision is composed of state and local taxes amounting to
approximately $18,000 and deferred taxes of approximately $72,000 for the year
ended December 31, 1998.
F-80
<PAGE> 159
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to state and local
deferred tax liabilities at December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
TYPES OF DIFFERENCES 1997 1998
<S> <C> <C>
Deferred tax asset:
Unexercised stock options............................. $ 4,688 $ 9,107
Total deferred tax asset...................... 4,688 9,107
-------- --------
Deferred tax liability:
Cash to accrual conversion............................ 147,171 228,434
-------- --------
Total deferred tax liability.................. 147,171 228,434
-------- --------
Net deferred tax liability.................... $142,483 $219,327
======== ========
</TABLE>
7. NON-QUALIFIED STOCK OPTIONS:
In December 1995, the Board of Directors of the Company authorized the
issuance of non-qualified stock options to purchase up to 400,000 shares of the
Company's Common Stock. The stock options generally vest over a period of three
to five years.
In December 1995 and July 1996, 200,000 and 105,200 stock options,
respectively, were issued at an exercise price of $.14. The difference between
the exercise price and the fair value of the options at the measurement date is
amortized over the vesting period. Approximately $57,500 has been recorded as
compensation expense for each of the years ended December 31, 1997 and 1998.
Unamortized compensation expense is included as a component of stockholder's
equity.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock-Issued to Employees" and related interpretations in accounting for its
stock option issuances. The Company has adopted the disclosure-only provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation", whereby compensation
expense is recognized ratably over the vesting period. Had compensation cost for
the Company's stock options issued at the fair value of the Company's stock been
determined based on the fair value of the stock options at the grant date for
awards in 1997 and 1998 consistent with the provisions of SFAS No. 123, the
Company's net income would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
<S> <C> <C>
Net income:
As reported....................................... $743,189 $853,746
Pro forma......................................... $732,035 $830,717
</TABLE>
The fair value of each option grant is estimated using the minimum value
method of the Black-Scholes option pricing model which assumes no volatility.
The weighted average assumptions used for grants made in 1997 and 1998 were as
follows: Risk free interest rates of 4.63%-5.87% in 1998 and 5.81%-6.93% in
1997; Expected option life 7 years; Dividend yield 0.0%.
F-81
<PAGE> 160
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the non-qualified stock options:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
<S> <C> <C>
Options outstanding December 31, 1996............... 1,220,800 $.03
---------
Granted............................................. 78,000 $.21 - $1.23
---------
Options outstanding December 31, 1997............... 1,298,800 $.03 - $1.23
=========
Options exercisable -- December 31, 1997............ 696,320 $.03
---------
Granted............................................. 123,000 $1.25 - $1.90
Cancelled........................................... 16,000 $.86 - $1.23
---------
Options outstanding December 31, 1998............... 1,405,800 $.03 - $1.90
=========
Options exercisable -- December 31, 1998............ 1,067,280 $.03 - $1.23
=========
</TABLE>
The pro-forma operating results, had the Company adopted the provisions of
SFAS 123 and accounted for employee compensation utilizing the minimum value
method of accounting for stock-based compensation, would not be materially
different than the results as reported.
8. STOCKHOLDER'S EQUITY:
On June 5, 1998, the Board of Directors ("BOD") approved a 4 for 1 stock
split which increased the outstanding shares to 7,200,000. The stock split has
been retroactively restated to the inception date. The BOD also approved an
increase to the number of authorized shares to 20,000,000.
9. LINE OF CREDIT:
The Company maintains a revolving line of credit which provides for
borrowing up to $2,000,000, of which $1,742,239 is available for direct debt and
$257,761 is available for a standby letter of credit. The agreement expires on
June 30, 1999. Interest accrued at the prime rate plus .5% and is payable
monthly on outstanding balances. At December 31, 1998 and 1997 no balance was
outstanding on this line of credit.
The agreement is personally guaranteed by the stockholder of the Company.
Advances under the line are limited to 75% of eligible accounts receivable.
10. SUBSEQUENT EVENT (UNAUDITED):
Effective September 24, 1999, the Company was acquired by Xpedior
Incorporated ("Xpedior"). Purchase consideration consisted of $14.9 million in
cash and convertible debt of Xpedior valued at $9.1 million. In connection with
the acquisition by Xpedior, the Company repurchased certain options held by
employees for approximately $190,000 in cash.
F-82
<PAGE> 161
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[XPEDIOR LOGO]
8,535,000 SHARES OF COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
DONALDSON, LUFKIN & JENRETTE
FIRST UNION SECURITIES, INC.
J.P. MORGAN & CO.
THE ROBINSON-HUMPHREY COMPANY
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Xpedior have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 162
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 40,930
NASD fee.................................................... 15,223
Nasdaq National Market initial listing fee.................. 95,000
Printing and engraving...................................... *
Legal fees and expenses of the Company...................... *
Accounting fees and expenses................................ *
Transfer agent fees......................................... *
Miscellaneous expenses...................................... *
Total............................................. *
</TABLE>
- ------------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may 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 he 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 him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he 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 his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity 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 he 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 in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall 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 Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
II-1
<PAGE> 163
Xpedior's certificate of incorporation and bylaws provide that
indemnification shall be to the fullest extent permitted by the DGCL for all
current or former directors or officers of Xpedior.
As permitted by the DGCL, the certificate of incorporation provides that
directors of Xpedior shall have no personal liability to Xpedior or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (1) for any breach of the director's duty of loyalty to Xpedior or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (3) under Section 174 of the
DGCL or (4) for any transaction from which a director derived an improper
personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Xpedior has not sold any securities, registered or otherwise, within the
past three years, except as set forth below.
On September 9, 1999, Xpedior issued 179,702 shares of common stock to
David N. Campbell in an exempt transaction pursuant to Section 4(2) of the
Securities Act.
On September 24, 1999, Xpedior issued $9.1 million in subordinated
convertible notes, convertible into shares of common stock at the initial public
offering price, in reliance on Regulation D.
As of October 15, 1999, Xpedior has granted to employees options to
purchase 9,237,600 shares of common stock under the Xpedior Stock Incentive
Plan. The option and restricted stock grants were exempt from the registration
requirement of the Securities Act by virtue of Rule 701 thereunder and Section
4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1* -- Form of Underwriting Agreement
2.1 -- Merger Agreement dated as of March 26, 1997 by and among
Irvin M. Shapiro, The Irvin M. Shapiro Children's Trust,
Metamor Technologies, Ltd. and CORESTAFF, Inc and
CORESTAFF Acquisition Sub #9, Inc.
2.2 -- Agreement and Plan of Merger dated as of December 23,
1997 by and among CORESTAFF, Inc., CORESTAFF Acquisition
Sub #12, Inc., Sage I.T. Partners, Inc., and the
Shareholders of Sage I.T. Partners, Inc.
2.3 -- Stock Purchase Agreement dated as of December 31, 1997 by
and among CORESTAFF, Inc., Workgroup Productivity
Corporation, and the Shareholders of Workgroup
Productivity Corporation
2.4 -- Agreement and Plan of Merger dated as of April 16, 1998
by and among Metamor Worldwide, Inc., CORESTAFF
Acquisition Sub #13, Inc., NDC Group, Inc., and the
Stockholders of NDC Group, Inc.
2.5 -- Stock Purchase Agreement dated as of June 17, 1998 by and
among Metamor Worldwide, Inc., Informix Corporation and
the Sellers
2.6 -- Stock Purchase Agreement dated as of July 16, 1998 by and
among Metamor Worldwide, Inc., Advanced Information
Solutions, Inc. and the Sellers
2.7 -- Asset Purchase Agreement dated as of November 12, 1998 by
and among Metamor Worldwide, Inc., Metamor Technologies,
Ltd., New Technology Partners, Inc. and the Shareholders
of New Technology Partners, Inc.
</TABLE>
II-2
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
2.8 -- Stock Purchase Agreement dated as of September 17, 1999
by and among Xpedior Incorporated, Kinderhook Systems,
Inc. and the Sellers
3.1* -- Form of Amended and Restated Certificate of Incorporation
3.2* -- Form of Restated Bylaws
4.1* -- Form of Common Stock Certificate
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1* -- Employment Agreement between Xpedior Incorporated and
David N. Campbell
10.2* -- Employment Agreement between Xpedior Incorporated and J.
Brian Farrar
10.3* -- Form of Indemnification Agreement
10.4* -- Form of Registration Rights Agreement
10.5* -- Form of Services Agreement
10.6* -- Assignment and Indemnification Agreement
21.1 -- Subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Morrison & Morrison, Ltd.
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (included in signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULE
No financial statement schedules are required to be included herewith or
they have been omitted because the information required to be set forth therein
is not applicable.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
in Item 14, 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 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 matter has 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 Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 165
(b) To provide to the underwriter(s) at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter(s) to permit prompt delivery
to each purchaser.
(c) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the 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.
(d) For the purpose of determining any liability under the Securities
Act of 1933, 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 the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on this 15th day of October, 1999.
Xpedior Incorporated
By: /s/ J. BRIAN FARRAR
----------------------------------
J. Brian Farrar
Executive Vice President and
Chief Operating Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Brian Farrar, Edward L. Pierce and Margaret G.
Reed or any of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any additional registration statement
pursuant to Rule 462(b), and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and ratifying
and confirming all that said attorney-in-fact and agent or his or her substitute
or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to
the requirements of the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities indicated on the dates
indicated:
<TABLE>
<C> <S> <C>
/s/ DAVID N. CAMPBELL President and Chief Executive October 15, 1999
- ------------------------------------------------ Officer (Principal Executive
David N. Campbell Officer)
/s/ STEVEN M. ISAACSON Chief Financial Officer October 15, 1999
- ------------------------------------------------ (Principal Financial and
Steven M. Isaacson Accounting Officer)
/s/ JAMES W. CROWNOVER Chairman of the Board October 15, 1999
- ------------------------------------------------
James W. Crownover
/s/ PETER T. DAMERIS Director October 15, 1999
- ------------------------------------------------
Peter T. Dameris
</TABLE>
II-5
<PAGE> 167
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1* -- Form of Underwriting Agreement
2.1 -- Merger Agreement dated as of March 26, 1997 by and among
Irvin M. Shapiro, The Irvin M. Shapiro Children's Trust,
Metamor Technologies, Ltd. and CORESTAFF, Inc and
CORESTAFF Acquisition Sub #9, Inc.
2.2 -- Agreement and Plan of Merger dated as of December 23,
1997 by and among CORESTAFF, Inc., CORESTAFF Acquisition
Sub #12, Inc., Sage I.T. Partners, Inc., and the
Shareholders of Sage I.T. Partners, Inc.
2.3 -- Stock Purchase Agreement dated as of December 31, 1997 by
and among CORESTAFF, Inc., Workgroup Productivity
Corporation, and the Shareholders of Workgroup
Productivity Corporation
2.4 -- Agreement and Plan of Merger dated as of April 16, 1998
by and among Metamor Worldwide, Inc., CORESTAFF
Acquisition Sub #13, Inc., NDC Group, Inc., and the
Stockholders of NDC Group, Inc.
2.5 -- Stock Purchase Agreement dated as of June 17, 1998 by and
among Metamor Worldwide, Inc., Informix Corporation and
the Sellers
2.6 -- Stock Purchase Agreement dated as of July 16, 1998 by and
among Metamor Worldwide, Inc., Advanced Information
Solutions, Inc. and the Sellers
2.7 -- Asset Purchase Agreement dated as of November 12, 1998 by
and among Metamor Worldwide, Inc., Metamor Technologies,
Ltd., New Technology Partners, Inc. and the Shareholders
of New Technology Partners, Inc.
2.8 -- Stock Purchase Agreement dated as of September 17, 1999
by and among Xpedior Incorporated, Kinderhook Systems,
Inc. and the Sellers
3.1* -- Form of Amended and Restated Certificate of Incorporation
3.2* -- Form of Restated Bylaws
4.1* -- Form of Common Stock Certificate
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1* -- Employment Agreement between Xpedior Incorporated and
David N. Campbell
10.2* -- Employment Agreement between Xpedior Incorporated and J.
Brian Farrar
10.3* -- Form of Indemnification Agreement
10.4* -- Form of Registration Rights Agreement
10.5* -- Form of Services Agreement
10.6* -- Assignment and Indemnification Agreement
21.1 -- Subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Morrison & Morrison, Ltd.
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (included in signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
MERGER AGREEMENT
AMONG
IRVIN M. SHAPIRO
THE IRVIN M. SHAPIRO CHILDREN'S TRUST
METAMOR TECHNOLOGIES, LTD.
AND
CORESTAFF, INC.
AND
CORESTAFF ACQUISITION SUB #9, INC.
MARCH 26, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS.....................................................................................1
2. THE MERGER......................................................................................7
(a) The Merger.................................................................................7
(b) Effective Time of the Merger...............................................................7
(c) Articles of Incorporation..................................................................7
(d) Bylaws.....................................................................................7
(e) Directors and Officers of Surviving Corporation............................................7
(f) Effects of the Merger......................................................................7
(g) Conversion of Shares.......................................................................8
(h) Purchase Price; Escrow.....................................................................8
(i) Earned Payout Amounts......................................................................9
(j) Optional Earned Payment Amounts............................................................9
(k) Date and Form of Payment; Arbitrator.......................................................9
(l) Purchase Price Adjustments................................................................10
(m) Default on Earnout Payments...............................................................10
(n) Dissenting Shares.........................................................................11
(o) The Closing...............................................................................11
(p) Deliveries at the Closing.................................................................11
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION......................................11
(a) Representations and Warranties of the Sellers.............................................11
(b) Representations and Warranties of the Buyer and Acquisition...............................12
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET...........................................13
(a) Organization, Qualification, and Corporate Power..........................................15
(b) Capitalization............................................................................15
(c) Noncontravention..........................................................................15
(d) Brokers' Fees.............................................................................16
(e) Title to Tangible Assets..................................................................16
(f) Financial Statements......................................................................16
(g) Events Subsequent to Most Recent Fiscal Month End.........................................17
(h) Legal Compliance..........................................................................19
(i) Tax Matters...............................................................................19
(j) Owned Real Property.......................................................................20
(k) Intellectual Property.....................................................................21
(l) Contracts.................................................................................23
(m) Powers of Attorney........................................................................23
(n) Litigation................................................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
(o) Employee Benefits.........................................................................23
(p) Subsidiaries..............................................................................26
(q) Undisclosed Liabilities...................................................................26
(r) Real Property Leases......................................................................26
(s) Notes and Accounts Receivable.............................................................27
(t) Insurance.................................................................................27
(u) Employees.................................................................................27
(v) Guaranties................................................................................27
(w) Environment, Health, and Safety...........................................................28
(x) Certain Business Relationships with the Target............................................29
(y) Disclosure................................................................................29
5. PRE-CLOSING COVENANTS..........................................................................29
(a) General...................................................................................29
(b) Notices and Consents......................................................................29
(c) Operation of Business.....................................................................30
(d) Full Access...............................................................................30
(e) Notice of Developments....................................................................30
(f) Exclusivity...............................................................................31
6. POST-CLOSING COVENANTS.........................................................................31
(a) General...................................................................................31
(b) Litigation Support........................................................................31
(c) Covenant Not to Compete...................................................................31
(d) Transition................................................................................31
(e) Confidentiality...........................................................................32
(f) Tax Consequences of Merger................................................................32
(g) Leases....................................................................................33
(h) Additional Tax Matters....................................................................33
(i) Conduct During Earned Payout Periods......................................................34
7. CONDITIONS TO OBLIGATION TO CLOSE..............................................................36
(a) Conditions to Obligation of the Buyer.....................................................36
(b) Conditions to Obligation of the Sellers...................................................37
8. REMEDIES FOR BREACHES OF THIS AGREEMENT........................................................39
(a) Survival of Representations and Warranties................................................39
(b) Indemnification Provisions for Benefit of the Buyer.......................................39
(c) Indemnification Provisions for Benefit of the Sellers.....................................41
(d) Matters Involving Third Parties...........................................................41
(e) Determination of Adverse Consequences.....................................................42
(f) Payment; Offset...........................................................................43
(g) Other Indemnification Provisions..........................................................43
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9. TERMINATION....................................................................................43
(a) Termination of Agreement..................................................................43
(b) Effect of Termination.....................................................................44
10. MISCELLANEOUS..................................................................................45
(a) Nature of Certain Obligations.............................................................45
(b) Press Releases and Public Announcements...................................................45
(c) No Third-Party Beneficiaries..............................................................45
(d) Entire Agreement..........................................................................45
(e) Successors and Assignment.................................................................45
(f) Counterparts..............................................................................45
(g) Headings..................................................................................45
(h) Notices...................................................................................46
(i) Governing Law.............................................................................47
(j) Amendments and Waivers....................................................................47
(k) Severability..............................................................................47
(l) Expenses..................................................................................47
(m) Construction..............................................................................47
(n) Incorporation of Exhibits, Annexes, and Schedules.........................................47
(o) Specific Performance......................................................................47
(p) Offset Against Earnout for Penalty Payments...............................................48
</TABLE>
iii
<PAGE> 5
EXHIBITS; ANNEX; SCHEDULES
<TABLE>
<S> <C>
Exhibit A Historical Financial Statements
Exhibit B Form of Employment Agreements
Exhibit C Form of Shapiro Non-Compete Agreement
Exhibit D Form of Non-Compete Agreements
Exhibit E Form of Opinion of Counsel to the Sellers
Exhibit F Form of Opinion of Counsel to the Buyer
Exhibit G Form of Restricted Stock Plan
Exhibit H Escrow Agreement
Exhibit I Note
Exhibit J Indemnification Agreement
Annex A Names and Addresses of Shareholders
Annex I Calculation of Earned Payout Amounts
Annex II Exceptions to the Sellers' Representations and Warranties
Concerning the Transaction
Annex III Exceptions to the Buyer's Representations and Warranties
Concerning the Transaction
Annex IV Employees entering into Employment Agreements
Disclosure Schedule Exceptions to Representations and Warranties Concerning the
Target
</TABLE>
iv
<PAGE> 6
MERGER AGREEMENT
This Merger Agreement (the "Agreement") is entered into as of March 26,
1997, by and among COREStaff, Inc., a Delaware corporation (the "Buyer"),
COREStaff Acquisition Sub #9, Inc., an Illinois corporation ("Acquisition"),
Irvin M. Shapiro and The Irvin M. Shapiro Children's Trust (collectively, the
"Sellers"), and Metamor Technologies, Ltd., an Illinois corporation ("Target").
The Buyer, the Sellers, Target and Acquisition are referred to collectively
herein as the "Parties." Target and Acquisition are sometimes referred to herein
as the "Constituent Corporations." If the context so requires, references herein
to the Target shall mean the Surviving Corporation (as hereinafter defined) for
periods after the Closing Date.
The Sellers and the shareholders listed on Annex A hereto (the
"Shareholders") in the aggregate own all of the outstanding capital stock of
Target.
This Agreement contemplates a transaction in which the Target will merge
with and into Acquisition, with Acquisition being the surviving corporation, and
the shares of capital stock of Target being converted into the right to receive
the Purchase Price (as hereinafter identified).
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"Acquisition" has the meaning set forth in the preface above.
"Adjusted EBIT of Target" means adjusted earnings before interest and
Income Taxes of the Target during the Earned Payout Periods, and as determined
by Annex I attached hereto.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
<PAGE> 7
"Affiliated Group" means any affiliated group within the meaning of Code
Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"Allocable Portion" means with respect to the share of any Seller or
Shareholder in a particular amount that fraction equal to the number of Target
Shares the Seller or Shareholder holds as set forth in Section 4(b) of the
Disclosure Schedule over the total number of outstanding Target Shares.
"Applicable Rate" as of a particular day means the highest announced prime
rate as reported in the Money Rates Section of The Wall Street Journal, plus two
percent (2%) per annum.
"Basis" means any past or present fact, situation, circumstance, event,
incident or action.
"Business" has the meaning set forth in Annex I.
"Buyer" has the meaning set forth in the preface above.
"Cash" means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
"Cash Payment" has the meaning set forth in Section 2(h) below.
"Cash Portion of the Purchase Price" has the meaning set forth in Section
2(h) below.
"Closing" has the meaning set forth in Section 2(o) below.
"Closing Date" has the meaning set forth in Section 2(o) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the business
and affairs of the Target that is not already generally available to the public.
"Confidential Information Demand" has the meaning set forth in Section 5(e)
below.
"Corporate Tax Amount" means the amount of $0, which shall reduce the Cash
Portion of the Purchase Price pursuant to Section 2(h).
2
<PAGE> 8
"Customer Contract or Agreement" means any contract or agreement entered
into by Target to provide to a third party services of the type generally
provided by Target for a fee to its customers in the normal course of its
business.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"E&Y" means Ernst & Young LLP.
"Earned Payout Amounts" has the meaning set forth in Section 2(i) below.
"Earned Payout Periods" means collectively the fiscal years ending December
31, 1997 and December 31, 1998.
"Effective Time" has the meaning set forth in Section 2(b) hereof.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statement" has the meaning set forth in Section 4(f) below.
"First Earned Payout Amount" has the meaning set forth in Section 2(i)(a)
below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Gross Profit Margin" means the gross profit of the Target as set forth on
the Financial Statements.
3
<PAGE> 9
"Income Tax" means any federal, state, local, or foreign income tax and any
other taxes imposed on receipts, income or assets, including any interest,
penalty, or addition thereto, whether disputed or not.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" means all of the following which are owned by or
with respect to which Target is a licensee: (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and related
documentation, (d) to the extent legally protectable, trade secrets and
confidential business information (including formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans, and customer and
supplier lists and information), E&Y (e) to the extent legally protectable,
other proprietary rights,] and (f) copies and tangible embodiments of the
foregoing (in whatever form or medium).
"Joint and Several" has the meaning set forth in Section 10(a) below.
"Knowledge" of a Person means actual knowledge, without independent
investigation, and, with respect to Target, means the actual knowledge, without
independent investigation, of each of Irvin M. Shapiro, Kapil Sood, Steven
Isaacson, Lou Arce, Brian Farrar or Cindy Pogrund.
"Liability" means any liability, debt, obligation, amount or sum due,
including any liability for Taxes.
"Manage" means any business for which Target is responsible for the
oversight pursuant to the written mutual consent of the Buyer and the Requisite
Seller.
"Material" has the meaning set forth in Section 4 hereof.
"Merger" has the meaning set forth in Section 2 hereof.
"Most Recent Financial Statements" has the meaning set forth in Section
4(f) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(f)
below.
4
<PAGE> 10
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Net Working Capital of Target" means total current assets minus total
current liabilities of the Target as of December 31, 1996, determined in
accordance with GAAP consistently applied.
"Note" means a promissory note of Buyer substantially in the form attached
hereto as Exhibit I in the principal amount of $16,000,000 and payable to
Sellers and Shareholders in two installments, with the first due one business
day after the Closing Date and the second due on January 2, 1998.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Phantom Stock Plan" shall mean that Phantom Stock Purchase Plan Agreement
dated November 1, 1991 by and between Irv Shapiro & Associates, Ltd. and Irvin
M. Shapiro as Plan Administrator.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"Purchase Price" has the meaning set forth in Section 2(h) below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Requisite Sellers" means Sellers holding a majority in interest of the
Target Shares as set forth in Section 4(b) of the Disclosure Schedule.
"Restricted Stock Plan" means that plan as described in Exhibit G.
"Second Earned Payout Amount" has the meaning set forth in Section 2(i)(b)
below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
5
<PAGE> 11
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the ordinary course of business and
not incurred in connection with the borrowing of money.
"Seller(s)" has the meaning set forth in the preface above.
"Several" has the meaning set forth in Section 10(a) below.
"Shareholder" has the meaning set forth in the preface above.
"Stock Option Plan" shall mean those Stock Option Agreements dated October
1, 1996 between Target and certain employees of Target, and the Metamor
Technologies, Ltd. Stock Option Plan referred to in such Stock Option
Agreements.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Surviving Corporation" has the meaning set forth in Section 2 (a) hereof.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, no par value, of the
Target.
"Tax" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, 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 of any kind
whatsoever, including any interest, penalty or addition thereto.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
6
<PAGE> 12
2. THE MERGER.
(a) The Merger. At the Effective Time (as defined below), Target shall be
merged with and into Acquisition (the "Merger") and the separate existence of
Target shall thereupon cease, and the name of Acquisition, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall by virtue of the
Merger be "Metamor Technologies, Ltd." The Merger shall have the effects set
forth in the Illinois Business Corporation Act ("BCA").
(b) Effective Time of the Merger. The Merger shall become effective when
properly executed Articles of Merger are duly filed with the Secretary of State
of the State of Illinois, which filing shall be made on the Closing Date. When
used in this Agreement, the term "Effective Time" shall mean the date and time
at which such Articles are so filed in Illinois.
(c) Articles of Incorporation. The Articles of Incorporation of Acquisition
in effect at the time of the Merger shall be the Articles of Incorporation of
the Surviving Corporation, until thereafter amended as provided thereunder and
in the BCA.
(d) Bylaws. The Bylaws of Target in effect at the time of the Merger shall
be the Bylaws of the Surviving Corporation until altered, amended or repealed,
as provided thereunder and in the Articles of Incorporation and the BCA.
(e) Directors and Officers of Surviving Corporation.
(i) The directors of Acquisition at the Effective Time shall be the
directors of the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise
provided by law.
(ii) The officers of Target at the Effective Time shall be the officers
of the Surviving Corporation and shall hold office from the Effective Time
until their respective successors are duly elected or appointed and qualify
in the manner provided in the Articles of Incorporation and Bylaws of the
Surviving Corporation, or as otherwise provided by law.
(f) Effects of the Merger. The Merger shall have the effects set forth in
the BCA. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the properties, rights, privileges, powers and
franchise of the Constituent Corporations shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Constituent
Corporations shall become the debts, liabilities and duties of the Surviving
Corporation.
7
<PAGE> 13
(g) Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the Sellers or Shareholders:
(i) Each Target Share issued and outstanding immediately prior to the
Effective Time (other than Shares as to which the holders thereof shall
have properly exercised appraisal rights under the BCA, if any) shall be
converted into the right to receive in cash its Allocable Portion of the
Purchase Price (as hereinafter defined).
(ii) Each Target Share held in the treasury of Target immediately prior
to the Effective Time shall be canceled and retired and cease to exist.
(iii) Each share of common stock, par value $0.01 per share, of
Acquisition issued and outstanding immediately prior to the Effective Time
shall be converted into and exchangeable for one share of common stock, par
value $0.01 per share, of the Surviving Corporation ("Surviving Corporation
Common Stock").
(h) Purchase Price; Escrow.
(i) The purchase price for the Target Shares shall be composed of the
Cash Portion of the Purchase Price (as hereinafter identified) and the
Earned Payout Amounts (as hereinafter defined). The Buyer agrees to pay to
the Sellers and Shareholders the sum of $16,000,000 in cash to be reduced
dollar-for-dollar by the amount of the Corporate Tax Amount (the "Cash
Portion of the Purchase Price") in accordance with the terms of the Note
delivered to the Requisite Seller on the Closing Date for the Target Shares
in connection with the Merger. The Cash Portion of the Purchase Price when
due under the terms of the Note shall be paid by Buyer to Sellers and
Shareholders by wire transfer or delivery of other immediately available
funds to an account or accounts designated by Sellers ("Cash Payment").
(ii) Subject to the terms and conditions of an escrow agreement to be
entered into among Buyer, Acquisition and Target substantially in the form
attached hereto as Exhibit H ("Escrow Agreement"), on the business day
prior to Closing, Buyer will deposit with American National Bank and Trust
Company of Chicago, as escrow agent ("Escrow Agent") the Note and an amount
in cash equal to the Cash Portion of the Purchase Price. The cash deposited
with the Escrow Agent shall be invested by the Escrow Agent in the American
National Bank Money Fund. On the business day following the Closing, the
Escrow Agent will distribute to the Sellers and Shareholders the Cash
Portion of the Purchase Price plus any interest earned on such amount from
the Closing Date less $10,000. On January 2, 1998, the Escrow Agent will
deliver the balance of the amount in
8
<PAGE> 14
escrow to Sellers and Shareholders; provided however, that to the extent
the funds in escrow were invested by the Escrow Agent prior to the Closing
Date, any interest earned on such amounts prior to the Closing Date shall
be returned to Buyer.
(iii) The Cash Portion of the Purchase Price and the Earned Payout
Amounts (the sum of which is herein collectively called the "Purchase
Price") shall in each case be allocated among the Sellers and Shareholders
based on the allocations set forth on the Allocation Schedule attached
hereto, or at the sole election of Sellers or Shareholders, in an amount to
each Seller or Shareholder as directed by each Seller or Shareholder.
(i) Earned Payout Amounts. In addition to the Cash Portion of the Purchase
Price, the Buyer agrees to pay to the Sellers and Shareholders, if earned, each
of the following earned payout amounts (collectively, the "Earned Payout
Amounts"):
(i) an earned payout amount (the "First Earned Payout Amount") equal to
the product of (i) 2.4 and (ii) the amount of the Adjusted EBIT of Target
for the calendar year ending December 31, 1997; provided, however, that in
no event will the First Earned Payout Amount exceed $21,000,000.
(ii) an earned payout amount (the "Second Earned Payout Amount") equal
to the product of (i) 2.4 and (ii) the amount of the Adjusted EBIT of
Target for the calendar year ending December 31,1998; provided, however,
that in no event will the Second Earned Payout Amount exceed the amount
obtained by subtracting (A) the First Earned Payout Amount from (B)
$21,000,000.
(j) Optional Earned Payment Amounts. In addition to the Cash Portion of the
Purchase Price, the Note and the Earned Payment Amounts set forth above, Buyer
will pay to the Sellers and Shareholders, if earned, an additional earned
payment amount ("Additional Earned Payment Amount") determined as set forth in
Annex I(B) hereto for businesses acquired by Target or Buyer or its affiliates
that are Managed by Target through Irvin Shapiro as president or chief executive
officer of Target during 1999.
(k) Date and Form of Payment; Arbitrator. The Earned Payout Amounts shall
be determined by Target in accordance with the terms of this Agreement and Annex
I hereto. The Requisite Sellers (after discussions with E&Y) shall deliver to
Buyer on or before March 1, 1998 (with respect to the First Earned Payout) and
March 1, 1999 (with respect to the Second Earned Payout) a report in sufficient
detail reasonably satisfactory for Buyer which sets forth the Adjusted EBIT of
Target and calculation of the Earned Payout Amount. Buyer, however, may dispute
such determination in accordance with the procedures set forth herein, and the
final determination will be made in accordance with such procedures. If Buyer
disputes the amount of any item reflected in or omitted from
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such report, Buyer shall deliver to the Requisite Seller a written statement of
each disputed item setting forth in reasonable detail the basis for such dispute
("Buyer's Objections") within 10 days of receipt of such report. If Buyer does
not object to such report within said 10 day period, Buyer shall pay to Sellers
and Shareholders, by Cash Payment, the Earned Payout Amounts on the 10th day
after receipt of such report (the "Payment Date"), and Buyer shall have no
further right to dispute such Earned Payout Amount. Buyer shall in any event pay
to Sellers and Shareholders on the Payment Date the amount of such Earned Payout
Amount that is not in dispute.
In the event that Buyer and Seller are unable to resolve any of Buyer's
Objections within 5 days (the "Settlement Period") of the Requisite Seller's
receipt of Buyer's Objections, all such unresolved disputes or disagreements
shall be resolved by the Chicago office of Arthur Andersen & Co, SC or if Arthur
Andersen is unable or unwilling to accept such engagement, such unresolved
disputes or disagreements shall be resolved by an office of one of the remaining
four "Big Six" accounting firms (after excluding E&Y and Arthur Andersen)
mutually selected by Buyer and Requisite Seller (in either case, the
"Independent Accounting Firm") within five days after the expiration of the
Settlement Period. The fees and expenses of the Independent Accounting Firm
shall be shared equally by Buyer and the Requisite Seller. In the event Buyer
and Requisite Seller are unable to select the Independent Accounting Firm as set
forth above, the Independent Accounting Firm will be selected by lot. The
decision of the Independent Accounting Firm in such matter shall be final,
binding and non-appealable, and the Independent Accounting Firm shall make a
final and binding resolution of the disputes or disagreements. The Independent
Accounting Firm shall be instructed to use every reasonable effort to perform
its services within 15 business days of submission of the disputes and
disagreements to it and, in any case, as soon as practicable after such
submission. In the event Buyer is required to make additional payments to Seller
and Shareholders as a result of the final determination of the Earned Payout
Amount, in addition to such amount, Buyer shall pay to Seller interest at the
rate set forth in the Note, which interest shall accrue beginning as of the
respective Payment Dates and continuing through the date of each such additional
payment.
It is understood that Sellers may, at their own expense, engage an
accounting firm to audit Target's financial statements and/or assist it in the
determination of the Adjusted EBIT, and such accounting firm will have access to
such books and records of Target as it deems necessary to perform its review.
(l) Purchase Price Adjustments. The Cash Portion of the Purchase Price
shall be reduced on a dollar-for-dollar basis by the Corporate Tax Amount.
(m) Default on Earnout Payments. In the event Buyer fails to make any
Earned Payout Amount or Additional Earned Payment Amount to Sellers and
Shareholders hereunder when due (a "Default"), then payments due to Sellers and
Shareholders will
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bear interest at the Applicable Rate plus 10% per annum determined and accruing
from the date such payment was due and continuing until paid in full.
(n) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, Target Shares which are issued and outstanding immediately prior to
the Effective Time and which are held by stockholders who have not voted such
Target Shares in favor of the Merger and who shall have delivered a written
demand for appraisal of such Shares in the manner provided in the BCA (the
"Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the cash consideration provided above, unless and until such
holder shall have failed to perfect or shall have effectively withdrawn or lost
his right to appraisal and payment under the BCA. If such holder shall have so
failed to perfect or shall have effectively withdrawn or lost such right, his
Target Shares shall thereupon be deemed to have been converted into and to have
become exchangeable for, at the Effective Time, the right to receive the cash
consideration provided herein.
(o) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Lord, Bissell &
Brook in Chicago, Illinois, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Buyer and the Requisite Sellers
may mutually determine (the "Closing Date").
(p) Deliveries at the Closing. At the Closing, (i) the Sellers and
Shareholders will deliver to the Buyer the various certificates, instruments,
and documents referred to in Section 7(a) below, (ii) the Buyer will deliver to
the Sellers and Shareholders the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) each of the Sellers and
Shareholders will deliver to the Buyer stock certificates representing all of
his or its Target Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to each of the Sellers and
Shareholders the consideration specified in Section 2(h) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) Representations and Warranties of the Sellers. Each of the Sellers
Jointly and Severally represents and warrants to the Buyer that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date, except as set
forth in Annex II attached hereto.
(i) Authorization of Transaction. Each Seller and Shareholder has full
power and authority to execute and deliver this Agreement and to perform
his or its obligations hereunder. This Agreement constitutes the valid and
legally
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binding obligation of such Seller and Shareholder, enforceable in
accordance with its terms and conditions. To the Knowledge of Sellers,
Sellers and Shareholders need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.
(ii) Noncontravention. To the Knowledge of Sellers, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Seller or Shareholder is subject or, if the Seller or
Shareholder is a trust, any provision of its governing instruments or (B)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Seller or Shareholder is a party or by which he or it is bound or to which
any of his or its assets is subject.
(iii) Brokers' Fees. Except as set forth on Section 3(a)(iii) of the
Disclosure Schedule, the Sellers and Shareholders have no liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(iv) Target Shares. Except as set forth in Section 3(a)(iv) of the
Disclosure Schedule, each Seller and Shareholder holds of record and owns
beneficially the number of Target Shares set forth next to his or its name
in Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act
and state securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands. The
Seller or Shareholder is not a party to any option, warrant, purchase
right, or other contract or commitment that could require the Seller or
Shareholder to sell, transfer, or otherwise dispose of any capital stock of
the Target (other than this Agreement). The Seller or Shareholder is not a
party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Target.
(b) Representations and Warranties of the Buyer and Acquisition. The Buyer
and Acquisition jointly and severally represent and warrant to the Sellers and
Shareholders that the statements contained in this Section 3(b) are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(b)), except
as set forth in Annex III attached hereto.
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(i) Organization of the Buyer and Acquisition. Each of the Buyer and
Acquisition is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation.
(ii) Authorization of Transaction. Each of the Buyer and Acquisition
have full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform their
respective obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Buyer and Acquisition, enforceable in
accordance with its terms and conditions. Neither Buyer nor Acquisition is
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, (including federal and state
securities laws and regulations), or other restriction of any government,
governmental agency, or court to which the Buyer or Acquisition is subject
or any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer or Acquisition is a
party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. Neither the Buyer nor Acquisition has any liability
or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(v) Investment. The Buyer is acquiring the Target Shares for purposes
of investment and is not acquiring the Target Shares with a view to or for
sale in connection with any distribution thereof within the meaning of the
Securities Act.
(vi) Funds Available. Buyer has available to it, and shall have
available to it on the Payment Dates, sufficient funds to perform all of
its obligations pursuant to this Agreement.
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<PAGE> 19
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET.
The Sellers Jointly and Severally represent and warrant to the Buyer that
the statements contained in this Section 4 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 4), except as set forth in the
disclosure schedule delivered by the Sellers to the Buyer on the date hereof and
initialed by the Buyer and Sellers (as the same may be amended hereunder, the
"Disclosure Schedule"). The Disclosure Schedule may be amended or updated one or
more times prior to the Closing Date and any updated Disclosure Schedule shall
be delivered at or before the Closing. An updated Disclosure Schedule shall only
be deemed to modify a representation and/or warranty made as of the date of this
Agreement in the event, and only in the event, that the Requisite Sellers acted
in good faith when preparing the original Disclosure Schedule delivered to
Buyer. In the event any such updated Disclosure Schedule indicates a material
adverse change from information previously provided to the Buyer, Buyer in its
sole discretion, reasonably exercised, shall be entitled to terminate this
Agreement (without any liability whatsoever to the Sellers, Target or any
Shareholder) by written notice delivered to the Sellers on the earlier of five
(5) days following receipt of such updated Disclosure Schedule, or the Closing.
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein, however, unless the
Disclosure Schedule identifies the exception with reasonable particularity. The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
An event or matter that causes any representation or warranty contained in
this Section to be inaccurate, incorrect or false will not be deemed to be
"Material," to have a "Material" change in or in respect of, to have a
"Material" adverse effect or to be "Materially" affected unless the loss that
may reasonably be expected to occur to the Target with respect to such event or
matter, when taken together with all other related losses that may reasonably be
expected to occur to the Target as a result of any such events or matters, would
exceed $60,000 individually or $120,000 in the aggregate, or unless such event
or matter constitutes a criminal violation of law that is a felony. For purposes
of this paragraph, the word "loss" shall mean any and all direct or indirect
payments, obligations, assessments, losses, losses of income, liabilities, costs
and expenses paid or incurred, or to be paid or incurred (whether or not known
or asserted before the date of this Agreement, fixed or unfixed, conditional or
unconditional, liquidated or unliquidated, secured or unsecured, accrued, or
otherwise), including without limitation, penalties, interests on any amounts
payable to a third party as a result of the foregoing, and any reasonable legal
or other expenses reasonably expected to be incurred in connection with
defending any demands, claims, actions or causes of action that, if adversely
determined, could reasonably be expected to result in losses, and all amounts
paid in settlement of claims or actions; provided, however, that losses shall be
net of any insurance proceeds entitled to be received from a nonaffiliated
insurance company on account of such loss (after taking into account any cost
incurred to third
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parties in obtaining such proceeds), and shall be (a) increased to take into
account any net Tax cost incurred by the Indemnified Party arising from the
receipt of indemnity payments hereunder (grossed up for any Tax incurred on such
increase), and (b) reduced to take into account any net Tax benefit arising from
incurrence or payment of any such Adverse Consequences by the Indemnified Party
or any Affiliate of the Indemnified Party. A Customer Contract or Agreement is
"Material" if during the calendar year 1996 such Customer Contract or Agreement
produced $100,000 of Gross Profit Margin less any bad debt specifically related
to such Customer Contract or Agreement.
(a) Organization, Qualification, and Corporate Power. The Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the financial
condition of the Target taken as a whole. To the Knowledge of Target, the Target
has full corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of the Target. The
Sellers have delivered to the Buyer correct and completed copies of the charter
and bylaws of the Target (as amended to dated). To the Knowledge of Target, the
minute books containing the records of meetings of the stockholders, the board
of directors, and any committees of the board of directors, the stock
certificate books, and the stock record books of the Target are correct and
complete, and the Target is not in default under or in violation of any
provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 10,000,000 Target Shares, of which 2,500,000 Target Shares are
issued and outstanding and no Target Shares are held in treasury. All of the
issued and outstanding Target Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
Sellers and Shareholders as set forth in Section 4(b) of the Disclosure
Schedule. Except as set forth in Section 4(b) of the Disclosure Schedule, 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 Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock nor are there are any outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target. There are no voting trusts, proxies, or any
other agreements or understandings with respect to the voting of the capital
stock of the Target.
(c) Noncontravention. Except as set forth in Section 4(c) of the Disclosure
Schedule, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will, to the Knowledge of
Target, (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree,
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<PAGE> 21
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Target is subject or any provision of the charter or bylaws
of the Target or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Target is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets), except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a Material adverse effect on the financial condition of
the Target taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. To the Knowledge of Target, the
Target does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a Material adverse effect on
the financial condition of the Target taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. Except as set forth in Section 4(d) of the Disclosure
Schedule, to the Knowledge of Target, the Target has no liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) Title to Tangible Assets. To the Knowledge of Target, Target has good
title to, or a valid leasehold interest in, the tangible assets it uses
regularly in the conduct of its businesses.
(f) Financial Statements. Attached hereto as Exhibit A are the following
financial statements: (i) audited consolidated balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and for the years
ended December 31, 1995 and December 31, 1996, for the Target (collectively the
"Financial Statements"); and (ii) unaudited consolidated balance sheets and
statements of income, changes in stockholders' equity, and cash flow (the "Most
Recent Financial Statements") as of and for the month ended January 31, 1997
(the "Most Recent Fiscal Month End") for the Target. The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby and present fairly
the financial condition of the Target as of such dates and the results of
operations of the Target for such periods; provided, however, that the Most
Recent Financial Statements are subject to normal year-end adjustments and lack
footnotes and other presentation items.
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(g) Events Subsequent to Most Recent Fiscal Month End. Since the Most
Recent Fiscal Month End, except as set forth on Section 4(g) of the Disclosure
Schedule, to the Knowledge of Target, there has not been any Material adverse
change in the financial condition of the Target taken as a whole, and without
limiting the generality of the foregoing, since that date the Target has not
engaged in any practice, taken any action, or entered into any transaction
outside the ordinary course of business. Without limiting the generality of the
foregoing, except as set forth on Section 4(g) of the Disclosure Schedule, and
except for any of the following that are not individually or in the aggregate
Material, since that date, to the Knowledge of Target:
(i) the Target has not sold, leased, transferred, or assigned any of
its tangible assets, other than for a fair consideration in the ordinary
course of business;
(ii) the Target has not entered into any contract, lease, sublease,
license or sublicense (or series or related contracts, leases, subleases,
licenses and sublicenses) either involving more than $60,000 individually
or $250,000 in the aggregate other than in the ordinary course of business;
(iii) no party (including the Target) has accelerated, terminated,
modified, or canceled any contract, lease, sublease, license or sublicense
(or series of related contracts, leases, subleases licenses and
sublicenses) involving more than $100,000 to which the Target is a party or
by which it is bound;
(iv) the Target has not imposed any Security Interest upon any of its
assets, tangible or intangible;
(v) the Target has not made any capital expenditure (or series of
related capital expenditures) either involving more than $50,000
individually or $250,000 in the aggregate;
(vi) the Target has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of any other person (or series
of related capital investments, loans, and acquisitions) either involving
more than $60,000 individually or $200,000 in the aggregate;
(vii) the Target has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(viii) except for the issuance of shares of the common stock of Target
in connection with any conversion of the Phantom Stock Plan, the Target has
not issued, sold, or otherwise disposed of any of its capital stock, or
granted any
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options, warrants, or other rights to purchase or obtain (including upon
conversion or exercise) any of its capital stock;
(ix) the Target has not declared, set aside, or paid any dividend or
distribution with respect to its capital stock or redeemed, purchased, or
otherwise acquired any of its capital stock, except for distributions to
the Sellers to pay Income Taxes incurred by the Sellers in connection with
Target's business;
(x) the Target has not made any consulting payment or other payment to
the Sellers, except for customary compensation at the same levels provided
prior to December 31, 1996 and except for distributions to the Sellers to
pay Income Taxes incurred by the Sellers in connection with Target's
business;
(xi) Target has not experienced any damage, destruction or loss
involving more than $50,000 (whether or not covered by insurance) to its
tangible property;
(xii) the Target has not made any loan to, or entered into any other
transaction with, any of its directors, officers and employees outside the
ordinary course of business involving more than $20,000 giving rise to any
claim or right on its part against the person or on the part of the person
against it;
(xiii) the Target has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement with any of its full-time staff
employees other than contracts or agreements each involving less than
$80,000 annually or involving increases in compensation of greater than 7%
for employees whose annual compensation is $80,000 or more or increases in
compensation of greater than 15% for employees whose annual compensation is
less than $80,000;
(xiv) the Target has not granted an increase in excess of 7% in the
annual base compensation of any of its directors, officers and employees;
(xv) the Target has not adopted any (A) bonus, (B) profit-sharing, (C)
incentive compensation, (D) pension, (E) retirement, (F) medical,
hospitalization, life or other insurance, (G) severance, or (H) other plan,
contract or commitment for any of its directors, officers and employees, or
modified or terminated any existing such plan, contract or commitment;
(xvi) the Target has not made any other change in employment terms for
any of its directors, officers and full-time employees; and
(xvii) the Target has not committed to any of the foregoing.
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(h) Legal Compliance. To the Knowledge of Target, the Target has complied
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof),
except where the failure to comply would not have a Material adverse effect upon
the financial condition of the Target taken as a whole.
(i) Tax Matters.
(i) Except as set forth on Section 4(i) to the Disclosure Schedule: the
Target has filed all Tax Returns that it was required to file. All such Tax
Returns were correct and complete in all respects. All Taxes due and owing
by the Target (whether or not shown on any Tax Return) have been paid or
adequate provision has been made therefor in the Financial Statements. The
Target is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Target that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) The Target has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or due and owing to any
employee, creditor, independent contractor, or other third party and to the
Knowledge of Target, the Target has properly reflected the status of all
employees and independent contractors in connection therewith as required
by all applicable laws.
(iii) To the Knowledge of the Target, no Seller or officer of the
Target has received any notice that any authority intends to assess any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax Liability of the Target
either (A) claimed or raised by any authority in writing or (B) as to which
the Target has Knowledge based upon personal contact with any agent of such
authority. Section 4(i) of the Disclosure Schedule lists all federal,
state, local, and foreign income Tax Returns filed with respect to the
Target for taxable periods ended on or after December 31, 1989, indicates
those Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of audit. The Sellers have delivered to the
Buyer correct and complete copies of all federal income Tax Returns filed,
examination reports received, and statements of deficiencies assessed
against or agreed to, by the Target since December 31, 1989.
(iv) The Target has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. The Target has not made any payments
and is not
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obligated to make any payments that will not be deductible to the Target
under Code Sec. 280G. The Target has not been a United States real property
holding corporation within the meaning of Code Sec. 897(c)(2) during the
applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Target has
never been a member of an Affiliated Group filing a consolidated federal
income Tax Return and has never incurred any Liability for the Taxes of any
Person under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract,
or otherwise.
(v) Any unpaid Taxes of the Target do not exceed the reserves for Tax
Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and tax income) set forth on the
face of the Most Recent Balance Sheet (rather than 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 Target in filing its Tax Returns.
(vi) The Target 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.
(vii) The Target is not a party to any Tax allocation or sharing
agreement.
(viii) The Target has had in effect a valid election to be treated as
an S corporation under the Code for its taxable years ended after December
31, 1987.
(ix) The amount of Taxes incurred by Target as a result of the merger
of Target into Acquisition, including, without limitation (i) taxes imposed
under Code Sec. 1374, and (ii) state income taxes, will not exceed the
Corporate Tax Amount.
(j) Owned Real Property. Except as set forth in Section 4(j) of the
Disclosure Schedule, the Target does not own, has not ever owned nor are there
any outstanding options or rights of first refusal to purchase or sell any real
property.
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(k) Intellectual Property.
(i) Except as set forth on the Disclosure Schedule, to the Knowledge of
Target, (a) the Target owns or has the right to use pursuant to common law,
statute, license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the businesses of the Target as
presently conducted, and (b) each item of Intellectual Property owned or
used by the Target immediately prior to the Closing hereunder will be owned
or available for use by the Target on identical terms and conditions
immediately subsequent to the Closing hereunder.
(ii) Except as set forth on the Disclosure Schedule, to the Knowledge
of the Target, after making reasonable inquiry of Stanley Shapiro and Mark
Trottier, the Target has not interfered with, infringed upon,
misappropriated, or otherwise come into legal conflict with any
Intellectual Property rights of third parties, and none of the Sellers and
the officers of the Target have during the five years prior to the date of
this Agreement received any charge, complaint, claim, or notice alleging
any such interference, infringement, misappropriation, or violation. To the
Knowledge of the Target, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into legal conflict with any
Intellectual Property rights of any of the Target.
(iii) To the Knowledge of Target, Section 4(k) of the Disclosure
Schedule identifies each patent or trademark, tradename or copyright
registration which has been issued to the Target with respect to any of its
Intellectual Property, identifies each pending patent application or
application for trademark, tradename or copyright registration which the
Target has made with respect to any of its Intellectual Property (together
with any exceptions). To the Knowledge of Target, the Target has delivered
to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements and permissions (as
amended to date), and have made available to the Buyer correct and complete
copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. Except as identified in
Section 4(k) of the Disclosure Schedule, to the Knowledge of Target, with
respect to each item of Intellectual Property that the Target owns:
(A) the identified owner possesses all right, title, and interest in
and to the item;
(B) the item is not subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge;
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(C) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or, to the Knowledge of the
Target, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) the Target has never agreed to indemnify any person or entity for
or against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Section 4(k) of the Disclosure Schedule also identifies each item
of Intellectual Property that any third party owns and that the Target uses
pursuant to license, sublicense, agreement, or permission. Except as
identified in Section 4(k) of the Disclosure Schedule, to the Knowledge of
Target the Target has supplied the Buyer with correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as amended
to date). Except as identified in Section 4(k) of the Disclosure Schedule,
with respect to each such item of Intellectual Property used, to the
Knowledge of Target:
(A) the license, sublicense, agreement, or permission covering the item
is legal, valid, binding, enforceable, and in full force and effect;
(B) 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 Closing;
(C) 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;
(D) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;
(E) the underlying item of Intellectual Property is not subject to any
outstanding judgment, order, decree, stipulation, injunction, or
charge; and
(F) no charge, complaint, action, suit, proceedings, hearing,
investigation, claim or demand is pending or is threatened which
challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property.
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(v) To the Knowledge of Target, Target has not granted any sublicense
or similar right with respect to the license, sublicense, agreement, or
permission.
(l) Contracts. To the Knowledge of Target, Section 4(l) of the Disclosure
Schedule lists all written contracts and other written agreements to which the
Target is a party the performance of which will involve consideration in excess
of $250,000. To the Knowledge of Target, the Sellers have delivered to the Buyer
a correct and complete copy of each contract or other agreement listed in
Schedule 4(l) (as amended to date). With respect to each written agreement so
listed, to the Knowledge of Target: (A) the written agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the written agreement
will continue to be legal, valid, binding, enforceable and in full force and
effect in accordance with its terms following the Closing; (C) Target is not,
nor is any other party 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, under the written agreement; and (D)
Target has not, nor has any other party, repudiated any material provision of
the written agreement. To the Knowledge of Target, the Target is not a party to
any verbal contract, agreement, or other arrangement which, if reduced to
written form, would be required to be listed in Section 4(l) of the Disclosure
Schedule under the terms of this Section 4(l). To the Knowledge of Target,
except as set forth on the Disclosure Schedule, no unfilled Material Customer
Contract or Agreement obligating the Target to perform services will result in a
loss to Target upon completion of performance.
(m) Powers of Attorney. To the Knowledge of Target, there are no
outstanding powers of attorney executed on behalf of the Target.
(n) Litigation. To the Knowledge of Target, Section 4(n) of the Disclosure
Schedule sets forth each instance in which the Target (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a
party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction, except where the injunction, judgment,
order, decree, ruling, action, suit, proceeding, hearing, or investigation would
not have a material adverse effect on the financial condition of the Target
taken as a whole. The Target has no Knowledge that any such charge, complaint,
action, suit, proceeding, hearing or investigation may be brought or threatened
against the Target.
(o) Employee Benefits.
(i) Section 4(o) of the Disclosure Schedule lists each Employee Benefit
Plan that the Target maintains or to which the Target contributes.
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(A) To the Knowledge of Target, each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in form and
in operation in all respects with the applicable requirements of ERISA
and the Code, except where the failure to comply would not have a
Material adverse effect on the financial condition of the Target taken
as a whole.
(B) To the Knowledge of Target, all contributions (including all
employer contributions and employee salary reduction contributions)
which are required to have been paid to each such Employee Benefit Plan
which is an Employee Pension Benefit Plan have been paid.
(C) To the Knowledge of Target, each such Employee Benefit Plan which
is an Employee Pension Benefit Plan and which is intended to be a
qualified plan under Code Section 401(a) has received a determination
letter from the Internal Revenue Service within the last two years to
the effect that it meets the requirements of Code Section 401(a).
(D) To the Knowledge of Target, as of the last day of the most recent
prior plan year, the market value of assets under each such Employee
Benefit Plan which is a defined benefit Employee Pension Benefit Plan
(other than any Multiemployer Plan) equaled or exceeded the present
value of vested liabilities thereunder (determined in accordance with
then current funding assumptions).
(E) The Sellers have delivered to the Buyer correct and complete copies
of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Target
maintains or ever has maintained or to which the Target contributes, ever
has contributed, or ever has been required to contribute, to the Knowledge
of Target:
(A) no such Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC, and no
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted;
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(B) no action, suit, proceeding, hearing, or investigation with respect
to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits and
qualified domestic relations orders) is pending, except where the
action, suit, proceeding, hearing, or investigation would not have a
material adverse effect on the financial condition of the Target taken
as a whole;
(C) the Target has not incurred any Material liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal liability) with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan;
(D) all required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's and Summary Plan
Descriptions) have been filed or distributed appropriately with respect
to each Employee Benefit Plan, except when the failure so to file would
not have a Material adverse effect on Target and the requirements of
Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have
been met with respect to each Employee Welfare Benefit Plan;
(E) no Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated or been the subject
of a Reportable Event as to which notices would be required to be filed
with the PBGC, and no proceeding by the PBGC to terminate any Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened;
(F) (x) there have been no Prohibited Transactions with respect to any
Employee Benefit Plan, (y) no Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with
the administration or investment of the assets of any Employee Benefit
Plans, and (z) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand with respect to the administration or
the investment of the assets of any Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. The Target has
no Knowledge of any Basis for any such charge, complaint, action suit,
proceeding, hearing, investigation, claim, or demand.
To the Knowledge of Target, (i) the Target has never contributed to, or
ever has been required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal Liability) under any Multiemployer Plan,
and (ii) the Target does not maintain, or has it ever maintained or
contributed to, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing
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health, accident, or life insurance benefits to former employees, their
spouses, or their dependents (other than in accordance with Code Sec.
4980B).
(p) Subsidiaries. The Target has no subsidiaries.
(q) Undisclosed Liabilities. To the Knowledge of Target, the Target does
not have any Liability (and to the Knowledge of Target, there is no Basis for
any present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against any of them giving rise to any
Liability, including, without limitation, Liability under the Fair Labor
Standards Act of 1938, as amended and the rules and regulations promulgated
thereunder) which is individually in excess of $10,000, except for (i)
Liabilities set forth in the Most Recent Financial Statements, and (ii)
Liabilities which have arisen since December 31, 1996 in the ordinary course of
business (none of which relates to any breach of contract, breach of warranty,
tort, infringement, or violation of law or arose out of any charge, complaint,
action, suit, proceedings, hearing, investigation, claim, or demand).
(r) Real Property Leases. To the Knowledge of Target, Section 4(r) of the
Disclosure Schedule lists and describes briefly all real property leased or
subleased to the Target and the Target has delivered to the Buyer correct and
complete copies of the leases and subleases listed in Section 4(r) of the
Disclosure Schedule (as amended to date). Except as otherwise set forth in such
Schedule, with respect to each lease and sublease listed in Section 4(r) of the
Disclosure Schedule, to the Knowledge of Target:
(i) the lease or sublease is legal, valid, binding, enforceable, and in
full force and effect;
(ii) the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect in accordance with its terms
following the Closing;
(iii) no party to the lease or sublease 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;
(iv) no party to the lease or sublease has repudiated any provision
thereof;
(v) there are no disputes, oral agreements, or forbearance programs in
effect as to the lease or sublease;
(vi) the Target has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
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(vii) all facilities leased or subleased thereunder have received all
material approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations in all material respects.
(s) Notes and Accounts Receivable. All notes and accounts receivable of the
Target are reflected properly on their books and records, are valid receivables
subject to no existing setoffs or counterclaims, and are presently current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth in the
Most Recent Financial Statements (rather than 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 Target.
(t) Insurance. To the Knowledge of Target, Section 4(t) of the Disclosure
Schedule contains true and complete copies of and sets forth the name, address,
and telephone number of the agent for each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Target is a party, a named insured,
or otherwise the beneficiary of coverage. With respect to each such insurance
policy, to the Knowledge of the Target: (A) the policy is legal, valid, binding,
and enforceable and in full force and effect; (B) the policy will continue to be
legal, valid, binding, and enforceable and in full force and effect on identical
terms following the Closing Date; (C) the Target is not in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification, or
acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Section 4(t) of the Disclosure Schedule contains true and
complete copies of all written agreements with third parties for "administrative
services only" risk funding and risk administration services.
(u) Employees. To the Knowledge of Target, (i) no key employee or full-time
group of employees has any plans to terminate employment with the Target, (ii)
Target is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strikes, grievances, claims or unfair labor practices, or
other collective bargaining disputes, and (iii) Target has not committed any
unfair labor practice (as defined under applicable federal and state law). The
Target has no Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Target.
(v) Guaranties. To the Knowledge of Target, the Target is not a guarantor
or otherwise contractually liable for any Liability or obligation (including
indebtedness) of any other person, except for the endorsements of instruments
for deposit or collection or similar transactions in the ordinary course of
business.
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(w) Environment, Health, and Safety.
(i) To the Knowledge of Target, each of the Target and Affiliates has
complied in all material respects with all laws (including rules and
regulations thereunder) of federal state, local and foreign governments
(and all agencies thereof) concerning the environment, public health and
safety, and employee health and safety, and no charge, complaint, action,
suit, proceeding, hearing, investigation, claim, demand, or notice has been
filed or commenced against any of them alleging any failure to comply with
any such law or regulation, the violation of which would have a Material
adverse effect.
(ii) To the Knowledge of Target, the Target does not have any material
Liability (and to their Knowledge there is no Basis related to the past or
present operations, properties, or facilities of any of the Target and its
Affiliates for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim or demand against the Target
giving rise to any Liability) under the Comprehensive Environmental
Response, Compensation and Liability At of 1980, the Resource Conservation
Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the
Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic
Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency
Planning and Community Right-to-Know Act of 1986 (each as amended), or any
other similar law (or rule or regulation thereunder) of any federal, state,
local or foreign government (or agency thereof concerning environmental
protection).
(iii) To the Knowledge of Target, the Target does not have any material
Liability (and none of the Target and its Affiliates has handled or
disposed of any hazardous substance, arranged for the disposal of any
hazardous substance, or owned or operated any property or facility in any
manner that could form the basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim or
demand (under the common law or pursuant to any statute) against the Target
giving rise to any material Liability) for damage caused by release or
threatened release of hazardous substances to any site, location, or body
of water (surface or subsurface) or for illness or personal injury caused
by release or threatened release of hazardous substances.
(iv) To the Knowledge of Target, the Target does not have any material
Liability (and there is no Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against the Target giving rise to any Liability) under the
Occupational Safety and Health Act, as amended, or any other law (or rule
or regulation thereunder) of any federal, state,
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local, or foreign government (or agency thereof) concerning employee health
and safety.
(v) To the Knowledge of Target, the Target has obtained and been in
compliance in all material respects with all of the terms and conditions of
all permits, licenses, and other authorizations which are required under,
and has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all federal, state, local, and foreign
laws (including rules, regulations, codes, plans, judgments, orders,
decrees, stipulations, injunctions, and charges thereunder) relating to
public health and safety, worker health and safety, and pollution or
protection of the environment.
(vi) To the Knowledge of Target, all materials and equipment used in
the business of Target have been free of asbestos, PCB's, methylene
chloride, trichloroethylene, 1.2 transdichlorethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(x) Certain Business Relationships with the Target. Except as set forth in
Section 4(x) of the Disclosure Schedule, to the Knowledge of Target, none of the
Sellers and their Affiliates has been involved in any business arrangement or
relationship with the Target within the past twelve (12) months, and none of the
Sellers and their Affiliates owns any material property or right, tangible or
intangible, which is used in the business of the Target.
(y) Disclosure. To the Knowledge of Target, except as disclosed in the
Disclosure Schedules hereto, there is no misstatement or omission of any
material fact that would result in a material adverse effect on the business,
assets or financial condition of the Target.
5. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
(a) General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section 7
below).
(b) Notices and Consents. Each of the Parties will (and the Sellers will
cause the Target to) give any notices to, make any filings with, and use their
reasonable best efforts to obtain any authorizations, consents, and approvals of
governments and governmental
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agencies. All filing fees incurred in giving notice or making any filings will
be the expense of the Buyer.
(c) Operation of Business. Except as set forth on Section 5(c) of the
Disclosure Schedule hereto, the Sellers will not cause or permit the Target to
engage in any practice, take any action, or enter into any transaction outside
the ordinary course of business. Except as set forth on Section 5(c) of the
Disclosure Schedule, without limiting the generality of the foregoing, the
Sellers will not cause or permit the Target to engage in any practice, take any
action, embark on any course of inaction, or enter into any transaction
described in Section 4(g) above. Buyer acknowledges that Sellers will cause
Target to terminate the Stock Option Plan prior to Closing and will cause Target
to convert the interests in the Phantom Stock Plan to Target Shares or otherwise
retire or redeem such interests prior to Closing. Sellers acknowledge and agree
that the economic costs of such conversion, redemption or termination shall be
borne by Sellers and shall not cause a reduction in the Net Working Capital of
Target between December 31, 1996 and the Closing Date.
(d) Full Access. The Requisite Sellers will permit, and the Requisite
Sellers will cause the Target to permit, representatives of the Buyer to have
full access at all reasonable times, and in a manner so as not to interfere with
the normal business operations of the Target, to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to the Target. The Buyer will treat and hold as such any
Confidential Information it receives from any of the Sellers or the Target, in
the course of the reviews contemplated by this Section 5(d), will not use any of
the Confidential Information except in connection with this Agreement, and, if
this Agreement is terminated for any reason whatsoever, will return to the
Sellers and the Target, all tangible embodiments (and all copies) of the
Confidential Information which are in its possession. Notwithstanding the
foregoing, that certain Letter Agreement dated December 9, 1996 between
Donaldson, Lufkin & Jenrette Securities Corporation as Exclusive Agent on behalf
of Target and Golder Thoma Cressey, Rauner, Inc. will remain in full force and
effect and anything herein to the contrary notwithstanding, in the event of a
conflict between the provisions of this Agreement and such Letter Agreement,
then the terms and provisions of the Letter Agreement will govern for all
purposes.
(e) Notice of Developments. The Requisite Sellers may elect at any time to
notify the Buyer of any development causing a breach of any of the
representations and warranties in Section 4 above by submitting updates or
amendments to the Schedules hereto. Such amended Schedules will be deemed to
have qualified the representations and warranties contained in Section 4 above
and to have cured any misrepresentations or breach of warranty that might
otherwise have existed by reason of the development, subject to the rights of
Buyer set forth in Section 4 hereof.
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(f) Exclusivity. None of the Sellers will (and the Sellers will not cause
or permit the Target to) (i) solicit, initiate, or encourage the submission of
any proposal or offer from any person relating to any (A) liquidation,
dissolution, or recapitalization, (B) merger or consolidation, (C) acquisition
or purchase of securities or assets, or (D) similar transaction or business
combination involving the Target or (ii) participate in any discussions or
negotiations regarding or furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. The Sellers will notify the Buyer
promptly if any person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
6. POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the
Closing:
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Target, each of the other Parties shall cooperate with him or it
and his or its counsel in the defense or contest, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the defense or contest, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8 below).
(c) Covenant Not to Compete. For a period of the greater of (i) three years
from and after the Closing Date, or (ii) two years from the date of termination
of employment by Target, none of the Sellers will engage directly or indirectly
in any business that the Target conducts as of the Closing Date in any
geographic area in which the Target conducts that business as of the Closing
Date; provided, however, that no owner of less than 3.5% of the outstanding
stock of any publicly traded corporation shall be deemed to engage solely by
reason thereof in any of its businesses.
(d) Transition. From the Closing Date through December 31, 1998, none of
the Sellers will take any action that primarily is designed or intended to have
the effect of
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discouraging any lessor, licensor, customer, supplier, or other business
associate of the Target from maintaining business relationships with the Target
after the Closing.
(e) Confidentiality. Until December 31, 1998, each of the Sellers will
treat and hold as such all of the Confidential Information, refrain from using
any of the Confidential Information except in connection with this Agreement and
except in the ordinary course of business, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his or its possession.
In the event that any of the Sellers is requested or required (by oral question
or request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information ("Confidential Information Demand"), the Sellers will
notify the Buyer promptly of the request or requirement so that the Buyer may
seek an appropriate protective order or waive compliance with the provisions of
this Section 6(e). If, in the absence of a protective order or the receipt of a
waiver hereunder, any of the Sellers is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, that Sellers may disclose the Confidential Information to the
tribunal; provided, however, that the disclosing Seller shall use his or its
reasonable best efforts to obtain, at the reasonable request of the Buyer, and
at Buyer's expense, an order or other assurance that confidential treatment will
be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not apply
to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure. Sellers may retain legal counsel of
Seller's reasonable choice, the reasonable cost of which shall be at Buyer's
cost and expense to assist Sellers in evaluating how to respond to or to resist
disclosing any Confidential Information as the result of any Confidential
Information Demand.
(f) Tax Consequences of Merger. The parties agree and acknowledge that the
merger of Target into Acquisition shall be treated for federal income tax
purposes as a taxable asset sale by Target of its assets. All Taxes attributable
to the merger of Target into Acquisition in excess of the Corporate Tax Amount
shall be the liability of Sellers. To the extent the Corporate Tax Amount
exceeds the amount of Taxes incurred by Target as a result of the merger of
Target into Acquisition (including without limitation (i) taxes imposed under
Code Sec. 1374, and (ii) state income taxes over the amount of Taxes payable by
Target with respect to its assets), the amounts of such excess shall be paid by
Buyer to Sellers and Shareholders promptly, but no later than the date the First
Earned Payout Amount is due. In connection with such merger, within sixty (60)
days following the Closing Date, Buyer and the Sellers shall act together in
good faith to determine and agree upon the amount to be allocated to each asset
of Target in accordance with Treasury Regulation Section 1.1060-IT and any
successor thereto. The Parties shall report the tax consequence of the
transactions contemplated by this Agreement consistently with such allocations
and shall not take any position inconsistent with such allocations in any Tax
Return or otherwise. The parties agree that $25,000 shall be allocated to all
covenants
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not to compete in the aggregate and that $1,291,457 shall be allocated to all
Code sections 1245 and 1250 property of the Target. In the event that Buyer and
the Sellers are unable to agree as to any other such allocations, the Parties
agree to be bound by the determination of the Independent Accounting Firm as
described in Section 2(k) hereof with respect to such allocation, and the costs
and expenses of the Independent Accounting Firm shall be borne equally by Buyer
and Sellers.
(g) Leases. Sellers shall cause on or before the expiration of sixty (60)
days after the Closing Date the Target to obtain from its landlords (to the
extent required under the pertinent premises lease) any required written consent
to the transactions contemplated by this Agreement. Buyer agrees to cooperate
fully with Target and Sellers in connection therewith.
(h) Additional Tax Matters.
(i) The Buyer shall cause the Target (at Sellers' sole and reasonable
cost and expense) to file with the appropriate governmental authorities all
Tax Returns required to be filed by it for any taxable period ending prior
to January 1, 1997 and Sellers shall remit any Taxes due in respect of such
Tax Returns (but only to the extent such Taxes are in excess of the
reserve, if any, for such Tax liability as set forth in the Financial
Statements and the Most Recent Financial Statements). In addition, Sellers
shall cause (at Buyer's sole and reasonable cost and expense) Target to
prepare a short period tax return for the Target covering the period
January 1, 1997 through the Closing Date. Buyer agrees to cooperate fully
with Sellers and Target in connection therewith.
(ii) The Buyer agrees that, unless required by law, it will not amend
any Tax Return filed by Target for a tax year that ends prior to the
Closing Date without the consent of the Requisite Sellers, which consent
will not be unreasonably withheld; and provided further that any refunds of
Taxes received in connection any amendments of such returns promptly will
be paid to Sellers and the Shareholders in accordance with their Allocable
Portions; Buyer agrees that at Requisite Seller's request (and at Sellers'
sole and reasonable cost and expense) it shall cause Target to file amended
returns for any tax period that ends prior to the Closing Date so long as
such amendments are in accordance with applicable law.
(iii) Buyer and the Sellers recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting
and Tax records and information held by the Buyer and/or the Target to the
extent such records and information pertain to events occurring on or prior
to the Closing Date; therefore, Buyer agrees to cause the Target to (A) use
its best efforts to properly retain and maintain such records for period of
six (6) years from the date the Tax Returns for the year in which the
Closing occurs are filed or until the expiration of
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the statute of limitations that applies to the Tax Return in question
(i.e., including Tax Returns for years preceding the year in which the
Closing occurs), whichever is later, and (B) allow the Sellers and their
agents and representatives at times and dates mutually acceptable to the
Buyer and Sellers, to inspect, review and make copies of such records as
such other party may deem necessary or appropriate from time to time, such
activities to be conducted during normal business hours and at the other
Party's expense.
(i) Conduct During Earned Payout Periods.
(i) Unless otherwise agreed in writing by the Requisite Seller, during
the Earned Payout Periods, the Buyer agrees to (a) permit Surviving
Corporation to maintain separate books and records for Target; and (b)
maintain Surviving Corporation as a separate entity utilizing the name
"Metamor Technologies, Ltd." (which name will not be otherwise used by
Buyer or its Affiliates) and not to combine, merge, consolidate or
liquidate Surviving Corporation or sell any of its assets except for
insubstantial assets in the ordinary course of business.
(ii) During the Earned Payout Period, Irvin Shapiro will be the
President and Chief Executive Officer of the Surviving Corporation and will
have the necessary authority to manage the business of the Surviving
Corporation (including the authority to hire, retain or fire all senior
management of the Surviving Corporation including the chief financial
officer) consistent with prior practices and prudent business practices in
order to maximize the amount of the Earned Payout Amounts; provided
however, that Surviving Corporation agrees not to cut staff, capital
expenditures and general and administrative expenses or take other actions
that are not consistent with prior practices and/or prudent business
practices of Target and agrees not to engage in any activity solely in
order to increase current year profits of the business at the expense of
the longer term growth of the business. Buyer agrees that it will not
unreasonably require the Surviving Corporation to substantially change any
prior business practice of Target, including but not limited to the
customers served, the prices charged, the level and compensation of
full-time corporate employees and the level of general and administrative
expenses, unless the prior practices are unreasonable or imprudent. Buyer
recognizes that prior practices of the Target have included "loss leader"
contracts of the nature set forth on Section 4(l) of the Disclosure
Schedule.
(iii) Buyer agrees that during the Earned Payout Period, without the
prior written consent of the Requisite Seller, Buyer and its Affiliates
will not acquire any business that, in the reasonable judgment of the
Requisite Seller, is in direct competition with the Surviving Corporation
or that Target was engaged in as of the Closing Date, and which is located
within 50 miles of the Chicago
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metropolitan area or within the State of Tennessee. Buyer further agrees
that during the Earned Payout Period, without the prior written consent of
the Requisite Seller, it will not require the Surviving Corporation to
Manage any business it acquires.
(iv) Buyer agrees at all times to make sufficient capital available to
the Surviving Corporation to enable the Surviving Corporation to make the
expenditures set forth in the 1997-1998 budget delivered to Buyer
concurrently herewith, as the same may be increased in the ordinary course
of business and consistent with past practice or to permit Target to
maintain a line of credit at least equal to Target's line of credit prior
to the Closing Date.
(v) Buyer shall use its best efforts to cause E&Y (at Buyer's expense)
to consult with Target in the preparation of, and to review, the financial
statements and the calculation of the Adjusted EBIT of the Target for the
11 month periods ended November 30, 1997 and November 30, 1998 (each, an
"Eleven Month Report") and for the years ended December 31, 1997 and
December 31, 1998 as promptly as possible. Upon delivery by Target of the
Eleven Month Report to Buyer, Buyer shall have 15 days from receipt to
deliver to Seller any of Buyer's Objections. If Buyer does not object to
such report in the 15 day period, Buyer shall be bound by the calculations
contained therein. Buyer's Objections shall be resolved and governed by the
procedure set forth in Section 4(k) hereof.
(vi) Buyer shall make available to the Surviving Corporation at no
charge routine legal and administrative services, consistent with the
current and past practices of Buyer with its Affiliates.
(vii) The written consent of the Requisite Sellers shall be required
for implementation of any profit sharing or other retirement or incentive
plans for the Surviving Corporation after the Closing, unless such plans
are substantially similar to those provided by Target on or prior to the
Closing Date.
(viii) There shall be no waiver or reduction in the Penalty as
described in the Phantom Stock Conversion Agreements executed by the
Company unless approved by a majority of the Board of Directors of the
Surviving Corporation.
(ix) Sellers shall cause Target to compensate each holder of an
employee stock option under the Stock Option Plan in connection with the
cancellation of such options and the termination of the Stock Option Plan,
and all related economic costs shall be borne by Sellers.
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7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(a) and
Section 4 above shall be true and correct in all material respects at and
as of the Closing Date;
(ii) the Sellers and Shareholders shall have performed and complied
with all of their respective covenants hereunder in all material respects
through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Sellers shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section 7(a)(i)-(iii)
is satisfied in all respects;
(v) the acquisition by the Buyer of the Target Shares shall represent
one hundred percent (100%) of the issued and outstanding capital stock of
the Target and all of such Target Shares shall be free and clear of any
liens, claims or encumbrances of any nature whatsoever;
(vi) each of the persons listed on Annex IV (including, without
limitation, Irvin M. Shapiro) shall have received an executed employment
agreement substantially in the form attached hereto as Exhibit B;
(vii) the Buyer shall have received from Irvin M. Shapiro an executed
non-competition agreement substantially in the form attached hereto as
Exhibit C;
(viii) the Buyer shall have received from certain key employees of the
Target to be mutually agreed upon by Buyer and Sellers an executed
non-competition agreement substantially in the form attached hereto as
Exhibit D;
(ix) the Buyer shall have received the resignations, effective as of
the Closing, of each director of the Target other than those designated by
Buyer prior to the Closing;
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(x) Sellers shall have caused the Target to cancel the Stock Option
Plan at no cost to the Buyer, and will have caused Target to terminate the
Phantom Stock Plan at no cost to Buyer;
(xi) all Security Interests securing debts (including Tax liens) of the
Target which have been paid in full prior to or at the Closing shall have
been fully released of record to the reasonable satisfaction of the Buyer
and all Uniform Commercial Code financing statements covering such debts
shall have been terminated;
(xii) except for loans to employees to finance the purchase of
computers as set forth in Section 7(a)(xii) of the Disclosure Schedule, the
Sellers shall and the Sellers shall have caused all of the Target's
officers, directors and/or employees of the Target to, have repaid in full
all debts and other obligations, if any, owed to the Target; and
(xiii) the Parties and the Target shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to herein;
(xiv) the Buyer shall have received from Stone, Pogrund & Korey an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(xv) except as set forth in Section 6(g) hereof, the Target shall have
procured all necessary third party consents specified in Section 5(b)
above;
(xvi) the holders of no more than ten percent (10%) of the outstanding
Target Shares shall have exercised their right to dissent to the Merger as
provided by the BCA; and
(xvii) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the Sellers
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
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(i) the representations and warranties set forth in Section 3(b) above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Sellers a certificate to the
effect that each of the conditions specified above in Section 7(b)(i)-(iii)
is satisfied in all respects;
(v) the Parties and the Target shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to herein;
(vi) the Sellers shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit F attached hereto,
addressed to the Sellers, and dated as of the Closing Date;
(vii) each of the persons listed on Annex IV shall have received an
executed employment agreement in form and substance attached hereto as
Exhibit B, and, in the case of Irvin M. Shapiro, in the form of Exhibit
B-1;
(viii) a Restricted Stock Plan shall have been approved and entered
into by Buyer substantially in the form attached hereto as Exhibit G;
(ix) Sellers shall have received the Note executed by Buyer;
(x) an Escrow Agreement substantially in the form attached hereto as
Exhibit H shall have been executed by Buyer;
(xi) a Directors' and Officers' Indemnification Agreement in the form
attached hereto as Exhibit J shall have been entered into by Buyer and
Irvin M. Shapiro; and
(xii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Requisite Sellers.
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The Requisite Sellers may waive any condition specified in this Section 7(b) if
they execute a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties. Except as otherwise
provided herein, all of the representations and warranties of the Sellers
contained in Section 4 above shall survive the Closing hereunder (unless the
Buyer knew of any misrepresentation or breach of warranty at the time of Closing
in which case such representations and warranties shall not survive the Closing
and there shall be no remedy for their breach) and continue in full force and
effect for a period of 18 months thereafter. Except as otherwise provided
herein, all of the representations and warranties of the Parties contained in
Section 3 above shall survive the Closing (unless the damaged Party knew of any
misrepresentation or breach of warranty at the time of Closing in which case
such representations and warranties shall not survive the closing and there
shall be no remedy for their breach) and continue in full force and effect
forever thereafter (subject to any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event any of the Sellers breaches any of their
representations, warranties, agreements and covenants contained herein
(other than the representations and warranties in Section 3(a) above), and,
if there is an applicable survival period pursuant to Section 8(a) above,
provided that the Buyer makes a written claim for indemnification against
any of the Sellers pursuant to Section 10(h) below within such survival
period, then each of the Sellers and Shareholders agrees to indemnify the
Buyer from and against his or its Allocable Portion of any Adverse
Consequences the Buyer shall suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer shall
suffer after the end of any applicable survival period) caused by the
breach; provided, however, that the Sellers and Shareholders shall not have
any obligation to indemnify the Buyer from and against any Adverse
Consequences caused by the breach of any representation or warranty of the
Sellers contained in Section 4 above, to the extent the Adverse
Consequences the Buyer has suffered by reason of all such breaches exceeds
the "Aggregate Ceiling" as defined below (after which point the Sellers and
Shareholders will have no obligation to indemnify the Buyer from and
against further such Adverse Consequences). The Aggregate Ceiling initially
shall be equal to the product of (i) $4,000,000 and (ii) a fraction, the
numerator of which is equal to the Cash Portion of the Purchase Price
(after any adjustments pursuant to Section 2(l) hereof) (the "Adjusted Cash
Portion"), and the denominator of which is $38,000,000. The Aggregate
Ceiling shall be finally determined after the Second Earned Payout Period
and shall be equal to the
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product of (i) $4,000,000 and (ii) a fraction, the numerator of which is
equal to the sum of the Adjusted Cash Portion, plus the First Earned Payout
Amount plus the Second Earned Payout Amount, and the denominator of which
is $38,000,000. Nothing herein shall be deemed to extend the survival
period of any representations and warranties as set forth in Section 8(a).
(ii) In the event any of the Sellers breach any of his or its
representations and warranties in Section 3(a) above, and, if there is an
applicable survival period pursuant to Section 8(a) above, provided that
the Buyer makes a written claim for indemnification against the Sellers or
Shareholders pursuant to Section 10(h) below within such survival period,
then each of the Sellers and Shareholders agree to indemnify the Buyer from
and against his or its Allocable Portion of any Adverse Consequences the
Buyer shall suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer shall suffer
after the end of any applicable survival period) caused by the breach in an
aggregate amount no greater than each Seller or Shareholder's Allocable
Portion of the Purchase Price paid to Sellers and Shareholders after which
point Sellers and Shareholders will have no obligation to indemnify the
Buyer from and against such further Adverse Consequences.
(iii) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any brokerage fees or investment banking
commissions due by Sellers or the Target by reason of the transactions
contemplated by this Agreement.
(iv) Each of the Sellers shall be liable for, and hereby indemnifies,
the Buyer for his or its Allocable Portion of all Income Taxes imposed on
the Target with respect to any taxable year or period beginning before and
ending after the Closing Date, for the portions of such taxable year or
period ending prior to the Closing Date; provided, however, that such
indemnity shall be made only to the extent such Income Taxes are in excess
of the reserve, if any, for such Tax Liability used to determine the Net
Working Capital of Target, and in excess of the Corporate Tax Amount.
(v) The Sellers shall be liable for, and shall indemnify and hold Buyer
and Target harmless against, their Allocable Portion of any Taxes or other
costs attributable solely a failure on the part of Target to have qualified
as an "S corporation" for federal income tax purposes.
(vi) In the event Target is unable to collect the notes and accounts
receivable described in Section 4(s) hereof, each of the Sellers and
Shareholders agrees to indemnify the Buyer from and against his or its
Allocable Portion of the amount of such receivables that is not collected
by Target, provided that Buyer
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makes a written claim for indemnification pursuant to Section 10(h) below
within the survival period pursuant to Section 8(a) above, and provided
further that in such event Buyer will cause Target upon payment or offset
of any Earned Payout Amount, to execute all documents necessary to assign
to the Requisite Seller (for the benefit of the Sellers and Shareholders)
all of Target's and/or Buyer's rights in the notes and/or accounts
receivable that are not collected, and the Requisite Seller may thereupon
attempt to collect such notes or accounts for the benefit of the Sellers
and Shareholders utilizing reasonable collection efforts. Buyer agrees to
cooperate with the Requisite Seller in his attempts to collect.
(vii) Each of the Sellers and Shareholders agrees to indemnify and hold
Buyer harmless against his or its Allocable Portion of the costs incurred
in connection with the cancellation of employee stock options issued under
Target's Stock Option Plan and the termination of the Phantom Stock Plan.
(c) Indemnification Provisions for Benefit of the Sellers. In the event the
Buyer or Acquisition breaches any of its representations, warranties, agreements
and covenants contained herein, and, if there is an applicable survival period
pursuant to Section 8(a) above, provided that the Requisite Sellers make a
written claim for indemnification against the Buyer pursuant to Section 10(h)
below within such survival period, then the Buyer agrees to indemnify each of
the Sellers and Shareholders from and against the entirety of any Adverse
Consequences the Sellers or Shareholders shall suffer through and after the date
of the claim for indemnification (including any Adverse Consequences the Sellers
or Shareholders shall suffer after the end of any applicable survival period)
caused by the breach.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 8, then the Indemnified Party shall notify each
Indemnifying Party thereof promptly; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
damaged or materially prejudiced from adequately defending such claim. In
the event any Indemnifying Party notifies the Indemnified Party within 30
days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, (A) the Indemnifying
Party will defend the Indemnified Party against the matter with counsel of
its choice reasonably satisfactory to the Indemnified Party, (B) the
Indemnified Party may retain separate co-counsel as its sole cost and
expense (except that the Indemnifying Party will be responsible for the
fees and expenses
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of the separate co-counsel to the extent the Indemnified Party reasonably
and in good faith concludes that the counsel the Indemnifying Party has
selected has a conflict of interest), (C) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Indemnifying Party
(not to be withheld unreasonably), and (D) the Indemnifying Party will not
consent to the entry of any judgment with respect to the matter, or enter
into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Indemnified Party from all
Liability with respect thereto, without the written consent of the
Indemnified Party (not to be withheld unreasonably). In the event no
Indemnifying Party notifies the Indemnified Party within 30 days after the
Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, however, the Indemnified Party may
defend against, or enter into any settlement with respect to, the matter in
any manner it reasonably may deem appropriate. At any time after
commencement of any such action, any Indemnifying Party may request an
Indemnified Party to accept a bona fide offer from the other Parties to the
action for a monetary settlement payable solely by such Indemnifying Party
(which does not burden or restrict the Indemnified Party nor otherwise
prejudice him or it) whereupon such action shall be taken unless the
Indemnified Party determines that the dispute should be continued, the
Indemnifying Party shall be liable for indemnity hereunder only to the
extent of the lesser of (i) the amount of the settlement offer or (ii) the
amount for which the Indemnified Party may be liable with respect to such
action. In addition, the Party controlling the defense of any Third Party
Claim shall deliver, or cause to be delivered, to the other Party copies of
all correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the defense of the
Third Party Claim, and timely notices of, and the right to participate in
(as an observer) any hearing or other court proceeding relating to the
Third Party Claim.
(ii) Unless and until an Indemnifying Party assumes the defense of the
Third Party Claim as provided in Section 8(d)(i) above, however, the
Indemnified Party may defend against the Third Party Claim in any manner he
or it reasonably may deem appropriate.
(iii) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of each of the Indemnifying
Parties, which shall not be unreasonably withheld.
(e) Determination of Adverse Consequences. The amount of any Adverse
Consequences for which indemnification is provided under this Agreement shall be
net of any amounts entitled to be recovered from a nonaffiliated insurance
company or pursuant
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to reinsurance agreements (after taking into account any cost incurred to
third parties in obtaining such proceeds) with respect to such Adverse
Consequences, and shall be (a) increased to take account any net Tax cost
incurred by the Indemnified Party arising from the receipt of indemnity
payments hereunder (grossed up for any Tax incurred on such increase); and
(b) reduced to take account any net Tax benefit arising from incurrence or
payment of any such Adverse Consequences by the Indemnified Party or any
Affiliate of the Indemnified Party. All indemnification payments under this
Section 8 shall be deemed adjustments to the Purchase Price.
(f) Payment; Offset.
(i) The Indemnifying Parties shall promptly pay to the Indemnified
Party as may be entitled to indemnity hereunder in cash the amount of any
Adverse Consequences to which Indemnified Party may become entitled to by
reason of the provisions of this Agreement. Furthermore, and in lieu of
receiving a cash payment from the Sellers and Shareholders, Buyer, in good
faith, may first offset against any Earned Payout Amounts payable to
Sellers and Shareholders, the amount of any Adverse Consequences or any
other payments to which Buyer or such Indemnified Parties are entitled to
by reason of and in accordance with the provisions of this Agreement. In
the event that Buyer offsets more than the amount of any Adverse
Consequences (as finally determined), Buyer shall pay to Sellers and
Shareholders such sums which should not have been subject to an offset,
together with interest at the Applicable Rate beginning on the date such
payment should have been made and continuing until paid in full.
(ii) In the event of a Default as defined in Section 2(m) hereof,
Sellers and Shareholders may offset the amount of any Adverse Consequences
for which Buyer is entitled to indemnification hereunder against the Earned
Payout Amounts payable to Sellers and Shareholders.
(g) Other Indemnification Provisions. The indemnification provisions in
this Section 8 are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant; provided, however, that the Buyer acknowledges and agrees
that the foregoing indemnification provisions in this Section 8 shall be the
exclusive remedy of the Buyer for any breach of the representations and
warranties in Section 4 above.
9. TERMINATION.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
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(i) the Buyer and the Requisite Sellers may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice to
the Requisite Sellers at any time prior to the Closing in the event that an
updated Disclosure Schedule indicates, in Buyer's reasonable discretion, a
material adverse change from information previously provided to Buyer, and
Buyer delivers written notice to Sellers as specified in Section 4 hereof;
(iii) the Buyer may terminate this Agreement by giving written notice
to the Requisite Sellers at any time prior to the Closing (A) in the event
any of the Sellers has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer has
notified the Requisite Sellers of the breach, and the breach has continued
without cure for a period of 10 days after the notice of breach or (B) if
the Closing shall not have occurred on or before May 31, 1997, by reason of
the failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(iv) the Requisite Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, any of the
Sellers has notified the Buyer of the breach, and the breach has continued
without cure for a period of 10 days after the notice of breach or (B) if
the Closing shall not have occurred on or before May 31, 1997, by reason of
the failure of any condition precedent under Section 7(b) hereof (unless
the failure results primarily from any of the Sellers themselves breaching
any representation, warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 9(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 5(d) above shall survive
termination.
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10. MISCELLANEOUS.
(a) Nature of Certain Obligations. The representations, warranties, and
covenants in this Agreement are "Joint and Several" obligations. This means that
each Seller will be responsible only to the extent provided in Section 8 above
for his or its Allocable Portion of any Adverse Consequences the Buyer may
suffer as a result of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the Buyer and the Requisite
Sellers which shall not be unreasonably withheld; provided, however, if any
Party is required by law or regulation to make any public disclosure, Target and
Buyer shall work together in good faith to prepare the language for such
disclosure.
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they have related in any way to the subject
matter hereof.
(e) Successors and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Requisite Sellers; provided, however, that the
Buyer may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: Copies to:
Irvin M. Shapiro Lawrence M. Friedman
8852 Lowell Lord, Bissell & Brook
Skokie, IL 60076 115 South LaSalle St.
Fax: (847) 674-9958 Chicago, IL 60603
Fax: (312) 443-0336
and
Sherwin I. Pogrund
Stone, Pogrund & Korey
221 North LaSalle Street
32nd Floor
Chicago, IL 60601
Fax: (312) 782-1482
If to the Buyer or Acquisition: Copies to:
COREStaff, Inc. Peter T. Dameris, Esq.
4400 Post Oak Parkway Margaret G. Reed, Esq.
Suite 1130 COREStaff, Inc.
Houston, Texas 77027 4400 Post Oak Parkway
Attn: Michael T. Willis Suite 1130
Tel: (713) 961-3633 Houston, Texas 77027
Fax: (713) 627-1059 Tel: (713) 961-3633
Fax: (713) 627-1059
Notices to the Shareholders shall be sent to the addresses set forth on Annex A
hereto. Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices,
46
<PAGE> 52
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Illinois without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Illinois.
(j) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyer and
the Requisite Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Buyer and the Target will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Sellers agree that the
Target has not borne or will bear any of the Sellers' costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(m) Construction. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to
47
<PAGE> 53
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
(p) Offset Against Earnout for Penalty Payments. In the event that a
Participant (as defined in the Phantom Stock Conversion Plan) is required to pay
a Penalty (as therein defined) to Irvin M. Shapiro, and Buyer is notified in
writing by Mr. Shapiro that payments of the Penalty have not been made when due
("Delinquent Penalty Amount"), then Buyer shall offset against Earned Payout
Amounts payable to Sellers and Shareholders, the Delinquent Penalty Amount. All
Sellers and Shareholders other than said Participant will receive their
Allocable Portion of the full amount of the Earned Payout Amount (without regard
to the offset of the Delinquent Penalty Amount) and Participant shall receive an
amount equal to his Allocable Portion of the full Earned Payout Amount less the
Delinquent Payment Amount. Buyer shall pay the Delinquent Payment Amount
directly to Irvin M. Shapiro.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
SELLERS: BUYER:
CORESTAFF, INC.
