<PAGE>
As filed with the Securities and Exchange Commission on May 12, 2000
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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ICONIXX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 7371 58-241497
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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8300 Boone Boulevard
Suite 250
Vienna, VA 22182
(703) 790-9008
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
----------------
Graham B. Perkins
Vice President, Chief Financial Officer, Secretary and Treasurer
ICONIXX CORPORATION
8300 Boone Boulevard
Suite 250
Vienna, VA 22182
(703) 790-9008
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Steven A. Museles Joseph E. Mullaney III
Kevin L. Vold Mintz, Levin, Cohn, Ferris,
Hogan & Hartson L.L.P. Glovsky and Popeo, P.C.
555 Thirteenth Street, N.W. One Financial Center
Washington, D.C. 20004-1109 Boston, MA 02111
(202) 637-5600 (617) 542-6000
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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 of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed maximum
Title of each class of securities aggregate offering price Amount of
to be registered (1) registration fee
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<S> <C> <C>
Common Stock, $.01 par value..... $86,250,000 $22,770
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</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities law 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - May 12, 2000
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PROSPECTUS
, 2000
[LOGO OF ICONIXX]
Shares of Common Stock
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Iconixx Corporation: The Offering:
. We are a leading e- . We are offering shares of our
business solutions common stock.
provider focused on
leveraging emerging . The underwriters have an option to
wireless and broadband purchase an additional shares from us
technologies to enhance to cover over-allotments.
our clients' businesses.
. This is our initial public offering and
. 8300 Boone we anticipate that the initial public
Boulevard, Suite 250 offering price will be between and
Vienna, VA 22182 per share.
(703) 790-9008
. Closing: , 2000.
Proposed Symbol & Market:
. ICXX/Nasdaq
National Market
--------------------------------------------------
Per Share Total
--------------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to Iconixx Corporation:
--------------------------------------------------
This investment involves risks. See "Risk
Factors" beginning on Page 4.
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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 Bear, Stearns & Co. Inc.
Banc of America Securities LLC
DLJdirect Inc.
<PAGE>
INSIDE FRONT COVER OF PROSPECTUS
[Graphic consists of icons representing a laptop computer, wireless
telephone, palmtop computing device and a desktop computer employing broadband
technology, all connected to the Internet, represented by the letters "www."
The word "Iconixx" appears in a box above the icons.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Special Note Regarding Forward-
Looking Statements................. 11
Use of Proceeds..................... 12
Dividend Policy..................... 12
Capitalization...................... 13
Dilution............................ 14
Selected Financial Data............. 15
Pro Forma Condensed Combined
Financial Data..................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business........................... 35
Management......................... 49
Related Party Transactions......... 57
Principal Stockholders............. 60
Description of Capital Stock....... 62
Shares Eligible For Future Sale.... 64
Underwriting....................... 66
Legal Matters...................... 69
Experts............................ 69
Where You Can Find More Information
About Iconixx Corporation......... 69
Index to Financial Statements...... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The information below is only a summary of more detailed information
included in other sections of this prospectus. This summary may not contain all
the information that is important to you or that you should consider before
buying shares in this offering. The other information is important, so please
read this entire prospectus carefully.
Iconixx Corporation
We are a leading end-to-end e-business solutions provider focused on
leveraging broadband, wireless and other emerging technologies to enhance our
clients' businesses. We deliver comprehensive, high-quality e-business
solutions that capitalize on the interdependency of user experience, mission-
critical business applications and robust network infrastructure to enhance
value in online business. Our services include e-business strategy and
planning, user experience, business functionality and network infrastructure.
These services, combined with our deep expertise in wireless and broadband
technologies, enable us to create dynamic, media-rich and scalable e-business
solutions for our clients that allow them to increase speed to market and
e-commerce activity. We enjoy long-standing relationships with our clients,
which range from the Global 1000 to emerging growth companies.
Because organizations generally find it more efficient for one firm to serve
as the single source providing all of these services, we believe that our end-
to-end services provide us with a competitive advantage in the marketplace. As
a part of our e-business strategy and planning services, we assist our clients
in developing e-business models, web channels and Internet strategies, and
designing business processes and network architectures. Our user experience
services include branding and web design to create an engaging experience for
our client's customers. To provide each client with an e-business solution that
supports its Internet strategy and provides a compelling user experience, our
business functionality services include the development and integration of
custom-designed applications, commercially available software packages and
legacy applications that allow users to access data and execute transactions
over the Internet. Our network infrastructure services include the planning,
designing and implementing of server and network architectures that support
transaction-intensive applications, integrate a client's e-business solutions
with its existing network and deliver wireless and broadband content.
The broad adoption of the Internet as a new channel of communication and
commerce is redefining and fundamentally changing the economics of business.
The recent evolution of the communications and Internet infrastructure has
heightened the level of sophistication demanded of Internet applications. The
growth in wireless communications solutions has allowed anytime, anywhere
access to the Internet, which has significantly increased traffic to an
organization's website and affected how data and processes are designed and
delivered to users. At the same time, the growing demand for increased
transmission frequency and volume, coupled with the need to support
applications with media-rich content and increased traffic and transaction
activity, has driven the demand for increased bandwidth and broadband
capabilities. The emergence of wireless and broadband technologies is producing
a fundamental change in the types of e-business solutions organizations
require. As a result, today's e-business solutions are becoming increasingly
complex and need to be more flexible and scalable to take advantage of new
market opportunities.
We manage the delivery of these services using a collaborative approach
within our cross-functional teams that is designed to create business value by:
. implementing a state-of-the-art solution that is aligned