/s/ Irvin M. Shapiro By: /s/ Peter T. Dameris
- ----------------------------------- --------------------------------
Irvin M. Shapiro Name: Peter T. Dameris
Title: Senior Vice President
THE IRVIN SHAPIRO CHILDREN'S
TRUST
By /s/ Lawrence M. Friedman
--------------------------------
Name: Lawrence M. Friedman
Title: Trustee
48
<PAGE> 54
METAMOR TECHNOLOGIES, LTD. CORESTAFF ACQUISITION SUB #9, INC.
By: /s/ Irvin M. Shapiro By: /s/ Peter T. Dameris
------------------------------- --------------------------------
Name: Irvin M. Shapiro Name: Peter T. Dameris
Title: President Title: Senior Vice President
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
AMONG
CORESTAFF, INC.,
CORESTAFF ACQUISITION SUB #12, INC.,
SAGE I.T. PARTNERS, INC.,
AND
THE SHAREHOLDERS OF SAGE I.T. PARTNERS, INC.
December 23, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
CLOSING AND POST CLOSING MATTERS
2.1 THE MERGER..............................................................................................7
2.2 MERGER; CONSIDERATION...................................................................................7
2.3 EFFECTIVE TIME OF THE MERGER............................................................................9
2.4 ARTICLES OF INCORPORATION...............................................................................9
2.5 BY-LAWS.................................................................................................9
2.6 DIRECTORS...............................................................................................9
2.7 OFFICERS................................................................................................9
2.8 OTHER EFFECTS ON CAPITAL STOCK..........................................................................9
2.9 SAGE OPTIONS...........................................................................................10
2.10 RIGHTS.................................................................................................10
2.11 AGREEMENT TO VOTE SHARES..............................................................................10
2.12 DOCUMENTS..............................................................................................10
2.13 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS..............................................................11
2.14 DISSENTERS RIGHTS......................................................................................11
2.15 CLOSING................................................................................................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
CONCERNING THE TRANSACTION
3.1 AUTHORIZATION OF TRANSACTION...........................................................................11
3.2 NONCONTRAVENTION.......................................................................................12
3.3 BROKER'S FEES..........................................................................................12
3.4 SHARES.................................................................................................12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CORESTAFF
CONCERNING THE TRANSACTION
4.1 ORGANIZATION OF CORESTAFF..............................................................................13
4.2 AUTHORIZATION OF TRANSACTION...........................................................................13
4.3 NONCONTRAVENTION.......................................................................................13
4.4 BROKER'S FEES..........................................................................................13
</TABLE>
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
5.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER.......................................................14
5.2 CAPITALIZATION.........................................................................................15
5.3 NONCONTRAVENTION.......................................................................................15
5.4 SUBSIDIARIES...........................................................................................16
5.5 FINANCIAL STATEMENTS...................................................................................16
5.6 EVENTS SUBSEQUENT TO MOST RECENT FINANCIAL STATEMENTS..................................................16
5.7 UNDISCLOSED LIABILITIES................................................................................18
5.8 TAX MATTERS............................................................................................18
5.9 TANGIBLE ASSETS........................................................................................20
5.10 REAL PROPERTY..........................................................................................20
5.11 REAL PROPERTY LEASES...................................................................................21
5.12 INTELLECTUAL PROPERTY..................................................................................22
5.13 CONTRACTS..............................................................................................25
5.14 NOTES AND ACCOUNTS RECEIVABLE..........................................................................27
5.15 POWERS OF ATTORNEY.....................................................................................27
5.16 INSURANCE..............................................................................................27
5.17 LITIGATION.............................................................................................28
5.18 EMPLOYEES..............................................................................................28
5.19 EMPLOYEE BENEFITS......................................................................................28
5.20 GUARANTIES.............................................................................................30
5.21 ENVIRONMENT, HEALTH, AND SAFETY........................................................................30
5.22 LEGAL COMPLIANCE.......................................................................................31
5.23 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY........................................................32
5.24 BROKERS' FEES..........................................................................................32
5.25 DISCLOSURE.............................................................................................32
5.26 BOOKS AND RECORDS......................................................................................33
5.27 COMPLIANCE WITH THE LETTER OF INTENT...................................................................33
5.28 PAYMENTS TO OFFICIALS..................................................................................33
ARTICLE VI
PRE-CLOSING COVENANTS
6.1 GENERAL................................................................................................33
6.2 NOTICES AND CONSENTS...................................................................................33
6.3 OPERATION OF BUSINESS..................................................................................34
6.4 PRESERVATION OF BUSINESS...............................................................................34
6.5 FULL ACCESS............................................................................................34
6.6 NOTICE OF DEVELOPMENTS.................................................................................34
6.7 EXCLUSIVITY............................................................................................35
6.8 PREPARATION OF FINANCIAL STATEMENTS; DELIVERY OF FINANCIAL INFORMATION.................................35
6.9 DELIVERY OF SCHEDULES; ACCEPTANCE......................................................................35
</TABLE>
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII
ADDITIONAL COVENANTS
7.1 GENERAL................................................................................................36
7.2 LITIGATION SUPPORT.....................................................................................36
7.3 TRANSITION.............................................................................................36
7.4 CONFIDENTIALITY........................................................................................36
7.5 MONITORING INFORMATION.................................................................................37
7.6 LEASES.................................................................................................37
7.7 ADDITIONAL TAX MATTERS.................................................................................37
7.8 COVENANT NOT TO COMPETE................................................................................37
7.9 CONDUCT OF BUSINESS DURING EARN-OUT PERIOD.............................................................38
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATION OF CORESTAFF..................................................................39
8.2 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS..........................................................41
ARTICLE IX
REMEDIES FOR BREACHES IN THIS AGREEMENT
9.1 SURVIVAL...............................................................................................42
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF CORESTAFF....................................................42
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDERS.............................................44
9.4 MATTERS INVOLVING THIRD PARTIES........................................................................44
9.5 DETERMINATION OF LOSS..................................................................................45
9.6 EXCLUSIVE REMEDY.......................................................................................45
9.7 PAYMENT; GENERAL RIGHT OF OFFSET.......................................................................45
9.8 TAX DISPUTES...........................................................................................45
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT...............................................................................46
10.2 EFFECT OF TERMINATION..................................................................................47
ARTICLE XI
MISCELLANEOUS
11.1 THE SHAREHOLDERS.......................................................................................47
11.2 PRESS RELEASES AND ANNOUNCEMENTS.......................................................................47
11.3 NO THIRD-PARTY BENEFICIARIES...........................................................................47
11.4 ENTIRE AGREEMENT.......................................................................................47
</TABLE>
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 5
<TABLE>
<S> <C>
11.5 SUCCESSION AND ASSIGNMENT..............................................................................48
11.6 FACSIMILE/COUNTERPARTS.................................................................................48
11.7 HEADINGS...............................................................................................48
11.8 NOTICES................................................................................................48
11.9 GOVERNING LAW..........................................................................................49
11.10 AMENDMENTS AND WAIVERS.................................................................................49
11.11 SEVERABILITY...........................................................................................49
11.12 EXPENSES...............................................................................................50
11.13 CONSTRUCTION...........................................................................................50
11.14 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES......................................................50
11.15 SPECIFIC PERFORMANCE...................................................................................50
11.16 SUBMISSION TO JURISDICTION.............................................................................51
</TABLE>
LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Employment Agreement
Exhibit C Form of Employee Non-Competition Agreement
Exhibit D Form of Opinion of Company's Legal Counsel
Exhibit F Form of Opinion of Buyer's Legal Counsel
Exhibit 4(l) Form of Nondisclosure Agreement
ANNEXES
Annex I Determination of EBIT
SCHEDULES
Disclosure Schedule
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of December 23, 1997 (this
"Agreement"), among CORESTAFF, Inc., a Delaware corporation ("CORESTAFF" or the
"Buyer"), CORESTAFF Acquisition Sub #12, Inc., a Delaware corporation and
wholly-owned subsidiary of CORESTAFF ("Merger Sub"), Sage I.T. Partners, Inc., a
California corporation (the "Company" or "Target," which, for the purposes of
this Agreement, shall be deemed to include the Subsidiaries (as defined herein)
except where the context indicates otherwise), and the shareholders of the
Company named on the signature page hereto (the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders own all of the capital stock of the Company;
and
WHEREAS, the persons listed in Section 5.2 of the Disclosure Schedule
as the optionholders (the "Optionholders") are the sole owners of outstanding
Sage Options; and
WHEREAS, the parties hereto deem it advisable and in the best interests
of their respective companies and shareholders to consummate the merger of
Merger Sub with and into the Company (the "Merger"), with the Company as the
surviving corporation in the Merger, upon the terms and conditions set forth in
this Agreement; and
WHEREAS, for federal income tax purposes it is intended that the Merger
shall be a reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, the parties hereto desire to set forth certain
representations, warranties, covenants and agreements made by each to the other
in connection with the transactions described in this Agreement, including
certain additional agreements related to the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
<PAGE> 7
ARTICLE I
DEFINITIONS
The following terms shall have the following respective meanings for
all purposes of this Agreement:
"ADVERSE CONSEQUENCES" means all charges, complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all attorneys' fees and court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Sec. 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"BUYER" has the meaning set forth in the preface above.
"CASH PORTION OF THE PURCHASE PRICE" has the meaning set forth
in Section 2.2(a) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CLOSING" shall have the meaning set forth in Section 2.15.
"CLOSING DATE" shall have the meaning set forth in Section
2.15.
"COMPANY COMMON STOCK" shall mean the common stock, no par
value, of the Company.
"CONFIDENTIAL INFORMATION" means all confidential information
and trade secrets of Target including, without limitation, the identity, lists
or descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training operations methods and manuals;
personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Sec. 1563.
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 8
"CUSTOMER CONTRACT OR AGREEMENT" means any contract or
agreement of Target related to (a) information technology or computer support
services, training, education and change management services; (b) maintenance
contracts for application software; (c) maintenance support arrangements, (d)
reengineering and refurbishment arrangements; (e) consulting arrangements; (f)
any other contract computer support services arrangement; and (g) agreements
related to any other services provided by Target.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth
in Treas. Reg. Section 1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 5
below.
"DOCUMENTATION" has the meaning set forth in Section 5.12
below.
"EARN-OUT PAYMENT" has the meaning set forth in Section 2.2(b)
below.
"EARN-OUT PAYMENT DETERMINATION" has the meaning set forth in
Section 2.2(c) below.
"EARN-OUT PAYMENT DISAGREEMENT NOTICE" has the meaning set
forth in Section 2.2(c) below.
"EARN-OUT PERIOD" has the meaning set forth in Section 2.2(b)
below.
"EBIT" means earnings before interest and taxes (prepared on
an accrual basis of accounting and in accordance with GAAP, as consistently
applied with the past practice of Metamor Technologies, Ltd.), plus mutually
agreed upon "ADJUSTMENTS" and "ADDBACKS" during the Earn-Out Period (as defined
in Section 2(c) below), and as determined by Annex I attached hereto.
"EFFECTIVE TIME" shall have the meaning set forth in Section
2.3.
"E&Y EARN-OUT PAYMENT DETERMINATION" has the meaning set forth
in Section 2.2(c) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multi employer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(1).
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
-3-
<PAGE> 9
"EPA" shall mean the United States Environmental Protection
Agency.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"EVALUATION LICENSE " has the meaning set forth in Section
5.12 below.
"EXCESS LOSS ACCOUNT" has the meaning set forth in Treas. Reg.
Section 1.1502-19.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in
Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 5.5.
"FIRST EARN-OUT PAYMENT" has the meaning set forth in Section
2.2(b) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any governmental,
quasi-governmental, state, county, city or other political subdivision of the
United States or any other country, or any agency, court or instrumentality,
foreign or domestic, or statutory or regulatory body thereof.
"INDEMNIFIED PARTY" has the meaning set forth in Section 9.4
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 9.4
below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service
marks, trade dress, logos, trade names, and corporate names and registrations
and applications for registration thereof, (b) patents, patent applications, and
provisional applications, including all continuations, divisionals and related
applications, (c) copyrights and registrations and applications for registration
thereof, (d) computer software, data, and documentation, (e) to the extent
legally protectable, trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), (f) to the extent legally protectable, other proprietary rights,
and (g) copies and tangible embodiments thereof (in whatever form or medium).
"JOINT AND SEVERAL" has the meaning set forth in Section 11.1
below.
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
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"KNOWLEDGE" means actual knowledge after reasonable
investigation and inquiry, which inquiry shall include an inquiry of the
employees of Target with responsibility for the matters in question.
"LIABILITY" means any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"LICENSES" has the meaning set forth in Section 5.12 below.
"MERGER CONSIDERATION" has the meaning set forth in Section
2.2(a) below.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 5.5 below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 5.5 below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec.
3(37).
"NET WORKING CAPITAL" means total current assets less total
current liabilities of Target (including but not limited to all deferred taxes),
further reduced by (i) any long-term debt of Target, as determined in accordance
with GAAP, consistently applied and (ii) Transaction Expenses of the
Shareholders and/or the Company over $25,000 that are liabilities of the
Company. The Net Working Capital shall also be adjusted for the net affect on
Net Working Capital of any compensation charge or expense attributable to
options awarded on or prior to the date of Closing.
"OPTIONHOLDER" has the meaning set forth in the recitals
above.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec.
4043.
"REQUISITE SHAREHOLDERS" means Shareholders holding a majority
in interest of the Shares as set forth in Section 4(b) of the Disclosure
Schedule.
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
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"SAGE OPTIONS" shall mean all outstanding options to purchase
Company Common Stock as described in Section 5.2 of the Disclosure Schedule.
"SECOND EARN-OUT PAYMENT" has the meaning set forth in Section
2.2(b) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes not yet due and payable (or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods in
transit incurred pursuant to documentary letters of credit, (f) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(g) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SEVERAL" has the meaning set forth in Section 11.1 below.
"SHAREHOLDER" has the meaning set forth in the preface above.
"SHAREHOLDERS" has the meaning set forth in the preface above.
"SHARES" means the shares of the Company Common Stock.
"SOURCE CODE LICENSE" has the meaning set forth in Section
5.12 below.
"SOURCE CODE LICENSEES" has the meaning set forth in Section
5.12 below.
"SOFTWARE PROGRAMS" has the meaning set forth in Section 5.12
below.
"SUBSIDIARY" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, 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 of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
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ARTICLE II
CLOSING AND POST CLOSING MATTERS
2.1 THE MERGER. In reliance upon the representations, warranties,
covenants and agreements of the parties set forth herein and upon the terms and
subject to the conditions of this Agreement, at the Closing, Merger Sub shall be
merged with and into the Company (the "Merger"), with the Company being the
surviving corporation (the "Surviving Corporation").
2.2 MERGER; CONSIDERATION.
(a) As of the Effective Time, by virtue of the Merger and
without any action on the part of any holder of any shares of Company
Common Stock, each Shareholder and Optionholder, in consideration for
all of the Company Common Stock owned or held by such Shareholder and
the cancellation of all Sage Options held by such Optionholder, shall
receive, upon the surrender of the certificates formerly representing
such shares and/or the agreements representing such Sage Options, (i)
an amount in cash, representing (A) such Shareholders or Optionholders
proportionate interest in the Company (treating all shares of the
Company Common Stock issuable upon the exercise of any option, warrants
or other rights and upon conversion of any other rights as outstanding
for such purpose) and (B) an aggregate sum of $10,000,000 (the "Cash
Portion of the Purchase Price") and (ii) a proportionate share of the
Earn-Out Payment (as hereinafter defined) (collectively, the "Merger
Consideration"). The Cash Portion of the Purchase Price payable to each
Optionholder shall be reduced by the respective exercise price for each
Sage Option. The proportionate share of the Earn-Out Payment, if any,
shall reflect each Shareholder and Optionholder's proportionate
interest in the Company (treating all shares of the Company Common
Stock issuable upon the exercise of any options, warranties or other
rights and upon conversion of any other rights as outstanding for such
purpose).
(b) In addition to the Cash Portion of the Purchase Price,
CORESTAFF agrees to pay to the Shareholders and Optionholders, if
earned, the following earned payout amounts (the "Earn-Out Payment"):
(i) an earned payout amount (the "First Earn-Out
Payment") equal to the product of 2.0 multiplied by the EBIT
of the Company for the twelve (12) month period ending
December 31, 1998 (subject to adjustment as set forth below);
and
(ii) an additional amount (the "Second Earn-Out
Payment") equal to the product of 1.4 multiplied by the EBIT
of the Company for the twelve (12) month period ending
December 31, 1999.
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The First Earn-Out Payment and the Second Earn-Out Payment are
collectively referred to herein as the "Earn-Out Payments." In no event
shall the Earn-Out Payments exceed $35,000,000 in the aggregate.
The period from January 1, 1998 to December 31, 1999 shall be
referred to as the "Earn-Out Period."
(c) The First Earn-Out Payment and the Second Earn-Out Payment
shall be payable by CORESTAFF to the Shareholders in cash by March 15,
1999 and 2000, respectively, and shall be based on the
internally-generated financial statements (which have been prepared
under the direction of CORESTAFF) of the Company for the Earn-Out
Period. In the event there is a dispute between CORESTAFF and the
Shareholders regarding the Earn-Out Payment, the Earn-Out Payment shall
be determined by Ernst & Young, LLP in accordance with this Agreement
(at the expense of CORESTAFF), which determination (each an "E&Y
Earn-Out Payment Determination") shall be submitted in writing to
CORESTAFF and the Shareholders no later than February 15, 1999, in the
case of the First Earn-Out Payment, and February 15, 2000, in the case
of the Second Earn-Out Payment. If, within five (5) days after receipt
of an E&Y Earn-Out Payment Determination, CORESTAFF and/or the
Shareholders delivers written notice to the other Party that such Party
disagrees with the E&Y Earn-Out Payment Determination (an "Earn-Out
Payment Disagreement Notice"), then CORESTAFF and the Shareholders
shall attempt in good faith to mutually determine the correct amount of
the Earn-Out Payment within five (5) days after CORESTAFF and/or
Shareholders delivers the Earn-Out Payment Disagreement Notice to the
other Party. If CORESTAFF and Shareholders cannot in good faith
mutually determine the amount of the Earn-Out Payments within such
period, then CORESTAFF and Shareholders shall have ten (10) days
following their receipt of such determination to object in good faith
to the Earn-Out Payment, in which event the item or items in dispute
shall be resolved by another "Big Six" (as combined from time-to-time)
accounting firm mutually acceptable to CORESTAFF and Shareholders
(whose decision shall be conclusive and binding on the Parties with
respect to such disputed item(s)). Any adjustment in the Earn-Out
Payment determined by such "Big Six" accounting firm shall be made
within ten (10) days following such resolution. In the event such
resolution would result in an increase in the Earn-Out Payment, the
cost of such "Big Six" accounting firm shall be paid for solely by
CORESTAFF. Conversely, in the event that such "Big Six" accounting firm
determines that such resolution would result in a decrease in the
Earn-Out Payment, the cost of such "Big Six" accounting firm shall be
paid for solely by Shareholders. In the event that such "Big Six"
accounting firm determines that no changes shall be made to the
Earn-Out Payment, the cost of such "Big Six" accounting firm shall be
paid by the Party requesting such dispute resolution.
(d) The Net Working Capital of the Company will be determined
in accordance with GAAP, by the Parties on or before thirty (30) days
after the time of Closing and shall be based on the Company's financial
statements as of the Closing, which shall have been provided to
CORESTAFF. In the event that the Net Working Capital as of December 31,
1997 is less than $900,000, the First-Earn-Out Payment shall be
adjusted on a dollar-for-dollar basis downward. In the event there is a
dispute between
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CORESTAFF and Shareholders regarding the Net Working Capital of the
Company as of the date thirty (30) days after the time of the Closing,
Ernst & Young, LLP shall prepare the calculation of the Net Working
Capital of the Company (at the expense of CORESTAFF), which calculation
shall be submitted to CORESTAFF and the Shareholders not later than
sixty (60) days from the Closing Date. The Net Working Capital derived
from such calculation shall be final, conclusive and binding on the
Parties.
(e) At the Closing, each Shareholder shall surrender to
CORESTAFF the certificates for Company Common Stock owned by such
Shareholder in exchange for the Merger Consideration, as may be
adjusted pursuant to Section 2(d) above. As of and after the Effective
Time, no holder of any certificate that immediately prior to the
Effective Time represented shares of Company Common Stock shall have
any rights as a holder of Company Common Stock other than to receive
the Merger Consideration issuable to such holder pursuant to the
Merger.
2.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date, the parties
shall file this Agreement and the officers' certificates required pursuant to
the General Corporation Law of the State of California ("CGCL") and shall make
all other filings or recordings required under the CGCL to cause the Merger to
become effective. The Merger shall become effective at such time as the Merger
Agreement, together with any required supporting documentation, is duly filed
with the Secretary of State of the State of California or at such other time as
is permissible in accordance with the CGCL and as CORESTAFF and the Company
shall agree (the time the Merger becomes effective being the "Effective Time").
2.4 ARTICLES OF INCORPORATION. The Articles of Incorporation of Merger
Sub shall be the Articles of Incorporation of the Surviving Corporation after
the Effective Time.
2.5 BY-LAWS. The By-Laws of Merger Sub shall be the By-Laws of the
Surviving Corporation after the Effective Time.
2.6 DIRECTORS. The directors of Merger Sub shall be the directors of
the Surviving Corporation, who shall serve until their respective successors are
duly elected and qualified in the manner provided in the Articles of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise provided
by law.
2.7 OFFICERS. The officers of the Surviving Corporation shall initially
consist of the officers of Merger Sub, until their successors are duly elected
and qualified in the manner provided in the Articles of Incorporation and
By-Laws of the Surviving Corporation, or as otherwise provided by law.
2.8 OTHER EFFECTS ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Common Stock or capital stock of Merger Sub:
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(a) each issued and outstanding share of the capital stock of
Merger Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $1.00 par value, of the Surviving
Corporation.
(b) all shares of Company Common Stock that are owned by the
Company as treasury stock shall be canceled and retired and shall cease
to exist and no consideration shall be delivered in exchange therefore.
(c) all options, warrants and other rights to purchase Shares
of Company Common Stock shall be cancelled immediately prior to the
Effective Time.
2.9 SAGE OPTIONS. Immediately prior to the Merger, the Company shall,
and the Shareholders shall cause the Company to, cause the cancellation of each
Sage Option held by an Optionholder and each Optionholder shall receive his
proportionate share of the Merger Consideration (less the aggregate of the
exercise price for each Sage Option held and cancelled by such Optionholder) as
provided in Section 2.2.
2.10 RIGHTS. At and after the Effective Time, the Surviving Corporation
shall possess all the rights and property and be subject to all of the debts and
liabilities of Merger Sub and the Company as provided in the CGCL.
2.11 AGREEMENT TO VOTE SHARES. The Shareholders agree to approve this
Agreement in the manner required by the CGCL, and the Company will deliver to
CORESTAFF at the Closing complete and correct copies, certified by its
secretary, of the resolutions duly and validly adopted by Shareholders
evidencing such approval (which resolutions will not have been modified, revoked
or rescinded in any respect prior to, and will be in full force and effect at,
the Closing). Each Shareholder further agrees (i) at any meeting of the
shareholders of the Company or with respect to any written consent solicited in
lieu thereof, to vote all of the shares of capital stock of the Company
beneficially owned by him in favor of approval of the Merger and any matter
which could reasonably be expected to facilitate the Merger and against approval
of any proposal made in opposition to or competition with consummation of the
Merger, and against any other matter which would, or could reasonably be
expected to, prohibit or discourage the Merger and (ii) to otherwise use his
reasonable best efforts to cause the transactions contemplated herein to be
consummated. The Shareholders, as the holders of all of the voting stock of the
Company, each agree to be present, in person or by proxy, at all meetings of the
shareholders of the Company so that all their shares of Company Common Stock are
counted for the purposes of determining the presence of a quorum at such
meetings.
2.12 DOCUMENTS. On the Closing Date, CORESTAFF, Merger Sub, the Company
and the Shareholders shall execute and deliver all appropriate documents and
instruments to effectuate the transactions as set forth in this Agreement,
including, on the part of the Shareholders, the various certificates,
instruments and documents referred to in Section 8.1 below and, on the part of
CORESTAFF, the various certificates, instruments and documents referred to in
Section 8.2 below
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<PAGE> 16
2.13 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the terms
and conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperating fully with the other parties, including by
provision of information and making of all necessary filings with Governmental
Entities (including, if required, filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act")). In case at any time after
the Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
either of the Company or Merger Sub, the parties shall take all such necessary
action.
2.14 DISSENTERS RIGHTS. The Shareholders each hereby waive any
dissenters rights of appraisal or similar rights to which they may be entitled
under the CGCL, including any notice required in connection therewith.
2.15 CLOSING. Subject to the terms and conditions of this Agreement,
including without limitation thereto the conditions to closing set forth in
Article IX hereof, the transactions described and provided for in this Agreement
shall be consummated at a closing (the "Closing") that shall take place at the
offices of CORESTAFF in Houston, Texas commencing at 9:00 a.m. local time on the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby or such other date as CORESTAFF and the Shareholders may mutually
determine (the "Closing Date"); provided, however, that the Closing Date shall
be no later than January 7, 1998 which dates may be extended with the mutual
consent of CORESTAFF and the Shareholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
CONCERNING THE TRANSACTION
Each of the Shareholders, represents and warrants to CORESTAFF that the
statements contained in this Article III are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article III) with respect to himself except as
set forth in Annex II attached hereto.
3.1 AUTHORIZATION OF TRANSACTION. The Shareholder has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Shareholder, enforceable in accordance with its terms and conditions,
except that (A) such enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable principles now
or hereafter in effect relating to or affecting the enforcement of creditors'
rights or debtors' obligations generally, and to general equity principles, and
(B) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefore may be
SAGE I.T. PARTNERS, INC.
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<PAGE> 17
brought. The Shareholder need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement.
3.2 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which the Shareholder is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Shareholder
is a party or by which he is bound or to which any of his assets is subject.
3.3 BROKER'S FEES. The Shareholder has no Liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which CORESTAFF could become
liable or obligated.
3.4 SHARES. The Shareholder holds of record and owns beneficially the
number of Shares set forth next to his name in Section 3.4 of the Disclosure
Schedule, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), claims, Taxes,
Security Interests, options, warrants, rights, contracts, calls, commitments,
equities, and demands. The Shareholders hold all of the issued and outstanding
shares of the Company and upon the consummation of the transaction contemplated
hereby, CORESTAFF will hold all of the issued and outstanding shares of the
Company. The Shareholder is not a party to any option, warrant, right, contract,
call, put, or other agreement or commitment providing for the disposition or
acquisition of any capital stock of the Company (other than this Agreement). The
Shareholder is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the Company.
The Shareholder hereby further represents and warrants that (i) except as
provided in Section 5.2 of the Disclosure Schedule, all other Shares or options,
rights, warrants or other interests in the equity of the Company, if any, have
been fully repurchased by the Company prior to the Closing Date and (ii) there
are no pending or threatened suits, claims or actions by any former holders of
Shares or options, rights, warrants or other interests in the equity of the
Company with respect to the repurchase of their equity interest in the Company.
SAGE I.T. PARTNERS, INC.
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<PAGE> 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CORESTAFF
CONCERNING THE TRANSACTION
CORESTAFF represents and warrants to the Shareholders that the
statements contained in this Article IV are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article IV), except as set forth in Annex III
attached hereto.
4.1 ORGANIZATION OF CORESTAFF. CORESTAFF is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
4.2 AUTHORIZATION OF TRANSACTION. CORESTAFF has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of CORESTAFF, enforceable
in accordance with its terms and conditions. CORESTAFF need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which CORESTAFF is subject or any provision of its charter or bylaws
or (B) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or other
arrangement to which CORESTAFF is a party or by which it is bound or to which
any of its assets is subject.
4.4 BROKER'S FEES. CORESTAFF has no Liability or Obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Shareholder could
become liable or obligated.
ARTICLE V
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Shareholders, represent and warrant to CORESTAFF that the
statements contained in this Article V are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article V), except as set forth in the disclosure
schedule delivered by the Shareholders to CORESTAFF on the date hereof (the
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"DISCLOSURE SCHEDULE"). The Disclosure Schedule may be updated one or more times
prior to the date which is five (5) days prior to the Closing Date. Any updated
Disclosure Schedule shall be delivered at or before the Closing. An updated
Disclosure Schedule shall only be deemed to modify a representation and/or
warranty made as of the date of the Agreement in the event, and only in the
event, that the Shareholders acted in good faith and used their reasonable best
efforts when preparing the original Disclosure Schedule delivered to CORESTAFF
as of the date of this Agreement. In the event any such updated Disclosure
Schedule indicates a Material change from the information previously provided to
CORESTAFF, CORESTAFF shall be entitled to terminate this Agreement
notwithstanding any other provision contained in this Agreement by written
notice delivered to the Shareholders. An event or matter will be deemed to be
"MATERIAL," to have a "Material" change in or in respect of, to have a "MATERIAL
ADVERSE EFFECT" or to be "MATERIALLY" affected; provided that in the opinion of
CORESTAFF, acting reasonably, such loss is material or the loss may reasonably
be expected to occur to the Company or CORESTAFF with respect to such event or
matter, when taken together with all other related losses that may reasonably be
expected to occur to the Company or CORESTAFF as a result of any such events or
matters, would exceed $20,000 in the aggregate or unless such event or matter
constitutes a criminal violation of law. For purposes of this paragraph, the
word "LOSS" shall mean any and all direct or indirect payments, obligations,
assessments, losses, losses of income, liabilities, costs and expenses paid or
incurred, or reasonably likely to be paid or incurred, or that are reasonably
expected to occur, including without limitation, penalties, interest on any
amount payable to a third party as a result of the foregoing, and any legal or
other expenses reasonably expected to be incurred in connection with defending
any demands, claims, actions or causes of action that, if adversely determined,
could reasonably be expected to result in losses, and all amounts paid in
settlement of claims or actions; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds). A Customer Contract or Agreement is "MATERIAL" if
during the ten months ended October 31, 1997 such Customer Contract or Agreement
produced $25,000 of Gross Profit Margin less any bad debt specifically related
to such Customer Contract or Agreement. Any item intended to be disclosed must
be identified with the particular representation or warranty it is intended to
limit and shall not be deemed to limit any other representation, warranty or
covenant in the Agreement. Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail to the
satisfaction of CORESTAFF. Without limiting the generality of the foregoing, the
mere listing (or inclusion of a copy) of a document or other item shall not be
deemed adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the existence of
the document or other items itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Article V.
5.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
requires such qualification, except where the failure to be
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so qualified would not have a material adverse effect on the Company. The
Company has full corporate power and authority to carry on the business in which
it is engaged and to own and use the properties owned and used by it. Section
5.1 of the Disclosure Schedule lists the directors and officers of the Company.
The Shareholders have delivered to CORESTAFF correct and complete copies of the
charter and bylaws of the Company (as amended to date). The minute books
containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors, the stock certificate books, and
the stock record books of the Company are correct and complete. The Company is
not in default under or in violation of any provision of its charter or bylaws.
The execution and delivery of this Agreement and the effectuation of the
transactions contemplated hereby has been duly authorized by all of the
directors and the Requisite Shareholders of the Company, and the Company will
deliver to CORESTAFF on the date hereof and at the Closing complete and correct
copies, certified by its secretary, of the resolutions duly and validly adopted
by its directors and shareholders evidencing such authorization (which
resolutions will not have been modified, revoked or rescinded in any respect
prior to, and will be in full force and effect at, the Closing). No other
corporate act or proceeding on the part of the Company or the Shareholders is
necessary for the due and valid authorization of this Agreement or the
transactions contemplated hereby.
5.2 CAPITALIZATION. The entire authorized capital stock of the Company
consists of 10,000,000 shares of common stock, no par value (the "Shares"), of
which 2,000,000 Shares are issued and outstanding and no Shares are held in
treasury. All of the issued and outstanding Shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are held of record by the
respective Shareholders as set forth in Section 3.4 of the Disclosure Schedule.
Section 5.2 of the Disclosure Schedule sets forth all outstanding Sage Options
and the amounts owned by each Optionholder. Other than as set forth in Section
5.2 of the Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversion
rights, or other agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance, disposition, or
acquisition of any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, deferred bonus programs, or similar rights
with respect to the Company. There are no voting trusts, proxies, or any other
agreements or understandings with respect to the voting of the capital stock of
the Company.
5.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which the Company is subject or any provision of the charter or
bylaws of the Company or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any part the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, Security
Interest, or other arrangement to which the Company is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets), except that the Merger will
trigger the acceleration of the vesting periods for the Sage Options. The
Company does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
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governmental agency, which it has not already obtained, in order for the Parties
to consummate the transactions contemplated by this Agreement.
5.4 SUBSIDIARIES. The Company has no Subsidiaries.
5.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit A are the
financial statements (collectively the "FINANCIAL STATEMENTS"), including
balance sheets, income statements, and cash flow statements, for the Company
prepared in accordance with GAAP for each of the (i) fiscal years ended December
31, 1995 and 1996 (the "MOST RECENT FISCAL YEAR END"), (ii) the ten (10) month
period ended October 31, 1997 (the "MOST RECENT FINANCIAL STATEMENTS");
provided, however, that the unaudited Most Recent Financial Statements are not
presented in accordance with GAAP as described in Section 5.5 of the Disclosure
Schedule.
5.6 EVENTS SUBSEQUENT TO MOST RECENT FINANCIAL STATEMENTS. Except as
set forth in Section 5.6 of the Disclosure Schedule, since the date of the Most
Recent Financial Statements, there has not been any material adverse change in
the assets, Liabilities, business, financial condition, operations, results or
operations, or future prospects of the Company. Without limiting the generality
of the foregoing, since that date:
(a) The Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(b) The Company has not entered into any contract, lease,
sublease, license or sublicense (or series of related contracts,
leases, subleases, licenses and sublicenses) either involving more than
$20,000 or outside the Ordinary Course of Business;
(c) No party (including the Company) has accelerated,
terminated, modified, or canceled any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) or notified the Company of such
involving more than $20,000 to which the Company is a party or by which
it is bound;
(d) The Company has not imposed any Security Interest upon any
of its assets, tangible or intangible;
(e) The Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$50,000 singly or $200,000 in the aggregate, or outside the Ordinary
Course of Business;
(f) The Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any other
person (or series of related capital investments, loans, and
acquisitions) either involving more than $40,000 individually or
$100,000 in the aggregate or outside the Ordinary Course of Business;
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(g) The Company has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease obligations)
either involving more than $20,000 singly or $50,000 in the aggregate
or outside the Ordinary Course of Business;
(h) The Company has not delayed or postponed (beyond its
normal practice) the payment of accounts payable and other Liabilities;
(i) The Company has not settled, canceled, compromised,
waived, or released any right, claim action or proceeding (or series of
related rights, claims, actions or proceedings) either involving more
than $20,000 or outside the Ordinary Course of Business;
(j) The Company has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(k) There has been no change made or authorized in the charter
or bylaws of the Company
(l) The Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion or exercise)
any of its capital stock;
(m) The Company has not declared, set aside, or paid any
dividend or distribution with respect to its capital stock or redeemed,
purchased, or otherwise acquired any of its capital stock;
(n) The Company has not experienced any material damage,
destruction or loss (whether or not covered by insurance) to its
property;
(o) The Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business giving rise to any claim or
right on its part against the person or on the part of the person
against it;
(p) The Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(q) The Company has not granted an increase outside the
Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees;
(r) The Company has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance, (G)
severance, or (H) other plan, contract or commitment for any of its
directors, officers, and employees, or modified or terminated any
existing such plan, contract or commitment;
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(s) The Company has not made any other change in employment
terms for any of its directors, officers, and full-time staff
employees;
(t) The Company has not made or pledged to make any charitable
or other capital contribution outside the Ordinary Course of Business;
(u) The Company shall have made no dividend, consulting or
other payment to the Shareholders, except for payments to the
Shareholders necessary to cover their federal and state income tax
obligations as calculated on a cash basis for income tax purposes not
in excess of the accrued earnings generated for the period from January
1, 1997 through the Closing Date and for employment salaries (not to
exceed current compensation levels) to Shareholders, except for those
payments set forth in Section 5.6(u) of the Disclosure Schedule which
were made prior to the contemplation of the transaction contemplated by
this Agreement;
(v) There has not been any other Material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
(w) The Company has not committed to any of the foregoing.
5.7 UNDISCLOSED LIABILITIES. The Company does not have any Liability
(and there is no Basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand against it giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Financial Statements (rather than in any notes thereto), and (ii) Liabilities
which have arisen after the Most Recent Fiscal Year End in the Ordinary Course
of Business (none of which relates to any breach of contract, breach of
warranty, tort, infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceedings, hearing, investigation, claim, or demand).
5.8 TAX MATTERS.
(a) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid. The Company currently is not the
beneficiary of any extension of time within which to file any Tax. No
claim has ever been made by an authority in a jurisdiction where the
Company does not file Tax Returns that either of them is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(b) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor, or other third party.
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(c) No Shareholder or director or officer (or employee
responsible for Tax matters) of the Company expects any authority to
assess any additional Taxes for any period for which Tax Returns have
been filed. There is no dispute or claim concerning any Tax Liability
of the Company either (A) claimed or raised by any authority in writing
or (B) as to which any of the Shareholders and the directors and
officers (and employees responsible for Tax matters) of the Company has
Knowledge based upon personal contact with any agent of such authority.
Section 5.8 of the Disclosure Schedule lists all Tax Returns filed with
any Governmental Authority with respect to the Company for taxable
periods ended on or after December 31, 1990, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Company has delivered to
CORESTAFF correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Company since December 31, 1990.
(d) 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.
(e) The Company has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. The Company has not made any
payments, is not obligated to make any payments, or is not a party to
any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Sec. 280G. The
Company has not been a United States real property holding corporation
within the meaning of Code Sec. 897(c)(2) during the applicable period
specified in Code Sec. 897(c)(1)(A)(ii). The Company has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Sec. 6661. The Company is not a party to any Tax
allocation or sharing agreement. The Company has never been (or has any
Liability for unpaid Taxes because it once was) a member of an
Affiliated Group during any part of any consolidated return year within
any part of which consolidated return year any corporation other than
the Company also was a member of the Affiliated Group.
(f) Section 5.8 of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most recent
practicable date (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions
contemplated hereby): (A) the basis of the Company in its assets; (B)
the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company; and (C) the amount of any
deferred gain or loss allocable to the Company arising out of any
Deferred Intercompany Transaction.
(g) The unpaid Taxes of the Company do not exceed the reserve
for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth on the face of the Financial Statements (rather than 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 in
filing their Tax Returns.
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5.9 TANGIBLE ASSETS. The Company owns or leases all tangible assets
necessary for the conduct of its business as presently conducted. To the
Company's knowledge, each such tangible asset is free from defects (patent and
latent), has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
5.10 REAL PROPERTY. Section 5.10 of the Disclosure Schedule lists the
real property that the Company owns. With respect to each such parcel of owned
real property, and except for matters which would not have a material adverse
effect on the financial condition of the Company:
(a) The identified owner has good and marketable title to the
parcel of real property, free and clear of any security interests,
easement, covenant, or other restriction;
(b) There are no leases, subleases, licenses, concessions or
other agreements granting to any party or parties use or occupancy of
any portion of the parcel of real property;
(c) There are no outstanding options or rights of first
refusal to purchase the parcel of real property or any portion thereof
or interests therein;
(d) There are no parties in possession of any portion of any
real property as lessees, subtenants or tenants at sufferance or
trespassers;
(e) There is no pending, threatened condemnation, eminent
domain or similar proceeding or special assessment affecting any
portion of the real property, nor has the Company or any of the
Shareholders received notification that any such proceeding or
assessment is contemplated;
(f) Permanent certificates of occupancy and all other
licenses, permits, authorizations, and approvals required by any
governmental authority having jurisdiction have been issued for each
improvement on the real property and all such certificates, licenses,
permits, authorizations and approvals have been paid for and are in
full force and effect;
(g) No commitments have been made by Shareholder to any
governmental authority, utility company, school board, church or other
religious body or any homeowners' association, or any other
organization, group or individual, relating to the real property that
would impose an obligation on the Company or their successors or
assigns to make any contribution or dedications of money or land, or to
construct, install, or maintain any improvements of a public or private
nature on or off of the real property;
(h) All improvements related to the real property have been
located and constructed and are being used, occupied and maintained in
accordance with all applicable legal requirements (including local
municipal laws and regulations), surface
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leases, easements, contracts, permits, insurance requirements,
restrictions, building setback lines, covenants and reservations;
(i) The improvements related to the real property are free
from material patent and latent structural and mechanical defects and
are suitable and adequate for their intended use and operation subject
to ordinary wear and tear;
(j) All facilities located on the parcel of real property are
supplied with utilities and other services necessary for the operation
of such facilities, including gas, electricity, water, telephone,
sanitary sewer, and storm sewer, all of which services are adequate in
accordance with all applicable laws, ordinances, rules, and regulations
and are provided via public roads or via permanent, irrevocable,
appurtenant easements benefitting the parcel of real property; and
(k) Each parcel of real property abuts on and has direct
vehicular access to a public road, or has access to a public road via a
permanent, irrevocable, appurtenant easement benefitting the parcel of
real property, and access to the property is provided by paved public
right-of-way with adequate curb cuts available.
5.11 REAL PROPERTY LEASES. Section 5.11 of the Disclosure Schedule
lists and describes briefly all real property leased or subleased to the
Company. The Shareholders have delivered to CORESTAFF correct and complete
copies of the leases and subleases listed in Section 5.11 of the Disclosure
Schedule (as amended to date). With respect to each lease and sublease listed in
Section 5.11 of the Disclosure Schedule:
(a) The lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(b) The Shareholders shall use their reasonable best efforts
to ensure that the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the Closing;
(c) The Company is not and, to the Company's knowledge, no
other party to the lease or sublease 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;
(d) No party to the lease or sublease has repudiated any
provision thereof;
(e) There are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(f) The Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold
or subleasehold;
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(g) All facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses
and permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws, rules,
and regulations; and
(h) The real property listed in Sections 5.10 and 5.11 of the
Disclosure Schedule represents all of the real property necessary to
operate the business in the manner that it is currently being operated.
5.12 INTELLECTUAL PROPERTY.
(a) The Company is the sole and exclusive owner of all right,
title and interest in and has good, valid and marketable title to, or,
as to third party rights, has obtained a valid license to use all
copyrights and trade secrets, and to the Company's knowledge all
patents, necessary for the operation of the business of the Company as
presently conducted, free and clear of all mortgages, pledges, liens,
security interest, conditional sales agreements, encumbrances or
charges of any kind. The Company is the sole and exclusive owner of all
right, title and interest in and has good, valid and marketable title
to, or, as to third party programs identified in Section 5.12 of the
Disclosure Schedule, has obtained a license to use and the right to
sublicense, the software programs developed, authored and/or licensed
by the Company and that are listed on Section 5.12 of the Disclosure
Schedule (the "SOFTWARE PROGRAMS") and the Documentation, free and
clear of all mortgages, pledges, liens, security interest, conditional
sales agreements, encumbrances or charges of any kind. Section 5.12 of
the Disclosure Schedule contains a complete list of all Software
Programs, registered trademarks and service marks, all reserved trade
names, all registered copyrights, all pending applications for
registration of any marks or copyrights, and all filed patent
applications and issued patents owned or licensed by the Company.
(b) Section 5.12 of the Disclosure Schedule sets forth the
form and placement of the proprietary legends and copyright notices
displayed in or on the Software Programs. In no instance has the
eligibility of the Software Programs for protection under applicable
copyright law been forfeited to the public domain by omission of any
required notice or any other action.
(c) The Company has enforced the trade secret protection
program set forth in Section 5.12 of the Disclosure Schedule, except as
set forth in Section 5.12 of the Disclosure Schedule, and there has
been no violation of such program by any person or entity. Except as
set forth in Section 5.12(c) of the Disclosure Schedule, the source
code and Documentation (except end-user manuals) relating to the
Software Programs (i) have at all times been maintained in confidence,
(ii) have been disclosed by the Company only to employees, independent
contractors, Source Code Licensees and potential Source Code Licensees
having a "need to know" the contents thereof in connection with the
performance of their duties to the Company or for evaluation by
potential Source Code Licenses or pursuant to a Source Code License and
(iii) have not been disclosed to any other third party. The source code
and Documentation to the Software Programs has been
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provided only to the Source Code Licensees under Source Code Licenses
containing the restrictions on use and disclosure of such source code
and Documentation set forth in Section 5.12(c) of the Disclosure
Schedules.
(d) All personnel, including employees, agents, consultants,
and contractors, who have contributed to or participated in the
conception and development of the Software Programs, Documentation or
Intellectual Property have executed nondisclosure agreements
substantially in the form of Exhibit 5.12 and either (1) have been
party to a written agreement with the Company that has accorded the
Company full, effective, exclusive and original ownership of all the
Software Programs and related Documentation and Intellectual Property,
or (2) have executed appropriate instruments of assignment in favor of
the Company as assignee that have conveyed to the Company full,
effective, and exclusive ownership of all the Software Programs and
related Documentation and Intellectual Property.
(e) All use of the software libraries, compilers and other
third-party software used in the development of the Software Programs
by the Company has been in full compliance with the respective license
agreement or other right of use for such software.
(f) The Software Programs will perform in accordance with the
documentation and other technical specifications therefor and with the
warranties set forth in the Licenses.
(g) The Software Programs, the use thereof by the Company and
the use, license, sale or lease of the Software Programs, or of any
part thereof, or of any copy, or of any part thereof, do not and will
not infringe on, or contribute to the infringement of, any copyright or
trade secret, or, to the knowledge of the Company, any patent or any
other exclusionary right of any third party in either the United States
or any foreign country. No person or entity has asserted a claim that
the use, license, sale or lease of any Software Program, or any part
thereof, infringes or contributes to the infringement of any patent
claim, copyright or trade secret right of any third party in either the
United States or any foreign country, and the Shareholders are not
aware of any basis for any such claim.
(h) Except with respect to demonstration or trial copies, no
portion of the Software Programs contains or will contain any "back
door," "time bomb," "Trojan horse," "worm," "drop dead device," "virus"
or other software routines or hardware components designed to permit
unauthorized access; to disable or erase software, hardware, or data;
or to perform any other such actions.
(i) The documentation of the Software Programs includes
without limitation the source code (with comments) for all Software
Programs, as well as any pertinent commentary or explanation that may
be necessary to render such materials understandable and usable by a
trained computer programmer in the same area of software development,
any Company developed (i) programs (including compilers), (ii)
"workbenches," (iii) tools and higher level (or "proprietary") language
necessary for the
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development, maintenance and implementation of the Software Programs
and (iv) any all materials relating to the Software Programs, including
without limitation all notes, flow charts, programmer's or user's
manuals (collectively, the "DOCUMENTATION").
(j) The Shareholders have delivered to CORESTAFF correct and
complete copies of all registered trademarks, service marks, trade
names, copyrights, patents, and applications for the same (as amended
to date), and have made available to CORESTAFF correct and complete
copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. With respect to each
item of Intellectual Property set forth in the preceding sentence used
in, or otherwise necessary for the conduct of, the business of the
Company as heretofore conducted:
(i) the Company possesses all right, title, and
interest in and to the item;
(ii) the item is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge;
(iii) no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand is pending or, to the
Knowledge of the Company and the officers (and employees with
responsibility for Intellectual Property matters) of the
Company, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(iv) Other than pursuant to Source Code Licenses or
other Company licenses of such Intellectual Property, the
Company has never agreed to indemnify any person or entity for
or against any interference, infringement, misappropriation,
or other conflict with respect to the item.
(k) The Shareholders have supplied or made available to
CORESTAFF correct and complete copies of all third party licenses,
sublicenses, agreements, and permissions (as amended to date) related
to the Intellectual Property (other than patents to which the Company
has no knowledge of infringement) used in, or otherwise necessary for
the conduct of the business of the Company as heretofore conducted.
With respect to each such item:
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding and in full force
and effect unless terminated by its own terms;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding and in
full force and effect on identical terms following the Closing
unless terminated by its own terms;
(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
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would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(v) the underlying item of Intellectual Property is
not subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge wherein the Company is a
named party thereto;
(vi) no charge, complaint, action, suit, proceedings,
hearing, investigation, claim or demand is pending or is
threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property
wherein the Company is a named party thereto; and
(vii) The Company has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission, that the Company did not have the
right to grant.
(l) Section 5.12 of the Disclosure Schedule sets forth a
complete and accurate list of all licenses and sublicenses of the
Software Programs (the "LICENSES") and of all customer trial agreements
for the Software Programs granted by the Company to other parties. All
Licenses identified in Section 5.12 of the Disclosure Schedule are
designated as either (A) source code licenses for use in developing
software products derivative of the Software Programs (the "Source Code
Licenses") or (B) evaluation licenses or customer trial agreements to
potential Source Code Licensees for Software Programs (the "Evaluation
Licenses"). Section 5.12 of the Disclosure Schedule sets forth the
royalty rates and other significant financial terms for each of the
Licenses. As used in this Agreement, "Source Code Licensees" shall mean
those persons to whom the Company has licensed any source code for any
of the Software Programs.
5.13 CONTRACTS. Section 5.13 of the Disclosure Schedule lists the
following contracts, agreements, and other written arrangements to which the
Company is a party:
(a) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third
parties providing for lease payments in excess of $20,000 per annum;
(b) any written arrangement (or group of related written
arrangements) for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property or for the furnishing or
receipt of services which either calls for performance over a period of
more than one year or involves more than the sum of $20,000;
(c) any written arrangement concerning a partnership or joint
venture;
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(d) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease obligations) involving more than $20,000
or under which it has imposed (or may impose) a Security Interest on
any of its assets, tangible or intangible;
(e) any written arrangement concerning confidentiality or
noncompetition;
(f) any written arrangement involving any of the Shareholders
and their Affiliates;
(g) any written arrangement with any of its directors,
officers, and employees in the nature of a collective bargaining
agreement, employment agreement, or severance agreement;
(h) any written arrangement under which the consequences of a
default or termination could have a material adverse effect on the
assets, Liabilities, business, financial condition, operations, results
of operations, or future prospects of the Company;
(i) any written arrangement involving a governmental entity or
quasi-governmental agency;
(j) any written Customer Contract or Agreement; or
(k) any other written arrangement (or group of related written
arrangements) either involving more than $20,000 or not entered into in
the Ordinary Course of Business.
The Company has delivered or made available to CORESTAFF a correct and
complete copy of each written arrangement listed in Section 5.13 of the
Disclosure Schedule (as amended to date). With respect to each written
arrangement so listed: (A) the written arrangement is legal, valid, binding,
enforceable, and in full force and effect; (B) the written arrangement will
continue to be legal, valid, binding, enforceable and in full force and effect
on the same or substantially similar terms following the Closing; (C) no party
is in Material 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, under the written arrangement; and (D) no party
has repudiated any provision of the written arrangement. The Company is not a
party to any verbal contract, agreement, or other arrangement which, if reduced
to written form, would be required to be listed in Section 5.13 of the
Disclosure Schedule under the terms of this Section 5.13. No unfilled Material
Customer Contract or Agreement obligating the Company to perform services will
result in a loss to the Company upon completion of performance. The Company is
not a party to any contract, agreement or other arrangement which was entered
into on terms which would not be considered market standard if such arrangement
was entered into in an arms-length transaction. None of the Company's
twenty-five (25) highest grossing revenue customers in the ten months ended
October 31, 1997 has Materially curtailed or terminated its
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relationship with it or has indicated that it will stop, or Materially decrease
the rate of, buying services from it.
5.14 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are presently current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Financial Statements (rather than 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.
5.15 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
5.16 INSURANCE. Section 5.16 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
three (3) years:
(a) The name, address, and telephone number of the agent;
(b) The name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) The policy number and the period of coverage;
(d) The scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(e) A description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, and enforceable and in full force and effect; (B) the policy
will continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing Date; (C) the Company is not in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default or permit termination,
modification, or acceleration, under the policy; and (D) no party to the policy
has repudiated any provision thereof. The Company has been covered during the
past three (3) years by insurance in scope and amount customary and reasonable
for the businesses in which it has engaged during the aforementioned period.
Section 5.16 of the Disclosure Schedule describes any self-insurance
arrangements affecting the Company.
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5.17 LITIGATION. Section 5.17 of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge or (ii) is a party or, to the
Knowledge of any of the Shareholders and the officers (and employees with
responsibility for litigation matters) of the Company, is threatened to be made
a party to any charge, complaint, action, suit, proceeding, hearing, or
investigation of or in any court or quasi-judicial or administrative agency of
any Governmental Authority or before any arbitrator. None of the Shareholders
and the directors and officers (and employees with responsibility for litigation
matters) of the Company has any reason to believe that any such charge,
complaint, action, suit, proceeding, hearing, or investigation may be brought or
threatened against the Company.
5.18 EMPLOYEES. No key employee or full-time group of employees has any
plans to terminate employment with the Company. The Company is not a party to or
bound by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
None of the Shareholders and the directors and officers (and employees with
responsibility for employment matters) of the Company has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company.
5.19 EMPLOYEE BENEFITS. Section 5.19 of the Disclosure Schedule lists
all Employee Benefit Plans that the Company maintains or to which the Company
contributes for the benefit of any current or former employee of the Company.
(a) Each Employee Benefit Plan (and each related trust or
insurance contract) complies in form and in operation in all respects
with the applicable requirements of ERISA and the Code.
(b) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's and Summary Plan
Descriptions) have been filed or distributed appropriately with respect
to each Employee Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Sec. 4980(b) have been met with respect
to each Employee Welfare Benefit Plan.
(c) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
paid to each Employee Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not yet due
have been paid to each Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company. All
premiums or other contributions for all periods ending on or before the
Closing Date have been paid with respect to each Employee Welfare
Benefit Plan.
(d) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan" under
Code Sec. 401(a) and has received, within the last two years, a
favorable determination letter from the Internal Revenue Service.
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(e) The market value of assets under each Employee Pension
Benefit Plan (other than any Multiemployer Plan) equals or exceeds the
present value of Liabilities thereunder (determined on a plan
termination basis) as of the last day of the most recent plan year. No
Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of a
Reportable Event as to which notices would be required to be filed with
the PBGC. No proceeding by the PBGC to terminate any Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been instituted
or, to the Knowledge of any of the Shareholders and the officers (and
employees with responsibility for employee benefits matters) of the
Company, threatened.
(f) There have been no Prohibited Transactions with respect to
any Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with
the administration or investment of the assets of any Employee Benefit
Plans. No charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand with respect to the administration or
the investment of the assets of any Employee Benefit Plan (other than
routine claims for benefits) is pending or, to the Knowledge of any of
the Shareholders and the officers (and employees with responsibility
for employee benefits matters) of the Company, threatened. None of the
Shareholders and the directors and officers (and employees with
responsibility for employee benefits matters) of the Company has any
Knowledge of any Basis for any such charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand.
(g) The Shareholders have delivered to CORESTAFF correct and
complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received from
the Internal Revenue Service, (C) the most recent Form 5500 Annual
Report, and (D) all related trust agreements, insurance contracts, and
other funding agreements which implement each Employee Benefit Plan.
(h) The Company has maintained all employee benefit schemes in
accordance with the applicable statutory requirements and all
contributions (including all employer and employee contributions),
which have accrued for periods prior to the Closing Date, to such
schemes have been made.
Neither the Company nor the other members of the Controlled Group of
Corporations that includes the Company contributes to, ever has contributed to,
or ever has been required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal Liability) under any Multiemployer Plan. The
Company has not incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
the Company has any reason to expect that the Company will incur, any Liability
to the PBGC (other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal Liability) or under the Code with respect to any
Employee Pension Benefit Plan that the Company and the Controlled Group of
Corporations which includes the Company maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been required
to contribute. The Company does not maintain, nor has it ever maintained or
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contributed to, or ever been required to contribute to any Employee Welfare
Benefit Plan providing health, accident, or life insurance benefits to former
employees, their spouses, or their dependents (other than in accordance with
Code Sec. 4980(b)).
5.20 GUARANTIES. The Company is not a guarantor or otherwise liable for
any Liability or obligation (including indebtedness) of any other person.
5.21 ENVIRONMENT, HEALTH, AND SAFETY.
(a) To the Knowledge of Shareholders and the officers of the
Company, the Company and its predecessors and Affiliates has complied
with all laws (including rules and regulations thereunder) of any
Governmental Authority concerning the environment, public health and
safety, and employee health and safety, and no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, or
notice has been filed or commenced against any of them alleging any
failure to comply with any such law or regulation, the violation of
which would have a Material adverse effect.
(b) To the Knowledge of the Shareholders and the officers of
the Company, the Company does not have any Liability (and there is no
Basis related to the past or present operations, properties, or
facilities of the Company and its predecessors and Affiliates for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Company giving rise to any
Liability) under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air
Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances
Control Act of 1976, the Refuse Act of 1989, or the Emergency Planning
and Community Right-to-Know Act of 1986 (each as amended), any other
law (or rule or regulation thereunder) of any Governmental Authority or
common law remedy concerning release or threatened release of hazardous
substances, public health and safety, or pollution or protection of the
environment.
(c) To the Knowledge of the Shareholders and the officers of
the Company, the Company does not have any Liability (and the Company
and its predecessors and Affiliates has handled or disposed of any
substance, arranged for the disposal of any substance, or owned or
operated any property or facility in any manner that could form the
Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand (under the common
law or pursuant to any statute) against the Company giving rise to any
Material Liability) for damage to any site, location, or body of water
(surface or subsurface) or for illness or personal injury.
(d) To the Knowledge of the Shareholders and the officers of
the Company, the Company does not have any Material Liability (and
there is no Basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand against the
Company giving rise to any Liability) under the Occupational Safety and
Health Act, as amended, or any other law (or rule or regulation
thereunder) of any Governmental Authority concerning employee health
and safety.
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(e) To the Knowledge of the Shareholders and the officers of
the Company, the Company does not have any Material Liability (and the
Company has not exposed any employee to any substance or condition that
could form the Basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand
(under the common law or pursuant to statute) against the Company
giving rise to any Liability) for any illness of or personal injury to
any employee.
(f) To the Knowledge of the Shareholders and the officers of
the Company, the Company has obtained and been in compliance with all
of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all laws of any Governmental Authority (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health and
safety, worker health and safety, and pollution or protection of the
environment, including laws relating to emissions, discharge, releases,
or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes, the
violation of which would have a Material adverse effect.
(g) To the Knowledge of the Shareholders and the officers of
the Company, all properties and equipment used in the business of the
Company have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2 trans-dichloroethylene, dioxins, dibenzofurans,
and Extremely Hazardous Substances.
(h) To the Knowledge of the Shareholders and the officers of
the Company, no pollutant, contaminant, or chemical, industrial,
hazardous, or toxic material or waste ever has been buried, stored,
spilled, leaked, discharged, emitted, or released on any real property
that the Company owns or ever has owned or that the Company leases or
ever has leased.
5.22 LEGAL COMPLIANCE.
(a) The Company has complied with all laws (including rules
and regulations thereunder) of all Governmental Authorities, and no
charge, complaint, action, suit, proceeding, hearing, investigation,
claim, demand, or notice has been filed or commenced against the
Company alleging any failure to comply with any such law or regulation.
(b) The Company has complied with all applicable laws
(including rules and regulations thereunder) relating to the employment
of labor, employee civil rights, and equal employment opportunities.
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(c) The Company has not violated in any respect or received a
notice or charge asserting any violation of the Sherman Act, the
Clayton Act, the Robinson-Patman Act, or the Federal Trade Act, each as
amended.
(d) The Company has complied with all applicable laws
(including rules and regulations thereunder) relating to the residency
status of foreign individuals which are employees of the Company and
obtaining the requisite visas, permits and other documentation to
permit such individuals to work in the United States.
(e) The Company has not:
(i) made or agreed to make any contribution, payment,
or gift of funds or property to any governmental official,
employee, or agent where either the contribution, payment, or
gift or the purpose thereof was illegal under the laws of any
Governmental Authority;
(ii) established or maintained any unrecorded fund or
asset for any purpose, or made any false entries on any books
or records for any reason; or
(iii) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any
other person, to any candidate for public office with regards
to any Governmental Authority.
(f) The Company has filed in a timely manner all reports,
documents, and other materials it was required to file (and the
information contained therein was correct and complete in all respects)
under all applicable laws (including rules and regulations thereunder).
(g) The Company has possession of all records and documents it
was required to retain under all applicable laws (including rules and
regulations thereunder).
5.23 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as set
forth in Section 4(w) of the Disclosure Schedule, none of the Shareholders and
their Affiliates has been involved in any business arrangement or relationship
with the Company within the past twelve (12) months, and none of the
Shareholders and their Affiliates owns any property or right, tangible or
intangible, which is used in the business of the Company.
5.24 BROKERS' FEES. The Company does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
5.25 DISCLOSURE. The representations and warranties contained in this
Section 5 along with the Disclosure Schedule and any other information,
statement or certificate provided by the Company or the Shareholders does not
contain any untrue statement of fact or omit to state any fact necessary in
order to make the statements and information contained in this Article V not
misleading.
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5.26 BOOKS AND RECORDS. The Company has furnished CORESTAFF with true
and complete copies of the books and records relating to the ownership and
operation of the Company. The books and records reflect all minutes and written
consents adopted by the Boards of Directors of the Company. The books and
records have been maintained in accordance with applicable legal requirements,
comprise all of the books and records relating to the ownership and operation of
the Company, reflect all proceedings and transactions customarily contained in
corporate books and records.
5.27 COMPLIANCE WITH THE LETTER OF INTENT. Shareholders have complied
in all respects with the terms of the Letter of Intent dated November 21, 1997
by and among Shareholders, the Company and CORESTAFF.
5.28 PAYMENTS TO OFFICIALS. During the three year period prior to the
date hereof, neither the Company nor any of the Shareholders on behalf of the
Company has paid or given or has authorized or committed to the payment or gift
of money or anything of value to any official or employee of any government
entity or instrumentality or any political party or candidate for political
office for the purpose of influencing any governmental action or decision in
order to obtain or retain business or to direct business to any other party.
ARTICLE VI
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
6.1 GENERAL. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
to consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Article VIII below).
6.2 NOTICES AND CONSENTS. The Shareholders will or will cause the
Company to give any notices to third parties required by this Agreement or the
transactions contemplated hereby, and will or will cause the Company to obtain
all third-party consents required by this Agreement or the transactions
contemplated hereby or in connection with the matters pertaining to the Company
disclosed or required to be disclosed in the Disclosure Schedule. Shareholders
will take additional actions (and the Shareholders will cause the Company to
take all additional actions) that may be deemed necessary, proper, or advisable
by CORESTAFF in connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that he, she, it or the Company may be required to give, make,
or obtain as reasonably required by this Agreement or the transactions
contemplated hereby in order that CORESTAFF is able to conduct the business of
the Company in the same manner as it is currently being conducted.
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6.3 OPERATION OF BUSINESS. The Shareholders will not cause or permit
the Company to engage in any practice, take any action, embark on any course of
inaction, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Shareholders will not
cause or permit the Company to engage in any practice, take any action, embark
on any course of inaction, or enter into any transaction of the sort described
in Section 5.6 above.
6.4 PRESERVATION OF BUSINESS. The Shareholders will cause the Company
to keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
6.5 FULL ACCESS.
(a) Each of the Shareholders will permit, and the Shareholders
will cause the Company to permit, representatives of CORESTAFF to have
reasonable access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company, to all
premises, properties, books, records, contracts, Tax records, and
documents of or pertaining to the Company. CORESTAFF's on-site
investigation of the Company shall be limited to ten (10) business
days, unless otherwise agreed to by CORESTAFF and the Shareholders in
writing; provided, however, that such limitation of time shall not
otherwise limit CORESTAFF's investigation of the Company off-site.
During CORESTAFF's on-site investigation, CORESTAFF shall not discuss
any aspects of the operation of the Company with any employee of the
Company, and CORESTAFF shall direct all requests for information and
material only through Gene Rooney or David Stanton, unless otherwise
agreed to by CORESTAFF and the Shareholders in writing. CORESTAFF shall
not contact or speak or correspond with any lender, customer, employee
or other person associated in business with the Company without the
written consent of the Company.
(b) Upon completion of the accounting review and business,
legal and accounting due diligence by CORESTAFF and so long as this
agreement has not been terminated, CORESTAFF shall arrange with
Shareholders a mutually agreeable time and place at which CORESTAFF may
conduct interviews with designated key employees and/or customers of
the Company mutually agreed to by CORESTAFF and Shareholders. Such
interviews shall be in strict conformity with a format mutually agreed
to by CORESTAFF and the Shareholders and shall take place and be
completed wholly within the last ten (10) days prior to Closing.
6.6 NOTICE OF DEVELOPMENTS. The Shareholders will give prompt written
notice to CORESTAFF of any material development affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
or future prospects of the Company. Each Party will give prompt written notice
to the others of any material development affecting the ability of the Parties
to consummate the transactions contemplated by this Agreement. No disclosure by
any Party pursuant to this Section 6.6 however, shall be deemed to amend or
supplement Annex II,
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Annex III, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
6.7 EXCLUSIVITY. None of the Shareholders will (and the Shareholders
will not cause or permit the Company to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to any (A)
liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C)
acquisition or purchase of securities or assets, other than pursuant to the
exercise of outstanding options in connection with the transactions contemplated
by this Agreement, or (D) similar transaction or business combination involving
the Company or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any person to do or seek any of the
foregoing. The Shareholders will notify CORESTAFF immediately if any person
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6.8 PREPARATION OF FINANCIAL STATEMENTS; DELIVERY OF FINANCIAL
INFORMATION. The Company will prepare (as soon as is reasonably practicable
hereafter) the balance sheets as of, and the income statement and the cash flow
statement for, the 12-month period ending December 31, 1995 and 1996 and for the
10-month period ending October 31, 1997 from its books and records and
Shareholders will cause such balance sheets and income statements to be reviewed
by Ernst & Young LLP (at Buyer's sole expense) and will provide such records,
documentation and assistance as may be requested by Ernst & Young LLP to
complete such review. The Company will prepare and deliver to CORESTAFF, on a
bi-weekly basis until the Closing Date, the financial and other information it
generates, consistent with its past practice.
6.9 DELIVERY OF SCHEDULES; ACCEPTANCE. CORESTAFF acknowledges that the
preparation and delivery of the Schedules to the Agreement may not be prepared
and/or final at the time of the execution and delivery of the Agreement.
As such, the parties agree as follows:
(a) the Shareholders shall have the right to deliver the
Schedules to the Agreement and/or to amend, restate and update the
Schedules to the Agreement up to the date which is five (5) days prior
to the Closing Date.
(b) at least five (5) days prior to the Closing, the
Shareholder shall deliver to CORESTAFF a complete copy of the proposed
final Schedules to the Agreement noting all changes from the Schedules
provided upon execution of the Agreement; and
(c) CORESTAFF shall notify Shareholders at or prior to the
Closing that either (i) CORESTAFF accepts such revised Schedules, in
which case they shall become part of this Agreement as if in existence
on the date of this Agreement and all such disclosures made in such
amended Schedules shall be deemed disclosed as if they had been
disclosed in the Schedules as of the date of this Agreement or (ii)
that CORESTAFF in its sole discretion does not accept such Schedules
and elects to terminate this Agreement.
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ARTICLE VII
ADDITIONAL COVENANTS
The Parties further agree as follows:
7.1 GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 9 below).
The Shareholders acknowledge and agree that from and after the Closing CORESTAFF
will be entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating to the Company.
7.2 LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the other Parties will cooperate with him or it
and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article IX below).
7.3 TRANSITION. None of the Shareholders will take any action that
primarily is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the Closing
for a period of twenty-four (24) months thereafter as it maintained with the
Company prior to the Closing. Each of the Shareholders will refer all customer
inquiries relating to the lines of businesses of the Company to CORESTAFF from
and after the Closing for a period of twenty-four (24) months thereafter.
7.4 CONFIDENTIALITY. Each of the Shareholders will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement for a period
of three (3) years from the Closing, and deliver promptly to CORESTAFF or
destroy, at the request and option of CORESTAFF, all tangible embodiments (and
all copies) of the Confidential Information which are in his or its possession.
In the event that any of the Shareholders is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, that Shareholder will notify CORESTAFF
promptly of the request or requirement so that CORESTAFF may seek an appropriate
protective order or waive compliance with the provisions of this Section 7.4.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of the Shareholders is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or
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else stand liable for contempt, that Shareholder may disclose the Confidential
Information to the tribunal; provided, however, that the disclosing Shareholder
shall use his reasonable best efforts to obtain, at the reasonable request of
CORESTAFF, an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed as CORESTAFF shall designate. The foregoing provisions shall not apply
to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
7.5 MONITORING INFORMATION. Prior to the Closing, Shareholders shall
cause the Company to deliver such information as may reasonably be requested by
CORESTAFF.
7.6 LEASES. Shareholders shall cause prior to the Closing Date, the
Company to obtain from its landlords (to the extent required under the pertinent
premises lease) written consent to the assignment of all leases being indirectly
assumed by CORESTAFF, which assignments are deemed to have resulted from the
transactions contemplated by this Agreement.
7.7 ADDITIONAL TAX MATTERS.
(a) The Company shall file with the appropriate governmental
authorities all Tax Returns required to be filed by it for any taxable
period ending prior to the Closing Date and the Company shall remit any
Taxes due in respect of such Tax Returns.
(b) CORESTAFF and the Shareholders recognize that each of them
will need access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by CORESTAFF and/or the
Company to the extent such records and information pertain to events
occurring on or prior to the Closing Date; therefore, CORESTAFF agrees
to cause the Company to (A) use its best efforts to properly retain and
maintain such records for a period of six (6) years from the date the
Tax Returns for the year in which the Closing occurs are filed or until
the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow the Shareholders and their agents and
representatives at times and dates mutually acceptable to the Parties,
to inspect, review and make copies of such records as such other party
may deem necessary or appropriate from time to time, such activities to
be conducted during normal business hours and at the other Party's
expense.
(c) The Shareholders shall reimburse CORESTAFF for the Taxes
for which the Company is liable pursuant to Section 7.7(a) hereof, but
which are payable in respect of Tax Returns to be filed by CORESTAFF
pursuant to Section 7.7(a) hereof within ten (10) business days after
receipt by the Shareholders of signed copies of such Tax Returns as
filed; however, only to the extent such Taxes are in excess of the
reserve for such Tax Liability used to determine the Net Working
Capital of the Company.
7.8 COVENANT NOT TO COMPETE.
(a) For a period of two (2) years from and after the Closing
Date or two (2) years beyond the term of his employment with the
Company, which ever is longer, none
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of the Shareholders will (i) engage directly or indirectly in any
business that is substantially similar to that conducted by the Company
as of the Closing Date within a one hundred (100) mile radius of any
office of the Company; (ii) service or solicit any current or future
customer of the Company relating to any business that is substantially
similar to that conducted by the Company; or (iii) offer employment to
or attempt to induce any director, officer, employee, agent, or
customer of the Company to terminate such relationship with the
Company; provided, however, that no owner of less than 1% of the
outstanding stock of any publicly traded corporation shall be deemed to
engage solely by reason of such ownership in the Company's business;
(b) If any Shareholder commits a breach, or overtly threatens
to commit a breach, of any of the provisions of Section 7.8(a) above,
CORESTAFF shall have the right and remedy to seek to have the
provisions of Section 7.8(a) specifically enforced by any court having
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury and continuing damage
to CORESTAFF, the Company and their affiliates, and that the exact
amount of which would be difficult to ascertain and that in any event
money damages will not provide adequate remedy and CORESTAFF shall be
entitled to seek to obtain injunctive relief restraining any violation
of Section 7.8(a);
(c) It is expressly understood and agreed that CORESTAFF and
the Shareholders consider the restrictions contained in Section 7.8(a)
above to be reasonable and necessary for the purposes of preserving and
protecting the business of the Company and goodwill purchased by
CORESTAFF; and
(d) If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 7.8 is invalid or
unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
7.9 CONDUCT OF BUSINESS DURING EARN-OUT PERIOD. During the Earn-Out
Period, unless terminated pursuant to their respective employment agreements,
the Shareholders shall be entitled to operate and manage the business of the
Company, consistent with prudent business practices. CORESTAFF agrees that it
will not, during the Earn-Out Period, unreasonably require that the business of
the Company be operated substantially differently than it was operated in the
past, unreasonably change the prices charged, the level of compensation of
full-time corporate employees and the level of "G&A" expenses, unless the prior
practices are unreasonable or imprudent, and in no event shall CORESTAFF do any
of the foregoing during the Earn-Out Period without the prior consultation with
and notice to the Shareholders. In addition, during the Earn-Out Period,
CORESTAFF will provide such capital to the Company as reasonably necessary to
operate the business as provided in the budget of the Company as agreed to by
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CORESTAFF and the Shareholders prior to the date hereof; provided that in no
event shall CORESTAFF be required to fund capital in excess of $1,000,000 to the
Company during the Earn-Out Period. The Parties shall agree on the Company's
employees that are eligible to participate in the Buyer's stock option programs.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATION OF CORESTAFF. The obligation of CORESTAFF
to consummate the transactions to be performed by it i connection with the
Closing is subject to satisfaction of the following conditions:
(a) The representations and warranties set forth in Article
III and Article V above shall be true and correct in all material
respects at and as of the Closing Date;
(b) The Shareholders and the Company shall have performed and
complied with all of their covenants hereunder in all Material respects
through the Closing;
(c) The Company shall have procured all of the governmental or
third party consents and approvals specified in Section 6.2 including
any landlord consents related to any rental property.
(d) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
within the jurisdiction of any Governmental Authority wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (C) affect
adversely the right of CORESTAFF to own, operate, or control the Shares
or the Company (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(e) The Shareholders shall have delivered to CORESTAFF a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above in
Section 8.1(a)-(d) is satisfied in all respects;
(f) CORESTAFF shall have received from Gene Rooney and David
Stanton, executed and delivered satisfactorily, determined in the sole
good faith discretion of CORESTAFF, employment arrangements;
(g) CORESTAFF shall have received from Gene Rooney and David
Stanton mutually agreed to by the Parties an executed non-competition
agreement in the form and substance attached hereto as Exhibit C;
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(h) CORESTAFF shall have received from counsel to the Company
an opinion with respect to the matters set forth in Exhibit D attached
hereto, addressed to CORESTAFF and dated as of the Closing Date;
(i) CORESTAFF shall have received the resignations, effective
as of the Closing, of each director of the Company designated by
CORESTAFF prior to the Closing;
(j) All officers and directors of the Company and each of the
Shareholders shall have repaid in full all debts or other obligations,
if any, owed to the Company;
(k) No Material adverse change shall have occurred before the
Closing in the Company's business or its future business prospects;
(l) All appropriate consents and shareholder authorizations of
the Company shall have been obtained;
(m) CORESTAFF shall be satisfied that at Closing all
facilities of the Company are under legal, valid and binding leases or
subleases, each of which have received all approvals of governmental
authorities;
(n) The Requisite Shareholders shall have delivered to
CORESTAFF stock certificates evidencing all of the stock of the Company
in good delivery form and duly endorsed for transfer or accompanied by
duly executed stock power or other appropriate assignment documents and
no dissenters or appraisal rights have been asserted by Shareholders
representing more than 1% of the outstanding shares;
(o) The Shareholders shall have caused and the Company shall
have cancelled any stock options, deferred bonus programs, and phantom
equity plans outstanding as of the Closing Date (to the extent not
reserved for in the December 31, 1997 financial statements of the
Company and excluding the Company's regular bonus plan which shall not
be treated as a deferred bonus program for these purposes), at no cost
to CORESTAFF. The cancellation of such programs will be on terms and
conditions as reasonably agreed to by CORESTAFF. In conjunction with
the cancellation of such programs, optionholders representing
substantially all of the Shares underlying outstanding options shall
have signed cancellation agreements in the form agreed to by CORESTAFF.
All former employees who are optionholders shall have executed option
cancellation agreements in substantially the form agreed to by
CORESTAFF. The Company shall have made arrangements for the
cancellation or replacement of options satisfactory to CORESTAFF
relating to persons to whom employment offers have been made by the
Company and whose employment date is effective after the Closing.
(p) All liens and security interests securing debts of the
Company which have been paid in full prior to or at the Closing shall
have been fully released of record to the reasonable satisfaction of
CORESTAFF and all Uniform Commercial Code financing
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statements or other filings of any kind whatsoever, covering or
evidencing such debts, liens and/or security interests shall have been
terminated
(q) All obligations of the Company which are not being retired
or satisfied by the Shareholders prior to or at the Closing, shall have
been modified in such a manner that their covenants, repayment
schedules, and other provisions will be upon terms reasonably
satisfactory to CORESTAFF; and
(r) No unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against the Company, or against or in any
way affecting any of the Shares.
CORESTAFF may waive any condition specified in this Section
8.1 if it executes a writing so stating at or prior to the Closing.
8.2 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS. The obligations of
the Shareholders to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties set forth in Article IV
above shall be true and correct in all material respects at and as of
the Closing Date;
(b) CORESTAFF shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
within the jurisdiction of any Governmental Authority wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement or (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation (and no such
judgment, order, decree, stipulation, injunction, or charge shall be in
effect);
(d) CORESTAFF shall have delivered to the Shareholders a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above in
Section 8.2(a)-(c) is satisfied in all respects; and
(e) all actions to be taken by CORESTAFF in connection with
consummation of the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Shareholders.
The Requisite Shareholders may waive any condition specified in this
Section 8.2 if they execute a writing so stating at or prior to the Closing.
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ARTICLE IX
REMEDIES FOR BREACHES IN THIS AGREEMENT
9.1 SURVIVAL. Except as otherwise specifically provided in this
Agreement, all of the representations, warranties and covenants of the
Shareholders (other than the representations and warranties of the Shareholders
contained in Article III or Section 5.8 above) shall survive the Closing
hereunder (even if CORESTAFF knew or had reason to know of any misrepresentation
or breach of warranty at the time of Closing) and continue in full force and
effect for a period of sixteen (16) months thereafter. All of the
representations and warranties of Shareholders contained in Article III and
Section 5.8 of this Agreement and the representations, warranties and covenants
of CORESTAFF shall survive the Closing (even if CORESTAFF knew or had reason to
know of any misrepresentation or breach of warranty or covenant at the time of
Closing) and continue in full force and effect for the statute of limitations.
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF CORESTAFF.
(a) In the event the Shareholders (or in the event any third
party alleges facts that, if true, would mean any of the Shareholders
has breached) breach any of their Joint and Several representations,
warranties, and covenants contained herein during the period such
representations, warranties and covenants survive, and provided that
CORESTAFF makes a written claim for indemnification against any of the
Shareholders pursuant to Section 11.8 below within the applicable
survival period, then each of the Shareholders agrees to indemnify
CORESTAFF from and against the entirety of any Adverse Consequences
CORESTAFF may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences CORESTAFF may
suffer after the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach); provided, however, that the Shareholders shall
not have any obligation to indemnify CORESTAFF from and against any
Adverse Consequences resulting from, arising out of, relating to, in
the nature of, or caused by the breach of any representation or
warranty of the Shareholders contained in Article V above (i) until
CORESTAFF has suffered aggregate losses by reason of all such breaches
in excess of a $50,000 threshold (at which point the Shareholders will
be obligated to indemnify CORESTAFF from and against all such aggregate
losses including losses relating back to the first dollar above a
$25,000 deductible) and (ii) in excess of the aggregate of ten percent
(10%) of the Cash Portion of the Purchase Price received by the
Shareholders and the Earn-Out Payments allocated to the Shareholders
(after which point Shareholders shall have no obligation to indemnify
CORESTAFF from and against further such Adverse Consequences);
provided, however, that the limitation set forth in (i) and (ii) above
specifically shall not apply to the liability of any Shareholder with
respect to Adverse Consequences resulting from or attributable to
intentional fraud or any willful misconduct by the Shareholders;
provided further, however that the limitation set forth in (i) above
specifically shall not apply to the liability of any Shareholder with
respect to Adverse Consequences resulting from breaches of the
representations and warranties contained in Sections 8 and 5.14 hereof.
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(b) All indemnity claims under this Section 9 shall be made
after the end of the First Earn-Out Period and shall, subject to the
limitations set forth in Section 9.2(a), be made against the Earn-Out
Payments before being made against the Cash Portion of the Purchase
Price.
(c) In the event any of the Shareholders breaches (or in the
event any third party alleges facts that, if true, would mean any of
the Shareholders has breached) any of his Several representations,
warranties, and covenants contained herein, and provided that the
particular representation, warranty, or covenant survives the Closing
and that CORESTAFF makes a written claim for indemnification against
the Shareholder pursuant to Section 11.8 below within the applicable
survival period, then the Shareholder agrees, subject to the
limitations set forth in Section 9.2(a) to indemnify CORESTAFF from and
against the entirety of any Adverse Consequences CORESTAFF may suffer
through and after the date of the claim for indemnification (including
any Adverse Consequences CORESTAFF may suffer after the end of the
applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(d) Each of the Shareholders agrees to indemnify CORESTAFF
from and against the entirety of any Adverse Consequences CORESTAFF may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by any Liability of the Company arising under United States
Treasury Reg. Section 1.1502-6 (because the Company once was a member
of an Affiliated Group during any part of any consolidated return year
within any part of which consolidated return year any corporation other
than the Company also was a member of the Affiliated Group).
(e) Each of the Shareholders agree to indemnify CORESTAFF from
and against the entirety of any Taxes which may become due and owing to
any Governmental Authority by reason of the sale of the Company to
CORESTAFF.
(f) Each of the Shareholders agree to indemnify CORESTAFF from
and against the entirety of any Adverse Consequences which may become
due and owing by reason of the Company's failure to properly obtain any
visas required for employees of the Company to work in the United
States.
(g) Each of the Shareholders shall be liable for, and hereby
indemnifies, CORESTAFF for all income Taxes imposed on the Company with
respect to any taxable year or period beginning before and ending after
the Closing Date; provided, however, that such indemnity shall be made
only to the extent such Taxes are in excess of the reserve; if any, for
such Tax Liability as reflected in the Financial Statements or in the
computation of the Net Working Capital. In order to apportion
appropriately any income Taxes relating to any taxable year or period
that begins before and ends after the Closing Date, the Parties hereto
shall, to the extent permitted or not prohibited by applicable law,
elect with the relevant taxing authority, if required or necessary, to
terminate the taxable year of the Company as of the Closing Date. In
any case where applicable law does not permit the Company to treat such
date as the end of a taxable year or period, then
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whenever it is necessary to determine the liability for income Taxes of
the Company, for a portion of a taxable year or period, such
determination shall (unless otherwise agree to in writing by CORESTAFF
and the Shareholders) be determined by a closing of the Company' books,
except that exemptions, allowances or deductions that are calculated on
an annual basis, such as the deduction for depreciation, shall be
apportioned on a time basis. In no event shall such apportionment of
income Taxes be greater than the income Taxes which would have been
allocated to the Company if such income Taxes had been based upon a
time period in proportion to the number of days during such taxable
year or period the Shareholders and CORESTAFF owned the stock in the
Company.
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDERS. In the
event CORESTAFF breaches any of its representations, warranties, and covenants
contained herein, and provided that any of the Shareholders makes a written
claim for indemnification against CORESTAFF pursuant to Section 11.8 below
within the applicable survival period, then CORESTAFF agrees to indemnify each
of the Shareholders from and against the entirety of any Adverse Consequences
the Shareholder may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Shareholder may suffer
after the end of the applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach.
9.4 MATTERS INVOLVING THIRD PARTIES. If any third party shall notify
any Party (the "Indemnified Party") with respect to any matter which may give
rise to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Article IX, then the Indemnified Party shall notify each
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged. In the
event any Indemnifying Party notifies the Indemnified Party within thirty (30)
days after the Indemnified Party has given notice of the matter that the
Indemnifying party is assuming the defense thereof, (A) the Indemnifying Party
will defend the Indemnified Party against the matter with counsel of its choice
reasonably satisfactory to the Indemnified Party, (B) the Indemnified Party may
retain separate co-counsel at its sole cost and expense (except that the
Indemnifying Party will be responsible for the fees and expenses of the separate
co-counsel to the extent the Indemnified Party reasonably concludes that the
counsel the Indemnifying Party has selected has a conflict of interest), (C) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the matter without the written consent of the
Indemnifying Party (not to be withheld unreasonably), and (D) the Indemnifying
Party will not consent to the entry of any judgment with respect to the matter,
or enter into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Indemnified Party from all
Liability with respect thereto, without the written consent of the Indemnified
Party (not to be withheld unreasonably). In the event no Indemnifying Party
notifies the Indemnified Party within thirty (30) days after the Indemnified
Party has given notice of the matter that the Indemnifying Party is assuming the
defense thereof, however, the Indemnified Party may defend against, or enter
into any settlement with respect to, the matter in any manner it reasonably may
deem appropriate. At any time after commencement of any such action, any
Indemnifying Party may request an Indemnified Party to accept a bona fide offer
from the other Parties to the action for a
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monetary settlement payable solely by such Indemnifying Party (which does not
burden or restrict the Indemnified Party nor otherwise prejudice him or her)
whereupon such action shall be taken unless the Indemnified Party determines
that the dispute should be continued, the Indemnifying Party shall be liable for
indemnity hereunder only to the extent of the lesser of (i) the amount of the
settlement offer or (ii) the amount for which the Indemnified Party may be
liable with respect to such action. In addition, the Party controlling the
defense of any third party claim shall deliver, or cause to be delivered, to the
other Party copies of all correspondence, pleadings, motions, briefs, appeals or
other written statements relating to or submitted in connection with the defense
of the third party claim, and timely notices of, and the right to participate in
(as an observer) any hearing or other court proceeding relating to the third
party claim.
9.5 DETERMINATION OF LOSS. The amount of indemnification to be paid by
any Party to another Party hereto shall be reduced by (i) any insurance proceeds
received, including both defense and indemnification costs, with respect to any
insurance policy maintained by the Company providing coverage with respect to
any of the Adverse Consequences; and (ii) any Tax benefits received by CORESTAFF
as a result of any of the Adverse Consequences (utilizing the Applicable Rate as
the discount rate). All indemnification payments under this Article IX shall be
deemed adjustments to the Purchase Price.
9.6 EXCLUSIVE REMEDY. CORESTAFF and Shareholder acknowledge and agree
that the foregoing indemnification provisions in this Section 9 shall be the
exclusive remedy of both CORESTAFF and Shareholders for any breach of the
representations and warranties of either Party.
9.7 PAYMENT; GENERAL RIGHT OF OFFSET. Subject to the limitations set
forth in this Section 9, the Indemnifying Parties shall promptly pay to
CORESTAFF or such other Indemnified Party as may be entitled to indemnity
hereunder in cash the amount of any Adverse Consequences to which CORESTAFF or
such Indemnified Party may become entitled to by reason of the provisions of
this Agreement. Furthermore, and in lieu of receiving a cash payment from the
Shareholders, CORESTAFF, in good faith, may elect to offset against any Earned
Payout Amount, including any interest payable thereon, payable to Shareholders
the amount of any Adverse Consequences or any other payments to which CORESTAFF
or such Indemnified Parties may become entitled to by reason of the provisions
of this Agreement. In the event that CORESTAFF offsets more than the amount of
any Adverse Consequences (as finally determined), CORESTAFF shall be responsible
to Shareholder for such sums which should not have been subject to an offset.
9.8 TAX DISPUTES. In the event that any dispute arises between the
Company and the Internal Revenue Service or any state tax authority relating to
an issue in which Shareholders have agreed to indemnify CORESTAFF, the
Shareholders shall have the right to associate with CORESTAFF in the defense or
settlement of any such claims. Moreover, CORESTAFF at all times shall act in
good faith in order to minimize the tax liability as to issues in which
Shareholders have agreed to indemnify CORESTAFF (so long as it does not
adversely affect the Company) and shall not settle or compromise any claims
without the consent of Shareholders, which consent shall not be unreasonably
withheld.
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ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. Certain of the Parties may terminate
this Agreement as provided below:
(a) CORESTAFF and the SHAREHOLDERS may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(b) CORESTAFF may terminate this Agreement by giving written
notice to the Shareholders at any time prior to the Closing in the
event any of the Shareholders is in breach, and the Shareholders may
terminate this Agreement by giving written notice to CORESTAFF at any
time prior to the Closing in the event CORESTAFF is in breach of any
material representation, warranty, or covenant contained in this
Agreement in any material respect;
(c) CORESTAFF may terminate this agreement in accordance with
the provision of Article V;
(d) no later than five (5) days from the date which CORESTAFF
is notified by Shareholders that it may contact key employees and
customers of the Company, CORESTAFF may terminate this Agreement by
giving written notice to the Shareholders if CORESTAFF is not
reasonably satisfied with the results of its interviews with the key
employees and/or customers of the Company as provided for in Section
6.5(a) hereof;
(e) CORESTAFF may terminate this Agreement by giving written
notice to the Shareholders at any time prior to the Closing if the
Closing shall not have occurred on or before January 30, 1998 by reason
of the failure of any condition precedent under Section 7.1 hereof
(unless the failure results primarily from CORESTAFF itself breaching
any representation, warranty, or covenant contained in this Agreement);
or
(f) the Shareholders may terminate this Agreement by giving
written notice to CORESTAFF at any time prior to the Closing if the
Closing shall not have occurred on or before January 30, 1998 by reason
of the failure of any condition precedent under Section 7.2 hereof
(unless the failure results primarily from any of the Shareholders
themselves breaching any representation, warranty, or covenant
contained in this Agreement).
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10.2 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 8(a) above, all obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party. Upon
termination, CORESTAFF shall return or destroy all confidential documents, notes
or other written memoranda regarding the Company delivered in connection with
the transactions contemplated hereby within five (5) business days thereafter.
ARTICLE XI
MISCELLANEOUS
11.1 THE SHAREHOLDERS.
(a) When any particular Shareholder (as opposed to the
Shareholders as a group) makes a representation, warranty, or covenant
herein, then that representation, warranty, or covenant will be
referred to herein as the "SEVERAL" obligation of that Shareholder.
This means that the particular Shareholder making the representation,
warranty, or covenant will be solely responsible for any Adverse
Consequences CORESTAFF may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any breach thereof. The
representations and warranties of each of the Shareholders in Article
III above concerning the transaction are the Several obligations of the
Shareholders.
(b) When the Shareholders as a group make a representation,
warranty, or covenant herein, then that representation, warranty, or
covenant will be referred to herein as the "JOINT AND SEVERAL"
obligation of the Shareholders. This means that each Shareholder will
be responsible for the entirety of any Adverse Consequences CORESTAFF
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by any breach thereof. The representations and warranties
of the Shareholders in Article V above concerning the Company are
examples of Joint and Several obligations.
11.2 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing without the prior written approval of CORESTAFF and the
Shareholders; provided, however, that any Party may make any public disclosure
it believes in good faith is required by law or regulation (in which case the
disclosing Party will advise the other Parties prior to making the disclosure)
11.3 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
11.4 ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof.
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11.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of CORESTAFF and the Shareholders; provided, however, that
CORESTAFF may (i) assign any or all of its rights and interests hereunder to a
wholly-owned subsidiary of CORESTAFF (in any or all of which cases CORESTAFF
nonetheless shall remain liable and responsible for the performance of all of
its obligations hereunder).
11.6 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all parties
hereto agree to execute an original of this Agreement and provide such
requesting party with a full set of original signature pages for each of the
parties hereto other than the requesting party within two (2) days of the
original execution date hereof.
11.7 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.8 NOTICE. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to a Shareholder:
at the address shown for such Shareholder on Section 3.4 of
the Disclosure Schedule.
with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, California 94304
Attn: Jorge del Calvo, Esq.
Telephone: (650) 233-4500
Facsimile: (650) 233-4545
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If to CORESTAFF:
CORESTAFF, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Attention: Michael T. Willis
Telephone: (713) 961-3633
Facsimile: (713) 627-1059
with a copy to:
Peter T. Dameris, Esq.
Margaret G. Reed, Esq.
CORESTAFF, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Telephone: (713) 961-3633
Facsimile: (713) 627-1059
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
11.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the State
of Texas.
11.10 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
CORESTAFF and the Shareholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.11 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgement of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the
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invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
11.12 EXPENSES.
(a) If the Closing under this Agreement shall occur, CORESTAFF
agrees to pay up to $25,000 of fees or expenses incurred by the
Shareholders and/or the Company arising under or relating to this
Agreement or the transactions contemplated by this Agreement (the
"Transaction Expenses"). The Transaction Expenses shall not be included
in any calculation of the EBIT of the Company. CORESTAFF shall pay the
Shareholders the Transaction Expenses or cause the Transaction Expenses
to be paid at the Closing, or after the Closing within three (3)
business days following CORESTAFF's receipt from Shareholders of copies
of invoices or other documents relating to the Transaction Expenses.
(b) Except as provided in paragraph (a) above, each of
CORESTAFF and the Company will bear their own costs and expenses
(including legal and investment banking fees and expenses) incurred in
connection with this Agreement and the transactions contemplated
hereby. Except as provided in paragraph (a) above, Shareholders
acknowledge and agree that any fees or expenses (including but not
limited to legal, accounting and/or investment banking) associated with
the transactions contemplated by this Agreement of the Shareholders
and/or the Company shall be included in the definition of Net Working
Capital of Target.
11.13 CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any statute or law of any Governmental Authority shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. The Parties intend that each representation, warranty, and covenant
contained herein shall have independent significance. If any Party has breached
any representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
11.14 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.15 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 56
the provisions set forth in Section 11.16 below), in addition to any other
remedy to which they may be entitled, at law or in equity.
11.16 SUBMISSION TO JURISDICTION. THIS AGREEMENT D THE RIGHTS AND
OBLIGATIONS OF SHAREHOLDERS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS. ANY LEGAL ACTION OR PROCEEDING
AGAINST ANY SHAREHOLDER WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT AND
ENFORCED IN A FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, SHAREHOLDERS HEREBY IRREVOCABLY
ACCEPTS FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY, IRREVOCABLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. SHAREHOLDERS
AGREE THAT A JUDGMENT, AFTER EXHAUSTION OF ALL AVAILABLE APPEALS, IN ANY SUCH
ACTION OR PROCEEDINGS SHALL BE CONCLUSIVE AND BINDING UPON SHAREHOLDERS, AND MAY
BE ENFORCED IN ANY OTHER JURISDICTION BY A SUIT UPON SUCH JUDGMENT, A CERTIFIED
COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE JUDGMENT. SHAREHOLDERS HEREBY
IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH
OFFICES ON THE DATE HEREOF IN WILMINGTON, DELAWARE, SO LONG AS THIS AGREEMENT IS
OUTSTANDING, AS ITS DESIGNEE, APPOINTEE AND AGENT WITH RESPECT TO ANY ACTION OR
PROCEEDING TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN
RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES
AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING AND AGREES
THAT THE FAILURE OF ANY SUCH AGENT TO GIVE ANY ADVICE OF ANY SERVICE OF PROCESS
TO SHAREHOLDERS SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF
ANY JUDGMENT BASED THEREON. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT
SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, SHAREHOLDERS AGREE TO DESIGNATE A
NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF DELAWARE ON THE TERMS AND FOR
THE PURPOSES OF THIS PROVISION SATISFACTORY TO CORESTAFF. SHAREHOLDERS FURTHER
IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SHAREHOLDERS, AT ITS ADDRESS
SET FORTH IN SECTION 9(H) HEREOF, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER
SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF CORESTAFF TO SERVE
PROCESS OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
SHAREHOLDERS IN ANY OTHER MANNER PERMITTED BY LAW. SHAREHOLDERS HEREBY WAIVE
IRREVOCABLY, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION TO THE LAYING
OF VENUE IN HOUSTON, TEXAS OR ANY CLAIM OF INCONVENIENT FORUM IN RESPECT OF ANY
SUCH ACTION IN WILMINGTON, DELAWARE TO WHICH IT MIGHT OTHERWISE NOW OR HEREAFTER
BE ENTITLED IN ANY ACTIONS ARISING OUT OF OR BASED ON THIS AGREEMENT.
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<PAGE> 57
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
CORESTAFF:
CORESTAFF, INC.
By: /s/ PETER T. DAMERIS
--------------------------------
Name: Peter T. Dameris
Title: Senior Vice President and
Secretary
THE COMPANY:
SAGE I.T. PARTNERS, INC.
By: /s/ EUGENE ROONEY
--------------------------------
Name:
------------------------------
Title:
-----------------------------
THE SHAREHOLDERS:
/s/ EUGENE ROONEY
-----------------------------------
EUGENE ROONEY
/s/ DAVID STANTON
-----------------------------------
DAVID STANTON
SAGE I.T. PARTNERS, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 1
EXHIBIT 2.3
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
CORESTAFF, INC.,
(BUYER)
WORKGROUP PRODUCTIVITY CORPORATION,
(WPC)
AND
THE SHAREHOLDERS OF WPC
(COLLECTIVELY, SELLERS)
DATED AS OF DECEMBER 31, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
1. Definitions..............................................................................................1
2. Purchase and Sale of WPC Shares..........................................................................6
(a) Basic Transaction...............................................................................6
(b) Purchase Price..................................................................................6
(d) Date and Form of Payment........................................................................7
(e) Working Capital Adjustments.....................................................................7
(f) The Closing.....................................................................................8
(g) Deliveries at the Closing.......................................................................8
3. Representations and Warranties Concerning the Transaction................................................8
(a) Representations and Warranties of each Seller...................................................8
(i) Authorization of Transaction...........................................................8
(ii) Noncontravention.......................................................................9
(iii) Broker's Fees..........................................................................9
(iv) WPC Shares.............................................................................9
(b) Representations and Warranties of the Buyer....................................................10
(i) Organization of the Buyer.............................................................10
(ii) Authorization of Transaction..........................................................10
(iii) Noncontravention......................................................................10
(iv) Brokers' Fees.........................................................................10
(v) Investment............................................................................10
4. Representations and Warranties Concerning WPC...........................................................11
(a) Organization, Qualification, and Corporate Power...............................................12
(b) Capitalization.................................................................................12
(c) Noncontravention...............................................................................12
(d) Subsidiaries...................................................................................13
(e) Financial Statements...........................................................................13
(f) Events Subsequent to the Most Recent Fiscal Year End...........................................13
(g) Undisclosed Liabilities........................................................................15
(h) Tax Matters....................................................................................16
(i) Tangible Assets................................................................................17
(j) Owned Real Property............................................................................17
(k) Intellectual Property..........................................................................18
(l) Real Property Leases...........................................................................20
(m) Contracts......................................................................................21
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
(n) Notes and Accounts Receivable..................................................................22
(o) Powers of Attorney.............................................................................22
(p) Insurance......................................................................................22
(q) Litigation.....................................................................................23
(r) Employees......................................................................................23
(s) Employee Benefits..............................................................................23
(t) Guaranties.....................................................................................25
(u) Environment, Health, and Safety................................................................25
(v) Legal Compliance...............................................................................27
(w) Certain Business Relationships with WPC........................................................28
(x) Brokers' Fees..................................................................................28
(y) Disclosure.....................................................................................28
5. Pre-Closing Covenants...................................................................................28
(a) General........................................................................................28
(b) Notices and Consents...........................................................................28
(c) Operation of Business..........................................................................29
(d) Preservation of Business.......................................................................29
(e) Access.........................................................................................29
(f) Notice of Developments.........................................................................30
(g) Exclusivity....................................................................................30
(h) Delivery of Information........................................................................30
(i) Cancellation of Options, Bonus Programs and Phantom
Stock Plans...................................................................................30
6. Additional Covenants....................................................................................31
(a) General........................................................................................31
(b) Litigation Support.............................................................................31
(c) Transition.....................................................................................31
(d) Confidentiality................................................................................31
(e) Termination of Bank Facilities; Release of Guaranties..........................................32
(f) Monitoring Information.........................................................................32
(g) Section 338(h)(10) Election....................................................................32
(h) Landlords' Consents............................................................................33
(i) Additional Tax Matters.........................................................................33
(j) Covenant Not to Compete........................................................................33
(k) Conduct During Earned Payout Periods...........................................................34
7. Conditions to Obligations to Close......................................................................35
(a) Conditions to Obligation of the Buyer..........................................................35
(b) Conditions to Obligations of the Sellers.......................................................37
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
8. Remedies for Breaches of This Agreement.................................................................38
(a) Survival.......................................................................................38
(b) Indemnification Provisions for Benefit of the Buyer............................................39
(c) Indemnification Provisions for Benefit of the Sellers..........................................41
(d) Matters Involving Third Parties................................................................41
(e) Determination of Loss..........................................................................42
(f) Exclusive Remedy...............................................................................42
(g) Payment; General Right of Offset...............................................................42
(h) Other Indemnification Provisions...............................................................42
(i) Arbitration with Respect to Certain Indemnification Matters....................................42
9. Termination.............................................................................................43
(a) Termination of Agreement.......................................................................43
(b) Effect of Termination..........................................................................44
10. Miscellaneous...........................................................................................44
(a) The Sellers....................................................................................44
(b) Press Releases and Announcements...............................................................45
(c) No Third-Party Beneficiaries...................................................................45
(d) Entire Agreement...............................................................................45
(e) Succession and Assignment......................................................................45
(f) Facsimile/Counterparts.........................................................................46
(g) Headings.......................................................................................46
(h) Notices........................................................................................46
(i) Submission to Jurisdiction.....................................................................47
(j) Amendments and Waivers.........................................................................48
(k) Severability...................................................................................48
(l) Expenses.......................................................................................48
(m) Construction...................................................................................48
(n) Incorporation of Exhibits, Annexes, and Schedules..............................................48
(o) Specific Performance...........................................................................49
</TABLE>
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<PAGE> 5
LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B-1 Form of Existing Employee Option Cancellation Agreement
Exhibit B-2 Form of New Employee Option Cancellation Agreement
Exhibit C Form of Sellers Noncompete Agreement
Exhibit D Form of Opinion of Buyer's Legal Counsel
Exhibit E Form of Opinion of Seller's Legal Counsel
Exhibit F Confidentiality Agreement
ANNEXES
Annex I Determination of Adjusted EBIT of WPC
Annex II Exceptions to Representations and Warranties of Sellers
Annex III Exceptions to Representations and Warranties of Buyer
Annex IV WPC Information
Annex V Persons to Deliver Employment Agreements
Annex VI Persons to Deliver Cancellation and Non-Solicitation
Agreements
SCHEDULES
Allocation Schedule
Disclosure Schedule
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<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("AGREEMENT") is entered into as of the 31st
day of December, 1997, by and among CORESTAFF, INC., a Delaware corporation (the
"BUYER"), WORKGROUP PRODUCTIVITY CORPORATION, an Illinois corporation ("WPC"),
and THE SHAREHOLDERS OF WPC LISTED ON THE SIGNATURE PAGE HEREOF (collectively,
the "SELLERS"). The Buyer and the Sellers are referred to herein individually as
a "PARTY" and collectively as the "PARTIES."
The Sellers collectively own all of the outstanding capital stock of WPC.
This Agreement contemplates a transaction in which the Buyer will purchase
from the Sellers, and the Sellers will sell to the Buyer, all of the outstanding
capital stock of WPC.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ADJUSTED EBIT OF WPC" means adjusted earnings before interest and
taxes of WPC during the Earned Payout Periods as determined by Annex I attached
hereto.
"ADVERSE CONSEQUENCES" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"ALLOCABLE PORTION" means with respect to the share of any Seller or
WPC Optionholder in a particular amount that fraction equal to the number of
Shares such Seller holds or WPC Optionholder holds as over the total number of
outstanding Shares, assuming the full vesting and exercise of all WPC Options as
of the Closing Date, all as set forth in Section 4(b) of the Disclosure
Schedule.
"APPLICABLE RATE" means the "prime rate" in effect from time to time as
reported in the Wall Street Journal money rates section, plus two percent (2%)
per annum.
<PAGE> 7
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the reasonable basis for any
specified consequence.
"BUYER" has the meaning set forth in the preface above.
"CASH PORTION OF THE PURCHASE PRICE" has the meaning set forth in
Section 2(b) below.
"CLOSING" has the meaning set forth in Section 2(f) below.
"CLOSING DATE" has the meaning set forth in Section 2(f) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and trade
secrets of WPC including, without limitation, the identity, lists or
descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training and operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"CUSTOMER CONTRACT OR AGREEMENT" means any agreement whereby WPC
provides contract computer support and/or consulting services to a third party.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Treas.
Reg. Section 1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4 below.
"EARNED PAYOUT AMOUNTS" has the meaning set forth in Section 2(c)
below.
"EARNED PAYOUT PERIODS" means the period from January 1, 1998 through
December 31, 1999.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee
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<PAGE> 8
Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or Material fringe
benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section
3(a)(i) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"E&Y DETERMINATION" shall have the meaning set forth in Section 2(e)
below.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4(e) below.
"FIRST EARNED PAYOUT AMOUNT" has the meaning set forth in Section
2(c)(i) below.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"GROSS PROFIT MARGIN" means the gross profit of WPC as customarily set
forth on the Financial Statements.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(d) below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques,
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<PAGE> 9
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing, and
business data, pricing and cost information, business and marketing plans, and
customer and supplier lists and information), (e) other proprietary rights, and
(f) copies and tangible embodiments thereof (in whatever form or medium).
"KEY EMPLOYEES" has the meaning set forth in Section 7(a)(viii) hereof.
"KNOWLEDGE" means, with respect to WPC, actual knowledge after
reasonable investigation and inquiry by Sellers, which inquiry shall include an
inquiry of the employees of WPC with responsibility for the matters in question.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, and whether due or to become due) including any liability for
Taxes.
"MATERIAL" has the meaning set forth in Section 4 hereof.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section
4(e) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 4(e)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"NET WORKING CAPITAL OF WPC" means total current assets of WPC less the
sum of the following: (i) total current liabilities, and (ii) any long-term debt
of WPC, determined in accordance with GAAP, consistently applied and on the
accrual method of accounting.
"1998 EBIT" has the meaning set forth in Section 2(c)(i) below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
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<PAGE> 10
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"PURCHASE PRICE" has the meaning set forth in Section 2(b) below.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SECOND EARNED PAYOUT AMOUNT" has the meaning set forth in Section
2(c)(ii) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings), (c)
liens arising under workers' compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"SELLERS" has the meaning set forth in the preface above.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, 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 of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"WPC" has the meaning set forth in the preface above.
"WPC'S BUSINESS" means the business of writing custom software for the
groupware applications, such as Lotus Notes and Microsoft Exchange, and
providing associated consulting services with respect to such customized
applications.
-5-
<PAGE> 11
"WPC OPTIONHOLDERS" means the holders of options for the purchase of
WPC Shares listed on the Allocation Schedule hereto.
"WPC OPTIONS" means all the agreements between WPC and those persons
listed on the Allocation Schedule hereto related to the issuance of WPC Shares.
"WPC SHARES" means all outstanding shares of the Common Stock, no par
value per share, of WPC.
"ZAHORA" means Randal A. Zahora.
2. PURCHASE AND SALE OF WPC SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Sellers, and each Seller
agrees to sell to the Buyer, all of its respective WPC Shares for the
consideration specified below in this Section 2.
(b) PURCHASE PRICE. The purchase price for WPC Shares to be purchased
by Buyer from the Sellers and the cancellation of the WPC Options from the WPC
Optionholders pursuant to the terms hereof shall be composed of the Cash Portion
of the Purchase Price (as hereinafter defined) and the Earned Payout Amounts (as
hereinafter defined). The Buyer agrees to pay to the Sellers and the WPC
Optionholders the sum of $6,000,000 in cash (the "CASH PORTION OF THE PURCHASE
PRICE") for WPC Shares to be purchased pursuant to the terms hereof and the WPC
Options to be canceled. The Cash Portion of the Purchase Price shall be paid by
Buyer to Sellers and the WPC Optionholders at the Closing by wire transfer or
delivery of other immediately available funds to an account or accounts
designated by Sellers and the WPC Optionholders. The sum of the Cash Portion of
the Purchase Price and the Earned Payout Amounts (as defined below) shall be
referred to as the "PURCHASE PRICE." The Purchase Price shall be allocated among
Sellers and the WPC Optionholders in the amounts set forth in the Allocation
Schedule.
(c) EARNED PAYOUT AMOUNTS. In addition to the Cash Portion of the
Purchase Price, the Buyer agrees to pay to the Sellers and the WPC
Optionholders, if earned, each of the following earned payout amounts
(collectively, the "EARNED PAYOUT AMOUNTS"):
(i) an earned payout amount (the "FIRST EARNED PAYOUT AMOUNT")
equal to the product of (A) five (5) multiplied by (B) the amount, if any,
by which the Adjusted EBIT of WPC for the calendar year ending December 31,
1998 (the "1998 EBIT") exceeds $600,000; provided, however, that in no
event will the First Earned Payout Amount exceed $4,500,000; and
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<PAGE> 12
(ii) an earned payout amount (the "SECOND EARNED PAYOUT AMOUNT")
equal to the product of (A) five (5) multiplied by (B) the amount, if any,
by which the Adjusted EBIT of WPC for the calendar year ending December 31,
1999 exceeds the greater of (x) the 1998 EBIT or (y) $1,300,000; provided,
however, that in no event will the Second Earned Payout Amount exceed
$11,000,000 less the actual amount of the First Earned Payout Amount.
Notwithstanding the foregoing, in the event that the 1998 EBIT exceeds
$1,500,000, the amount in excess of $1,500,000 shall be added to the
Adjusted EBIT of WPC for the calendar year ending December 31, 1999 for
purposes of calculating the Second Earned Payout Amount.
(d) DATE AND FORM OF PAYMENT. The Earned Payout Amounts shall be
payable in cash by Buyer to Sellers and the WPC Optionholders by wire transfer
or other delivery of other immediately available funds to an account or accounts
designated by Sellers and the WPC Optionholders on or prior to March 15, 1999
(with respect to the First Earned Payout Amount) and on or prior to March 15,
2000 (with respect to the Second Earned Payout Amount). The Earned Payout
Amounts shall be determined by Ernst & Young, L.L.P. in accordance with the
terms of this Agreement and Annex I hereto.
(e) WORKING CAPITAL ADJUSTMENT. The Cash Portion of the Purchase Price
shall be adjusted downward on a dollar-for-dollar basis by the amount by which
the Net Working Capital of WPC is less than $565,000 as of December 31, 1997. In
the event the Parties are unable to agree on or calculate the Net Working
Capital of WPC as of December 31, 1997 at least ten (10) days before the
Closing, the Net Working Capital of WPC as of December 31, 1997 shall be
determined subsequent to the Closing by Ernst & Young, L.L.P. in accordance with
the terms of this Agreement (at the expense of the Buyer), which determination
(the "E&Y DETERMINATION") shall be submitted in writing to the Buyer and the
Sellers not later than thirty (30) days after the Closing. Unless Zahora on
behalf of all Sellers and the WPC Optionholders objects in writing to the E&Y
Determination within five business days of the receipt of such determination,
the E&Y Determination shall be final, conclusive and binding on the Parties. If
no objection is made, Sellers and the WPC Optionholders shall pay to Buyer by
wire transfer the amount, if any, by which the amount of the E&Y Determination
is less than $565,000 within ten (10) days after the E&Y Determination. However,
if Zahora disagrees with the E&Y Determination (the "DISAGREEMENT NOTICE"), then
Zahora and Buyer shall attempt in good faith to mutually determine the correct
amount of the Net Working Capital of WPC as of December 31, 1997 within fourteen
(14) days after Zahora delivers the Disagreement Notice to Buyer. If Zahora and
Buyer cannot in good faith mutually determine the amount of the Net Working
Capital of WPC as of December 31, 1997 within such fourteen (14) day period,
then Zahora and Buyer will mutually select another accounting firm, nationally
recognized to be one of the top fifteen (15) accounting firms in the United
States, to compute the Net Working Capital of WPC as of December 31, 1997, which
computation (the "FINAL COMPUTATION") shall be final, conclusive and binding on
the Parties.
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<PAGE> 13
The Sellers shall pay the expense of the Final Computation (the "FINAL
COMPUTATION EXPENSE") unless the Net Working Capital of WPC determined pursuant
to the Final Computation is five percent (5%) or greater than the E&Y
Determination, in which case Buyer shall pay the entire amount of the Final
Computation Expense. Any such payment required to be made by Sellers shall be
made to Buyer within ten (10) days of the Final Computation having been finally
determined pursuant to this Section 2(e).
If Net Working Capital of WPC as of December 31, 1997 is determined to
be less than $565,000, Buyer shall promptly make, from time to time at the
request of Zahora, a capital contribution to the capital of WPC in an amount
equal to the difference between the actual Net Working Capital as of December
31, 1997 and $565,000. The capital contribution of Buyer shall be used by WPC
for working capital requirements and other general corporate purposes of WPC.
(f) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Buyer in Houston,
Texas commencing at 9:00 a.m. local time on the first business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby, or such other date as the Buyer
and the Sellers may mutually determine (the "CLOSING DATE"); provided, however,
that the Closing Date shall be no later than January 11, 1998.
(g) DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in Section
7(b)(xv) below, (iii) the Sellers will each deliver to the Buyer stock
certificates representing all of its WPC Shares, endorsed in blank or
accompanied by duly executed assignment documents, (iv) the Buyer will deliver
to the Sellers and the WPC Optionholders the consideration specified in Section
2(b) above as may be adjusted after the Closing pursuant to Section 2(e) above,
and (v) the WPC Optionholders shall each deliver to the Buyer the Option
Cancellation Agreements required by Section 7(a) below.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF EACH SELLER. Each Seller
represents and warrants to the Buyer that, subject to the specific
qualifications and limitations set forth below, the statements contained in this
Section 3(a) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to itself, except as set forth in
Annex II attached hereto.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder and this Agreement has been duly executed and
delivered by the Seller. This Agreement constitutes the valid and legally
binding obligation of the Seller,
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enforceable in accordance with its terms and conditions, except that (A)
such enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable principles
now or hereafter in effect relating to or affecting the enforcement of
creditors' rights or debtors' obligations generally, and to general equity
principles, and (B) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefore may be
brought (the terms of clause (A) and (B) are sometimes collectively
referred to as the "EQUITABLE EXCEPTIONS"). The Seller need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement by the Seller, nor the consummation of the transactions
contemplated hereby by the Seller, will (A) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction, charge,
or other restriction of any government, governmental agency, or court to
which the Seller is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
part the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Seller
is a party or by which it is bound or to which any of its assets is
subject.
(iii) BROKER'S FEES. Seller has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) WPC SHARES. The Seller holds of record and owns beneficially
the number of WPC Shares set forth next to its name in Section 4(b) of the
Disclosure Schedule, free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities laws),
claims, Taxes, Security Interests, options, warrants, rights, contracts,
calls, commitments, equities, and demands. The Seller is not a party to any
option, warrant, right, contract, call, put, or other agreement or
commitment providing for the disposition or acquisition of any capital
stock of WPC (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of WPC.
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(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Sellers that the statements contained in this Section 3(b)
are correct and complete in all material respects as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex III
attached hereto.
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder and this
Agreement has been duly executed and delivered by the Buyer. This Agreement
constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions except for the
Equitable Exceptions. The Buyer need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement by the Buyer, nor the consummation of the transactions
contemplated hereby by the Buyer, will (A) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the
Buyer is subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest,
or other arrangement to which the Buyer is a party or by which it is bound
or to which any of its assets is subject and which has a Material adverse
effect on Buyer.
(iv) BROKERS' FEES. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Sellers could
become liable or obligated.
(v) INVESTMENT. The Buyer is not acquiring WPC Shares with a view
to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
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(vi) BUYER'S KNOWLEDGE. Buyer has no actual knowledge that any
representation, warranty or covenant of the Sellers is Materially
inaccurate or false.
4. REPRESENTATIONS AND WARRANTIES CONCERNING WPC. The Sellers jointly
and severally represent and warrant to the Buyer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure Schedule
delivered by the Sellers to the Buyer on the date hereof and initialed by the
Parties (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule may be updated one
or more times prior to the Closing Date. Any updated Disclosure Schedule shall
be delivered at or before the Closing. An updated Disclosure Schedule shall only
be deemed to modify a representation and/or warranty made as of the date of this
Agreement in the event, and only in the event, that Sellers acted in good faith
and used its best efforts when preparing the original Disclosure Schedule
delivered to the Buyer on the date of execution of this Agreement. In the event
any such updated Disclosure Schedule indicates a material change from
information previously provided to the Buyer, Buyer shall be entitled to
terminate this Agreement (without any liability whatsoever to WPC) by written
notice delivered to WPC following receipt of such updated Disclosure Schedule.
An event or matter that causes any representation or warranty contained in this
Section to be inaccurate, incorrect or false will not be deemed to be
"MATERIAL," to have a "MATERIAL" change in or in respect of, to have a
"MATERIAL" adverse effect or to be "MATERIALLY" affected unless the loss that
may reasonably be expected to occur to WPC with respect to such event or matter,
when taken together with all other related losses that may reasonably be
expected to occur to WPC as a result of any such events or matters, would exceed
$20,000 in the aggregate or unless such event or matter constitutes a criminal
violation of law. For purposes of this paragraph, the word "loss" shall mean any
and all direct or indirect payments, obligations, assessments, losses, losses of
income, liabilities, costs and expenses paid or incurred, or reasonably likely
to be paid or incurred, or diminutions in value or reduction in benefits or
rights of any kind or character (whether or not known or asserted before the
date of this Agreement, fixed or unfixed, conditional or unconditional, choate
or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise) that are reasonably likely to occur,
including without limitation, penalties, interest on any amount payable to a
third party as a result of the foregoing, and any reasonable legal or other
expenses reasonably expected to be incurred in connection with defending any
demands, claims, actions or causes of action that, if adversely determined,
could reasonably be expected to result in losses, and all amounts paid in
settlement of claims or actions; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds or any increases in insurance premiums as a direct
result thereof). A Customer Contract or Agreement is "Material" if during the
calendar year 1996 such Customer Contract or Agreement produced $20,000 of Gross
Profit Margin less any bad debt specifically related to such Customer Contract
or Agreement. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made
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<PAGE> 17
herein, however, unless the Disclosure Schedule identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
items itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. WPC is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. Except as disclosed in Section
4(a) of the Disclosure Schedule, WPC is duly authorized to conduct business and
is in good standing under the laws of each jurisdiction in which the nature of
its businesses or the ownership or leasing of its properties requires such
qualification. WPC has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. Section 4(a) of the Disclosure Schedule lists the directors and
officers of WPC. The Sellers have delivered to the Buyer correct and complete
copies of the charter and bylaws of WPC (as amended to date). The minute books
containing the records of meetings and/or resolutions of the stockholders, the
board of directors, and any committees of the board of directors are correct and
complete in all Material respects. The stock certificate books and the stock
record books of WPC are correct and complete. WPC is not in default under or in
violation of any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of WPC consists
of 1,500,000 shares of capital stock, 1,052,631 of which are issued and
outstanding and no WPC Shares are held in treasury. All of the issued and
outstanding WPC Shares have been duly authorized, are validly issued, fully
paid, and EBIT, and are held of record by the Sellers. Except as set forth on
the Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversion
rights, or other agreements or commitments to which WPC is a party or which are
binding upon WPC providing for the issuance, disposition, or acquisition of any
of its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, or similar rights with respect to WPC. There are no voting
trusts, proxies, or any other agreements or understandings with respect to the
voting of the capital stock of WPC.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which WPC is subject or any provision of the charter or bylaws of
WPC or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which WPC is a party or by which it is
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<PAGE> 18
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). WPC does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) SUBSIDIARIES. WPC has no Subsidiaries.
(e) FINANCIAL STATEMENTS. Attached hereto as Exhibit A are the
following financial statements (collectively the "FINANCIAL STATEMENTS"): (i)
unaudited balance sheet and statement of income, changes in stockholder's
equity, and cash flow as of and for the fiscal years ended December 31, 1995 and
1996 (the "MOST RECENT FISCAL YEAR END") for WPC, and (ii) an unaudited balance
sheet and statement of income, changes in stockholders' equity, and cash flow as
of and for the 10 months ended October 31, 1997 (the "MOST RECENT FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby, are
correct and complete in all Material respects, fairly present the financial
condition of WPC as of such dates, and are consistent with the books and records
of WPC (which books and records are correct and complete) in all Material
respects.
(f) EVENTS SUBSEQUENT TO THE MOST RECENT FISCAL YEAR END. Since
December 31, 1996, except as set forth on the Disclosure Schedule, there has not
been any Material adverse change in the assets, Liabilities, business, financial
condition, operations, results of operations, or future prospects of WPC.
Without limiting the generality of the foregoing since that date except as set
forth on the Disclosure Schedule:
(i) WPC has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(ii) WPC has not entered into any contract, lease, sublease,
license or sublicense (or series or related contracts, leases, subleases,
licenses and sublicenses) either involving more than $35,000 or outside the
Ordinary Course of Business;
(iii) WPC has not accelerated, terminated, modified, or canceled
any contract, lease, sublease, license or sublicense (or series of related
contracts, leases, subleases, licenses and sublicenses) involving more than
$25,000 to which WPC is a party or by which it is bound;
(iv) no party has notified WPC of any acceleration, termination
modification or cancellation of any Material Customer Contract or any
contract, agreement, lease, sublease, license or sublicense (or series of
related contracts, leases, subleases, licenses and sublicenses), other than
any employment or
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consulting agreements entered into in the Ordinary Course of Business,
involving more than $25,000 to which a WPC is a party or by which it is
bound;
(v) WPC has not imposed any Security Interest upon any of its
assets, tangible or intangible;
(vi) WPC has not made any capital expenditure (or series of
related capital expenditures) either involving more than $50,000
individually or $200,000 in the aggregate, or outside the Ordinary
Course of Business;
(vii) WPC has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of any other person (or
series of related capital investments, loans, and acquisitions) either
involving more than $50,000 individually or $200,000 in the aggregate;
(viii) WPC has not created, incurred, assumed, or guaranteed any
indebtedness (including capitalized lease obligations) either
involving more than $35,000 individually or in the aggregate or
outside the Ordinary Course of Business;
(ix) WPC has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other Liabilities;
(x) WPC has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) either
involving more than $25,000 or outside the Ordinary Course of
Business;
(xi) WPC has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(xii) there has been no change made or authorized in the charter
or bylaws of WPC;
(xiii) WPC has not issued, sold, or otherwise disposed of any of
its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion or exercise) any of
its capital stock;
(xiv) Except for distributions to Sellers to pay their respective
income tax liabilities (but not cash-to-accrual tax liabilities), WPC
has not declared, set aside, or paid any dividend or distribution with
respect to its capital stock nor redeemed, purchased, or otherwise
acquired any of its capital stock;
(xv) WPC has not made any consulting or other payment to the
Sellers;
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<PAGE> 20
(xvi) WPC has not experienced any damage, destruction or loss
involving more than $25,000 (whether or not covered by insurance) to its
property;
(xvii) WPC has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business involving more than $25,000 giving rise to any
claim or right on its part against the person or on the part of the person
against it;
(xviii) WPC has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement with any of its full-time staff
employees;
(xix) WPC has not granted an increase outside the Ordinary Course
of Business in the base compensation of any of its directors, officers, and
employees;
(xx) WPC has not adopted any (A) bonus, (B) profit-sharing, (C)
incentive compensation, (D) pension, (E) retirement, (F) medical,
hospitalization, life, or other insurance, (G) severance, or (H) other
plan, contract or commitment for any of its directors, officers, and
employees, or modified or terminated any existing such plan, contract or
commitment;
(xxi) WPC has not made any other change in employment terms for
any of its directors, officers, and full-time staff employees;
(xxii) WPC has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxiii) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving WPC; and
(xxiv) WPC has not committed to any of the foregoing.
(g) UNDISCLOSED LIABILITIES. WPC does not have any Liability (and there
is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against WPC giving rise to
any Liability, including, without limitation, Liability under the Fair Labor
Standards Act of 1938, as amended and the rules and regulations promulgated
thereunder) which is individually in excess of $5,000, except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet (rather than
in any notes thereto), and (ii) Liabilities which have arisen after the Most
Recent Fiscal Year End in the Ordinary Course of Business (none of which relates
to any breach of contract, breach of
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<PAGE> 21
warranty, tort, infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceedings, hearing, investigation, claim, or demand).
(h) TAX MATTERS.
(i) WPC has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all respects. All Taxes
owed by WPC (whether or not shown on any Tax Return) have been paid. WPC
currently is not the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where WPC does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Security Interests
on any of the assets of WPC that arose in connection with any failure (or
alleged failure) to pay any Tax.
(ii) WPC has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party and WPC has properly
reflected the status of all employees and independent contractors in
connection therewith as required by applicable Tax law and the Fair Labor
Standards Act of 1938, as amended, and the rules and regulations
promulgated thereunder.
(iii) Neither Sellers nor any of the directors or officers (or
employees responsible for Tax matters) of WPC has received, or expects to
receive, any notice that any authority intends to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of WPC either (A) claimed or
raised by any authority in writing or (B) as to which the Sellers and the
directors and officers (and employees responsible for Tax matters) of WPC
has Knowledge based upon personal contact with any agent of such authority.
Section 4(h) of the Disclosure Schedule lists all federal, state, local,
and foreign income Tax Returns filed with respect to WPC for taxable
periods ended on or after December 31, 1993, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are
the subject of audit. The Sellers have delivered to the Buyer correct and
complete copies of all federal income Tax Returns filed, examination
reports received, and statements of deficiencies assessed against or agreed
to, by WPC since December 31, 1993.
(iv) WPC 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.
(v) WPC has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations. WPC has not made any payments, is not obligated
to make any payments, nor is a party to any agreement that under
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certain circumstances could obligate it to make any payments that will not
be deductible to WPC under Code Sec. 280G. WPC has not been a United States
real property holding corporation within the meaning of Code Sec. 897(c)(2)
during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). WPC
has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Code Sec. 6662. WPC is not a party to any Tax
allocation or sharing agreement. WPC has never been (nor has any Liability
for unpaid Taxes because it once was) a member of an Affiliated Group
filing a consolidated federal income Tax Return and has never incurred any
Liability for the Taxes of any Person under Treas. Reg. Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise, during any part of any
consolidated return year within any part of which consolidated return year
any corporation other than WPC also was a member of the Affiliated Group.
The election of WPC to be taxed under subchapter S of the Code is valid, in
full force and effect and is in full compliance with all applicable Tax
laws, rules and regulations.
(vi) Section 4(h) of the Disclosure Schedule sets forth the
following information with respect to WPC as of the most recent practicable
date (as well as on an estimated pro forma basis as of the Closing giving
effect to the consummation of the transactions contemplated hereby): (A)
the amount of any net operating loss, net capital loss, unused investment
or other credit, unused foreign tax, or excess charitable contribution
allocable to WPC; and (B) the amount of any deferred gain or loss allocable
to WPC arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of WPC do not exceed the reserve for Tax
Liability set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of WPC in
filing its Tax Returns.
(i) TANGIBLE ASSETS. WPC owns or leases all tangible assets necessary
for the conduct of its businesses as presently conducted and as presently
proposed to be conducted. To the Knowledge of Sellers, each Material tangible
asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
(j) OWNED REAL PROPERTY. WPC does not own nor does it have any interest
in any real property or improvements thereon (other than the leases disclosed in
Section 4(j) of the Disclosure Schedule, and the leasehold improvements relating
to the same) nor does WPC have any options, agreements or contracts under which
it has the right or obligation to
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acquire any interest in any real property or improvements (other than as
disclosed in Section 4(j) of the Disclosure Schedule)
(k) INTELLECTUAL PROPERTY.
(i) Except as set forth on the Disclosure Schedule, WPC 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 WPC as presently conducted and as presently proposed by WPC
to be conducted. Each item of Intellectual Property owned or used by WPC
immediately prior to the Closing hereunder will be owned or available for
use by WPC on identical terms and conditions immediately subsequent to the
Closing hereunder. WPC has taken all necessary or desirable action to
protect each item of Intellectual Property that it owns or uses in the
jurisdictions in which it currently operates its business.
(ii) Except as set forth on the Disclosure Schedule, WPC has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and
neither the Sellers nor any of the directors or officers (or employees with
responsibility for Intellectual Property matters) of WPC has ever received
any charge, complaint, claim, or notice alleging any such interference,
infringement, misappropriation, or violation. To the Knowledge of the
Sellers and the directors and officers (and employees with responsibility
for Intellectual Property matters) of WPC, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into legal
conflict with any Intellectual Property rights of WPC.
(iii) Section 4(k) of the Disclosure Schedule identifies each
patent or trademark, tradename or copyright registration which has been
issued to WPC with respect to any of its Intellectual Property, identifies
each pending patent application or application for trademark, tradename or
copyright registration which WPC has made with respect to any of its
Intellectual Property, and identifies each license, agreement, or other
permission which WPC has granted to any third party with respect to any of
its Intellectual Property (together with any exceptions). The Sellers have
delivered to the Buyer correct and complete copies of all such trademark,
tradename, service mark, trade secret and copyright registrations,
applications, licenses, agreements, and permissions (as amended to date),
and has made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. Except as identified in Section 4(k) of the
Disclosure Schedule, with respect to each item of Intellectual Property
that WPC owns:
(A) the identified owner possesses all right, title, and
interest in and to the item;
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<PAGE> 24
(B) the item is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge;
(C) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or, to the Knowledge of the
Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of WPC, is
threatened which challenges the legality, validity, enforceability,
use, or ownership of the item; and
(D) WPC has never agreed to indemnify any person or entity
for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(iv) Section 4(k) of the Disclosure Schedule also identifies each
item of Intellectual Property that any third party owns and that WPC uses
pursuant to license, sublicense, agreement, or permission. Except as
identified in Section 4(k) of the Disclosure Schedule, the Sellers have
supplied the Buyer with correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). Except as
identified in Section 4(k) of the Disclosure Schedule, with respect to each
such item of used Intellectual Property:
(A) to the Knowledge of Sellers, the license, sublicense,
agreement, or permission covering the item is legal, valid, binding,
enforceable, and in full force and effect, subject to the Equitable
Exceptions;
(B) to the Knowledge of Sellers, the license, sublicense,
agreement, or permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms immediately
following the Closing;
(C) to the Knowledge of Sellers, WPC is not, and to the
Knowledge of the Sellers and directors and officers (and employees with
responsibility for Intellectual Property matters) of WPC, no other 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;
(D) WPC has not, and to the Knowledge of the Sellers and
directors and officers (and employees with responsibility for
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Intellectual Property matters) of WPC, no other party to the license,
sublicense, agreement, or permission has repudiated any provision
thereof;
(E) to the Knowledge of Sellers, the underlying item of
Intellectual Property is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge;
(F) to the Knowledge of the Sellers and directors and
officers (and employees with responsibility for Intellectual Property
matters) of WPC, no charge, complaint, action, suit, proceedings,
hearing, investigation, claim or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(G) WPC has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission.
(l) REAL PROPERTY LEASES. Section 4(l) of the Disclosure Schedule lists
and describes briefly all real property leased or subleased to WPC. The Sellers
have delivered to the Buyer correct and complete copies of the leases and
subleases listed in Section 4(l) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease listed in Section 4(l) of the
Disclosure Schedule:
(i) to the Knowledge of Sellers,the lease or sublease is legal,
valid, binding, enforceable, and in full force and effect, subject to the
Equitable Exceptions;
(ii) to the Knowledge of Sellers,the lease or sublease will
continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms immediately following the Closing;
(iii) WPC is not and, to the Knowledge of Sellers, no other party
to the lease or sublease 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;
(iv) WPC has not, and to the Knowledge of the Sellers, no other
party to the lease or sublease has repudiated any provision thereof;
(v) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(vi) WPC has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
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(vii) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and permits)
required in connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and regulations;
(m) CONTRACTS. Section 4(m) of the Disclosure Schedule lists the
following contracts, agreements, Customer Contracts or Agreements and other
written arrangements to which WPC is a party:
(i) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $35,000 per annum;
(ii) any written arrangement (or group of related written
arrangements) for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property or for the furnishing or
receipt of services which either calls for performance over a period of
more than one year or involves more than the sum of $35,000;
(iii) any written arrangement concerning a partnership or joint
venture;
(iv) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed
(or may create, incur, assume, or guarantee) indebtedness (including
capitalized lease obligations) involving more than $35,000 or under which
it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any written arrangement requiring confidentiality or
noncompetition;
(vi) any written arrangement involving the Sellers and its
Affiliates;
(vii) any written arrangement with any of its directors,
officers, and employees in the nature of a collective bargaining agreement,
employment agreement, or severance agreement;
(viii) any written arrangement under which the consequences of a
default or termination could have an adverse effect on the assets,
Liabilities, business, financial condition, operations, results of
operations, or future prospects of WPC;
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(ix) any written Customer Contract or Agreement; or
(x) any other written arrangement (or group of related written
arrangements) either involving more than $35,000 or not entered into in the
Ordinary Course of Business.
The Sellers have delivered to the Buyer a correct and complete copy of each
written arrangement listed in Section 4(m) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (A) to the
Knowledge of Sellers, the written arrangement is legal, valid, binding,
enforceable, and in full force and effect, subject to the Equitable Exceptions;
(B) to the Knowledge of Sellers, the written arrangement will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms immediately following the Closing; (C) WPC is not, nor to the Knowledge of
Sellers, is any other party 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, under the written
arrangement; and (D) WPC is not, nor to the Knowledge of Sellers, has any other
party, repudiated any provision of the written arrangement. WPC is not a party
to any verbal contract, agreement, or other arrangement which, if reduced to
written form, would be required to be listed in Section 4(m) of the Disclosure
Schedule under the terms of this Section 4(m). To the Knowledge of the Sellers
and the officers and directors of WPC, no unfilled Material Customer Contract or
Agreement obligating WPC to perform services will result in a loss to WPC upon
completion of performance. No customer of WPC which accounts for more than
$50,000 of the annualized revenues of WPC has indicated to the Sellers within
the past year that it will stop, or decrease the rate of, buying services from
it.
(n) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
WPC are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are presently current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of WPC.
(o) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of WPC.
(p) INSURANCE. Section 4(p) lists each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which WPC is a party.
With respect to each such insurance policy to the Knowledge of Sellers: (A)
the policy is legal, valid, binding, and enforceable and in full force and
effect; (B) the policy will continue to be legal, valid, binding, and
enforceable and in full force and effect on identical terms immediately
following the Closing Date; (C) WPC is not in breach or default (including with
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respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default or permit termination, modification, or acceleration, under the
policy; and (D) to the Knowledge of the Sellers, no party to the policy has
repudiated any provision thereof. WPC has been covered during the past five (5)
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(p) of the Disclosure Schedule describes any self-insurance arrangements
affecting WPC.
(q) LITIGATION. Section 4(q) of the Disclosure Schedule sets forth each
instance in which WPC (i) is subject to any unsatisfied judgment, order, decree,
stipulation, injunction, or charge or (ii) is a party or, to the Knowledge of
the Sellers and the directors and officers (and employees with responsibility
for litigation matters) of WPC, is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. Except as set forth in Section
4(q) of the Disclosure Schedule, neither the Sellers nor any of the directors or
the officers (or employees with responsibility for litigation matters) of WPC
has any reason to believe that any such charge, complaint, action, suit,
proceeding, hearing, or investigation may be brought or threatened against WPC
which could reasonably be expected to have a Material adverse effect upon WPC.
(r) EMPLOYEES. To the Knowledge of the Sellers and the directors and
officers (and employees with responsibility for employment matters) of WPC, no
key employee or full-time group of employees has any plans to terminate
employment with WPC. WPC is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes. WPC has not committed
any unfair labor practice. Neither the Sellers nor any of the directors or the
officers (or employees with responsibility for litigation matters) of WPC has
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of WPC.
(s) EMPLOYEE BENEFITS. Section 4(s) of the Disclosure Schedule lists
all Employee Benefit Plans that WPC maintains or to which WPC contributes for
the benefit of any current or former employee of WPC.
(i) Each Employee Benefit Plan (and each related trust or
insurance contract) complies in form and in operation in all respects with
the applicable requirements of ERISA and the Code.
(ii) All required reports and descriptions, if any, (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to
each Employee Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Sec. 4980B have been met with respect to each
Employee Welfare Benefit Plan.
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(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each Employee Pension Benefit Plan and all contributions for any period
ending on or before the Closing Date which are not yet due have been paid
to each Employee Pension Benefit Plan or accrued in accordance with the
past custom and practice of WPC. All premiums or other payments which are
due for all periods ending on or before the Closing Date have been paid
with respect to each Employee Welfare Benefit Plan.
(iv) Each Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Sec.
401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each Employee Pension
Benefit Plan (other than any Multiemployer Plan) equals or exceeds the
present value of Liabilities thereunder (determined on an accumulated
benefit obligation basis) as of the last day of the most recent plan year.
No Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or, to the
Knowledge of the Sellers and directors and officers (and employees with
responsibility for employee benefits matters) of WPC, threatened.
(vi) There have been no Prohibited Transactions with respect to
any Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any Employee Benefit Plans.
No charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand with respect to the administration or the investment of
the assets of any Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the Knowledge of the Sellers and the directors
and officers (and employees with responsibility for employee benefits
matters) of WPC, threatened. Neither the Sellers nor any of the directors
or the officers (or employees with responsibility for litigation matters)
of WPC has any Knowledge of any Basis for any such charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand.
(vii) The Sellers have delivered to the Buyer correct and
complete copies of (A) the plan documents and summary plan descriptions,
(B) the most recent determination letter received from the Internal Revenue
Service, (C) the most recent Form 5500 Annual Report, and (D) all related
trust agreements,
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insurance contracts, and other funding agreements which implement each
Employee Benefit Plan.
WPC does not contribute to, has never contributed to, nor ever has been
required to contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan. WPC has not incurred, and
neither the Sellers nor any of the directors or the officers (or employees with
responsibility for litigation matters) of WPC has any reason to expect that WPC
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any Employee Pension Benefit Plan that WPC and the
Controlled Group of Corporations which includes WPC maintains or ever has
maintained or to which any of them contributes, ever has contributed, or ever
has been required to contribute. WPC does not maintain, nor has it ever
maintained or contributed to, or ever has been required to contribute to any
Employee Welfare Benefit Plan providing health, accident, or life insurance
benefits to former employees, their spouses, or their dependents (other than in
accordance with Code Sec. 162(k)).
(t) GUARANTIES. WPC is not a guarantor nor is it otherwise liable for
any Liability or obligation (including indebtedness) of any other person.
(u) ENVIRONMENT, HEALTH, AND SAFETY.
(i) To the Knowledge of Sellers, WPC and its respective
predecessors and Affiliates have complied with all laws (including rules
and regulations thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) concerning the environment, public
health and safety, and employee health and safety, and no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand,
or notice has been filed or commenced against any of them alleging any
failure to comply with any such law or regulation, the violation of which
could reasonably be expected to have a Material adverse effect upon WPC.
(ii) To the Knowledge of the Sellers and the directors and
officers of WPC, WPC has no Material Liability (and there is no Basis
related to the past or present operations, properties, or facilities of WPC
and its respective predecessors and Affiliates for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim,
or demand against WPC giving rise to any Liability) under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, the Federal Water Pollution
Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act
of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899,
or the Emergency Planning and Community Right-to-Know Act of 1986 (each as
amended), or any other law (or rule or regulation thereunder) of any
federal, state, local, or foreign
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government (or agency thereof), concerning release or threatened release of
hazardous substances, public health and safety, or pollution or protection
of the environment.
(iii) To the Knowledge of Sellers and the directors and officers
of WPC, WPC has no Material Liability (and WPC, and its respective
predecessors or Affiliates have not handled or disposed of any substance,
arranged for the disposal of any substance, or owned or operated any
property or facility in any manner that could form the Basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to any
statute) against WPC giving rise to any Material Liability) for damage to
any site, location, or body of water (surface or subsurface) or for illness
or personal injury.
(iv) To the Knowledge of Sellers and the directors and officers
of WPC, WPC has no Material Liability (and there is no Basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against WPC giving rise to any Liability)
under the Occupational Safety and Health Act, as amended, or any other law
(or rule or regulation thereunder) of any federal, state, local, or foreign
government (or agency thereof) concerning employee health and safety.
(v) To the Knowledge of Sellers and the directors and officers of
WPC, WPC does not have any Material Liability (and WPC has not exposed any
employee to any substance or condition that could form the Basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to
statute) against WPC giving rise to any Liability) for any illness of or
personal injury to any employee.
(vi) To the Knowledge of Sellers and the directors and officers
of WPC, WPC has obtained and been in compliance in all material respects
with all of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all federal, state, local, and foreign laws (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health and safety,
worker health and safety, and pollution or protection of the environment,
including laws relating to emissions, discharge, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous,
or toxic materials or wastes into ambient air, surface water, ground water,
or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage,
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disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
(vii) To the Knowledge of Sellers and the directors and officers
of WPC, all properties and equipment used in the business of WPC have been
free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2
trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(viii) To the Knowledge of Sellers and the directors and officers
of WPC, no pollutant, contaminant, or chemical, industrial, hazardous, or
toxic material or waste ever has been buried, stored, spilled, leaked,
discharged, emitted, or released on any real property that WPC owns or ever
has owned or that WPC leases or ever has leased.
(v) LEGAL COMPLIANCE. Except as it would not, individually or in the
aggregate, have a Material adverse effect:
(i) To the Knowledge of Sellers, WPC has complied with all laws
(including rules and regulations thereunder) of federal, state, local, and
foreign governments (and all agencies thereof). No charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, or notice
has been filed or commenced against WPC which is currently pending and
alleges any failure to comply with any such law or regulation.
(ii) To the Knowledge of Sellers, WPC has complied with all
applicable laws (including rules and regulations thereunder) relating to
the employment of labor (including but not limited to the engagement of
independent contractors under the Fair Labor Standards Act of 1938, as
amended, and the rules and regulations promulgated thereunder), employee
civil rights, hiring of engaging non-United States citizens, and equal
employment opportunities.
(iii) WPC has not violated in any respect or received a notice or
charge asserting any violation of the Sherman Act, the Clayton Act, the
Robinson-Patman Act, or the Federal Trade Act, each as amended.
(iv) WPC has not:
(A) made or agreed to make any contribution, payment, or
gift of funds or property to any governmental official, employee, or
agent where either the contribution, payment, or gift or the purpose
thereof was illegal under the laws of any federal, state, local, or
foreign jurisdiction;
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(B) established or maintained any unrecorded fund or asset
for any purpose, or made any false entries on any books or records for
any reason; or
(C) made or agreed to make any contribution, or reimbursed
any political gift or contribution made by any other person, to any
candidate for federal, state, local, or foreign public office in
excess of $500.
(v) WPC has filed in a timely manner all reports, documents, and
other materials it was required to file (and the information contained
therein was correct and complete in all respects) under all applicable laws
(including rules and regulations thereunder).
(vi) WPC has possession of all records and documents it was
required to retain under all applicable laws (including rules and
regulations thereunder).
(w) CERTAIN BUSINESS RELATIONSHIPS WITH WPC. Except as set forth in
Section 4(w) of the Disclosure Schedule, neither the Sellers nor its Affiliates
has been involved in any business arrangement or relationship with WPC within
the past twelve (12) months, and neither the Sellers nor its Affiliates owns any
material property or right, tangible or intangible, which is used in the
business of WPC.
(x) BROKERS' FEES. WPC does not have any Liability or obligation to pay
any fees or commissions to any broker, finder, or similar representative with
respect to the transactions contemplated by this Agreement.
(y) DISCLOSURE. To the Knowledge of Sellers and the directors and
officers of WPC, the representations and warranties contained in this Section 4
as amended, modified and/or supplemented by the Disclosure Schedules do not
contain any untrue statement of a fact or omit to state any Material fact
necessary in order to make the statements and information contained in this
Section 4 not misleading.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Sellers will cause WPC to give any
notices to third parties, and will cause WPC to use its reasonable best efforts
to obtain third-party
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consents, that the Buyer may reasonably request in connection with the matters
pertaining to WPC disclosed or required to be disclosed in the Disclosure
Schedule. Each of the Parties will take any additional action (and the Sellers
will cause WPC to take any additional action) that may be necessary, proper, or
advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that he, she or it may be required to give, make, or obtain.
(c) OPERATION OF BUSINESS. Except as contemplated hereby, or as may be
incidental to or in furtherance of the transactions contemplated hereby, or as
may have been set forth herein or in the Disclosure Schedule, the Sellers will
not cause or permit WPC to engage in any practice, take any action, embark on
any course of inaction, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing, the
Sellers will not cause or permit WPC to engage in any practice, take any action,
embark on any course of inaction, or enter into any transaction of the sort
described in Section 4(f) above.
(d) PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may
be incidental to or in furtherance of the transactions contemplated hereby, or
as may have been set forth herein or in the Disclosure Schedule, the Sellers
will cause WPC to use its best efforts to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) ACCESS.
(i) Only in the event that neither Buyer or Sellers exercised its
right to terminate this Agreement as provided in Section 9 herein, the
Sellers will permit, and the Sellers will cause WPC to permit,
representatives of the Buyer to have access at reasonable times, and in a
manner so as not to interfere with the normal business operations of WPC,
to the headquarters of WPC and to all books, records, contracts, Tax
records, and documents of or pertaining to WPC. In addition, any on-site
investigation of WPC shall be limited to such times and shall be conducted
under such reasonable conditions as shall be agreed to by Purchaser and
Zahora in writing, it being the understanding of the Parties that, to the
greatest extent possible, such due diligence to be conducted at Buyer's
Chicago-based Metamor facility. Notwithstanding the above, such limitation
shall not otherwise limit Buyer's investigation of WPC off-site. During
Buyer's on-site investigation of WPC, except as otherwise provided herein,
Buyer shall not discuss any aspects of the operation of WPC with any
employee of WPC, and Buyer shall direct all requests for information and
material only through Sellers, unless otherwise agreed to by Buyer and
Sellers in writing.
(ii) Buyer shall proceed to arrange with the Sellers a mutually
agreeable time and place at which Buyer may conduct interviews with key
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employees and/or customers of WPC mutually agreed to by Buyer and Sellers.
Such interviews shall be in strict conformity with the format mutually
agreed to by Buyer and Sellers and shall take place and be completed wholly
within the last four (4) days prior to the Closing.
(f) NOTICE OF DEVELOPMENTS. The Sellers will give prompt written notice
to the Buyer of any Material development affecting the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of WPC. Each Party will give prompt written notice to the others of
any Material development affecting the ability of the Parties to consummate the
transactions contemplated by this Agreement. Except for the right of the Sellers
to update any Disclosure Schedule as provided in Section 4 hereof, no disclosure
by any Party pursuant to this Section 5(f) however, shall be deemed to amend or
supplement Annex II, Annex III or the Disclosure Schedule or to prevent or cure
any misrepresentation, breach of warranty, and/or breach of covenant.
(g) EXCLUSIVITY. The Sellers will not (and the Sellers will not cause
or permit WPC to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any person relating to any (A) liquidation, dissolution,
or recapitalization, (B) merger or consolidation, (C) acquisition or purchase of
securities or assets, or (D) similar transaction or business combination
involving WPC or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any person to do or seek any of the
foregoing. The Sellers will notify the Buyer immediately if any person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) DELIVERY OF INFORMATION. WPC shall deliver the financial and other
information listed on Annex IV as frequently as its existing information systems
will allow.
(i) CANCELLATION OF OPTIONS, BONUS PROGRAMS AND PHANTOM STOCK PLANS.
All WPC Options shall have been canceled at or prior to the Closing, and any
stock option plans, deferred bonus programs and phantom equity plans outstanding
with respect to WPC shall also have been canceled, at no cost to WPC. The
payments made pursuant to Section 2(c) above and due pursuant to the
cancellation of such programs will vest and be payable to the recipients on
terms and conditions acceptable to Buyer. If in the reasonable judgment of
Buyer, the current agreements between WPC and those employees whose options or
other benefits as described above have been terminated (other than the Key
Employees) do not protect WPC from unfair competition from its employees, in
connection with the provision of additional benefits to such employees (e.g.,
participation in Buyer's stock option plan), Buyer may require that all such
employees of WPC shall have signed agreements which include provisions that each
employee will not, for a period of six (6) months from the date of Closing or
six (6) months from the termination of his or her employment with his or her
employer (i.e., WPC) whichever period is longer: (i) service or solicit any
customers of his or her employer, or (ii) solicit for employment any employee of
his or her employer.
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6. ADDITIONAL COVENANTS. The Parties further covenant and agree as follows:
(a) GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
The Sellers acknowledge and agree that from and after the Closing the Buyer will
be entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating to WPC; provided that Sellers may retain any
copies of the foregoing as shall be necessary to comply with applicable tax and
other laws, regulations and ordinances.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving WPC, each of the other Parties will cooperate with him or it and his,
her or its counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8 below).
(c) TRANSITION. The Sellers will not take any action that primarily is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of WPC from maintaining the same
business relationships with WPC after the Closing for a period of twenty-four
(24) months thereafter as it maintained with WPC prior to the Closing. The
Sellers will refer all customer inquiries relating to WPC's Business to the
Buyer and/or WPC from and after the Closing for a period of twenty-four (24)
months thereafter.
(d) CONFIDENTIALITY. The Sellers will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement for a period of three (3) years from
the Closing, and deliver promptly to the Buyer or destroy, at the request and
option of the Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in its possession. In the event that the
Sellers are requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, the Sellers will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 6(d). If, in the absence of a
protective order or the receipt of a waiver hereunder, the Sellers are, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for
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contempt, that Sellers may disclose the Confidential Information to the
tribunal; provided, however, that the Sellers shall use their reasonable efforts
to obtain, at the reasonable request of the Buyer, an order or other assurance
that confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
(e) TERMINATION OF BANK FACILITIES; RELEASE OF GUARANTIES. Buyer and
Sellers shall take all reasonable best efforts necessary to (i) retire all of
WPC's outstanding bank indebtedness and (ii) fully, completely and
unconditionally release and/or substitute Buyer or WPC at or prior to Closing as
guarantor for the Sellers on all banking facilities of WPC or other guarantees.
(f) MONITORING INFORMATION. Prior to the Closing, Sellers shall cause
WPC to deliver such information as may reasonably be requested by Buyer.
(g) SECTION 338(h)(10) ELECTION. The Sellers and Buyer shall join in
making a timely election (but in no event later than sixty (60) days following
the Closing) under Section 338(h)(10) of the Code (including the prerequisite
election under Section 338 of the Code) and any similar state law provisions in
all applicable states, with respect to the sale and purchase of WPC Shares
pursuant to this Agreement, and each party shall provide to the others all
necessary information to permit such elections to be made. Such election shall
be structured to qualify the First Earned Payout Amount and the Second Earned
Payout Amount as two separate obligations. Buyer and the Sellers shall, as
promptly as practicable following the Closing Date, take all actions necessary
and appropriate (including filing such forms, returns, schedules and other
documents as may be required) to effect and preserve timely elections; provided,
however, that Buyer shall be the party responsible for preparing and filing the
forms, returns, schedules and other documents necessary for making an effective
and timely election. All Taxes attributable to the elections made pursuant to
this Section 6(g) shall be the liability of the Sellers. In connection with such
elections, within sixty (60) days following the Closing Date, Buyer and the
Sellers shall act together in good faith to determine and agree upon the "deemed
sale price" to be allocated to each asset of WPC in accordance with Treasury
Regulation Section 1.338(h)(10)-1(f) and the other regulations under Section 338
of the Code. Notwithstanding the generality of the immediately preceding
sentence, Buyer and the Sellers agree that the "DEEMED SALE PRICE" shall be
allocated to the fixed assets at their book value as of December 31, 1997 and
the monetary assets of WPC at their fair market value as of the Closing Date as
determined as part of the determination of the Net Working Capital of WPC in
accordance with Section 2(e) hereof and the balance of the "deemed sale price"
shall be allocated to goodwill and other intangible assets of WPC. To the
fullest extent permitted by law, the allocation of goodwill with respect to each
office of WPC shall be made on the basis of prior year's earnings attributable
to each office. Both Buyer and the Sellers shall report the tax consequences of
the transactions contemplated by this Agreement consistently with such
allocations and shall not take any position inconsistent with such allocations
in any Tax Return or otherwise. In the event that Buyer and the Sellers are
unable to agree as to such allocations, Buyer's reasonable positions with
respect to
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such allocations shall control. The Sellers shall be liable for, and
shall indemnify and hold Buyer and WPC harmless against, any Taxes or other
costs attributable to (i) a failure on the part of the Sellers to take all
actions required of him under this Section 6(g); or (ii) a failure on the part
of WPC to qualify as an "S corporation" for federal and/or state income tax
purposes.
(h) LANDLORDS' CONSENTS. Sellers shall cause on or before the
expiration of thirty (30) days after the Closing Date WPC to obtain from its
landlords (to the extent required under the pertinent premises lease) written
consent to the assignment of all leases being assumed by Buyer, which
assignments are deemed to have resulted from the transactions contemplated by
this Agreement.
(i) ADDITIONAL TAX MATTERS.
(i) The Buyer shall cause WPC (at Sellers' sole cost and expense)
to file with the appropriate governmental authorities all Tax Returns
required to be filed by it for any taxable period ending prior to the
Closing Date and Sellers shall remit any Taxes due in respect of such Tax
Returns (but only to the extent such Taxes are in excess of the reserve, if
any, for such Tax liability used to determine the Net Working Capital of
WPC). In addition, Sellers shall cause their Certified Public Accountant to
prepare a short period tax return for WPC covering the period January 1,
1997 through the Closing Date; provided, however, that Sellers shall
provide Ernst & Young, L.L.P. with at least ten (10) days to review such
return prior to its filing (such review to be at Buyer's sole cost and
expense). The cost of preparation of such short period tax return shall be
paid by Sellers.
(ii) Buyer and Sellers recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting
and Tax records and information held by the Buyer and/or WPC to the extent
such records and information pertain to events occurring on or prior to the
Closing Date; therefore, Buyer agrees to cause WPC to (A) use its best
efforts to properly retain and maintain such records for a period of six
(6) years from the date the Tax Returns for the year in which the Closing
occurs are filed or until the expiration of the statute of limitations that
applies to the Tax Return in question (i.e., including Tax Returns for
years preceding the year in which the Closing occurs), whichever is later,
and (B) allow the Sellers and their agents and representatives at times and
dates mutually acceptable to the Parties, to inspect, review and make
copies of such records as such other party may deem necessary or
appropriate from time to time, such activities to be conducted during
normal business hours and at the other Party's expense.
(j) COVENANT NOT TO COMPETE. For a period of four (4) years from and
after the Closing Date, Zahora will not, directly or indirectly, as principal,
agent, trustee or through the agency of any corporation, partnership,
association or agent or agency, (i) participate
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or engage in the Business within one hundred (100) miles of any office of WPC
existing as of the Closing Date, (ii) service or solicit any of WPC's Business
from any customer of WPC, (iii) request or advise any customer of WPC to
withdraw, curtail or cancel such customer's business with WPC, or (iv) solicit
for employment any person employed by WPC at any time within the one (1) year
period immediately preceding such solicitation; provided, however, that no owner
of less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses. For purposes of this Agreement, the Parties have agreed to allocate
$50,000 of the Purchase Price to the covenant not to compete contained in this
Section 6(j).
(k) CONDUCT DURING EARNED PAYOUT PERIODS. Sellers acknowledge and agree
that, during the Earned Payout Periods, Buyer shall be entitled to oversee the
operation and management of WPC's Business and, together with Zahora, set
mutually acceptable goals and budgets, all of which shall be reasonably and
legally designed and intended to maximize the productivity, efficiency,
profitability and Adjusted EBIT of WPC. The Sellers further agree, during the
Earned Payout Periods, not and not to allow WPC to cut staff, capital
expenditures and general and administrative expenses or take other actions that
are not consistent with WPC's prior practices and/or prudent business practices,
and Sellers agree not and not to allow WPC to engage in any activity in order to
increase current year profits of the business of WPC at the expense of the
longer term growth of the business of WPC. During the Earned Payout Periods,
unless otherwise agreed to by Zahora, the Buyer agrees to (i) maintain separate
books and records for WPC; (ii) maintain WPC as a separate entity and not to
combine, merge, consolidate or liquidate WPC or sell or otherwise dispose of any
of its assets except in the Ordinary Course of Business or sell or otherwise
dispose of any of its stock; (iii) cause WPC to be operated essentially as it
was prior to the sale of the WPC Shares except in so far as the prior practices
of WPC were imprudent or unreasonable; (iv) not to directly solicit any of WPC's
existing or future employees or consultants; and (v) not unreasonably change,
except with the consent of Zahora, and except in the Ordinary Course of
Business, (A) the prices charged for WPC's services, (B) the level of
compensation of WPC's consultants and full-time corporate employees or (C) the
level WPC's general and administrative expenses, unless the prior business
practices were unreasonable or imprudent and/or unless the changes are
reasonably necessary to support the growth of WPC's business. Buyer agrees that,
subject to the terms of his employment agreement, Zahora shall have authority
and responsibility for the management and operation of WPC's business during the
Earned Payout Periods. Buyer shall not change the name of WPC during the Earned
Payout Periods without the prior written consent of Zahora; provided, however,
Buyer shall be entitled to operate the business of WPC under the name "Workgroup
Productivity Corporation, a Metamor company" or a mutually agreed upon
combination of any of the above. Buyer, WPC and the Sellers recognize and
acknowledge that the relationship that will exist between Buyer, WPC and the
Sellers upon the consummation of the transactions contemplated herein will be
based on a high degree of mutual trust and confidence among the parties, and
each of Buyer and the Sellers agree that at all times following the Closing that
each will act with respect to its dealings with WPC and its operations in such a
way as to promote, to the extent reasonably possible, the successful operation
and growth of WPC.
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7. CONDITIONS TO OBLIGATIONS TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction or waiver of the following conditions:
(i) the representations and warranties set forth in Section 3(a)
and Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Sellers shall have performed and complied with all of
their covenants hereunder in all Material respects through the Closing;
(iii) WPC shall have procured all necessary third party consents
specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction wherein an unfavorable
judgment, order, decree, stipulation, injunction, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, or (C) affect adversely the right
of the Buyer to own, operate, or control WPC Shares or WPC (and no such
judgment, order, decree, stipulation, injunction, or charge shall be in
effect);
(v) the Sellers shall have delivered to the Buyer a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in Section 7(a)(i)-(iv)
is satisfied in all respects;
(vi) the acquisition by the Buyer of WPC Shares shall represent
one hundred percent (100%) of the issued and outstanding capital stock of
WPC and all of such WPC Shares shall be free and clear of any Security
Interests or other liens, claims or encumbrances of any nature whatsoever;
(vii) the Parties and WPC shall have received all other
authorizations, consents and approvals of governments and governmental
agencies set forth herein and in the Disclosure Schedule;
(viii) the Buyer and WPC shall have received from each of the
persons listed on Annex IV (including Messrs. Zahora, Porcaro and Madden)
(the "KEY EMPLOYEES") an executed employment agreement in the form and
substance satisfactory to Buyer;
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(ix) the Buyer and WPC shall have received from each of the
Sellers an executed Noncompete Agreement in the form and substance attached
hereto as Exhibit C.
(x) the Buyer shall have received from counsel to the Sellers an
opinion with respect to the matters set forth in Exhibit D attached hereto,
addressed to the Buyer and dated as of the Closing Date;
(xi) the Buyer shall have received the resignations, effective as
of the Closing, of each director of WPC (other than Zahora) prior to the
Closing;
(xii) the Buyer shall be satisfied that the Net Working Capital
of WPC on the Closing Date equaled or exceeded $565,000 or an appropriate
adjustment shall have been made to the Purchase Price as provided in
Section 2(e);
(xiii) the Buyer shall be satisfied in its sole discretion with
the results of its continuing legal, financial and business due diligence
investigations of WPC, all of which shall be final and completed to Buyer's
satisfaction prior to Closing;
(xiv) no material adverse change shall have occurred in WPC's
Business or its future prospects;
(xv) Sellers shall have caused WPC to cancel each outstanding
phantom stock, deferred bonus or option plan, if any, and all outstanding
WPC Options shall have been canceled pursuant to the Option Cancellation
Agreements in the forms of Exhibits B-1 and B-2 hereto, all at no cost to
the Buyer or WPC;
(xvi) all liens and Security Interests securing debts of WPC
which have been paid in full prior to or at the Closing shall have been
fully released of record to the satisfaction of the Buyer and all Uniform
Commercial Code financing statements covering such debts shall have been
terminated;
(xvii) no unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against WPC, or against or in any way
affecting any WPC Share;
(xviii) the Sellers shall and WPC shall have caused all of WPC's
officers, directors and/or Key Employees of WPC to, have repaid in full all
debts and other obligations, if any, owed to WPC;
(xix) the Buyer shall have received from WPC the Financial
Statements;
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(xx) all appropriate corporate and shareholder authorizations of
WPC shall have been obtained;
(xxi) since December 31, 1996, WPC shall have made no dividend,
consulting or other payment to the Sellers, except for normal payments to
the Sellers to cover their federal and state income tax obligations as
calculated on an accrual basis for income tax purposes, but not to exceed
the accrued earnings generated for the period January 1, 1997 through the
date of Closing, and to Sellers for their employment salaries (not to
exceed current compensation);
(xxii) except as set forth on the Disclosure Schedule, since
December 31, 1996, WPC shall not have transferred, conveyed, disposed of
and/or sold any of Material assets, except in the Ordinary Course of
Business;
(xxiii) except for capital expenditures related to the relocation
of the principal office of WPC (an estimate of which is set forth on the
Disclosure Schedule), since December 31, 1996, WPC, without the prior
written consent of Buyer, shall not have made any capital expenditure (or
series of related capital expenditures) either involving more than $50,000
individually or $200,000 in the aggregate, or outside the Ordinary Course
of Business;
(xxiv) WPC's Adjusted EBIT for the twelve (12) month period ended
November 30, 1997 shall equal and/or exceed $600,000; and
(xxv) all Intellectual Property created or developed by any
Seller and any other current employee of WPC that has been used
historically by WPC or is being used currently by WPC shall be one hundred
percent (100%) owned by WPC as of the Closing Date.
The Buyer may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing. If the Closing occurs,
Buyer shall be deemed to have waived any unsatisfied condition to its
obligations hereunder.
(b) CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction or waiver of the following
conditions:
(i) the representations and warranties set forth in Section 3(b)
above shall be true and correct in all Material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all Material respects through the Closing;
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(iii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction wherein an unfavorable
judgment, order, decree, stipulation, injunction, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Sellers a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in Section 7(b)(i)-(iii)
is satisfied in all respects;
(v) the Parties and WPC shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies set forth herein and in the Disclosure Schedule;
(vi) each of the persons and entities listed on Annex IV shall
have received from the Buyer an executed consulting or employment agreement
in the form and substance reasonably satisfactory to Sellers;
(vii) the Sellers shall have received from counsel to the Buyer
an opinion with respect to the matters set forth in Exhibit E attached
hereto, addressed to the Sellers and dated as of the Closing Date; and
(viii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Sellers.
The Sellers may waive any condition specified in this Section 7(b) if
they execute a writing so stating at or prior to the Closing. If the Closing
occurs, Sellers shall be deemed to have waived any unsatisfied condition to
their obligations hereunder.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL. All of the representations and warranties of the Sellers
contained in Section 4 above (other than the representations and warranties of
the Sellers contained in Section 4(h) above) shall survive the Closing hereunder
(even if the Buyer had reason to know of any misrepresentation or breach of
warranty at the time of the Closing) and continue in full force and effect for a
period of eighteen (18) months thereafter. The other representations,
warranties, and covenants of the Parties contained in this Agreement (including
the representations and warranties of the Sellers contained in Section 4(h)
above) shall survive the Closing (even if the damaged Party had reason to know
of any misrepresentation or breach of
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warranty or covenant at the time of the Closing) and continue in full force and
effect for a period of seven (7) years thereafter, except as otherwise provided
elsewhere in this Agreement.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Sellers breach any of their Joint and
Several representations, warranties, agreements, and covenants contained
herein, and provided that the particular representation, warranty,
agreement, or covenant survives the Closing and that the Buyer makes a
written claim for indemnification against the Sellers pursuant to Section
10(h) below within the applicable survival period, then each of the Sellers
agree to indemnify the Buyer from and against his Allocable Portion of the
Adverse Consequences the Buyer may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of the applicable survival period, but specifically
not consequential damages unless as a result of fraud or willful
misconduct) resulting from, arising out of, relating to, in the nature of,
or caused by the breach; provided, however, that the Sellers shall not have
any obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of,
or caused by the breach of any representation or warranty of the Sellers
contained in Section 4 above (i) until the Buyer has suffered aggregate
losses by reason of all such breaches in excess of a $60,000 threshold (at
which point the Sellers will be obligated to indemnify the Buyer from and
against all such aggregate losses including losses relating back to the
first dollar) and (ii) in excess of the lesser of (a) the actual amount of
the Earned Payout Amounts and (b) $8,000,000 (but in no event less than
$3,000,000) (after which point Sellers shall have no obligation to
indemnify Buyer from and against further such Adverse Consequences);
provided, further, however, that the limitations set forth in (i) and (ii)
above specifically shall not apply to the liability of Sellers with respect
to Adverse Consequences resulting from or attributable to intentional fraud
or any willful misconduct by the Sellers, and the limitation set forth in
(ii) above shall specifically not apply to the liability of Sellers with
respect to Adverse Consequences resulting from or attributable to any
breaches of the representations and warranties contained in Section 4(g),
Section 4(h) and Section 4(n) hereof.
(ii) In the event any Seller breaches any of its Several
representations, warranties, and covenants contained herein, and provided
that the particular representation, warranty, or covenant survives the
Closing and that the Buyer makes a written claim for indemnification
against such Seller pursuant to Section 10(h) below within the applicable
survival period, then the Seller agrees to indemnify the Buyer from and
against his Allocable Portion of any Adverse Consequences the Buyer may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of
the applicable survival period) resulting from, arising out of, relating
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to, in the nature of, or caused by the breach up to an amount equal to such
Seller's Allocable Portion of the Purchase Price.
(iii) Each of the Sellers agree to indemnify the Buyer from and
against his Allocable Portion of any Adverse Consequences the Buyer may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of WPC arising under Reg. Section 1.1502-6 (because
WPC once was a member of an Affiliated Group during any part of any
consolidated return year within any part of which consolidated return year
any corporation other than WPC also was a member of the Affiliated Group).
(iv) The Sellers agree to indemnify the Buyer from and against
the entirety of any Taxes which may become due and owing to the State of
Illinois by reason of the transactions contemplated by this Agreement.
(v) The Sellers agree to indemnify the Buyer from and against the
entirety of any brokerage fees or investment banking commissions due by
Sellers or WPC by reason of the transactions contemplated by this
Agreement.
(vi) The Sellers shall be liable for, and hereby indemnifies, the
Buyer for all income Taxes imposed on WPC with respect to any taxable year
or period beginning before and ending after the Closing Date, for the
portions of such taxable year or period ending prior to the Closing Date;
provided, however, that such indemnity shall be made only to the extent
such Taxes are in excess of the reserve, if any, for such Tax Liability
used to determine the Net Working Capital of WPC. In order to apportion
appropriately any income Taxes relating to any taxable year or period that
begins before and ends after the Closing Date, the Parties hereto shall, to
the extent permitted or not prohibited by applicable law, elect with the
relevant taxing authority, if required or necessary, to terminate the
taxable year of WPC as of the Closing Date. In any case where applicable
law does not permit WPC to treat such date as the end of a taxable year or
period, then whenever it is necessary to determine the liability for income
Taxes of WPC, for a portion of a taxable year or period, such determination
shall (unless otherwise agree to in writing by the Buyer and the Sellers)
be determined by a closing of WPC's books, except that exemptions,
allowances or deductions that are calculated on an annual basis, such as
the deduction for depreciation, shall be apportioned on a time basis. In no
event shall such apportionment of income Taxes be greater than the income
Taxes which would have been allocated to WPC if such income Taxes had been
based upon a time period in proportion to the number of days during such
taxable year or period the Sellers and Buyer owned the stock in WPC.
(vii) The Parties shall make appropriate adjustments for tax
benefits in determining the liability of the Sellers under this Section 8.
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(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In the event
the Buyer breaches any of its representations, warranties, and covenants
contained herein, and provided that the particular representation, warranty, or
covenant survives the Closing and that the Sellers make a written claim for
indemnification against the Buyer pursuant to Section 10(h) below within the
applicable survival period, then the Buyer agrees to indemnify the Sellers from
and against the entirety of any Adverse Consequences the Sellers may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Sellers may suffer after the end of the applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach.
(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall notify
any Party (the "INDEMNIFIED PARTY") with respect to any matter which may give
rise to a claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall notify in writing
each Indemnifying Party thereof promptly; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any liability or obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is damaged and
materially prejudiced from adequately defending such claim. In the event any
Indemnifying Party notifies the Indemnified Party within thirty (30) days after
the Indemnified Party has given notice of the matter that the Indemnifying party
is assuming the defense thereof, (A) the Indemnifying Party will defend the
Indemnified Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party, (B) the Indemnified Party may retain
separate co-counsel at its sole cost and expense (except that the Indemnifying
Party will be responsible for the fees and expenses of the separate co-counsel
to the extent the Indemnified Party reasonably concludes that the counsel the
Indemnifying Party has selected has a conflict of interest), (C) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the matter without the written consent of the Indemnifying Party
(not to be withheld unreasonably), and (D) the Indemnifying Party will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases the Indemnified Party from all Liability with
respect thereto, without the written consent of the Indemnified Party (not to be
withheld unreasonably). In the event no Indemnifying Party notifies in writing
the Indemnified Party within twenty (20) business days after the Indemnified
Party has given notice of the matter that the Indemnifying Party is assuming the
defense thereof, however, the Indemnified Party may defend against, or enter
into any settlement with respect to, the matter in any manner it reasonably may
deem appropriate. At any time after commencement of any such action, any
Indemnifying Party may request an Indemnified Party to accept a bona fide offer
from the other Party(ies) to the action for a monetary settlement payable solely
by such Indemnifying Party (which does not burden or restrict the Indemnified
Party nor otherwise prejudice him or her) whereupon such action shall be taken
unless the Indemnified Party determines that the dispute should be continued,
the Indemnifying Party shall be liable for indemnity hereunder only to the
extent of the lesser of (i) the amount of the settlement offer or (ii) the
amount for which the Indemnified Party may be liable with respect to such
action. In addition, the Party controlling
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the defense of any third party claim shall deliver, or cause to be delivered, to
the other Party copies of all correspondence, pleadings, motions, briefs,
appeals or other written statements relating to or submitted in connection with
the defense of the third party claim, and timely notices of, and the right to
participate in (as an observer) any hearing or other court proceeding relating
to the third party claim.
(e) DETERMINATION OF LOSS. The Parties shall make appropriate
adjustments for Tax benefits and insurance proceeds (reasonably certain of
receipt and utility in each case) and for the time cost of money (using the
Applicable Rate as the discount rate) in determining the amount of loss for
purposes of this Section 8. All indemnification payments under this Section 8
shall be deemed adjustments to the Purchase Price.
(f) EXCLUSIVE REMEDY. The Parties acknowledge and agree that the
foregoing indemnification provisions in this Section 8 shall be the exclusive
remedy of the Parties for any breach of the representations and warranties of
the Parties contained in Section 3 or Section 4 of this Agreement.
(g) PAYMENT; GENERAL RIGHT OF OFFSET. The Indemnifying Parties shall
promptly pay to the Indemnified Party as may be entitled to indemnity hereunder
in cash the amount of any Adverse Consequences to which such Indemnified Party
may become entitled to by reason of the provisions of this Agreement.
Notwithstanding the foregoing, in connection with the indemnification of Buyer
pursuant to Section 8(b)(i) above, Buyer shall first seek indemnification
payments through offset against any Earned Payout Amount payable to Sellers and
WPC Optionholders, after an indemnification claim has been made therefor, for
the amount of any Adverse Consequences or any other payments to which Buyer may
become entitled to by reason of the provisions of this Agreement (any excess may
then be made against the Cash Portion of the Purchase Price, subject to the
limitations set forth in Section 8(b)(i) above). In the event that Buyer offsets
more than the amount of any Adverse Consequences (as finally determined), Buyer
shall be responsible to Sellers and WPC Optionholders for such sums which should
not have been subject to an offset, together with interest at the Applicable
Rate.
(h) OTHER INDEMNIFICATION PROVISIONS. Except as provided in Section
8(f) above, the foregoing indemnification provisions are in addition to, and not
in derogation of, any statutory or common law remedy any Party may have for
breach of representation, warranty, or covenant.
(i) ARBITRATION WITH RESPECT TO CERTAIN INDEMNIFICATION MATTERS. THE
PARTIES AGREE TO SUBMIT TO ARBITRATION, IN ACCORDANCE WITH THESE PROVISIONS, ANY
DISPUTED CLAIM OR CONTROVERSY ARISING FROM OR RELATED TO THE ALLEGED BREACH OF
THIS AGREEMENT OR ANY DISPUTED INDEMNIFICATION CLAIM MADE PURSUANT TO THIS
SECTION 8. THE PARTIES FURTHER AGREE THAT THE ARBITRATION PROCESS AGREED UPON
HEREIN SHALL BE THE EXCLUSIVE MEANS FOR RESOLVING ALL DISPUTES MADE SUBJECT TO
ARBITRATION HEREIN, BUT THAT NO ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE
SCOPE OF THESE ARBITRATION PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE
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CONDUCTED UNDER THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION (AAA). EITHER PARTY MAY INVOKE ARBITRATION PROCEDURES HEREIN BY
WRITTEN NOTICE FOR ARBITRATION CONTAINING A STATEMENT OF THE MATTER TO BE
ARBITRATED. THE PARTIES SHALL THEN HAVE FOURTEEN (14) DAYS IN WHICH THEY MAY
IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL ARBITRATOR. AFTER THE FOURTEEN (14) DAY
PERIOD HAS EXPIRED, THE PARTIES SHALL PREPARE AND SUBMIT TO THE AAA A JOINT
SUBMISSION, WITH EACH PARTY TO CONTRIBUTE HALF OF THE APPROPRIATE ADMINISTRATIVE
FEE. IN THE EVENT THE PARTIES CANNOT AGREE UPON A NEUTRAL ARBITRATOR WITHIN
FOURTEEN (14) DAYS AFTER WRITTEN NOTICE FOR ARBITRATION IS RECEIVED, THEIR JOINT
SUBMISSION TO THE AAA SHALL REQUEST A PANEL OF THREE ARBITRATORS WHO ARE
PRACTICING ATTORNEYS WITH PROFESSIONAL EXPERIENCE IN THE FIELD OF CORPORATE LAW,
AND THE PARTIES SHALL ATTEMPT TO SELECT AN ARBITRATOR FROM THE PANEL ACCORDING
TO AAA PROCEDURES. UNLESS OTHERWISE AGREED BY THE PARTIES, THE ARBITRATION
HEARING SHALL TAKE PLACE IN THE CHICAGO, ILLINOIS METROPOLITAN AREA, AT A PLACE
DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES HEREUNDER SHALL BE
CONFIDENTIAL. THE ARBITRATOR MAY INCLUDE EQUITABLE RELIEF. ANY ARBITRATION
AWARDED SHALL BE ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A SUMMARY OF THE
ISSUES IN CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN EXPLANATION OF THE
REASONS FOR THE AWARD. THE ARBITRATION WILL BE SUBJECT TO THE FOLLOWING
CONDITIONS:
(i) THAT EACH PARTY SHALL BE ENTITLED TO DISCOVERY PURSUANT TO
THE FEDERAL RULES OF CIVIL PROCEDURE AND FEDERAL RULES OF EVIDENCE;
(ii) THAT EVIDENCE SHALL BE COMPETENT ONLY IF IT IS ADMISSIBLE IN
EVIDENCE, UNDER THE FEDERAL RULES OF CIVIL PROCEDURE AND FEDERAL RULES OF
EVIDENCE; AND
(iii) THAT THE LOSING PARTY SHALL PAY THE REASONABLE LEGAL FEES
AND COSTS OF THE PREVAILING PARTY, AS SHALL BE DETERMINED BY THE
ARBITRATOR.
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
as provided below:
(i) the Buyer and the Sellers may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing in the event the
Sellers are in breach of any Material representation, warranty, or covenant
contained in this
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Agreement in any Material respect and such breach has not been cured within
ten (10) days of written notice thereof, and the Sellers may terminate this
Agreement by giving written notice to the Buyer at any time prior to the
Closing in the event the Buyer is in breach of any Material representation,
warranty, or covenant contained in this Agreement in any Material respect
and such breach has not been cured within ten (10) days of written notice
thereof;
(iii) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing if the Closing shall
not have occurred on or before January 11, 1998 by reason of the failure of
any condition precedent under Section 7(a) hereof (unless the failure
results primarily from the Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement); or
(iv) the Sellers may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing if the Closing shall
not have occurred on or before January 11, 1998 by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Sellers himself or itself breaching any
representation, warranty, or covenant contained in this Agreement).
(v) No later than two (2) days before the Closing, the Buyer may
terminate this Agreement by giving written notice to the Sellers if the
Buyer is not reasonably satisfied with the results of its interviews with
the key employees and/or customers of WPC provided for in Section 5(e).
Nothing contained in this Section 9(a) shall alter, affect, modify or
restrict either Parties' rights to rely on and/or seek indemnification for a
breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(b) EFFECT OF TERMINATION. If either Buyer or Sellers terminate this
Agreement pursuant to Section 9(a) above, all obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party.
Notwithstanding the foregoing, that certain letter agreement regarding
confidentiality of information between WPC and the Buyer (a copy of which is
attached hereto as Exhibit F) (the "CONFIDENTIALITY AGREEMENT") shall survive
such termination.
10. MISCELLANEOUS.
(a) THE SELLERS.
(i) When any particular Seller (as opposed to the Sellers as a
group) makes a representation, warranty, or covenant herein, then that
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representation, warranty, or covenant will be referred to herein as the
"SEVERAL" obligation of that Seller. This means that the particular Seller
making the representation, warranty, or covenant will be solely responsible
for any Adverse Consequences the Buyer may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any breach thereof. The
covenants of each of the Sellers in Section 2(a) above concerning the sale
of his WPC Shares to the Buyer and the representations and warranties of
each of the Sellers in Section 3(a) above concerning the transaction are
examples of Several obligations.
(ii) When the Sellers as a group make a representation, warranty,
or covenant herein, then that representation, warranty, or covenant will be
referred to herein as the "JOINT AND SEVERAL" obligation of the Sellers.
This means that, subject to the limitations set forth in Article 8, each
Seller will be responsible for the entirety of any Adverse Consequences the
Buyer may suffer resulting from, arising out of, relating to, in the nature
of, or caused by any breach thereof. The representations and warranties of
the Sellers in Section 4 above concerning WPC are examples of Joint and
Several obligations.
(b) PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or announcement relating to the subject matter of this
Agreement prior to, at or about the Closing without the prior written approval
of the Buyer and the Sellers, which written approval will not be unreasonably
withheld; provided, however, that any Party may make any public disclosure it
believes in good faith is required by law or regulation (in which case the
disclosing Party will advise the other Parties prior to making the disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof;
provided, however, that unless and until the consummation of the purchase and
sale transaction contemplated hereunder occurs, the Confidentiality Agreement
shall remain in full force and effect.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his,
her or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Sellers; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to a wholly-owned
Subsidiary (in any or all of which cases the Buyer nonetheless shall remain
liable and responsible for the performance of all of its obligations hereunder).
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<PAGE> 51
(f) FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to WPC or the Sellers:
Mr. Randal A. Zahora
c/o Workgroup Productivity Corporation
3075 Highland Parkway, Suite 150
Downers Grove, Illinois 60515
Tel: (630) 434-0100
Fax: (630) 434-2490
with a copy to:
Michael P. O'Neil, Esq.
Freeborn & Peters
311 S. Wacker Drive
Suite 3000
Chicago, Illinois 60606
Tel: (312) 360-6000
Fax: (312) 360-6520
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<PAGE> 52
If to the Buyer:
CORESTAFF, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Attn.: Michael T. Willis
Tel: (713) 548-3400
Fax: (713) 627-1059
with a copy to:
Peter T. Dameris, Esq.
CORESTAFF, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Tel: (713) 548-3400
Fax: (713) 627-1059
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
(i) SUBMISSION TO JURISDICTION. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE SELLERS AND BUYER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND BE GOVERNED BY THE LAWS (AND NOT THE CONFLICT OF LAWS) OF THE STATE OF
ILLINOIS. EXCEPT AS PROVIDED IN SECTION 8(I), ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT SHALL BE BROUGHT AND ENFORCED IN A FEDERAL OR
STATE COURT LOCATED IN THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE SELLERS AND BUYER HEREBY IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY, IRREVOCABLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE SELLERS
AND BUYER AGREES THAT A JUDGMENT, AFTER EXHAUSTION OF ALL AVAILABLE APPEALS, IN
ANY SUCH ACTION OR PROCEEDINGS SHALL BE CONCLUSIVE AND BINDING UPON THEM, AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION BY A SUIT UPON SUCH JUDGMENT, A
CERTIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCED OF THIS JUDGMENT. EACH OF
THE SELLERS AND BUYER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT
OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE SELLERS OR BUYER, AS THE CASE MAY BE, AT ITS ADDRESS SET FORTH IN SECTION
10(H) HEREOF, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH
OF THE SELLERS AND BUYER HEREBY WAIVES IRREVOCABLY, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION TO THE LAYING OF VENUE IN THE STATE OF ILLINOIS
OR ANY CLAIM OF INCONVENIENT FORUM IN RESPECT OF ANY SUCH ACTION IN THE
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<PAGE> 53
NORTHERN DISTRICT OF THE STATE OF ILLINOIS TO WHICH IT MIGHT OTHERWISE NOW OR
HEREAFTER BE ENTITLED IN ANY ACTIONS ARISING OUT OF OR BASED ON THIS AGREEMENT.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(l) EXPENSES. Each of the Parties and WPC will bear his, her or its own
costs and expenses (including legal fees and expenses and investment banking
fees) incurred in connection with this Agreement and the transactions
contemplated hereby. The Sellers acknowledge and agree that WPC has not borne or
will bear any of the Sellers' costs and expenses (including any of its legal
fees and expenses and investment banking fees) in connection with this Agreement
or any of the transactions contemplated hereby.
(m) CONSTRUCTION. The language used in this Agreement will be deemed to
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant relating to the same subject
matter as any other representation, warranty or covenant (regardless of the
relative levels of specificity) which the Party has not breached, it shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
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<PAGE> 54
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE> 55
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
CORESTAFF, INC.
By: /s/ Peter T. Dameris
--------------------------------------
Name: Peter T. Dameris
-------------------------------
Title: Senior Vice President
-------------------------------
WPC:
WORKGROUP PRODUCTIVITY
CORPORATION
By: /s/ Randal A. Zahora
---------------------------------------
Name: Randal A. Zahora
-------------------------------
Title: President
-------------------------------
SELLERS:
/s/ Randal A. Zahora
-------------------------------------------
Randal A. Zahora
/s/ Daniel Porcaro
-------------------------------------------
Daniel Porcaro
/s/ William Madden
-------------------------------------------
William Madden
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<PAGE> 1
EXHIBIT 2.4
===============================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
METAMOR WORLDWIDE, INC.,
CORESTAFF ACQUISITION SUB #13, INC.
NDC GROUP, INC.,
AND
THE STOCKHOLDERS OF NDC GROUP, INC.
April 16, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
CLOSING AND POST CLOSING MATTERS
2.1 The Merger...........................................................7
2.2 Consideration........................................................7
2.3 Effective Time of the Merger........................................10
2.4 Certificate of Incorporation; Name..................................11
2.5 By-Laws.............................................................11
2.6 Directors...........................................................11
2.7 Officers............................................................11
2.8 Other Effects on Capital Stock......................................11
2.9 NDC Options.........................................................11
2.10 Rights..............................................................11
2.11 Documents...........................................................11
2.12 Additional Agreements; Reasonable Efforts...........................12
2.13 Dissenters Rights...................................................12
2.14 Closing.............................................................12
2.15 Registration Rights.................................................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
CONCERNING THE TRANSACTION
3.1 General Stockholder Representations.................................15
3.2 Investment Representations..........................................16
3.3 Reorganization Status...............................................17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
CONCERNING THE TRANSACTION
4.1 Organization of Buyer...............................................17
4.2 Authorization of Transaction........................................17
4.3 Noncontravention....................................................17
</TABLE>
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 3
<TABLE>
<S> <C>
4.4 Broker's Fees.......................................................18
4.5 Buyer Common Stock..................................................18
4.6 SEC Documents.......................................................18
4.7 Reorganization Status...............................................18
ARTICLE V
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
5.1 Organization, Qualification, and Corporate Power....................20
5.2 Capitalization......................................................20
5.3 Noncontravention....................................................20
5.4 Subsidiaries........................................................21
5.5 Financial Statements................................................21
5.6 Events Subsequent to Most Recent Fiscal Year End....................21
5.7 Undisclosed Liabilities.............................................23
5.8 Tax Matters.........................................................23
5.9 Tangible Assets.....................................................25
5.10 Real Property.......................................................25
5.11 Real Property Leases................................................25
5.12 Intellectual Property...............................................26
5.13 Contracts...........................................................30
5.14 Notes and Accounts Receivable.......................................31
5.15 Powers of Attorney..................................................31
5.16 Insurance...........................................................32
5.17 Litigation..........................................................32
5.18 Employees...........................................................32
5.19 Employee Benefits...................................................33
5.20 Guaranties..........................................................34
5.21 Environment, Health, and Safety.....................................34
5.22 Legal Compliance....................................................36
5.23 Certain Business Relationships with the Company.....................37
5.24 Brokers' Fees.......................................................37
5.25 Books and Records...................................................37
5.26 Payments to Officials...............................................37
5.27 Disclosure..........................................................37
ARTICLE VI
ARTICLE VII
COVENANTS
7.1 General.............................................................38
7.2 Litigation Support..................................................38
</TABLE>
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- ii -
<PAGE> 4
<TABLE>
<S> <C>
7.3 Transition..........................................................38
7.4 Confidentiality.....................................................38
7.5 Monitoring Information..............................................39
7.6 Continuation of Indemnification.....................................39
7.7 Additional Tax Matters..............................................39
7.8 Covenant Not to Compete.............................................40
7.9 Conduct of Business During Earn-Out Period..........................40
7.10 Filing of Reports; Rule 144 etc.....................................40
7.11 Nasdaq Listing......................................................40
ARTICLE VIII
RESERVED
ARTICLE IX
INDEMNITIES
9.1 Survival............................................................40
9.2 Indemnification Provisions for Benefit of Buyer.....................41
9.3 Indemnification Provisions for Benefit of the Stockholders..........43
9.4 Indemnification and Contribution with Respect to Registration
Rights..............................................................43
9.5 Matters Involving Third Parties.....................................45
9.6 Determination of Loss...............................................45
9.7 Exclusive Remedy....................................................46
9.8 Payment; General Right of Offset....................................46
9.9 Tax Disputes........................................................46
ARTICLE X
RESERVED.
ARTICLE XI
MISCELLANEOUS
11.1 Power of Attorney...................................................47
11.2 Press Releases and Announcements....................................47
11.3 No Third-Party Beneficiaries........................................47
11.4 Entire Agreement....................................................47
11.5 Succession and Assignment...........................................47
11.6 Facsimile/Counterparts..............................................48
11.7 Headings............................................................48
11.8 Notices.............................................................48
</TABLE>
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 5
<TABLE>
<S> <C>
11.9 Governing Law.......................................................49
11.10 Amendments and Waivers..............................................49
11.11 Severability........................................................49
11.12 Expenses............................................................49
11.13 Construction........................................................50
11.14 Incorporation of Exhibits, Annexes, and Schedules...................50
11.15 Specific Performance................................................50
11.16 Submission to Jurisdiction..........................................50
</TABLE>
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- iv -
<PAGE> 6
LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
ANNEXES
Annex I Determination of EBIT
SCHEDULES
Disclosure Schedule
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 7
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of April 16, 1998 (this
"AGREEMENT"), among Metamor Worldwide, Inc., a Delaware corporation ("BUYER"),
Corestaff Acquisition Sub #13, Inc., a Delaware corporation and wholly-owned
subsidiary of Buyer ("MERGER SUB"), NDC Group, Inc., a Virginia corporation
(the "COMPANY,"), and the stockholders of the Company named on the signature
page hereto (the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, the Stockholders own all of the capital stock of the Company;
and
WHEREAS, the persons listed in Section 5.2 of the Disclosure Schedule
as the optionholders (the "OPTIONHOLDERS") are the sole owners of outstanding
NDC Options; and
WHEREAS, the parties hereto deem it advisable and in the best
interests of their respective companies and stockholders to consummate the
merger of the Company with and into Merger Sub (the "MERGER"), with the Merger
Sub as the surviving corporation in the Merger, upon the terms and conditions
set forth in this Agreement; and
WHEREAS, the parties hereto desire to set forth certain
representations, warranties, covenants and agreements made by each to the other
in connection with the transactions described in this Agreement, including
certain additional agreements related to the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following respective meanings for
all purposes of this Agreement:
"ADJUSTED EBIT" means earnings before interest and taxes
(prepared on an accrual basis of accounting and in accordance with GAAP, as
consistently applied by the Company prior to the closing of the Merger), plus
mutually agreed upon "ADJUSTMENTS" and "ADDBACKS" during the Earn-Out Period
(as defined in Section 2.2(b) below), and as determined by Annex I attached
hereto.
"ADVERSE CONSEQUENCES" means all charges, complaints,
actions, suits, proceedings, hearings, investigations, claims, demands,
judgments, orders, decrees, stipulations, injunctions,
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
<PAGE> 8
damages, dues, penalties, fines, costs, amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
all attorneys' fees and court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Sec. 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"BUYER" shall have the meaning set forth in the preface
above.
"BUYER COMMON STOCK" shall mean the common stock, par value
of $.01 per share, of Buyer.
"BUYER SHARES" means the shares of Buyer Common Stock.
"CLOSING" shall have the meaning set forth in Section 2.15
below.
"CLOSING DATE" shall have the meaning set forth in Section
2.15 below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the Securities and Exchange
Commission.
"COMPANY COMMON STOCK" shall mean the common stock, no par
value per share, of the Company.
"CONFIDENTIAL INFORMATION" means all confidential information
and trade secrets of the Company including, without limitation, the identity,
lists or descriptions of any customers, referral sources or organizations;
financial statements, cost reports or other financial information; contract
proposals, or bidding information; business plans and training operations
methods and manuals; personnel records; fee structure; and management systems,
policies or procedures, including related forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Sec. 1563.
"CUSTOMER CONTRACT OR AGREEMENT" means any contract or
agreement of the Company related to (a) information technology,
telecommunications or computer support services, training, education and change
management services; (b) maintenance contracts for application software; (c)
maintenance support arrangements, (d) reengineering and refurbishment
arrangements;
NDC GROUP, INC.
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(e) consulting or professional resource arrangements; (f) any other contract
integration or support services arrangement; and (g) agreements related to any
other services provided by the Company.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth
in Treas. Reg. Section 1.1502-13.
"DGCL" has the meaning set forth in Section 2.3 below.
"DISCLOSURE SCHEDULE" has the meaning set forth in Article V
below.
"DOCUMENTATION" has the meaning set forth in Section 5.12(i)
below.
"EARN-OUT PAYMENTS" has the meaning set forth in Section
2.2(b) below.
"EARN-OUT PERIOD" has the meaning set forth in Section 2.2(b)
below.
"EFFECTIVE TIME" shall have the meaning set forth in Section
2.3 below.
"E&Y EARN-OUT PAYMENT DETERMINATION" has the meaning set
forth in Section 2.2(c) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multi employer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(1).
"EPA" shall mean the United States Environmental Protection
Agency.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in
Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 5.5 below.
NDC GROUP, INC.
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"FIRST EARN-OUT PAYMENT" has the meaning set forth in Section
2.2(b) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any governmental,
quasi-governmental, state, county, city or other political subdivision of the
United States or any other country, or any agency, court or instrumentality,
foreign or domestic, or statutory or regulatory body thereof.
"INDEMNIFIED PARTY" has the meaning set forth in Section 9.5
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 9.5
below.
"INITIAL PAYMENT" has the meaning set forth in Section 2.2(a)
below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service
marks, trade dress, logos, trade names, and corporate names and registrations
and applications for registration thereof, (b) patents, patent applications,
and provisional applications, including all continuations, divisionals and
related applications, (c) copyrights and registrations and applications for
registration thereof, (d) computer software, data, and documentation, (e) to
the extent legally protectable, trade secrets and confidential business
information (including ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing, and business data, pricing and
cost information, business and marketing plans, and customer and supplier lists
and information), (f) to the extent legally protectable, other proprietary
rights, and (g) copies and tangible embodiments thereof (in whatever form or
medium).
"KNOWLEDGE" means that which is known or understood or should
have been known or understood after reasonable investigation and inquiry, which
inquiry shall include an inquiry of the employees of the Company with
responsibility for the matters in question.
"LIABILITY" means any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"LICENSES" has the meaning set forth in Section 5.12(l) below.
"MERGER" has the meaning set forth in Section 2.1 below.
"METAMOR SOLUTIONS" has the meaning set forth in Section
7.8(a) below.
"MERGER CONSIDERATION" has the meaning set forth in Section
2.2(a) below.
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"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 5.5 below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 5.5 below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec.
3(37).
"NDC OPTIONS" shall mean all outstanding options to purchase
Company Common Stock as described in Section 5.2 of the Disclosure Schedule.
"NET WORKING CAPITAL" means $1,391,009, which has been
determined by the parties to equal, as of February 28, 1998, total current
assets of the Company less the sum of the following: (i) total current
liabilities of the Company, (ii) long-term debt of the Company and (iii)
deferred income taxes of the Company, determined in accordance with GAAP,
consistently applied, and based on the accrual method of accounting.
"OPTIONHOLDER" has the meaning set forth in the recitals
above.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, corporation, partnership, joint
venture, limited liability company, limited liability partnership, association,
trust or other entity or organization, including a Governmental Authority.
"PRINCIPAL STOCKHOLDERS" shall mean Mr. Peter Noce and Ms.
Lisa Schuyler.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec.
4043.
"REQUIRED FILING DATE" has the meaning set forth in Section
2.15(a) below.
"REQUISITE STOCKHOLDER" means Mr. Peter Noce.
"SEC DOCUMENTS" shall have the meaning set forth in Section
4.6 below.
"SECOND EARN-OUT PAYMENT" has the meaning set forth in
Section 2.2(b) below.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
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"SECURITY INTEREST" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes not yet due and payable
(or for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods in
transit incurred pursuant to documentary letters of credit, (f) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(g) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SEVERAL" has the meaning set forth in Section 11.1 below.
"SHELF REGISTRATION STATEMENT" has the meaning set forth in
Section 2.15(a) below.
"STOCKHOLDER" has the meaning set forth in the preface above.
"STOCKHOLDERS" has the meaning set forth in the preface
above.
"SHARES" means the shares of the Company Common Stock.
"SOFTWARE PROGRAMS" has the meaning set forth in Section
5.12(a) below.
"SUBSIDIARY" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"SURVIVING CORPORATION" has the meaning set forth in Section
2.1 below.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, 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 of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"VGCL" has the meaning set forth in Section 2.3 below.
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ARTICLE II
CLOSING AND POST CLOSING MATTERS
2.1 THE MERGER. In reliance upon the representations, warranties,
covenants and agreements of the parties set forth herein and upon the terms and
subject to the conditions of this Agreement, at the Closing, the Company shall
be merged with and into Merger Sub (the "MERGER"), with Merger Sub being the
surviving corporation (the "SURVIVING CORPORATION").
2.2 CONSIDERATION.
(a) In consideration for the acquisition, by merger, of all
of the outstanding shares of Company Common Stock and the cancellation
of all of the NDC Options, Buyer shall pay to the Stockholders and the
Optionholders an aggregate of $20,491,009 (subject to adjustment as
set forth herein) (the "Initial Payment") and the Earn-Out Payments
(as hereinafter defined) (the Initial Payment and the Earn-Out
Payments being referred to collectively as the "Merger
Consideration"), each payable as follows:
(i) Principal Stockholders. As of the Effective
Time, by virtue of the Merger and without any action on the
part of any holder of the shares of Company Common Stock,
each Principal Stockholder (in its capacity as a stockholder
and not in its capacity as an Optionholder) in consideration
for all of the Company Common Stock owned or held by such
Principal Stockholder, upon the surrender of the certificates
formerly representing such shares shall (a) receive a
proportionate share determined in accordance with Schedule
2.2(a) of the Initial Payment, payable in shares of Buyer
Common Stock and cash as provided below and (b) be entitled
to receive a proportionate share determined in accordance
with Schedule 2.2(a) of the Earn-Out Payments, payable as set
forth in Section 2.2(d) below. The shares of Buyer Common
Stock issuable as part of the Initial Payment to the
Principal Stockholders shall represent seventy percent (70%)
of the Initial Payment.
(ii) Other Stockholders. As of the Effective Time,
by virtue of the Merger and without any action on the part of
any holder of the shares of Company Common Stock, each
Stockholder (other than the Principal Stockholders) in
consideration for all of the Company Common Stock owned or
held by such Stockholder, upon the surrender of the
certificates formerly representing such shares shall (a)
receive a proportionate share determined in accordance with
Schedule 2.2(a) of the Initial Payment, payable in cash and
(b) be entitled to receive a proportionate share determined
in accordance with Schedule 2.2(a) of the Earn-Out Payments,
payable in cash.
(iii) Optionholders. As of the Effective Time, by
virtue of the Merger and without any action on the part of
any holder of the shares of Company Common Stock, each
Optionholder in consideration for the cancellation of all NDC
Options
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<PAGE> 14
held by such Optionholder, upon the surrender of agreements representing such
NDC Options shall (a) receive a proportionate share determined in accordance
with Schedule 2.2(a) of the Initial Payment, payable in cash and (b) be
entitled to receive a proportionate share determined in accordance with
Schedule 2.2(a) of the Earn-Out Payments, payable in cash. Notwithstanding the
foregoing, any Optionholder, either directly or through its attorney-in-fact,
may deliver notice to Buyer to pay its proportionate interest in an Earn-Out
Payment to a designee of such Optionholder on the Optionholder's behalf.
(b) The number of Buyer Shares to be issued to the Principal
Stockholders in connection with the Initial Payment shall be
determined using a valuation of $45.00 per share (subject to
adjustment in the event of a stock split, recapitalization,
combination or stock dividend). On the second (2nd) anniversary of the
Closing Date, in the event the fair market value (based on the average
closing prices of Buyer Common Stock for the twenty (20) trading days
first preceding the second anniversary of the Closing Date), as
adjusted below (the "Deemed Fair Market Value") of the Buyer Common
Stock received by the Principal Stockholders as part of the Initial
Payment is less than $14,000,000 (subject to adjustment on a
proportionate basis with any adjustment to the Initial Payment and
subject to adjustment as set forth below) (the "Guaranteed Amount"),
then Buyer agrees to pay to the Principal Stockholders an amount equal
to the amount by which the Deemed Fair Market value is less than the
Guaranteed Amount either through the issuance of additional shares of
Buyer Common Stock valued at its fair market value (as determined in
this paragraph) or a cash payment, or a combination of both (the
"Special Payment"), at Buyer's sole election, except as provided in
Section 2.2(g). The Guaranteed Amount shall be reduced
dollar-for-dollar to the extent the Principal Stockholders (i) sell
any Buyer Shares before the second (2nd) anniversary date following
the Closing Date for less than $45 per share or (ii) satisfy
indemnification obligations with Buyer Common Stock pursuant to
Section 9.8. The Deemed Fair Market Value shall be increased
dollar-for-dollar to the extent the Principal Stockholders sell any
Buyer Shares before the second (2nd) anniversary date following the
Closing Date for more than $45 per share.
The Principal Stockholders agree that they will not dispose
of any Buyer Common Stock received as part of the Initial Payment
prior to the earlier of the first (1st) anniversary to the Closing and
the date Peter Noce is terminated from employment by the Company for
other than "cause" as defined in Mr. Noce's employment agreement with
the Surviving Corporation.
(c) Subject to the obligation of Buyer to set off against
payment of indemnification obligations of the Stockholders as provided
in Section 9.8, in addition to the Initial Payment Buyer agrees to pay
to the Stockholders and Optionholders, if earned, the following earned
payout amounts:
(i) an earned payout amount (the "FIRST EARN-OUT
PAYMENT") equal to the product of 6.0 multiplied by the
excess of (A) the Adjusted EBIT of the Surviving Corporation
for the twelve (12) month period ending December 31, 1998
over (B) $800,000; and
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(ii) an additional amount (the "SECOND EARN-OUT
PAYMENT") equal to the product of 5.0 multiplied by the
excess of (A) Adjusted EBIT of the Surviving Corporation for
the twelve (12) month period ending December 31, 1999 over
(B) $1,200,000, provided that any Adjusted EBIT of the
Company for the twelve (12) month period ending December 31,
1998 in excess of $3,400,000 shall be added to Adjusted EBIT
of the Surviving Corporation for the twelve (12) month period
ending December 31, 1999 for purposes of calculating the
Second Earn-Out Payment.
The First Earn-Out Payment and the Second Earn-Out Payment
are collectively referred to herein as the "EARN-OUT PAYMENTS." In no
event shall the First Earn-Out Payment exceed $11,000,000, or the
Second Earn-Out Payment exceed $26,000,000 less the actual amount of
the First Earn-Out Payment paid to the Stockholders and Optionholders.
The two-year period from January 1, 1998 to December 31, 1999
shall be referred to as the "EARN-OUT PERIOD."
(d) The First Earn-Out Payment and the Second Earn-Out
Payment shall be payable by Buyer (i) to the Principal Stockholders
(in their capacity as Stockholders and not in their capacity as
Optionholders) in Buyer Common Stock or a combination of cash and
Buyer Common Stock (at Buyer's sole election, subject to Section
2.2(g)) and (ii) to the Stockholders other than the Principal
Stockholders and the Optionholders (including the Principal
Stockholders) in cash, in each case by March 15, 1999 and 2000,
respectively, and the Adjusted EBIT amount shall be based on the
internally-generated financial statements (which have been prepared by
the Principal Stockholders under the direction of Buyer) of the
Surviving Corporation for the relevant portion of the Earn-Out Period.
Any Buyer Common Stock issued to the Stockholders to satisfy the
Earn-Out Payments shall be valued at the average closing prices of
Buyer Common Stock for the twenty (20) trading day period preceding
the third trading day prior to (x) March 15, 1999 for the First
Earn-Out Payment and (y) March 15, 2000 for the Second Earn-Out
Payment. In the event there is a dispute between Buyer and the
Stockholders regarding the Earn-Out Payments (including the
calculation of Adjusted EBIT), the applicable Earn-Out Payment shall
be determined by Ernst & Young, LLP in accordance with this Agreement
(at the expense of Buyer), which determination (each an "E&Y EARN-OUT
PAYMENT DETERMINATION") shall be submitted in writing to Buyer and the
Requisite Stockholder no later than February 15, 1999, in the case of
the First Earn-Out Payment, and February 15, 2000, in the case of the
Second Earn-Out Payment. If, within five (5) days after receipt of an
E&Y Earn-Out Payment Determination, Buyer and/or the Requisite
Stockholder delivers written notice to the other party that such party
disagrees with the E&Y Earn-Out Payment Determination (an "EARN-OUT
PAYMENT DISAGREEMENT NOTICE"), then Buyer and the Requisite
Stockholder shall attempt in good faith to mutually determine the
correct amount of the Earn-Out Payment within five (5) days after
either Buyer or the Requisite Stockholder first delivers the Earn-Out
Payment Disagreement Notice to the other party. If Buyer and the
Requisite Stockholder cannot in good faith mutually determine the
amount of the Earn-Out Payments within such period, then the item or
items in dispute shall be resolved by another "Big Six" (as combined
from
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time-to-time) accounting firm mutually acceptable to Buyer and the
Requisite Stockholder (whose decision shall be conclusive and binding
on the Parties with respect to such disputed item(s)). Any adjustment
in the Earn-Out Payment determined by such "Big Six" accounting firm
shall be made within thirty (30) days following its selection. In the
event such resolution would result in an increase in the Earn-Out
Payment, the cost of such "Big Six" accounting firm shall be paid for
solely by Buyer. Conversely, in the event that such "Big Six"
accounting firm determines that such resolution would result in a
decrease in the Earn-Out Payment, the cost of such "Big Six"
accounting firm shall be paid for solely by the Stockholders. In the
event that such "Big Six" accounting firm determines that no changes
shall be made to the Earn-Out Payment, the cost of such "Big Six"
accounting firm shall be paid by the party disputing the E & Y
Earn-Out Payment Determination.
(e) At the Closing, each Stockholder shall surrender to Buyer
the certificates for Company Common Stock owned by such Stockholder in
exchange for the Merger Consideration, as may be adjusted pursuant to
Section 2.2(d) above. As of and after the Effective Time, no holder of
any certificate that immediately prior to the Effective Time
represented shares of Company Common Stock shall have any rights as a
holder of Company Common Stock other than to receive the Merger
Consideration issuable to such holder pursuant to the Merger.
(f) Buyer shall pay cash in lieu of any resulting fractional
shares of Buyer Common Stock, if any.
(g) Notwithstanding any other provision of this Article II,
the Special Payment and each Earn-Out Payment shall include not less
than the number of shares necessary to cause the aggregate value of
the shares of Buyer Common Stock issued to the Principal Stockholders
pursuant to Section 2.2(a)(i) (and the portion of the Special Payment
that relates to shares of Buyer Common Stock) to be greater than fifty
percent (50%) of the total consideration paid to the Stockholders
pursuant to Sections 2.2(a)(i) and (ii) (and the portion of the
Special Payment that relates to shares of Buyer Common Stock issued
pursuant to Section 2.2(a)(i)). Solely for purposes of making the
computations required to be made pursuant to this Section 2.2(g), the
value of the Buyer Common Stock shall be treated as being equal to the
lesser of the value of Buyer Common Stock on the Closing Date or the
date such shares are actually issued.
2.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date, the parties
shall file Certificates of Merger with each of the Secretary of State of the
State of Delaware and the Secretary of State of the Commonwealth of Virginia,
in such form as required by, and executed in accordance with, the relevant
provisions of the General Corporation Law of the State of Delaware ("DGCL") and
the General Corporation Law of the Commonwealth of Virginia ("VGCL") and shall
make all other filings or recordings required under the DGCL and the VGCL to
cause the Merger to become effective. The Merger shall become effective at such
time as the Certificates of Merger, together with any required supporting
documentation, are duly filed with the Secretary of State of the State of
Delaware and the Secretary of State of the Commonwealth of Virginia or at such
other time as
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is permissible in accordance with the DGCL and the VGCL and as Buyer and the
Company shall agree (the time the Merger becomes effective being the "EFFECTIVE
TIME").
2.4 CERTIFICATE OF INCORPORATION; NAME. The Certificate of
Incorporation of Merger Sub shall be the Certificate of Incorporation of the
Surviving Corporation after the Effective Time. As of the Effective Time, the
name of the Surviving Corporation shall be changed to "NDC Group, Inc."
2.5 BY-LAWS. The By-Laws of Merger Sub shall be the By-Laws of the
Surviving Corporation after the Effective Time.
2.6 DIRECTORS. The directors of Merger Sub shall be the directors of
the Surviving Corporation, who shall serve until their respective successors
are duly elected and qualified in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise
provided by law.
2.7 OFFICERS. The officers of the Surviving Corporation shall
initially consist of the officers of Merger Sub (including Peter Noce as Chief
Executive Officer,) until their successors are duly elected and qualified in
the manner provided in the Certificate of Incorporation and By-Laws of the
Surviving Corporation, or as otherwise provided by law.
2.8 OTHER EFFECTS ON CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or capital stock of Merger Sub:
(a) all shares of Company Common Stock that are owned by the
Company as treasury stock shall be canceled and retired and shall
cease to exist and no consideration shall be delivered in exchange
therefor.
(b) all options, warrants and other rights to purchase Shares
of Company Common Stock shall be cancelled immediately prior to the
Effective Time.
2.9 NDC OPTIONS. Immediately prior to the Merger, the Company shall,
and the Stockholders shall cause the Company to, cause the cancellation of each
NDC Option held by an Optionholder in exchange for the right of such
Optionholder to participate in the Earn-Out Payments as set forth in Section
2.2 above. The Stockholders approving the Merger acknowledge and concur in the
participation of the Optionholders in the Earn-Out Payment pursuant to the
contractual rights conferred in the cancellation agreement to be entered into
by each Optionholder.
2.10 RIGHTS. At and after the Effective Time, the Surviving
Corporation shall possess all the rights and property and be subject to all of
the debts and liabilities of Merger Sub and the Company as provided in the DGCL
and the VGCL.
2.11 DOCUMENTS. On the Closing Date, Buyer, Merger Sub, the Company
and the Stockholders shall execute and deliver all appropriate documents and
instruments to effectuate the
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transactions as set forth in this Agreement, including, on the part of the
Stockholders, the various certificates, instruments and documents referred to
in Section 8.1 below and, on the part of Buyer, the various certificates,
instruments and documents referred to in Section 8.2 below.
2.12 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the terms
and conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including cooperating fully with the other
parties, including by provision of information and making of all necessary
filings with Governmental Entities. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
the Company or Merger Sub, the parties shall take all such necessary action.
2.13 DISSENTERS RIGHTS. The Stockholders each hereby waive any
dissenters rights of appraisal or similar rights to which they may be entitled
under the DGCL, including any notice required in connection therewith.
2.14 CLOSING. Subject to the terms and conditions of this Agreement,
including without limitation thereto the conditions to closing set forth in
Article IX hereof, the transactions described and provided for in this
Agreement shall be consummated at a closing (the "CLOSING") that shall take
place at the offices of Buyer in Houston, Texas commencing at 9:00 a.m. local
time on the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby or such other date as Buyer and the Stockholders may
mutually determine (the "CLOSING DATE").
2.15 REGISTRATION RIGHTS.
(a) Buyer shall prepare for filing and cause to be filed with
the Commission within thirty (30) days (the "REQUIRED FILING DATE")
after the applicable payment date of Buyer Common Stock to the
Principal Stockholders pursuant to the Special Payment, if any, and
the Earn-Out Payments, a "shelf" registration statement pursuant to
Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT")
registering the resale by the Principal Stockholders of such Buyer
Common Stock received as part of the Special Payment and the Earn-Out
Payments, as the case may be. In addition, in the event either of the
Principal Stockholders is terminated from employment for other than
"cause" (as defined in their respective employment agreements) prior
to the first (1st) anniversary of the Closing, the Company shall, upon
request by such terminated Principal Stockholder, file a Shelf
Registration Statement within thirty (30) days registering the resale
of Buyer Common Stock such terminated Principal Stockholder received
pursuant to the Initial Payment. The Shelf Registration Statement,
may, at Buyer's option, cover securities other than the shares of
Buyer Common Stock. Buyer shall use reasonable efforts to cause the
Commission to declare effective the Shelf Registration Statement.
Buyer agrees to use reasonable efforts to keep the Shelf Registration
Statement continuously effective for a period ending on the
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earliest to occur of (i) the date on which all shares of Buyer Common
Stock covered thereby are freely transferable without restrictions
under the Securities Act, (ii) the date on which all Buyer Common
Stock covered thereby have been sold or otherwise transferred or
disposed of by the Stockholders and (iii) one year after the Principal
Stockholders' receipt of the Buyer Common Stock covered thereby. Buyer
shall not be obligated to effect more than one registration for Buyer
Common Stock paid in connection with the Special Payment, if any, one
registration for Buyer Common Stock paid in connection with the First
Earn-Out Payment and one registration for Buyer Common Stock paid in
connection with the Second Earn-Out Payment. Except as provided above,
the Buyer is not obligated hereunder to register any of the shares of
Buyer Common Stock issued in connection with the Initial Payment.
(b) Notwithstanding anything to the contrary in this
Agreement, Buyer may defer the filing (but not the preparation) of the
Shelf Registration Statement until a date not later than sixty (60)
days after the Required Filing Date if (i) Buyer or its subsidiaries
are engaged in confidential negotiations or other confidential
business activities, disclosure of which would be required in such
registration statement (but would not be required if such registration
statement were not filed), or (ii) prior to filing the registration
statement, Buyer had determined to effect a registered underwritten
public offering for Buyer's account and had taken substantial steps to
effect such offering.
(c) In connection with Buyer's obligations with respect to
the Shelf Registration Statement as set forth in Section 2.15(a),
Buyer shall: (i) prepare and file with the Commission such amendments
and supplements to such Shelf Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective for the period specified in
paragraph (a) above and comply with the provisions of the Securities
Act with respect to the disposition of all Buyer Common Stock covered
by such Shelf Registration Statement in accordance with the sellers'
intended method of disposition set forth in such registration
statement for such period; (ii) furnish to the Principal Stockholders
a copy of the Shelf Registration Statement, each amendment and
supplement thereto and such reasonable number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus, as the Principal Stockholders may reasonably
request in order to facilitate the disposition of the shares of Buyer
Common Stock owned by the Principal Stockholders and covered by the
Shelf Registration Statement; (iii) notify the Principal Stockholders
at any time when a prospectus relating thereto is required to be
delivered under the Securities Act within the period that Buyer is
required to keep the Shelf Registration Statement effective of the
happening of any event as a result of which the prospectus included in
such Shelf Registration Statement (as then in effect) contains an
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances then existing, not misleading,
and Buyer will prepare and as soon as reasonably practicable file a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such shares of Buyer Common Stock, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances then
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existing, not misleading; (iv) advise the Principal Stockholders,
after receiving notice thereof, of any stop order issued or threatened
by the Commission with respect to the Shelf Registration Statement and
to use its reasonable efforts to take all actions required to prevent
the entry of such stop order, or to remove it if entered; and (v) use
reasonable efforts to register or qualify the Buyer Common Stock
covered by such Shelf Registration Statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of Buyer Common
Stock may reasonably request.
(d) Each Principal Stockholder agrees that, upon receipt of
any notice from Buyer of the happening of any event of the kind
described in Section 2.15(c)(iii) above, such Principal Stockholder
will forthwith discontinue disposition of shares of Buyer Common Stock
pursuant to the Shelf Registration Statement until such Principal
Stockholder receives the copies of the supplemented or amended
prospectus contemplated by Section 2.15(c)(iii) above, and, if so
directed by Buyer, such Principal Stockholder will deliver to Buyer
all copies of the prospectus covering such shares of Buyer Common
Stock current at the time of receipt of such notice.
(e) Each Principal Stockholder hereby covenants that he will
not make any sale of shares of Buyer Common Stock that are registered
in accordance with this Section 2.15 hereof without complying with the
prospectus delivery requirements under the Securities Act.
(f) Buyer may require each Principal Stockholder to furnish
to Buyer such information regarding such Principal Stockholder and the
distribution of such shares of Buyer Common Stock as Buyer may from
time to time request in writing. Each Principal Stockholder agrees to
notify Buyer as promptly as practicable of any inaccuracy or change in
information previously furnished by such Principal Stockholder to
Buyer or of the occurrence of any event in either case as a result of
which any prospectus relating to such registration contains an untrue
statement of a material fact regarding such Principal Stockholder or
the distribution of such shares of Buyer Common Stock or omits to
state any material fact regarding such Principal Stockholder or the
distribution of such shares of Buyer Common Stock required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and promptly
to furnish to Buyer any additional information required to correct and
update any previously furnished information or required so that such
prospectus shall not contain, with respect to such Principal
Stockholder or the distribution of such shares of Buyer Common Stock
an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances then existing, not misleading.
(g) All expenses incident to Buyer's performance of or
compliance with the provisions of this Section 2.15 will be borne by
Buyer, except that each Principal Stockholder shall pay any and all
underwriting fees, discounts or commissions and fees and disbursements
of counsel to such Principal Stockholder attributable to the sale of
shares of such Principal Stockholder's Buyer Common Stock.
NDC GROUP, INC.
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(h) Buyer will not grant any registration rights which
adversely affect the registration rights granted under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
CONCERNING THE TRANSACTION
3.1 GENERAL STOCKHOLDER REPRESENTATIONS. Each of the Stockholders,
severally and not jointly, represents and warrants to Buyer as follows:
(a) AUTHORIZATION OF TRANSACTION. The Stockholder has full
power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Stockholder, enforceable
in accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable
principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally,
and to general equity principles, (B) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding therefore may be brought, and (C) no
representation is made as to the enforceability of the obligation of
the Stockholders to indemnify Buyer with respect to Liabilities
arising under the Shelf Registration Statement. The Stockholder need
not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which
the Stockholder is subject or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which the Stockholder is a party or by which he
is bound or to which any of his assets is subject.
(c) BROKER'S FEES. The Stockholder has no obligation or
Liability to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement
for which Buyer could become liable or obligated.
(d) SHARES. The Stockholder holds of record and owns
beneficially the number of Shares set forth next to his name in
Section 3.1(d) of the Disclosure Schedule, free and
NDC GROUP, INC.
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clear of any restrictions on transfer (other than any restrictions
under the Securities Act and state securities laws), claims, Taxes,
Security Interests, options, warrants, rights, contracts, calls,
commitments, equities, and demands. The Stockholders hold all of the
issued and outstanding shares of the Company and upon the consummation
of the transaction contemplated hereby, Buyer will hold all of the
issued and outstanding shares of the Company; provided, that the
representation contained in this sentence is made only by the
Principal Stockholders. Except as set forth next to his name in
Section 3.1(d) of the Disclosure Schedule, the Stockholder is not a
party to any option, warrant, right, contract, call, put, or other
agreement or commitment providing for the disposition or acquisition
of any capital stock of the Company (other than this Agreement). The
Stockholder is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital
stock of the Company. The Principal Stockholders hereby further
represent and warrant that (i) except as provided in Section 5.2 of
the Disclosure Schedule, all other Shares or options, rights, warrants
or other interests in the equity of the Company, if any, have been
fully repurchased by the Company prior to the Closing Date and (ii)
there are no pending or threatened suits, claims or actions by any
former holders of Shares or options, rights, warrants or other
interests in the equity of the Company with respect to the repurchase
of their equity interest in the Company.
3.2 INVESTMENT REPRESENTATIONS. Each of the Principal Stockholders,
severally and not jointly, represents and warrants to Buyer as follows:
(a) The Principal Stockholder, either alone or with his
purchaser representative as defined in Rule 501(h) under the
Securities Act, if any, has substantial experience in evaluating and
investing in private placement transactions so that such Principal
Stockholder is capable of evaluating the merits and risks of its
investment in the Buyer Common Stock. The Principal Stockholder, by
reason of such Principal Stockholder's business or financial
experience, either alone or with his purchaser representative as
defined in Rule 501(h) under the Securities Act, if any, has the
capacity to protect his or her own interests in connection with the
acquisition of the Buyer Common Stock hereunder. Each of the Principal
Stockholders is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated pursuant to the Securities Act has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the transactions
contemplated by this Agreement. Section 3.2(a) of the Disclosure
Schedule sets forth each state in which the Principal Stockholder may
be considered a resident. The Principal Stockholder has received a
copy of the SEC Documents. The Principal Stockholder is familiar with
the business and financial condition, properties, operations and
prospects of Buyer. The Principal Stockholder has had an opportunity
to discuss Buyer's business and financial condition, properties,
operations and prospects with Buyer's management. The Principal
Stockholder has also had an opportunity to ask questions of officers
of Buyer, which questions were answered to such Principal
Stockholder's satisfaction. The Principal Stockholder understands that
such discussion was intended to describe certain aspects of Buyer's
business and financial condition, properties, operations and
prospects, but was not a thorough or exhaustive description.
NDC GROUP, INC.
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(b) The Principal Stockholder understands that the shares of
Buyer Common Stock may be "restricted securities" under the applicable
federal securities laws and that the Securities Act and the rules of
the Commission provide in substance that such Principal Stockholder
may dispose of the shares of Buyer Common Stock only pursuant to an
effective registration statement under the Securities Act or an
exemption therefrom, and such Principal Stockholder understands that
Buyer has no obligation or intention to register the shares of Buyer
Common Stock (except pursuant to the registration rights granted in
connection with this Agreement) or to take action so as to permit
sales pursuant to the Securities Act (other than comply with Rule
144(c)). As a consequence of all of the foregoing, the Principal
Stockholder understands that such Principal Stockholder may have to
bear the economic risk of the investment in the Buyer Common Stock for
an indefinite period of time.
3.3 REORGANIZATION STATUS. No Stockholder has taken or agreed to take
any action that would prevent the Merger from constituting a reorganization
within the meaning of Code Sec. 368(a).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
CONCERNING THE TRANSACTION
Buyer represents and warrants to the Stockholders as follows:
4.1 ORGANIZATION OF BUYER. Each of Buyer and Merger Sub is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware.
4.2 AUTHORIZATION OF TRANSACTION. Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has been
duly and validly authorized, executed and delivered by Buyer and constitutes
the valid and legally binding obligation of Buyer, enforceable in accordance
with its terms and conditions, except that (A) such enforceability may be
subject to bankruptcy, insolvency, reorganization, moratorium or other laws,
decisions or equitable principles now or hereafter in effect relating to or
affecting the enforcement of creditors' rights or debtors' obligations
generally, and to general equity principles, (B) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought, and (C) no representation is made as to the
enforceability of the obligation of Buyer to indemnify the Stockholders with
respect to Liabilities arising under the Shelf Registration Statement. Buyer
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 24
governmental agency, or court to which Buyer is subject or any provision of its
charter or bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which Buyer is a party
or by which it is bound or to which any of its assets is subject.
4.4 BROKER'S FEES. Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Stockholder could
become liable or obligated.
4.5 BUYER COMMON STOCK. On the appropriate payment date for the
Initial Payment, the Special Payment, if any, and the Earn-Out Payments, the
Principal Stockholders shall acquire good title to the shares of Buyer Common
Stock issued to the Principal Stockholders pursuant to this Agreement, free and
clear of all encumbrances.
4.6 SEC DOCUMENTS. Buyer has furnished or made available to the
Stockholders a true and complete copy of its definitive proxy statement in
connection with the annual meeting of its stockholders, its annual report and
Form 10-K for the fiscal year ended December 31, 1997, its current reports on
Form 8-K, and any other document dated prior to the date of this Agreement,
which Buyer filed under the Exchange Act with the Commission ("SEC DOCUMENTS"),
which are all of the documents (other than preliminary material) that Buyer was
required to file with the Commission since such date. Such SEC Documents (i)
were prepared in all material respects in accordance with the Exchange Act and
the applicable regulations of the Commission thereunder and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4.7 REORGANIZATION STATUS. The Buyer has not taken any action that
would prevent the Merger from constituting a reorganization within the meaning
of Section 368(a) of the Code. Without limiting the generality of the
foregoing:
(a) Following the Merger, Surviving Corporation will not
issue additional shares of its stock that would result in Buyer losing
control of Surviving Corporation within the meaning of Section 368(c)
of the Code.
(b) Buyer has no plan or intention to reacquire any of its
stock issued in the Merger.
(c) Buyer has no plan or intention to liquidate Surviving
Corporation; to merge Surviving Corporation with and into another
corporation; to sell or otherwise dispose of the stock of Surviving
Corporation; or to cause Surviving Corporation to sell or otherwise
dispose of any of the assets of the Company acquired in the Merger,
except for dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code.
NDC GROUP, INC.
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<PAGE> 25
(d) Following the Merger, Surviving Corporation will continue
the historic business of Company or use a significant portion of
Company's historic business assets in a business.
(e) Except as otherwise provided in the Agreement, Buyer and
Surviving Corporation will pay their own respective expenses and fees
incurred in connection with the Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Stockholders, severally and not jointly, represent and warrant to
Buyer that the statements contained in this Article V are correct and complete
as of the date of this Agreement, except as set forth in the disclosure
schedule delivered by the Stockholders to Buyer on the date hereof (the
"DISCLOSURE SCHEDULE"). An event or matter will be deemed to be "MATERIAL," to
have a "MATERIAL" change in or in respect of, to have a "MATERIAL ADVERSE
EFFECT" or to be "MATERIALLY" affected if such loss is material or the loss may
reasonably be expected to occur to the Company or Buyer with respect to such
event or matter, when taken together with all other related losses that may
reasonably be expected to occur to the Company or Buyer as a result of any such
events or matters, would exceed $20,000 in the aggregate or unless such event
or matter constitutes a criminal violation of law. For purposes of this
paragraph, the word "LOSS" shall mean any and all direct or indirect payments,
obligations, assessments, losses, losses of income, liabilities, costs and
expenses paid or incurred, or reasonably likely to be paid or incurred, or that
are reasonably expected to occur, including without limitation, penalties,
interest on any amount payable to a third party as a result of the foregoing,
and any legal or other expenses reasonably expected to be incurred in
connection with defending any demands, claims, actions or causes of action
that, if adversely determined, could reasonably be expected to result in
losses, and all amounts paid in settlement of claims or actions; provided,
however, that losses shall be net of any insurance proceeds entitled to be
received from a nonaffiliated insurance company on account of such loss (after
taking into account any cost incurred in obtaining such proceeds). A Customer
Contract or Agreement is "MATERIAL" if during the eight months ended February
28, 1998 such Customer Contract or Agreement produced $25,000 of Gross Profit
Margin less any bad debt specifically related to such Customer Contract or
Agreement. Any item intended to be disclosed must be identified with the
particular representation or warranty it is intended to limit and shall not be
deemed to limit any other representation, warranty or covenant in the
Agreement. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail to the satisfaction of Buyer.
Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate
to disclose an exception to a representation or warranty made herein (unless
the representation or warranty has to do with the existence of the document or
other items itself). The Disclosure Schedule will be
NDC GROUP, INC.
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arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Article V.
5.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties requires such qualification. The Company has full corporate power
and authority to carry on the business in which it is engaged and to own and
use the properties owned and used by it. Section 5.1 of the Disclosure Schedule
lists the directors and officers of the Company. The Stockholders have
delivered to Buyer correct and complete copies of the charter and bylaws of the
Company (as amended to date). The minute books containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors, the stock certificate books, and the stock record books of
the Company are correct and complete. The Company is not in default under or in
violation of any provision of its charter or bylaws. The execution and delivery
of this Agreement and the effectuation of the transactions contemplated hereby
has been duly authorized by all of the directors of the Company and the
Requisite Stockholder, and the Company will deliver to Buyer on the date hereof
and at the Closing complete and correct copies, certified by its secretary, of
the resolutions duly and validly adopted by its directors and stockholders
evidencing such authorization (which resolutions will not have been modified,
revoked or rescinded in any respect prior to, and will be in full force and
effect at, the Closing). No other corporate act or proceeding on the part of
the Company or the Stockholders is necessary for the due and valid
authorization of this Agreement or the transactions contemplated hereby.
5.2 CAPITALIZATION. The entire authorized capital stock of the Company
consists of 4,000,000 shares of common stock, without par value (the "SHARES"),
of which 1,775,000 Shares are issued and outstanding and no Shares are held in
treasury. All of the issued and outstanding Shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are held of record by
the respective Stockholders as set forth in Section 3.1(d) of the Disclosure
Schedule. Section 5.2 of the Disclosure Schedule sets forth all outstanding NDC
Options and the amounts owned by each Optionholder. Other than as set forth in
Section 5.2 of the Disclosure Schedule, there are no outstanding or authorized
options, warrants, rights, contracts, calls, puts, rights to subscribe,
conversion rights, or other agreements or commitments to which the Company is a
party or which are binding upon the Company providing for the issuance,
disposition, or acquisition of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, deferred bonus
programs, or similar rights with respect to the Company. There are no voting
trusts, proxies, or any other agreements or understandings with respect to the
voting of the capital stock of the Company.
5.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result
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in the acceleration of, create in any part the right to accelerate, terminate,
modify, or cancel, or require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency, which it has not already obtained, in
order for the Parties to consummate the transactions contemplated by this
Agreement.
5.4 SUBSIDIARIES. The Company has no Subsidiaries.
5.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit A are the
financial statements (collectively the "FINANCIAL STATEMENTS"), including
balance sheets, income statements, and cash flow statements, for the Company
prepared in accordance with GAAP (except as disclosed in Section 5.5 of the
Disclosure Schedule and except in the case of clause (ii) below for the
preparation of footnotes) for each of the (i) fiscal years ended June 30, 1996
and 1997 (the fiscal year ended June 30, 1997 being referred to herein as the
"MOST RECENT FISCAL YEAR END") and (ii) the eight (8) month period ended
February 28, 1998 (the "MOST RECENT FINANCIAL STATEMENTS"). The Financial
Statements for the fiscal years ended June 30, 1996 and 1997 have been audited
by Keller Bruner & Co. L.L.C.
5.6 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except as set
forth in Section 5.6 of the Disclosure Schedule, since the date of the Most
Recent Fiscal Year End, the business of the Company has been conducted in the
Ordinary Course of Business and there has not been any material adverse change
in the assets, Liabilities, business, financial condition, operations, results
of operations, or future prospects of the Company. Without limiting the
generality of the foregoing (except as set forth in the Disclosure Schedule),
since that date:
(a) The Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, for consideration
in excess of $20,000;
(b) The Company has not entered into any contract, lease,
sublease, license or sublicense (or series of related contracts,
leases, subleases, licenses and sublicenses) either involving more
than $20,000;
(c) No party (including the Company) has accelerated,
terminated, modified, or canceled any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses), or notified the Company of its
intention to so cancel, terminate, modify or cancel, any agreement
with the Company involving more than $20,000;
(d) The Company has not imposed any Security Interest upon
any of its assets, tangible or intangible;
NDC GROUP, INC.
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(e) The Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$50,000 singly or $200,000 in the aggregate;
(f) The Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any other
person (or series of related capital investments, loans, and
acquisitions) either involving more than $50,000 individually or
$200,000 in the aggregate;
(g) The Company has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease obligations)
either involving more than $20,000 singly or $50,000 in the aggregate;
(h) The Company has not delayed or postponed (beyond its
normal practice) the payment of accounts payable and other Liabilities
past the time when such are due;
(i) The Company has not settled, canceled, compromised,
waived, or released any right, claim action or proceeding (or series
of related rights, claims, actions or proceedings) involving more than
$20,000;
(j) The Company has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(k) There has been no change made or authorized in the
charter or bylaws of the Company;
(l) The Company has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion or
exercise) any of its capital stock;
(m) The Company has not declared, set aside, or paid any
dividend or distribution with respect to its capital stock or
redeemed, purchased, or otherwise acquired any of its capital stock;
(n) The Company has not experienced any Material damage,
destruction or loss (whether or not covered by insurance) to its
property;
(o) The Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business giving rise to any claim or
right on its part against the person or on the part of the person
against it;
(p) The Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
NDC GROUP, INC.
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(q) The Company has not granted an increase outside the
Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees;
(r) The Company has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance,
(G) severance, or (H) other plan, contract or commitment for any of
its directors, officers, and employees, or modified or terminated any
existing such plan, contract or commitment;
(s) The Company has not made any other change in employment
terms for any of its directors, officers, and full-time staff
employees;
(t) The Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(u) The Company shall have made no dividend, consulting or
other payment to the Stockholders, except for employment salaries (not
to exceed current compensation levels) to Stockholders, except for
those payments set forth in Section 5.6(u) of the Disclosure Schedule
which were made prior to the contemplation of the transaction
contemplated by this Agreement;
(v) There has not been any other Material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
(w) The Company has not committed to do any of the foregoing.
5.7 UNDISCLOSED LIABILITIES. Except as set forth in Section 5.7 of the
Disclosure Schedule, the Company does not have any Liability (and to the
Knowledge of the Stockholders there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against it giving rise to any Liability), except for (i) Liabilities set
forth on the face of the Financial Statements (rather than in any notes
thereto), (ii) Liabilities which have arisen after the Most Recent Fiscal Year
End in the Ordinary Course of Business (none of which relates to any breach of
contract, breach of warranty, tort, infringement, or violation of law or arose
out of any charge, complaint, action, suit, proceedings, hearing,
investigation, claim, or demand) or (iii) Liabilities that are specifically
disclosed as a Liability in the Disclosure Schedule.
5.8 TAX MATTERS.
(a) The Company has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by the Company (whether or not shown on
any Tax Return) have been paid. The Company currently is not the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax
NDC GROUP, INC.
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Returns that either of them is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of
the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(b) Except as disclosed in Section 5.8(b) of the Disclosure
Schedule, the Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party.
(c) There is no dispute or claim concerning any Tax Liability
of the Company either (A) claimed or raised by any authority in
writing or (B) as to which any of the Stockholders and the directors
and officers (and employees responsible for Tax matters) of the
Company has Knowledge based upon personal contact with any agent of
such authority. Section 5.8 of the Disclosure Schedule lists all
federal and state income Tax Returns filed with any Governmental
Authority with respect to the Company for taxable periods ending prior
to the date hereof, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Company has delivered to Buyer correct and
complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by the Company.
(d) 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.
(e) The Company has not filed a consent under Code Sec.
341(f) concerning collapsible corporations. The Company has not made
any payments, is not obligated to make any payments, or is not a party
to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Sec. 280G.
The Company has not been a United States real property holding
corporation within the meaning of Code Sec. 897(c)(2) during the
applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company
has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Sec. 6661. The Company
is not a party to any Tax allocation or sharing agreement. The Company
has never been (or has any Liability for unpaid Taxes because it once
was) a member of an Affiliated Group during any part of any
consolidated return year within any part of which consolidated return
year any corporation other than the Company also was a member of the
Affiliated Group.
(f) Section 5.8 of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most
recent practicable date (as well as on an estimated pro forma basis as
of June 30, 1997): (A) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign tax,
or excess charitable contribution allocable to the Company; and (B)
the amount of any deferred gain or loss allocable to the Company
arising out of any Deferred Intercompany Transaction.
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(g) The unpaid Taxes of the Company as of February 28, 1998
do not exceed the reserve for Tax Liability (rather than any reserve
for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Financial Statements
(rather than in any notes thereto).
(h) The Company has not taken or agreed to take any action
that would prevent the Merger from constituting a reorganization
within the meaning of Code Sec. 368(a). Without limiting the
generality of the foregoing:
(i) Prior to and in connection with the Merger, (A)
none of the Company Common Stock will be redeemed, (B) no
extraordinary distribution will be made with respect to
Company Common Stock, and (C) none of the Company Common
Stock will be acquired by any person related (as defined in
Treas. Reg. Section 1.368-1(e)(3) without regard to Section
1.368-1(e)(3)(i)(A)) to the Company.
(ii) Except as provided in this Agreement, the
Company and the Stockholders will each pay their respective
expenses, if any, incurred in connection with the Merger.
5.9 TANGIBLE ASSETS. The Company owns or leases all tangible assets
necessary for the conduct of its business as presently conducted. To the
Company's knowledge, each such tangible asset is free from defects (patent and
latent), has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
5.10 REAL PROPERTY. The Company does not own any real property.
5.11 REAL PROPERTY LEASES. Section 5.11 of the Disclosure Schedule
lists and describes briefly all real property leased or subleased to the
Company. The Stockholders have delivered to Buyer correct and complete copies
of the leases and subleases listed in Section 5.11 of the Disclosure Schedule
(as amended to date). With respect to each lease and sublease listed in Section
5.11 of the Disclosure Schedule:
(a) The lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(b) The Stockholders shall use their best efforts to ensure
that the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms (during
the current term of such lease or sublease) following the Closing;
(c) The Company is not and, to the Company's knowledge, no
other party to the lease or sublease 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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(d) No party to the lease or sublease has repudiated any
provision thereof;
(e) There are no disputes, oral agreements, or forbearance
programs in effect involving the Company as to the lease or sublease;
(f) The Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(g) All facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses
and permits) required to be obtained by the Company in connection with
the operation thereof and have been operated and maintained by the
Company in accordance with applicable laws, rules, and regulations;
and
(h) The real property listed in Section 5.11 of the
Disclosure Schedule represents all of the real property necessary to
operate the business in the manner that it is currently being
operated.
5.12 INTELLECTUAL PROPERTY.
(a) The Company is the sole and exclusive owner of all right,
title and interest in and has good and valid title to, or, as to third
party rights identified in Section 5.12 of the Disclosure Schedule,
has obtained a license to use all Intellectual Property necessary for
the operation of the business of the Company as presently conducted,
free and clear of all mortgages, pledges, liens, security interests,
conditional sales agreements, encumbrances or charges of any kind.
Each item of Intellectual Property owned or used by the Company
immediately prior to the Closing hereunder will be owned or available
for use by the Company on identical terms and conditions immediately
subsequent to the Closing hereunder. The Company is the sole and
exclusive owner of all right, title and interest in and has good and
valid title to, or, as to third party programs identified in Section
5.12 of the Disclosure Schedule, has obtained a license to use and for
the right to sublicense, the software programs developed, authored
and/or licensed by the Company for resale or for the right to
sublicense including without limitation those software programs listed
on Section 5.12 of the Disclosure Schedule (the "SOFTWARE PROGRAMS")
and the Documentation, free and clear of all mortgages, pledges,
liens, security interests, conditional sales agreements, encumbrances
or charges of any kind. Section 5.12 of the Disclosure Schedule
contains a complete list of all Software Programs, registered
trademarks and service marks, all reserved trade names, all registered
copyrights, all pending applications for registration of any marks or
copyrights, and all filed patent applications and issued patents
necessary for the conduct of, the business of the Company as
heretofore conducted.
(b) Section 5.12 of the Disclosure Schedule sets forth the
form and placement of the proprietary legends and copyright notices
displayed in or on the Software Programs. In no instance has the
eligibility of the Software Programs (to the Knowledge of any of the
Stockholders and the officers of the Company (and employees with
responsibility for Intellectual Property Matters) with respect to
third party Software Programs, Documentation
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or Intellectual Property) for protection under applicable copyright
law been forfeited to the public domain by omission of any required
notice or any other action.
(c) The Company has enforced the trade secret protection
program set forth in Section 5.12 of the Disclosure Schedule, and,
except as set forth in Section 5.12 of the Disclosure Schedule, there
has been no violation of such program by any person or entity. The
source code and Documentation (except end-user manuals) relating to
the Software Programs (to the Knowledge of any of the Stockholders and
the officers of the Company (and employees with responsibility for
Intellectual Property matters) with respect to third party Software
Programs) (i) have at all times been maintained in strict confidence,
(ii) have been disclosed by the Company only to employees having a
"need to know" the contents thereof in connection with the performance
of their duties to the Company and (iii) have not been disclosed to
any third party.
(d) All personnel, including employees, agents, consultants,
and contractors, who have contributed to or participated in the
conception and development of the Software Programs, Documentation or
Intellectual Property (to the Knowledge of any of the Stockholders and
the officers of the Company (and employees with responsibility for
Intellectual Property matters) with respect to third party Software
Programs) have executed nondisclosure agreements in the form of
Exhibit 5.12 and either (1) have been party to a written agreement
with the Company that has accorded the Company full, effective,
exclusive and original ownership of all the Software Programs,
Documentation and Intellectual Property, or (2) have executed
appropriate instruments of assignment in favor of the Company as
assignee that have conveyed to the Company full, effective, and
exclusive ownership of all the Software Programs, Documentation and
Intellectual Property.
(e) Section 5.12 of the Disclosure Schedule contains a
complete list of software libraries, compilers and other third-party
software used in the development of the Software Programs. Section
5.12 of the Disclosure Schedule lists all license agreements for the
use of all such software and, if any such software is not licensed,
the basis of the use of such software by the Company. All use of each
of such Software Programs by the Company has been in full compliance
with the respective license agreement or other right of use listed on
Section 5.12 of the Disclosure Schedule.
(f) The Software Programs will perform in accordance with the
technical specifications therefor and with the warranties set forth in
the Licenses.
(g) The Software Programs (to the Knowledge of any of the
Stockholders and the officers of the Company (and employees with
responsibility for Intellectual Property matters) with respect to
third party Software Programs), the use thereof by the Company and the
use, license, sale or lease of the Software Programs (to the Knowledge
of any of the Stockholders and the officers of the Company (and
employees with responsibility for Intellectual Property matters) with
respect to third party Software Programs), or of any part thereof, or
of any copy, or of any part thereof, do not and will not infringe on,
or contribute to the infringement of, any copyright, trade secret, any
other exclusionary right of any third
NDC GROUP, INC.
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party or, to the knowledge of any of the Stockholders and officers (or
employees with responsibility for Intellectual Property matters), any
patent in either the United States or any foreign country. No person
or entity has asserted a claim that the Company's use, license, sale
or lease of any Software Program, or any part thereof, infringes or
contributes to the infringement of any patent claim, copyright or
trade secret right of any third party in either the United States or
any foreign country, and the Stockholders are not aware of any basis
for any such claim.
(h) Except with respect to demonstration or trial copies, no
portion of the Software Programs (to the Knowledge of any of the
Stockholders and the officers of the Company (and employees with
responsibility for Intellectual Property matters) with respect to
third party Software Programs) contains or will contain any "back
door," "time bomb," "Trojan horse," "worm," "drop dead device,"
"virus" or other software routines or hardware components designed to
permit unauthorized access; to disable or erase software, hardware, or
data; or to perform any other such actions.
(i) The documentation of the Software Programs developed or
authored by the Company includes without limitation the source code
(with comments) for all Software Programs, as well as any pertinent
commentary or explanation that may be necessary to render such
materials understandable and usable by a trained computer programmer,
any programs (including compilers), "workbenches," tools and higher
level (or "proprietary") language necessary for the development,
maintenance and implementation of the Software Programs and any and
all materials relating to the Software Programs, including without
limitation all notes, flow charts, programmer's or user's manuals
(collectively, the "DOCUMENTATION").
(j) The Stockholders have delivered to Buyer correct and
complete copies of all trademarks, service marks, trade names,
copyrights, patents, registrations, applications, licenses,
agreements, and permissions (as amended to date), and have made
available to Buyer correct and complete copies of all other written
documentation (if any) evidencing ownership and prosecution (if
applicable) of each such item. With respect to each item of
Intellectual Property necessary for the conduct of, the business of
the Company as heretofore conducted:
(i) to the Knowledge of any of the Stockholders and
the officers of the Company (or employees with responsibility
for Intellectual Property matters), the identified owner
possesses all right, title, and interest in and to the item;
(ii) to the Knowledge of any of the Stockholders and
the officers of the Company (or employees with responsibility
for Intellectual Property matters), the item is not subject
to any outstanding judgment, order, decree, stipulation,
injunction, or charge;
(iii) to the Knowledge of any of the Stockholders
and the officers of the Company (or employees with
responsibility for Intellectual Property matters), no
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charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or threatened
which challenges the legality, validity, enforceability, use,
or ownership of the item; and
(iv) Except as set forth in Section 5.12 of the
Disclosure Schedule, the Company has never agreed to
indemnify any person or entity for or against any
interference, infringement, misappropriation, or other
conflict with respect to the item.
(k) The Stockholders have supplied Buyer with correct and
complete copies of all third party licenses, sublicenses, agreements,
and permissions (as amended to date). With respect to each such item
except as set forth in Section 5.12(k) of the Disclosure Schedule:
(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 Closing;
(iii) no party to the license, sublicense,
agreement, or permission is in breach or default, and, to the
Knowledge of any of the Stockholders and the officers of the
Company (or employees with responsibility for Intellectual
Property matters), no event has occurred which with notice or
lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(v) to the Knowledge of any of the Stockholders and
the officers of the Company (or employees with responsibility
for Intellectual Property matters), the underlying item of
Intellectual Property is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge;
(vi) to the Knowledge of any of the Stockholders and
the officers of the Company (or employees with responsibility
for Intellectual Property matters), no charge, complaint,
action, suit, proceedings, hearing, investigation, claim or
demand is pending or threatened which challenges the
legality, validity, or enforceability of the underlying item
of Intellectual Property; and
(vii) the Company has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission.
(l) Section 5.12 of the Disclosure Schedule sets forth a
complete and accurate list of all licenses and sublicenses of the
Software Programs and of all customer trial
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agreements for the Software Programs granted by the Company to other
parties (the "LICENSES"). All Licenses identified in Section 5.12 of
the Disclosure Schedule constitute only end-user agreements, each of
which grants the end user thereunder principally the nonexclusive
right and license to use an identified Software Program and related
user documentation, for internal purposes only, at the sites specified
in each agreement.
(m) The Software Programs (i) have been designed to ensure
year 2000 compatibility, which shall include, but is not limited to,
date data century recognition, and calculations that accommodate same
century and multi-century formulas and date values; (ii) operate or
will operate in accordance with their specifications prior to, during
and after the calendar year 2000 A.D.; and (iii) shall not end
abnormally or provide invalid or incorrect results as a result of date
data, specifically including date data which represents or references
different centuries or more than one century.
5.13 CONTRACTS. Section 5.13 of the Disclosure Schedule lists the
following contracts, agreements, and other written arrangements to which the
Company is a party:
(a) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third
parties providing for lease payments in excess of $20,000 per annum;
(b) any written arrangement (or group of related written
arrangements) for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property or for the furnishing
or receipt of services which either calls for performance over a
period of more than one year or involves more than the sum of $20,000;
(c) any written arrangement concerning a partnership or joint
venture;
(d) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease obligations) involving more than $20,000
or under which it has imposed (or may impose) a Security Interest on
any of its assets, tangible or intangible;
(e) any written arrangement concerning confidentiality or
noncompetition;
(f) any written arrangement involving any of the Stockholders
and their Affiliates;
(g) any written arrangement with any of its directors,
officers, and employees in the nature of a collective bargaining
agreement, employment agreement, or severance agreement;
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(h) any written arrangement under which the consequences of a
default or termination could have an adverse effect on the assets,
Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company;
(i) any written arrangement involving a governmental entity
or quasi-governmental agency;
(j) any written Customer Contract or Agreement; or
(k) any other written arrangement (or group of related
written arrangements) either involving more than $20,000 or not
entered into in the Ordinary Course of Business.
The Company has delivered to Buyer a correct and complete copy of each
written arrangement listed in Section 5.13 of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (A) the
written arrangement is legal, valid, binding, enforceable (except that (A) such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium or other laws, decisions or equitable principals now or hereafter in
effect relating to or affecting the enforcement of creditors' rights or
debtors' obligations generally, and to general equity principles and (B) the
remedy of specific performance and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought), and in full force and effect; (B) the
written arrangement will continue to be legal, valid, binding, enforceable and
in full force and effect on the same or substantially similar terms following
the Closing; (C) no party is in Material 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, under the written
arrangement; and (D) no party has repudiated any provision of the written
arrangement. The Company is not a party to any verbal contract, agreement, or
other arrangement which, if reduced to written form, would be required to be
listed in Section 5.13 of the Disclosure Schedule under the terms of this
Section 5.13. No unfilled Material Customer Contract or Agreement obligating
the Company to perform services will result in a loss to the Company upon
completion of performance. The Company is not a party to any contract,
agreement or other arrangement which was entered into on terms which would not
be considered market standard if such arrangement was entered into in an
arms-length transaction. None of the Company's twenty-five (25) highest
grossing revenue customers in the eight months ended February 28, 1998 has
Materially curtailed or terminated its relationship with it or has indicated
that it will stop, or Materially decrease the rate of, buying services from it.
5.14 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are presently current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Financial Statements (rather than 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.
5.15 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
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5.16 INSURANCE. Section 5.16 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company is a party, a named insured,
or otherwise the beneficiary of coverage:
(a) The name, address, and telephone number of the agent;
(b) The name of the insurer, the name of the policyholder,
and the name of each covered insured;
(c) The policy number and the period of coverage;
(d) The scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(e) A description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, and enforceable and in full force and effect; (B) the policy
will continue to be legal, valid, binding, and enforceable and in full force
and effect on identical terms following the Closing Date; (C) the Company is
not in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or permit termination,
modification, or acceleration, under the policy; and (D) no party to the policy
has repudiated any provision thereof. The Company has been covered during the
past three (3) years by insurance in scope and amount customary and reasonable
for the businesses in which it has engaged during the aforementioned period.
Section 5.16 of the Disclosure Schedule describes any self-insurance
arrangements affecting the Company.
5.17 LITIGATION. Section 5.17 of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge or (ii) is a party or, to the
Knowledge of any of the Stockholders and the officers of the Company (and
employees with responsibility for litigation matters) of the Company, is
threatened to be made a party to any charge, complaint, action, suit,
proceeding, hearing, or investigation of or in any court or quasi-judicial or
administrative agency of any Governmental Authority or before any arbitrator.
None of the Stockholders and the directors and officers (and employees with
responsibility for litigation matters) of the Company has any reason to believe
that any such charge, complaint, action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
5.18 EMPLOYEES. To the Knowledge of the Stockholders, no key employee
or full-time group of employees has any plans to terminate employment with the
Company. The Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes,
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grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Company has not committed any unfair labor practice. None of the
Stockholders and the directors and officers (and employees with responsibility
for employment matters) of the Company has any Knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of the Company.
5.19 EMPLOYEE BENEFITS. Section 5.19 of the Disclosure Schedule lists
all Employee Benefit Plans that the Company maintains or to which the Company
contributes for the benefit of any current or former employee of the Company.
(a) Each Employee Benefit Plan (and each related trust or
insurance contract) complies in form and in operation in all Material
respects with the applicable requirements of ERISA and the Code.
(b) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Sec. 4980(B) have been met
with respect to each Employee Welfare Benefit Plan.
(c) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
paid to each Employee Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not yet due
have been paid to each Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company. All
premiums or other contributions for all periods ending on or before
the Closing Date have been paid with respect to each Employee Welfare
Benefit Plan.
(d) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Sec. 401(a) and has received that includes the requirements
of the Tax Reform Act of 1986 a favorable determination letter from
the Internal Revenue Service.
(e) The market value of assets under each Employee Pension
Benefit Plan (other than any Multiemployer Plan) equals or exceeds the
present value of Liabilities thereunder (determined on a plan
termination basis) as of the last day of the most recent plan year. No
Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of a
Reportable Event as to which notices would be required to be filed
with the PBGC. No proceeding by the PBGC to terminate any Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been
instituted or, to the Knowledge of any of the Stockholders and the
officers of the Company (and employees with responsibility for
employee benefits matters) of the Company, threatened.
(f) There have been no non-exempt Prohibited Transactions
with respect to any Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any
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other failure to act or comply in connection with the administration
or investment of the assets of any Employee Benefit Plans. No charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand with respect to the administration or the investment of the
assets of any Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the Knowledge of any of the Stockholders
and the officers of the Company (and employees with responsibility for
employee benefits matters) of the Company, threatened. None of the
Stockholders and the directors and officers (and employees with
responsibility for employee benefits matters) of the Company has any
Knowledge of any Basis for any such charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand.
(g) The Stockholders have delivered to Buyer correct and
complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received from
the Internal Revenue Service, (C) the most recent Form 5500 Annual
Report, and (D) all related trust agreements, insurance contracts, and
other funding agreements which implement each Employee Benefit Plan.
(h) Neither the Company nor the other members of the
Controlled Group of Corporations that includes the Company contributes
to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan. The Company has not incurred,
and none of the Stockholders and the directors and officers (and
employees with responsibility for employee benefits matters) of the
Company has any reason to expect that the Company will incur, any
Liability to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any Employee Pension Benefit Plan that the
Company and the Controlled Group of Corporations which includes the
Company maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to
contribute. The Company does not maintain, nor has it ever maintained
or contributed to, or ever been required to contribute to any Employee
Welfare Benefit Plan providing health, accident, or life insurance
benefits to former employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980(B)).
5.20 GUARANTIES. The Company is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other Person.
5.21 ENVIRONMENT, HEALTH, AND SAFETY.
(a) The Company and its predecessors and Affiliates have
complied with all laws (including rules and regulations thereunder) of
any Governmental Authority concerning the environment, public health
and safety, and employee health and safety, and no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, or
notice has been filed or commenced against any of them alleging any
failure to comply with any such law or regulation, the violation of
which would have a Material adverse effect to the Company.
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(b) To the Knowledge of the Stockholders, the Company does
not have any Liability (and, to the Knowledge of the Stockholders,
there is no Basis related to the past or present operations,
properties, or facilities of the Company and its predecessors and
Affiliates for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against the
Company giving rise to any Liability) under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, the Federal Water
Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe
Drinking Water Act of 1974, the Toxic Substances Control Act of 1976,
the Refuse Act of 1989, or the Emergency Planning and Community
Right-to-Know Act of 1986 (each as amended), any other law (or rule or
regulation thereunder) of any Governmental Authority or common law
remedy concerning release or threatened release of hazardous
substances, public health and safety, or pollution or protection of
the environment.
(c) To the Knowledge of the Stockholders, the Company does
not have any Material Liability (and the Company and its predecessors
and Affiliates has handled or disposed of any substance, arranged for
the disposal of any substance, or owned or operated any property or
facility in any manner that, to the Knowledge of the Stockholders,
could form the Basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand
(under the common law or pursuant to any statute) against the Company
giving rise to any Material Liability) for damage to any site,
location, or body of water (surface or subsurface) or for illness or
personal injury.
(d) To the Knowledge of the Stockholders, the Company does
not have any Material Liability (and, to the Knowledge of the
Stockholders, there is no Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against the Company giving rise to any Liability) under the
Occupational Safety and Health Act, as amended, or any other law (or
rule or regulation thereunder) of any Governmental Authority
concerning employee health and safety.
(e) To the Knowledge of the Stockholders, the Company does
not have any Material Liability (and the Company has not exposed any
employee to any substance or condition that, to the Knowledge of the
Stockholders, could form the Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand (under the common law or pursuant to statute) against the
Company giving rise to any Liability) for any illness of or personal
injury to any employee.
(f) The Company has obtained and been in compliance with all
of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all laws of any Governmental Authority (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health and
safety, worker health and safety, and pollution or protection of the
environment, including laws relating to emissions, discharge,
releases, or threatened releases of pollutants,
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contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes, the violation of which would have a Material adverse effect
to the Company.
(g) To the Knowledge of the Stockholders and the officers of
the Company, all properties and equipment used in the business of the
Company have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2 trans-dichloroethylene, dioxins, dibenzofurans,
and Extremely Hazardous Substances at such levels that could give rise
to any Material liability to the Company.
(h) To the Knowledge of the Stockholders and the officers of
the Company, no pollutant, contaminant, or chemical, industrial,
hazardous, or toxic material or waste ever has been buried, stored,
spilled, leaked, discharged, emitted, or released on any real property
that the Company owns or ever has owned or that the Company leases or
ever has leased.
5.22 LEGAL COMPLIANCE.
(a) The Company has complied with all laws (including rules
and regulations thereunder) of all Governmental Authorities, and no
charge, complaint, action, suit, proceeding, hearing, investigation,
claim, demand, or notice has been filed or commenced against the
Company alleging any failure to comply with any such law or
regulation.
(b) The Company has complied with all applicable laws
(including rules and regulations thereunder) relating to the
employment of labor, employee civil rights, and equal employment
opportunities.
(c) The Company has not violated in any respect or received a
notice or charge asserting any violation of the Sherman Act, the
Clayton Act, the Robinson-Patman Act, or the Federal Trade Act, each
as amended.
(d) The Company has complied with all applicable laws
(including rules and regulations thereunder) relating to the residency
status of foreign individuals which are employees of the Company and
obtaining the requisite visas, permits and other documentation to
permit such individuals to work in the United States.
(e) The Company has not:
(i) made or agreed to make any contribution,
payment, or gift of funds or property to any governmental
official, employee, or agent where either the contribution,
payment, or gift or the purpose thereof was illegal under the
laws of any Governmental Authority;
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(ii) established or maintained any unrecorded fund
or asset for any purpose, or made any false entries on any
books or records for any reason; or
(iii) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any
other person, to any candidate for public office with regards
to any Governmental Authority.
(f) The Company has filed in a timely manner all reports,
documents, and other materials it was required to file (and the
information contained therein was correct and complete in all
respects) under all applicable laws (including rules and regulations
thereunder).
(g) The Company has possession of all records and documents
it was required to retain under all applicable laws (including rules
and regulations thereunder).
5.23 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as set
forth in Section 5.23 of the Disclosure Schedule, none of the Stockholders and
their Affiliates has been involved in any business arrangement or relationship
with the Company within the past twelve (12) months (other than employment),
and none of the Stockholders and their Affiliates owns any property or right,
tangible or intangible, which is used in the business of the Company.
5.24 BROKERS' FEES. Except as disclosed in Section 5.24 of the
Disclosure Schedule, the Company does not have any obligation or Liability to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
5.25 BOOKS AND RECORDS. The Company has furnished Buyer with true and
complete copies of the books and records relating to the ownership and
operation of the Company. The books and records reflect all minutes and written
consents adopted by the Boards of Directors of the Company. The books and
records have been maintained in accordance with applicable legal requirements,
comprise all of the books and records relating to the ownership and operation
of the Company, reflect all proceedings and transactions customarily contained
in corporate books and records.
5.26 PAYMENTS TO OFFICIALS. During the three year period prior to the
date hereof, neither the Company nor any of the Stockholders on behalf of the
Company has paid or given or has authorized or committed to the payment or gift
of money or anything of value to any official or employee of any government
entity or instrumentality or any political party or candidate for political
office for the purpose of influencing any governmental action or decision in
order to obtain or retain business or to direct business to any other party.
5.27 DISCLOSURE. The representations and warranties contained in this
Article V along with the Disclosure Schedule and any other information,
statement or certificate provided by the Company or the Stockholders does not
contain any untrue statement of fact or omit to state any fact necessary in
order to make the statements and information contained in this Article V not
misleading.
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ARTICLE VI
Reserved.
ARTICLE VII
COVENANTS
The Parties further agree as follows:
7.1 GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other party hereto reasonably
may request, all at the sole cost and expense of the requesting party (unless
the requesting party is entitled to indemnification therefor under Article IX
below). The Stockholders acknowledge and agree that, from and after the
Closing, Buyer will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to the Company.
7.2 LITIGATION SUPPORT. In the event and for so long as any party
hereto actively is contesting or defending against any charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending party (unless
the contesting or defending party is entitled to indemnification therefor under
Article IX below).
7.3 TRANSITION. None of the Stockholders will take any action that
primarily is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of the
Company from maintaining the same business relationships with the Company after
the Closing for a period of twenty-four (24) months thereafter as it maintained
with the Company prior to the Closing. Each of the Stockholders will refer all
customer inquiries relating to the lines of businesses of the Company to the
Company from and after the Closing for a period of twenty-four (24) months
thereafter.
7.4 CONFIDENTIALITY. Each of the Stockholders will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement for a period
of three (3) years from the Closing, and deliver promptly to Buyer or destroy,
at the request and option of Buyer, all tangible embodiments (and all
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copies) of the Confidential Information which are in his or its possession. In
the event that any of the Stockholders is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, that Stockholder will notify Buyer
promptly of the request or requirement so that Buyer may seek an appropriate
protective order or waive compliance with the provisions of this Section 7.4.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of the Stockholders is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
that Stockholder may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Stockholder shall use his reasonable
best efforts to obtain, at the reasonable request of Buyer, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as Buyer shall designate. The
foregoing provisions shall not apply to any Confidential Information which is
generally available to the public immediately prior to the time of disclosure.
7.5 MONITORING INFORMATION. Prior to the Closing, the Stockholders
shall cause the Company to deliver such information as may reasonably be
requested by Buyer.
7.6 CONTINUATION OF INDEMNIFICATION. The Surviving Corporation shall,
for a period of not less than six years from the Closing Date, indemnify,
defend and hold harmless each person who is now or has been at any time prior
to the Effective Time a director or officer of the Company (each a "Company
Indemnified Party") to the same extent that such Company Indemnified Party is
currently indemnified by the Company pursuant to the Company's Articles of
Incorporation and By-Laws for acts or omissions occurring at or prior to the
Effective Time. Notwithstanding the foregoing, nothing in this Section 7.6
shall in any way limit the indemnification obligations of the Stockholders to
Buyer under Article IX.
7.7 ADDITIONAL TAX MATTERS.
(a) The parties intend that the Merger will qualify as a
reorganization within the meaning of Code Sec. 368. All parties to
this Agreement shall file all Tax Returns consistent with such
treatment. No party to this Agreement shall take any action that would
prevent the Merger from qualifying as a reorganization within the
meaning of Code Sec. 368, or take any action that would be
inconsistent with such treatment.
(b) Buyer and the Stockholders recognize that each of them
will need access, from time to time, after the Closing Date, to
certain accounting and Tax records and information held by Buyer
and/or the Company to the extent such records and information pertain
to events occurring on or prior to the Closing Date; therefore, Buyer
agrees to cause the Company to (A) use its best efforts to properly
retain and maintain such records for a period of six (6) years from
the date the Tax Returns for the year in which the Closing occurs are
filed or until the expiration of the statute of limitations with
respect to such year, whichever is later, and (B) allow the
Stockholders and their agents and representatives at times and dates
mutually acceptable to the Parties, to inspect, review and make copies
of
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such records as such other party may deem necessary or appropriate
from time to time, such activities to be conducted during normal
business hours and at the other party's expense.
7.8 COVENANT NOT TO COMPETE. In connection with the Merger, Peter Noce
and Scott Fisher have entered into Non-Competition/No Solicitation Agreements
in the form of Exhibit C hereto.
7.9 CONDUCT OF BUSINESS DURING EARN-OUT PERIOD. During the Earn-Out
Period, unless terminated pursuant to his employment agreement, Peter Noce
shall be entitled to operate and manage the business of the Company, consistent
with prudent business practices. Buyer agrees that it will not, during the
Earn-Out Period, unreasonably require that the business of the Company be
operated substantially differently than it was operated in the past,
unreasonably change the prices charged, the level of compensation of full-time
employees and the level of "G&A" expenses, unless the prior practices are
unreasonable or imprudent, and in no event shall Buyer do any of the foregoing
during the Earn-Out Period without the prior consultation with and notice to
Peter Noce.
7.10 FILING OF REPORTS; RULE 144 ETC. Buyer will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the Commission thereunder to enable such
Principal Stockholder to sell Buyer Common stock without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such rule may be amended from time to time, or (b)
any successor rule or regulation hereafter adopted by the Commission. Upon the
request of any Principal Stockholder, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
7.11 NASDAQ LISTING. The shares of Buyer Common Stock to be issued
pursuant to this Agreement at any time following the Closing Date will, at the
later of the time of issuance and the termination of the lock-up period set
forth in Section 2.2(b), be authorized for listing on the Nasdaq National
Market.
ARTICLE VIII
RESERVED
ARTICLE IX
INDEMNITIES
9.1 SURVIVAL. Except as otherwise specifically provided in this
Agreement, all of the representations, warranties and covenants of the
Stockholders (other than the representations and warranties of the Stockholders
contained in Article III or Section 5.8 above) and of Buyer shall survive the
Closing hereunder (even if Buyer knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of one
NDC GROUP, INC.
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(1) year thereafter after which they shall terminate and be of no further force
or effect. All of the representations and warranties of Stockholders contained
in Article III and Section 5.8 of this Agreement and the representations,
warranties and covenants of Buyer shall survive the Closing (even if Buyer knew
or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of Closing) and continue in full force and effect for the
statute of limitations.
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER.
(a) In the event any Stockholder (or in the event any third
party alleges facts that, if true, would mean any Stockholder has
breached) breaches any of its representations, warranties, and
covenants contained herein during the period such representations,
warranties and covenants survive, and provided that Buyer makes a
written claim for indemnification against such Stockholder pursuant to
Section 11.8 below within the applicable survival period, then such
Stockholder shall indemnify Buyer from and against the entirety of any
Adverse Consequences (other than Adverse Consequences for which Buyer
is entitled to recover under Section 9.2(f)) Buyer may suffer through
and after the date of the claim for indemnification (including any
Adverse Consequences Buyer may suffer after the end of the applicable
survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach); provided,
however, that the Stockholders shall not have any obligation to
indemnify Buyer from and against any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or caused by the
breach of any representation or warranty of the Stockholders contained
in Article V above (i) until Buyer has suffered aggregate losses by
reason of all such breaches in excess of a $125,000 deductible (at
which point the Stockholders will be obligated to indemnify Buyer from
and against all such aggregate losses including losses relating back
to the first dollar above $125,000) and (ii) in excess of $6,000,000
(after which point Stockholders shall have no obligation to indemnify
Buyer from and against further such Adverse Consequences); provided,
however, that the limitation set forth in (i) and (ii) above
specifically shall not apply to the liability of any Stockholder with
respect to Adverse Consequences resulting from or attributable to
intentional fraud or any willful misconduct by the Stockholders;
provided further, however that the limitation set forth in (i) above
specifically shall not apply to the liability of any Stockholder with
respect to Adverse Consequences resulting from breaches of the
representations and warranties contained in Sections 5.8, 5.14 and
5.17 hereof.
(b) Each of the Stockholders (on a pro rata basis based on
each Stockholder's proportionate interest in the Company immediately
prior to the Effective Time) agrees to indemnify Buyer from and
against the entirety of the amount, up to the aggregate Merger
Consideration, of any and all uncollected notes and accounts
receivable of the Company due by Lightcom International, Inc. (other
than amounts specifically recorded as a reserve for bad debts set
forth on the face of the Financial Statements and relating to Lightcom
International, Inc., which the Stockholders shall not be under any
obligation to indemnify Buyer) and any other Adverse Consequences
Buyer may suffer resulting from, arising out of, relating to, in the
nature of or caused by any disputes between the Company and Lightcom
International, Inc. based on events occurring prior to the Closing,
including but not limited to NDC Group,
NDC GROUP, INC.
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Inc. v. Lightcom International, Inc., Civil Action No. 97-CA08899,
filed in the Superior Court of the District of Colombia, Civil
Division.
(c) Each of the Stockholders agrees to indemnify Buyer (on a
pro rata basis based on each Stockholder's interest in the Company
immediately prior to the Effective Time) from and against the entirety
of any Adverse Consequences Buyer may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
the Company arising under United States Treasury Reg. Section 1.1502-6
(because the Company once was a member of an Affiliated Group during
any part of any consolidated return year within any part of which
consolidated return year any corporation other than the Company also
was a member of the Affiliated Group).
(d) Each of the Stockholders agrees to indemnify Buyer (on a
pro rata basis based on each Stockholder's interest in the Company
immediately prior to the Effective Time) from and against the entirety
of any severance, stamp or similar non-income taxes which may become
due and owing to any Governmental Authority by reason of the sale of
the Company to Buyer.
(e) Each of the Stockholders agrees to indemnify Buyer (on a
pro rata basis based on each Stockholder's interest in the Company
immediately prior to the Effective Time) from and against the entirety
of any Adverse Consequences, up to the aggregate Merger Consideration,
which may become due and owing by reason of the Company's failure to
properly obtain any visas required for employees of the Company to
work in the United States.
(f) Each of the Stockholders shall be liable for, and hereby
indemnifies, Buyer (on a pro rata basis based on each Stockholder's
interest in the Company immediately prior to the Effective Time) for
all income Taxes imposed on the Company with respect to any taxable
year or period ending on or before the Closing Date or beginning
before and ending after the Closing Date ("PRE-CLOSING TAXES");
provided, however, that such indemnity shall be made only to the
extent Pre-Closing Taxes are in excess of the reserve, if any, for
such Tax Liability as reflected in the Financial Statements or in the
computation of the Net Working Capital and provided, further, that the
Stockholders shall not have any obligation to indemnify Buyer from and
against any Pre-Closing Taxes to the extent that the aggregate of any
such Taxes and any Adverse Consequences for which the Stockholders
have indemnified Buyer pursuant to Section 9.2(a) exceed the maximum
liability set forth in clause (ii) of Section 9.2(a). In order to
apportion appropriately any income Taxes relating to any taxable year
or period that begins before and ends after the Closing Date, the
Parties hereto shall, to the extent permitted or not prohibited by
applicable law, elect with the relevant taxing authority, if required
or necessary, to terminate the taxable year of the Company as of the
Closing Date. In any case where applicable law does not permit the
Company to treat such date as the end of a taxable year or period,
then whenever it is necessary to determine the liability for income
Taxes of the Company, for a portion of a taxable year or period, such
determination shall (unless otherwise agree to in writing by Buyer and
the Stockholders) be determined by a closing of the Company' books,
except that
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exemptions, allowances or deductions that are calculated on an annual
basis, such as the deduction for depreciation, shall be apportioned on
a time basis. In no event shall such apportionment of income Taxes be
greater than the income Taxes which would have been allocated to the
Company if such income Taxes had been based upon a time period in
proportion to the number of days during such taxable year or period
the Stockholders and Buyer owned the stock in the Company.
Notwithstanding the foregoing provisions of this Section 9.2(f), to
the extent the Pre-Closing Taxes include any Taxes attributable to
income recognized by the Company solely as a result of the
transactions contemplated by this Agreement, the Stockholders shall be
liable for and shall indemnify the Buyer only to the extent of fifty
percent (50%) of such Pre-Closing Taxes, provided, that such
Pre-Closing Taxes are not a result of actions taken by the Buyer that
are inconsistent with the terms of this Agreement and that would
constitute a breach of Section 7.7(a) by the Buyer.
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE STOCKHOLDERS. In the
event Buyer breaches any of its representations, warranties, and covenants
contained herein, and provided that any of the Stockholders makes a written
claim for indemnification against Buyer pursuant to Section 11.8 below within
the applicable survival period, then Buyer agrees to indemnify each of the
Stockholders from and against the entirety of any Adverse Consequences the
Stockholder may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Stockholder may suffer
after the end of the applicable survival period) resulting from, arising out
of, relating to, in the nature of, or caused by the breach.
9.4 INDEMNIFICATION AND CONTRIBUTION WITH RESPECT TO REGISTRATION
RIGHTS.
(a) In the event of a registration of any of the Buyer Common
Stock under the Securities Act pursuant to Section 2.15 hereof, Buyer will
indemnify and hold harmless each seller of such Buyer Common Stock thereunder,
each underwriter of such Buyer Common Stock, if any, thereunder and each other
Person, if any, who controls such seller or underwriter within the meaning of
the Securities Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Buyer Common
Stock was registered under the Securities Act pursuant to Section 2.15, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each such seller, each such underwriter and each such controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that Buyer will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such seller,
any such underwriter or any such controlling person in writing specifically for
use in such registration statement or prospectus.
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(b) In the event of a registration of any of the Buyer Common
Stock under the Securities Act pursuant to Section 2.15, each seller of such
Buyer Common Stock thereunder, severally and not jointly, will indemnify and
hold harmless Buyer, each person, if any, who controls Buyer within the meaning
of the Securities Act, each officer of Buyer who signs the registration
statement, each director of Buyer, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which Buyer or
such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Buyer Common Stock was
registered under the Securities Act pursuant to Section 2.15, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
Buyer and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that such seller will be liable hereunder in any such case
if and only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such seller, as such, furnished in writing to Buyer
by such seller specifically for use in such registration statement or
prospectus; provided, further, however, that the liability of a seller
hereunder shall be limited to the net proceeds received by such seller from the
sale of Buyer Common Stock covered by such registration statement.
(c) In order to provide for just and equitable contribution
to joint liability under the Securities Act in any case in which either (i) any
holder of Buyer Common Stock exercising rights under this Agreements or any
controlling person of any such holder, makes a clam for indemnification
pursuant to this Section 9.4, but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 9 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 9.4; then, and in each such
case, Buyer and such holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such holder is responsible for the portion
represented by the percentage that the public offering of its Buyer Common
Stock offered by the registration statement bears to the public offering price
of all securities offered by such registration statement, and Buyer is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the public offering price of all such Buyer Common Stock offered by it pursuant
to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
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9.5 MATTERS INVOLVING THIRD PARTIES. If any third party shall notify
any party hereto (the "INDEMNIFIED PARTY") with respect to any matter which may
give rise to a claim for indemnification against any other party hereto (the
"INDEMNIFYING PARTY") under this Article IX, then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
materially prejudiced as a result of such delay. In the event any Indemnifying
Party notifies the Indemnified Party within thirty (30) days after the
Indemnified Party has given notice of the matter that the Indemnifying Party is
assuming the defense thereof, (A) the Indemnifying Party will defend the
Indemnified Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party, (B) the Indemnified Party may retain
separate co-counsel at its sole cost and expense (except that the Indemnifying
Party will be responsible for the fees and expenses of the separate co-counsel
to the extent the Indemnified Party reasonably concludes that the counsel the
Indemnifying Party has selected has a conflict of interest), (C) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the matter without the written consent of the
Indemnifying Party (not to be withheld unreasonably), and (D) the Indemnifying
Party will not consent to the entry of any judgment with respect to the matter,
or enter into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Indemnified Party from all
Liability with respect thereto, without the written consent of the Indemnified
Party (not to be withheld unreasonably). In the event no Indemnifying Party
notifies the Indemnified Party within thirty (30) days after the Indemnified
Party has given notice of the matter that the Indemnifying Party is assuming
the defense thereof, however, the Indemnified Party may defend against, or
enter into any settlement with respect to, the matter in any manner it
reasonably may deem appropriate. At any time after commencement of any such
action, any Indemnifying Party may request an Indemnified Party to accept a
bona fide offer from the other Parties to the action for a monetary settlement
payable solely by such Indemnifying Party (which does not burden or restrict
the Indemnified Party nor otherwise prejudice him or her) whereupon such action
shall be taken unless the Indemnified Party determines that the dispute should
be continued, in which case the Indemnifying Party shall be liable for
indemnity hereunder only to the extent of the lesser of (i) the amount of the
settlement offer or (ii) the amount for which the Indemnified Party may be
liable with respect to such action. In addition, the party controlling the
defense of any third party claim shall deliver, or cause to be delivered, to
the other party copies of all correspondence, pleadings, motions, briefs,
appeals or other written statements relating to or submitted in connection with
the defense of the third party claim, and timely notices of, and the right to
participate in (as an observer) any hearing or other court proceeding relating
to the third party claim.
9.6 DETERMINATION OF LOSS. The amount of indemnification to be paid by
any party hereto to another party hereto shall be reduced by (as applicable)
(i) any insurance proceeds received, including both defense and indemnification
costs, with respect to any insurance policy maintained by the Company providing
coverage with respect to any of the Adverse Consequences; and (ii) any Tax
benefits received by Buyer or the Company as a result of any of the Adverse
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- 45 -
<PAGE> 52
Consequences (utilizing the Applicable Rate as the discount rate). All
indemnification payments under this Article IX shall be deemed adjustments to
the Purchase Price.
9.7 EXCLUSIVE REMEDY. Buyer and each Stockholder acknowledge and agree
that the foregoing indemnification provisions in this Article IX shall be the
exclusive remedy of both Buyer and the Stockholders for any breach of the
representations, warranties and covenants (other than the covenant contained in
Section 7.8 herein, as to which the non-breaching party may pursue any remedy
available at law or in equity against the breaching party) of either party
hereto.
9.8 PAYMENT; GENERAL RIGHT OF OFFSET. The Indemnifying Parties shall
promptly pay to the Indemnified Party as may be entitled to indemnity hereunder
the amount of any Adverse Consequences to which the Indemnified Party may
become entitled to by reason of the provisions of this Agreement. The payment
required to be made pursuant to this Section 9.8 shall be made, at the election
of the Indemnifying Party, in cash or Buyer Common Stock. If Buyer is the
Indemnified Party, in lieu of receiving a payment from the Stockholders, Buyer
shall first offset against any Earn-Out Payment, including any interest payable
thereon, payable to Stockholders and Optionholders the amount of any Adverse
Consequences or any other payments to which Buyer has become entitled to by
reason of the provisions of this Agreement (as finally determined). Buyer shall
be responsible to Stockholder for such sums which should not have been subject
to an offset. For purposes of this Section 9.8, shares of Buyer Common Stock
used by the Stockholders, as the Indemnifying Party, to satisfy indemnity
claims made prior to the date the Special Payment is due shall be valued at $45
per share in order to determine the number of shares payable in respect of any
indemnity obligation. None of the parties hereto shall elect to pay any
indemnity obligation in cash if such election would result in the Merger not
being treated as a tax free reorganization under the meaning of Section 368 of
the Code.
9.9 TAX DISPUTES. In the event that any dispute arises between the
Company and the Internal Revenue Service or any state tax authority relating to
an issue in which Stockholders have agreed to indemnify Buyer, the Stockholders
shall have the right to associate with Buyer in the defense or settlement of
any such claims. Moreover, Buyer at all times shall act in good faith in order
to minimize the tax liability as to issues in which Stockholders have agreed to
indemnify Buyer and shall not settle or compromise any claims without the
consent of Stockholders, which consent shall not be unreasonably withheld.
ARTICLE X
RESERVED.
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- 46 -
<PAGE> 53
ARTICLE XI
MISCELLANEOUS
11.1 POWER OF ATTORNEY. Each Stockholder hereby constitutes and
appoints the Requisite Stockholder as his true and lawful attorney-in-fact,
agent and representative, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to
negotiate and sign all amendments to this Agreement, and all other documents in
connection with the transactions contemplated by this Agreement, including
without limitation those instruments called for by this Agreement and all
waivers, consents, instructions, authorizations and other actions called for,
contemplated or that may otherwise be necessary or appropriate in connection
with this Agreement or any of the foregoing agreements or instruments, granting
unto the Requisite Stockholder full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that the Requisite Stockholder, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof, including
without limitation the power and authority to receive and give receipt for all
consideration due him pursuant to this Agreement and to receive all notices,
requests and demands that may be made under and pursuant to this Agreement.
Should the Requisite Stockholder be unable or unwilling to serve or to appoint
his successor to serve in his stead, and unless the Requisite Stockholder
appoint a successor to serve in his stead, such Stockholders shall be deemed to
be represented by such Stockholders (other than the Requisite Stockholder) who
immediately prior to the Effective Time held a majority in interest in the
Company.
11.2 PRESS RELEASES AND ANNOUNCEMENTS. No party hereto shall issue any
press release or announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of Buyer and the
Stockholders; provided, however, that any party hereto may make any public
disclosure it believes in good faith is required by law or regulation (in which
case the disclosing party will advise the other parties hereto prior to making
the disclosure).
11.3 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
11.4 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof.
11.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No party hereto may assign either this
Agreement or any of his or its rights, interests, or obligations hereunder
without the prior written approval of Buyer and the Stockholders; provided,
however, that Buyer may (i) assign any or all of its rights and interests
hereunder to a wholly-owned subsidiary of Buyer
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 54
(in any or all of which cases Buyer nonetheless shall remain liable and
responsible for the performance of all of its obligations hereunder).
11.6 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all parties
hereto agree to execute an original of this Agreement and provide such
requesting party with a full set of original signature pages for each of the
parties hereto other than the requesting party within two (2) days of the
original execution date hereof.
11.7 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.8 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given on the
second business day after it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to a Stockholder:
at the address shown for such Stockholder on
Section 3.4 of the Disclosure Schedule.
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: Gordon H. Hayes, Esq.
Telephone: (617) 248-7000
Facsimile: (617) 248-7100
If to Buyer:
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Attention: Michael T. Willis
Telephone: (713) 548-4300
Facsimile: (713) 627-1059
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- 48 -
<PAGE> 55
with a copy to:
Peter T. Dameris, Esq.
Margaret G. Reed, Esq.
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Telephone: (713) 548-4300
Facsimile: (713) 627-1059
Any party hereto may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party
hereto may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
11.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the
State of Delaware.
11.10 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Buyer and the Stockholders. No waiver by any party hereto of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.11 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgement of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
11.12 EXPENSES. Except as otherwise provided in this Agreement, each
of Buyer, the Company and the Stockholders will bear their own costs and
expenses (including legal and investment banking fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Stockholders acknowledge and agree that the Company and
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- 49 -
<PAGE> 56
Buyer shall not be liable for any fees or expenses of the Stockholders
(including but not limited to legal, accounting and/or investment banking)
associated with the transactions contemplated by this Agreement. However, Buyer
shall pay the investment banking, legal and accounting fees and disbursements
of the Company in cash by wire transfers at the Closing, and the aggregate
amount so paid shall be deducted from, and reduce on a dollar-for-dollar basis
the Initial Payment.
11.13 CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any party hereto.
Any reference to any statute or law of any Governmental Authority shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The parties hereto intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any party hereto has breached any representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) of another representation, warranty or covenant which such
party has not breached, such fact shall not detract from or mitigate the fact
that such party is in breach of the first representation, warranty, or
covenant.
11.14 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.15 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 11.16 below), in addition to any other remedy to which they
may be entitled, at law or in equity.
11.16 SUBMISSION TO JURISDICTION. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE STOCKHOLDERS OR BUYER HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. ANY LEGAL
ACTION OR PROCEEDING AGAINST ANY STOCKHOLDER OR BUYER WITH RESPECT TO THIS
AGREEMENT MAY BE BROUGHT AND ENFORCED IN A FEDERAL OR STATE COURT LOCATED IN
THE STATE OF DELAWARE OR IN A FEDERAL OR STATE COURT LOCATED IN THE
COMMONWEALTH OF VIRGINIA AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
OF THE STOCKHOLDERS AND BUYER HEREBY IRREVOCABLY ACCEPTS FOR THEMSELVES AND IN
RESPECT OF THEIR PROPERTY, GENERALLY, IRREVOCABLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH OF THE STOCKHOLDERS AND BUYER AGREE
THAT A JUDGMENT, AFTER EXHAUSTION OF ALL AVAILABLE APPEALS, IN ANY SUCH ACTION
OR PROCEEDINGS SHALL BE CONCLUSIVE AND BINDING UPON THE STOCKHOLDERS AND BUYER,
AND MAY
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- 50 -
<PAGE> 57
BE ENFORCED IN ANY OTHER JURISDICTION BY A SUIT UPON SUCH JUDGMENT, A CERTIFIED
COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE JUDGMENT. THE STOCKHOLDERS
HEREBY IRREVOCABLY DESIGNATE, APPOINT AND EMPOWER CT CORPORATION SYSTEM, WITH
OFFICES ON THE DATE HEREOF AT THE CORPORATION TRUST CENTER, 1209 ORANGE STREET,
WILMINGTON, DELAWARE, SO LONG AS THIS AGREEMENT IS OUTSTANDING, AS THEIR
DESIGNEE, APPOINTEE AND AGENT WITH RESPECT TO ANY ACTION OR PROCEEDING TO
RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON THEIR BEHALF, AND IN RESPECT OF
THEIR PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND
DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING AND AGREE THAT
THE FAILURE OF ANY SUCH AGENT TO GIVE ANY ADVICE OF ANY SERVICE OF PROCESS TO
THE STOCKHOLDERS SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF
ANY JUDGMENT BASED THEREON. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND
AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE STOCKHOLDERS AGREE TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF TEXAS ON THE
TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO BUYER. THE
STOCKHOLDERS AND BUYER FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS
OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE STOCKHOLDERS AND BUYER (AS THE CASE MAY BE), AT THEIR ADDRESS SET FORTH IN
SECTION 3.4 OF THE DISCLOSURE SCHEDULE, WITH RESPECT TO THE STOCKHOLDERS AND
SECTION 11.8 HEREIN, WITH RESPECT TO BUYER, SUCH SERVICE TO BECOME EFFECTIVE 30
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF BUYER TO
SERVE PROCESS OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
STOCKHOLDERS IN ANY OTHER MANNER PERMITTED BY LAW. THE STOCKHOLDERS AND BUYER
HEREBY WAIVE IRREVOCABLY, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
TO THE LAYING OF VENUE IN DELAWARE AND/OR VIRGINIA OR ANY CLAIM OF INCONVENIENT
FORUM IN RESPECT OF ANY SUCH ACTION IN DELAWARE AND/OR VIRGINIA TO WHICH IT
MIGHT OTHERWISE NOW OR HEREAFTER BE ENTITLED IN ANY ACTIONS ARISING OUT OF OR
BASED ON THIS AGREEMENT.
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 58
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
METAMOR WORLDWIDE, INC.
By: /s/ PETER T. DAMERIS
----------------------------------
Peter T. Dameris
Senior Vice President and Secretary
MERGER SUB:
CORESTAFF ACQUISITION SUB #13, INC.
By: /s/ PETER T. DAMERIS
----------------------------------
Peter T. Dameris
Senior Vice President and Secretary
THE COMPANY:
NDC GROUP, INC.
By: /s/ PETER NOCE
----------------------------------
Peter Noce
President and Secretary
THE PRINCIPAL STOCKHOLDERS:
/s/ PETER NOCE
--------------------------------------
Peter Noce
/s/ LISA SCHUYLER
--------------------------------------
Lisa Schuyler
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
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<PAGE> 59
THE OTHER STOCKHOLDERS:
/s/ MICHAEL MUNTNER
--------------------------------------
Michael Muntner
/s/ KURT SCHLIMME
--------------------------------------
Kurt Schlimme
/s/ VINCE VERNA
--------------------------------------
Vince Verna
/s/ STACY LUTZ
--------------------------------------
Stacy Lutz
/s/ LEAH CLEM NOCE
--------------------------------------
Leah Clem Noce
NDC GROUP, INC.
AGREEMENT AND PLAN OF MERGER
- 53 -
<PAGE> 1
EXHIBIT 2.5
================================================================================
STOCK PURCHASE AGREEMENT
by and among
METAMOR WORLDWIDE, INC. ("Metamor" or "Buyer")
and
the SELLERS listed on the Signature pages hereto
("Sellers")
Dated as of June 17, 1998
================================================================================
<PAGE> 2
METAMOR WORLDWIDE, INC.
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. Definitions..............................................................1
2. Purchase and Sale of Shares..............................................6
(a) Basic Transaction...............................................6
(b) Purchase Price..................................................6
(c) Earn-Out Payment................................................7
(d) Date and Form of Payment........................................7
(e) Purchase Price Adjustment.......................................8
(f) The Closing.....................................................8
(g) Deliveries at the Closing.......................................8
3. Representations and Warranties Concerning the Transaction................9
(a) Representations and Warranties of the Sellers...................9
(i) Authorization of Transaction...........................9
(ii) Noncontravention.......................................9
(iii) Broker's Fees.........................................10
(iv) Shares................................................10
(b) Representations and Warranties of the Buyer....................10
(i) Organization of the Buyer.............................11
(ii) Authorization of Transaction..........................11
(iii) Noncontravention......................................11
(iv) Brokers' Fees.........................................11
(v) Investment............................................11
4. Representations and Warranties Concerning Target........................12
(a) Organization, Qualification, and Corporate Power...............13
(b) Capitalization.................................................14
(c) Noncontravention...............................................14
(d) Subsidiaries...................................................14
(e) Financial Statements...........................................14
(f) Events Subsequent to Most Recent Fiscal Year End...............15
(g) Undisclosed Liabilities........................................17
(h) Tax Matters....................................................17
(i) Tangible Assets................................................18
(j) Real Property..................................................19
(k) Real Property Leases...........................................19
(l) Intellectual Property..........................................19
(m) Contracts......................................................23
(n) Notes and Accounts Receivable..................................25
(o) Powers of Attorney.............................................25
(p) Insurance......................................................25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
(q) Litigation...................................................................26
(r) Employees....................................................................26
(s) Employee Benefits............................................................26
(t) Guaranties...................................................................28
(u) Environment, Health, and Safety..............................................28
(v) Legal Compliance.............................................................29
(w) Certain Business Relationships with Target...................................30
(x) Brokers' Fees................................................................31
(y) Disclosure...................................................................31
(z) Books and Records............................................................31
(aa) Payments to Officials........................................................31
5. Intentionally Omitted.................................................................31
6. Covenants.............................................................................31
(a) General......................................................................31
(b) Litigation Support...........................................................31
(c) Transition...................................................................32
(d) Confidentiality..............................................................32
(e) Additional Tax Matters.......................................................32
(f) Covenant Not to Compete......................................................33
(g) Conduct of Business During Earn-Out Period...................................34
(h) Personal Guaranties..........................................................34
7. The Closing...........................................................................35
(a) Seller's Actions.............................................................35
(b) Buyer's Actions..............................................................37
8. Remedies for Breaches of This Agreement...............................................37
(a) Survival.....................................................................37
(b) Indemnification Provisions for Benefit of the Buyer..........................38
(c) Indemnification Provisions for Benefit of the Sellers........................39
(d) Matters Involving Third Parties..............................................40
(e) Determination of Loss........................................................40
(f) Exclusive Remedy.............................................................41
(g) Payment; General Right of Offset.............................................41
(h) Tax Disputes.................................................................41
9. Intentionally Omitted.................................................................41
10. Miscellaneous.........................................................................41
(a) Nature of the Sellers' Representations, Warranties and Covenants.............41
(b) Press Releases and Announcements.............................................42
(c) No Third-Party Beneficiaries.................................................42
(d) Entire Agreement.............................................................42
(e) Succession and Assignment....................................................42
(f) Facsimile/Counterparts.......................................................42
(g) Headings.....................................................................43
(h) Notices......................................................................43
(i) Governing Law................................................................44
(j) Amendments and Waivers.......................................................44
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
(k) Severability......................................................44
(l) Expenses..........................................................44
(m) Construction......................................................44
(n) Incorporation of Exhibits, Annexes, and Schedules.................45
(o) Gender; etc.......................................................45
(p) Specific Performance..............................................45
(q) Submission to Jurisdiction........................................45
</TABLE>
<PAGE> 5
LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Employment Agreement
Exhibit C Form of Opinion of Seller's Legal Counsel
Exhibit D Form of Bi-Weekly Financial Information
Exhibit 2(b) Sellers
Exhibit 4(l) Form of Nondisclosure Agreement
Exhibit 4(l)(xii)(1) Standard License Agreement
Exhibit 4(l)(xii)(2) Standard Trial Agreement
ANNEXES
Annex I Determination of EBIT
Annex II Exceptions to Representations of Sellers
Annex III Exceptions to Representations of Buyer
Annex IV SAR Cancellation Recipients
SCHEDULES
Disclosure Schedule
<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("AGREEMENT") is entered into as of the
17th day of June, 1998, by and among METAMOR WORLDWIDE, INC., a Delaware
corporation (the "BUYER"), Informix Corporation, a Delaware corporation
("INFORMIX") and the individuals and Persons listed on the signature pages
hereto (together with Informix, each individually referred to as "SELLER" and
collectively, the "SELLERS"). The Buyer and the Sellers are referred to
collectively herein as the "PARTIES" and M.R. Baldwin, Inc., a Texas
corporation, Mervin Calverley, J.D. Hicks & Associates, a Texas corporation, and
Kenneth W. Marshall are referred to collectively herein as the "MAJOR SELLERS."
The Sellers in the aggregate own all of the outstanding capital stock
of Virtual Solutions, Inc., a Texas corporation ("TARGET").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
outstanding capital stock of Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ADJUSTED EBIT" means, with respect to each period for which it is
so computed, earnings before interest and taxes (prepared on an accrual basis of
accounting and in accordance with GAAP, consistently applied), as determined in
accordance with Annex I attached hereto, plus any mutually agreed upon
adjustments and addbacks.
"ADVERSE CONSEQUENCES" means all charges, complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all attorneys' fees and court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"AGREEMENT" has the meaning set forth in the preface above.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
<PAGE> 7
"BUYER" has the meaning set forth in the preface above.
"CLOSING" has the meaning set forth in Section 2(f) below.
"CLOSING DATE" has the meaning set forth in Section 2(f) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of Target, including, without limitation, the identity, lists or
descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals or
bidding information; business plans and training operations methods and manuals;
personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"CUSTOMER CONTRACT OR AGREEMENT" means any contract or agreement
between Target and any customer or licensee of Target related to (a) information
technology or computer support services, training, education and change
management services; (b) maintenance contracts for application software; (c)
maintenance support arrangements, (d) reengineering and refurbishment
arrangements; (e) consulting and professional resource arrangements; (f) any
other contract integration or support services arrangement; and (g) agreements
related to any other services provided by Target.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Treas. Reg. Section 1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4 below.
"DOCUMENTATION" has the meaning set forth in Section 4(l) below.
"EARN-OUT PAYMENTS" has the meaning set forth in Section 2(c) below.
"EARN-OUT PAYMENT DISAGREEMENT NOTICE" has the meaning set forth in
Section 2(d) below.
"EARN-OUT PERIOD" has the meaning set forth in Section 2(c) below.
"E&Y EARN-OUT PAYMENT DETERMINATION" has the meaning set forth in
Section 2(d) below.
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"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multi employer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec.
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4(e)
below.
"FIRST EARN-OUT PAYMENT" has the meaning set forth in Section
2(c)(i) below.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any governmental, quasi-governmental,
state, county, city or other political subdivision of the United States or any
other country, or any agency, court or instrumentality, foreign or domestic, or
statutory or regulatory body thereof.
"GROSS PROFIT MARGIN" means the gross profit of the Target as
determined in a manner consistent with the Financial Statements.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(d)
below.
"INFORMIX" has the meaning set forth in the preface above.
"INITIAL PAYMENT AMOUNT" has the meaning set forth in Section 2(b)
below.
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"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks,
trade dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) patents, patent applications, and
provisional applications, including all continuations, divisionals and related
applications, (c) copyrights and registrations and applications for registration
thereof, (d) to the extent legally protectable, computer software, data, and
documentation, (e) to the extent legally protectable, trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing, and
business data, pricing and cost information, business and marketing plans, and
customer and supplier lists and information), (f) to the extent legally
protectable, other proprietary rights, and (g) copies and tangible embodiments
thereof (in whatever form or medium).
"JOINT AND SEVERAL" has the meaning set forth in Section 10(a)
below.
"KNOWLEDGE" means that which is known or understood after reasonable
investigation and inquiry, which inquiry shall include an inquiry of the
employees of Target with responsibility for the matters in question.
"LIABILITY" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
"LICENSES" has the meaning set forth in Section 4(l) below.
"MAJOR SELLERS" has the meaning set forth in the preface above.
"MAJORITY IN INTEREST OF THE MAJOR SELLERS" means those Major
Sellers that, at the date hereof, hold a majority of the common stock of Target
(excluding for purposes of such calculation any Shares held by Informix).
"MATERIAL" has the meaning set forth in Section 4 below.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 4
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"NET WORKING CAPITAL" means total current assets less total current
liabilities of Target (including but not limited to the impact of the payment by
Target of all of Target's and Sellers' fees and expenses related to the
transactions contemplated by this Agreement), further reduced by any long-term
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debt (including, without limitation, any capital leases treated as long-term
debt in accordance with GAAP) of Target, as determined in accordance with GAAP,
consistently applied.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTIES" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" shall mean any individual, corporation, association,
partnership, proprietorship, joint venture or other entity.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"PURCHASE PRICE" has the meaning set forth in Section 2(b) below.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SECOND EARN-OUT PAYMENT" has the meaning set forth in Section
2(c)(ii) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, or other lien, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable (or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings), (c) liens
arising under worker's compensation, unemployment insurance, social security,
retirement, and similar legislation, (d) liens arising in connection with sales
of foreign receivables, (e) liens on goods in transit incurred pursuant to
documentary letters of credit, (f) purchase money liens and liens securing
rental payments under capital lease arrangements, and (g) other liens arising in
the Ordinary Course of Business and not incurred in connection with the
borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"SELLERS" has the meaning set forth in the preface above.
"SEVERAL" has the meaning set forth in Section 10(a) below.
"SHARES" means the shares of common stock, par value $0.01 per
share, and preferred stock, par value $0.01 per share, of Target.
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"SOFTWARE PROGRAMS" has the meaning set forth in Section 4(l) below.
"SUB-S SELLERS" means M.R. Baldwin, Inc., a Texas corporation, and
J.D. Hicks & Associates, Inc., a Texas corporation.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, 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 of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
2. PURCHASE AND SALE OF SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from each of the Sellers, and each
of the Sellers severally agrees to sell to the Buyer, all of the Shares owned by
such Seller for the consideration specified below in this Section 2.
(b) PURCHASE PRICE. The purchase price for the Shares to be
purchased by Buyer, or such wholly-owned subsidiary of Buyer as Buyer shall so
designate, from the Sellers pursuant to the terms hereof shall be composed of
the Initial Payment Amount (as hereinafter defined), and the Earn-Out Payments
(as hereinafter defined). The Buyer agrees to pay to the Sellers an amount in
cash equal to $10,800,000 (the "INITIAL PAYMENT AMOUNT"), for the Shares to be
purchased pursuant to the terms hereof. The Initial Payment Amount shall be paid
by Buyer to Sellers at the Closing by wire transfer to an account or accounts
designated by Sellers. Each Seller shall receive that portion of the Initial
Payment Amount set forth opposite such Seller's name on Exhibit 2(b) attached
hereto (each a "Base Payment").
The sum of the Initial Payment Amount and the Earn-Out Payments is
collectively referred to herein as the "Purchase Price"; provided, that with
respect to Informix, the "Purchase Price"
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shall consist solely of the Initial Payment Amount paid to Informix. The Sellers
hereby direct Buyer, on the Sellers' behalf and on behalf of Target, to pay the
amount of $350,859 to Capital Alliance Corporation, which payment has been
deducted from the amounts paid to M.R. Baldwin, Inc., J.D. Hicks & Associates,
Inc., and Kenneth W. Marshall in determining the Base Payment for each such
Person.
(c) EARN-OUT PAYMENTS. In addition to the Initial Payment Amount,
the Buyer agrees to pay to the Sellers (other than Informix), if earned, the
following earned payout amounts;
(i) an earned payout amount (the "FIRST EARN-OUT PAYMENT") equal
to the product of 7.0 multiplied by the amount, if any, by which the
Adjusted EBIT of Target for the twelve (12) month period ending March
31, 1999 exceeds $1,393,000; and
(ii) an additional earned payout amount (the "SECOND EARN-OUT
PAYMENT") equal to the product of 6.0 multiplied by the amount, if any,
by which the Adjusted EBIT of Target for the twelve (12) month period
ending March 31, 2000 exceeds $1,755,350.
The First Earn-Out Payment and the Second Earn-Out Payment are
collectively referred to herein as the "EARN-OUT PAYMENTS." In no event shall
the sum of the Earn-Out Payments exceed $18,000,000 and in no event shall the
Second Earn-Out Payment exceed $18,000,000 less the amount of the First Earn-Out
Payment. Each Seller (other than Informix) shall receive that portion of any
Earn-Out Payment determined by multiplying the aggregate Earn-Out Payment by a
fraction, the numerator of which is the number of shares of common stock of
Target owned by such Seller immediately prior to the Closing and the denominator
of which is 104,000.
The period from April 1, 1998 to and including March 31, 2000 shall be
referred to as the "EARN-OUT PERIOD."
(d) DATE AND FORM OF PAYMENT. The First Earn-Out Payment and the
Second Earn-Out Payment shall be payable by Buyer to Sellers (other than
Informix) in cash, on or before June 15, 1999 and 2000, respectively, and shall
be based on the internally-generated financial statements (which have been
prepared under the direction of Buyer) of Target for the preceding twelve (12)
month period ended March 31, respectively.
In the event there is a dispute between Buyer and a Majority in
Interest of the Major Sellers regarding an Earn-Out Payment, such Earn-Out
Payment shall be determined by Ernst & Young, LLP in accordance with this
Agreement (at the joint expense of Buyer and Sellers). Such determination (each
an "E&Y EARN-OUT PAYMENT DETERMINATION") shall be submitted in writing to Buyer
and Sellers no later than May 15, 1999, in the case of the First Earn-Out
Payment, and May 15, 2000, in the case of the Second Earn-Out Payment. If,
within five (5) days after receipt of an E&Y Earn-Out Payment Determination, the
Buyer and/or a Majority in Interest of the Major
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Sellers deliver written notice to the other Party that such Party disagrees with
the E&Y Earn-Out Payment Determination (an "EARN-OUT PAYMENT DISAGREEMENT
NOTICE"), then Buyer and such Majority in Interest of the Major Sellers shall
attempt in good faith to mutually determine the correct amount of the Earn-Out
Payment within five (5) days after Buyer and/or such Majority in Interest of the
Major Sellers deliver the Earn-Out Payment Disagreement Notice to the other
Party or Parties. If Buyer and such Majority in Interest of the Major Sellers
cannot in good faith mutually determine the amount of such Earn-Out Payment
within such period, then Buyer and such Majority in Interest of the Major
Sellers shall have ten (10) days following their receipt of such determination
to object in good faith to the Earn-Out Payment, in which event the item or
items in dispute shall be resolved by another "Big Six" accounting firm mutually
acceptable to Buyer and such Majority in Interest of the Major Sellers (whose
decision shall be conclusive and binding on the Parties with respect to such
disputed item(s)). Any adjustment in the Earn-Out Payment determined by such
"Big Six" accounting firm shall be made within ten (10) days following such
resolution. In the event such resolution would result in an increase in the
Earn-Out Payment, the cost of such "Big Six" accounting firm shall be paid for
solely by Buyer. Conversely, in the event that such "Big Six" accounting firm
determines that such resolution would result in a decrease in the Earn-Out
Payment, the cost of such "Big Six" accounting firm shall be paid for solely by
such Majority in Interest of the Major Sellers. In the event that such "Big Six"
accounting firm determines that no changes shall be made to the Earn-Out
Payment, the cost of such "Big Six" accounting firm shall be paid by the Party
or Parties delivering the Earn-Out Payment Disagreement Notice.
(e) PURCHASE PRICE ADJUSTMENT. The Net Working Capital of Target as
of April 30, 1998 shall have been determined in accordance with the provisions
hereof by the Parties on or before ten (10) days before the time of Closing. In
the event that the Net Working Capital of Target as April 30, 1998 was less than
$2,200,000, the Initial Payment Amount shall be adjusted downward to the extent
of such difference on a dollar-for-dollar basis. In the event that there was a
dispute between Buyer and Sellers regarding the Net Working Capital of Target as
of April 30, 1998, Ernst & Young, LLP shall have prepared the calculation of the
Net Working Capital of Target (the costs of which Buyer and Sellers shall split
equally), which calculation shall have been submitted to Buyer and Sellers not
later than five (5) days before the Closing Date. The Net Working Capital
derived from such calculation by Ernst & Young, LLP shall be final, conclusive
and binding on the Parties.
(f) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of Buyer in
Houston, Texas commencing at 9:00 a.m. local time on the date hereof or such
other date as the Buyer and the Sellers may mutually determine (the "CLOSING
DATE"); provided, however, that the Closing Date shall be no later than June 14,
1998, unless such date is extended with the mutual consent of the Buyer and the
Sellers.
(g) DELIVERIES AT THE CLOSING; INSTRUCTION. At the Closing, (i) each
of the Sellers will deliver to the Buyer the various certificates, instruments,
and documents referred to in
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Section 7(a) below to be delivered to Buyer by such Seller, (ii) the Buyer will
deliver to the Sellers the various certificates, instruments, and documents
referred to in Section 7(b) below, (iii) each of the Sellers will deliver to the
Buyer stock certificates representing all of his Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) the Buyer will
deliver to each of the Sellers the consideration specified in Section 2(b)
above, as such consideration may be adjusted pursuant to Section 2(e) above. The
Sellers hereby instruct Target to record the transfer of their Shares on the
record books of Target as soon as is reasonably practicable after the Closing.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the
Sellers severally represents and warrants to the Buyer that the statements
contained in this Section 3(a) (except for the representation or warranty set
forth in the second sentence and clause (ii) of the fourth sentence of Section
3(a)(iv), as to which only the Major Sellers represent and warrant) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(a)) with
respect to himself except as set forth in Annex II attached hereto.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its
terms and conditions, except that (A) such enforceability may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
laws, decisions or equitable principles now or hereafter in effect
relating to or affecting the enforcement of creditors' rights or
debtors' obligations generally, and to general equity principles, and
(B) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought. The Seller need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any Governmental
Authority in order to consummate the transactions contemplated by this
Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, charge, or other restriction of
any Governmental Authority or court to which the Seller is subject or
(B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the
Seller is a party or by which he is bound or to which any of his assets
is subject.
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(iii) BROKER'S FEES. The Seller has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated.
(iv) SHARES. The Seller holds of record and owns beneficially
the number of Shares set forth next to his name in Section 4(b) of the
Disclosure Schedule, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state
securities laws), claims, Taxes, Security Interests, options, warrants,
rights, contracts, calls, commitments, equities, and demands. The
Sellers hold all of the issued and outstanding shares of Target and
upon the consummation of the transactions contemplated hereby, Buyer
will hold all of the issued and outstanding shares of Target. The
Seller is not a party to any option, warrant, right, contract, call,
put, or other agreement or commitment providing for the disposition or
acquisition of any capital stock of Target (other than this Agreement).
The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital
stock of Target. The Seller hereby further represents and warrants that
(i) all other Shares or options, rights, warrants or other interests in
the equity of Target, if any, of such Seller have been fully
repurchased by Target prior to the Closing Date and (ii) there are no
pending or threatened suits, claims or actions by any former holders of
Shares or options, rights, warrants or other interests in the equity of
Target with respect to the repurchase of their equity interest in
Target.
(v) RIGHT OF FIRST REFUSAL. Each Seller has waived or
terminated, or has otherwise allowed to expire without exercise, any
restriction or right with respect to the transfer of any capital stock
of Target, including any right of first refusal, co-sale right,
tag-a-long or drag-a-long rights and all rights set forth in that
certain Virtual Solutions, Inc. Amended and Restated Shareholders
Agreement, dated as of October 18, 1996, among Target, Informix, Major
Sellers (other than Mervin Calverley) and the Spouses of certain of the
Sellers who are parties thereto.
(vi) OTHER REPRESENTATIONS AND WARRANTIES. Sellers make no
representation or warranty concerning the transactions contemplated
hereby other than those that are expressly set forth in this Section
3(a) and, with respect to the Major Sellers, Section 4 below.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Sellers that the statements contained in this
Section 3(b) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(b)), except as set forth in Annex III attached hereto.
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(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The
Buyer need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any other party or any
Governmental Authority in order to consummate the transactions
contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other
restriction of any Governmental Authority, or court to which the Buyer
is subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any contract,
lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other arrangement to which the Buyer is a party
or by which it is bound or to which any of its assets is subject.
(iv) BROKERS' FEES. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
(v) INVESTMENT. Buyer is acquiring the Shares for investment for
its own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the
Securities Act. Buyer does not have any present intention of selling,
granting any participation in, or otherwise distributing the Shares
otherwise than pursuant to an effective registration statement under
the Securities Act or in a transaction exempt from the registration
requirements under the Securities Act and applicable state securities
laws. Buyer does not have any contract, undertaking, agreement or
arrangement with any Person to sell, transfer or grant participations
to such Person or to any third Person, with respect to any of the
Shares.
(vi) REGISTRATION. Buyer acknowledges that the sales of the
Shares will not be registered under the Securities Act or any state
securities laws on the basis of a claimed exemption by Sellers that the
sales of Shares as provided for herein is exempt from registration
under the Securities Act and such state laws. Buyer acknowledges that
the
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availability of such exemptions is predicated in part on Buyer's
representations set forth in this Section and that Sellers are relying
on such representations.
(vii) TRANSFER. Buyer acknowledges that the Shares may not be
sold, transferred or otherwise disposed of without registration under
the Securities Act or an applicable exemption therefrom and that in the
absence of an effective registration statement covering the Shares or
an available exemption from registration under the Securities Act, the
Shares must be held indefinitely.
(viii) ACCREDITED INVESTOR. Buyer is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities
Act.
(ix) LEGEND. Buyer acknowledges that each certificate
representing any Shares will be endorsed with a legend substantially
similar to the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED UNLESS SO REGISTERED OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
(x) RELIANCE. For purposes of entering into this Agreement and
the other documents executed by Buyer in connection with this Agreement
and carrying out the transactions contemplated hereby and thereby, (i)
Buyer has not relied on any representation, warranty or information
provided to Buyer by Capital Alliance Corporation concerning or in
respect of Sellers or Targets, (ii) Buyer has not relied on any
representation and warranty provided to Buyer by Sellers, other than
the representations, warranties and covenants contained in this
Agreement and the other documents executed by Sellers or Target in
connection with this Agreement, and (iii) Buyer has not attributed to
Sellers any representations, warranties or information provided by any
other third party to Buyer.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Major Sellers
jointly and severally represent and warrant to the Buyer that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4), except as set forth in the disclosure
schedule delivered by the Major Sellers to the Buyer on the date hereof (the
"DISCLOSURE SCHEDULE"). Any updated Disclosure Schedule shall be delivered at or
before the Closing. An updated Disclosure Schedule shall only be deemed to
modify a representation and/or warranty made as of the date of the
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Agreement in the event, and only in the event, that the Major Sellers acted in
good faith and used their best efforts when preparing the original Disclosure
Schedule delivered to the Buyer as of the date of this Agreement. In the event
any such updated Disclosure Schedule indicates a Material change from the
information previously provided to the Buyer, Buyer shall be entitled to
terminate this Agreement notwithstanding any other provision contained in this
Agreement by written notice delivered to the Sellers. An event or matter will be
deemed to be "MATERIAL," to have a "MATERIAL" change in or in respect of, to
have a "MATERIAL ADVERSE EFFECT" or to be "MATERIALLY" affected if, in the
opinion of Buyer, acting reasonably, the Loss is material or the Loss that may
reasonably be expected to occur to Target or Buyer with respect to such event or
matter, when taken together with all other related Losses that may reasonably be
expected to occur to Target or Buyer as a result of any such events or matters,
would exceed $20,000 in the aggregate or if such event or matter constitutes a
criminal violation of law. The word "LOSS" shall mean any and all direct or
indirect payments, obligations, assessments, losses, losses of income,
liabilities, costs and expenses paid or incurred, or reasonably likely to be
paid or incurred, or that are reasonably expected to occur, including without
limitation, penalties, interest on any amount payable to a third party as a
result of the foregoing, and any legal or other expenses reasonably expected to
be incurred in connection with defending any demands, claims, actions or causes
of action that, if adversely determined, could reasonably be expected to result
in Losses, and all amounts paid in settlement of claims or actions; provided,
however, that Losses shall be net of any insurance proceeds entitled to be
received from a nonaffiliated insurance company on account of such loss (after
taking into account any cost incurred in obtaining such proceeds and any tax
benefits or savings resulting therefrom). A Customer Contract or Agreement is
"MATERIAL" if during the twelve months ended December 31, 1997 such Customer
Contract or Agreement produced $80,000 of Gross Profit Margin less any bad debt
specifically related to such Customer Contract or Agreement. Any item intended
to be disclosed must be identified with the particular representation or
warranty it is intended to limit and shall not be deemed to limit any other
representation, warranty or covenant in this Agreement. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail to the satisfaction of Buyer. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other items itself).
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
requires such qualification, except to the extent the lack of such qualification
would not have a Material Adverse Effect on the business or operations of
Target. Target has full corporate power and authority to carry on the business
in which it is engaged and to own and use the properties
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owned and used by it. Section 4(a) of the Disclosure Schedule lists the
directors and officers of Target. The Sellers have delivered to the Buyer
correct and complete copies of the charter and bylaws of Target (as amended to
date). The minute books containing the records of meetings of the stockholders,
the board of directors, and any committees of the board of directors, the stock
certificate books, and the stock record books of Target are correct and complete
in all material respects. Target is not in default under or in violation of any
provision of its charter or bylaws. No corporate act or proceeding on the part
of Target or the Sellers, in their capacity as shareholders of Target, is
necessary for the due and valid authorization of this Agreement or the
transactions contemplated hereby.
(b) CAPITALIZATION. The entire authorized capital stock of Target
consists of 500,000 shares of common stock, par value $0.01 per share, of which
100,000 Shares are issued and outstanding, and 500,000 shares of preferred
stock, par value $0.01 per share, of which 7,525 shares are issued and
outstanding. No Shares are held in treasury by Target. All of the issued and
outstanding Shares have been duly authorized, are validly issued, fully paid,
and nonassessable, and are held of record by the respective Sellers as set forth
in Section 4(b) of the Disclosure Schedule. There are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which Target
is a party or which are binding upon Target providing for the issuance,
disposition, or acquisition of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, deferred bonus
programs, or similar rights with respect to Target. There are no voting trusts,
proxies, or any other agreements or understandings with respect to the voting of
the capital stock of Target.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which Target is subject or any provision of the charter or bylaws of
Target or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which Target is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Target is not required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency, which it has not already obtained, in order
for the Parties to consummate the transactions contemplated by this Agreement.
(d) SUBSIDIARIES. Other than V.S. West, Inc., a Texas corporation,
Target has no Subsidiaries.
(e) FINANCIAL STATEMENTS. Attached hereto as Exhibit A are the
financial statements (collectively the "FINANCIAL STATEMENTS"), including
balance sheets, income statements,
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and cash flow statements, for Target prepared in accordance with GAAP for each
of the fiscal years ended December 31, 1995, 1996 and 1997, and for the
four-month period ended April 30, 1998. The Financial Statements for the fiscal
years ended December 31, 1995 and December 31, 1996 have been audited by Ernst &
Young, LLP, and the Financial Statements for the fiscal year ended December 31,
1997 have been audited by Arthur Anderson & Co.
(f) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since December
31, 1997, there has not been any adverse change in the assets, Liabilities,
business, financial condition, operations, results, or future prospects of
Target. Without limiting the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, conveyed, assigned
or disposed of any of its material assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) either involving more than $30,000
or outside the Ordinary Course of Business;
(iii) No party (including Target) has accelerated, terminated,
modified, or canceled any contract, lease, sublease, license or
sublicense (or series of related contracts, leases, subleases, licenses
and sublicenses) or notified Target of such involving more than $30,000
to which Target is a party or by which it is bound;
(iv) Target has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) Target has not made any capital expenditure (or series of
related capital expenditures) since April 6, 1998 either involving more
than $25,000 singly or $100,000 in the aggregate, or outside the
Ordinary Course of Business;
(vi) Target has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $25,000 individually or $100,000 in the aggregate
or outside the Ordinary Course of Business;
(vii) Target has not created, incurred, assumed, or guaranteed
any indebtedness (including capitalized lease obligations) either
involving more than $100,000 singly or $250,000 in the aggregate or
outside the Ordinary Course of Business;
(viii) Target has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other Liabilities;
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(ix) Target has not settled, canceled, compromised, waived, or
released any right, claim, action or proceeding (or series of related
rights, claims, actions or proceedings) either involving more than
$10,000 or outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) There has been no change made or authorized in the charter
or bylaws of Target;
(xii) Target has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion or exercise) any of
its capital stock;
(xiii) Target has not declared, set aside, or paid any dividend
or distribution with respect to its capital stock or redeemed,
purchased, or otherwise acquired any of its capital stock;
(xiv) Target has not experienced any damage, destruction or loss
(whether or not covered by insurance) to its property;
(xv) Target has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business giving rise to any claim or right on
its part against the Person or on the part of the Person against it;
(xvi) Target has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(xvii) Target has not granted an increase outside the Ordinary
Course of Business in the base compensation of any of its directors,
officers, and employees;
(xviii) Target has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance, (G)
severance, or (H) other plan, contract or commitment for any of its
directors, officers, and employees, or modified or terminated any
existing such plan, contract or commitment;
(xix) Target has not made any other change in employment terms
for any of its directors, officers, and full-time staff employees;
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(xx) Target has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) Target has not made any dividend, consulting or other
payment to the Sellers, except for employment salaries (not to exceed
current compensation levels) to Sellers;
(xxii) Target has not committed to do any of the foregoing.
(g) UNDISCLOSED LIABILITIES. Target does not have any Liability (and
there is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against it giving rise to
any Liability) which is individually in excess of $10,000, except for (i)
Liabilities set forth on the face of the Financial Statements (rather than in
any notes thereto), and (ii) Liabilities which have arisen after December 31,
1997 in the Ordinary Course of Business (none of which relates to any breach of
contract, breach of warranty, tort, infringement, or violation of law or arose
out of any charge, complaint, action, suit, proceedings, hearing, investigation,
claim, or demand).
(h) TAX MATTERS.
(i) Target has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects.
All Taxes owed by Target (whether or not shown on any Tax Return) have
been paid or are currently being disputed by Target in good faith.
Target currently is not the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where Target does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of Target that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party.
(iii) No Major Seller or director or officer (or employee
responsible for Tax matters) of Target expects any authority to assess
any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of
Target either (A) claimed or raised by any authority in writing or (B)
as to which any of the Major Sellers and the directors and officers
(and employees responsible for Tax matters) of Target has Knowledge
based upon personal contact with any agent of such authority. Section
4(h) of the Disclosure Schedule lists all Tax Returns filed with any
Governmental Authority with respect to Target for taxable periods ended
on or after
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December 31, 1990, indicates those Tax Returns that have been audited,
and indicates those Tax Returns that currently are the subject of
audit. The Major Sellers have delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by Target
since December 31, 1990.
(iv) Target 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.
(v) Target has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. Target has not made any payments,
is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Code Sec. 280G. Target
has not been a United States real property holding corporation within
the meaning of Code Sec. 897(c)(2) during the applicable period
specified in Code Sec. 897(c)(1)(A)(ii). Target has disclosed on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Code Sec. 6661. Target is not a party to any Tax allocation
or sharing agreement. Target has never been (nor has any Liability for
unpaid Taxes because it once was) a member of an Affiliated Group
during any part of any consolidated return year within any part of
which consolidated return year any corporation other than Target also
was a member of the Affiliated Group.
(vi) Section 4(h) of the Disclosure Schedule sets forth the
following information with respect to Target as of the most recent
practicable date: (A) the basis of Target in its assets; (B) the amount
of any net operating loss, net capital loss, unused investment or other
credit, unused foreign tax, or excess charitable contribution allocable
to Target; and (C) the amount of any deferred gain or loss allocable to
Target arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of Target do not exceed the reserve for
Tax Liability (rather than any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) set forth on
the face of the Financial Statements (rather than in any notes thereto)
as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Target in filing its
Tax Returns.
(i) TANGIBLE ASSETS. Target owns or leases all tangible assets
necessary for the conduct of its business as presently conducted. To the Major
Sellers' Knowledge, each such material tangible asset has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
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(j) REAL PROPERTY. Target does not own, and neither Target nor the
predecessors of Target have ever owned, any real property.
(k) REAL PROPERTY LEASES. Section 4(k) of the Disclosure Schedule
lists and describes briefly all real property leased or subleased to Target. The
Major Sellers have delivered to the Buyer correct and complete copies of the
leases and subleases listed in Section 4(k) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section 4(k)
of the Disclosure Schedule:
(i) The lease or sublease is legal, valid, binding, and
enforceable against Target in accordance with its terms;
(ii) No party to the lease or sublease 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;
(iii) No party to the lease or sublease has repudiated any
provision thereof;
(iv) There are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(v) Target has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(vi) All facilities leased or subleased thereunder have received
all approvals of Governmental Authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws, rules,
and regulations in all material respects; and
(vii) The real property listed in Section 4(k) of the Disclosure
Schedule represents all of the real property necessary to operate the
business in the manner that it is currently being operated.
(l) INTELLECTUAL PROPERTY.
(i) Target is the sole and exclusive owner of all right, title
and interest in and has good, valid and marketable title to, or, as to
third party rights identified in Section 4(l) of the Disclosure
Schedule, has obtained a license to use all Intellectual Property
necessary for the operation of the business of Target as presently
conducted, free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements, encumbrances or charges of any
kind. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by
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Target on identical terms and conditions immediately subsequent to the
Closing hereunder. Target is the sole and exclusive owner of all right,
title and interest in and has good, valid and marketable title to, or,
as to third party programs identified in Section 4(l) of the Disclosure
Schedule, has obtained a license to use and the right to sublicense,
the software programs developed, authored and/or licensed by Target
including without limitation those software programs listed on Section
4(l) of the Disclosure Schedule (the "SOFTWARE PROGRAMS") and the
Documentation, free and clear of all mortgages, pledges, liens,
security interests, conditional sales agreements, encumbrances or
charges of any kind. Section 4(l) of the Disclosure Schedule contains a
complete list of all Software Programs, registered trademarks and
service marks, all reserved trade names, all registered copyrights, all
pending applications for registration of any marks or copyrights, and
all filed patent applications and issued patents used in, or otherwise
necessary for the conduct of, the business of Target as heretofore
conducted.
(ii) Section 4(l) of the Disclosure Schedule sets forth the form
and placement of the proprietary legends and copyright notices
displayed in or on the Software Programs. In no instance has the
eligibility of the Software Programs for protection under applicable
copyright law been forfeited to the public domain by omission of any
required notice or any other action.
(iii) Target has enforced the trade secret protection program
set forth in Section 4(l) of the Disclosure Schedule, and, except as
set forth in Section 4(l) of the Disclosure Schedule, there has been no
violation of such program by any person or entity. The source code and
Documentation (except end-user manuals) relating to the Software
Programs (i) have at all times been maintained in strict confidence,
(ii) have been disclosed by Target only to employees having a "need to
know" the contents thereof in connection with the performance of their
duties to Target and (iii) have not been disclosed to any third party.
(iv) All personnel, including employees, agents, consultants,
and contractors, who have contributed to or participated in the
conception and development of the Software Programs, Documentation or
Intellectual Property have executed nondisclosure agreements in the
form of Exhibit 4(l) and either (1) have been party to a written
agreement with Target that has accorded Target full, effective,
exclusive and original ownership of all the Software Programs,
Documentation and Intellectual Property, or (2) have executed
appropriate instruments of assignment in favor of Target as assignee
that have conveyed to Target full, effective, and exclusive ownership
of all the Software Programs, Documentation and Intellectual Property.
(v) Section 4(l) of the Disclosure Schedule contains a complete
list of software libraries, compilers and other third-party software
used in the development of the Software Programs. Section 4(l) of the
Disclosure Schedule lists all license agreements for the use of all
such software and, if any such software is not licensed, the basis of
the use of
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such software by Target. All use of each of such Software Programs by
Target has been in full compliance with the respective license
agreement or other right of use listed on Section 4(l) of the
Disclosure Schedule.
(vi) The Software Programs will perform in accordance with the
technical specifications therefor and with the warranties set forth in
the Licenses.
(vii) The Software Programs, the use thereof by Target and the
use, license, sale or lease of the Software Programs, or of any part
thereof, or of any copy, or of any part thereof, do not and will not
infringe on, or contribute to the infringement of, any copyright, trade
secret, patent or any other exclusionary right of any third party in
either the United States or any foreign country. No person or entity
has asserted a claim that the use, license, sale or lease of any
Software Program, or any part thereof, infringes or contributes to the
infringement of any patent claim, copyright or trade secret right of
any third party in either the United States or any foreign country, and
the Sellers are not aware of any basis for any such claim.
(viii) Except with respect to demonstration or trial copies, no
portion of the Software Programs contains or will contain any "back
door," "time bomb," "Trojan horse," "worm," "drop dead device," "virus"
or other software routines or hardware components designed to permit
unauthorized access; to disable or erase software, hardware, or data;
or to perform any other such actions.
(ix) The documentation of the Software Programs includes without
limitation the source code (with comments) for all Software Programs,
as well as any pertinent commentary or explanation that may be
necessary to render such materials understandable and usable by a
trained computer programmer, any programs (including compilers),
"workbenches," tools and higher level (or "proprietary") language
necessary for the development, maintenance and implementation of the
Software Programs and any and all materials relating to the Software
Programs, including without limitation all notes, flow charts,
programmer's or user's manuals (collectively, the "DOCUMENTATION").
(x) No later than ten (10) days prior to the Closing Date, the
Major Sellers have delivered to the Buyer correct and complete copies
of all of Target's trademarks, service marks, trade names, copyrights,
patents, and all registrations, applications, licenses, agreements, and
permissions therefor (as amended to date), and have made available to
the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such item. With respect to each item of Intellectual Property used
in, or otherwise necessary for the conduct of, the business of Target
as heretofore conducted:
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(A) the identified owner possesses all right, title,
and interest in and to the item;
(B) the item is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge;
(c) no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand is pending or, to the
Knowledge of any of the Major Sellers and the officers (and
employees with responsibility for Intellectual Property matters)
of Target, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify any person
or entity for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(xi) The Major Sellers have supplied the Buyer with correct and
complete copies of all third party licenses, sublicenses, agreements,
and permissions (as amended to date). With respect to each such item:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in
full force and effect;
(B) the license, sublicense, agreement, or permission
will not terminate, become unenforceable, non-binding, illegal, or
invalid, and will not otherwise be altered, as a result of the
Closing;
(C) 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;
(D) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(E) the underlying item of Intellectual Property is
not subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge;
(F) no charge, complaint, action, suit, proceedings,
hearing, investigation, claim or demand is pending or is
threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property;
and
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(G) Target has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or
permission.
(xii) Section 4(l) of the Disclosure Schedule sets forth a
complete and accurate list of all licenses and sublicenses of the
Software Programs (the "LICENSES") and of all customer trial agreements
for the Software Programs granted by Target to other parties. All
Licenses identified in Section 4(l) of the Disclosure Schedule
constitute only end-user agreements, each of which grants the end user
thereunder principally the nonexclusive right and license to use an
identified Software Program and related user documentation, for
internal purposes only, at the sites specified in each agreement.
Except as set forth in Section 4(l) of the Disclosure Schedule, all
Licenses and trials of the Software Programs are governed by Target's
standard license and customer trial agreements, respectively, which are
attached as Exhibits 4(l)(xii)(1) and 4(l)(xii)(2), respectively.
(xiii) The Software Programs (i) have been designed to ensure
year 2000 compatibility, which shall include, but is not limited to,
date data century recognition, and calculations that accommodate same
century and multi-century formulas and date values; (ii) operate or
will operate in accordance with their specifications prior to, during
and after the calendar year 2000 A.D.; and (iii) shall not end
abnormally or provide invalid or incorrect results as a result of date
data, specifically including date data which represents or references
different centuries or more than one century.
Notwithstanding anything to the contrary in this Section 4(l), the
Major Sellers make no representation or warranty as to the authority of any
third party from whom Target licenses or has purchased any Intellectual Property
to so license or sell such Intellectual Property.
(m) CONTRACTS. Section 4(m) of the Disclosure Schedule lists the
following contracts, agreements, and other written arrangements to which Target
is a party or which directly affect the day-to-day operations of Target:
(i) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third
parties providing for lease payments in excess of $25,000 per annum;
(ii) any written arrangement (or group of related written
arrangements) for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property or for the furnishing or
receipt of services which either calls for performance over a period of
more than one year or involves more than the sum of $10,000;
(iii) any written arrangement concerning a partnership or joint
venture;
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(iv) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease obligations) involving more than $10,000
or under which it has imposed (or has agreed to impose) a Security
Interest on any of its assets, tangible or intangible;
(v) any written arrangement concerning confidentiality or
noncompetition;
(vi) any written arrangement to which any of the Sellers or any
of their Affiliates is a party;
(vii) any written arrangement with any of the directors,
officers, and employees of Target in the nature of a collective
bargaining agreement, employment agreement, or severance agreement;
(viii) any written arrangement under which the consequences of a
default or termination could have a Material Adverse Effect on the
assets, Liabilities, business, financial condition, operations, results
of operations, or future prospects of Target;
(ix) any written arrangement involving a Governmental Authority;
(x) any written Customer Contract or Agreement;
(xi) any other written arrangement (or group of related written
arrangements) either involving more than $80,000 or not entered into in
the Ordinary Course of Business; or
(xii) any written arrangement affecting any Employee Benefit
Plan.
The Major Sellers have delivered to the Buyer a correct and complete
copy of each written arrangement listed in Section 4(m) of the Disclosure
Schedule (as amended to date). With respect to each written arrangement so
listed: (A) the written arrangement is legal, valid, binding and enforceable
against Target in accordance with its terms; (B) no party is in material breach
or default, and no event has occurred which with notice or lapse of time would
constitute a material breach or default or permit termination, modification, or
acceleration, under the written arrangement; and (C) no party has repudiated any
provision of the written arrangement. Target is not a party to any verbal
contract, agreement, or other arrangement which, if reduced to written form,
would be required to be listed in Section 4(m) of the Disclosure Schedule under
the terms of this Section 4(m). No unfilled Customer Contract or Agreement
obligating Target to perform services will result in a Loss to Target upon
completion of performance. Target is not a party to any contract, agreement or
other arrangement which is not an arms-length transaction. None of Target's
twenty-five (25)
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highest grossing revenue customers in the year ended December 31, 1997 has
Materially curtailed or terminated its relationship with it or has indicated
that it will stop, or Materially decrease the rate of, buying services from it.
(n) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of Target are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are presently current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Financial
Statements (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
Target.
(o) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of Target.
(p) INSURANCE. Section 4(p) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which Target has been a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past three (3) years:
(i) The name, address, and telephone number of the agent;
(ii) The name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) The policy number and the period of coverage;
(iv) The scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(v) A description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding and enforceable against the insurer; (B) Target is not in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default or permit termination, modification,
or acceleration, under the policy; and (C) no party to the policy has repudiated
any provision thereof. Target has been covered during the past three (3) years
by insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Section 4(p) of the
Disclosure Schedule describes any self-insurance arrangements affecting Target.
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(q) LITIGATION. Section 4(q) of the Disclosure Schedule sets forth
each instance in which Target (i) is subject to any unsatisfied judgment, order,
decree, stipulation, injunction, or charge or (ii) is a party or, to the
Knowledge of any of the Major Sellers and the officers (and J.D. Hicks, who is
the employee with responsibility for litigation matters) of Target, is
threatened to be made a party to any charge, complaint, action, suit,
proceeding, hearing, or investigation of or in any court or quasi-judicial or
administrative agency of any Governmental Authority or before any arbitrator.
None of the Major Sellers and the directors (other than Leonard Palimino, with
respect to whom no representation is made) and officers of Target has any reason
to believe that any such charge, complaint, action, suit, proceeding, hearing,
or investigation will be brought or threatened against Target.
(r) EMPLOYEES. No key employee or full-time group of employees has
disclosed to the Major Sellers any plans to terminate employment with Target.
Target is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. Target has not committed any unfair labor
practice. None of the Major Sellers and the directors (other than Leonard
Palimino, with respect to whom no representation is made) and officers of Target
has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Target.
(s) EMPLOYEE BENEFITS. Section 4(s) of the Disclosure Schedule lists
all Employee Benefit Plans that Target maintains or to which Target contributes
for the benefit of any current or former employee of Target.
(i) Each Employee Benefit Plan (and each related trust or
insurance contract) complies in form and in operation in all respects
with the applicable requirements of ERISA and the Code.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's and Summary Plan
Descriptions) have been filed or distributed appropriately with respect
to each Employee Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Sec. 4980B have been met with respect
to each Employee Welfare Benefit Plan that is a group health plan as
defined in Code Sec. 5000(b)(1).
(iii) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
paid to each Employee Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not yet due
have either been paid to each Employee Pension Benefit Plan or have
accrued in accordance with the past custom and practice of Target. All
premiums or other payments for all periods ending on or before the
Closing Date shall have been paid with respect to each Employee Welfare
Benefit Plan on or before the Closing Date.
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(iv) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan substantially meets the requirements of a
"qualified plan" under Code Sec. 401(a) and has received, within the
last two years, a favorable determination letter from the Internal
Revenue Service.
(v) The market value of assets under each Employee Pension
Benefit Plan (other than any Multiemployer Plan) equals or exceeds the
present value of Liabilities thereunder (determined on a plan
termination basis) as of the last day of the most recent plan year. No
Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC.
No proceeding by the PBGC to terminate any Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or, to the
Knowledge of any of the Major Sellers and the officers of Target,
threatened.
(vi) There have been no Prohibited Transactions with respect to
any Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with
the administration or investment of the assets of any Employee Benefit
Plans. No charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand with respect to the administration or
the investment of the assets of any Employee Benefit Plan (other than
routine claims for benefits) is pending or, to the Knowledge of any of
the Major Sellers and the officers of Target, threatened. None of the
Major Sellers and the directors and officers of Target has any
Knowledge of any Basis for any such charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand.
(vii) The Major Sellers have delivered to the Buyer correct and
complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received from
the Internal Revenue Service, (C) the most recent Form 5500 Annual
Report, and (D) all related trust agreements, insurance contracts, and
other funding agreements which implement each Employee Benefit Plan.
(viii) Target has maintained all employee benefit schemes
substantially in accordance with the applicable statutory requirements
and all contributions (including all employer and employee
contributions), which have accrued for periods prior to the Closing
Date, to such schemes have been made.
Neither Target nor the other members of the Controlled Group of
Corporations that includes Target contributes to, ever has contributed to, or
ever has been required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal Liability) under any Multiemployer Plan. Target
has not incurred, and none of the Major Sellers and the directors and officers
of Target has any reason to expect that Target will incur, any Liability to the
PBGC (other than PBGC
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premium payments) or otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any Employee Pension Benefit Plan
that Target and the Controlled Group of Corporations which includes Target
maintains or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute. Target does not maintain,
nor has it ever maintained or contributed to, or ever been required to
contribute to any Employee Welfare Benefit Plan providing health, accident, or
life insurance benefits to former employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980B).
(t) GUARANTIES. Target is not a guarantor or otherwise liable for
any Liability or obligation (including indebtedness) of any other Person.
(u) ENVIRONMENT, HEALTH, AND SAFETY. To the Knowledge of any of the
Major Sellers and the officers of Target:
(i) Target and the predecessors of Target, if any, have complied
with all laws (including rules and regulations thereunder) of any
Governmental Authority concerning the environment, public health and
safety, and employee health and safety, and no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, or
notice has been filed or commenced against any of them alleging any
failure to comply with any such law or regulation, the violation of
which would have a Material Adverse Effect;
(ii) Target does not have any Liability (and there is no Basis
related to the past or present operations, properties, or facilities of
Target and the predecessors of Target, if any, for any present or
future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against Target giving rise to any
Liability) under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air
Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances
Control Act of 1976, the Refuse Act of 1989, or the Emergency Planning
and Community Right-to-Know Act of 1986 (each as amended), any other
law (or rule or regulation thereunder) of any Governmental Authority or
common law remedy concerning release or threatened release of hazardous
substances, public health and safety, or pollution or protection of the
environment;
(iii) Target does not have any Liability (and Target and the
predecessors of Target, if any, and Affiliates have not handled or
disposed of any substance, arranged for the disposal of any substance,
or owned or operated any property or facility in any manner that could
form the Basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand (under the
common law or pursuant to any statute) against Target giving rise to
any Material Liability) for damage to any site, location, or body of
water (surface or subsurface) or for illness or personal injury;
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(iv) Target does not have any Material Liability (and there is
no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against Target
giving rise to any Liability) under the Occupational Safety and Health
Act, as amended, or any other law (or rule or regulation thereunder) of
any Governmental Authority concerning employee health and safety;
(v) Target does not have any Material Liability (and Target has
not exposed any employee to any substance or condition that could form
the Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand (under the common
law or pursuant to statute) against Target giving rise to any
Liability) for any illness of or personal injury to any employee;
(vi) Target has obtained and been in compliance with all of the
terms and conditions of all permits, licenses, and other authorizations
which are required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all laws
of any Governmental Authority (including rules, regulations, codes,
plans, judgments, orders, decrees, stipulations, injunctions, and
charges thereunder) relating to public health and safety, worker health
and safety, and pollution or protection of the environment, including
laws relating to emissions, discharge, releases, or threatened releases
of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling
of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes, the violation of which would have a Material
Adverse Effect;
(vii) all properties and equipment used in the business of
Target have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2 trans-dichloroethylene, dioxins, dibenzofurans,
and Extremely Hazardous Substances; and
(viii) Target has never buried, stored, spilled, leaked,
discharged, emitted, or released any pollutant, contaminant, or
chemical, industrial, hazardous, or toxic material or waste on any real
property that Target leases or ever has leased.
(v) LEGAL COMPLIANCE.
(i) To the Knowledge of the Major Sellers, Target has complied
with all laws (including rules and regulations thereunder) of all
Governmental Authorities, and no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been
filed or commenced against Target alleging any failure to comply with
any such law or regulation.
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(ii) To the Knowledge of the Major Sellers, Target has complied
with all applicable laws (including rules and regulations thereunder)
relating to the employment of labor, employee civil rights, and equal
employment opportunities.
(iii) To the Knowledge of the Major Sellers, Target has not
violated in any respect or received a notice or charge asserting any
violation of the Sherman Act, the Clayton Act, the Robinson-Patman Act,
or the Federal Trade Act, each as amended.
(iv) To the Knowledge of the Major Sellers, Target has complied
with all applicable laws (including rules and regulations thereunder)
relating to the residency status of foreign individuals which are
employees of Target and obtaining the requisite visas, permits and
other documentation to permit such individuals to work in the United
States.
(v) To the Knowledge of the Major Sellers, Target has not:
(A) made or agreed to make any contribution, payment,
or gift of funds or property to any governmental official,
employee, or agent where either the contribution, payment, or gift
or the purpose thereof was illegal under the laws of any
Governmental Authority;
(B) established or maintained any unrecorded fund or
asset for any purpose, or made any false entries on any books or
records for any reason; or
(C) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any other
Person, to any candidate for public office with regards to any
Governmental Authority.
(vi) Target has filed in a timely manner all reports, documents,
and other materials it was required to file (and the information
contained therein was correct and complete in all respects) under all
applicable laws (including rules and regulations thereunder).
(vii) Target has possession of all records and documents it was
required to retain under all applicable laws (including rules and
regulations thereunder).
(w) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Except as set forth
in Section 4(w) of the Disclosure Schedule, none of the Sellers and their
Affiliates has engaged in any business arrangement or relationship with Target
within the past twelve (12) months, and none of the Sellers and their Affiliates
owns any property or right, tangible or intangible, which is used in the
business of Target.
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(x) BROKERS' FEES. Target does not have any Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(y) DISCLOSURE. The representations and warranties contained in this
Section 4 along with the Disclosure Schedule and any other information,
statement or certificate required by this Agreement or the agreements executed
in connection with this Agreement to be provided to Buyer by Major Sellers do
not contain any untrue statement of fact or omit to state any fact necessary in
order to make the statements and information contained in this Section 4 not
misleading.
(z) BOOKS AND RECORDS. The Major Sellers have furnished the Buyer
with true and complete copies of the books and records relating to the ownership
and operation of Target. The books and records reflect all minutes and written
consents adopted by the Boards of Directors of Target. The books and records
have been maintained in accordance with applicable legal requirements, comprise
all of the books and records relating to the ownership and operation of Target.
(aa) PAYMENTS TO OFFICIALS. During the three year period prior to
the date hereof, to the Knowledge of the Major Sellers, neither Target nor any
of the Sellers on behalf of Target has paid or given or has authorized or
committed to the payment or gift of money or anything of value to any official
or employee of any government entity or instrumentality or any political party
or candidate for political office for the purpose of influencing any
governmental action or decision in order to obtain or retain business or to
direct business to any other party.
5 INTENTIONALLY OMITTED.
6 COVENANTS. The Parties agree as follows:
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 below). The Sellers acknowledge and agree that from and after the
Closing the Buyer will be entitled to possession of all documents, books,
records, agreements, and financial data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving Target, each of the other Parties will cooperate with him or it and
his or its counsel in the
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contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 8 below).
(c) TRANSITION. None of the Sellers will take any action that
primarily is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing for a period of twenty-four (24)
months thereafter or for the length of their (or, in the case of the Sub-S
Sellers, their shareholder's) employment by Target, if applicable, whichever
time period is shorter. Each of the Major Sellers will refer all customer
inquiries relating to the lines of businesses of Target to the Buyer from and
after the Closing for a period of twenty-four (24) months thereafter or for the
length of their (or, in the case of the Sub-S Sellers, their shareholder's)
employment by Target, if applicable, whichever time period is shorter.
(d) CONFIDENTIALITY. At the request and option of the Buyer at any
time after Closing, the Sellers shall deliver promptly to the Buyer or destroy
all tangible embodiments (and all copies) of the Confidential Information
concerning Target which are in his or its possession. In the event that any of
the Sellers is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) at any time after Closing to disclose
any Confidential Information, that Seller will notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this Section 6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, any of the
Sellers is, on the advice of counsel, compelled at any time after the Closing to
disclose any Confidential Information concerning Target to any tribunal or else
stand liable for contempt, that Seller may disclose the Confidential Information
to the tribunal; provided, however, that the disclosing Seller shall provide to
Buyer a copy of the applicable advice of counsel, and use his or its
commercially reasonable efforts to obtain, at the reasonable request of the
Buyer, an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information concerning Target required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not apply
to any Confidential Information concerning Target which is generally available
to the public immediately prior to the time of disclosure.
(e) ADDITIONAL TAX MATTERS.
(i) The Major Sellers shall cause Target to file with the
appropriate Governmental Authorities all Tax Returns required to be
filed by it for any taxable period ending prior to the Closing Date and
Target shall remit any Taxes due in respect of such Tax Returns.
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(ii) Buyer and the Sellers recognize that each of them will need
access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by the Buyer and/or
Target to the extent such records and information pertain to events
occurring on or prior to the Closing Date; therefore, Buyer agrees to
cause Target to (A) use its best efforts to properly retain and
maintain such records for a period of six (6) years from the date the
Tax Returns for the year in which the Closing occurs are filed or until
the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow the Sellers and their agents and
representatives at times and dates mutually acceptable to the Parties,
to inspect, review and make copies of such records as such other Party
may reasonably deem necessary or appropriate from time to time, such
activities to be conducted during normal business hours and at the
other Party's expense.
(iii) The Major Sellers shall reimburse the Buyer for the Taxes
for which they are liable pursuant to Section 6(e)(i) hereof, but which
are required to be paid in connection with Tax Returns to be filed on
behalf of Target by the Buyer, within ten (10) business days after
receipt by the Sellers of signed copies of such Tax Returns as filed;
however, only to the extent such Taxes are in excess of the reserve for
such Tax Liability used to determine the Net Working Capital of Target.
(iv) Neither the Buyer nor Target shall be liable for any taxes
created solely from the conversion by Target to the accrual basis of
tax accounting from the cash basis of tax accounting immediately prior
to Closing in contemplation of Closing. The Major Sellers shall
reimburse Buyer for any Taxes for which either the Buyer or Target
become liable due solely to such conversion.
(f) COVENANT NOT TO COMPETE.
(i) For a period of four (4) years from and after the Closing
Date or two (2) years beyond the term of his employment with Target,
whichever is shorter, none of the Major Sellers will (i) engage
directly or indirectly in any business that is substantially similar to
that conducted by Target within a one hundred (100) mile radius of any
office of Target which existed as of the date of termination of his
employment with Target, or which was contemplated by Buyer's or
Target's business plan as of such date to be opened within one calendar
year of such date; (ii) service or solicit any then current customer of
Target or any customer acquired by Target within 90 days after the date
of termination of his employment with Target, relating to any business
that is substantially similar to that conducted by Target; or (iii)
offer employment to or attempt to induce any director, officer,
employee, agent, or customer of Target to terminate such relationship
with Target; provided, however, that no owner of less than 1% of the
outstanding stock of any publicly traded corporation shall be deemed to
engage in the business of such corporation solely by reason of such
ownership;
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(ii) If any Major Seller commits a breach, or overtly threatens
to commit a breach, of any of the provisions of Section 6(f)(i) above,
Buyer shall have the right and remedy to seek to have the provisions of
Section 6(f)(i) specifically enforced by any court having jurisdiction,
it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury and continuing damage to Buyer,
Target and their Affiliates, and that the exact amount of which would
be difficult to ascertain and that in any event money damages will not
provide adequate remedy and Buyer shall be entitled to seek to obtain
injunctive relief restraining any violation of Section 6(f)(i);
(iii) It is expressly understood and agreed that Buyer and the
Major Sellers consider the restrictions contained in Section 6(f)(i)
above to be reasonable and necessary for the purposes of preserving and
protecting the business of Target and goodwill purchased by Buyer; and
(iv) If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 6(f) is invalid or
unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(g) CONDUCT OF BUSINESS DURING EARN-OUT PERIOD. During the Earn-Out
Period, Buyer shall be entitled to operate and manage the business of Target,
consistent with prudent business practices with the same degree of autonomy as
the Sellers had prior to the sale of the Shares to Buyer, and without undo
interference from Sellers or any of their Affiliates. Buyer agrees that it will
not, during the Earn-Out Period, unreasonably require that the business of
Target be operated differently than it was operated in the past, unreasonably
change the prices charged, the level of compensation of full-time corporate
employees and the level of general and administrative expenses, unless the prior
practices are unreasonable or imprudent. During the Earn-Out Period, Buyer shall
not, without the consent of a Majority in Interest of the Major Sellers, (i)
merge or consolidate Target with any other Person, whether or not affiliated
with Buyer, or sell all or substantially all of the assets of Target, (ii)
dispose of assets of Target outside the Ordinary Course of Business, or (iii)
dissolve the Target or fail to take any actions necessary to preserve the status
of Target as a corporation.
(h) PERSONAL GUARANTIES. Following the Closing, Buyer shall make
commercially reasonable efforts to cause AT&T Capital Leasing Services Lease
Agreement signed on 3-6-96 and SANWA Leasing Corporation Lease Agreement signed
on 3-6-96 to be released as soon as is reasonably practicable upon the
termination of the current lease periods for the guaranteed leases. In addition,
Buyer shall defend, indemnify and hold Sellers harmless from and against, and
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promptly reimburse Sellers for, any losses that Sellers actually incur or to
which Sellers become subject, which losses arise either directly or indirectly,
out of the enforcement of, or payment or performance by Sellers under, any such
guaranty.
7. THE CLOSING.
(a) SELLER'S ACTIONS. At the Closing, the Sellers shall deliver to
Buyer the following documents or proof, reasonably satisfactory to Buyer, that
the following actions have been taken or conditions exist:
(i) The Sellers or Target shall have procured all third-party
consents required by this Agreement or the transactions contemplated
hereby. Sellers shall have taken all additional actions (and the Major
Sellers will cause Target to take all additional actions) that may be
deemed necessary, proper, or advisable by Buyer in connection with any
other notices to, filings with, and authorizations, consents, and
approvals of Governmental Authorities and third parties that he, she,
it or Target may be required to give, make, or obtain as reasonably
required by this Agreement or the transactions contemplated hereby in
order that Buyer is able to conduct the business of Target in the same
manner as it is currently being conducted. The Major Sellers shall have
or shall have caused Target to give any notices to third parties
required by this Agreement or the transactions contemplated hereby;
(ii) Target shall have obtained from its landlords (to the
extent required under the pertinent premises leases) written consent to
the assignment of all leases being indirectly assumed by Buyer, which
assignments are deemed to have resulted from the transactions
contemplated by this Agreement;
(iii) The Major Sellers shall not have caused or allowed any
distributions to be made to Sellers out of Net Working Capital after
April 30, 1998, other than for purposes of payment of expenses related
to the transactions contemplated by this Agreement and the agreements
executed in connection with this Agreement, which amounts shall have
been repaid by Sellers in full on or prior to Closing;
(iv) The Major Sellers shall have caused Target to prepare and
deliver to Buyer, on a bi-weekly basis from April 30, 1998 until the
Closing Date, the financial and other information listed on Exhibit D
hereto;
(v) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
within the jurisdiction of any Governmental Authority wherein an
unfavorable judgment, order, decree, stipulation or injunction would
(A) prevent consummation of any of the transactions contemplated by
this Agreement, (B) cause any of the transactions contemplated by this
Agreement to be
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rescinded following consummation, or (C) affect adversely the right of
the Buyer to own, operate, or control the Shares or Target (and no such
judgment, order, decree, stipulation or injunction shall be in effect);
(vi) The Buyer shall have received from the Major Sellers
(excluding Mervin Calverley), duly executed and delivered employment
agreements in the form and substance attached hereto as Exhibit B;
(vii) The Buyer shall have received from counsel to certain of
the Major Sellers an opinion substantially in the form of Exhibit C
attached hereto, addressed to the Buyer and dated as of the Closing
Date;
(viii) The Buyer shall have received the resignations, effective
as of the Closing, of each director (other than Leonard Palimino) of
Target designated by Buyer prior to the Closing;
(ix) All officers and directors of Target and each of the Major
Sellers shall have repaid in full all debts or other obligations, if
any, owed to Target;
(x) Since December 31, 1997, no Material Adverse Change shall
have occurred before the Closing in Target's business or its future
business prospects;
(xi) Sellers shall deliver to Buyer stock certificates
evidencing all of the stock of Target in good delivery form and duly
endorsed for transfer or accompanied by duly executed stock power or
other appropriate assignment documents;
(xii) The Sellers shall have caused Target to and Target shall
have canceled any stock options, deferred bonus programs, and phantom
equity plans outstanding as of the Closing Date, at no cost to Buyer.
The payments made by Sellers and due pursuant to the cancellation of
such programs will vest and be payable to the recipients in accordance
with terms and conditions acceptable to Buyer.
(xiii) All Security Interests (excluding any leases of real or
personal property) securing funded debts of Target which have been paid
in full prior to or at the Closing shall have been fully released of
record to the reasonable satisfaction of the Buyer and all Uniform
Commercial Code financing statements or other filings of any kind
whatsoever, covering or evidencing such Security Interests shall have
been terminated;
(xiv) All obligations of Target for funded indebtedness which
are not being retired or satisfied by the Sellers prior to or at the
Closing, shall have been modified in such a manner that their
covenants, repayment schedules, and other provisions will be upon terms
reasonably satisfactory to Buyer;
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STOCK PURCHASE AGREEMENT
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(xv) No unsatisfied Security Interests filed of record for the
failure to pay Taxes of any nature whatsoever shall exist against
Target, or against or in any way affecting any of the Shares;
(xvi) Buyer shall have received a certificate of the Secretary
of Target certifying as true and complete an attached certificate of
incorporation (as certified by the Secretary of State of the State of
Texas) and bylaws and certificates of good standing in each
jurisdiction in which Target is required to be qualified to do
business; and
(xvii) The Major Sellers shall have delivered to the Buyer a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above in
Section 7(a)(i)-(xvi) is satisfied in all respects.
(b) BUYER'S ACTIONS. At the Closing, Buyer shall deliver to Sellers
the following documents or proof, reasonably satisfactory to the Sellers, that
the following actions have been taken or conditions exist:
(i) no action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency within the
jurisdiction of any Governmental Authority wherein an unfavorable
judgment, order, decree, stipulation, injunction, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
(ii) The Major Sellers shall have received from Buyer, duly
executed and delivered employment agreements in the form and substance
attached hereto as Exhibit B for each Major Seller (excluding Mervin
Calverley).
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL. All of the representations and warranties of the Major
Sellers contained in Section 4 and all covenants of the Major Sellers contained
in this Agreement (other than the representations and warranties of the Major
Sellers contained in Section 4(h) above) shall survive the Closing hereunder and
continue in full force and effect for a period of two (2) years thereafter.
Section 7 of this Agreement shall not survive the Closing and shall terminate as
of the Closing Date. All of the other representations, warranties and covenants
contained in this Agreement (including the representations and warranties of the
Major Sellers contained in Section 4(h) above) shall survive the Closing and
continue in full force and effect for the applicable statute of limitations.
METAMOR WORLDWIDE, INC.
STOCK PURCHASE AGREEMENT
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(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Major Sellers breach (or in the event any
third party alleges facts that, if true, would mean the Major Sellers
has breached) any of their Joint and Several representations,
warranties, and covenants contained herein during the period such
representations, warranties and covenants survive, and provided that
the Buyer makes a written claim for indemnification against any of the
Sellers pursuant to Section 10(h) below within the applicable survival
period, then each of the Major Sellers agrees to indemnify the Buyer
from and against the entirety of any Losses the Buyer may suffer
through and after the date of the claim for indemnification (including
any Losses the Buyer may suffer after the end of the applicable
survival period) resulting from, arising out of, relating to, or caused
by the breach (or the alleged breach); provided, however, that the
Major Sellers shall not have any obligation to indemnify the Buyer from
and against any Losses resulting from, arising out of, relating to, or
caused by the breach of any representation, warranty or covenant of the
Major Sellers contained in this Agreement (including the indemnities
contained in Sections 8(b)(iv) and (v)) (i) until Buyer has suffered
aggregate losses by reason of all such breaches in excess of $125,000
(at which point the Major Sellers shall be obligated to indemnify Buyer
for all such aggregate losses, including losses back to the first
dollar) and (ii) for Losses in excess of $2,750,000 (after which point
the Major Sellers shall have no obligation to indemnify Buyer from and
against further such Losses); provided further, however, that the Major
Sellers shall indemnify Buyer from and against any Losses resulting
from, arising out of, relating to, or caused by the breach of any
representation or warranty of the Major Sellers contained in Section
4(l) for losses up to $10,800,000. The limitations set forth above
specifically shall not apply to the liability of any Major Seller with
respect to Losses resulting from, arising out of, relating to, caused
by or attributable to intentional fraud or any willful misconduct by
the Major Sellers or by the breach of any representation or warranty
contained in Section 3.
(ii) In the event any Seller breaches (or in the event any third
party alleges facts that, if true, would mean any Seller has breached)
any of his Several representations, warranties, and covenants contained
herein during the period such representations, warranties and covenants
survive, and provided that the Buyer makes a written claim for
indemnification against the Seller pursuant to Section 10(h) below
within the applicable survival period, then such Seller agrees to
indemnify the Buyer from and against the entirety of any Losses the
Buyer may suffer through and after the date of the claim for
indemnification (including any Losses the Buyer may suffer after the
end of the applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged
breach).
(iii) Each of the Major Sellers agrees to indemnify the Buyer
from and against the entirety of any Losses the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of Target arising under United States Treasury
Reg. Section 1.1502-6 (because Target once was a member of an
Affiliated Group during any part
METAMOR WORLDWIDE, INC.
STOCK PURCHASE AGREEMENT
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of any consolidated return year within any part of which consolidated
return year any corporation other than Target also was a member of the
Affiliated Group).
(iv) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any sales, stamp, duty, or other transfer Taxes
which may become due and owing to any Governmental Authority by reason
of the sale of such Seller's Shares of Target to Buyer.
(v) Each of the Major Sellers agrees to indemnify the Buyer from
and against the entirety of any Losses which may become due and owing
by reason of Target's failure prior to the Closing Date to properly
obtain any visas required for employees of Target to work in the United
States.
(vi) Each of the Major Sellers shall be liable for, and hereby
indemnifies, the Buyer for all income Taxes imposed on Target with
respect to any taxable year or period beginning before and ending after
the Closing Date; provided, however, that such indemnity shall be made
only to the extent such Taxes are in excess of the reserve, if any, for
such Tax Liability as reflected in the Financial Statements and in the
computation of the Net Working Capital. In order to apportion
appropriately any income Taxes relating to any taxable year or period
that begins before and ends after the Closing Date, the Parties hereto
shall, to the extent permitted or not prohibited by applicable law,
elect with the relevant taxing authority, if required or necessary, to
terminate the taxable year of Target as of the Closing Date. In any
case where applicable law does not permit Target to treat such date as
the end of a taxable year or period, then whenever it is necessary to
determine the liability for income Taxes of Target, for a portion of a
taxable year or period, such determination shall (unless otherwise
agree to in writing by the Buyer and the Sellers) be determined by a
closing of Target' books, except that exemptions, allowances or
deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned on a time basis. In no
event shall such apportionment of income Taxes to the Sellers be
greater than the income Taxes which would have been allocated to Target
if such income Taxes had been based upon the number of days during such
taxable year or period the Sellers owned the stock in Target.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In the
event the Buyer breaches any of its representations, warranties, and covenants
contained herein, and provided that any of the Sellers makes a written claim for
indemnification against the Buyer pursuant to Section 10(h) below within the
applicable survival period, then the Buyer agrees to indemnify each of the
Sellers from and against the entirety of any Losses the Seller may suffer
through and after the date of the claim for indemnification (including any
Losses the Seller may suffer after the end of the applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach.
METAMOR WORLDWIDE, INC.
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(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall notify
any Party (the "INDEMNIFIED PARTY") with respect to any matter which may give
rise to a claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall notify each
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged. In the
event any Indemnifying Party notifies the Indemnified Party within thirty (30)
days after the Indemnified Party has given notice of the matter that the
Indemnifying party is assuming the defense thereof, (A) the Indemnifying Party
will defend the Indemnified Party against the matter with counsel of its choice
reasonably satisfactory to the Indemnified Party, (B) the Indemnified Party may
retain separate co-counsel at its sole cost and expense (except that the
Indemnifying Party will be responsible for the fees and expenses of the separate
co-counsel to the extent the Indemnified Party reasonably concludes that the
counsel the Indemnifying Party has selected has a conflict of interest), (C) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the matter without the written consent of the
Indemnifying Party (not to be unreasonably withheld), and (D) the Indemnifying
Party will not consent to the entry of any judgment with respect to the matter,
or enter into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Indemnified Party from all
Liability with respect thereto, without the written consent of the Indemnified
Party (not to be unreasonably withheld). In the event no Indemnifying Party
notifies the Indemnified Party, within thirty (30) days after the Indemnified
Party has given notice of the matter, that the Indemnifying Party is assuming
the defense thereof, the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner it reasonably may deem
appropriate. At any time after commencement of any such action, any Indemnifying
Party may request an Indemnified Party to accept a bona fide offer from the
other parties to the action for a monetary settlement payable solely by such
Indemnifying Party (which does not burden or restrict the Indemnified Party nor
otherwise prejudice him or her) whereupon such action shall be taken unless the
Indemnified Party determines that the dispute should be continued, in which case
the Indemnifying Party shall be liable for indemnity hereunder only to the
extent of the lesser of (i) the amount of the settlement offer or (ii) the
amount for which the Indemnified Party may be liable with respect to such
action. In addition, the Party controlling the defense of any third party claim
shall deliver, or cause to be delivered, to the other Party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of the third party
claim, and timely notices of, and the right to participate in (as an observer)
any hearing or other court proceeding relating to the third party claim.
(e) DETERMINATION OF LOSS. The amount of indemnification to be paid
by any Party to another Party hereto shall be reduced by (i) any insurance
proceeds received, including both defense and indemnification costs, with
respect to any insurance policy maintained by Target providing coverage with
respect to any of the Losses; and (ii) any Tax benefits received by Buyer as a
result of any of the Losses (utilizing the applicable rate for Tax purposes of
the Target as the
METAMOR WORLDWIDE, INC.
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discount rate). All indemnification payments under this Section 8 shall be
deemed adjustments to the Purchase Price.
(f) EXCLUSIVE REMEDY. Buyer and Sellers acknowledge and agree that
the foregoing indemnification provisions in this Section 8 shall be the
exclusive remedy for monetary damages of both the Buyer and Sellers for any
breach of the representations and warranties of either Party.
(g) PAYMENT; GENERAL RIGHT OF OFFSET. The Indemnifying Parties
shall promptly pay to Buyer or such other Indemnified Party as may be entitled
to indemnity hereunder in cash the amount of any Losses to which Buyer or such
Indemnified Party may become entitled to by reason of the provisions of this
Agreement. Furthermore, and in lieu of receiving a cash payment from the
Sellers, Buyer, in good faith, may elect to offset against any Earn-Out Payments
payable to Sellers the amount of any Losses or any other payments to which Buyer
or such Indemnified Parties may become entitled to by reason of the provisions
of this Agreement. In the event that Buyer offsets more than the amount of any
Losses (as finally determined), Buyer shall be responsible to promptly pay
Seller for such sums which should not have been subject to an offset.
(h) TAX DISPUTES. In the event that any dispute arises between
Target and the Internal Revenue Service or any state tax authority relating to
an issue in which Sellers have agreed to indemnify Buyer, the Sellers shall have
the right to associate with Buyer in the defense or settlement of any such
claims. Moreover, Buyer at all times shall act in good faith in order to
minimize the Tax Liability as to issues in which Sellers have agreed to
indemnify Buyer (so long as it does not adversely affect Target) and shall not
settle or compromise any claims without the consent of Sellers, which consent
shall not be unreasonably withheld.
9. INTENTIONALLY OMITTED.
10. MISCELLANEOUS.
(a) NATURE OF THE SELLERS' REPRESENTATIONS, WARRANTIES AND
COVENANTS.
(i) When any Seller makes a representation, warranty, or
covenant herein, then that representation or warranty in Section 3(a),
or covenant will be referred to herein as the "SEVERAL" obligation of
that Seller. This means that the particular Seller making the
representation, warranty, or covenant will be solely responsible for
any Adverse Consequences the Buyer may suffer resulting from, arising
out of, relating to, or caused by, any breach thereof. The covenants of
each of the Sellers in Section 2(a) or elsewhere in this Agreement
(other than as expressly provided in Section 10(a)(ii) below) and the
representations and warranties of each of the Sellers in Section 3(a)
or elsewhere in this Agreement (other than as expressly provided in
Section 10(a)(ii) below) are the Several obligations of the Sellers.
METAMOR WORLDWIDE, INC.
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(ii) When the Major Sellers make a representation or warranty
in Section 4, then that representation or warranty will be referred to
herein as the "JOINT AND SEVERAL" obligation of the Major Sellers. This
means that each Major Seller will be responsible for the entirety of
any Adverse Consequences the Buyer may suffer resulting from, arising
out of, relating to, or caused by, any breach thereof.
(b) PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any
press release or announcement relating to the subject matter of this Agreement
prior to the Closing or permit its representatives to make any public comment or
communications regarding this Agreement prior to the Closing without the prior
written approval of the Buyer and the Sellers; provided, however, that any Party
may make any public disclosure it believes in good faith is required by law or
regulation or necessary in order to consummate the transactions contemplated by
this Agreement (in which case the disclosing Party will advise the other Parties
prior to making the disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Buyer and the Sellers; provided, however, that the Buyer
may assign any or all of its rights and interests hereunder to a wholly-owned
subsidiary of Buyer (in any or all of which cases the Buyer nonetheless shall
remain liable and responsible for the performance of all of its obligations
hereunder).
(f) FACSIMILE/COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more Parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all Parties
hereto agree to execute an original of this Agreement and provide such
requesting party with a full set of original signature pages for each of the
Parties hereto other than the requesting party within two (2) days of the
original execution date hereof.
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(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to a Seller:
at the address shown for such Seller on Section 4(b) of
the Disclosure Schedule.
with a copy to:
Greg R. Samuel, Esq.
Haynes and Boone, L.L.P.
3100 NationsBank Plaza
Dallas, Texas 75202
Telephone: (214) 651-5690
Facsimile: (214) 200-0577
If to the Buyer:
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027
Attention: Michael T. Willis
Telephone: (713) 548-3400
Facsimile: (713) 627-1059
with a copy to:
Peter T. Dameris, Esq.
Margaret G. Reed, Esq.
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027
Telephone: (713) 548-3400
Facsimile: (713) 627-1059
METAMOR WORLDWIDE, INC.
STOCK PURCHASE AGREEMENT
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Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(l) EXPENSES. Each of the Buyer and the Sellers will bear his or
its own costs and expenses (including legal and investment banking fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. If and to the extent Sellers shall cause any portion of
such expenses to be borne by Target, such expenses shall be paid in full by
Sellers to Target on or prior to the Closing.
(m) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any statute or law of any Governmental Authority shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The Parties intend that each representation,
warranty, and covenant
METAMOR WORLDWIDE, INC.
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contained herein shall have independent significance. If any Party has breached
any representation, warranty, or covenant at the same time, prior to or
following the breach by any other Party of any representation, warranty or
covenant, regardless of whether such breaches relate to the same subject matter
and regardless of the relative levels of specificity of the provisions relating
to such breaches, neither breach shall detract from or mitigate the breach of
the other Party.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(o) GENDER; ETC. Pronouns in masculine, feminine, or neuter genders
shall be construed to state and include any other genders and words, terms, and
titles (including terms defined herein) in the singular form shall be construed
to include the plural and vice versa, unless the context otherwise expressly
requires.
(p) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(p) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
(q) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT MAY BE BROUGHT AND ENFORCED IN A FEDERAL OR STATE
COURT LOCATED IN THE SOUTHERN DISTRICT OF TEXAS, AND BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, EACH PARTY HEREBY IRREVOCABLY ACCEPTS FOR THEMSELVES AND IN
RESPECT OF THEIR PROPERTY, GENERALLY, IRREVOCABLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH PARTY FURTHER AGREES THAT A JUDGMENT,
AFTER EXHAUSTION OF ALL AVAILABLE APPEALS, IN ANY SUCH ACTION OR PROCEEDINGS IN
SUCH COURTS SHALL BE CONCLUSIVE AND BINDING UPON SUCH PARTY, AND MAY BE ENFORCED
IN ANY OTHER JURISDICTION BY A SUIT UPON SUCH JUDGMENT, A CERTIFIED COPY OF
WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE JUDGMENT. EACH PARTY HEREBY WAIVES
IRREVOCABLY, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION TO THE LAYING
OF VENUE IN HOUSTON, TEXAS OR ANY CLAIM OF INCONVENIENT FORUM IN RESPECT OF ANY
SUCH ACTION IN HOUSTON, TEXAS TO WHICH IT MIGHT OTHERWISE NOW OR HEREAFTER BE
ENTITLED IN ANY ACTIONS ARISING OUT OF OR BASED ON THIS AGREEMENT.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
METAMOR WORLDWIDE, INC.
By: /s/ Edward L. Pierce
---------------------------------------
Name: Edward L. Pierce
Title: Senior Vice President
SELLERS:
INFORMIX CORPORATION
By: /s/ Gary Lloyd
---------------------------------------
Name: Gary Lloyd
Title: Vice President, General Counsel
M.R. BALDWIN, INC.
By: /s/ Michael R. Baldwin
---------------------------------------
Name: Michael R. Baldwin
Title: President
J.D. HICKS & ASSOCIATES, INC.
By: /s/ J.D. Hicks
---------------------------------------
Name: J.D. Hicks
Title: President
/s/ Kenneth W. Marshall
------------------------------------------
Kenneth W. Marshall
/s/ Mervin Calverley
------------------------------------------
Mervin Calverley
METAMOR WORLDWIDE, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 1
EXHIBIT 2.6
===============================================================================
STOCK PURCHASE AGREEMENT
by and among
METAMOR WORLDWIDE, INC. ("BUYER"),
ADVANCED INFORMATION SOLUTIONS, INC.
and
Sellers listed on the Signature page hereto
("SELLERS")
Dated as of July 16, 1998
===============================================================================
<PAGE> 2
METAMOR WORLDWIDE, INC.
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Definitions.........................................................1
2. Purchase and Sale of Shares.........................................5
(a) Basic Transaction..........................................5
(b) Purchase Price.............................................5
(c) Purchase Price Adjustment..................................6
(d) The Closing................................................6
(e) Deliveries at the Closing..................................6
3. Representations and Warranties Concerning the Transaction...........6
(a) Representations and Warranties of the Sellers..............6
(i) Authorization of Transaction...............................6
(ii) Noncontravention...........................................7
(iii) Broker's Fees..............................................7
(iv) Shares.....................................................7
(b) Representations and Warranties of Buyer....................8
(i) Organization of Buyer......................................8
(ii) Authorization of Transaction...............................8
(iii) Noncontravention...........................................8
(iv) Brokers' Fees..............................................8
(v) Investment.................................................8
4. Representations and Warranties Concerning Target....................8
(a) Organization, Qualification, and Corporate Power...........9
(b) Capitalization............................................10
(c) Noncontravention..........................................10
(d) Subsidiaries..............................................10
(e) Financial Statements......................................10
(f) Events Subsequent to Most Recent Fiscal Year End..........11
(g) Undisclosed Liabilities...................................13
(h) Tax Matters...............................................13
(i) Tangible Assets...........................................15
(j) Real Property.............................................15
(k) Real Property Leases......................................15
(l) Intellectual Property.....................................16
(m) Contracts.................................................19
(n) Notes and Accounts Receivable.............................21
(o) Powers of Attorney........................................21
(p) Insurance.................................................21
(q) Litigation................................................22
</TABLE>
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 3
<TABLE>
<S> <C> <C>
(r) Employees.................................................22
(s) Employee Benefits.........................................22
(t) Guaranties................................................25
(u) Environment, Health, and Safety...........................25
(v) Legal Compliance..........................................27
(w) Certain Business Relationships with Target................28
(x) Brokers' Fees.............................................28
(y) Disclosure................................................28
(z) Books and Records.........................................28
(aa) Compliance with the Letter of Intent......................28
(bb) Payments to Officials.....................................28
5. Pre-Closing Covenants..............................................29
(a) General...................................................29
(b) Notices and Consents......................................29
(c) Operation of Business.....................................29
(d) Preservation of Business..................................29
(e) Full Access...............................................29
(f) Notice of Developments....................................30
(g) Exclusivity...............................................30
(h) Preparation of Financial Statements; Delivery of
Financial Information.....................................30
(i) Delivery of Schedules; Acceptance.........................30
6. Additional Covenants...............................................31
(a) General...................................................31
(b) Litigation Support........................................31
(c) Transition................................................31
(d) Confidentiality...........................................31
(e) Monitoring Information....................................32
(f) Leases....................................................32
(g) Section 338(h)(10) Election...............................32
(h) Additional Tax Matters....................................33
(i) Covenant Not to Compete...................................34
(j) Access to Previous Acquisitions...........................35
7. Conditions to Obligations to Close.................................35
(a) Conditions to Obligation of Buyer.........................35
(b) Conditions to Obligations of the Sellers..................37
8. Remedies for Breaches of This Agreement............................38
(a) Survival..................................................38
(b) Indemnification Provisions for Benefit of Buyer...........38
(c) Indemnification Provisions for Benefit of the Sellers.....40
(d) Matters Involving Third Parties...........................40
(e) Determination of Loss.....................................41
(f) Exclusive Remedy..........................................41
</TABLE>
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 4
<TABLE>
<S> <C> <C>
(g) Payment...................................................41
(h) Tax Disputes..............................................42
9. Termination........................................................42
(a) Termination of Agreement..................................42
(b) Effect of Termination.....................................43
10. Miscellaneous......................................................43
(a) The Sellers...............................................43
(b) Press Releases and Announcements..........................43
(c) No Third-Party Beneficiaries..............................44
(d) Entire Agreement..........................................44
(e) Succession and Assignment.................................44
(f) Facsimile/Counterparts....................................44
(g) Headings..................................................44
(h) Notices...................................................44
(i) Governing Law.............................................45
(j) Amendments and Waivers....................................45
(k) Severability..............................................46
(l) Expenses..................................................46
(m) Construction..............................................46
(n) Incorporation of Exhibits, Annexes, and Schedules.........46
(o) Specific Performance......................................46
</TABLE>
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 5
LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Employment Agreement
Exhibit C Form of Employee Non-Competition Agreement
Exhibit D Form of Opinion of the Sellers' Legal Counsel
Exhibit E Form of Opinion of Buyer's Legal Counsel
Exhibit 4(1) Form of Nondisclosure Agreement
Exhibit 4(1)(xii)(1) Standard License Agreement
Exhibit 4(1)(xii)(2) Standard Trial Agreement
ANNEXES
Annex I Determination of Adjusted EBIT
SCHEDULES
Disclosure Schedule
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("AGREEMENT") is entered into as of the
16th day of July, 1998, by and among METAMOR WORLDWIDE, INC., a Delaware
corporation ("BUYER"), ADVANCED INFORMATION SOLUTIONS, INC., an Illinois
corporation ("TARGET"), and the individuals listed on the signature page hereto
(each individually referred to as "SELLER" and collectively, the "SELLERS").
Buyer and the Sellers are referred to collectively herein as the "PARTIES."
The Sellers in the aggregate own all of the outstanding capital stock
of Target.
This Agreement contemplates a transaction in which Buyer will purchase
from the Sellers, and the Sellers will sell to Buyer, all of the outstanding
capital stock of Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ADJUSTED EBIT" means earnings before interest and taxes
(prepared on an accrual basis of accounting and in accordance with GAAP,
consistently applied), plus mutually agreed upon "ADJUSTMENTS" and "ADDBACKS"
as determined by Annex I attached hereto.
"ADVERSE CONSEQUENCES" means all charges, complaints,
actions, suits, proceedings, hearings, investigations, claims, demands,
judgments, orders, decrees, stipulations, injunctions, damages, dues,
penalties, fines, costs, amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses, and fees, including all reasonable attorneys'
fees and court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Sec. 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could reasonably
form the basis for any specified consequence.
"BUYER" has the meaning set forth in the preface above.
"CLOSING" has the meaning set forth in Section 2(d) below.
<PAGE> 7
"CLOSING DATE" has the meaning set forth in Section 2(d)
below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information
and trade secrets of Target including, without limitation, the identity, lists
or descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Sec. 1563.
"CURRENT EMPLOYEE BENEFIT PLAN" means each Employee Benefit
Plan, which is sponsored, maintained, or contributed to by Target for the
benefit of the employees of Target, or has been so sponsored, maintained, or
contributed to at any time within six years prior to the Closing Date.
"CUSTOMER CONTRACT OR AGREEMENT" means any contract or
agreement of Target related to (a) information technology or computer support
services, training, education and change management services; (b) maintenance
contracts for application software; (c) maintenance support arrangements, (d)
reengineering and refurbishment arrangements; (e) consulting arrangements; (f)
any other contract computer support services arrangement; and (g) agreements
related to any other services provided by Target.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth
in Treas. Reg. Section 1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"DOCUMENTATION" has the meaning set forth in Section 4(l)
below.
"EMPLOYEE BENEFIT PLAN" means each (a) Employee Pension
Benefit Plan, (b) Employee Welfare Benefit Plan , and (c) personnel policy,
stock option plan, worker's compensation, collective bargaining agreement,
bonus plan or arrangement, incentive award plan or arrangement, vacation
policy, severance pay plan, policy, or agreement, deferred compensation
agreement or arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement, and other employee
benefit plan, agreement, arrangement, program, practice, or understanding,
which is sponsored, maintained, or contributed to by Target for the benefit of
the employees, former employees, independent contractors, or agents of Target,
or has been so sponsored, maintained, or contributed to at any time since 1974.
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EXCESS LOSS ACCOUNT" has the meaning set forth in Treas.
Reg. Section 1.1502-19.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in
Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4(e) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any governmental,
quasi-governmental, state, county, city or other political subdivision of the
United States or any other country, or any agency, court or instrumentality,
foreign or domestic, or statutory or regulatory body thereof.
"GROSS PROFIT MARGIN" means the gross profit of the Target as
customarily set forth on the Financial Statements.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service
marks, trade dress, logos, trade names, and corporate names and registrations
and applications for registration thereof, (b) patents, patent applications,
and provisional applications, including all continuations, divisionals and
related applications, (c) copyrights and registrations and applications for
registration thereof, (d) computer software, data, and documentation, (e) to
the extent legally protectable, trade secrets and confidential business
information (including ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing, and business data, pricing and
cost information, business and marketing plans, and customer and supplier lists
and information), (f) to the extent legally protectable, other proprietary
rights, and (g) copies and tangible embodiments thereof (in whatever form or
medium).
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 9
"KEY EMPLOYEES" means Jeffery Hoffman and Robert Knott.
"KNOWLEDGE" means that which is known or understood or should
have been known or understood after reasonable investigation and inquiry, which
inquiry shall include an inquiry of the employees of Target with responsibility
for the matters in question.
"LIABILITY" means any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"LICENSES" has the meaning set forth in Section 4(l) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(e) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec.
3(37).
"NET WORKING CAPITAL" means total current assets less total
current liabilities of Target (including but not limited to all deferred
taxes), further reduced by any long-term debt of Target, as determined in
accordance with GAAP, consistently applied.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
"PURCHASE PRICE" has the meaning set forth in Section 2(b)
below.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec.
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes not yet due and payable
(or for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods in
transit incurred pursuant to documentary letters of credit,
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 10
(f) purchase money liens and liens securing rental payments under capital lease
arrangements, and (g) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"SELLERS" has the meaning set forth in the preface above.
"SEVERAL" has the meaning set forth in Section 10(a) below.
"SHARES" means the shares of common stock, par value $2.00
per share, of Target.
"SOFTWARE PROGRAMS" has the meaning set forth in Section 4(l)
below.
"SUBSIDIARY" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, 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 of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
2. PURCHASE AND SALE OF SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from each of the
Sellers, and each of the Sellers agrees to sell to Buyer, all of his Shares for
the consideration specified below in this Section 2.
(b) PURCHASE PRICE. The purchase price (the "PURCHASE PRICE")
for the Shares to be purchased by Buyer from the Sellers pursuant to the terms
hereof shall equal $7,500,000, payable in cash at the Closing. The Purchase
Price shall be paid by Buyer to the Sellers at the Closing by wire transfer to
an account or accounts designated by the Sellers.
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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(c) PURCHASE PRICE ADJUSTMENT. The Net Working Capital of
Target as of the Closing Date will be estimated in accordance with the
provisions hereof, by the Parties on or before ten (10) days before the time of
Closing. A final determination of the Net Working Capital of Target as of the
Closing Date shall be made within ten (10) days after the Closing Date and
shall be based on Target's financial statements as of the Closing Date, which
will have been prepared in accordance with GAAP and provided to Buyer. In the
event there is a dispute between Buyer and the Sellers regarding the Net
Working Capital of Target as of the Closing Date, Ernst & Young, LLP shall
prepare the calculation of the Net Working Capital of Target (at the joint
expense of Buyer and the Sellers), which calculation shall be submitted to
Buyer and the Sellers not later than forty-five (45) days after the Closing
Date. The Net Working Capital derived from such calculation shall be final,
conclusive and binding on the Parties. In the event that the Net Working
Capital as of the Closing Date is less than $700,000, the Sellers shall remit
the shortfall to Buyer within ten (10) days after the final determination of
Net Working Capital. In the event that the Net Working Capital as of the
Closing Date is greater than $700,000, Buyer shall pay the excess to the
Sellers within (10) days after the final determination of Net Working Capital.
(d) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Buyer in
Houston, Texas and D'Ancona & Pflaum, Chicago, Illinois commencing at 9:00 a.m.
local time on the second business day following the satisfaction or waiver of
all conditions to the obligations of the Parties to consummate the transactions
contemplated hereby or such other date as Buyer and the Sellers may mutually
determine (the "CLOSING DATE"); provided, however, that the Closing Date shall
be no later than July 31, 1998 which date may be extended with the mutual
consent of Buyer and the Sellers.
(e) DELIVERIES AT THE CLOSING. At the Closing, (i) the
Sellers will deliver to Buyer the various certificates, instruments, and
documents referred to in Section 7(a) below, (ii) Buyer will deliver to the
Sellers the various certificates, instruments, and documents referred to in
Section 7(b) below, (iii) each Seller will deliver to Buyer stock certificates
representing all of his Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) Buyer will deliver to the Sellers the
consideration specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of
the Sellers, represents and warrants to Buyer that the statements contained in
this Section 3(a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to himself except as set forth in
Annex II attached hereto.
(i) AUTHORIZATION OF TRANSACTION. Seller has full
power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of Seller, enforceable in
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 12
accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable
principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally,
and to general equity principles, and (B) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding therefore may be brought. Seller need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order
to consummate the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which
Seller is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which Seller is a party or by which he is bound
or to which any of his assets is subject.
(iii) BROKER'S FEES. Seller has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which Buyer could become liable or obligated.
(iv) SHARES. Seller holds of record and owns
beneficially the number of Shares set forth next to his name in
Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), claims, Taxes, Security
Interests, options, warrants, rights, contracts, calls, commitments,
equities, and demands. The Sellers hold all of the issued and
outstanding shares of Target and upon the consummation of the
transaction contemplated hereby, Buyer will hold all of the issued and
outstanding shares of Target. Seller is not a party to any option,
warrant, right, contract, call, put, or other agreement or commitment
providing for the disposition or acquisition of any capital stock of
Target (other than this Agreement). Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect
to the voting of any capital stock of Target. Seller hereby further
represents and warrants that (i) all other Shares or options, rights,
warrants or other interests in the equity of Target, if any, have been
fully repurchased by Target prior to the Closing Date and (ii) there
are no pending or threatened suits, claims or actions by any former
holders of Shares or options, rights, warrants or other interests in
the equity of Target with respect to the repurchase of their equity
interest in Target.
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 13
(b) REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to the Sellers that the statements contained in this Section 3(b)
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(b)), except as set forth in Annex III attached hereto.
(i) ORGANIZATION OF BUYER. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws
of the State of Delaware.
(ii) AUTHORIZATION OF TRANSACTION. Buyer has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement
and the transactions contemplated hereby have been duly authorized by
all necessary action on the part of the Board of Directors of Buyer.
This Agreement constitutes the valid and legally binding obligation of
Buyer, enforceable in accordance with its terms and conditions. Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) NONCONTRAVENTION. Neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction,
charge, or other restriction of any government, governmental agency,
or court to which Buyer is subject or any provision of its charter or
bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest, or other
arrangement to which Buyer is a party or by which it is bound or to
which any of its assets is subject.
(iv) BROKERS' FEES. Buyer has no Liability or
Obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which any Seller could become liable or obligated.
(v) INVESTMENT. Buyer is not acquiring the Shares
with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Sellers,
represent and warrant to Buyer that the statements contained in this Section 4
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 4), except as set forth in the disclosure schedule delivered by the
Sellers to Buyer on the date
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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hereof (the "DISCLOSURE SCHEDULE"). An event or matter will be deemed to be
"MATERIAL," to have a "MATERIAL" change in or in respect of, to have a
"MATERIAL ADVERSE EFFECT" or to be "MATERIALLY" affected; provided that in the
opinion of Buyer, acting reasonably, such loss is material or the loss may
reasonably be expected to occur to Target or Buyer with respect to such event
or matter, when taken together with all other related losses that may
reasonably be expected to occur to Target or Buyer as a result of any such
events or matters, would exceed $20,000 in the aggregate or unless such event
or matter constitutes a criminal violation of law. For purposes of this
paragraph, the word "LOSS" shall mean any and all direct or indirect payments,
obligations, assessments, losses, losses of income, liabilities, costs and
expenses paid or incurred, or reasonably likely to be paid or incurred, or that
are reasonably expected to occur, including without limitation, penalties,
interest on any amount payable to a third party as a result of the foregoing,
and any legal or other expenses reasonably expected to be incurred in
connection with defending any demands, claims, actions or causes of action
that, if adversely determined, could reasonably be expected to result in
losses, and all amounts paid in settlement of claims or actions; provided,
however, that losses shall be net of any insurance proceeds entitled to be
received from a nonaffiliated insurance company on account of such loss (after
taking into account any cost incurred in obtaining such proceeds). A Customer
Contract or Agreement is "MATERIAL" if during the twelve months ended December
31, 1997 or during the current fiscal year such Customer Contract or Agreement
produced or may reasonably be expected to produce, as the case may be, $20,000
of Gross Profit Margin less any bad debt specifically related to such Customer
Contract or Agreement. Any item intended to be disclosed must be identified
with the particular representation or warranty it is intended to limit and
shall not be deemed to limit any other representation, warranty or covenant in
the Agreement. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail to the satisfaction of Buyer.
Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate
to disclose an exception to a representation or warranty made herein (unless
the representation or warranty has to do with the existence of the document or
other items itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Illinois. Target is not qualified to conduct business
as a foreign corporation in any jurisdiction, and is not required to be so
qualified. Target has full corporate power and authority to carry on the
business in which it is engaged and to own and use the properties owned and
used by it. Section 4(a) of the Disclosure Schedule lists the directors and
officers of Target. The Sellers have delivered to Buyer correct and complete
copies of the charter and bylaws of Target (as amended to date). The minute
books containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors, and the stock record
books of Target are correct and complete. Target is not in default under or in
violation of any provision of its charter or bylaws. The execution and delivery
of this Agreement and the effectuation of the transactions contemplated hereby
have
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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been duly authorized by all of the directors and shareholders of Target, and
Target will deliver to Buyer on the date hereof and at the Closing complete and
correct copies, certified by its secretary, of the resolutions duly and validly
adopted by its directors and shareholders evidencing such authorization (which
resolutions will not have been modified, revoked or rescinded in any respect
prior to, and will be in full force and effect at, the Closing). No other
corporate act or proceeding on the part of Target or the Sellers is necessary
for the due and valid authorization of this Agreement or the transactions
contemplated hereby.
(b) CAPITALIZATION. The entire authorized capital stock of
Target consists of 20,000 shares of common stock, no par value per share (the
"SHARES"), of which 10,000 shares are classified as Class A Voting Common Stock
and 10,000 shares are classified as Class B Non-Voting Common Stock. Of the
Shares, 2,000 shares of Class A Common Stock and no shares of Class B
Non-Voting Common Stock are issued and outstanding and no Shares are held in
treasury. All of the issued and outstanding Shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are held of record by
the respective Sellers as set forth in Section 4(b) of the Disclosure Schedule.
There are no outstanding or authorized options, warrants, rights, contracts,
calls, puts, rights to subscribe, conversion rights, or other agreements or
commitments to which Target is a party or which are binding upon Target
providing for the issuance, disposition, or acquisition of any of their capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock, deferred stock bonus programs, or similar rights with respect to Target.
There are no voting trusts, proxies, or any other agreements or understandings
with respect to the voting of the capital stock of Target.
(c) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any part the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which Target is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
Target does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency,
which it has not already obtained, in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) SUBSIDIARIES. Target has no Subsidiaries.
(e) FINANCIAL STATEMENTS. Attached hereto as Exhibit A are
the financial statements (collectively the "FINANCIAL STATEMENTS"), including
balance sheets, income statements, and cash flow statements, for Target
prepared in accordance with GAAP for each of the (i) fiscal
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years ended December 31, 1996 and 1997 (the fiscal year ended December 31, 1997
being referred to herein as the "MOST RECENT FISCAL YEAR END") and (ii) the
twelve (12) month period ended June 30, 1998. The Financial Statements for the
Most Recent Fiscal Year End have been audited by Reicin, Pollack & Co., Ltd.
(f) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except
as set forth in Section 4(f) of the Disclosure Schedule, since December 31,
1997, there has not been any Material adverse change in the assets,
Liabilities, business, financial condition, operations, results of operations,
or future prospects of Target. Without limiting the generality of the
foregoing, except as set forth in Section 4(f) of the Disclosure Schedule since
that date:
(i) Target has not sold, leased, transferred,
conveyed, assigned or disposed of any of its Material assets, tangible
or intangible, other than for a fair consideration in the Ordinary
Course of Business;
(ii) Target has not entered into any contract,
lease, sublease, license or sublicense (or series of related
contracts, leases, subleases, licenses and sublicenses) either
involving more than $20,000 or outside the Ordinary Course of
Business;
(iii) No party (including Target) has accelerated,
terminated, modified, or canceled any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) or notified Target of such
involving more than $20,000 to which Target is a party or by which it
is bound;
(iv) Target has not imposed any Security Interest
upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$30,000 singly or $150,000 in the aggregate, or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of any
other person (or series of related capital investments, loans, and
acquisitions) either involving more than $30,000 individually or
$150,000 in the aggregate or outside the Ordinary Course of Business;
(vii) Target has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease obligations)
either involving more than $20,000 singly or $50,000 in the aggregate
or outside the Ordinary Course of Business;
(viii) Target has not delayed or postponed (beyond
its normal practice) the payment of accounts payable and other
Liabilities;
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(ix) Target has not settled, canceled, compromised,
waived, or released any right, claim action or proceeding (or series
of related rights, claims, actions or proceedings) either involving
more than $20,000 or outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property
except to customers in the Ordinary Course of Business;
(xi) There has been no change made or authorized in
the charter or bylaws of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon
conversion or exercise) any of its capital stock;
(xiii) Target has not declared, set aside, or paid
any dividend or distribution with respect to its capital stock or
redeemed, purchased, or otherwise acquired any of its capital stock
except as contemplated by Section 4(f)(xxi);
(xiv) Target has not experienced any damage,
destruction or loss (whether or not covered by insurance) to its
property;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business giving rise to any
claim or right on its part against the person or on the part of the
person against it;
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted an increase outside
the Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees;
(xviii) Target has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance,
(G) severance, or (H) other plan, contract or commitment for any of
its directors, officers, and employees, or modified or terminated any
existing such plan, contract or commitment;
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(xix) Target has not made any other change in
employment terms for any of its directors or officers, nor any
Material change in employment terms for other full-time staff
employees;
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) Target has not made any dividend, consulting
or other payment to the Sellers, except for (A) normal payments to the
Sellers necessary to cover their federal and state income tax
obligations as calculated on a cash basis of accounting and in
accordance with GAAP for income tax purposes not in excess of the
accrued earnings generated for the period from January 1, 1998 through
the Closing Date, (B) employment salaries (not to exceed current
compensation levels) to the Sellers, (C) payments or distributions to
the Sellers which, individually or in the aggregate, do not reduce the
Net Working Capital of Target below $700,000 and (D) payments set
forth in Section 4(f)(xxi) of the Disclosure Schedule;
(xxii) There has not been any other Material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target (other than
occurrences, events or transactions contemplated by this Agreement) ;
and
(xxiii) Target has not committed to do any of the
foregoing.
(g) UNDISCLOSED LIABILITIES. Target does not have any
Liability (and, to the Knowledge of the Sellers, there is no Basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against it giving rise to any Liability) which
is individually in excess of $5,000, except for (i) Liabilities set forth on
the face of the Financial Statements (rather than in any notes thereto), and
(ii) Liabilities which have arisen after the Most Recent Fiscal Year End in the
Ordinary Course of Business (none of which relates to any breach of contract,
breach of warranty, tort, infringement, or violation of law or arose out of any
charge, complaint, action, suit, proceedings, hearing, investigation, claim, or
demand).
(h) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid. Target currently is not the beneficiary of
any extension of time within which to file any Tax Return. No claim
has ever been made by an authority in a jurisdiction where Target does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of
Target that arose in connection with any failure (or alleged failure)
to pay any Tax.
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(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other
third party.
(iii) No Seller or director or officer (or employee
responsible for Tax matters) of Target expects any authority to assess
any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of
Target either (A) claimed or raised by any authority in writing or (B)
as to which any of the Sellers and the directors and officers (and
employees responsible for Tax matters) of Target has Knowledge based
upon personal contact with any agent of such authority. Section 4(h)
of the Disclosure Schedule lists all Tax Returns filed with any
Governmental Authority with respect to Target for taxable periods
ended on or after December 31, 1992, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are
the subject of audit. The Sellers have delivered to Buyer correct and
complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by Target since December 31, 1990.
(iv) Target 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.
(v) Target has not filed a consent under Code Sec.
341(f) concerning collapsible corporations. Target has not made any
payments, is not obligated to make any payments, or is not a party to
any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Sec. 280G.
Target has not been a United States real property holding corporation
within the meaning of Code Sec. 897(c)(2) during the applicable period
specified in Code Sec. 897(c)(1)(A)(ii). Target has disclosed on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Code Sec. 6661. Target is not a party to any Tax allocation
or sharing agreement. Target has never been (or has any Liability for
unpaid Taxes because it once was) a member of an Affiliated Group
during any part of any consolidated return year within any part of
which consolidated return year any corporation other than Target also
was a member of the Affiliated Group.
(vi) To the extent that the Section 338(h)(10)
election does not apply, Section 4(h) of the Disclosure Schedule sets
forth the following information with respect to Target as of the most
recent practicable date (as well as on an estimated pro forma basis as
of the Closing giving effect to the consummation of the transactions
contemplated hereby): (A) the basis of Target in its assets; (B) the
amount of any net operating loss, net capital loss, unused investment
or other credit, unused foreign tax, or excess charitable contribution
allocable to Target; and (C) the amount of any deferred gain or loss
allocable to Target arising out of any Deferred Intercompany
Transaction.
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(vii) The unpaid Taxes of Target do not exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth on the face of the Financial Statements (rather than in any
notes thereto) or as set forth in the Net Working Capital as of the
Closing Date determined in accordance with Section 2(c) of this
Agreement, as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Target in
filing their Tax Returns.
(viii) To the extent that any act or omission of any
Seller with respect to Taxes or Tax Returns creates or could create
Tax Liability for Target, Seller shall be included in each reference
to "TARGET" in this Section 4(h).
(i) TANGIBLE ASSETS. Target owns or leases all tangible
assets necessary for the conduct of its business as presently conducted. To the
Seller's knowledge, each such tangible asset is free from defects (patent and
latent), is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used.
(j) REAL PROPERTY. Target does not own any real property.
(k) REAL PROPERTY LEASES. Section 4(k) of the Disclosure
Schedule lists and describes briefly all real property leased or subleased to
Target. The Sellers have delivered to Buyer correct and complete copies of the
leases and subleases listed in Section 4(k) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section
4(k) of the Disclosure Schedule:
(i) The lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) The Sellers shall use their best efforts to
ensure that the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the Closing;
(iii) No party to the lease or sublease 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;
(iv) No party to the lease or sublease has repudiated
any provision thereof;
(v) There are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
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(vi) Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(vii) To the Knowledge of the Sellers, all
facilities leased or subleased thereunder have received all approvals
of governmental authorities (including licenses and permits) required
in connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations;
and
(viii) The real property listed in Section 4(k) of
the Disclosure Schedule represents all of the real property necessary
to operate the business in the manner that it is currently being
operated.
(l) INTELLECTUAL PROPERTY.
(i) The following terms used in this paragraph will
have the meanings assigned below:
(A) "DOCUMENTATION" means, with respect to
a software program, the source code (with comments), as well
as any pertinent commentary or explanation prepared to render
such materials understandable and usable by a trained
computer programmer, any programs (including compilers),
"workbenches," tools and higher level (or "proprietary")
language necessary for the development, maintenance and
implementation of the software program, and any and all
prepared and deliverable materials relating to the software
program, including without limitation all notes, flow charts,
programmer's or user' manuals.
(B) "CLIENT SOFTWARE PROGRAM" means any
software program developed by Target for a client on a work
for hire basis pursuant to which the client has acquired and
retains all intellectual property rights in such developed
software.
(C) "NON-SOFTWARE INTELLECTUAL PROPERTY"
means Intellectual Property exclusive of software programs
and their related Documentation.
(D) "TARGET SOFTWARE PROGRAM" means any
software program owned by Target or, excluding Client
Software Programs, developed by Target for sale or licensing
to the end-user.
(E) "THIRD PARTY SOFTWARE PROGRAM" means
any software program developed by a third party and used by
Target in developing either a Target Software Program or a
Client Software Program, or used by Target in conducting its
internal business.
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(ii) Target is the sole and exclusive owner of all
right, title and interest in and has good, valid and marketable title
to, or, as to third party rights identified in Section 4(l)(ii) of the
Disclosure Schedule, has obtained a license to use all Non-Software
Intellectual Property necessary for the operation of the business of
Target as presently conducted, free and clear of all mortgages,
pledges, liens, security interests, conditional sales agreements,
encumbrances or charges of any kind. Each item of Non-Software
Intellectual Property will be owned or available for use by Target on
identical terms and conditions immediately subsequent to the Closing
hereunder.
(iii) Target is the sole and exclusive owner of all
right, title and interest in and has good, valid and marketable title
to all Target Software Programs listed in Section 4(l)(iii) of the
Disclosure Schedule (representing all Target Software Programs owned
or developed by Target), free and clear of all mortgages, pledges,
liens, security interests, conditional sales agreements, encumbrances
or charges of any kind.
(iv) Section 4(l)(iv) of the Disclosure Schedule
sets forth all Third Party Software Programs licensed by Target.
Target has obtained a license to use all Third Party Software used in
connection with, and incorporated into, the Target Software Programs
or the Client Software Programs or used by Target in conducting its
own business and all use of each of such licensed Third Party Software
Programs by Target has been in full compliance with the respective
license agreements or other rights of use.
(v) Target has no registered trademarks, service
marks, trade names, copyrights or patents, nor does Target have any
pending or applications with respect to any of the aforementioned.
(vi) Section 4(l)(vi) of the Disclosure Schedule
sets forth the form and placement of the proprietary legends and
copyright notices displayed in or on the Non-Software Intellectual
Property and Target Software Programs. In no instance has the
eligibility of the Non-Software Intellectual Property and Target
Software Programs for protection under applicable copyright law been
forfeited to the public domain by omission of any required notice or
any other action.
(vii) Target has enforced the trade secret
protection program set forth in Section 4(l)(vii) of the Disclosure
Schedule as it relates to the Non-Software Intellectual Property and
the Target Software Programs, and, to the Knowledge of any of the
Sellers, there has been no violation of such program by any person or
entity. The Documentation relating to the Target Software Programs
(except for end user manuals and other items generally delivered to
end users), (i) has at all times been maintained in strict confidence,
(ii) has been disclosed by Target only to employees having a "need to
know" the contents thereof in connection with the performance of their
duties to Target and (iii) has not been disclosed to any third party.
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(viii) All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated
in the conception and development of Target Software Programs have
executed nondisclosure agreements, in substance the form set forth in
Section 4(l)(vii) of the Disclosure Schedule, and either (l) have been
party to a written agreement with Target that has accorded Target
full, effective, exclusive and original ownership of all Target
Software Programs, or (2) have executed appropriate instruments of
assignment in favor of Target as assignee that have conveyed to Target
full, effective, and exclusive ownership of all Target Software
Programs.
(ix) Section 4(l)(ix) of the Disclosure Schedule
contains a complete list of all software libraries, compilers and
other third-party software used in the development of the Target
Software Programs.
(x) The Target Software Programs and the Client
Software Programs will perform in accordance with the warranties set
forth in Target's licenses to the end users.
(xi) The use of the Target Software Programs, and
the license, sale or lease of the Target Software Programs, or of any
part thereof, or of any copy, or of any part thereof, do not and will
not infringe on, or contribute to the infringement of, any copyright,
trade secret, patents or any other exclusionary right, of any third
party in either the United States or any foreign country. No person or
entity has asserted against Target a claim that the use, license, sale
or lease of any Target Software Program, or any part thereof,
infringes or contributes to the infringement of any patent claim,
copyright or trade secret right of any third party in either the
United States or any foreign country, and the Sellers are not aware of
any basis for any such claim.
(xii) Except with respect to demonstration or trial
copies, no portion of the Target Software Programs contains or will
contain any "back door," "time bomb," "Trojan horse," "worm," "drop
dead device," "virus" or other software routines or hardware
components designed to permit unauthorized access; to disable or erase
software, hardware, or data; or to perform any other such similar
actions.
(xiii) Except as set forth in Section 4(l)(xiii) of
the Disclosure Schedule, the Sellers have made available to Buyer
correct and complete copies of all third party licenses, sublicenses,
agreements, and permissions (as amended to the date hereof) as to
Non-Software Intellectual Property and Third Party Software Programs
licensed or sublicensed to Target (collectively, the "LICENSES").
Except as set forth in Section 4(l)(xiii) of the Disclosure Schedule,
with respect to each such License:
(A) the License is legal, valid, binding,
enforceable and in full force and effect;
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(B) the License will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms following the Closing;
(C) no party to the License is in breach or
default and no event has occurred which with notice or lapse
or time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) to the Knowledge of the Sellers, no
underlying item of the property covered by the License is
subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge;
(E) to the Knowledge of the Sellers, no
charge, complaint, action, suit, proceedings, hearing,
investigation, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of
any underlying item of the property covered by the License;
and
(F) except as may have been necessary in
preparing and delivering a Client Software Program, in
accordance with the terms of the applicable client
engagement, Target has not granted any sublicense or similar
right with respect to any License.
(xiv) The Target Software Programs (i) are year 2000
compatible, which shall include, but is not limited to, date data
century recognition, and calculations that accommodate same century
and multi-century formulas and date values; (ii) operate or will
operate in accordance with their specifications prior to, during and
after the calendar year 2000; and (iii) shall not end abnormally or
provide invalid or incorrect results as a result of date data,
specifically including date data which represents or references
different centuries or more than one century.
(m) CONTRACTS. Section 4(m) of the Disclosure Schedule lists
the following contracts, agreements, and other written arrangements to which
Target is a party:
(i) any written arrangement (or group of related
written arrangements) for the lease of personal property from or to
third parties providing for lease payments in excess of $20,000 per
annum;
(ii) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property or for the
furnishing or receipt of services which either calls for performance
over a period of more than one year or involves more than the sum of
$20,000 other than Customer Contracts or Agreements that are set forth
on Section 4(m)(x) of the Disclosure Schedule.
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(iii) any written arrangement concerning a
partnership or joint venture;
(iv) any written arrangement (or group of related
written arrangements) under which it has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations) involving more
than $20,000 or under which it has imposed (or may impose) a Security
Interest on any of its assets, tangible or intangible;
(v) any written arrangement concerning
confidentiality or noncompetition;
(vi) any written arrangement involving any of the
Sellers and their Affiliates;
(vii) any written arrangement with any of its
directors, officers, and employees in the nature of a collective
bargaining agreement, employment agreement, or severance agreement;
(viii) any written arrangement other than Customer
Contracts or Agreements that are set forth on Section 4(m)(x) of the
Disclosure Schedule under which the consequences of a default or
termination could have a Material adverse effect on the assets,
Liabilities, business, financial condition, operations or results of
operations, or future prospects of Target;
(ix) any written arrangement involving a governmental
entity or quasi-governmental agency;
(x) any written Customer Contract or Agreement; or
(xi) any other written arrangement (or group of
related written arrangements) either involving more than $20,000 or
not entered into in the Ordinary Course of Business.
The Sellers have delivered to Buyer a correct and complete copy of
each written arrangement listed in Section 4(m) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (A) the
written arrangement is legal, valid, binding, enforceable, and in full force
and effect; (B) the written arrangement will continue to be legal, valid,
binding, enforceable and in full force and effect on the same or substantially
similar terms following the Closing; (C) no party is in Material 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, under the written arrangement; and (D) no party has repudiated
any provision of the written arrangement. Target is not a party to any oral
contract, agreement, or other arrangement which, if reduced to
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written form, would be required to be listed in Section 4(m) of the Disclosure
Schedule under the terms of this Section 4(m). No unfilled Material Customer
Contract or Agreement obligating Target to perform services will result in a
loss to Target upon completion of performance. Target is not a party to any
contract, agreement or other arrangement which was entered into on terms which
would not be considered market standard if such arrangement was entered into in
an arms-length transaction. None of Target's twenty-five (25) highest grossing
revenue customers in the year ended December 31, 1997 has Materially curtailed
or terminated its relationship with it or has indicated that it will stop, or
Materially decrease the rate of, buying services from it.
(n) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are presently current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Financial Statements (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of Target.
(o) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(p) INSURANCE. Section 4(p) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target has
been a party, a named insured, or otherwise the beneficiary of coverage at any
time within the past three (3) years:
(i) The name, address, and telephone number of the
agent;
(ii) The name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) The policy number and the period of coverage;
(iv) The scope (including an indication of whether
the coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) A description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, and enforceable and in full force and effect; (B) the policy
will continue to be legal, valid, binding, and enforceable and in full force
and effect on identical terms following the Closing Date; (C) Target is
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not in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or permit termination,
modification, or acceleration, under the policy; and (D) no party to the policy
has repudiated any provision thereof. Target has been covered during the past
three (3) years by insurance in scope and amount customary and reasonable for
the businesses in which it has engaged during the aforementioned period.
Section 4(p) of the Disclosure Schedule describes any self-insurance
arrangements affecting Target.
(q) LITIGATION. Section 4(q) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge or (ii) is a party or, to the
Knowledge of any of the Sellers, is threatened to be made a party to any
charge, complaint, action, suit, proceeding, hearing, or investigation of or in
any court or quasi-judicial or administrative agency of any Governmental
Authority or before any arbitrator. None of the Sellers and the directors and
officers (and employees with responsibility for litigation matters) of Target
has received notice of any third party's intent to bring any such charge,
complaint, action, suit, proceeding, hearing, or investigation may be brought
or threatened against Target.
(r) EMPLOYEES. Section 4(r) of the Disclosure Schedule lists
the employees employed by Target and the annual compensation or rate of pay
(including bonus) for each as of the date of this Agreement, with each such
employee identified as (i) salaried or hourly, (ii) exempt or nonexempt, (iii)
union or nonunion, (iv) full-time or part-time, (v) temporary, permanent, or
leased, and (vi) active or nonactive (e.g., leave of absence, FMLA, disability,
layoff, etc.). To the Knowledge of the Sellers, no key employee or group of
full-time employees has any plans to terminate employment with Target. Target
is not a party to or bound by any collective bargaining agreement, nor has it
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes. Target has not committed any unfair labor
practice. None of the Sellers has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of Target.
(s) EMPLOYEE BENEFITS.
(i) Section 4(s)(i) of the Disclosure Schedule
provides a list of each Current Employee Benefit Plan.
(ii) True, correct, and complete copies of each
Current Employee Benefit Plan, and related trusts, if applicable,
including all amendments thereto, have been furnished to Buyer. There
have also been made available for inspection by Buyer, with respect to
each Current Employee Benefit Plan required to file such report or
description, the most recent report on Form 5500 and the most recent
summary plan description.
(iii) With respect to the Employee Benefit Plans:
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1. Neither Target nor any corporation,
trade, business, or entity under common control with Target,
within the meaning of Section 414(b), (c), (m), or (o) of the
Code, or Section 4001 of ERISA, ("COMMONLY CONTROLLED
ENTITY") contributes to or has an obligation to contribute
to, nor has Target or any Commonly Controlled Entity at any
time contributed to or had an obligation to contribute to,
either a Multiemployer Plan or a plan subject to Title IV of
ERISA.
2. Target and each Fiduciary have performed
all obligations, whether arising by operation of law or by
contract, required to be performed by each of them in
connection with the Employee Benefit Plans, and there have
been no defaults or violations by any party with respect to
the Employee Benefit Plans.
3. All reports and disclosures relating to
the Employee Benefit Plans required to be filed with or
furnished to Governmental Authorities, participants, or
beneficiaries have been filed or furnished in accordance with
applicable law in a timely manner, and each Employee Benefit
Plan has been administered in compliance with its governing
documents and all applicable law.
4. Each of the Employee Benefit Plans
intended to be qualified under Section 401(a) of the Code (A)
satisfies in form the requirements of such Section, except to
the extent amendments are not required by law to be made
until a date after the Closing Date, (B) unless it is a
standardized prototype plan that has received a formal
opinion letter from the Internal Revenue Service and does not
require a favorable determination letter, has received a
favorable determination letter from the Internal Revenue
Service regarding such qualified status, which covers all
amendments to the Employee Benefit Plans, and (C) has not
been operated in a way that would adversely affect its
qualified status.
5. There are no actions, suits, or claims
pending (other than routine claims for benefits) or, to the
Knowledge of the Sellers, threatened against, or with respect
to, any of the Employee Benefit Plans or their assets.
6. All contributions required to be made to
the Employee Benefit Plans pursuant to their terms and the
provisions of ERISA, the Code, or any other applicable law
have been timely made.
7. As to any Employee Benefit Plan intended
to be qualified under Section 401(a) of the Code, there has
been no termination or partial termination of the plan within
the meaning of Section 411(d)(3) of the Code.
8. There has been no Prohibited Transaction
with respect to any Employee Benefit Plan or Fiduciary, and
no act, omission, or transaction has
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occurred that would result in imposition (directly or
indirectly) of (A) breach of fiduciary duty liability under
Section 409 of ERISA, (B) a civil penalty assessed pursuant
to subsections (c), (i), or (l) of Section 502 of ERISA, or
(C) a tax imposed pursuant to Chapter 43 of Subtitle D of
the Code.
9. There is no matter pending (other than
routine qualification determination filings) with respect to
any of the Employee Benefit Plans before the Internal Revenue
Service, the Department of Labor, the PBGC, or other
Governmental Authority.
10. Each trust funding an Employee Benefit
Plan, which trust is intended to be exempt from federal
income taxation pursuant to Section 501(c)(9) of the Code,
satisfies the requirements of such section and has received a
favorable determination letter from the Internal Revenue
Service regarding such exempt status and has not, since
receipt of the most recent favorable determination letter,
been amended or operated in a way that would adversely affect
such exempt status.
11. With respect to any employee benefit
plan, within the meaning of Section 3(3) of ERISA, which is
sponsored, maintained, or contributed to, or has been
sponsored, maintained, or contributed to within six years
prior to the Closing Date, by any Commonly Controlled Entity,
(A) no withdrawal liability, within the meaning of Section
4201 of ERISA, has been incurred, which withdrawal liability
has not been satisfied, (B) no liability to the PBGC has been
incurred by any Commonly Controlled Entity, which liability
has not been satisfied, (C) no accumulated funding
deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been
incurred, and (D) all contributions (including installments)
to such plan required by Section 302 of ERISA and Section 412
of the Code have been timely made.
12. Neither the execution and delivery of
this Agreement nor the consummation of the transactions
contemplated hereby will by the terms of Target's Employee
Benefit Plans or by law (A) require Target or Buyer to make a
larger contribution to, or pay greater benefits or provide
other rights under, any Employee Benefit Plan than it
otherwise would, whether or not some other subsequent action
or event would be required to cause such payment or provision
to be triggered, or (B) conflict with the terms of any
Employee Benefit Plan.
13. All continuation of coverage
obligations set forth in Section 4980B of the Code and
Section 601 through 609 of ERISA have been performed.
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(iv) Target is not a party to any agreement, nor has
it established any policy or practice, requiring it to make a payment
or provide any other form of compensation or benefit to any person
performing services for Target upon termination of such services that
would not be payable or provided in the absence of the consummation of
the transactions contemplated by this Agreement.
(v) In connection with the consummation of the
transactions contemplated by this Agreement, no payments of money or
other property, acceleration of benefits, or provisions of other
rights have or will be made under the Employee Benefit Plans that
would result in imposition of the sanctions imposed under Section 280G
or 4999 of the Code, whether or not some other subsequent action or
event would be required to cause such payment, acceleration, or
provision to be triggered.
(vi) Each Employee Welfare Benefit Plan may be
unilaterally amended or terminated in its entirety without liability
to Target except as to benefits vested and accrued thereunder prior to
such amendment or termination.
(t) GUARANTIES. Target is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other person.
(u) ENVIRONMENT, HEALTH, AND SAFETY.
(i) Target and, to the Knowledge of the Sellers, its
predecessors and Affiliates has complied with all laws (including
rules and regulations thereunder) of any Governmental Authority
concerning the environment, public health and safety, and employee
health and safety, and no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or
commenced against any of them alleging any failure to comply with any
such law or regulation, the violation of which would have a Material
adverse effect.
(ii) Target does not have any Liability (and, to the
Knowledge of the Sellers, there is no Basis related to the past or
present operations, properties, or facilities of Target and its
predecessors and Affiliates for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against Target giving rise to any Liability) under the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Resource Conservation and Recovery Act of 1976, the
Federal Water Pollution Control Act of 1972, the Clean Air Act of
1970, the Safe Drinking Water Act of 1974, the Toxic Substances
Control Act of 1976, the Refuse Act of 1989, or the Emergency Planning
and Community Right-to-Know Act of 1986 (each as amended), any other
law (or rule or regulation thereunder) of any Governmental Authority
or common law remedy concerning release or threatened release of
hazardous substances, public health and safety, or pollution or
protection of the environment.
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(iii) Target does not have any Liability (and none
of Target and, to the Knowledge of the Sellers, its predecessors and
Affiliates has handled or disposed of any substance, arranged for the
disposal of any substance, or owned or operated any property or
facility in any manner that could form the Basis for any present or
future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to
any statute) against Target giving rise to any Liability) for damage
to any site, location, or body of water (surface or subsurface) or for
illness or personal injury.
(iv) Target does not have any Liability (and, to the
Knowledge of the Sellers, there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand against Target giving rise to any Liability) under
the Occupational Safety and Health Act, as amended, or any other law
(or rule or regulation thereunder) of any Governmental Authority
concerning employee health and safety.
(v) Target does not have any Liability (and, to the
Knowledge of the Sellers, Target has not exposed any employee to any
substance or condition that could form the Basis for any present or
future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to
statute) against Target giving rise to any Liability) for any illness
of or personal injury to any employee.
(vi) Target has obtained and been in compliance with
all of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all laws of any Governmental Authority (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health and
safety, worker health and safety, and pollution or protection of the
environment, including laws relating to emissions, discharge,
releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into
ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants,
or chemical, industrial, hazardous, or toxic materials or wastes, the
violation of which would have a Material adverse effect on Target.
(vii) To the Knowledge of the Sellers, all
properties and equipment used in the business of Target have been free
of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2
trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances.
(viii) To the Knowledge of the Sellers, no
pollutant, contaminant, or chemical, industrial, hazardous, or toxic
material or waste ever has been buried, stored,
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spilled, leaked, discharged, emitted, or released on any real
property that Target owns or ever has owned or that Target leases or
ever has leased and except for normal office supplies stored in
amounts reasonable for the conduct of Target's business which will
not result in any liability to Target.
(v) LEGAL COMPLIANCE.
(i) To the Knowledge of the Sellers Target has
complied with all laws (including rules and regulations thereunder) of
all Governmental Authorities, and no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been
filed or commenced against Target alleging any failure to comply with
any such law or regulation.
(ii) Target has complied with all applicable laws
(including rules and regulations thereunder) relating to the
employment of labor, employee civil rights, and equal employment
opportunities.
(iii) Target has not violated in any respect or
received a notice or charge asserting any violation of the Sherman
Act, the Clayton Act, the Robinson-Patman Act, or the Federal Trade
Act, each as amended.
(iv) Target has complied with all applicable laws
(including rules and regulations thereunder) relating to the residency
status of foreign individuals which are employees of Target and
obtaining the requisite visas, permits and other documentation to
permit such individuals to work in the United States.
(v) Target has not:
(A) made or agreed to make any
contribution, payment, or gift of funds or property to any
governmental official, employee, or agent where either the
contribution, payment, or gift or the purpose thereof was
illegal under the laws of any Governmental Authority;
(B) established or maintained any
unrecorded fund or asset for any purpose, or made any false
entries on any books or records for any reason; or
(C) made or agreed to make any
contribution, or reimbursed any political gift or
contribution made by any other person, to any candidate for
public office with regards to any Governmental Authority.
(vi) To the Knowledge of the Sellers Target has
filed in a timely manner all reports, documents, and other materials
it was required to file (and the information
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contained therein was correct and complete in all respects) under all
applicable laws (including rules and regulations thereunder.
(vii) To the Knowledge of the Sellers Target has
possession of all records and documents it was required to retain
under all applicable laws (including rules and regulations
thereunder).
(w) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Except as set
forth in Section 4(w) of the Disclosure Schedule, none of the Sellers and their
Affiliates has been involved in any business arrangement or relationship with
Target within the past twelve (12) months, and none of the Sellers and their
Affiliates owns any property or right, tangible or intangible, which is used in
the business of Target.
(x) BROKERS' FEES. Target does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(y) DISCLOSURE. The representations and warranties contained
in this Section 4 along with the Disclosure Schedule and any other information,
statement or certificate provided by the Sellers does not contain any untrue
statement of fact or omit to state any fact necessary in order to make the
statements and information contained in this Section 4 not misleading.
(z) BOOKS AND RECORDS. The Sellers have furnished Buyer with
true and complete copies of the books and records relating to the ownership and
operation of Target. The books and records reflect all minutes and written
consents adopted by the Boards of Directors of Target. The books and records
have been maintained in accordance with applicable legal requirements, comprise
all of the books and records relating to the ownership and operation of Target,
reflect all proceedings and transactions customarily contained in corporate
books and records.
(aa) COMPLIANCE WITH THE LETTER OF INTENT. The Sellers have
complied in all respects with the terms of the Letter of Intent dated June 22,
1998 by and among the Sellers, Target and Buyer.
(bb) PAYMENTS TO OFFICIALS. During the three year period
prior to the date hereof, neither Target nor any of the Sellers on behalf of
Target has paid or given or has authorized or committed to the payment or gift
of money or anything of value to any official or employee of any government
entity or instrumentality or any political party or candidate for political
office for the purpose of influencing any governmental action or decision in
order to obtain or retain business or to direct business to any other party.
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5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its
reasonable best efforts to take all action and to do all things necessary,
proper, or advisable to consummate and make effective the transactions
contemplated by this Agreement (including satisfying the closing conditions set
forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Sellers will or will cause
Target to give any notices to third parties required by this Agreement or the
transactions contemplated hereby, and will or will cause Target to obtain all
third-party consents required by this Agreement or the transactions
contemplated hereby or in connection with the matters pertaining to Target
disclosed or required to be disclosed in the Disclosure Schedule. The Sellers
will take additional actions (and the Sellers will cause Target to take all
additional actions) that may be deemed necessary, proper, or advisable by Buyer
in connection with any other notices to, filings with, and authorizations,
consents, and approvals of governments, governmental agencies, and third
parties that he, she, it or Target may be required to give, make, or obtain as
reasonably required by this Agreement or the transactions contemplated hereby
in order that Buyer is able to conduct the business of Target in the same
manner as it is currently being conducted.
(c) OPERATION OF BUSINESS. The Sellers will not cause or
permit Target to engage in any practice, take any action, embark on any course
of inaction, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Sellers will
not cause or permit Target to engage in any practice, take any action, embark
on any course of inaction, or enter into any transaction of the sort described
in Section 4(f) above.
(d) PRESERVATION OF BUSINESS. The Sellers will cause Target
to keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS.
(i) Each of the Sellers will permit, and the Sellers
will cause Target to permit, representatives of Buyer to have
reasonable access during normal business hours, and in a manner so as
not to interfere with the normal business operations of Target, to the
headquarters office of Target and all books, records, contracts, Tax
records, and documents of or pertaining to Target. Buyer's on-site
investigation of Target shall be limited to ten (10) business days,
unless otherwise agreed to by Buyer and the Sellers in writing;
provided, however, that such limitation of time shall not otherwise
limit Buyer's investigation of Target off-site. During Buyer's on-site
investigation, Buyer shall not discuss any aspects of the operation of
Target with any employee of Target, and Buyer shall direct all
requests for
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information and material only through the Key Employees, unless
otherwise agreed to by Buyer and the Sellers in writing. Buyer shall
not contact or speak or correspond with any lender, customer,
employee or other person associated in business with Target without
the written consent of Target.
(ii) Upon completion of the accounting review and
business, legal and accounting due diligence by Buyer and so long as
this agreement has not been terminated, Buyer shall arrange with the
Sellers a mutually agreeable time and place at which Buyer may conduct
interviews with designated key employees and/or customers of Target
mutually agreed to by Buyer and the Sellers. Such interviews shall be
in strict conformity with a format mutually agreed to by Buyer and the
Sellers and shall take place and be completed wholly within the last
ten (10) days prior to Closing.
(f) NOTICE OF DEVELOPMENTS. The Sellers will give prompt
written notice to Buyer of any material development affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
or future prospects of Target. Each Party will give prompt written notice to
the others of any material development affecting the ability of the Parties to
consummate the transactions contemplated by this Agreement. No disclosure by
any Party pursuant to this Section 5(f) however, shall be deemed to amend or
supplement Annex II, Annex III, or the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. None of the Sellers will (and the Sellers
will not cause or permit Target to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to any (A)
liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C)
acquisition or purchase of securities or assets, or (D) similar transaction or
business combination involving Target or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. The Sellers will notify Buyer
immediately if any person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
(h) PREPARATION OF FINANCIAL STATEMENTS; DELIVERY OF
FINANCIAL INFORMATION. Target will prepare and deliver to Buyer, on a bi-weekly
basis until the Closing Date, the financial and other information listed on
Exhibit E hereto.
(i) DELIVERY OF SCHEDULES; ACCEPTANCE. Buyer acknowledges
that the preparation and delivery of the Schedules to the Agreement may not be
prepared and/or final at the time of the execution and delivery of the
Agreement. As such, the parties agree as follows:
(i) The Sellers shall have the right to deliver the
Schedules to the Agreement and/or to amend, restate and update the
Schedules to the Agreement up to the date which is five (5) days prior
to the Closing Date.
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(ii) at least five (5) days prior to the Closing,
Seller shall deliver to Buyer a complete copy of the proposed final
Schedules to the Agreement noting all changes from the Schedules
provided upon execution of the Agreement; and
(iii) Buyer shall notify Sellers at or prior to the
Closing that either (i) Buyer accepts such revised Schedules, in which
case they shall become part of this Agreement as if in existence on
the date of this Agreement and all such disclosures made in such
amended Schedules shall be deemed disclosed as if they had been
disclosed in the Schedules as of the date of this Agreement or (ii)
that Buyer in its sole discretion does not accept such Schedules and
elects to terminate this Agreement.
6. ADDITIONAL COVENANTS. The Parties further agree as follows:
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Sellers acknowledge and agree that from
and after the Closing Buyer will be entitled to possession of all documents,
books, records, agreements, and financial data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
(c) TRANSITION. None of the Sellers will take any action that
primarily is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of Target
from maintaining the same business relationships with Target after the Closing
for a period of twenty-four (24) months thereafter as it maintained with Target
prior to the Closing. Each of the Sellers will refer all customer inquiries
relating to the lines of businesses of Target to Target from and after the
Closing for a period of twenty-four (24) months thereafter.
(d) CONFIDENTIALITY. Each of the Sellers will treat and hold
as such all of the Confidential Information, refrain from using any of the
Confidential Information except in
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connection with this Agreement for a period of three (3) years from the
Closing, and deliver promptly to Buyer or destroy, at the request and option of
Buyer, all tangible embodiments (and all copies) of the Confidential
Information which are in his or its possession. In the event that any of the
Sellers is requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, that the Seller will notify Buyer promptly of the request or
requirement so that Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 6(d). If, in the absence of a
protective order or the receipt of a waiver hereunder, any of the Sellers is,
on the advice of counsel, compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, that Seller may disclose the
Confidential Information to the tribunal; provided, however, that the
disclosing Seller shall use his reasonable best efforts to obtain, at the
reasonable request of Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as Buyer shall designate. The foregoing provisions
shall not apply to any Confidential Information which is generally available to
the public immediately prior to the time of disclosure.
(e) MONITORING INFORMATION. Prior to the Closing, the Sellers
shall cause Target to deliver such information as may reasonably be requested
by Buyer.
(f) LEASES. The Sellers shall cause prior to the Closing
Date, Target to obtain from its landlords (to the extent required under the
pertinent premises lease) written consent to the assignment of all leases being
indirectly assumed by Buyer, which assignments are deemed to have resulted from
the transactions contemplated by this Agreement.
(g) SECTION 338(h)(10) ELECTION. The Sellers and Buyer shall
join in making a timely election (but in no event later than sixty (60) days
following the Closing) under Section 338(h)(10) of the Code (including the
prerequisite election under Section 338 of the Code) and any similar state law
provisions in all applicable states, with respect to the sale and purchase of
the Shares pursuant to this Agreement, and each party shall provide to the
others all necessary information to permit such elections to be made. Buyer and
the Sellers shall, as promptly as practicable following the Closing Date, take
all actions necessary and appropriate (including filing such forms, returns,
schedules and other documents as may be required) to effect and preserve timely
elections. All Taxes attributable to the elections made pursuant to this
Section 6(g) shall be the liability of the Sellers. In connection with such
elections, within sixty (60) days following the Closing Date, Buyer and the
Sellers shall act together in good faith to determine and agree upon the
"deemed sale price" to be allocated to each asset of Target in accordance with
Treasury Regulation Section 1.338(h)(10)-1(f) and the other regulations under
Section 338 of the Code. Notwithstanding the generality of the immediately
preceding sentence, Buyer and the Sellers agree that the "DEEMED SALE PRICE"
shall be allocated to the fixed assets and the monetary assets of Target at
their fair market value as of the Closing Date as determined in accordance with
GAAP, consistently applied, and the balance of the "deemed sale price" shall be
allocated to goodwill and other intangible assets of Target, but in no event
shall (A) the "deemed sale price" allocated to the non-competition
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covenant exceed $50,000, and (B) the "deemed sale price" allocated to the fixed
assets exceed their depreciated book value. Both Buyer and the Sellers shall
report the tax consequences of the transactions contemplated by this Agreement
consistently with such allocations and shall not take any position inconsistent
with such allocations in any Tax Return or otherwise. The Sellers shall be
liable for, and shall indemnify and hold Buyer and Target harmless against, any
Taxes or other costs attributable to (i) a failure on the part of the Sellers
to take all actions required of them under this Section 6(g); or (ii) a failure
on the part of Target to qualify as an "S CORPORATION" for which the Section
338(h)(10) election may be made.
(h) ADDITIONAL TAX MATTERS.
(i) The Sellers shall cause Target to file with the
appropriate Governmental Authorities all Tax Returns required to be
filed by it for any taxable period ending on or prior to the Closing
Date and Target shall remit any Taxes due in respect of such Tax
Returns. Buyer shall cause Target to file with the appropriate
Governmental Authorities all Tax Returns required to be filed by it
for any taxable period ending after the Closing Date.
(ii) Buyer and the Sellers recognize that each of
them will need access, from time to time, after the Closing Date, to
certain accounting and Tax records and information held by Buyer
and/or Target to the extent such records and information pertain to
events occurring on or prior to the Closing Date; therefore, Buyer
agrees to cause Target to (A) use its best efforts to properly retain
and maintain such records for a period of six (6) years from the date
the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to
such year, whichever is later, and (B) allow the Sellers and their
agents and representatives at times and dates mutually acceptable to
the Parties, to inspect, review and make copies of such records as
such other party may deem necessary or appropriate from time to time,
such activities to be conducted during normal business hours and at
the other Party's expense.
(iii) The Sellers shall reimburse Buyer for the
Taxes relating to periods prior to the Closing Date, but which are
payable in respect of Tax Returns to be filed by Buyer pursuant to
Section 6(h)(i) hereof within ten (10) business days after receipt by
the Sellers of signed copies of such Tax Returns as filed; however,
Sellers shall reimburse only to the extent such Taxes are in excess of
the reserve for such Tax Liability used to determine the Net Working
Capital of Target as of the Closing Date.
(iv) Neither Buyer nor Target shall be liable for
any taxes created solely from the conversion by Target to the accrual
basis of tax accounting from the cash basis of tax accounting
immediately prior to Closing in contemplation of Closing. The Sellers
shall reimburse Buyer for any Taxes for which either Buyer or Target
become liable due solely to such conversion.
ADVANCED INFORMATION SOLUTIONS, INC.
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(i) COVENANT NOT TO COMPETE.
(i) For a period of four (4) years from and after
the Closing Date or two (2) years beyond the term of his employment
with Target, which ever is longer, none of the Key Employees will (i)
engage directly or indirectly in any business that is substantially
similar to that conducted by Target within a one hundred (100) mile
radius of any office of Target; (ii) service or solicit any current or
future customer of Target and/or Buyer relating to any business that
is substantially similar to that conducted by Target; or (iii) offer
employment to or attempt to induce any director, officer, employee,
agent, or customer of Target to terminate such relationship with
Target; provided, however, that no owner of less than 1% of the
outstanding stock of any publicly traded corporation shall be deemed
to engage solely by reason of such ownership in Target's business;
provided, further, that nothing in this Section 5(i)(i) shall prohibit
the Sellers from serving as a full time employee of a business not a
present or identified potential customer of Buyer and not engaged in a
business that is substantially similar to that conducted Buyer for
which such Seller's duties involve information technology services or
similar duties;
(ii) If any Seller commits a breach, or overtly
threatens to commit a breach, of any of the provisions of Section
6(i)(i) above, Buyer shall have the right and remedy to seek to have
the provisions of Section 6(i)(i) specifically enforced by any court
having jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury and
continuing damage to Buyer, Target and their affiliates, and that the
exact amount of which would be difficult to ascertain and that in any
event money damages will not provide adequate remedy and Buyer shall
be entitled to seek to obtain injunctive relief restraining any
violation of Section 6(i)(i);
(iii) It is expressly understood and agreed that
Buyer and the Sellers consider the restrictions contained in Section
6(i)(i) above to be reasonable and necessary for the purposes of
preserving and protecting the business of Target and goodwill
purchased by Buyer; and
(iv) If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6(i)
is invalid or unenforceable, the Parties agree that the court making
the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area of term or provision, to
delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time
within which the judgment may be appealed.
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(j) ACCESS TO PREVIOUS ACQUISITIONS. Buyer shall provide to
the Sellers three (3) contacts relating to Buyer's prior acquisitions. The
Sellers may contact these parties upon reasonable notice to Buyer.
7. CONDITIONS TO OBLIGATIONS TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) The Sellers shall have performed and complied
with all of their covenants hereunder in all Material respects through
the Closing;
(iii) Target shall have procured all of the
governmental or third party consents and approvals specified in
Section 5(b) including any landlord consents related to any rental
property.
(iv) No action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency within the jurisdiction of any Governmental Authority wherein
an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation,
or (C) affect adversely the right of Buyer to own, operate, or control
the Shares or Target (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
(v) The Sellers shall have delivered to Buyer a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above
in Section 7(a)(i)-(iv) is satisfied in all respects;
(vi) Buyer shall have received from the Key
Employees executed employment agreements in the form and substance
attached hereto as Exhibit B;
(vii) Buyer shall have received from each Key
Employee mutually agreed to by the Parties an executed non-competition
agreement in the form and substance attached hereto as Exhibit C;
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(viii) Buyer shall have received from counsel to the
Sellers an opinion with respect to the matters set forth in Exhibit D
attached hereto, addressed to Buyer and dated as of the Closing Date;
(ix) Buyer shall have received the resignations,
effective as of the Closing, of each director of Target designated by
Buyer prior to the Closing;
(x) All officers and directors of Target and each
Seller shall have repaid in full all debts or other obligations, if
any, owed to Target;
(xi) No Material adverse change shall have occurred
before the Closing in Target's business or its future business
prospects;
(xii) All appropriate corporate and shareholder
authorizations of Target shall have been obtained;
(xiii) Buyer shall be satisfied that at Closing all
facilities of Target are under legal, valid and binding leases or
subleases, each of which have received all approvals of governmental
authorities;
(xiv) The Sellers shall have delivered to Buyer
stock certificates evidencing all of the stock of Target in good
delivery form and duly endorsed for transfer or accompanied by duly
executed stock powers or other appropriate assignment documents;
(xv) The Sellers shall have caused and Target shall
have cancelled any stock options, deferred bonus programs, and phantom
equity plans outstanding as of the Closing Date, at no cost or
liability to Buyer and/or Target. The payments made by the Sellers and
due pursuant to the cancellation of such programs will vest and be
payable to the recipients in accordance with terms and conditions
mutually agreed upon by the Sellers and Buyer. In conjunction with the
cancellation of such programs, all eligible employees shall have
signed releases and cancellation agreements which include provisions
that each employee will not, for a period of one (1) year from the
Closing Date or one (1) year from the termination of his or her
employment with Target whichever period is longer: (a) service or
solicit any customers of Target and/or Buyer, or (b) solicit for
employment any employee of Target;
(xvi) All liens and security interests securing
debts of Target which have been paid in full prior to or at the
Closing shall have been fully released of record to the reasonable
satisfaction of Buyer and all Uniform Commercial Code financing
statements or other filings of any kind whatsoever, covering or
evidencing such debts, liens and/or security interests shall have been
terminated;
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(xvii) All obligations of Target which are not being
retired or satisfied by the Sellers prior to or at the Closing, shall
have been modified in such a manner that their covenants, repayment
schedules, and other provisions will be upon terms reasonably
satisfactory to Buyer;
(xviii) No unsatisfied liens for the failure to pay
Taxes of any nature whatsoever shall exist against Target, or against
or in any way affecting any of the Shares;
(xix) The Adjusted EBIT of Target for the twelve (12)
month period ending June 30, 1998 shall be no less than $1,200,000;
(xx) All deferred taxes of Target and all other tax
related issues of Target shall have been assumed and/or discharged by
the Sellers to the extent the same have not been accrued for and
reflected in the calculation of Net Working Capital as of the Closing
Date;
(xxi) Buyer shall be satisfied in its sole
discretion with the results of its legal, financial and business due
diligence investigations; and
(xxii) Buyer shall have received a certificate of
the Secretary of Target accompanied with Target's certified
certificate of incorporation and bylaws and certificates of good
standing in each jurisdiction in which Target is required to be
qualified to do business.
Buyer may waive any condition specified in this Section 7(a)
if it executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations
of the Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing;
(iii) no action, suit or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency within the jurisdiction of any Governmental Authority wherein
an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded
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following consummation (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
(iv) Buyer shall have delivered to the Sellers a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above
in Section 7(b)(i)-(iii) is satisfied in all respects; and
(v) The Sellers shall have received from counsel to
Buyer an opinion with respect to the matters set forth in Exhibit E
attached hereto, addressed to the Sellers and dated as of the Closing
Date.
The Sellers may waive any condition specified in this Section
7(b) if they execute a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL. Except as otherwise specifically provided in
this Agreement, all of the representations and warranties of the Sellers (other
than the representations and warranties of the Sellers contained in Section 3,
Section 4(h) or Section 4(s) above), shall survive the Closing hereunder (even
if Buyer knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect for a
period of two (2) years thereafter. All of the representations and warranties
of the Sellers contained in Section 3, Section 4(h) and Section 4(s) of this
Agreement and the representations and warranties of Buyer shall survive the
Closing (even if the other party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for the statute of limitations. The covenants of Buyer
and the Sellers shall survive the Closing and continue in full force and effect
indefinitely unless expressly provided otherwise in this Agreement.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER.
(i) In the event the Sellers (or in the event any
third party alleges facts that, if true, would mean any of the Sellers
has breached) breach any of their representations, warranties, and
covenants contained herein during the period such representations,
warranties and covenants survive, and provided that Buyer makes a
written claim for indemnification against any of the Sellers pursuant
to Section 10(h) below within the applicable survival period, then
each of the Sellers agrees to indemnify Buyer from and against the
entirety of any Adverse Consequences Buyer may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences Buyer may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach) provided, however,
that the Sellers shall not have any obligation to indemnify Buyer from
and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach of any
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representation or warranty of the Sellers contained in Section 4 above
(i) until Buyer has suffered aggregate losses by reason of all such
breaches in excess of a $25,000 threshold (at which point the Sellers
will be obligated to indemnify Buyer from and against all such
aggregate losses including losses relating back to the first dollar);
and (ii) in excess of the Purchase Price (after which point the
Sellers shall have no obligation to indemnify Buyer from and against
further such Adverse Consequences) provided further, however, that the
limitations set forth in (i) and (ii) above specifically shall not
apply to the liability of any Seller with respect to Adverse
Consequences resulting from or attributable to intentional fraud or
any willful misconduct by the Sellers nor to the liability of any
Seller with respect to breaches of the representations and warranties
contained in Sections 4(b), 4(h), and 4(n) hereof and the limitations
set forth in (ii) above specifically shall not apply to the liability
of any Seller with respect to Adverse Consequences resulting from or
attributable to the liability of any Seller with respect to breaches
of the representations and warranties contained in Section 4(s)
hereof.
(ii) In the event any of the Sellers breaches (or in
the event any third party alleges facts that, if true, would mean any
of the Sellers has breached) any of his Several representations,
warranties, and covenants contained herein, and provided that the
particular representation, warranty, or covenant survives the Closing
and that Buyer makes a written claim for indemnification against the
Seller pursuant to Section 10(h) below within the applicable survival
period as set forth in Section 8(a), then the Seller agrees to
indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences Buyer may
suffer after the end of the applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(iii) Each of the Sellers agrees to indemnify Buyer
from and against the entirety of any Adverse Consequences Buyer may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by any Liability of Target arising under United States
Treasury Reg. Section 1.1502-6 (because Target once was a member of an
Affiliated Group during any part of any consolidated return year
within any part of which consolidated return year any corporation
other than Target also was a member of the Affiliated Group).
(iv) Each of the Sellers agree to indemnify Buyer
from and against the entirety of any transfer, stamp or similar Taxes
that which may become due and owing to any Governmental Authority by
reason of the sale of Target to Buyer.
(v) Each of the Sellers shall be liable for, and
hereby indemnifies, Buyer for all income Taxes imposed on Target with
respect to any taxable year or period ending on or before the Closing
Date or beginning before and ending after the Closing Date
("PRE-CLOSING TAXES"); provided, however, that such indemnity shall be
made only to the extent Pre-Closing Taxes are in excess of the
reserve; if any, for such Tax Liability as reflected in
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the Financial Statements or in the computation of the Net Working
Capital. In order to apportion appropriately any income Taxes
relating to any taxable year or period that begins before and ends
after the Closing Date, the Parties hereto shall, to the extent
permitted or not prohibited by applicable law, elect with the
relevant taxing authority, if required or necessary, to terminate the
taxable year of Target as of the Closing Date. In any case where
applicable law does not permit Target to treat such date as the end
of a taxable year or period, then whenever it is necessary to
determine the liability for income Taxes of Target, for a portion of
a taxable year or period, such determination shall (unless otherwise
agree to in writing by Buyer and the Sellers) be determined by a
closing of Target' books, except that exemptions, allowances or
deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned on a time basis. In
no event shall such apportionment of income Taxes be greater than the
income Taxes which would have been allocated to Target if such income
Taxes had been based upon a time period in proportion to the number
of days during such taxable year or period the Sellers and Buyer
owned the stock in Target.
(vi) Each of the Sellers agrees to indemnify Buyer
from and against the entirety of any Liability of Target relating to
claims incurred but not submitted prior to Closing relating to
Target's self insured vision employee benefit plan to the extent that
such Liability is in excess of the reserve relating to any such
Liability accrued on the financial statements of Target as of June 30,
1998 and used in the determination of Net Working Capital of Target as
of June 30, 1998 as provided in Section 2(c) of this Agreement.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In
the event Buyer breaches any of its representations, warranties, and covenants
contained herein, and provided that any of the Sellers makes a written claim
for indemnification against Buyer pursuant to Section 10(h) below within the
applicable survival period as set forth in Section 8(a), then Buyer agrees to
indemnify each of the Sellers from and against the entirety of any Adverse
Consequences Seller may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences Seller may suffer after the
end of the applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach.
(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall
notify any Party (the "INDEMNIFIED PARTY") with respect to any matter which may
give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this Section 8, then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
damaged. In the event any Indemnifying Party notifies the Indemnified Party
within thirty (30) days after the Indemnified Party has given notice of the
matter that the Indemnifying party is assuming the defense thereof, (A) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the
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Indemnified Party, (B) the Indemnified Party may retain separate co-counsel at
its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel to the extent
the Indemnified Party reasonably concludes that the counsel the Indemnifying
Party has selected has a conflict of interest), (C) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Indemnifying Party
(not to be withheld unreasonably), and (D) the Indemnifying Party will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases the Indemnified Party from all Liability with
respect thereto, without the written consent of the Indemnified Party (not to
be withheld unreasonably). In the event no Indemnifying Party notifies the
Indemnified Party within thirty (30) days after the Indemnified Party has given
notice of the matter that the Indemnifying Party is assuming the defense
thereof, however, the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner it reasonably may deem
appropriate. At any time after commencement of any such action, any
Indemnifying Party may request an Indemnified Party to accept a bona fide offer
from the other Parties to the action for a monetary settlement payable solely
by such Indemnifying Party (which does not burden or restrict the Indemnified
Party nor otherwise prejudice him or her) whereupon such action shall be taken
unless the Indemnified Party determines that the dispute should be continued,
the Indemnifying Party shall be liable for indemnity hereunder only to the
extent of the lesser of (i) the amount of the settlement offer or (ii) the
amount for which the Indemnified Party may be liable with respect to such
action. In addition, the Party controlling the defense of any third party claim
shall deliver, or cause to be delivered, to the other Party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of the third party
claim, and timely notices of, and the right to participate in (as an observer)
any hearing or other court proceeding relating to the third party claim.
(e) DETERMINATION OF LOSS. The amount of indemnification to
be paid by any Party to another Party hereto shall be reduced by (i) any
insurance proceeds received, including both defense and indemnification costs,
with respect to any insurance policy maintained by Target providing coverage
with respect to any of the Adverse Consequences; and (ii) any Tax benefits
received by Buyer as a result of any of the Adverse Consequences (utilizing the
Applicable Rate as the discount rate). All indemnification payments under this
Section 8 shall be deemed adjustments to the Purchase Price.
(f) EXCLUSIVE REMEDY. Buyer and Seller acknowledge and agree
that the foregoing indemnification provisions in this Section 8 shall be the
exclusive remedy of both Buyer and the Sellers for any breach of the
representations and warranties of either Party.
(g) PAYMENT. The Indemnifying Parties shall promptly pay to
Buyer or such other Indemnified Party as may be entitled to indemnity hereunder
in cash the amount of any Adverse Consequences to which Buyer or such
Indemnified Party may become entitled to by reason of the provisions of this
Agreement.
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(h) TAX DISPUTES. In the event that any dispute arises
between Target and the Internal Revenue Service or any state tax authority
relating to an issue in which the Sellers have agreed to indemnify Buyer, the
Sellers shall have the right to associate with Buyer in the defense or
settlement of any such claims. Moreover, Buyer at all times shall act in good
faith in order to minimize the tax liability as to issues in which the Sellers
have agreed to indemnify Buyer (so long as it does not adversely affect Target)
and shall not settle or compromise any claims without the consent of the
Sellers, which consent shall not be unreasonably withheld.
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement at any time prior to the Closing as provided below:
(i) Buyer and the Sellers may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing in the
event any of the Sellers is in breach, and the Sellers may terminate
this Agreement by giving written notice to Buyer at any time prior to
the Closing in the event Buyer is in breach of any material
representation, warranty, or covenant contained in this Agreement in
any material respect;
(iii) [Reserved.];
(iv) Buyer may terminate this Agreement at any time
prior to the Closing by giving written notice to the Sellers within
twenty (20) days of the date of this Agreement if Buyer is not
reasonably satisfied with the results of its continuing business,
legal and accounting due diligence to that date, including but not
limited to each and every item set forth on each Disclosure Schedule
delivered by the Sellers to Buyer.
(v) No later than five (5) days from the date which
Buyer is notified by the Sellers that it may contact key employees and
customers of Target, Buyer may terminate this Agreement by giving
written notice to the Sellers if Buyer is not reasonably satisfied
with the results of its interviews with the key employees and/or
customers of Target as provided for in Section 5(e)(ii) hereof.
(vi) Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing if the
Closing shall not have occurred on or before July 30, 1998 by reason
of the failure of any condition precedent under Section 7(a) hereof
(unless the failure results primarily from Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); or
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(vii) The Sellers may terminate this Agreement by
giving written notice to Buyer at any time prior to the Closing if the
Closing shall not have occurred on or before July 30, 1998 by reason
of the failure of any condition precedent under Section 7(b) hereof
(unless the failure results primarily from any of the Sellers
themselves breaching any representation, warranty, or covenant
contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 9(a) above, all obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party. Upon termination, Buyer shall return or destroy all confidential
documents, notes or other written memoranda regarding Target delivered in
connection with the transactions contemplated hereby within five (5) business
days thereafter.
10. MISCELLANEOUS.
(a) THE SELLERS.
(i) When any particular Seller (as opposed to the
Sellers as a group) makes a representation, warranty, or covenant
herein, then that representation, warranty, or covenant will be
referred to herein as the "SEVERAL" obligation of such Sellers. This
means that the particular Seller making the representation, warranty,
or covenant will be solely responsible for any Adverse Consequences
Buyer may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any breach thereof. The covenants of each of
Sellers in Section 2(a) above concerning the sale of his Shares to
Buyer and the representations and warranties of each of Sellers in
Section 3(a) above concerning the transaction are the Several
obligations of Sellers.
(ii) When the Sellers as a group make a
representation, warranty, or covenant herein, then that
representation, warranty, or covenant will be referred to herein as
the "JOINT AND SEVERAL" obligation of Sellers. This means that each
Seller will be responsible for the entirety of any Adverse
Consequences Buyer may suffer resulting from, arising out of, relating
to, in the nature of, or caused by any breach thereof. The
representations and warranties of Sellers in Section 4 above
concerning Target are examples of Joint and Several obligations.
(b) PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue
any press release or announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of Buyer and
the Sellers; provided, however, that any Party may make any public disclosure
it believes in good faith is required by law or regulation (in which case the
disclosing Party will advise the other Parties prior to making the disclosure).
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(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of his or its rights, interests, or obligations hereunder
without the prior written approval of Buyer and the Sellers; provided, however,
that Buyer may (i) assign any or all of its rights and interests hereunder to a
wholly-owned subsidiary of Buyer (in any or all of which cases Buyer
nonetheless shall remain liable and responsible for the performance of all of
its obligations hereunder).
(f) FACSIMILE/COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or more
parties hereto, and an executed copy of this Agreement may be delivered by one
or more parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any party hereto, all
parties hereto agree to execute an original of this Agreement and provide such
requesting party with a full set of original signature pages for each of the
parties hereto other than the requesting party within two (2) days of the
original execution date hereof.
(g) HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to a Seller:
at the address shown for such Seller on Section 4(b)
of the Disclosure Schedule.
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 50
with a copy to:
Suzanne L. Saxman, Esq.
D'Ancona & Pflaum
30 N. LaSalle, Suite 2900
Chicago, IL 60602
Telephone: 312/580-2064
Facsimile: 312/580-0923
If to Buyer:
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Attention: Michael T. Willis
Telephone: (713) 548-3400
Facsimile: (713) 627-1059
with a copy to:
Peter T. Dameris, Esq.
Margaret G. Reed, Esq.
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Telephone: (713) 548-4300
Facsimile: (713) 627-1059
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts)
of the State of Texas.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyer and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 51
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgement of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(l) EXPENSES. Each of Buyer and the Sellers will bear his or
its own costs and expenses (including legal and investment banking fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
(m) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any statute or law of any Governmental Authority shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant relating to
the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact
that the Party is in breach of the first representation, warranty, or covenant.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(p) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 52
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
METAMOR WORLDWIDE, INC.
By: /s/ Peter T. Dameris
---------------------------------
Name: Peter T. Dameris
Title: Senior Vice President
and Secretary
TARGET:
ADVANCED INFORMATION SOLUTIONS, INC.
By: /s/ Robert E. Knott, Jr.
---------------------------------
Name: Robert E. Knott, Jr.
Title: President and Assistant
Secretary
SELLERS:
/s/ Robert E. Knott, Jr.
-------------------------------------
Robert E. Knott, Jr.
/s/ Jeffrey R. Hoffman
-------------------------------------
Jeffrey R. Hoffman
ADVANCED INFORMATION SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
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<PAGE> 1
EXHIBIT 2.7
ASSET PURCHASE AGREEMENT
Dated as of November 12, 1998,
by and among
METAMOR WORLDWIDE, INC.,
METAMOR TECHNOLOGIES, LTD.,
NEW TECHNOLOGY PARTNERS, INC.
and
THE SHAREHOLDERS OF NEW TECHNOLOGY PARTNERS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions..............................................1
ARTICLE 2
PURCHASE AND SALE OF ASSETS; PURCHASE PRICE
2.1 Purchase and Sale of Purchased Assets............................2
2.2 Consideration....................................................2
2.3 Buyer's Assumed Obligations......................................2
2.4 Seller's Retained Liabilities....................................3
2.5 Earn-Out Payments................................................3
2.6 Date and Form of Payment.........................................3
2.7 Net Working Capital Adjustment...................................4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE SHAREHOLDERS
3.1 Organization; Authorization......................................5
3.2 Consents; Absence of Conflicts...................................5
3.3 Litigation.......................................................6
3.4 Compliance with Laws.............................................6
3.5 Title and Sufficiency of Purchased Assets. .....................6
3.6 Intercompany Obligations.........................................6
3.7 Books and Records................................................6
3.8 Contracts........................................................6
3.9 Taxes............................................................7
3.10 Bills and Invoices...............................................7
3.11 Employee Benefit Plans...........................................7
3.12 Employees and Employee Relations.................................8
3.13 Immigration Act..................................................8
3.14 Financial Information; Subsequent Events.........................9
3.15 Consultants.....................................................11
3.16 Anticipated Demand for Services.................................11
3.17 Tangible Assets.................................................11
3.18 Real Property...................................................11
3.19 Intellectual Property...........................................12
3.20 Notes and Accounts Receivable...................................14
3.21 Insurance.......................................................14
3.22 Brokers' Fees...................................................15
3.23 Disclosure......................................................15
ARTICLE 3A
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1A Organization; Authorization; Qualification......................16
3.2A Absence of Conflicts............................................16
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 4
CLOSING CONDITIONS; CLOSING
4.1 Closing.....................................................16
4.2 Conditions to Closing.......................................16
4.3 Documents to Become Effective at Closing....................18
4.4 Action to be Taken by Seller at the Closing.................18
4.5 Actions To Be Taken by Buyer at the Closing.................19
ARTICLE 5
INDEMNIFICATION
5.1 Buyer's Indemnities.........................................20
5.2 Seller's and Shareholders' Indemnities......................20
5.3 Exceptions to Buyer and Seller Indemnities..................21
5.4 Payment; General Right of Offset............................21
ARTICLE 6
MISCELLANEOUS AGREEMENTS
6.1 Pre-Closing Covenants.......................................22
6.2 Employment of NTPC Employees................................23
6.3 Employee Benefit Matters....................................23
6.4 Warn Act....................................................25
6.5 Change of Name..............................................25
6.6 Website.....................................................26
6.7 Domain......................................................26
6.8 Exclusive Designation.......................................26
6.9 Receipt of Payment..........................................26
6.10 Forwarding Services.........................................27
6.11 Further Assurances..........................................27
6.12 Payment of Obligations......................................27
6.13 Transition Assistance.......................................27
6.14 Covenant Not to Compete.....................................27
6.15 Confidentiality.............................................28
6.16 Conduct of Business During Earn-Out Period..................28
6.17 Access......................................................28
6.18 Brokerage Fees..............................................29
6.19 Assignment..................................................29
6.20 Notices.....................................................29
6.21 Choice of Law...............................................30
6.22 Entire Agreement; Amendments and Waivers....................30
6.23 Facsimile/Counterparts......................................30
6.24 Expenses of this Agreement..................................31
6.25 Invalidity..................................................31
6.26 Headings; References........................................31
6.27 No Third Party Beneficiaries................................31
6.28 No Merger...................................................31
6.29 Survival of Representations and Warranties..................31
6.30 Further Assurances..........................................31
</TABLE>
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<PAGE> 4
EXHIBITS
Exhibit A Definitions
Exhibit B Purchased Assets
Exhibit C Assumed Obligations
Exhibit D Form of Legal Opinion by Counsel to Seller
Exhibit E Employment Agreement
Exhibit F Non-Competition/No Solicitation Agreement
Exhibit G Transition Agreement
Exhibit H Sublease Agreement
Exhibit I Form of General Conveyance, Assignment, Bill of Sale
and Assumption Agreement
ANNEX I Determination of Adjusted EBIT
ANNEX II Estimated Net Working Capital
SCHEDULES
Schedule 3.2 Consents Needed
Schedule 3.11 Employee Benefit Plans
Schedule 3.12 Employees
Schedule 3.14 Financial Statements
Schedule 3.15 Consultants (Independent Contractors)
Schedule 3.18 Real Property Leases
Schedule 3.19 Intellectual Property
Schedule 3.21 Insurance
-iii-
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT"), dated as of November
12, 1998, is entered into by and among Metamor Worldwide, Inc., a Delaware
corporation ("METAMOR") and Metamor Technologies, Ltd., an Illinois corporation
and a wholly-owned subsidiary of Metamor, ("BUYER"), New Technology Partners,
Inc., a Delaware corporation ("SELLER"), and the shareholders of Seller as set
forth on the signature page hereto ("SHAREHOLDERS").
WHEREAS, Seller owns and operates a division known under the names NTP
Consulting and New Technology Partners Consulting (together, "NTPC"), which is
an information technologies consulting business (the "BUSINESS");
WHEREAS, Seller owns and operates a division known under the name NTP
Software, which is engaged in the development of software for commercial sale
and the provision of installation and maintenance services solely associated
with such software (the "RETAINED BUSINESS");
WHEREAS, as part of the Business, Seller has employees and/or engages
consultants who provide information technology services both as employees of
Seller or as independent contractors (collectively, the "CONSULTANTS");
WHEREAS, Seller employs individuals in NTPC whose principal duties
relate to the Business (some of whom, but not all, are Consultants) ("NTPC
EMPLOYEES");
WHEREAS, together with the Consultants, Seller owns and operates
certain assets that are used or useful to NTPC and the operation of the
Business;
WHEREAS, Seller desires to sell and transfer to Buyer all of the assets
related to the Business, and Buyer desires to purchase all of the assets related
to the Business from Seller, on the terms and conditions described herein;
WHEREAS, Buyer desires to employ or engage in addition to the
Consultants and the NTPC Employees certain key employees ("KEY EMPLOYEES"), and
Seller desires to release the Consultants, the NTPC Employees and the Key
Employees from their employment or engagement with Seller;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINITIONS. Capitalized terms used in this Agreement but
not defined in the body hereof shall have the meanings ascribed to them in
Exhibit A.
<PAGE> 6
ARTICLE 2
PURCHASE AND SALE OF ASSETS; PURCHASE PRICE
2.1 PURCHASE AND SALE OF PURCHASED ASSETS. Subject to the terms and
conditions of this Agreement at the Closing, Seller will grant, bargain, sell,
convey, transfer, assign and deliver to Buyer all tangible and intangible assets
of any nature specifically relating to or primarily used in the Business (the
"PURCHASED ASSETS"). The Purchased Assets which are more specifically set forth
in Exhibit B to this Agreement, include but are not limited to:
(a) all Accounts Receivable;
(b) all Intellectual Property;
(c) all Customer Contracts;
(d) all Consultant Contracts;
(e) all Personal Property;
(f) all Confidential Information;
(g) all Books and Records; provided, however, that the Books and
Records that are intermingled with the books and records of
Seller's other operations such that they can not be reasonably
separated may be held with Seller, as custodian for Buyer,
until such time as duplicate sets can be provided to Buyer
(such period not to exceed 60 days from the date hereof);
(h) all Work in Progress;
(i) the Corporate Names;
(j) all designations, certifications and awards related to the
Business;
(k) all Customer-Related Data;
(l) the Website;
(m) the Domain;
(n) the Phone Number; and
(o) the goodwill and going-concern value of the Business.
The Purchased Assets will be transferred to Buyer free of any and all
Liens.
2.2 CONSIDERATION. The consideration (exclusive of the Assumed
Obligations (as defined below) to be paid by Buyer to Seller for the sale,
transfer, assignment, conveyance and delivery of the Purchased Assets shall be
comprised of $7,556,286.93, payable in cash at the Closing or by wire transfer
contemporaneous with the Closing (the "CASH PORTION OF THE PURCHASE PRICE"), and
an additional Earn-Out Payment (as defined below), provided that the sum of the
Cash Portion of the Purchase Price and the Earn-Out Payment shall never exceed
$9,056,286.93. The Cash Portion of the Purchase Price and the Earn-Out Payment
shall be referred to herein as the "Consideration."
2.3 BUYER'S ASSUMED OBLIGATIONS. Buyer hereby assumes those obligations
set forth in detail in Exhibit C to this Agreement (the "ASSUMED OBLIGATIONS").
Buyer shall assume no liabilities, whether contingent or otherwise, and shall
not be obligated to pay any liability of Seller other than the Assumed
Obligations.
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<PAGE> 7
2.4 SELLER'S RETAINED LIABILITIES. Except for the Assumed Obligations,
it is understood and agreed that Seller shall retain all liability for, and
Buyer shall not assume or have any obligation with respect to, any obligations
or liabilities of Seller or its Affiliates that are attributable to the
Purchased Assets or the Business (all such obligations and liabilities being
herein referred to as the "EXCLUDED LIABILITIES"), including, without
limitation, all obligations and liabilities attributable to the following: (i)
any and all obligations arising under law or contract with respect to any
individual in connection with his or her employment by Seller or its Affiliates
or in connection with Seller's or its Affiliates' termination of such
individual's employment at any time; (ii) the performance, nonperformance or
breach by Seller or its Affiliates of any of the Customer Contracts, or any
obligation or commitment arising or accruing thereunder before the Effective
Time; (iii) Seller's or its Affiliates' ownership, use, or operation of the
Purchased Assets prior to the Effective Time; (iv) the violation by Seller or
its Affiliates of any laws, regulations, ordinances or any other legal
requirement to which any of Seller or its Affiliates is subject relating to the
ownership, use or operation by Seller or its Affiliates of the Purchased Assets;
and (v) all Taxes payable with respect to the Purchased Assets and the Business
or the ownership, use or operation thereof by Seller or its Affiliates on or
before the Effective Time.
2.5 EARN-OUT PAYMENTS. Buyer agrees to pay to Seller, if earned, the
following earned payout amount: an earned payout amount (the "EARN-OUT PAYMENT")
equal to the product of 5.5 multiplied by the amount, if any, by which the
Adjusted EBIT of NTPC for the twelve (12) month period ending December 31, 1999
exceeds the Adjusted EBIT of NTPC for the twelve (12) month period ending
December 31, 1998 (the "1998 PERIOD"). In no event shall the Consideration
exceed $9,056,286.93 and, to the extent that the Earn-Out Payment would cause
the aggregate amount of Consideration to exceed $9,056,286.93, such payment
shall be accordingly reduced.
The period from January 1, 1999 to and including December 31, 1999
shall be referred to as the "EARN-OUT PERIOD." Metamor shall ensure that Buyer
has sufficient capital to meet its obligations under this Agreement.
2.6 DATE AND FORM OF PAYMENT. The Earn-Out Payment, if earned, shall be
paid by wire transfer on or before March 15, 2000 (unless such Earn-Out Payment
is subject to a good faith dispute, in which case such Earn-Out Payment shall be
payable within the time period provided for below) and shall be based on the
internally-generated financial statements prepared in accordance with GAAP,
consistently applied (which have been prepared under the direction of Buyer) of
the Business for the Earn-Out Period. Buyer shall deliver to Seller no later
than February 15, 2000, the internally-generated financial statements of the
Business prepared in accordance with GAAP, consistently applied for the 1998
Period and the Earn-Out Period. A computation of the Adjusted EBIT of the
Business for the 1998 Period and the Earn-Out Period shall be prepared by Buyer
in the form of a report in accordance with Annex I hereto and delivered to
Seller on or prior to February 28, 2000.
In the event there is a dispute between Buyer and Seller regarding the
Earn-Out Payment, the Earn-Out Payment shall be determined by Ernst & Young LLP
in accordance with this Agreement (at the joint expense of Buyer and Seller).
Buyer and Seller shall use all reasonable efforts to cause such determination
(each an "E&Y EARN-OUT PAYMENT DETERMINATION") to be submitted in writing
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<PAGE> 8
to Buyer and Seller no later than March 15, 2000. The E&Y Earn-Out Payment
Determination shall be final, conclusive and binding on the Parties and an
adjustment to the Earn-Out Payment shall be made accordingly within ten (10)
days from receipt of the E&Y Earn-Out Payment Determination.
2.7 NET WORKING CAPITAL ADJUSTMENT.
The estimated Net Working Capital of the Business as of the Closing
Date (the "ESTIMATED NET WORKING CAPITAL") shall be that amount set forth in
Annex II hereto, as determined by the Parties in accordance with the provisions
hereof, and shall be based on the Business' estimated financial statements as of
the Closing Date, which will have been prepared in accordance with GAAP and
delivered by Seller to Buyer three (3) days before the time of Closing. In the
event that the Estimated Net Working Capital is more than $605,000, Buyer shall
pay to Seller at the Closing the amount of such excess. In the event that the
Estimated Net Working Capital is less than $605,000, Seller shall pay to Buyer
at the Closing the amount of such deficiency from the proceeds to be delivered
at the Closing. Within ten (10) days of the Closing Date, Seller shall deliver
revised financial statements as of the Closing Date, which shall have been
prepared in accordance with GAAP, reflecting the Seller's proposed final figure
for the Net Working Capital of the Business as of the Closing Date (the "FINAL
NET WORKING CAPITAL"). In the event that the Final Net Working Capital as of the
Closing Date is more than the Estimated Net Working Capital, Buyer shall pay to
Seller the amount of such excess (the "EXCESS WORKING CAPITAL"). In the event
that the Final Net Working Capital as of the Closing Date is less than the
Estimated Net Working Capital, Seller shall pay to Buyer the amount of such
shortfall (the "WORKING CAPITAL DEFICIENCY"). In the event the Parties are
unable to agree on the Final Net Working Capital of the Business on or before
twenty (20) days after the Closing, the Final Net Working Capital of the
Business as of the Closing Date shall be determined subsequently by Ernst &
Young LLP (at the joint expense of Buyer and Seller) (the "E&Y DETERMINATION").
Buyer and Seller agree to use their reasonable best efforts to cause the E&Y
Determination to be submitted to Buyer and Seller not later than thirty (30)
days after the Closing Date. The Final Net Working Capital derived from such
calculation by the Parties or by the E&Y Determination, as applicable, shall be
final, conclusive and binding on the Parties, and a payment of any Excess
Working Capital shall be made by Buyer and of any Working Capital Deficiency
shall be made by Seller, as appropriate and in either case within ten (10) days
of receipt of such calculation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE SHAREHOLDERS
Seller and the Shareholders hereby jointly and severally represent and
warrant to Buyer that the statements contained in this Article 3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 3), except as
set forth in the disclosure schedules delivered by Seller to Buyer on the date
hereof (the "SCHEDULES"). An event or matter will be deemed to be "MATERIAL," to
have a "MATERIAL" change in or in respect of, to have a "MATERIAL ADVERSE
EFFECT" or to be "MATERIALLY" affected if in the
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<PAGE> 9
opinion of Buyer, acting reasonably, the loss that may reasonably be expected to
occur to the Business or Buyer with respect to such event or matter, when taken
together with all other related losses that may reasonably be expected to occur
to the Business or Buyer as a result of any such events or matters, would exceed
$20,000 in the aggregate; provided, however, that any such event or matter which
constitutes a criminal violation of law shall be deemed to have a material
adverse effect on Buyer. For purposes of this paragraph, the word "LOSS" shall
mean any and all direct or indirect payments, obligations, assessments, losses,
losses of income, liabilities, costs and expenses paid or incurred, or
reasonably likely to be paid or incurred, or that are reasonably expected to
occur, including without limitation, penalties, interest on any amount payable
to a third party as a result of the foregoing, and any legal or other expenses
reasonably expected to be incurred in connection with defending any demands,
claims, actions or causes of action that, if adversely determined, could
reasonably be expected to result in losses, and all amounts paid in settlement
of claims or actions; provided, however, that losses shall be net of any
insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds). A Customer Contract is "MATERIAL" if during the twelve
months ended the Closing Date such Customer Contract produced $20,000 of Gross
Profit Margin less any bad debt specifically related to such Customer Contract.
Any item intended to be disclosed must be identified with the particular
representation or warranty it is intended to limit and shall not be deemed to
limit any other representation, warranty or covenant in the Agreement. Nothing
in the Schedules shall be deemed adequate to disclose an exception to a
representation or warranty made herein, unless the Schedules identify the
exception with reasonable particularity and describes the relevant facts in
reasonable detail to the satisfaction of Buyer. Without limiting the generality
of the foregoing, the mere listing (or inclusion of a copy) of a document or
other item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other items itself). The
Schedules will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Article 3.
3.1 ORGANIZATION; AUTHORIZATION. Seller has been duly formed and is
validly existing as a corporation under the laws of the State of Delaware and
has full power and authority to own and operate the Business as it is now being
conducted and to own and use the properties and assets related to the Business.
Each of Seller and the Shareholders has the power and authority to enter into
this Agreement and the Transfer Documents to which it is a party and to carry
out the transactions contemplated hereby and thereby. The execution, delivery
and performance by Seller of this Agreement and the Transfer Documents to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate action. This
Agreement and the Transfer Documents to which Seller and the Shareholders are a
party have been duly executed and delivered by Seller and the Shareholders and
are the valid and binding obligations of Seller and the Shareholders enforceable
against each in accordance with their respective terms.
3.2 CONSENTS; ABSENCE OF CONFLICTS. Except as listed on Schedule 3.2,
neither the execution and delivery of this Agreement or the other Transfer
Documents by Seller, nor the consummation of the transactions contemplated
hereby or thereby will (a) require consent or advance notice under (other than
consents that have been obtained, copies of which have been furnished to
-5-
<PAGE> 10
Buyer), violate or breach the terms of, cause a default under, conflict with or
result in acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, any Legal Requirement, any Customer Contract or
any Consultant Contract; (b) entitle any Person to exercise any preferential
purchase or similar right (whether arising by law, contract or otherwise) that
affects any of the Purchased Assets; (c) result in the creation or imposition of
any Lien on any of the Purchased Assets; (d) result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
governmental authority that adversely affects the Business; or (e) with the
passage of time or the giving of notice or the taking of any action of any third
party have any of the effects set forth in clause (a), (b), (c) or (d) of this
Section 3.2. Except as listed on Schedule 3.2, neither Seller nor its Affiliates
have received any notice (written or oral) from any Person claiming that any
consent (that has not been obtained and previously furnished to Buyer) is
required to consummate the transactions contemplated by this Agreement or that a
preferential purchase right or similar right exists with respect to any of the
Purchased Assets.
3.3 LITIGATION. There are no actions, suits or proceedings pending or,
to the Knowledge of Seller, threatened against or affecting either the Business
or any of the Purchased Assets or the consummation of the transactions
contemplated hereby, at law or in equity, or before or by any governmental
agency or instrumentality or before any arbitrator of any kind.
3.4 COMPLIANCE WITH LAWS. Seller is in compliance with all applicable
statutes, rules, regulations, ordinances, codes, orders, franchises, permits,
and concessions, as such apply to the Business or the Purchased Assets. The
Purchased Assets are in full compliance with all Legal Requirements.
3.5 TITLE AND SUFFICIENCY OF PURCHASED ASSETS. Seller owns (and, upon
consummation of the transactions contemplated by this Agreement and the Transfer
Documents, Buyer will own) rights to use the Purchased Assets, free and clear of
all Liens. Seller is the initial party to each Contract, or has validly
succeeded to the rights of its predecessor(s) in interest thereto. None of the
rights of Seller in the Contracts has been assigned or collaterally assigned or
is affected by a security interest or similar encumbrance.
3.6 INTERCOMPANY OBLIGATIONS. Neither the Purchased Assets nor the
Assumed Obligations will include any intercompany obligations on any receivable
from or payable to any shareholder, officer, or director of Seller or any
Shareholder or any other Affiliate of Seller or any Shareholder.
3.7 BOOKS AND RECORDS. The Books and Records accurately and completely
reflect all transactions conducted by Seller and their Affiliates in the conduct
of the Business.
3.8 CONTRACTS. Exhibit B lists all Customer Contracts, Consultant
Contracts, purchase orders, service agreements and all other contracts or
agreements that relate to the Business. True and complete copies of each of the
Customer Contracts and Consultant Contracts have been furnished to Buyer. With
respect to each: (a) it is in full force and effect, and neither Seller, nor, to
Seller's Knowledge, any other party thereto, is in breach, default or has
otherwise failed to perform its
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obligations thereunder, and Seller does not have Knowledge of any event which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration thereunder; and (b) no party has any
right to offset, discount or otherwise abate any amount owing thereunder. Upon
consummation of the transactions contemplated hereby, Buyer shall succeed to all
of Seller's rights and benefits with respect to each contract or agreement.
Seller is not a party to any verbal contract, agreement, or other arrangement
which, if reduced to written form, would be required to be listed in Exhibit B.
No unfilled Material Customer Contract obligating Seller to perform services
will result in a loss to Seller upon completion of performance. Seller is not a
party to any contract, agreement or other arrangement that was entered into on
terms that would not be considered market standard if such arrangement was
entered into in an arms-length transaction.
3.9 TAXES. All returns and reports (including, without limitation,
information and withholding returns and reports) of or relating to any federal,
foreign, state, county, local or other tax, assessment or other governmental
charge, including, without limitation, interest and penalties (all such returns
and reports referred to as "TAX RETURNS" and such taxes, assessments and other
governmental charges referred to as "TAXES") that were required to be filed by
or with respect to Seller or the Purchased Assets for any period prior to the
Effective Time, have been or will be duly and timely filed. All items of income,
gain, loss, deduction and credit or other items required to be included in the
Tax Returns with respect to the Purchased Assets have been timely filed, and all
Taxes with respect to the Purchased Assets that have become due pursuant to such
Tax Returns have been timely paid in full, including, without limitation, ad
valorem taxes for 1998 and all prior tax years. Seller has delivered to Buyer
true and correct copies of all invoices, if any, for 1998 ad valorem taxes
attributable to the Purchased Assets.
3.10 BILLS AND INVOICES. All bills due and other payments due with
respect to the Purchased Assets have been paid in full or accrued in the
ordinary course of business, and no labor, material or services has been
provided or performed with respect to the Purchased Assets that has not been
paid in full, or will not be paid in full by Seller in the Ordinary Course of
Business.
3.11 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 3.11
hereto, Seller does not have and has never had any pension, profit sharing,
deferred compensation or other employee pension or health or welfare benefit
plan or arrangement relating to the operations of the Business. Seller does not
contribute to or have an obligation to contribute to, nor has it had at any time
within six years prior to the Closing Date contributed to or had an obligation
to contribute to, a multiemployer plan within the meaning of Section 3(37) of
ERISA. All employee pension benefit plans and employee health or welfare
benefits plans (as such terms are defined in ERISA, collectively "BENEFIT
PLANS") have been administered in accordance with ERISA and the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "CODE"). There
are no "accumulated funding deficiencies" within the meaning of ERISA or the
Code or any federal excise tax or liability on account of any deficient fundings
in respect of the Benefit Plans. No reportable event(s) (within the meaning of
ERISA) or prohibited transaction(s) (within the meaning of the Code) has
occurred in respect of the Benefit Plans. There are not threatened or pending
any claims by or on behalf of the Benefit Plans or by any employee of Seller
alleging a breach or breaches of fiduciary duties or violations of other
applicable state or federal law which could result in liability on the part of
either Seller or the Benefit Plans under ERISA or any other law, nor is there
any basis
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for such a claim. The Benefit Plans satisfy all discrimination testing
requirements. Except as set forth on Schedule 3.11 hereto, all returns, reports,
disclosure statements and premium payments required to be made under ERISA and
the Code with respect to the Benefit Plans have been timely filed or delivered.
There are no outstanding issues with reference to the Benefit Plans, nor have
there been any within the last five (5) years pending before the Internal
Revenue Service, the Department of Labor or the Pension Benefit Guaranty
Corporation.
3.12 EMPLOYEES AND EMPLOYEE RELATIONS. Schedule 3.12 hereto sets forth
a complete (as of the date set forth therein) list of names, positions, and
current annual salaries or wage rates and bonus and other compensation
arrangements as of the date thereof of all of the NTPC Employees. Except as set
forth on schedule 3.12 hereto, all NTPC Employees are full-time employees. The
employee relations between Seller and the NTPC Employees are good. There are no
pending or, to Seller's Knowledge, threatened employee strikes, work stoppages
or labor disputes with respect to the NTPC Employees. No union representation
question exists respecting any of the NTPC Employees, no collective bargaining
agreement exists or is currently being negotiated by Seller, no demand has been
made for recognition by a labor organization by or with respect to the NTPC
Employees, no union organizing activities by or with respect the NTPC Employees
are taking place, and none of the NTPC Employees is represented by any labor
union or organization. There are no unfair practice claims against Seller before
the National Labor Relations Board, or any strikes, disputes, slowdowns, or
stoppages pending or, to Seller's Knowledge, threatened against or involving the
Business, and none has occurred. Seller is in compliance with all federal and
state laws respecting employment and employment practices, terms and conditions
of employment, and wages and hours. Seller is not engaged in any unfair labor
practices. Except as set forth on Schedule 3.12, there are no pending or, to
Seller's Knowledge, threatened Equal Employment Opportunity Commission claims,
wage and hour claims, sexual harassment claims, unemployment compensation
claims, workers' compensation claims or the like against Seller with respect to
the Business. Buyer will not be subjected to any claim or liability for
severance pay as a result of the transactions contemplated by this Agreement.
Except as set forth on schedule 3.12 hereto, no present or former employee of
Seller engaged in the Business has any claim against Seller on account of or for
(a) late or overdue overtime pay for any period on or before the Closing Date,
(b) late or overdue wages, salary, bonuses or amounts accruing under any
employee pension benefit plan, or (c) late or overdue sick pay, severance pay,
claims for unlawful discharge, holiday or vacation pay or paid time off.
3.13 IMMIGRATION ACT. Seller is in compliance with the terms and
provisions of the Immigration Act with respect to all NTPC Employees. For each
employee (as defined in 8 C.F.R. 274a.1(f)) of Seller relating to the Business
for whom compliance with the Immigration Act by Seller is required, Seller has
obtained and retained a complete and true copy of each such employee's Form I9
(Employment Eligibility Verification Form) and all other records or documents
prepared, procured or retained by Seller pursuant to the Immigration Act. Seller
has not been cited, fined, served with a Notice of Intent to Fine or with a
Cease and Desist Order, nor, to Seller's Knowledge, has any action or
administrative proceeding been initiated or threatened against Seller, by
reasons of any actual or alleged failure to comply with the Immigration Act.
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3.14 FINANCIAL INFORMATION; SUBSEQUENT EVENTS.
(a) Attached as Schedule 3.14 are the financial statements
(collectively the "FINANCIAL STATEMENTS"), including balance sheets, income
statements and cash flow statements for that portion of Seller's operations that
relate to the Business after giving effect to all intracompany adjustments and
transactions which are set forth in detail in Schedule 3.14, prepared in
accordance with GAAP for each of the years ended December 31, 1996 and 1997 and
the interim eight (8) month period ended August 31, 1998, which is included in
the 1998 proforma financial projections. The Financial Statements include
allocations of general and administrative expenses necessary and appropriate to
reflect the Business' operations on a stand alone basis. The Financial
Statements have been reviewed by Goloboy, Hass & Company, P.C. The Financial
Statements fairly present the financial position of the Business as of the
respective dates thereof and the Business results of operations and cash flows
for the periods indicated.
(b) Events subsequent to December 31, 1997: Except as set forth on
Schedule 3.14(b), since December 31, 1997, there has not been any Material
adverse change in the assets, liabilities, business, financial condition,
operations, results of operations, or future prospects of the Business. Without
limiting the generality of the foregoing, since that date:
(i) Seller has not sold, leased, transferred, conveyed,
assigned or disposed of any of its Material assets, tangible or
intangible, relating to the Business other than for a fair
consideration in the Ordinary Course of Business;
(ii) Seller has not entered into any contract, lease,
sublease, license or sublicense (or series of related contracts,
leases, subleases, licenses and sublicenses) relating to the Business
involving more than $20,000 outside the Ordinary Course of Business;
(iii) No party (including Seller) has accelerated, terminated,
modified, or canceled any contract, lease, sublease, license or
sublicense (or series of related contracts, leases, subleases, licenses
and sublicenses) or notified Seller of such relating to the Business
involving more than $20,000 to which Seller is a party or by which it
is bound;
(iv) Seller has not imposed any Liens upon any of its assets,
tangible or intangible relating to the Business;
(v) Seller has not made any capital expenditure (or series of
related capital expenditures) involving more than $25,000 singly or
$100,000 in the aggregate, relating to the Business;
(vi) Seller has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of any other person
(or series of related capital investments, loans, and acquisitions)
involving more than $25,000 individually or $100,000 in the aggregate
relating to the Business;
(vii) Seller has not created, incurred, assumed, or guaranteed
any indebtedness (including capitalized lease obligations) involving
more than $25,000 singly or $100,000 in the aggregate relating to the
Business;
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(viii) Seller has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other liabilities
relating to the Business;
(ix) Seller has not settled, canceled, compromised, waived, or
released any right, claim action or proceeding (or series of related
rights, claims, actions or proceedings) relating to the Business
involving more than $20,000;
(x) Seller has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property relating to
the Business;
(xi) Seller has not experienced any damage, destruction or
loss (whether or not covered by insurance) to its property relating to
the Business;
(xii) Seller has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business relating to the Business giving
rise to any claim or right on its part against the person or on the
part of the person against it;
(xiii) Seller has not entered into any employment contract or
collective bargaining agreement relating to the Business, written or
oral, or modified the terms of any existing such contract or agreement;
(xiv) Seller has not granted an increase outside the Ordinary
Course of Business in the base compensation of any of its directors,
officers, and employees relating to the Business;
(xv) Seller has not adopted any (A) bonus, (B) profit-sharing,
(C) incentive compensation, (D) pension, (E) retirement, (F) medical,
hospitalization, life, or other insurance, (G) severance, or (H) other
plan, contract or commitment for any of its directors, officers, and
employees relating to the Business, or modified or terminated any
existing such plan, contract or commitment;
(xvi) Seller has not made any other change in employment terms
for any of its directors, officers, and full-time staff employees
relating to the Business;
(xvii) Seller has not made or pledged to make any charitable
or other capital contribution outside the Ordinary Course of Business
relating to the Business;
(xviii) There has not been any other Material occurrence,
event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Business; and
(xix) Seller has not committed to do any of the foregoing.
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3.15 CONSULTANTS. Schedule 3.15 lists the names, payment rates and
bonus and other compensation arrangements as of the date hereof for all of the
Consultants who provide services for Seller in relation to the Business as an
independent contractor. Such persons are independent contractors and not
employees of Seller. Buyer will not be subjected to any claim or liability to
such independent Consultants as a result of the transactions contemplated by
this Agreement. No present or former independent contractor of Seller engaged in
the Business has any claim against Seller on account of or for payments due for
any period on or before the Closing Date which will not be paid in the Ordinary
Course of Business.
3.16 ANTICIPATED DEMAND FOR SERVICES. Seller is not aware of any
significant curtailment or decrease in the demand for services relating to the
Business and no party to any of the Customer Contracts has indicated that it
will stop, or decrease the rate of, buying services under such Customer
Contracts.
3.17 TANGIBLE ASSETS. The Purchased Assets include all tangible assets
specifically relating to or primarily used in the conduct of the Business as
presently conducted. To Seller's Knowledge, each such tangible asset is free
from defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently is used.
3.18 REAL PROPERTY. Seller owns no real property relating to the
Business. Schedule 3.18 lists and describes briefly all real property leased or
subleased relating to the Business. Seller has delivered to Buyer correct and
complete copies of the leases and subleases listed in Schedule 3.18 (as amended
to date). With respect to each lease and sublease listed in Schedule 3.18:
(i) The lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) The lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the Closing;
(iii) No party to the lease or sublease 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;
(iv) No party to the lease or sublease has repudiated any
provision thereof;
(v) There are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(vi) Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold
or subleasehold;
(vii) All facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses
and permits) required in connection with the
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operation thereof and have been operated and maintained in accordance
with applicable laws, rules, and regulations; and
(viii) The real property listed in Schedule 3.18 represents
all of the real property necessary to operate the Business in the
manner that it is currently being operated.
3.19 INTELLECTUAL PROPERTY.
(a) Seller is the sole and exclusive owner of all right, title and
interest in and has good, valid and marketable title to, or, as to third party
rights identified in Schedule 3.19, has obtained a license to use all
Non-Software Intellectual Property necessary for the operation of the Business
as presently conducted, free and clear of all mortgages, pledges, Liens,
security interests, conditional sales agreements, encumbrances or charges of any
kind. Each item of Non-Software Intellectual Property will be owned or available
for use by Buyer on identical terms and conditions immediately subsequent to the
Closing hereunder.
(b) Seller is the sole and exclusive owner of all right, title and
interest in and has good, valid and marketable title to all NTPC Software
Programs listed in Schedule 3.19 (representing all NTPC Software Programs owned
or developed by Seller), free and clear of all mortgages, pledges, Liens,
security interests, conditional sales agreements, encumbrances or charges of any
kind. Each NTPC Software Program will be owned by Buyer on identical terms and
conditions immediately subsequent to the Closing hereunder.
(c) Schedule 3.19 sets forth all Third Party Software Programs licensed
by Seller. Seller has obtained a license to use all Third Party Software
Programs used in connection with, and incorporated into, the NTPC Software
Programs or the Client Software Programs or used by Seller in relation to the
Business and all use of each of such licensed Third Party Software Programs by
Seller has been in full compliance with the respective license agreements or
other rights of use.
(d) Seller has delivered to Buyer correct and complete copies of all
trademarks, service marks, trade names, copyrights, patents, registrations,
applications, licenses, agreements, and permissions (as amended to date), and
has made available to Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of each such
item. With respect to each item of Non-Software Intellectual Property used in,
or otherwise necessary for the conduct of, the Business as heretofore conducted:
(i) the identified owner possesses all right, title, and
interest in and to the item;
(ii) the item is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge;
(iii) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or, to the Knowledge of the
Seller and the officers (and employees with responsibility for
Intellectual Property matters) of the Business, is threatened which
challenges the legality, validity, enforceability, use, or ownership of
the item; and
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(iv) Seller has never agreed to indemnify any person or entity
for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(e) Schedule 3.19 sets forth the form and placement of the proprietary
legends and copyright notices displayed in or on the Non-Software Intellectual
Property and NTPC Software Programs. In no instance has the eligibility of the
Non-Software Intellectual Property and NTPC Software Programs for protection
under applicable copyright law been forfeited to the public domain by omission
of any required notice or any other action.
(f) Seller has enforced the trade secret protection program set forth
in Schedule 3.19 as it relates to the Non-Software Intellectual Property and the
NTPC Software Programs, and there has been no violation of such program by any
person or entity. The Documentation relating to the NTPC Software Programs
(except for end user manuals and other items generally delivered to end users),
(i) has at all times been maintained in strict confidence, (ii) has been
disclosed by Seller only to employees having a "need to know" the contents
thereof in connection with the performance of their duties to Seller and (iii)
has not been disclosed to any third party.
(g) All personnel, including employees, agents, consultants, and
contractors, who have contributed to or participated in the conception and
development of NTPC Software Programs have executed nondisclosure agreements,
the form of which is set forth in Schedule 3.19, and either (l) have been party
to a written agreement with Seller that has accorded Seller full, effective,
exclusive and original ownership of all NTPC Software Programs, or (2) have
executed appropriate instruments of assignment in favor of Seller as assignee
that have conveyed to Seller full, effective, and exclusive ownership of all
NTPC Software Programs.
(h) Schedule 3.19 contains a complete list of all software libraries,
compilers and other third-party software used in the development of the NTPC
Software Programs.
(i) The NTPC Software Programs and the Client Software Programs will
perform in accordance with the warranties set forth in Seller's licenses to, or
agreements with, the end users.
(j) The use of the NTPC Software Programs and the Client Software
Programs and the license, sale or lease of the NTPC Software Programs and the
Client Software Programs, or of any part thereof, or of any copy, or of any part
thereof, do not and will not infringe on, or contribute to the infringement of,
any copyright, trade secret, patents or any other exclusionary right, of any
third party in either the United States or any foreign country. No person or
entity has asserted against Seller a claim that the use, license, sale or lease
of any NTPC Software Program or the Client Software Programs, or any part
thereof, infringes or contributes to the infringement of any patent claim,
copyright or trade secret right of any third party in either the United States
or any foreign country, and Seller is not aware of any Basis for any such claim.
(k) Except with respect to demonstration or trial copies, no portion of
the NTPC Software Programs or the Client Software Programs contains or will
contain any "back door," "time bomb," "Trojan horse," "worm," "drop dead
device," "virus" or other software routines or hardware
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components designed to permit unauthorized access; to disable or erase software,
hardware, or data; or to perform any other such similar actions.
(l) Except as set forth in Schedule 3.19, Seller has made available to
Buyer correct and complete copies of all third party licenses, sublicenses,
agreements, and permissions (as amended to the date hereof) as to Non-Software
Intellectual Property and Third Party Software Programs licensed or sublicensed
to Seller (collectively, the "LICENSES"). Except as set forth in Schedule 3.19,
with respect to each such License:
(i) the License is legal, valid, binding, enforceable
and in full force and effect;
(ii) the License will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the Closing;
(iii) no party to the License is in breach or default
and no event has occurred which with notice or lapse or time would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) no underlying item of the property covered by
the License is subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge;
(v) no charge, complaint, action, suit, proceedings,
hearing, investigation, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of any
underlying item of the property covered by the License; and
(vi) except as may have been necessary in preparing
and delivering a Client Software Program, in accordance with the terms
of the applicable client engagement, Seller has not granted any
sublicense or similar right with respect to any License.
(m) The NTPC Software Programs (i) are year 2000 compatible, which
shall include, but is not limited to, date data century recognition, and
calculations that accommodate same century and multi-century formulas and date
values; (ii) operate or will operate in accordance with their specifications
prior to, during and after the calendar year 2000; and (iii) shall not end
abnormally or provide invalid or incorrect results as a result of date data,
specifically including date data which represents or references different
centuries or more than one century.
3.20 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
relating to the Business are reflected properly on the Financial Statements, are
valid receivables subject to no setoffs or counterclaims, are presently current
and collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Financial Statements (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of Seller.
3.21 INSURANCE. Schedule 3.21 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers'
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compensation coverage and bond and surety arrangements) to which Seller has been
a party, a named insured, or otherwise the beneficiary of coverage in each case
relating to the Business at any time within the past three (3) years:
(a) The name, address, and telephone number of the agent;
(b) The name of the insurer, the name of the policyholder, and the name
of each covered insured;
(c) The policy number and the period of coverage;
(d) The scope (including an indication of whether the coverage was on a
claims made, occurrence, or other basis) and amount (including a description of
how deductibles and ceilings are calculated and operate) of coverage; and
(e) A description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, and enforceable and in full force and effect; (B) the policy
will continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms through the Closing Date; (C) Seller is not in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Seller has been covered during the past three (3) years
by insurance in scope and amount customary and reasonable for the Businesses
during the aforementioned period. Schedule 3.21 describes any self-insurance
arrangements affecting the Business.
3.22 BROKERS' FEES. Except for Lyons and Associates, Inc., of Granby,
Connecticut, Seller does not have any liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
3.23 DISCLOSURE. The representations and warranties contained in this
Section 3 along with the Schedules and any other information, statement or
certificate provided by Seller do not contain any untrue statement of fact or
omit to state any fact necessary in order to make the statements and information
contained in this Section 3 not misleading.
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ARTICLE 3A
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1A ORGANIZATION; AUTHORIZATION; QUALIFICATION. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois and has full corporate power and authority to own and operate
its business as it is now being conducted and to own and use its properties and
assets. Buyer has the power and authority to enter into this Agreement and the
Transfer Documents and to carry out the transactions contemplated hereby and
thereby. The execution, delivery and performance by Buyer of this Agreement and
the Transfer Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action.
This Agreement and the Transfer Documents have been duly executed and delivered
by Buyer and are the valid and binding obligations of Buyer enforceable against
it in accordance with their respective terms.
3.2A ABSENCE OF CONFLICTS. Neither the execution and delivery of this
Agreement or the Transfer Documents by Buyer, nor the consummation of the
transactions contemplated hereby and thereby will violate or breach the terms
of, cause a default by Buyer under, conflict with or result in acceleration or
right to accelerate under (a) any Legal Requirement or (b) the charter documents
of Buyer.
ARTICLE 4
CLOSING CONDITIONS; CLOSING
4.1 CLOSING. Subject to the terms and conditions of this Agreement, the
transactions described and provided for in this Agreement shall be consummated
at a closing (the "CLOSING") that shall take place at the offices of Buyer in
Houston, Texas commencing at 9:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby or such other date as
Buyer and Seller may mutually determine (the "CLOSING DATE"); provided, however,
that the Closing Date shall be no later than November 13, 1998, which date may
be extended with the mutual consent of Buyer and Seller.
4.2 CONDITIONS TO CLOSING.
(a) The obligation of Buyer to consummate the transactions contemplated
by this Agreement is subject to the fulfillment at or prior to the Closing Date
of the following conditions; provided, Buyer, in its sole discretion, may
(without waiving any of its other rights hereunder) waive any of the following
conditions and elect to proceed with the Closing:
(i) The representations and warranties of Seller and the
Shareholders set forth in Article 3 shall be true and correct in all
Material respects at and as of the Closing Date;
(ii) The Seller and the Shareholders shall have performed and
complied with all of their respective covenants hereunder in all
Material respects through the Closing;
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(iii) Seller shall have procured all of the governmental or
third party consents and approvals disclosed or required to be
disclosed in the Schedules including any landlord consents related to
any rental property;
(iv) The Seller and the Shareholders shall have delivered to
Buyer a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions
specified above in Section 4.2(a)(i)-(iii) is satisfied in all
respects;
(v) No order shall have been entered and remain in effect in
any action or proceeding before any federal, state, foreign, or local
court or governmental agency or other federal, state, foreign, or local
regulatory or administrative agency or commission that would prevent or
make illegal the consummation of the transactions contemplated to occur
at the Closing;
(vi) Seller shall have paid or made arrangements satisfactory
to Buyer for the payment of all wages, salaries, and associated taxes,
accrued to all of the NTPC Employees and the Key Employees. Seller
shall be responsible for wage information reports (Form W-2 and 1099
reports) for wages paid by Seller to its employees and independent
contractors;
(vii) Seller shall have released each of the NTPC Employees
from its employment agreement with Seller;
(viii) Substantially all NTPC Employees shall have agreed to
become employees of Metamor Technologies, Ltd. or such other subsidiary
of Buyer as designated by Buyer after the Closing;
(ix) Buyer shall have completed, and be satisfied in its sole
discretion with the results of, its interviews with those employees of
Seller to be mutually agreed upon by Buyer and Seller;
(x) Buyer shall have completed, and be satisfied in its sole
discretion with the results of, its interview with Caterpillar Inc.;
(xi) Marc A. Elfman, P.C. of Simonds, Winslow, Willis &
Abbott, counsel to Seller, shall have delivered a legal opinion
substantially in the form attached hereto as Exhibit D;
(xii) No Material adverse change shall have occurred in
connection with the Business or the future prospects of the Business;
and
(xiii) Buyer shall be satisfied that all authorizations,
notices and consents necessary for the consummation of the transactions
contemplated hereby under any and all contracts, instruments or
arrangements of Seller related to the Business have been obtained
and/or delivered pursuant to the terms of such contracts, instruments
or arrangements.
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(b) The obligation of Seller and the Shareholders to consummate the
transactions contemplated by this Agreement is subject to the fulfillment at or
prior to the Closing Date of the following conditions; provided, Seller and the
Shareholders, in their discretion, may (without waiving any of its other rights
hereunder) waive any of the following conditions and elect to proceed with the
Closing:
(i) The representations and warranties set forth in Article 3A
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) No order shall have been entered and remain in effect in
any action or proceeding before any federal, state, foreign, or local
court or governmental agency or other federal, state, foreign, or local
regulatory or administrative agency or commission that would prevent or
make illegal the consummation of the transactions contemplated to occur
at the Closing; and
(iv) Buyer shall have delivered to the Seller and the
Shareholders a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions
specified above in Section 4.2(b)(i)-(ii) is satisfied in all respects.
4.3 DOCUMENTS TO BECOME EFFECTIVE AT CLOSING. The following document
and agreements, which are to be executed concurrently herewith, shall become
effective as of the Closing Date in accordance with their terms:
(a) the Employment Agreement between John V. Hollinger and
Buyer attached hereto in Exhibit E.
(b) the Non-Competition/No Solicitation Agreement between John
V. Hollinger and Buyer attached hereto in Exhibit F.
(c) the Transition Agreement by and among Metamor, Buyer and
Seller attached hereto in Exhibit G.
(d) the Sublease Agreement between Technical Staffing
Solutions and Buyer attached hereto in Exhibit H.
(e) the General Conveyance, Assignment, Bill of Sale and
Assumption Agreement between Buyer and Seller attached hereto in
Exhibit I (the "ASSIGNMENT").
4.4 ACTION TO BE TAKEN BY SELLER AT THE CLOSING. Subject to the terms
and conditions of this Agreement, the following events shall occur at the
Closing:
(a) Seller will execute and deliver to Buyer the following documents
and instruments:
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(i) evidence reasonably satisfactory to Buyer that the person
or persons executing this Assignment and the Transfer Documents on
behalf of Seller have the full right, power and authority to do so; and
(ii) the certificate required to be delivered pursuant to
Section 4.2(a)(iv).
(b) The Shareholders shall execute and deliver to Buyer the certificate
required to be delivered pursuant to Section 4.2(a)(iv).
(c) Possession of the Purchased Assets shall be made available by
Seller to Buyer, and Seller shall deliver to Buyer at the Closing the Books and
Records.
(d) Seller shall accept the resignations of each of the NTPC Employees
and the Key Employees.
4.5 ACTIONS TO BE TAKEN BY BUYER AT THE CLOSING. Subject to the terms
and conditions of this Agreement, Buyer shall cause the following events to
occur at the Closing:
(a) Buyer shall deliver the Cash Portion of the Purchase Price, as
adjusted, by wire transfer to the account specified in writing by Seller at
least one day before the Closing Date.
(b) Buyer shall accept delivery of the Purchased Assets.
(c) Buyer shall execute and deliver the certificate required to be
delivered pursuant to Section 4.2(b)(iv).
(d) Buyer will furnish Seller with evidence reasonably satisfactory to
Seller that the person executing this Agreement and the Transfer Documents on
behalf of Buyer has the full right, power and authority to do so.
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ARTICLE 5
INDEMNIFICATION
5.1 BUYER'S INDEMNITIES. From and after the Closing, Buyer shall
absolutely and irrevocably indemnify, defend and hold harmless Seller, its
Affiliates and their respective directors, stockholders, officers, employees,
agents, consultants, representatives, successors, transferees and assignees
(collectively, the "SELLER PARTIES") from, against and in respect of any and all
of the following matters (herein collectively referred to as the "SELLER
INDEMNIFIED LIABILITIES", and individually as a "SELLER INDEMNIFIED LIABILITY"):
(a) any and all Claims arising from, relating to, or associated with any
representation or warranty made by Buyer in this Agreement or the Transfer
Documents not having been true and correct as of the Closing Date; (b) any and
all Claims arising from, relating to or associated with the ownership, use,
possession, enjoyment, transfer or operation of each of the Purchased Assets and
the Business after the Effective Time; (c) any and all Claims arising from,
relating to or associated with any of the Assumed Obligations; and (d) any and
all Claims arising from, relating to or associated with any failure by Buyer to
perform its covenants under this Agreement; IN THE CASE OF (a), (b) AND (c)
ABOVE, REGARDLESS OF BY WHOM ASSERTED, AND REGARDLESS OF WHETHER ANY CLAIM
RESULTS SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE OF
ANY OF THE SELLER PARTIES. The parties acknowledge and agree that any of the
subsections in this Section 5.1 may be relied upon independently of and without
regard to any other of such subsections more specifically or generally covering
the same subject matter.
5.2 SELLER'S AND SHAREHOLDERS' INDEMNITIES. From and after the Closing,
Seller and the Shareholders shall, jointly and severally, indemnify, defend and
hold harmless Buyer, Buyer's Affiliates and their respective directors,
stockholders, officers, employees, agents, consultants, representatives,
successors, transferees and assignees (collectively, the "BUYER PARTIES") from,
against and in respect of any and all of the following described matters (herein
collectively referred to as the "BUYER INDEMNIFIED LIABILITIES," and
individually as a "BUYER INDEMNIFIED LIABILITY"): (a) any and all Claims arising
from, relating to, or associated with any representation or warranty made by
Seller or the Shareholders in this Agreement or the Transfer Documents not
having been true and correct as of the Closing Date; (b) any and all Claims
arising from, relating to or associated with any actions taken by Buyer to
defend against, assume or discharge any debt, liability or obligation of Seller
other than the Assumed Obligations; provided that Buyer shall deliver, or cause
to be delivered, to Seller copies of all correspondence, pleadings, motions,
briefs, appeals or other written statements relating to or submitted in
connection with the defense of such Claim and timely notices of any hearing or
other court proceeding relating to such Claim, in which Seller shall have the
right to participate as an observer only; (c) any and all Claims arising before
or after the Closing Date from, relating to or associated with the ownership,
use, possession, enjoyment, transfer, or operation of each of the Purchased
Assets and the Business on or before the Effective Time for such asset
including, without limitation, Claims relating to Taxes and Claims relating to
non-compliance with any agreement or contract or applicable laws and obligations
under agreements or contracts that are not an Assumed Obligation; and (d) any
and all Claims arising from, relating to or associated with any failure by
Seller or the Shareholders to perform their covenants under this Agreement; IN
THE CASE OF (a), (b) AND (c) ABOVE, REGARDLESS OF BY WHOM ASSERTED, AND
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REGARDLESS OF WHETHER ANY CLAIM RESULTS SOLELY OR IN PART FROM THE ACTIVE,
PASSIVE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE BUYER
PARTIES. The parties acknowledge and agree that any of the subsections in this
Section 5.2 may be relied upon independently of and without regard to any other
of such subsections more specifically or generally covering the same subject
matter.
5.3 EXCEPTIONS TO BUYER AND SELLER INDEMNITIES.
(a) Notwithstanding anything to the contrary set forth in Section 5.1,
Seller Indemnified Liabilities shall not include any and all Claims to the
extent same are attributable to a breach of any representation or warranty of
either Seller or the Shareholders under this Agreement. Notwithstanding anything
to the contrary set forth in Section 5.2, Buyer Indemnified Liabilities shall
not include any and all Claims to the extent same are attributable to a breach
of any representation or warranty of Buyer under the Agreement.
(b) Notwithstanding anything to the contrary in Section 5.2, in no
event shall Seller or the Shareholders be required to make indemnity payments
pursuant to Section 5.2(a) that exceed the aggregate amount of the
Consideration; provided, however, that the limitations contained in this Section
5.3 shall not apply to any Claim relating to the breach of a representation or
warranty under any of Sections 3.1, 3.2, 3.4, 3.5 or 3.9 (as it relates to the
payment in full of Taxes in a timely manner) or to a Claim for intentional
fraud. The parties hereto acknowledge that each party shall have the benefit of
all remedies available at law, in equity or otherwise, relating to a breach by
any other party of this Agreement. Without limiting the generality of the
foregoing, the parties hereby acknowledge and agree that monetary damages may
not be sufficient to compensate Buyer for a breach by Seller or the Shareholders
of their obligation to convey and transfer the Purchased Assets at the Closing.
Thus, in the event of such a breach, the parties agree that Buyer shall be
entitled to bring a suit for specific performance of Seller's and the
Shareholders' obligations hereunder.
5.4 PAYMENT; GENERAL RIGHT OF OFFSET. In the event Buyer is entitled to
indemnification pursuant to Section 5.2, Buyer may, at its option, in lieu of
obtaining a cash payment directly from the Shareholders or the Seller, offset
against any Earn-Out Payment payable to the Seller the amount of any Buyer
Indemnified Liability or any other payments to which Buyer or such other Buyer
Party as may be entitled to indemnity hereunder may become entitled to by reason
of the provisions of this Agreement. In the event that Buyer offsets more than
the amount of any Buyer Indemnified Liability (as finally determined), Buyer
shall be responsible to the Seller for such sums which should not have been
subject to an offset. To the extent that the Earn-Out Payment is not sufficient
to cover the amount of any such Buyer Indemnified Liability, the Shareholders
and the Seller shall promptly pay to Buyer or such other Buyer Party as may be
entitled to indemnity hereunder in cash the amount of any Buyer Indemnified
Liability to which Buyer or such Buyer Party may become entitled to by reason of
the provisions of this Agreement.
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ARTICLE 6
MISCELLANEOUS AGREEMENTS
6.1 PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
to consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth herein).
(b) Notices and Consents. Seller will give any notices to third parties
required by this Agreement or the transactions contemplated hereby, and will
obtain all third-party consents required by this Agreement or the transactions
contemplated hereby or in connection with the matters pertaining to the Business
disclosed or required to be disclosed in the Schedules. Seller will take
additional actions that may be deemed necessary, proper, or advisable by Buyer
in connection with any other notices to, filings with, and authorizations,
consents, and approvals of governments, governmental agencies, and third parties
that Seller may be required to give, make, or obtain as reasonably required by
this Agreement or the transactions contemplated hereby in order that Buyer is
able to conduct the Business in the same manner as it is currently being
conducted.
(c) Operation of Business. Seller will not engage in any practice, take
any action, embark on any course of inaction, or enter into any transaction
relating to the Business outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, Seller will not engage in any
practice, take any action, embark on any course of inaction, or enter into any
transaction of the sort described in Section 3.14(b) above.
(d) Preservation of Business. Seller will keep the Business
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access.
(i) Seller will permit representatives of Buyer to have access
at reasonable times, and in a manner so as not to interfere with the
normal business operations of Seller, to the headquarters office of
Seller and all books, records, contracts, Tax records, and documents of
or pertaining to the Business. Buyer's on-site investigation of the
Business shall be limited to fifteen (15) business days, unless
otherwise agreed to by Buyer and Seller in writing; provided, however,
that such limitation of time shall not otherwise limit Buyer's
investigation of the Business off-site. During Buyer's on-site
investigation, Buyer shall not discuss any aspects of the operation of
the Business with any employee of Seller, and Buyer shall direct all
requests for information and material only through Bruce Backa, John
Hollinger or Ryan LaPlante or such other persons as any of them shall
designate in writing, unless otherwise agreed to by Buyer and Seller in
writing. Buyer shall not contact or speak or correspond with any
lender, customer, employee or other person associated in business with
the Business without the written consent of Seller.
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(ii) Upon completion of the accounting review and business,
legal and accounting due diligence by Buyer and so long as this
agreement has not been terminated, Buyer shall arrange with Seller a
mutually agreeable time and place at which Buyer may conduct interviews
with employees and/or customers of the Business mutually agreed to by
Buyer and Seller. Such interviews shall be in strict conformity with a
format mutually agreed to by Buyer and Seller and shall take place and
be completed wholly within the last five (5) days prior to Closing.
(f) Notice of Developments. Seller will give prompt written notice to
Buyer of any material development affecting the Purchased Assets, liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Business. Each Party will give prompt written notice to the
others of any material development affecting the ability of the Parties to
consummate the transactions contemplated by this Agreement. No disclosure by any
Party pursuant to this Section 6.1(f) however, shall be deemed to amend or
supplement the Exhibits or the Schedules or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Designation of Purchased Assets. On or before the Closing Date,
Seller will designate those Purchased Assets that are located in or on the
facilities of Seller as assets to be transferred to Buyer pursuant to this
Agreement by affixing labels, stickers or such other notice to such assets as
will readily identify such assets as the Purchased Assets. Seller agrees that
those Purchased Assets may remain on Seller's premises following the Closing
until such time as Buyer has made arrangements to move such Purchased Assets.
(h) Exclusivity. Neither any of the Shareholders nor Seller will (i)
solicit, initiate, or encourage the submission of any proposal or offer from any
person relating to any (A) liquidation, dissolution, or recapitalization of the
Seller in any manner likely to adversely affect the Business or the consummation
of the transactions contemplated hereby, (B) merger or consolidation of the
Seller in any manner likely to adversely affect the Business or the consummation
of the transactions contemplated hereby, (C) acquisition or purchase of
securities or assets of the Seller in any manner likely to adversely affect the
Business, or (D) similar transaction or business combination involving the
Business or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any person to do or seek any of the
foregoing. Seller will notify Buyer immediately if any person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
6.2 EMPLOYMENT OF NTPC EMPLOYEES. As of the Closing Date, Buyer shall
offer employment to all of the NTPC Employees effective as of the Closing Date.
Notwithstanding the foregoing, Buyer expressly reserves the right to evaluate
its work force needs and to terminate the employment of any full time or part
time employee for any reason whatsoever after the Closing Date with Buyer to
assume all responsibility and liability for such action.
6.3 EMPLOYEE BENEFIT MATTERS. The term "Employee" as used in this
Section 6.3 shall mean all full time active employees of Seller who are offered
and accept employment with Buyer effective as of the Closing Date.
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(a) Except as provided in Section 6.3(g) hereof, effective as of the
Closing Date: (x) Seller shall cause each Employee to cease to participate in
each Benefit Plan listed on Schedule 3.11, and (y) Buyer shall cause each
Employee to be provided with benefits on a basis consistent with Buyer's normal
practice. Notwithstanding the foregoing, except as otherwise provided in this
Section 6.3, Buyer expressly reserves the right to modify or terminate any of
its benefit plans or programs.
(b) Except as provided in Section 6.3(g) hereof, effective as of the
Closing Date: (i) Seller shall cause each Employee to cease to participate in
Seller's welfare plans (as such term is defined in section 3(1) of ERISA ("PRIOR
WELFARE PLANS"), and (ii) Buyer shall cause each Employee to be covered by each
of the welfare plans in accordance with Buyer's policies (as such term is
defined in section 3(1) of ERISA) that provides medical, mental health, dental,
vision, life, or disability benefits maintained by Buyer ("BUYER'S WELFARE
PLANS"). Except as provided in Section 6.3(g) hereof, effective as of the
Closing Date: (i) Prior Welfare Plans shall be liable for any and all claims for
benefits by Employees for expenses that are accepted by the insurance company
that are incurred, or attributable to events that occurred, prior to the Closing
Date, and (ii) Buyer's Welfare Plans shall be liable for any and all claims for
benefits by Employees for expenses that are accepted by the insurance company
that are incurred on or after the Closing Date but only to the extent such
expenses are attributable to events that occurred after the Closing Date.
(c) Effective as of the Closing Date: (i) Seller shall cause each
Employee to cease to participate in Seller's vacation, paid time off and sick
leave programs (collectively "SELLER'S PTO PLAN"), and (ii) Buyer shall cause
each Employee to be covered by the program of vacation, sick leave, and paid
time off benefits maintained by Buyer (or caused by Buyer to be newly
established by Buyer).
(d) Seller shall (i) effective as of the Closing Date, cause to be made
any contributions that are required to be made under all retirement plans
maintained by Seller that are qualified under Section 401(a) of the Code whose
trust is intended to be exempt from tax under Section 501(a) of the Code ("PRIOR
QUALIFIED PLANS") for the period prior to the Closing Date, (ii) effective as of
the Closing Date, cause each Employee to cease to participate in and accrue
benefits under Prior Qualified Plans, and (iii) as soon as practicable after the
Closing Date, pay each nonvested Employee 100% of his accrued benefits under
Prior Qualified Plans. As soon as practicable after the Closing Date, Buyer
shall take all action necessary and appropriate to extend coverage to each
eligible Employee under the retirement plans intended to be qualified under
Section 401(a) of the Code whose trust is intended to be tax exempt under
Section 501(a) of the Code maintained by Buyer ("BUYER'S QUALIFIED PLANS") under
the terms of Buyer's Qualified Plans.
(e) Effective as of the Closing Date: (i) Seller shall cause each
Employee to cease to participate in any program of workers' compensation
subscribed to or maintained by Seller ("SELLER'S WORKERS' COMPENSATION"), and
(ii) Buyer shall cause each Employee to be covered by a program of workers'
compensation, if any, maintained by Buyer ("BUYER'S WORKERS' COMPENSATION").
Effective as of the Closing Date: (i) Seller's Workers' Compensation shall be
liable for any and all covered claims for workers' compensation benefits by
Employees to the extent such claims are for injuries or diseases which commenced
or occurred prior to the Closing Date, and (ii) Buyer's
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Workers' Compensation shall be liable for any and all covered claims for
workers' compensation benefits by Employees to the extent such claims are for
injuries or diseases which commenced or occurred on or after the Closing Date.
(f) Seller shall provide to all employees or former employees of Seller
sufficient medical, mental health, vision, dental, and other group health plan
benefits to satisfy the obligations, if any, of Seller and any corporation,
trade, business or entity under common control with Seller within the meaning of
Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA, under the
continuation of coverage provisions described in Section 4980B of the Code and
Sections 601 through 608 of ERISA and any similar continuation of health
coverage provisions under applicable state law ("COBRA COVERAGE").
(g) Effective as of 12:00 a.m. Eastern time on November 15, 1998: (i)
Seller shall cause each Employee to cease to participate in the medical and
dental programs maintained by Seller as of the date hereof and a life insurance
program providing for $15,000 of life insurance coverage maintained by Seller as
of the date hereof ("CERTAIN PRIOR WELFARE PLANS"), and (ii) Buyer shall cause
each Employee to be covered by each of Buyer's benefit plans relating to
medical, dental and equivalent life insurance coverage ("CERTAIN BUYER'S WELFARE
PLANS"). With respect solely to the insurance programs covered by this Section
6.3(g), effective as of 12:00 a.m. Eastern time on November 15, 1998: (i)
Certain Prior Welfare Plans shall be liable for any and all claims for benefits
by Employees for expenses that are accepted by the insurance company that are
incurred, or attributable to events that occurred, prior to the Closing Date,
and (ii) Certain Buyer's Welfare Plans shall be liable for any and all claims
for benefits by Employees for expenses that are accepted by the insurance
company that are incurred on or after the Closing Date but only to the extent
such expenses are attributable to events that occurred after the Closing Date.
6.4 WARN ACT. Buyer agrees and acknowledges that the purchase of the
Purchased Assets constitutes the sale of one or more businesses within the
meaning of the Worker Adjustment and Retraining Notification Act (the "WARN
ACT") and the rules and regulations promulgated thereunder. Anything in this
Agreement notwithstanding, Buyer agrees and acknowledges that for purposes of
the Warn Act, any person who is an employee of Seller (other than part time
employees, as defined under the Warn Act) engaged in the Business as of the
Closing Date (which shall constitute the effective date of the sale within the
meaning of the Warn Act) shall be considered an employee of Buyer for purposes
of the Warn Act immediately after the Closing Date. With respect to such
"deemed" employees, Buyer further agrees and acknowledges that Buyer will be
responsible for all applicable notices and liabilities under the Warn Act
resulting from the termination of any such employees on or after the Closing
Date.
6.5 CHANGE OF NAME. Promptly following the Closing, Seller shall use
its best efforts on a continuing basis to change its corporate name to a name
that is different from, and not confusingly similar to, "New Technology Partners
Consulting" or "NTP Consulting." Following the Closing, Seller shall not use the
name "New Technology Partners Consulting" or "NTP Consulting" or any other name
used in connection with the Business or any logos, trademarks or servicemarks
associated with the Business. Seller shall make reasonable efforts to minimize
any confusion which may result prior to its name change, including without
limitation, providing notice
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of the sale of the Business to corporate and industry publications. Seller shall
execute and deliver such instruments and take all such other actions necessary
for Buyer to realize the full use and potential of the names "New Technology
Partners Consulting" and "NTP Consulting." Following the Closing, Buyer shall
not use the name "NTP Consulting" and will use reasonable efforts to change any
logos, trademarks or servicemarks in which such name is incorporated to reflect
the name "New Technology Partners Consulting."
6.6 WEBSITE. Following the Closing and not later than December 31,
1998, Seller shall remove from the Website all references to businesses of the
Seller not related to the Business. Buyer shall provide Seller with system
administration privileges to the Website until December 31, 1998 to allow Seller
to remove such references from the Website.
6.7 DOMAIN. Notwithstanding the transfer of title to the Domain
contemplated by this Agreement, Seller shall retain physical control of and
access to the Domain during the period from the Closing Date until December 31,
1998. Following the Closing, Seller shall forward all e-mails related to the
Business received on the Domain to Buyer at the forwarding e-mail address
provided by Buyer to Seller in accordance with the notice provisions of this
Agreement. During the period from the Closing Date until December 31, 1998,
Seller shall effect a domain transition in connection with the transfer of the
Domain from Seller to Buyer (the "DOMAIN TRANSITION"). The Domain Transition,
which shall be completed prior to December 31, 1998, shall accomplish the
removal of the e-mail addresses of all employees of Seller not associated with
the Business and the removal of all other aspects and characteristics of the
Domain not related to the Business. On December 31, 1998, Seller shall deliver
to Buyer the Domain, and Seller's access to and control of the Domain shall
terminate.
6.8 EXCLUSIVE DESIGNATION. Following the Closing, Buyer shall have
exclusive rights to the use of the designation "1997 Microsoft's Solution
Provider Partner of the Year - Worldwide" (the "DESIGNATION"). Following the
Closing, Seller shall not use the Designation for any purpose or in any matter
whatsoever, including without limitation in advertising, marketing or
promotional materials.
6.9 RECEIPT OF PAYMENT. From and after the Closing Date, Seller shall
endorse and forward to Buyer at the following address all checks, payments,
funds and other receipts, including, without limitation, payments for all
accounts receivable, related to the Business (the "Post-Closing Receipts") that
it receives:
Metamor Technologies, Ltd.
One North Franklin, Suite 1500
Chicago, Illinois 60606
Attention: Melody Savage
In no instance shall such Post-Closing Receipts be deposited into any
bank account of NTP or any of its affiliates (the "NTP Bank Accounts"). In the
event that any Post-Closing Receipts are deposited into any NTP Bank Account,
NTP shall promptly deliver a check to Buyer in the amount of such deposit in
accordance with the provisions of this Section 6.9.
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6.10 FORWARDING SERVICES. From and after the Closing Date, Seller shall
forward all telephone calls, facsimiles, e-mail, mail and other requests,
inquiries or information relating to the Business to the forwarding telephone
number, facsimile number or mailing address, as appropriate, delivered by Buyer
to Seller or in accordance with the notice provisions of this Agreement if no
alternative instructions have been provided.
6.11 FURTHER ASSURANCES. Following the Closing, to the extent that any
of the Purchased Assets are not fully transferable according to their terms,
Seller shall execute and deliver such instruments, undertake all actions
necessary and notify Buyer of all actions required to be undertaken by Buyer in
order to fully transfer such Purchased Assets to Buyer. Further, Seller shall
provide any and all assistance to Buyer in order to cause all of the Purchased
Assets to be fully transferred to Buyer.
6.12 PAYMENT OF OBLIGATIONS. Following the Closing, Seller shall pay,
discharge and otherwise satisfy all of Seller's obligations of any nature
whatsoever, other than the Assumed Obligations, which directly or indirectly
affect, impact or are related to the Purchased Assets or which otherwise hinder
the transferability of the Purchased Assets.
6.13 TRANSITION ASSISTANCE.
(a) Seller shall provide routine assistance to Buyer in order to cause
a smooth transition of the ownership and operation of the Purchased Assets and
the Business from Seller to Buyer.
(b) Seller shall discontinue its relationship with the NTPC Employees
from and after the Closing Date, and Seller shall use commercially reasonable
efforts to encourage the Consultants who are independent contractors to provide
services for Buyer on substantially similar terms to the services provided by
such Consultants prior to the Closing Date.
6.14 COVENANT NOT TO COMPETE.
(a) For a period of two (2) years from and after the Closing Date,
neither Seller nor any of the Shareholders will engage directly or indirectly in
any business that is substantially similar to that conducted by the Business
within a one hundred (100) mile radius of any office of the Business now in
existence; provided, however, that the foregoing restriction shall not apply to
Kenneth D. Barfield working as an independent consultant providing technical
services. Notwithstanding the foregoing, this Section 6.14(a) shall not prohibit
Seller or any of the Shareholders from conducting those operations of Seller
that are not part of the Business and do not compete with the services offered
by the Business as of the Closing Date.
(b) For a period of four (4) years from and after the Closing Date,
neither Seller nor any of the Shareholders will (i) service or solicit any
current or future customer of the Business and/or Buyer relating to any business
that is substantially similar to that conducted by the Business or (ii) offer
employment to or attempt to induce any director, officer, employee, agent, or
customer of the Business and/or Buyer to terminate such relationship with the
Business or Buyer.
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(c) If either Seller or any of the Shareholders commit a breach, or
overtly threaten to commit a breach, of any of the provisions of Section 6.14(a)
or (b) above, Buyer shall have the right and remedy to seek to have the
provisions of Section 6.14(a) or (b) specifically enforced by any court having
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury and continuing damage to Buyer
and its Affiliates, and that the exact amount of which would be difficult to
ascertain and that in any event money damages will not provide adequate remedy
and Buyer shall be entitled to seek to obtain injunctive relief restraining any
violation of Section 6.14(a) or (b).
(d) It is expressly understood and agreed that Buyer, the Shareholders
and Seller consider the restrictions contained in Section 6.14(a) and (b) above
to be reasonable and necessary for the purposes of preserving and protecting the
business and goodwill purchased by Buyer.
(e) If the final judgment of a court of competent jurisdiction declares
that any term or provision of Section 6.14 is invalid or unenforceable, the
parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
6.15 CONFIDENTIALITY. Seller and the Shareholders will hold
confidential all of the Intellectual Property, and will deliver promptly to
Buyer or destroy, at the request and option of Buyer, all tangible embodiments
(and all copies) of the Intellectual Property which are in their possession.
Seller and the Shareholders agree that they will not use or disclose the
Intellectual Property for any purpose. In the event that Seller or any of the
Shareholders is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Intellectual Property,
such party will notify Buyer promptly of the request or requirement prior to
disclosure so that Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 6.15. If, in the absence of a
protective order or the receipt of a waiver hereunder, Seller or any of the
Shareholders is, on the advice of counsel, compelled to disclose any
Intellectual Property to any tribunal or else stand liable for contempt, such
party may disclose the Intellectual Property to the tribunal; provided, however,
that such party shall use their commercially reasonable efforts to obtain, at
the request of Buyer, an order or other assurance that confidential treatment
will be accorded to such portion of the Intellectual Property required to be
disclosed as Buyer shall designate.
6.16 CONDUCT OF BUSINESS DURING EARN-OUT PERIOD. During the Earn-Out
Period, Buyer (together with the Key Employees, as long as they remain employed
by Buyer or its designee) shall be entitled to operate and manage the Business,
consistent with prudent business practices.
6.17 ACCESS. To the extent that any Books and Records are intermingled
with the books and records of Seller's other operations, Seller shall make
available that portion of the Books and
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Records related to the Business as and when requested by Buyer, until such time
as duplicate sets are provided to Buyer as set forth in Section 2.1(g) hereof.
6.18 BROKERAGE FEES. Seller shall indemnify, hold harmless and defend
the Buyer Parties from the payment of any and all brokers' and finders'
expenses, commissions, fees or other forms of compensation which may be due or
payable from or by Seller or its Affiliates, or may have been earned by any
third party acting on behalf of Seller, and Buyer agrees to indemnify, hold
harmless and defend Seller Parties from the payment of any and all brokers' or
finders' expenses, commissions or fees or other forms of compensation which may
be due or payable from or by Buyer or its Affiliates, or may have been earned by
any third party acting on behalf of Buyer; in each case, in connection with the
identification of the opportunity for the sale of the Purchased Assets or any
portion thereof, the negotiation and execution of this Agreement or the
consummation of the transactions contemplated hereby.
6.19 ASSIGNMENT. This Agreement and any of the rights or obligations
hereunder may not be assigned by Seller without the prior written consent of
Buyer. This Agreement and any of the rights or obligations hereunder may not be
assigned by Buyer without the prior written consent of Seller, except that Buyer
may designate a wholly-owned subsidiary to effect the transactions contemplated
under this Agreement.
6.20 NOTICES. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party hereto to
another party hereto shall be in writing, and delivered personally or mailed by
certified mail, postage prepaid, return receipt requested (such mailed notice to
be effective on the date such receipt is acknowledged), or by facsimile
transmission or by overnight courier, as follows:
If to Seller or the Shareholders, addressed to:
New Technology Partners
1750 Elm Street, Suite 300
Manchester, New Hampshire 03104-2904
Attention: Bruce Backa
Telephone: 603/622-4400
Facsimile: 603/641-6934
With a copy to:
Marc A. Elfman, Esq.
50 Congress Street, Suite 925
Boston, Massachusetts 02109-4002
Telephone: 617/227-4500
Facsimile: 617/227-1961
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<PAGE> 34
If to Buyer, addressed to:
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Attention: Michael T. Willis
Telephone: (713) 548-3400
Facsimile: (713) 627-1059
with a copy to:
Peter T. Dameris, Esq.
Margaret G. Reed, Esq.
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Telephone: (713) 548-4300
Facsimile: (713) 627-1059
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others in accordance with this Section
6.20.
6.21 CHOICE OF LAW. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the internal laws (and
not the law of conflicts) of the State of Texas.
6.22 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all Annexes, Exhibits and Schedules hereto, constitutes the entire
Agreement between the parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth specifically
herein. No amendment, supplement, modification or waiver of this Agreement shall
be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless expressly agreed to in
writing by the affected party.
6.23 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all parties
hereto agree to execute an original of this Agreement and provide such
requesting party with a full set of original signature pages for each of the
parties hereto other than the requesting party within two (2) days of the
original execution date hereof.
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6.24 EXPENSES OF THIS AGREEMENT. Each party hereto shall pay its own
expenses incident to this Agreement including the fees and disbursements of
counsel and other professionals and all action taken in preparation for carrying
this Agreement into effect. Seller will pay all state and local transfer sales,
use or other similar taxes involved in the transfer of the Purchased Assets.
6.25 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
6.26 HEADINGS; REFERENCES. The headings of the several Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. Any reference herein to an Article or Section shall be deemed to
refer to the applicable Article or Section of this Agreement unless otherwise
expressly stated herein. Any reference to a Schedule, Exhibit or Annex shall be
deemed to refer to the applicable Schedule, Exhibit or Annex attached hereto,
all such Schedules, Exhibits and Annexes being incorporated herein and made a
part hereof by this reference.
6.27 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto, their respective Affiliates and their successors
and assigns permitted under this Agreement, and no provisions of this Agreement
(other than the indemnified parties described in Sections 5.1 and 5.2) shall be
deemed to confer upon any other Persons any remedy, claim, liability,
reimbursement, cause of action or other right.
6.28 NO MERGER. The terms and provisions of this Agreement (including,
without limitation, the representations, warranties and covenants) shall not
merge, be extinguished or otherwise affected by the delivery and execution of
the Transfer Documents unless such document shall specifically so state and
shall be signed by both Buyer and Seller.
6.29 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and indemnities set forth in this Agreement shall survive
for a period of three (3) years following the Closing and the delivery of the
Transfer Documents.
6.30 FURTHER ASSURANCES. After the Closing Date, Seller and Buyer will
take (and will cause their respective Affiliates to take) all appropriate action
and execute any documents, instruments or conveyances of any kind which may be
reasonably necessary to carry out any of the provisions of this Agreement.
[INTENTIONALLY LEFT BLANK]
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SELLER:
NEW TECHNOLOGY PARTNERS, INC.
By: /s/ Bruce R. Backa
------------------------------------
Name: Bruce R. Backa
Title: President
SHAREHOLDERS:
/s/ Bruce Backa
---------------------------------------
Bruce Backa
/s/ Kenneth D. Barfield
---------------------------------------
Kenneth D. Barfield
/s/ John V. Hollinger
---------------------------------------
John V. Hollinger
/s/ Ryan LaPlante
---------------------------------------
Ryan LaPlante
/s/ Daniel M. Mayo
---------------------------------------
Daniel M. Mayo
/s/ Stephen Wolf
---------------------------------------
Stephen Wolf
METAMOR WORLDWIDE, INC.:
By: /s/ Peter T. Dameris
------------------------------------
Name: Peter T. Dameris
Title: Senior Vice President
METAMOR TECHNOLOGIES, LTD.:
By: /s/ Peter T. Dameris
------------------------------------
Name: Peter T. Dameris
Title: Senior Vice President
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<PAGE> 37
EXHIBIT A
DEFINITIONS
In addition to terms defined in the body of this Agreement, the
following terms shall have the following designated meanings:
"ACCOUNTS RECEIVABLE" shall mean all accounts receivable, notes
receivable, loans receivable and advances, including those which are not
evidenced by instruments or chattel paper, whether or not they have been earned
by performance or have been written off or reserved against as a bad debt or
doubtful account in any financial statements, together with (1) all instruments
and all documents of title representing any of the foregoing and (2) all rights,
title, security and guaranties in favor of the Seller with respect to any of the
foregoing, in each case as related to the Business.
"ADJUSTED EBIT" shall mean earnings before interest and taxes (prepared
on an accrual basis of accounting and in accordance with generally accepted
accounting principles, consistently applied), as further provided in Annex I
hereto.
"AFFILIATE" shall mean with respect to any Person, any Person which,
directly or indirectly, controls, is controlled by, or is under a common control
with, such Person. The term "control" (including the terms "controlled by" and
"under common control with") as used in the preceding sentence means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise.
"ASSIGNMENT" shall have the meaning set forth in Section 4.3.
"ASSUMED OBLIGATIONS" shall have the meaning set forth in Section 2.3.
"BASIS" shall mean any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"BENEFIT PLANS" shall have the meaning set forth in Section 3.11.
"BOOKS AND RECORDS" shall mean all financial, accounting and operating
data and records relating to or used or held for use in the Business, including
all schedules, work papers, books, records, notes, sales and sales promotional
data, advertising materials, credit information, cost and pricing information,
equipment maintenance data, purchasing records and information, supplier lists,
business plans, reference catalogs, payroll and personnel records, stationery,
purchase orders, sales forms, labels, catalogs, brochures, artwork, photographs,
product display and other similar property, rights and information, in each case
as related to the Business.
"BUSINESS" shall have the meaning set forth in the recitals.
"BUYER INDEMNIFIED LIABILITIES" shall have the meaning set forth in
Section 5.2.
EXHIBIT A
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<PAGE> 38
"BUYER PARTIES" shall have the meaning set forth in Section 5.2.
"BUYER WELFARE PLANS" shall have the meaning set forth in Section
6.3(b).
"BUYER'S QUALIFIED PLANS" shall have the meaning set forth in Section
6.3(d).
"BUYER'S WORKERS COMPENSATION" shall have the meaning set forth in
Section 6.3(e).
"CASH PORTION OF THE PURCHASE PRICE" shall have the meaning set forth
in Section 2.2.
"CLAIM" shall mean any and all judgments, claims, causes of action,
demands, lawsuits, suits, proceedings, governmental investigations or audits,
losses, assessments, fines, penalties, administrative orders, obligations,
costs, expenses, liabilities and damages (whether actual, consequential or
punitive), including interest, penalties, reasonable attorney's fees,
disbursements and costs of investigations, deficiencies, levies, duties and
imposts.
"CLIENT SOFTWARE PROGRAM" shall mean any software program relating to
the Business developed by Seller for a client on a work for hire basis pursuant
to which the client has acquired and retains all intellectual property rights in
such developed software.
"CLOSING" shall have the meaning set forth in Section 4.1.
"COBRA COVERAGE" shall have the meaning set forth in Section 6.3(f).
"CODE" shall have the meaning set forth in Section 3.11.
"CONFIDENTIAL INFORMATION" shall mean all confidential information and
trade secrets, including, without limitation, the identity, lists or
descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training operations methods and manuals;
personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals, in each case as related to the
Business.
"CONSULTANT CONTRACTS" shall mean all employment, consulting,
non-competition, confidentiality, non-solicitation or similar restrictive
agreements between Seller and a Consultant or NTPC Employee.
"CONTRACT" shall mean any contract or agreement (whether written or
oral) related to the Business.
"CORPORATE NAMES" shall mean "New Technology Partners Consulting" and
"NTP Consulting."
"CUSTOMER CONTRACT" shall mean any contract or agreement related to the
Business related to (a) information technology or computer support services, (b)
maintenance contracts for application software; (c) maintenance support
arrangements, (d) reengineering and refurbishment arrangements;
EXHIBIT A
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<PAGE> 39
(e) consulting arrangements; (f) any other contract for computer support
services; and (g) agreements related to any other services provided by Seller
relating to the Business.
"CUSTOMER-RELATED DATA" shall mean all marketing materials, brochures
and programs, including all materials which bear the Corporate Names or the
logos of NTPC, and all customer lists, sales records, credit data and other
information relating to present and past customers of the Business.
"DOCUMENTATION" shall mean, with respect to a software program, the
source code (with comments), as well as any pertinent commentary or explanation
prepared to render such materials understandable and usable by a trained
computer programmer, any programs (including compilers), "workbenches," tools
and higher level (or "proprietary") language necessary for the development,
maintenance and implementation of the software program, and any and all prepared
and deliverable materials relating to the software program, including without
limitation all notes, flow charts, programmer's or user' manuals.
"DOMAIN" shall mean the domain "ntp.com" maintained by Seller.
"EARN-OUT PAYMENT" has the meaning set forth in Section 2.5.
"EARN-OUT PERIOD" has the meaning set forth in Section 2.5.
"E&Y EARN-OUT PAYMENT DETERMINATION" has the meaning set forth in
Section 2.6.
"EFFECTIVE TIME" shall mean 11:59 p.m., Houston time, on the Closing
Date.
"EMPLOYEE" shall have the meaning set forth in Section 6.3.
"ERISA" shall meant the Employee Retirement Income Security Act of
1974, as amended.
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.4.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
3.14.
"GROSS PROFIT MARGIN" shall mean the gross profit relating to the
Business as customarily set forth on the Financial Statements.
"INTELLECTUAL PROPERTY" shall mean all (a) trademarks, service marks,
trade dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) patents, patent applications, and
provisional applications, including all continuations, divisionals and related
applications, (c) copyrights and registrations and applications for registration
thereof, (d) computer software, data, and documentation, (e) to the extent
legally protectable, trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing
EXHIBIT A
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<PAGE> 40
and cost information, business and marketing plans, and customer and supplier
lists and information), (f) to the extent legally protectable, other proprietary
rights, and (g) copies and tangible embodiments thereof (in whatever form or
medium), specifically relating to or primarily used in the Business.
"KEY EMPLOYEES" shall mean John V. Hollinger, Ryan LaPlante and such
other employees as mutually agreed upon by Buyer and Seller.
"KNOWLEDGE" shall mean that which is known or understood or should have
been known or understood after reasonable investigation and inquiry, which
inquiry shall include an inquiry of the employees of Seller with responsibility
for the matters in question.
"LEGAL REQUIREMENT" shall mean any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization, or other directive or requirement
(including, without limitation, any of the foregoing that relates to
environmental standards or controls, energy regulations and occupational, safety
and health standards or controls).
"LICENSE" shall have the meaning set forth in Section 3.19.
"LIEN" shall mean any lien, pledge, condemnation award, claim,
restriction, charge, security interest, financing statement, mortgage or
encumbrance of any nature whatsoever.
"NET WORKING CAPITAL" shall mean the total current assets included in
the Purchased Assets less the total current liabilities of Seller relating to
the Business included in the Assumed Liabilities, further reduced by any
long-term debt of Seller relating to the Business included in the Assumed
Obligations, in each case as determined in accordance with generally accepted
accounting principles, consistently applied.
"NON-SOFTWARE INTELLECTUAL PROPERTY" shall mean Intellectual Property
exclusive of software programs and their related Documentation.
"NTPC EMPLOYEES" shall have the meaning set forth in the Recitals
above.
"NTPC SOFTWARE PROGRAM" shall mean any software program owned by Seller
relating to the Business or, excluding Client Software Programs, developed by
Seller relating to the Business for sale or licensing to the end-user.
"ORDINARY COURSE OF BUSINESS" shall mean the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTIES" shall mean Metamor Worldwide, Inc., a Delaware corporation,
Metamor Technologies, Ltd., an Illinois corporation, New Technology Partners,
Inc., a Delaware corporation, and the shareholders of New Technology Partners,
Inc. as set forth on the signature page hereto.
"PERSON" shall mean any natural person, firm, partnership, association,
corporation, limited liability company, company, trust, entity, public body or
government.
EXHIBIT A
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<PAGE> 41
"PERSONAL PROPERTY" shall mean all machinery, equipment, furniture and
other tangible personal property (including computer software programs which are
licensed under normal retail license terms or pursuant to a negotiated
agreement).
"PHONE NUMBER" shall mean the toll-free telephone numbers (800)
503-9766 and (888) 342-5687, which are maintained and operated in conjunction
with the Business.
"PRIOR QUALIFIED PLANS" shall have the meaning set forth in Section
6.3(d).
"PRIOR WELFARE PLANS" shall have the meaning set forth in Section
6.3(b).
"PURCHASED ASSETS" shall have the meaning set forth in Section 2.1.
"RETAINED BUSINESS" shall have the meaning set forth in the Recitals
above.
"SELLER INDEMNIFIED LIABILITIES" shall have the meaning set forth in
Section 5.1.
"SELLER PARTIES" shall have the meaning set forth in Section 5.1.
"SELLER'S PTO PLANS" shall have the meaning set forth in Section
6.3(c).
"SELLER'S WORKERS' COMPENSATION" shall have the meaning set forth in
Section 6.3(e).
"TAXES" shall have the meaning set forth in Section 3.9.
"TAX RETURNS" shall have the meaning set forth in Section 3.9.
"THIRD PARTY SOFTWARE PROGRAM" means any software program developed by
a third party and used by Seller in developing either a NTPC Software Program or
a Client Software Program, or used by Seller in relation to the Business.
"TRANSFER DOCUMENTS" shall mean the Assignment and any other document,
instrument, affidavit or certificate executed by Seller and Buyer or their
respective affiliates in connection with the transactions contemplated by this
Agreement, to become effective in conjunction with the Closing.
"WARN ACT" shall have the meaning set forth in Section 6.4.
"WEBSITE" shall mean the website maintained by Seller located on the
internet at the address http://www.ntp.com.
"WORK IN PROGRESS" shall mean all services performed by Seller which
relate to the Business and which have not been billed to the customers for such
which services were performed.
EXHIBIT A
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<PAGE> 1
EXHIBIT 2.8
================================================================================
STOCK PURCHASE AGREEMENT
by and among
XPEDIOR INCORPORATED ("Buyer"),
KINDERHOOK SYSTEMS, INC.
and
Sellers listed on the Signature page hereto
("Sellers")
Dated as of September 17, 1999
================================================================================
<PAGE> 2
XPEDIOR INCORPORATED
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(A) BASIC TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(B) PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(C) PURCHASE PRICE ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(D) THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(E) DELIVERIES AT THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(E) WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3 REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(A) REPRESENTATIONS AND WARRANTIES OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(i) Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(ii) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(iii) Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(iv) Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(v) Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(i) Organization of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(ii) Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(iv) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(v) Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(v) Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(vii) Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(viii) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4 REPRESENTATIONS AND WARRANTIES CONCERNING TARGET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(B) CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(C) NONCONTRAVENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(D) SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(E) FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(F) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(G) UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(H) TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(I) TANGIBLE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(J) REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(K) REAL PROPERTY LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<TABLE>
<S> <C> <C>
(L) INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(M) CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(N) NOTES AND ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(O) POWERS OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(P) INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(Q) LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(R) EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(S) EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(T) GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(U) ENVIRONMENT, HEALTH, AND SAFETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(V) LEGAL COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(W) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(X) BROKERS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(Y) DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(Z) BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5. PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(A) GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(B) NOTICES AND CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(C) OPERATION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(D) PRESERVATION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(E) FULL ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(F) NOTICE OF DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(G) EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(H) PREPARATION OF FINANCIAL STATEMENTS; DELIVERY OF FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . 33
(I) DELIVERY OF SCHEDULES; ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6. ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(A) GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(B) LITIGATION SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(C) TRANSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(D) CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(E) MONITORING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(F) LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(G) ADDITIONAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(H) COVENANT NOT TO COMPETE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(I) PUBLIC OFFERING OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(J) PRINCIPAL GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7. CONDITIONS TO OBLIGATIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(A) CONDITIONS TO OBLIGATION OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(B) CONDITIONS TO OBLIGATIONS OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8. REMEDIES FOR BREACHES OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(A) SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(B) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(C) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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<TABLE>
<S><C> <C>
(D) MATTERS INVOLVING THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(E) DETERMINATION OF LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(F) EXCLUSIVE REMEDY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(G) PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(H) TAX DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(A) TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(B) EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(A) THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(B) PRESS RELEASES AND ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(C) NO THIRD-PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(D) ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(E) SUCCESSION AND ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(F) FACSIMILE/COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(G) HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(H) NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(I) GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(J) AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(K) SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(L) EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(M) CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(N) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(O) SPECIFIC PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(P) SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
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LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Employment Agreement
Exhibit C Form of Employee Non-Competition Agreement
Exhibit E Monthly Financial Data
Exhibit F Form of Subordinated Promissory Note
Exhibit 4(l) Form of Nondisclosure Agreement
ANNEXES
Annex I Allocation of Purchase Price Among Sellers
Annex II Estimated Net Working Capital
Annex III Exceptions to Seller Transaction Warranties
Annex IV Exceptions to Representations and Warranties of Buyer
SCHEDULES
Disclosure Schedule
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("AGREEMENT") is entered into as of the
17th day of September, 1999, by and among XPEDIOR INCORPORATED, a Delaware
corporation ("BUYER"), KINDERHOOK SYSTEMS, INC., a Delaware corporation
("TARGET"), and the individuals listed on the signature page hereto (each
individually referred to as "SELLER" and collectively, the "SELLERS"). Buyer
and the Sellers are referred to collectively herein as the "PARTIES."
The Sellers in the aggregate own all of the outstanding capital stock
of Target.
This Agreement contemplates a transaction in which Buyer will purchase
from the Sellers, and the Sellers will sell to Buyer, all of the outstanding
capital stock of Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. DEFINITIONS
"ADVERSE CONSEQUENCES" means all charges, complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, reasonable expenses, and fees, including all reasonable attorneys' fees
and court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Sec. 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"BUYER" has the meaning set forth in the preface above.
"CLIENT SOFTWARE PROGRAM" means any software program developed
by Target for a client to which the Target has assigned and the client has
acquired all Intellectual Property rights in such developed software program.
"CLOSING" has the meaning set forth in Section 2(d) below.
""CLOSING DATE" has the meaning set forth in Section 2(d)
below.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the United States Securities and Exchange
Commission.
"CONFIDENTIAL INFORMATION" means all confidential information
and trade secrets of Target including, without limitation, the identity, lists
or descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals; and the Documentation
(excluding user's manual) for any Target Software Program.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Sec. 1563.
"CURRENT EMPLOYEE BENEFIT PLAN" means each Employee Benefit
Plan, which is sponsored, maintained, or contributed to by Target for the
benefit of the employees of Target, or has been so sponsored, maintained, or
contributed to at any time within six years prior to the Closing Date.
"CUSTOMER CONTRACT OR AGREEMENT" means (i) any contract or
agreement of Target related to (a) information technology or computer support
services; (b) maintenance contracts for application software; (c) maintenance
support arrangements; (d) reengineering and refurbishment arrangements; (e)
consulting arrangements; (f) any other contract computer support services
arrangement; and (g) software development contracts and (ii) agreements related
to any other services provided by Target to clients or customers.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"DOCUMENTATION" means, with respect to a software program, the
source code (with comments), as well as any pertinent commentary or explanation
prepared by or the property of Target to render such materials understandable
and useable by a trained computer programmer, any programs (including
compilers), "workbenches," tools and higher level (or "proprietary") language
necessary for the development, maintenance and implementation of the software
program, and any and all prepared and deliverable materials relating to the
software program, including without limitation all notes, flow charts,
programmer's or user's manuals.
"EMPLOYEE BENEFIT PLAN" means each (a) Employee Pension
Benefit Plan, (b) Employee Welfare Benefit Plan, and (c) personnel policy,
stock option plan, worker's compensation, collective bargaining agreement,
bonus plan or arrangement, incentive award plan or arrangement, vacation
policy, severance pay plan, policy, or agreement, deferred compensation
agreement or arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement, and other employee
benefit plan, agreement, arrangement, program, practice, or understanding,
which is sponsored, maintained, or contributed to by Target for the benefit of
the employees, former employees, independent
KINDERHOOK SYSTEMS, INC.
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<PAGE> 8
contractors, or agents of Target, or has been so sponsored, maintained, or
contributed to at any time since 1974.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EXCESS LOSS ACCOUNT" has the meaning set forth in Treas. Reg.
Section 1.1502-19.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in
Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4(e) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any governmental,
quasi-governmental, state, county, city or other political subdivision of the
United States or any other country, or any agency, court or instrumentality,
foreign or domestic, or statutory or regulatory body thereof.
"GROSS PROFIT MARGIN" means the gross profit of Target as
customarily set forth on the Financial Statements.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(d)
below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service
marks, trade dress, logos, trade names, and corporate names and registrations
and applications for registration thereof, (b) patents, patent applications,
and provisional applications, including all continuations, divisionals and
related applications, (c) copyrights and registrations and applications for
registration thereof, (d) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), and (e) to the extent legally protectable, other proprietary
rights.
"JOINT AND SEVERAL" has the meaning set forth in Section
10(a)(ii) below.
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<PAGE> 9
"KEY EMPLOYEES" means Mark Hansen, Karen Myers, Jerome Kass,
Craig Hoddeson and Ann Armstrong.
"KNOWLEDGE" means that which is known or understood or should
have been known or understood after reasonable investigation and inquiry, which
inquiry shall include an inquiry of the employees of Target with responsibility
for the matters in question.
"LIABILITY" means any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"LICENSES" has the meaning set forth in Section 4(l) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(e) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec.
3(37).
"NET WORKING CAPITAL" means total current assets less the sum
of (i) total current liabilities of Target, (ii) the total outstanding balance
of any long-term debt of Target, (iii) total deferred Taxes of Target, if any,
all as determined in accordance with GAAP, consistently applied and (iv)
$124,687 representing one-half of the increased fixed rent for 708 Third Avenue
over the remaining three year term of the lease.
"NON-SOFTWARE INTELLECTUAL PROPERTY" means Intellectual
Property rights in items other than Client Software Programs, Target Software
Programs or Third Party Software Programs, including the Documentation for such
software programs.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PRE-CLOSING TAX PERIOD" means (i) any taxable period ending
on or before the Closing Date, and (ii) with respect to a taxable period that
begins on or before the Closing Date and ends after the Closing Date, the
portion of such taxable period ending on (and including) the Closing Date.
"PRINCIPAL" means Mark Hansen.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
"PURCHASE PRICE" has the meaning set forth in Section 2(b)
below.
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"REPORTABLE EVENT" has the meaning set forth in ERISA Sec.
4043.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes not yet due and payable
(or for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods in
transit incurred pursuant to documentary letters of credit, (f) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(g) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"SELLERS" has the meaning set forth in the preface above.
"SEVERAL" has the meaning set forth in Section 10(a) below.
"SHARES" means the shares of common stock, par value $.01 per
share, of Target.
"SOFTWARE PROGRAMS" has the meaning set forth in Section 4(l)
below.
"SUBSIDIARY" means any corporation, limited liability company,
partnership or other similar entity with respect to which another specified
corporation, limited liability company, partnership or other similar entity has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors or otherwise similarly control such entity.
"TARGET" has the meaning set forth in the preface above.
"TARGET SOFTWARE PROGRAM" means any software program,
including its Documentation, owned by Target and excluding Client Software
Programs. All Target Software Programs are listed in Section 4(l)(ii) of the
Disclosure Schedule.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, 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 of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
KINDERHOOK SYSTEMS, INC.
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"THIRD PARTY SOFTWARE PROGRAM" means any software program,
including the Documentation, developed by a third party and used by Target in
developing either a Target Software Program or a Client Software Program, or
used by Target in conducting its internal business. All Third Party Software
Programs are listed in Section 4(l)(iii) of the Disclosure Schedule.
2. PURCHASE AND SALE OF SHARES
(A) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from each of the
Sellers, and each of the Sellers agrees to sell to Buyer, all of the Shares
held of record by such Seller for the consideration specified below in this
Section 2.
(B) PURCHASE PRICE. The purchase price (the "PURCHASE PRICE")
for the Shares to be purchased by Buyer, or such wholly-owned subsidiary of
Buyer as Buyer shall so designate, from the Sellers pursuant to the terms
hereof shall be composed of (i) an aggregate amount in cash equal to
$14,900,000 (the "CASH PORTION OF THE PURCHASE PRICE") and (ii) Subordinated
Promissory Notes of Buyer in the aggregate principal amount of $9,100,000, as
may be adjusted pursuant to Section 2(c) below, and otherwise in the form of
Exhibit F hereto (the "SUBORDINATED NOTES"); provided, that only those Sellers
that are able to make the representations and warranties contained in Section
3(a)(v) shall receive the Subordinated Notes. Buyer agrees to deliver to each
Seller at the Closing (as defined below) upon the surrender of the certificates
representing the outstanding Shares held of record by such Seller, a pro rata
share of the Cash Portion of the Purchase Price as set forth on Annex I hereto
and, subject to the provision in the immediately preceding sentence,
Subordinated Notes in the amounts set forth on Annex I. The Cash Portion of
the Purchase Price allocated to each Seller as provided herein shall be paid by
Buyer to each Seller at the Closing by wire transfer to an account or accounts
designated by such Seller. The Purchase Price shall be allocated among the
Sellers as set forth in Annex I attached hereto.
(C) PURCHASE PRICE ADJUSTMENT. In the event that the Net
Working Capital of Target as of the Closing Date is less than or more than
$2,500,000 the aggregate principal amount of the Subordinated Notes shall be
adjusted on a dollar for dollar basis downward or upward, as the case may be.
The Parties estimate the Net Working Capital of Target as of the Closing Date
to be approximately $2,466,155 (the "ESTIMATED NET WORKING CAPITAL"). The
calculation of such Estimated Net Working Capital is set forth in Annex II
attached hereto. Since the Estimated Net Working Capital is less than
$2,500,000 the aggregate principal amount of the Subordinated Notes shall be
reduced by $33,845. After the Closing Date, the actual Net Working Capital of
Target as of the Closing Date (the "FINAL NET WORKING CAPITAL") will be
determined in accordance with the provisions hereof, by the Parties based on
Target's financial statements as of the Closing Date, which shall have been
prepared by Buyer in accordance with GAAP consistently applied and provided to
the Sellers within 90 days of the Closing Date. Within 30 days of receipt of
the calculation of the Final Net Working Capital, the Principal shall provide
any comments relating to such Final Net Working Capital to Buyer. If within 30
days (or such longer period agreed to by Buyer and the Principal) after receipt
of such comments of
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the Principal, the Principal and Buyer have not finally agreed on the
calculation of the Final Net Working Capital, the Principal and Buyer shall
request Ernst & Young, LLP (the fees and expenses of which shall be paid 50% by
Buyer and 50% by the Sellers (in the aggregate)) to calculate the Final Net
Working Capital. In such event, Buyer and the Principal agree to use their
reasonable best efforts to cause Ernst & Young, LLP to submit to Buyer and the
Principal such calculation of the Final Net Working Capital not later than
thirty (30) days after the date of such request. The Final Net Working Capital
derived from such calculation shall be final, conclusive and binding on the
Parties. In the event that the Final Net Working Capital as so determined is
greater than the Estimated Net Working Capital, Buyer shall pay to the Sellers
(pro-rata based on the allocation of the Purchase Price set forth in Annex I)
within five (5) business days of the receipt of such calculation the difference
between the Final Net Working Capital and the Estimated Net Working Capital.
In the event that the Final Net Working Capital as so determined is less than
the Estimated Net Working Capital, the Sellers shall pay to Buyer within five
(5) business days of the receipt of such calculation the difference (pro-rata
based on the allocation of the Purchase Price set forth in Annex I) between the
Estimated Net Working Capital and the Final Net Working Capital.
Notwithstanding the last two sentences preceding this sentence, in the event
the Final Net Working Capital is more or less than the Estimated Net Working
Capital by $100,000 or more, the Parties shall make a corresponding adjustment
to the aggregate principal amount of the Subordinated Notes in lieu of a cash
payment; provided, however, that a pro rata cash payment shall be effected
among Buyer and such Sellers' without rights in the Subordinated Note (based
upon the allocation of Purchase Price set forth in Annex I).
(D) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Buyer in
Houston, Texas commencing at 9:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby or such other
date as Buyer and the Sellers may mutually determine (the "CLOSING DATE");
provided, however, that the Closing Date shall be no later than September 23,
1999, which date may be extended with the mutual consent of Buyer and the
Sellers.
(E) DELIVERIES AT THE CLOSING. At the Closing, (i) the
Sellers will deliver to Buyer the various certificates, instruments, and
documents referred to in Section 7(a) below, (ii) Buyer will deliver to the
Sellers the various certificates, instruments, and documents referred to in
Section 7(b) below, (iii) each Seller will deliver to Buyer stock certificates
representing all Shares held of record by such Seller, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) Buyer will deliver
to the Sellers the consideration specified in Section 2(b) above.
(F) WITHHOLDING. Buyer shall have the right to withhold the
Employee Tax Amount (as defined herein) from the Cash Portion of the Purchase
Price and to satisfy, or cause Target to satisfy, Target's obligation to pay
such Employee Tax Amount over to the appropriate taxing authorities in
accordance with applicable law.
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3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(A) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each
Seller represents and warrants to Buyer that the statements contained in this
Section 3(a) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to himself only except as set forth
in Annex III attached hereto.
(i) AUTHORIZATION OF TRANSACTION. Such Seller
has full power and authority to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of such Seller, enforceable in
accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable
principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally,
and to general equity principles, and (B) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding therefore may be brought. Such Seller
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Authority in
order to consummate the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction,
charge, or other restriction of any Governmental Authority to which
such Seller is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which such Seller is a party or by which he is
bound or to which any of his assets is subject.
(iii) BROKER'S FEES. Such Seller has no Liability
or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which Buyer or Target could become liable or obligated.
(iv) SHARES. Seller holds of record and owns
beneficially the number of Shares set forth next to his name in
Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), claims, Taxes, Security
Interests, options, warrants, rights, contracts, calls, commitments,
equities, and demands, other than this Agreement and other than as set
forth in contracts and agreements between such Seller and Target which
shall be terminated prior to Closing. The Sellers hold all of the
issued and outstanding
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shares of Target and upon the consummation of the transaction
contemplated hereby, Buyer will hold all of the issued and outstanding
shares of Target. Such Seller is not a party to any option, warrant,
right, contract, call, put, or other agreement or commitment providing
for the disposition or acquisition of any capital stock of Target
(other than this Agreement and other than contracts and agreements
between such Seller and Target which shall be terminated prior to
Closing). Such Seller is not a party to any voting trust, proxy, or
other agreement or understanding with respect to the voting of any
capital stock of Target. Seller hereby further represents and
warrants that there are no pending or, to such Seller's knowledge,
threatened suits, claims or actions by any former holders of Shares or
options, rights, warrants or other interests in the equity of Target
with respect to the repurchase of their equity interest in Target; and
(v) INVESTMENT REPRESENTATIONS. Each Seller that
will receive Subordinated Notes pursuant to Section 2(b) hereby makes
the following representations and warranties:
(A) Such Seller has substantial experience in
evaluating and investing in private placement transactions so
that such Seller is capable of evaluating the merits and risks
of its investment in the Subordinated Note. Such Seller, by
reason of Seller's business or financial experience, has the
capacity to protect such Seller's own interests in connection
with the acquisition of the Subordinated Note hereunder. Such
Seller is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated pursuant to the Securities Act. Such
Seller is familiar with the business and financial condition,
properties, operations and prospects of Buyer. Seller has had
an opportunity to discuss the Buyer's business and financial
condition, properties, operations and prospects with Buyer's
management. Such Seller has also had an opportunity to ask
questions of officers of Buyer, which questions were answered
to such Seller's satisfaction. Such Seller understands that
such discussion was intended to describe certain aspects of
the Buyer's business and financial condition, properties,
operations and prospects, but were not a thorough or
exhaustive descriptive.
(B) Such Seller understands that the
Subordinated Note and the shares of common stock of Buyer
issuable upon conversion of the Subordinated Note
(collectively, the "SECURITIES") may be "restricted
securities" under the applicable federal securities laws and
that the Securities Act and the rules of the Commission
provide in substance that such Seller may dispose of the
Securities only pursuant to an effective registration
statement under the Securities Act or an exemption therefrom,
and it understands that Buyer has no obligation or intention
to register the Securities (except pursuant to the
registration rights granted pursuant to the terms of the
Subordinated Note), or to take action so as to permit sales
pursuant to the Securities Act (including Rule 144
thereunder). Otherwise, such Seller understands that under
the Commission's rules, such Seller may dispose of the
Securities only in transactions that are exempt from
registration under the Securities Act. As a consequence of
all of the foregoing, such Seller
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understands that such Seller may have to bear the economic
risk of the investment in the Securities for an indefinite
period of time.
(B) REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Sellers that the statements contained in this Section 3(b) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
3(b)), except as set forth in Annex IV attached hereto:
(i) ORGANIZATION OF BUYER. Buyer is a
corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation;
(ii) AUTHORIZATION OF TRANSACTION. Buyer has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and the Subordinated Notes and to
perform its obligations hereunder and thereunder. This Agreement and
the Subordinated Note each constitutes the valid and legally binding
obligation of Buyer, enforceable in accordance with its terms and
conditions. Buyer need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any Governmental
Authority in order to consummate the transactions contemplated by this
Agreement;
(iii) NONCONTRAVENTION. Neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction,
charge, or other restriction of any Governmental Authority to which
Buyer is subject or any provision of its charter or bylaws or (B)
conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which Buyer
is a party or by which it is bound or to which any of its assets is
subject;
(iv) BROKERS' FEES. Buyer has no Liability or
Obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which any Seller could become liable or obligated;
(v) INVESTMENT. Buyer is not acquiring the
Shares with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act; and
(vi) SHARES. The Shares of common stock of Buyer
underlying the Subordinated Notes have been duly authorized and
reserved for issuance upon conversion of the Subordinated Notes and,
when issued and delivered in accordance with the terms of the
Subordinated Notes, will be validly issued, fully paid and non-
assessable.
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(vii) LEGAL COMPLIANCE. Buyer has complied with
all laws (including rules and regulations thereunder) of all
Governmental Authorities, and no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been
filed or commenced against Buyer alleging any failure to comply with
any such law or regulation, except where the failure to comply would
not have a material adverse effect on Buyer.
(viii) LITIGATION. There is no litigation, action,
suit, Tax audit, proceeding or investigation pending or, to the
Buyer's knowledge, threatened with respect to the Buyer, any of the
assets of the Buyer or any of the transactions contemplated hereby
before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, or
any other entity, which, if adversely determined, would have a
material adverse effect upon Buyer, any of the assets of the Buyer or
the conduct by Buyer of its business. The Buyer is not in default
with respect to any order, writ, injunction or decree of any court or
Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality which, if not
cured, would be expected to have a material adverse effect upon Buyer.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Sellers
represent and warrant to Buyer that the statements contained in this Section 4
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 4), except as set forth in the disclosure schedule delivered by the
Sellers to Buyer on the date hereof (the "DISCLOSURE SCHEDULE"). The
Disclosure Schedule may be updated one or more times prior to the date which is
five (5) days prior to the Closing Date. Any updated Disclosure Schedule shall
be delivered at or before the Closing. An updated Disclosure Schedule shall
only be deemed to modify a representation and/or warranty made as of the date
of the Agreement in the event, and only in the event, that the Sellers acted in
good faith and used their best efforts when preparing the original Disclosure
Schedule delivered to Buyer as of the date of this Agreement. In the event any
such updated Disclosure Schedule indicates a Material adverse change from the
information previously provided to Buyer, Buyer shall be entitled to terminate
this Agreement notwithstanding any other provision contained in this Agreement
by written notice delivered to the Sellers, subject to the next sentence. An
event or matter will be deemed to be "MATERIAL," to have a "MATERIAL" change in
or in respect of, to have a "MATERIAL ADVERSE EFFECT" or to be "MATERIALLY"
affected if, in the opinion of Buyer, acting reasonably, the loss that may
reasonably be expected to occur to Target or Buyer with respect to such event
or matter, when taken together with all other related losses that may
reasonably be expected to occur to Target or Buyer as a result of any such
events or matters, would exceed $20,000 in the aggregate or if such event or
matter constitutes a criminal violation of law; provided, that, the termination
rights will not arise unless the aggregate amount of all such material adverse
losses exceeds $200,000. For purposes of this paragraph, the word "LOSS" shall
mean any and all direct or indirect payments, obligations, assessments, losses,
losses of income, liabilities, costs and expenses paid or incurred, or
reasonably likely to be paid or incurred, or that are reasonably expected to
occur, including without limitation, penalties, interest on any amount payable
to a third party as a result of the foregoing, and any legal or other expenses
reasonably expected to be
KINDERHOOK SYSTEMS, INC.
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incurred in connection with defending any demands, claims, actions or causes of
action that, if adversely determined, could reasonably be expected to result in
losses, and all amounts paid in settlement of claims or actions; provided,
however, that losses shall be net of any insurance proceeds entitled to be
received from a nonaffiliated insurance company on account of such loss (after
taking into account any cost incurred in obtaining such proceeds). A Customer
Contract or Agreement is "MATERIAL" if during the twelve months ended December
31, 1998 or during the current fiscal year such Customer Contract or Agreement
produced or may reasonably be expected to produce, as the case may be, $20,000
of Gross Profit Margin less any bad debt specifically related to such Customer
Contract or Agreement. Any item intended to be disclosed must be identified
with the particular representation or warranty it is intended to limit and
shall not be deemed to limit any other representation, warranty or covenant in
the Agreement; provided, that sections of the Disclosure Schedule may contain
specific cross-references to other sections of the Disclosure Schedule.
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein, unless the Disclosure
Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail. Without limiting the generality of
the foregoing, the mere listing (or inclusion of a copy) of a document or other
item shall not be deemed adequate to disclose an exception to a representation
or warranty made herein (unless the representation or warranty has to do with
the existence of the document or other items itself). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 4.
(A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties requires such qualification. Target has full corporate power and
authority to carry on the business in which it is engaged and to own and use
the properties owned and used by it. Section 4(a) of the Disclosure Schedule
lists the directors and officers of Target. The Sellers have delivered to
Buyer correct and complete copies of the charter and bylaws of Target (as
amended to date). The minute books containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors, the stock certificate books, and the stock record books of Target
are correct and complete. Target is not in default under or in violation of
any provision of its charter or bylaws. The execution and delivery of this
Agreement and the effectuation of the transactions contemplated hereby has been
duly authorized by all of the directors of Target, and Target will deliver to
Buyer on the date hereof and at the Closing complete and correct copies,
certified by its secretary, of the resolutions duly and validly adopted by its
directors evidencing such authorization (which resolutions will not have been
modified, revoked or rescinded in any respect prior to, and will be in full
force and effect at, the Closing). No other corporate act or proceeding on the
part of Target or the Sellers is necessary for the due and valid authorization
of this Agreement or the transactions contemplated hereby.
(B) CAPITALIZATION. The entire authorized capital stock of
Target consists of 20,000,000 shares of common stock, par value $.01 per share
(the "SHARES"), of which 9,102,008 Shares are issued and outstanding and no
Shares are held in treasury. All of the issued and outstanding Shares have
been duly authorized, are validly issued, fully paid, and
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nonassessable, and are held of record by the respective Sellers as set forth in
Section 4(b) of the Disclosure Schedule. Except as set forth in Section 4(b)
of the Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversion
rights, or other agreements or commitments to which Target is a party or which
are binding upon Target providing for the issuance, disposition, or acquisition
of any of their capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, deferred bonus programs, or similar rights with
respect to Target. There are no voting trusts, proxies, or any other
agreements or understandings with respect to the voting of the capital stock of
Target.
(C) NONCONTRAVENTION. Except as disclosed in Section 4(c) of
the Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any Governmental
Authority to which Target is subject or any provision of the charter or bylaws
of Target or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, Security
Interest, or other arrangement to which Target is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). Target does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency, which it has not already
obtained, in order for the Parties to consummate the transactions contemplated
by this Agreement.
(D) SUBSIDIARIES. Target has no Subsidiaries.
(E) FINANCIAL STATEMENTS. Attached hereto as Exhibit A are
the financial statements (collectively the "FINANCIAL STATEMENTS"), including
balance sheets, income statements, and cash flow statements, for Target
prepared in accordance with GAAP for each of the (i) fiscal years ended
December 31, 1997 and 1998 (the fiscal year ended December 31, 1998 being
referred to herein as the "MOST RECENT FISCAL YEAR END") and (ii) the six (6)
month period ended June 30, 1999. The Financial Statements for the years ended
December 31, 1997 and 1998 have been audited by PricewaterhouseCoopers LLP.
The Financial Statements fairly present the financial position of Target as of
the respective dates thereof and Target's results of operations and cash flows
for the periods indicated.
(F) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except
as set forth in Section 4(f) of the Disclosure Schedule, since December 31,
1998, there has not been any material adverse change in the assets,
Liabilities, business, financial condition, operations or results of operations
of Target or, to Seller's Knowledge, the future prospects of Target. Without
limiting the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred,
conveyed, assigned or disposed of any of its Material assets, tangible
or intangible, other than for a fair consideration in the Ordinary
Course of Business;
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(ii) Target has not entered into any contract,
lease, sublease, license or sublicense (or series of related
contracts, leases, subleases, licenses and sublicenses) either
involving more than $50,000 or outside the Ordinary Course of
Business;
(iii) No party (including Target) has accelerated,
terminated, modified, or canceled any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) to which Target is a party or by
which it is bound or notified Target in writing of such involving more
than $50,000;
(iv) Target has not imposed any Security Interest
upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditure
(or series of related capital expenditures) either involving more than
$25,000 singly or $100,000 in the aggregate, or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment
in, any loan to, or any acquisition of the securities or assets of any
other person (or series of related capital investments, loans, and
acquisitions) either involving more than $25,000 individually or
$100,000 in the aggregate or outside the Ordinary Course of Business;
(vii) Target has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease obligations)
either involving more than $25,000 singly or $100,000 in the aggregate
or outside the Ordinary Course of Business;
(viii) Target has not delayed or postponed (beyond
its normal practice) the payment of accounts payable and other
Liabilities;
(ix) Target has not settled, canceled,
compromised, waived, or released any right, claim action or proceeding
(or series of related rights, claims, actions or proceedings) either
involving more than $50,000 or outside the Ordinary Course of
Business;
(x) Target has not granted any license or
sublicense of any rights under or with respect to any Intellectual
Property other than in the Ordinary Course of Business;
(xi) There has been no change made or authorized
in the charter or bylaws of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon
conversion or exercise) any of its capital stock;
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(xiii) Target has not declared, set aside, or paid
any dividend or distribution with respect to its capital stock or
redeemed, purchased, or otherwise acquired any of its capital stock
except as contemplated by Section 4(f)(xxi);
(xiv) Target has not experienced any material
damage, destruction or loss (whether or not covered by insurance) to
its property;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business giving rise to any
claim or right on its part against the person or on the part of the
person against it;
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted an increase outside
the Ordinary Course of Business in the base compensation of any of its
directors, officers, and key employees;
(xviii) Target has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance,
(G) severance, or (H) other plan, contract or commitment for any of
its directors, officers, and employees, or modified or terminated any
existing such plan, contract or commitment;
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and full-time
staff employees ;
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) Target has not made any dividend, consulting
or other payment to the Sellers, except for (A) normal payments to the
Sellers for their employment salaries (not to exceed current
compensation levels) and (B) payments set forth in Section 4(f)(xxi)
of the Disclosure Schedule;
(xxii) There has not been any other Material
occurrence, event, incident, action, failure to act, or transaction by
Target (or, to Seller's Knowledge, by any third party involving
Target) outside the Ordinary Course of Business; and
(xxiii) Target has not committed to do any of the
foregoing.
(G) UNDISCLOSED LIABILITIES. Target does not have any
Liability (and there is no Basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand against it
giving rise to any Liability) which is individually in excess of $10,000,
except for (i) Liabilities reflected in the most recent audited balance sheet
included in the Financial Statements, (ii) Liabilities which have arisen since
the date of the most recent audited balance sheet included in
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the Financial Statements in the Ordinary Course of Business (none of which
relates to any breach of contract, breach of warranty, tort, infringement, or
violation of law or arose out of any charge, complaint, action, suit,
proceedings, hearing, investigation, claim, or demand), and (iii) Liabilities
that are not required to be set forth in the Financial Statements or the notes
thereto in accordance with GAAP assuming in all cases that the Financial
Statements, including the most recent balance sheet, are required to include
all footnote disclosures required for year end financial statements under GAAP.
(H) TAX MATTERS.
(i) Target has filed or caused to be filed all
Tax Returns that it was required to file. All such Tax Returns were
correct and complete in all respects. All Taxes owed by Target
(whether or not shown on any Tax Return) have been paid. Target
currently is not the beneficiary of any extension of time within which
to file any Tax Return. Neither Target nor any Seller has received
any notice of any claim by an authority in a jurisdiction where Target
does not file Tax Returns that Target is or may be subject to taxation
by that jurisdiction. There are no Security Interests on any of the
assets of Target that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor, or
other third party.
(iii) To the Knowledge of any Seller or director or
officer (or employee responsible for Tax matters) of Target there is
no Basis for any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax Liability of Target either (A) claimed or
raised by any authority in writing or (B) as to which any of the
Sellers and the directors and officers (and employees responsible for
Tax matters) of Target has Knowledge based upon personal contact with
any agent of such authority. Section 4(h) of the Disclosure Schedule
lists all Tax Returns filed with any Governmental Authority with
respect to Target for taxable periods ended on or after December 31,
1992, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit.
The Sellers have delivered to Buyer correct and complete copies of all
federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Target since December
31, 1992.
(iv) Target 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.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target is not, and
has not been during the applicable period specified in Code Section
897(c)(1)(A)(ii), a United States real property holding corporation
within the meaning of Code Section 897(c)(2). Target has disclosed on
its
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federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662. Target is not a party to any Tax
allocation or sharing agreement. Target has never been (or has any
Liability for unpaid Taxes because it once was) a member of an
Affiliated Group during any part of any consolidated return year
within any part of which consolidated return year any corporation
other than Target also was a member of the Affiliated Group.
(vi) Section 4(h) of the Disclosure Schedule sets
forth with respect to Target as of the most recent practicable date
(as well as on an estimated pro forma basis as of the Closing) the
basis of Target in its assets.
(vii) The unpaid Taxes of Target (including any
Taxes of Target attributable to the exercise of options by Target
employees or the repurchase of options held by Target employees) do
not exceed the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book
and Tax income) set forth on the face of the Financial Statements
(rather than in any notes thereto) and used in the computation of the
Net Working Capital as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of Target
in filing its Tax Returns.
(viii) To the extent that any act or omission of any
Seller with respect to Taxes or Tax Returns creates or could create
Tax Liability for Target, Seller shall be included in each reference
to "Target" in this Section 4(h).
(ix) Each Seller has consented to, and the Target
has made, a valid and effective election under Section 1362 of the
Code to be treated as an S corporation. Such election has been
effective from March 5, 1993 and has been, and will be, continuously
in effect from that date until terminated as a result of the
acquisition of the Target pursuant to this Agreement. The Target has
never been a corporation taxable under Subchapter C of the Code. The
Target and the Sellers have taken no actions with respect to
issuances, sales, gifts, or other dispositions of stock which would
disqualify Target as a small business corporation under Section
1361(b) of the Code and thereby terminate the Target's Subchapter S
corporation election pursuant to Section 1362(d)(2) of the Code. The
Sellers shall deliver to the Buyer at the Closing, a copy of the
Target's Subchapter S election.
(x) The certificates, statements or other
documents with respect to Target's Taxes delivered by Sellers or
Target to Buyer pursuant to Section 6 and Section 7 of this Agreement
are and will be true, correct and complete.
(I) TANGIBLE ASSETS. Target owns or leases all tangible
assets necessary for the conduct of its business as presently conducted. To
the Seller's Knowledge, each such tangible asset is free from defects (patent
and latent), has been maintained in accordance with normal industry practice,
is in good operating condition and repair (subject to normal wear and tear),
and is suitable for the purposes for which it presently is used.
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(J) REAL PROPERTY. Target owns no real property.
(K) REAL PROPERTY LEASES. Section 4(k) of the Disclosure
Schedule lists and describes briefly all real property leased or subleased to
Target. The Sellers have delivered to Buyer correct and complete copies of the
leases and subleases listed in Section 4(k) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section
4(k) of the Disclosure Schedule:
(i) The lease or sublease is legal, valid,
binding, enforceable, and in full force and effect, subject to (x)
applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance and moratorium laws and other similar laws of general
application affecting enforcement of creditors' rights generally and
(y) equitable principles of general applicability which may limit the
availability of equitable remedies including specific performance
(regardless of whether enforcement is sought in a proceeding in equity
or at law);
(ii) The Sellers shall use their best efforts to
ensure that the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
immediately following the Closing;
(iii) Target is not and to Seller's Knowledge no
other party to the lease or sublease 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;
(iv) No party to the lease or sublease has
repudiated any provision thereof;
(v) There are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold;
(vii) All facilities leased or subleased thereunder
have received all approvals of Governmental Authorities (including
licenses and permits) required to be obtained by Target in connection
with the operation thereof and Target has operated and maintained and
to Seller's Knowledge other parties have operated and maintained such
facilities in accordance with applicable laws, rules, and regulations;
and
(viii) The real property listed in Sections 4(j) and
4(k) of the Disclosure Schedule represents all of the real property
necessary to operate the business of Target in the manner that it is
currently being operated.
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(L) INTELLECTUAL PROPERTY
(i) Target is the sole and exclusive owner of all
right, title and interest in and has good, valid and marketable title
to, or, as to third party rights identified in Section 4(l)(i) of the
Disclosure Schedule, has obtained a license to use all Non-Software
Intellectual Property used by Target in the operation of Target's
business, free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements, or encumbrances. Each item
of Non-Software Intellectual Property will be owned or licensed for
use by Target on identical terms and conditions immediately subsequent
to the Closing hereunder.
(ii) Target is the sole and exclusive owner of all
right, title and interest in and has good, valid and marketable title
to all Intellectual Property in and to the Target Software Programs
listed in Section 4(l)(ii) of the Disclosure Schedule (representing
all Target Software Programs owned by Target), free and clear of all
mortgages, pledges, liens, security interests, conditional sales
agreements, encumbrances or charges of any kind. The Intellectual
Property rights in and to each Target Software Program will be owned
on identical terms and conditions immediately subsequent to the
Closing hereunder.
(iii) Section 4(l)(iii) of the Disclosure Schedule
sets forth all Third Party Software Programs licensed by Target.
Target has the right and license to use, pursuant to Third Party
Software license agreements, all Third Party Software used in
connection with, and as incorporated into, the Target Software
Programs or the Client Software Programs or in conducting Target's own
business and all use of each of such licensed Third Party Software
Programs by Target has been in compliance with the respective license
agreements.
(iv) Sellers have delivered to Buyer correct and
complete copies of all documents pertaining to statutory Intellectual
Property, including but not limited to, all trademark, service mark,
trade name, copyright, and patent, registrations and applications used
by Target in conducting its own business and all documents pertaining
to licenses, agreements, and permissions (as amended to date) to use
any Intellectual Property used by Target in conducting its own
business, and have made available to Buyer correct and complete copies
of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. With respect to each
item of Non-Software Intellectual Property used in the conduct of the
business of Target as heretofore conducted:
(A) the identified owner possesses all
right, title, and interest in and to the item;
(B) the item is not subject to any
outstanding judgment, order, decree, stipulation, injunction,
or charge;
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(C) no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand is
pending or, to the Knowledge of any of the Sellers, is
threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) other than pursuant to Customer
Contracts entered into in the Ordinary Course of Business,
Target has never agreed to indemnify any person or entity for
or against any interference, infringement, misappropriation,
or other conflict with respect to the item.
Notwithstanding the foregoing, with respect to any
Non-Software Intellectual Property that is not owned by
Target, the representations and warranties contained in the
immediately preceding sentence shall be limited to Seller's
Knowledge.
(v) Section 4(l)(v) of the Disclosure Schedule
sets forth the form and placement of the proprietary legends and
copyright notices displayed in or on the Non-Software Intellectual
Property and Target Software Programs. In no instance has the
eligibility of the Non-Software Intellectual Property and Target
Software Programs for protection under applicable intellectual
property laws been forfeited to the public domain by omission by
Target of any required notice or any other action taken by Target.
(vi) Target has enforced the trade secret
protection program set forth in Section 4(l)(vi) of the Disclosure
Schedule as it relates to the Non-Software Intellectual Property, the
Third Party Software Programs, the Client Software Programs and the
Target Software Programs, and there has been no violation of such
program by any person or entity. The Documentation relating to the
Target Software Programs and the Third Party Software Programs (except
for end user manuals and other items generally delivered to end users
or other customers or clients), (i) has at all times been maintained
in strict confidence, (ii) has been disclosed by Target only to
employees having a "need to know" the contents thereof in connection
with the performance of their duties to Target or as otherwise
specified in any third party license agreements and (iii) has not been
disclosed to any third party, except as otherwise allowed pursuant to
any third party license agreements.
(vii) All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated
in the conception and development of Target Software Programs have
executed nondisclosure agreements, the form of which is set forth in
Section 4(l)(vii) of the Disclosure Schedule, and either (l) have been
party to a written agreement with Target that has accorded Target
full, effective, exclusive and original ownership of all Target
Software Programs, or (2) have executed appropriate instruments of
assignment in favor of Target as assignee that have conveyed to Target
full, effective, and exclusive ownership of all Target Software
Programs.
(viii) Section 4(l)(viii) of the Disclosure Schedule
contains a complete list of all software libraries, compilers and
other third party software used in the development of the Target
Software Programs.
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(ix) The Target Software Programs and the Client
Software Programs will perform in accordance with the warranties, if
any set forth in Target's licenses to, or agreements with, the end
users.
(x) The use of the Target Software Programs and
the Client Software Programs and the license, sale or lease of the
Target Software Programs and the Client Software Programs, or of any
part thereof, or of any copy, or of any part thereof, do not and will
not infringe on, misappropriate, or contribute to the infringement of,
any copyright, trade secret, patents or any other exclusionary right,
of any third party in either the United States or any foreign country.
No person or entity has asserted against Target a claim that the use,
license, sale or lease of any Target Software Program, the Client
Software Programs, the Third Party Software Programs, or any part
thereof, infringes, misappropriates or contributes to the infringement
of any patent claim, copyright or trade secret right of any third
party in either the United States or any foreign country, and the
Sellers are not aware of any Basis for any such claim.
(xi) Except with respect to demonstration or trial
copies, no portion of the Target Software Programs or the Client
Software Programs contains any "back door," "time bomb," "Trojan
horse," "worm," "drop dead device," "virus" or other software routines
or hardware components designed to permit unauthorized access; to
disable or erase software, hardware, or data; or to perform any other
such similar actions.
(xii) Except as set forth in Section 4(l)(xii) of
the Disclosure Schedule, Sellers have made available to Buyer correct
and complete copies of all third party licenses, sublicenses,
agreements, and permissions (as amended to the date hereof) as to
Non-Software Intellectual Property and Third Party Software Programs
licensed or sublicensed to Target (collectively, the "LICENSES").
Except as set forth in Section 4(l)(xii)of the Disclosure Schedule,
with respect to each such License:
(A) the License is legal, valid, binding,
enforceable and in full force and effect;
(B) the License will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms following the Closing;
(C) Target is not and to the Sellers'
Knowledge no other party to the License is in breach or
default and to the Sellers' Knowledge, no event has occurred
which with notice or lapse or time would constitute a breach
or default or permit termination, modification, or
acceleration thereunder;
(D) to the Sellers' Knowledge, no underlying
item of the property covered by the License is subject to any
outstanding judgment, order, decree, stipulation, injunction,
or charge;
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(E) no charge, complaint, action, suit,
proceedings, hearing, investigation, claim, or demand is
pending or to the Sellers' Knowledge, is threatened which
challenges the legality, validity, or enforceability of any
underlying item of the property covered by the License; and
(F) except as may have been necessary in
preparing and delivering a Client Software Program, in
accordance with the terms of the applicable client engagement,
Target has not granted any sublicense or similar right with
respect to any License.
(xiii) The Target Software Programs and, to the
extent used in accordance with the applicable documentation, the
Client Software Programs (i) are year 2000 compatible, which shall
include, but is not limited to, date data century recognition, and
calculations that accommodate same century and multi-century formulas
and date values; (ii) operate or will operate in accordance with their
specifications prior to, during and after the calendar year 2000; and
(iii) shall not end abnormally or provide invalid or incorrect results
as a result of date data, specifically including date data which
represents or references different centuries or more than one century;
provided, that any third party software used by clients in conjunction
with Target Software Programs or Client Software Programs for which
Target was not directly or indirectly responsible for determining year
2000 compliance properly exchanges date data.
(M) CONTRACTS. Section 4(m) of the Disclosure Schedule
lists the following contracts, agreements, and other written arrangements to
which Target is a party:
(i) any written arrangement (or group of related
written arrangements) for the lease of personal property from or to
third parties providing for lease payments in excess of $50,000 per
annum;
(ii) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property or for the
furnishing or receipt of services which either calls for performance
over a period of more than one year or involves more than the sum of
$50,000;
(iii) any written arrangement concerning a
partnership or joint venture;
(iv) any written arrangement (or group of related
written arrangements) under which it has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations) involving more
than $50,000 or under which it has imposed (or may impose) a Security
Interest on any of its assets, tangible or intangible;
(v) any written arrangement imposing
confidentiality restriction or restrictions on the ability of Target
to compete;
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(vi) any written arrangement involving any of the
Sellers and their Affiliates not referred to in clause (vii) below;
(vii) any written arrangement with any of its
directors, officers, and employees in the nature of a collective
bargaining agreement, employment agreement, or severance agreement;
(viii) any written arrangement under which the
consequences of a default or termination could have a material adverse
effect on the assets, Liabilities, business, financial condition,
operations or results of operations, or future prospects of Target;
(ix) any written arrangement involving a
Governmental Authority;
(x) any written Customer Contract or Agreement;
or
(xi) any other written arrangement (or group of
related written arrangements) either involving more than $50,000 or
not entered into in the Ordinary Course of Business.
The Sellers have delivered to Buyer a correct and complete copy of each written
arrangement listed in Section 4(m) of the Disclosure Schedule (as amended to
date). With respect to each written arrangement so listed: (A) the written
arrangement is legal, valid, binding, enforceable, subject to (x) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium
laws and other similar laws of general application affecting enforcement of
creditors' right' generally and (y) equitable principles of general
applicability which may limit the availability of equitable remedies including
specific performance (regardless of whether enforcement is sought in a
proceeding in equity or at law), and in full force and effect; (B) the written
arrangement will continue to be legal, valid, binding, enforceable and in full
force and effect on the same or substantially similar terms immediately
following the Closing; (C) Target is not and, to the Seller's Knowledge, no
other party 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, under the written arrangement; and
(D) no party has repudiated any provision of the written arrangement. Target
is not a party to any verbal contract, agreement, or other arrangement which,
if reduced to written form, would be required to be listed in Section 4(m) of
the Disclosure Schedule under the terms of this Section 4(m). No unfilled
Material Customer Contract or Agreement obligating Target to perform services
will result in a loss to Target upon completion of performance pursuant to
their terms. Target is not a party to any contract, agreement or other
arrangement which was entered into on terms which would not be considered
market standard if such arrangement was entered into in an arms-length
transaction. None of Target's twenty-five (25) highest grossing revenue
customers in the year ended December 31, 1998 has Materially curtailed or
terminated its relationship with it or has indicated that it will stop, or
Materially decrease the rate of, buying services from it, other than as a
result of the completion of projects by Target in the Ordinary Course of
Business.
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(N) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are presently current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Financial Statements (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of Target.
(O) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(P) INSURANCE. Section 4(p) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target has
been a party, a named insured, or otherwise the beneficiary of coverage at any
time within the past three (3) years:
(i) The name, address, and telephone number of
the agent;
(ii) The name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) The policy number and the period of coverage;
(iv) The scope (including an indication of whether
the coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) A description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, and enforceable and in full force and effect, subject to (x)
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and
moratorium laws and other similar laws of general application affecting
enforcement of creditors' rights generally and (y) equitable principles of
general applicability which may limit the availability of equitable remedies
including specific performance (regardless of whether enforcement is sought in
a proceeding in equity or at law); (B) the policy will continue to be legal,
valid, binding, and enforceable and in full force and effect on identical terms
immediately following the Closing Date; (C) Target is not in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification, or
acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Target has been covered during the past three (3) years
by insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Section 4(p) of the
Disclosure Schedule describes any self-insurance arrangements affecting Target.
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(Q) LITIGATION. Section 4(q) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge or (ii) is a party or, to the
Knowledge of any of the Sellers, is threatened to be made a party to any
charge, complaint, action, suit, proceeding, hearing, or investigation of or in
any court or quasi-judicial or administrative agency of any Governmental
Authority or before any arbitrator. None of the Sellers has any reason to
believe that any such charge, complaint, action, suit, proceeding, hearing, or
investigation may be brought or threatened against Target.
(R) EMPLOYEES. Section 4(r) of the Disclosure Schedule lists
the employees employed by Target and the annual compensation or rate of pay
(including bonus) for each as of the date of this Agreement, with each such
employee identified as (i) salaried or hourly, (ii) exempt or nonexempt, (iii)
union or nonunion, (iv) full-time or part-time, (v) temporary, permanent, or
leased, and (vi) active or nonactive (e.g., leave of absence, Family Medical
Leave Act, disability, layoff, etc.). To Seller's Knowledge no key employee or
group of full-time employees has any plans to terminate employment with Target.
Target is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Target has not committed any unfair
labor practice as defined by applicable law. None of the Sellers has any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of Target.
(S) EMPLOYEE BENEFITS.
(i) Section 4(s)(i) of the Disclosure Schedule
provides a list of each Current Employee Benefit Plan.
(ii) True, correct, and complete copies of each
Current Employee Benefit Plan, and related trusts, if applicable,
including all amendments thereto, have been furnished to Buyer. There
have also been furnished to Buyer, (A) with respect to each Current
Employee Benefit Plan required to file such report or description, the
most recent report on Form 5500 and the most recent summary plan
description, and (B) with respect to each Current Employee Benefit
Plan intended to be qualified within the meaning of Section 401(a) of
the Code, the most recent favorable determination letter, if any, from
the Internal Revenue Service.
(iii) With respect to the Employee Benefit Plans:
1. Neither Target nor any corporation,
trade, business, or entity under common control with Target,
within the meaning of Section 414(b), (c), (m), or (o) of the
Code, or Section 4001 of ERISA, ("COMMONLY CONTROLLED ENTITY")
contributes to or has an obligation to contribute to, nor has
Target or any Commonly Controlled Entity at any time
contributed to or had an obligation to contribute to, either a
Multiemployer Plan or a plan subject to Title IV of ERISA.
2. Target and each Fiduciary have performed
all obligations, whether arising by operation of law or by
contract, required to be performed by
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each of them in connection with the Employee Benefit Plans,
and there have been no defaults or violations by any party
with respect to the Employee Benefit Plans.
3. All reports and disclosures relating to
the Employee Benefit Plans required to be filed with or
furnished to Governmental Authorities, participants, or
beneficiaries have been filed or furnished in accordance with
applicable law in a timely manner, and each Employee Benefit
Plan has been administered in compliance with its governing
documents and all applicable law.
4. Each of the Employee Benefit Plans
intended to be qualified under Section 401(a) of the Code (A)
satisfies in form the requirements of such Section, except to
the extent amendments are not required by law to be made until
a date after the Closing Date, (B) has received a favorable
determination letter from the Internal Revenue Service
regarding such qualified status, which covers all amendments
to the Employee Benefit Plans, and (C) has not been operated
in a way that would adversely affect its qualified status.
5. Target has not made any payments, is not
obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it
to make any payments that will not be deductible under Code
Section 280G.
6. There are no actions, suits, or claims
pending (other than routine claims for benefits) or threatened
against, or with respect to, any of the Employee Benefit Plans
or their assets.
7. All contributions required to be made to
the Employee Benefit Plans pursuant to their terms and the
provisions of ERISA, the Code, or any other applicable law
have been timely made.
8. There has been no Prohibited Transaction
with respect to any Employee Benefit Plan or Fiduciary, and no
act, omission, or transaction has occurred that would result
in imposition (directly or indirectly) upon Target of (A)
breach of fiduciary duty liability under Section 409 of ERISA,
(B) a civil penalty assessed pursuant to subsections (c), (i),
or (l) of Section 502 of ERISA, or (C) a tax imposed pursuant
to Chapter 43 of Subtitle D of the Code.
9. There is no matter pending (other than
routine qualification determination filings) with respect to
any of the Employee Benefit Plans before the Internal Revenue
Service, the Department of Labor, the PBGC, or other
Governmental Authority.
10. Each trust funding an Employee Benefit
Plan, which trust is intended to be exempt from federal income
taxation pursuant to Section 501(c)(9) of the Code, satisfies
the requirements of such section and has received a favorable
determination letter from the Internal Revenue Service
regarding such
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exempt status and has not, since receipt of the most recent
favorable determination letter, been amended or operated in a
way that would adversely affect such exempt status.
11. With respect to any employee benefit
plan, within the meaning of Section 3(3) of ERISA, which is
not listed in Section 4(s)(i) of the Disclosure Schedule, but
which is sponsored, maintained, or contributed to, or has been
sponsored, maintained, or contributed to within six years
prior to the Closing Date, by any Commonly Controlled Entity,
(A) no withdrawal liability, within the meaning of Section
4201 of ERISA, has been incurred, which withdrawal liability
has not been satisfied, (B) no liability to the PBGC has been
incurred by any Commonly Controlled Entity, which liability
has not been satisfied, (C) no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of
ERISA or Section 412 of the Code has been incurred, and (D)
all contributions (including installments) to such plan
required by Section 302 of ERISA and Section 412 of the Code
have been timely made.
12. Neither the execution and delivery of
this Agreement nor the consummation of the transactions
contemplated hereby will (A) require Target or Buyer to make a
larger contribution to, or pay greater benefits or provide
other rights under, any Employee Benefit Plan than it
otherwise would, whether or not some other subsequent action
or event would be required to cause such payment or provision
to be triggered, (B) create or give rise to any additional
vested rights or service credits under any Employee Benefit
Plan, or (C) conflict with the terms of any Employee Benefit
Plan.
13. All continuation of coverage obligations
set forth in Section 4980B of the Code and Sections 601
through 609 of ERISA have been performed.
(iv) Target is not a party to any agreement, nor
has it established any policy or practice, requiring it to make a
payment or provide any other form of compensation or benefit to any
person performing services for Target upon termination of such
services that would not be payable or provided in the absence of the
consummation of the transactions contemplated by this Agreement.
(v) In connection with the consummation of the
transactions contemplated by this Agreement, no payments of money or
other property, acceleration of benefits, or provisions of other
rights have or will be made under the Employee Benefit Plans that
would result in imposition of the sanctions imposed under Section 280G
or 4999 of the Code, whether or not some other subsequent action or
event would be required to cause such payment, acceleration, or
provision to be triggered.
(vi) Each Employee Welfare Benefit Plan may be
unilaterally amended or terminated in its entirety without liability
to Target except as to benefits vested and accrued thereunder prior to
such amendment or termination.
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(T) GUARANTIES. Target is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other person.
(U) ENVIRONMENT, HEALTH, AND SAFETY.
(i) Target and its predecessors and Affiliates
has complied with all laws (including rules and regulations
thereunder) of any Governmental Authority concerning the environment,
public health and safety, and employee health and safety, and no
charge, complaint, action, suit, proceeding, hearing, investigation,
claim, demand, or notice has been filed or commenced against any of
them alleging any failure to comply with any such law or regulation.
(ii) Target does not have any Liability (and there
is no Basis related to the past or present operations, properties, or
facilities of Target and its predecessors and Affiliates for any
present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand against Target giving rise to
any Liability) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, the Federal Water Pollution Control Act of 1972,
the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the
Toxic Substances Control Act of 1976, the Refuse Act of 1989, or the
Emergency Planning and Community Right-to-Know Act of 1986 (each as
amended), any other law (or rule or regulation thereunder) of any
Governmental Authority or common law remedy concerning release or
threatened release of hazardous substances, public health and safety,
or pollution or protection of the environment.
(iii) Target does not have any Liability (and
Target and its predecessors and Affiliates have not handled or
disposed of any substance, arranged for the disposal of any substance,
or owned or operated any property or facility in any manner that could
form the Basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand (under the
common law or pursuant to any statute) against Target giving rise to
any Liability) for damage to any site, location, or body of water
(surface or subsurface) or for illness or personal injury under any
applicable environmental law.
(iv) Target does not have any Liability (and there
is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against Target
giving rise to any Liability) under the Occupational Safety and Health
Act, as amended, or any other law (or rule or regulation thereunder)
of any Governmental Authority concerning employee health and safety.
(v) Target does not have any Liability (and
Target has not exposed any employee to any substance or condition that
could form the Basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand
(under the common law or pursuant to statute) against Target giving
rise to any Liability) for any illness of or personal injury to any
employee.
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(vi) Target has obtained and been in compliance
with all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables
which are contained in, all laws of any Governmental Authority
(including rules, regulations, codes, plans, judgments, orders,
decrees, stipulations, injunctions, and charges thereunder) relating
to public health and safety, worker health and safety, and pollution
or protection of the environment, including laws relating to
emissions, discharge, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
(vii) To the Knowledge of the Sellers, all
properties and equipment used in the business of Target have been free
of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2
trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances.
(viii) To the Knowledge of the Sellers, no
pollutant, contaminant, or chemical, industrial, hazardous, or toxic
material or waste ever has been buried, stored, spilled, leaked,
discharged, emitted, or released on any real property that Target owns
or ever has owned or that Target leases or ever has leased.
(V) LEGAL COMPLIANCE.
(i) Target has complied with all laws (including
rules and regulations thereunder) of all Governmental Authorities, and
no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced
against Target alleging any failure to comply with any such law or
regulation.
(ii) Target has complied with all applicable laws
(including rules and regulations thereunder) relating to the
employment of labor, employee civil rights, and equal employment
opportunities.
(iii) Target has not violated in any respect or
received a notice or charge asserting any violation of the Sherman
Act, the Clayton Act, the Robinson-Patman Act, or the Federal Trade
Act, each as amended.
(iv) Target has complied with all applicable laws
(including rules and regulations thereunder) relating to the residency
status of foreign individuals which are employees of Target and
obtaining the requisite visas, permits and other documentation to
permit such individuals to work in the United States.
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(v) Target has not:
(A) made or agreed to make any contribution,
payment, or gift of funds or property to any governmental
official, employee, or agent where either the contribution,
payment, or gift or the purpose thereof was illegal under the
laws of any Governmental Authority;
(B) established or maintained any unrecorded
fund or asset for any purpose, or made any false entries on
any books or records for any reason; or
(C) made or agreed to make any contribution,
or reimbursed any political gift or contribution made by any
other person, to any candidate for public office with regards
to any Governmental Authority.
(vi) Target has filed in a timely manner all
reports, documents, and other materials it was required to file (and
the information contained therein was correct and complete in all
respects) under all applicable laws (including rules and regulations
thereunder).
(vii) Target has possession of all records and
documents it was required to retain under all applicable laws
(including rules and regulations thereunder).
(W) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Except as
set forth in Section 4(w) of the Disclosure Schedule, none of the Sellers and
their Affiliates has been involved in any business arrangement or relationship
with Target within the past twelve (12) months, and none of the Sellers and
their Affiliates owns any property or right, tangible or intangible, which is
used in the business of Target.
(X) BROKERS' FEES. Target does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(Y) DISCLOSURE. The representations and warranties contained
in this Section 4 along with the Disclosure Schedule and any other written
information, statement or certificate provided by the Sellers with the
exception of forward looking statements and projections, does not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements and information contained in this
Section 4 not misleading.
(Z) BOOKS AND RECORDS. The Sellers have furnished Buyer with
true and complete copies of the books and records relating to the ownership and
operation of Target. The books and records reflect all minutes and written
consents adopted by the Boards of Directors of Target. The books and records
have been maintained in accordance with applicable legal requirements, comprise
all of the books and records relating to the ownership and operation of Target,
reflect all proceedings and transactions customarily contained in corporate
books and records. During the three year period prior to the date hereof,
neither Target nor any of the Sellers on behalf of Target has paid or given or
has authorized or committed to the payment or
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gift of money or anything of value to any official or employee of any
Governmental Authority or any political party or candidate for political office
for the purpose of influencing any governmental action or decision in order to
obtain or retain business or to direct business to any other party.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect
to the period between the execution of this Agreement and the earlier of the
Closing or termination of this Agreement.
(A) GENERAL. Each of the Parties will use his or its
reasonable best efforts to take all action and to do all things necessary,
proper, or advisable to consummate and make effective the transactions
contemplated by this Agreement (including satisfying the closing conditions set
forth in Section 7 below).
(B) NOTICES AND CONSENTS. The Sellers will or will cause
Target to give any notices to third parties required by this Agreement or the
transactions contemplated hereby, and will or will cause Target to obtain all
third- party consents required by this Agreement or the transactions
contemplated hereby or in connection with the matters pertaining to Target
disclosed or required to be disclosed in the Disclosure Schedule. The Sellers
will take additional actions (and the Sellers will cause Target to take all
additional actions) that may be deemed reasonably necessary, proper, or
advisable by Buyer in connection with any other notices to, filings with, and
authorizations, consents, and approvals of Governmental Authorities and third
parties that he, she, it or Target may be required to give, make, or obtain as
reasonably required by this Agreement or the transactions contemplated hereby
in order that Buyer is able to conduct the business of Target in the same
manner as it is currently being conducted.
(C) OPERATION OF BUSINESS. The Sellers will not cause or
permit Target to engage in any practice, take any action, embark on any course
of inaction, or enter into any transaction outside the Ordinary Course of
Business, except as provided hereby or disclosed on the Disclosure Schedule as
of the date hereof. Without limiting the generality of the foregoing, the
Sellers will not cause or permit Target to engage in any practice, take any
action, embark on any course of inaction, or enter into any transaction of the
sort described in Section 4(f) above, except for transactions disclosed on the
Disclosure Schedule.
(D) PRESERVATION OF BUSINESS. The Sellers will use its
reasonable best efforts to cause Target to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(E) FULL ACCESS.
(i) Each of the Sellers will permit, and the
Sellers will cause Target to permit, representatives of Buyer to have
reasonable access during normal business hours, and in a manner so as
not to interfere with the normal business operations of Target, to the
headquarters office of Target and all books, records, contracts, Tax
records, and documents of or pertaining to Target. Buyer's on-site
investigation of Target shall be
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limited to fifteen (15) business days, unless otherwise agreed to by
Buyer and the Principal in writing; provided, however, that such
limitation of time shall not otherwise limit Buyer's investigation of
Target off-site. During Buyer's on-site investigation, Buyer shall
not discuss any aspects of the operation of Target with any employee
of Target, and Buyer shall direct all requests for information and
material only through the Key Employees, unless otherwise agreed to by
Buyer and the Principal in writing. Buyer shall not contact or speak
or correspond with any lender, customer, employee or other person
associated in business with Target without the written consent of
Target.
(ii) Upon completion of the accounting review and
business, legal and accounting due diligence by Buyer and so long as
this Agreement has not been terminated, Buyer shall arrange with the
Sellers a mutually agreeable time and place at which Buyer may conduct
interviews with designated key employees and/or customers of Target
mutually agreed to by Buyer and the Principal. Such interviews shall
be in strict conformity with a format mutually agreed to by Buyer and
the Principal and shall take place and be completed wholly within the
last ten (10) days prior to Closing.
(F) NOTICE OF DEVELOPMENTS. The Sellers will give prompt
written notice to Buyer of any material development affecting the assets,
Liabilities, business, financial condition, operations or results of
operations, or, to the extent of the Knowledge of Sellers, future prospects of
Target. Each Party will give prompt written notice to the others of any
material development affecting the ability of the Parties to consummate the
transactions contemplated by this Agreement. No disclosure by any Party
pursuant to this Section 5(f) however, shall be deemed to amend or supplement
Annex III, Annex IV, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(G) EXCLUSIVITY. None of the Sellers will (and the Sellers
will not cause or permit Target to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to any (A)
liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C)
acquisition or purchase of securities or assets, or (D) similar transaction or
business combination involving Target or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. The Sellers will notify Buyer
immediately if any person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
(H) PREPARATION OF FINANCIAL STATEMENTS; DELIVERY OF FINANCIAL
INFORMATION. Target will prepare and deliver to Buyer, on a monthly basis
until the Closing Date, the financial and other information listed on Exhibit E
hereto.
(I) DELIVERY OF SCHEDULES; ACCEPTANCE. Buyer acknowledges
that the preparation and delivery of the Schedules to the Agreement may not be
prepared and/or final at the time of the execution and delivery of the
Agreement. As such, the parties agree as follows:
(i) The Sellers shall have the right to deliver
the Schedules to the Agreement and/or to amend, restate and update the
Schedules to the Agreement up to the
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date which is five (5) days prior to the Closing Date; provided that
Sellers comply with Section 4 of this Agreement;
(ii) at least five (5) days prior to the Closing
Date, the Sellers shall deliver to Buyer a complete copy of the
proposed final Schedules to the Agreement noting all changes from the
Schedules provided upon execution of the Agreement; provided that
Sellers comply with Section 4 of this Agreement; and
(iii) Buyer shall notify Sellers at or prior to the
Closing that either (i) Buyer accepts such revised Schedules, in which
case they shall become part of this Agreement as if in existence on
the date of this Agreement and all such disclosures made in such
amended Schedules shall be deemed disclosed as if they had been
disclosed in the Schedules as of the date of this Agreement or (ii)
that Buyer in its sole discretion does not accept such Schedules and
elects to terminate this Agreement subject to the terms of Section 4
above. In the event there is no material change to the Disclosure
Schedule from the schedules delivered upon the signing of this
Agreement, Buyer shall have no right to terminate this Agreement as a
result of such changed Disclosure Schedule.
6. ADDITIONAL COVENANTS. The Parties further agree as follows:
(A) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Sellers acknowledge and agree that from
and after the Closing Buyer will be entitled to possession of all documents,
books, records, agreements, and financial data of any sort of Target.
(B) LITIGATION SUPPORT. After the Closing, in the event and
for so long as any Party actively is contesting or defending against any
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand in connection with (i) any transaction contemplated under this Agreement
or (ii) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction which occurred on or prior to the Closing Date involving Target,
each of the other Parties will, upon the reasonable request of such Party
(which shall include reasonable notice and during reasonable business hours),
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party (unless
the contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
(C) TRANSITION. No Seller will take any action that primarily
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing for a
period of twenty-four (24) months thereafter as it maintained with Target prior
to the Closing. Each Seller will refer all customer inquiries relating to the
lines of businesses of
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Target to Buyer from and after the Closing for a period of eighteen (18)
months (twenty-four (24) months, in the case of Principal) thereafter.
(D) CONFIDENTIALITY. Each of the Sellers will treat and hold
as such all of the Confidential Information and refrain from using any of the
Confidential Information except in connection with this Agreement for a period
of three (3) years from the Closing, and deliver promptly to Buyer or destroy,
at the request and option of Buyer, all tangible embodiments (and all copies)
of the Confidential Information which are in his or its possession. In the
event that any of the Sellers is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, such Seller will notify Buyer promptly of the request
or requirement so that Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 6(d). If, in the absence of a
protective order or the receipt of a waiver hereunder, any of the Sellers is,
on the advice of counsel, compelled to disclose any Confidential Information to
any tribunal or else stand liable for contempt, that Seller may disclose the
Confidential Information to the tribunal; provided, however, that the
disclosing Seller shall use his reasonable best efforts to obtain, at the
reasonable request of Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as Buyer shall designate. The foregoing provisions
shall not apply to any Confidential Information which is generally available to
the public immediately prior to the time of disclosure.
(E) MONITORING INFORMATION. Prior to the Closing, the Sellers
shall cause Target to deliver such information as may reasonably be requested
by Buyer.
(F) LEASES. The Sellers shall cause prior to the Closing
Date, Target to obtain from its landlords (to the extent required under the
pertinent premises lease) written consent to the assignment of all leases being
indirectly assumed by Buyer, which assignments are deemed to have resulted from
the transactions contemplated by this Agreement.
(G) ADDITIONAL TAX MATTERS.
(i) The Sellers shall cause to be prepared, and
Target shall file or cause to be filed, with the appropriate
Governmental Authorities all Tax Returns required to be filed by
Target for any taxable period ending on or prior to the Closing Date
and Target shall remit any Taxes due in respect of such Tax Returns.
Buyer shall prepare and cause Target to file with the appropriate
Governmental Authorities all Tax Returns required to be filed by it
for any taxable period ending after the Closing Date.
(ii) Buyer and the Sellers recognize that each of
them will need access, from time to time, after the Closing Date, to
certain accounting and Tax records and information held by Buyer
and/or Target to the extent such records and information pertain to
events occurring on or prior to the Closing Date; therefore, Buyer
agrees to cause Target to (A) use its best efforts to properly retain
and maintain such records for a period of six (6) years from the date
the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to
such
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year, whichever is later, and (B) allow the Sellers and their agents
and representatives at times and dates mutually acceptable to the
Parties, to inspect, review and make copies of such records as such
other party may deem necessary or appropriate from time to time, such
activities to be conducted during normal business hours and at the
requesting Party's expense.
(iii) The Sellers shall reimburse Buyer for the
Taxes relating to Pre-Closing Tax Periods, but which are payable in
respect of Tax Returns to be filed by Buyer pursuant to Section
6(g)(i) hereof within ten (10) business days after receipt by the
Sellers of signed copies of such Tax Returns as filed; however, only
to the extent such Taxes are in excess of the reserve for such Tax
Liability used to determine the Net Working Capital of Target.
(iv) For purposes of this Agreement, in the case
of any Taxes payable for a taxable period that begins on or before and
includes (but does not end on) the Closing Date, the portion of such
Tax for the Pre-Closing Tax Period shall (x) in the case of any Taxes
not based on or related to gross or net income, revenues or other
receipts (including, but not limited to, real property Taxes), be
deemed to be the amount of such Tax for the entire taxable period
multiplied by a fraction the numerator of which is the number of days
in the Pre-Closing Tax Period and the denominator of which is the
number of days in the entire taxable period, and (y) in the case of
any Taxes based on or related to gross or net income, revenues or
other receipts be deemed to include the amount which would be payable
if the relevant taxable period ended on and included the Closing Date.
(v) Neither Buyer nor Target shall be liable for
any Taxes resulting solely from the conversion by Target to the
accrual basis of tax accounting from the cash basis of Tax accounting.
The Sellers shall reimburse Buyer for any Taxes for which either Buyer
or Target become liable due solely to such conversion.
(vi) The Sellers and Buyer shall join in making a
timely election under Section 338(h)(10) of the Code and any similar
state law provisions in all applicable states (including any statutes
comparable to under Section 338(g) of the Code) with respect to the
sale and purchase of the Shares pursuant to this Agreement (the
"Section 338(h)(10) Elections"), and each party shall provide to the
others all necessary information to permit such elections to be made.
To facilitate such elections, at the Closing, the Sellers shall
deliver to the Buyer an Internal Revenue Service Form 8023 and any
similar form prescribed under applicable state Tax law (the "Forms")
with respect to the Section 338(h)(10) Elections, which Forms shall
have been duly executed by an authorized person for Sellers and shall
include such attachments to the Forms as are necessary to include the
consent of each Seller to the Section 338(h)(10) Elections
("Consent"). Each such Consent shall be executed by the respective
Seller under penalties of perjury and shall otherwise comply with any
requirements set forth in the Code, applicable Treasury regulations
and on the Forms. Buyer shall use reasonable efforts to assist Seller
in reducing any Tax liabilities resulting from the Section 338(h)(10)
Elections. All Taxes attributable to the Section 338(h)(10) Elections
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made pursuant to this Section 6(g)(v) shall be the liability of the
Sellers, including, but not limited to, Taxes on ordinary income
attributable to the deemed sale of the Target's accounts receivable
and other similar assets pursuant to the Section 338(h)(10) Elections;
provided, that should any additional state income Taxes be imposed by
reason of the treatment of a portion of the gain realized on the
deemed sale of the Target's assets as ordinary income rather than
capital gain, Buyer shall reimburse the Sellers for such additional
Tax liability. The amount (if any) payable by Buyer to Sellers
pursuant to the immediately preceding sentence with respect to a
particular state shall be the excess (if any) of (i) the amount of
state income Tax actually imposed on the gain realized on the deemed
sale of the Target's assets, over (ii) the amount of state income Tax
that would have been imposed on such gain if all such gain were taxed
at the state income Tax rate applicable to capital gains. In
connection with such elections, within sixty (60) days following the
Closing Date, Buyer and the Sellers shall act together in good faith
to determine and agree upon the allocation of the "deemed sale price"
to the assets of Target in accordance with Treasury Regulation Section
1.338(h)(10)-1(f) and the other regulations under Section 338 of the
Code. Notwithstanding the generality of the immediately preceding
sentence, Buyer and the Sellers agree that the "deemed sale price"
shall be allocated to the fixed assets and the monetary assets of
Target at their fair market value as of the Closing Date as determined
in accordance with GAAP, consistently applied, and the balance of the
"deemed sale price" shall be allocated to goodwill and other
intangible assets of Target. The parties agree that for purposes of
this allocation, (A) the portion of the "deemed sale price" allocated
to the non- competition covenant shall not exceed $50,000, and (B) the
fair market value of the fixed assets is their depreciated value.
Both Buyer and the Sellers shall report the tax consequences of the
transactions contemplated by this Agreement consistently with such
allocations and shall not take any position inconsistent with such
allocations in any Tax Return or otherwise. The Sellers shall be
liable for, and shall indemnify and hold Buyer and Target harmless
against, any Taxes or other costs attributable to (i) a failure on the
part of the Sellers to take all actions required of them under this
Section 6(g)(vi); or (ii) a failure on the part of Target to qualify
as an "S corporation" for which the Section 338(h)(10) Elections may
be made.
(H) COVENANT NOT TO COMPETE.
(i) For a period of eighteen (18) months beyond
the term of his employment with Target (the longer of four (4) years
from and after the Closing Date or two (2) years beyond the term of
his employment with Target, in the case of the Principal) or, other
than Principal with respect to the four (4) year fixed term, such
shorter period as set forth in such Seller's Non-competition/No
Solicitation Agreement of even date herewith, none of the Sellers will
(i) engage directly or indirectly in any business that is
substantially similar to the primary business conducted by Target or
Buyer within a one hundred (100) mile radius of any office of Target
or Buyer; (ii) service or solicit any past or current Customer of
Target, Buyer or any of Buyer's subsidiaries with respect to any
business that is similar to any business conducted by Target, Buyer or
any of Buyer's subsidiaries; or (iii) offer employment to or attempt
to induce any director, officer, employee, agent, or Customer of
Target, Buyer or any of
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Buyer's subsidiaries to terminate such relationship with Target;
provided, that the determination of the scope of business, current
Customers, and offices covered shall be at the time of such Seller's
termination; provided further, however, that no owner of less than 1%
of the outstanding stock of any publicly traded corporation shall be
deemed to violate (h)(i)(i) above. For purposes of this Section
6(h)(i), "Customer" shall mean any person or legal entity for which
services have been, or are being, performed by Target, Buyer or
Buyer's Subsidiaries but excluding departments, divisions or locations
and legal entities with separate and autonomous contracting authority
unrelated to such areas with which Target has been engaged and which
do not and have not derived a direct benefit from any services
performed by the Target.
(ii) If any Seller commits a breach, or overtly
threatens to commit a breach, of any of the provisions of Section
6(h)(i) above, Buyer shall have the right and remedy to seek to have
the provisions of Section 6(h)(i) specifically enforced by any court
having jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury and
continuing damage to Buyer, Target and their affiliates, and that the
exact amount of which would be difficult to ascertain and that in any
event money damages will not provide adequate remedy and Buyer shall
be entitled to seek to obtain injunctive relief restraining any
violation of Section 6(h)(i);
(iii) It is expressly understood and agreed that
Buyer and the Sellers consider the restrictions contained in Section
6(h)(i) above to be reasonable and necessary for the purposes of
preserving and protecting the business of Target and goodwill
purchased by Buyer; and
(iv) If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6(h)
is invalid or unenforceable, the Parties agree that the court making
the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area of term or provision, to
delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time
within which the judgment may be appealed.
(I) PUBLIC OFFERING OF BUSINESS. Target is aware that Buyer
is in the process of preparing to offer to the public a portion of its equity
and Target agrees, in good faith, to assist in that effort prior to Closing or
until the termination of this Agreement. If it is necessary to make or prepare
representations regarding Target, Target agrees to cooperate in the preparation
of those materials and in any third party investigation which may be required
(such as by the auditor, Ernst & Young or the lead underwriter, Morgan Stanley
Dean Witter) prior to Closing or until the termination of this Agreement,
provided that any such third party has signed a non-disclosure agreement with
Target that is at least as restrictive as the non-disclosure signed by Buyer
and Target. Furthermore, Target shall not be required to make any public
disclosure of this anticipated transaction prior to Closing nor provide
information to third parties that may disclose this anticipated transaction to
Target's employees.
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(J) PRINCIPAL GUARANTIES. Target shall indemnify Principal
for claims resulting from any default on any personal guaranties that have been
provided to secure Target's leases of tangible property.
7. CONDITIONS TO OBLIGATIONS TO CLOSE.
(A) CONDITIONS TO OBLIGATION OF BUYER. The obligation of
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth
in Section 3(a) and Section 4 above shall be true and correct in all
Material respects at and as of the Closing Date;
(ii) Sellers shall have performed and complied
with all of their covenants hereunder in all Material respects through
the Closing;
(iii) Target shall have procured all of the
governmental or third party consents and approvals specified in
Section 5(b) including any landlord consents related to any rental
property.
(iv) No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency within the jurisdiction of any Governmental
Authority wherein an unfavorable judgment, order, decree, stipulation,
injunction, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) adversely affect the right of Buyer to own,
operate, or control the Shares or Target (and no such judgment, order,
decree, stipulation, injunction, or charge shall be in effect);
(v) Sellers shall have delivered to Buyer a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above
in Section 7(a)(i)-(iv) is satisfied in all respects;
(vi) Buyer shall have received from each of the
Key Employees executed employment agreements in the form and substance
attached hereto as Exhibit B;
(vii) Buyer shall have received from each of the
Key Employees executed non-competition agreements in the form and
substance attached hereto as Exhibit C;
(viii) Buyer shall have received from counsel to
Sellers an opinion addressed to Buyer and dated as of the Closing Date
in a form reasonably satisfactory to Buyer;
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(ix) Buyer shall have received the resignations,
effective as of the Closing, of each director of Target designated by
Buyer prior to the Closing;
(x) All officers, directors and key employees of
Target and each of the Sellers shall have repaid in full all debts or
other obligations, if any, owed to Target;
(xi) Since December 31, 1998, no Material adverse
change shall have occurred before the Closing in Target's business or
its future business prospects;
(xii) All appropriate corporate and shareholder
authorizations of Target shall have been obtained;
(xiii) Buyer shall be satisfied that at Closing all
facilities of Target are under legal, valid and binding leases or
subleases, each of which have received all approvals of Governmental
Authorities required to be obtained by Target;
(xiv) Sellers shall have delivered to Buyer stock
certificates evidencing all of the stock of Target in good delivery
form and duly endorsed for transfer or accompanied by duly executed
stock powers or other appropriate assignment documents;
(xv) Sellers shall have caused Target to cancel,
and Target shall have canceled, any stock option and associated plans,
deferred bonus programs, and phantom equity plans outstanding as of
the Closing Date, and Sellers shall have obtained any necessary
consents and releases from affected holders or other individuals, each
at no cost or liability to Buyer and/or Target and Sellers shall
produce documents evidencing all such actions prior to Closing. The
payments made by Target and due pursuant to the cancellation of such
programs will vest and be payable to the recipients in accordance with
terms and conditions mutually acceptable to Sellers and Buyer. In
conjunction with the cancellation of such programs, Sellers shall have
caused all employees of Target who have received stock options to have
signed releases and reaffirmed any and all restrictive covenants to
which such eligible employees are currently bound;
(xvi) All Security Interests securing debts of
Target which have been paid in full prior to or at the Closing shall
have been fully released of record to the reasonable satisfaction of
Buyer and all Uniform Commercial Code financing statements or other
filings of any kind whatsoever, covering or evidencing such debts,
Security Interests shall have been terminated;
(xvii) No unsatisfied liens for the failure to pay
Taxes of any nature whatsoever shall exist against Target, or against
or in any way affecting any of the Shares;
(xviii) All deferred Taxes of Target and all other
Tax related issues of Target shall have been assumed and/or discharged
by the Sellers;
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(xix) Buyer shall have received a certificate of
the Secretary of Target accompanied with Target's certified
certificate of incorporation and bylaws and certificates of good
standing in each jurisdiction in which Target is required to be
qualified to do business.
(xx) The Sellers shall have delivered to Buyer any
documentation prescribed under Section 1445 of the Code and Treasury
regulations thereunder certifying that the Target is not, and has not
been during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, a United States real property holding
corporation.
(xxi) The Sellers shall have delivered to Buyer all
properly executed Forms and Consents as are required to make the
Section 338(h)(10) Elections provided for under Section 6(g) of this
Agreement.
(xxii) Sellers shall have modified or terminated any
and all non-compete provisions in the Preferred Vendor Agreement and
the Contractual Agreement for Software Development, each dated May 30,
1997, by and between Dialog Software, Inc. and Target to the
satisfaction of the Buyer in its sole discretion.
(xxiii) Buyer shall have received from Target or
Sellers a statement certifying (i) the amount of compensation treated
as paid to Target employees as a result of the exercise by such
employees of options to acquire Target stock prior to the Closing or
the lapse of any restrictions related to the Target stock so acquired,
and (ii) the amount of Taxes that are payable by the Target employees
(and which constitute a withholding obligation of the Target) with
respect to the exercise of such options or the lapse of any
restrictions with respect to such Target stock (the "Employee Tax
Amount").
Buyer may waive any condition specified in this Section 7(a)
if it executes a writing so stating at or prior to the Closing.
(B) CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations
of the Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth
in Section 3(b) above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) Buyer shall have performed and complied with
all of its covenants hereunder in all material respects through the
Closing;
(iii) no action, suit or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency within the jurisdiction of any Governmental
Authority wherein an unfavorable judgment, order, decree, stipulation,
injunction, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by
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this Agreement to be rescinded following consummation (and no such
judgment, order, decree, stipulation, injunction, or charge shall be
in effect);
(iv) Buyer shall have executed and delivered to
each Key Employee an employment agreement in the form and substance
attached hereto as Exhibit B; and
(v) Buyer shall have delivered to the Sellers a
certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above
in Section 7(b)(i)-(iii) is satisfied in all respects.
(vi) Buyer shall have delivered to the Sellers a
subordinated guaranty agreement executed by Metamor Worldwide, Inc.
(vii) Buyer shall have delivered to the Sellers a
legal opinion of Buyer's counsel in a form reasonably satisfactory to
Seller.
Sellers may waive any condition specified in this Section 7(b)
if they execute a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(A) SURVIVAL. Except as otherwise specifically provided in
this Agreement, all of the representations, warranties and covenants of the
Sellers (other than the representations and warranties of the Sellers contained
in Section 3, Section 4(h), Section 4(s) and Section 4(u) above) shall survive
the Closing hereunder (even if Buyer knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of two (2) years thereafter. All of the
representations and warranties of the Sellers contained in Section 3, Section
4(h) and Section 4(s) of this Agreement and the representations, warranties and
covenants of Buyer shall survive the Closing (even if Buyer knew or had reason
to know of any misrepresentation or breach of warranty or covenant at the time
of Closing) and continue in full force and effect for the statute of
limitations.
(B) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER.
(i) In the event the Sellers (or in the event any
third party alleges facts that, if true, would mean any of the Sellers
has breached) breach any of their Joint and Several representations,
warranties, and covenants contained herein during the period such
representations, warranties and covenants survive, and provided that
Buyer makes a written claim for indemnification against any of the
Sellers pursuant to Section 10(h) below within the applicable survival
period, then each of the Sellers agrees to indemnify Buyer from and
against the entirety of any Adverse Consequences Buyer may suffer
through and after the date of the claim for indemnification (including
any Adverse Consequences Buyer may suffer after the end of the
applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach);
provided, however, that the Sellers shall not have any obligation to
indemnify Buyer from and against any Adverse Consequences resulting
from, arising out of, relating
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to, in the nature of, or caused by the breach of any representation or
warranty of the Sellers contained in Section 4 above (A) until Buyer
has suffered aggregate losses by reason of all such breaches in excess
of a $75,000 threshold (at which point the Sellers will only be
obligated to indemnify Buyer from and against such aggregate losses in
excess of such $75,000; (B) in excess of $12,000,000 in the aggregate
(after which point the Sellers shall have no obligation to indemnify
Buyer from and against further such Adverse Consequences), and (C) no
Seller shall be liable for any such losses (together with any losses
to which such Seller is responsible pursuant to Section 8(b)(ii)
hereunder) in excess of fifty percent (50%) of the Purchase Price
received by such Seller hereunder; provided further, however, that the
limitations set forth in (A), (B) and (C) above specifically shall not
apply to the liability of any Seller with respect to Adverse
Consequences resulting from or attributable to (a) intentional fraud
or any willful misconduct by the Sellers or (b) breaches of the
representations and warranties contained in Sections 4(b), 4(h), 4(n)
and 4(s) hereof; provided further, however, none of the Sellers, other
than the Principal, shall be liable for any losses in excess of the
Purchase Price received by such Seller hereunder resulting from or
attributable to (a) intentional fraud or any willful misconduct by the
Sellers under any Joint and Several representations and warranties and
(b) breaches of the representations and warranties contained in
Sections 4(b), 4(h), 4(n) and 4(s).
(ii) In the event any of the Sellers breaches (or
in the event any third party alleges facts that, if true, would mean
any of the Sellers has breached) any of his Several representations,
warranties, and covenants contained in Section 3(a) herein, and
provided that the particular representation, warranty, or covenant
survives the Closing and that Buyer makes a written claim for
indemnification against such Seller pursuant to Section 10(h) below
within the applicable survival period, then such Seller agrees to
indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences Buyer may
suffer after the end of the applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(iii) Each of the Sellers agrees to indemnify Buyer
from and against the entirety of any Adverse Consequences Buyer may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by any Liability of Target arising under United States
Treasury Reg. Section 1.1502-6 (because Target once was a member of an
Affiliated Group during any part of any consolidated return year
within any part of which consolidated return year any corporation
other than Target also was a member of the Affiliated Group).
(iv) Each of the Sellers agree to indemnify Buyer
from and against the entirety of any transfer, stamp or similar Taxes
that which may become due and owing to any Governmental Authority by
reason of the sale of Target to Buyer.
(v) Each of the Sellers agrees to indemnify Buyer
from and against the entirety of any Adverse Consequences which may
become due and owing by reason of
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Target's failure to properly obtain any visas required for employees
of Target to work in the United States.
(vi) Each of the Sellers shall be liable for, and
hereby indemnifies, Buyer for all Taxes imposed on Target (plus, to
the extent authorized in writing by the Sellers, any costs incurred in
contesting such Taxes, including, but not limited to, reasonable
attorneys' and accountants' fees) (a) with respect to any Pre-Closing
Tax Period, (b) attributable to the Section 338(h)(10) Elections, (c)
under Section 1374 of the Code, or (d) as a result of a breach by the
Sellers of any representation, warranty or covenant with respect to
Taxes contained in this Agreement, (together, "PRE-CLOSING TAXES");
provided, however, that such indemnity shall be made only to the
extent Pre-Closing Taxes are in excess of the reserve, if any, for
such Tax Liability as reflected in the Financial Statements and used
in the computation of the Net Working Capital. In order to apportion
appropriately any income Taxes relating to any taxable year or period
that begins before and ends after the Closing Date, the Parties hereto
shall, to the extent permitted or not prohibited by applicable law,
elect with the relevant taxing authority, if required or necessary, to
terminate the taxable year of Target as of the Closing Date. In any
case where applicable law does not permit Target to treat such date as
the end of a taxable year or period, then whenever it is necessary to
determine the liability for income Taxes of Target, for a portion of a
taxable year or period, such determination shall (unless otherwise
agreed to in writing by Buyer and the Sellers) be determined in
accordance with the provisions of Section 6(g)(iv) of this Agreement.
(vii) Each of Sellers (1) shall retain or assume
and be liable for all past, present, and future obligations and
liabilities of Target and any Commonly Controlled Entity (as defined
in Section 4(s)(iii)(1)) arising out of any law or contract with
respect to (i) each Employee Benefit Plan and all associated contracts
and documents, (ii) each employee benefit plan (as such term is
described in Section 3(3) of ERISA, including, but not limited to, any
such employee benefit plan that is exempt from some or all of the
provisions of ERISA), which is or was sponsored, maintained, or
contributed to by any Commonly Controlled Entity either presently or
at any time since 1974 ("CONTROLLED GROUP PLAN") and all associated
contracts and documents, and (iii) all employees and former employees
of Target or any Commonly Controlled Entity in connection with any
event commencing, occurring, or failing to occur on or prior to the
Closing Date and (2) agrees to indemnify Buyer and its affiliates
(including Target after it becomes an affiliate) and their directors,
officers, and employees with respect to any loss, damages, liability,
assessment, withdrawal liability assessment, funding deficiency
assessment, taxes, interest, penalties, judgments, employee benefit
claims, and PBGC liability assessments (including any and all costs
and fees related to proceedings establishing such loss, damages,
liability, assessment, withdrawal liability assessment, funding
deficiency assessment, taxes, interest, penalties, judgments, employee
benefit claims, or PBGC liability assessment) arising out of any law
or contract, with respect to each (i) Employee Benefit Plan, (ii)
Controlled Group Plan, and (iii) employee or former employee of Target
or any Commonly Controlled Entity, in each case with respect to
periods prior to the Closing Date. Notwithstanding any other
provision of this Section 8(b) or elsewhere in this Agreement to the
contrary, the indemnity provided in this Section 8(b)(vii) shall
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survive this Agreement and shall last for as long as the applicable
statute of limitations with respect to the claim resulting in such
loss, damages, liability, assessment, withdrawal liability assessment,
funding deficiency assessment, taxes, interest, penalties, judgments,
employee benefit claims, or PBGC liability assessments and all
associated costs and fees and shall be in addition to any other
indemnities provided in this Section 8(b) or elsewhere in this
Agreement and shall not be subject to any restrictions, conditions, or
limitations imposed in this Section 8(b) or elsewhere in this
Agreement upon this indemnity or any such other indemnities.
(viii) Each of the Sellers agrees to indemnify Buyer
from and against the entirety of any Adverse Consequences Buyer or
Target may suffer resulting from, arising out of, relating to, or
caused by Dialog Software Inc.'s use or lease of Target leasehold
interest.
(ix) Subject to the limitations set forth in
Section 8(b)(i)(B) and (C) above, each of the Sellers agrees to
indemnify Buyer from and against the entirety of any Adverse
Consequences which Buyer or Target may suffer resulting from, arising
out of or relating to that certain letter dated June 1, 1999 from
Educational Testing Services requesting the return of funds paid to
Target.
(x) Subject to the limitations set forth in
Section 8(b)(i)(B) and (C) above, each of the Sellers agree to
indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer or Target may suffer resulting from, arising out of
or relating to the failure of Sellers and Target to obtain the
consents disclosed in Section 4(c) of the Disclosure Schedule prior to
Closing.
(C) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In
the event Buyer breaches any of its representations, warranties or covenants
contained herein, and provided that any of the Sellers makes a written claim
for indemnification against Buyer pursuant to Section 10(h) below within the
applicable survival period, then Buyer agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Sellers may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences the Seller may suffer after the end of the applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach.
(D) MATTERS INVOLVING THIRD PARTIES. If any third party shall
notify any Party (the "INDEMNIFIED PARTY") with respect to any matter which may
give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this Section 8, then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
damaged. In the event any Indemnifying Party notifies the Indemnified Party
within thirty (30) days after the Indemnified Party has given notice of the
matter that the Indemnifying Party is assuming the defense thereof, (A) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (B) the
Indemnified Party may retain separate co-counsel at
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its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel to the extent
the Indemnified Party reasonably concludes that the counsel the Indemnifying
Party has selected has a conflict of interest), (C) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Indemnifying Party
(not to be withheld unreasonably), and (D) the Indemnifying Party will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases the Indemnified Party from all Liability with
respect thereto, without the written consent of the Indemnified Party (not to
be withheld unreasonably). In the event no Indemnifying Party notifies the
Indemnified Party within thirty (30) days after the Indemnified Party has given
notice of the matter that the Indemnifying Party is assuming the defense
thereof, however, the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner it reasonably may deem
appropriate. At any time after commencement of any such action, any
Indemnifying Party may request an Indemnified Party to accept a bona fide offer
from the other parties to the action for a monetary settlement payable solely
by such Indemnifying Party (which does not burden or restrict the Indemnified
Party nor otherwise prejudice him or her) whereupon such action shall be taken
unless the Indemnified Party determines that the dispute should be continued.
In such event, the Indemnifying Party shall be liable for indemnity hereunder
only to the extent of the lesser of (i) the amount of the settlement offer or
(ii) the amount for which the Indemnified Party may be liable with respect to
such action. In addition, the Party controlling the defense of any third party
claim shall deliver, or cause to be delivered, to the other Party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of the third party
claim, and timely notices of, and the right to participate in (as an observer)
any hearing or other court proceeding relating to the third party claim.
(E) DETERMINATION OF LOSS. The amount of indemnification to
be paid by any Party to another Party hereto shall be reduced by (i) any
insurance proceeds received, including both defense and indemnification costs,
with respect to any insurance policy maintained by Target providing coverage
with respect to any of the Adverse Consequences and (ii) any net Tax benefits
actually realized by the indemnified party as a result of any of the Adverse
Consequences (after taking into account any loss of Tax benefits by the
indemnified party (including, without limitation, those resulting from any loss
of depreciation or amortization). All indemnification payments under this
Section 8 shall be deemed adjustments to the Purchase Price.
(F) EXCLUSIVE REMEDY. Buyer and the Sellers acknowledge and
agree that the foregoing indemnification provisions in this Section 8 shall be
the exclusive remedy of both Buyer and the Sellers for any breach of the
representations and warranties of the Parties.
(G) PAYMENT. In the event Buyer or such other Indemnified
Party becomes entitled to indemnity from the Sellers, the Indemnifying Parties
shall promptly pay to Buyer or such other Indemnified Party as may be entitled
to indemnity hereunder in cash the amount of any Adverse Consequences to which
Buyer or such Indemnified Party may become entitled to by reason of the
provisions of this Agreement.
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(H) TAX DISPUTES. In the event that any dispute arises
between Target and the Internal Revenue Service or any state Tax authority
relating to an issue in which the Sellers have agreed to indemnify Buyer, the
Sellers shall have the right to associate with Buyer in the defense or
settlement of any such claims. Moreover, Buyer at all times shall act in good
faith in order to minimize the Tax liability as to issues in which the Sellers
have agreed to indemnify Buyer (so long as it does not adversely affect Target)
and shall not settle or compromise any claims without the consent of the
Sellers, which consent shall not be unreasonably withheld.
9. TERMINATION.
(A) TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement as provided below:
(i) Buyer and the Sellers may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing in the
event any of the Sellers is in breach of any Material representation,
warranty or covenant contained in this Agreement in any Material
respect, and the Sellers may terminate this Agreement by giving
written notice to Buyer at any time prior to the Closing in the event
Buyer is in breach of any Material representation, warranty, or
covenant contained in this Agreement in any Material respect;
(iii) Buyer may terminate this agreement in
accordance with Section 4;
(iv) Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing if the
Closing shall not have occurred on or before September 24, 1999 by
reason of the failure of any condition precedent under Section 7(a)
hereof (unless the failure results primarily from Buyer itself
breaching any representation, warranty, or covenant contained in this
Agreement); or
(v) The Sellers may terminate this Agreement by
giving written notice to Buyer at any time prior to the Closing if the
Closing shall not have occurred on or before September 24, 1999 by
reason of the failure of any condition precedent under Section 7(b)
hereof (unless the failure results primarily from any of the Sellers
themselves breaching any representation, warranty, or covenant
contained in this Agreement).
(B) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 9(a) above, all obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party. Upon termination, Buyer shall return or destroy all confidential
documents, notes or other written memoranda regarding Target delivered in
connection with the transactions contemplated hereby within five (5) business
days thereafter.
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10. MISCELLANEOUS.
(A) THE SELLERS.
(i) When any particular Seller (as opposed to the
Sellers as a group) makes a representation, warranty, or covenant
herein, then that representation, warranty, or covenant will be
referred to herein as the "Several" obligation of such Sellers. This
means that the particular Seller making the representation, warranty,
or covenant will be solely responsible for any Adverse Consequences
Buyer may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any breach thereof. The covenants of each of
Sellers in Sections 2(a) and 6(h) above concerning the sale of his
Shares to Buyer and the representations and warranties of each of the
Sellers in Section 3(a) above concerning the transaction are the
Several obligations of the Sellers.
(ii) When the Sellers as a group make a
representation, warranty, or covenant herein, then that
representation, warranty, or covenant will be referred to herein as
the "JOINT AND SEVERAL" obligation of the Sellers. This means that
each Seller will be responsible for the entirety of any Adverse
Consequences Buyer may suffer resulting from, arising out of, relating
to, in the nature of, or caused by any breach thereof subject,
however, to the limitation of liabilities set forth in Section 8
hereof. The representations and warranties of the Sellers in Section
4 above concerning Target are examples of Joint and Several
obligations.
(B) PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue
any press release or announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of Buyer and
the Sellers; provided, however, that any Party may make any public disclosure
it believes in good faith is required by law or regulation (in which case the
disclosing Party will advise the other Parties prior to making the disclosure).
(C) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(D) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof; provided, however, that if the Closing does not occur, the
Confidentiality Agreement by and between Buyer and Target shall survive
pursuant to its terms.
(E) SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of his or its rights, interests, or obligations hereunder
without the prior written approval of Buyer and the Sellers; provided, however,
that Buyer may assign any or all of its rights and interests hereunder to a
wholly-owned
KINDERHOOK SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
-47-
<PAGE> 53
subsidiary of Buyer (in any or all of which cases Buyer nonetheless shall
remain liable and responsible for the performance of all of its obligations
hereunder).
(F) FACSIMILE/COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or more
Parties hereto, and an executed copy of this Agreement may be delivered by one
or more Parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
Party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any Party hereto,
all Parties hereto agree to execute an original of this Agreement and provide
such requesting Party with a full set of original signature pages for each of
the Parties hereto other than the requesting Party within two (2) days of the
original execution date hereof.
(G) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(H) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given if
(and then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to a Seller:
at the address shown for such Seller on Section 4(b)
of the Disclosure Schedule.
with a copy to:
Kinderhook Systems, Inc.
708 Third Avenue, 6th Floor
New York, New York 10017
Attention: Mark Hansen, Ph.D.
Telephone: (212) 867-4200
Facsimile: (212) 867-0191
with a copy to:
Morrison & Foerster
1290 Avenue of the Americas
New York, New York 10104
Telephone: (212) 468-8100
Facsimile: (212) 468-7900
Attn: John Delaney, Esq.
KINDERHOOK SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
-48-
<PAGE> 54
John Cleary, Esq.
if to Buyer:
Xpedior Incorporated
c/o Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Attention: Michael T. Willis
Telephone: (713) 548-3400
Facsimile: (713) 627-1059
with a copy to:
Peter T. Dameris, Esq.
Margaret G. Reed, Esq.
Xpedior Incorporated
c/o Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
Telephone: (713) 548-4300
Facsimile: (713) 627-1059
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(I) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts)
of the State of Texas.
(J) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyer and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(K) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgement of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable,
KINDERHOOK SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
-49-
<PAGE> 55
the Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
(L) EXPENSES. Except as provided in this Section 10(l), each
of Buyer and the Sellers will bear his or its own costs and expenses (including
legal and investment banking fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. Buyer shall, promptly
following the Closing or the termination of this Agreement by Buyer, pay the
Sellers' legal and accounting fees and expenses up to, but not more than an
aggregate of $15,000 incurred in connection with this Agreement and the
transactions contemplated hereby. None of the Sellers' costs, fees and
expenses related to the transaction contemplated by this Agreement shall be
charged to or paid by Target.
(M) CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any Party.
Any reference to any statute or law of any Governmental Authority shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(N) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(O) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(p) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(P) SUBMISSION TO JURISDICTION. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF BUYER AND SELLERS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS. ANY LEGAL ACTION OR
PROCEEDING AGAINST ANY SELLER WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT AND
KINDERHOOK SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
-50-
<PAGE> 56
ENFORCED IN A FEDERAL OR STATE COURT LOCATED IN THE SOUTHERN DISTRICT OF TEXAS,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE SELLERS HEREBY IRREVOCABLY
ACCEPT FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY, IRREVOCABLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE SELLERS
AGREE THAT A JUDGMENT, AFTER EXHAUSTION OF ALL AVAILABLE APPEALS, IN ANY SUCH
ACTION OR PROCEEDINGS SHALL BE CONCLUSIVE AND BINDING UPON THE SELLERS, AND MAY
BE ENFORCED IN ANY OTHER JURISDICTION BY A SUIT UPON SUCH JUDGMENT, A CERTIFIED
COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE JUDGMENT. THE SELLERS HEREBY
IRREVOCABLY DESIGNATE, APPOINT AND EMPOWER CT CORPORATION SYSTEM, WITH OFFICES
ON THE DATE HEREOF AT 811 DALLAS AVENUE, HOUSTON, TEXAS 77002, SO LONG AS THIS
AGREEMENT IS OUTSTANDING, AS THEIR DESIGNEE, APPOINTEE AND AGENT WITH RESPECT
TO ANY ACTION OR PROCEEDING TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS
BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS,
SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING AND AGREE THAT THE FAILURE OF ANY SUCH AGENT TO GIVE ANY NOTICE OF
ANY SERVICE OF PROCESS TO THE SELLERS SHALL NOT IMPAIR OR AFFECT THE VALIDITY
OF SUCH SERVICE OR OF ANY JUDGMENT BASED THEREON. IF FOR ANY REASON SUCH
DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE
SELLERS AGREE TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF
TEXAS ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO
BUYER. THE SELLERS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT
OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE SELLERS, AT THEIR ADDRESSES SET FORTH IN SECTION 10(H) HEREOF, SUCH SERVICE
TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF BUYER TO SERVE PROCESS OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE SELLERS IN ANY OTHER MANNER PERMITTED BY LAW.
THE SELLERS HEREBY WAIVE IRREVOCABLY, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION TO THE LAYING OF VENUE IN HOUSTON, TEXAS OR ANY CLAIM OF
INCONVENIENT FORUM IN RESPECT OF ANY SUCH ACTION IN HOUSTON, TEXAS TO WHICH IT
MIGHT OTHERWISE NOW OR HEREAFTER BE ENTITLED IN ANY ACTIONS ARISING OUT OF OR
BASED ON THIS AGREEMENT.
KINDERHOOK SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
-51-
<PAGE> 57
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
XPEDIOR INCORPORATED
By:
Name: /s/ PETER T. DEMERIS
-----------------------------------
Title: Executive Vice President
----------------------------------
TARGET:
KINDERHOOK SYSTEMS, INC.
By:
Name: /s/ MARK D. HANSEN
-----------------------------------
Title: President
----------------------------------
SELLERS:
/s/ CRAIG HODDESON
----------------------------------------
/s/ JEROME D. KASS
----------------------------------------
/s/ KAREN MYERS
----------------------------------------
/s/ MARK D. HANSEN
----------------------------------------
/s/ ANN ARMSTRONG
----------------------------------------
KINDERHOOK SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
-52-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF XPEDIOR INCORPORATED
- Metamor Technologies, Ltd. (Illinois)
- NDC Group, Inc. (Delaware)
- Sage I.T. Partners, Inc. (California)
- Virtual Solutions, Inc. (Texas)
- Workgroup Productivity Corporation (Illinois)
- Kinderhook Systems, Inc. (Delaware)
- Xpedior (Canada) Inc. (Ontario)
- Xpedior (Australia) Pty Ltd. (Australia)
- Xpedior (UK) Ltd. (United Kingdom)
- Metamor Consulting Solutions Acquisition Sub #1, Inc. (Delaware)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated September 15, 1999 except for Notes 2 and 11 as to
which the date is October 18, 1999 related to the consolidated financial
statements of Xpedior Incorporated, dated July 3, 1999 except for Note 1 as to
which the date is August 31, 1999 related to the financial statements of Metamor
Technologies, Ltd., dated August 19, 1999 related to the financial statements of
Workgroup Productivity Corporation, dated July 6, 1999 related to the financial
statements of Sage I.T. Partners, Inc., dated September 15, 1999 related to the
financial statements of NDC Group, Inc., and dated April 10, 1997 related to the
financial statements of Virtual Solutions, Inc. in the Registration Statement
(Form S-1) and related Prospectus of Xpedior Incorporated for the registration
of shares of its common stock.
ERNST & YOUNG LLP
Houston, Texas
October 18, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 2, 1998 relating to the financial statements of Virtual
Solutions, Inc. as of December 28, 1997 and for the year then ended, and to all
references to our firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
October 15, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 4, 1997, except for Notes 1 and 12 as to which
the date is September 16, 1999 related to the financial statements of Metamor
Technologies, Ltd. for the year ended December 31, 1996 in the Registration
Statement (Form S-1) and related Prospectus of Xpedior Incorporated dated
October 18, 1999.
MORRISON & MORRISON, LTD.
Chicago, Illinois
October 18, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated March 5, 1999 on our audits of the financial statements of
Kinderhook Systems, Inc., which is included in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
October 18, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF XPEDIOR AS OF JULY 31, 1999 AND RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SEVEN MONTHS ENDED JULY 31, 1999.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-1 FILING.
</LEGEND>
<CIK> 0001096287
<NAME> XPEDIOR INCORPORATED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 33,623
<ALLOWANCES> 437
<INVENTORY> 0
<CURRENT-ASSETS> 34,749
<PP&E> 12,057
<DEPRECIATION> 2,400
<TOTAL-ASSETS> 164,700
<CURRENT-LIABILITIES> 117,799
<BONDS> 0
0
0
<COMMON> 413
<OTHER-SE> 44,598
<TOTAL-LIABILITY-AND-EQUITY> 164,700
<SALES> 0
<TOTAL-REVENUES> 69,915
<CGS> 0
<TOTAL-COSTS> 40,389
<OTHER-EXPENSES> 74
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,008
<INCOME-PRETAX> 1,894
<INCOME-TAX> 1,084
<INCOME-CONTINUING> 810
<DISCONTINUED> 1,186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,996
<EPS-BASIC> $0.05
<EPS-DILUTED> $0.05
</TABLE>
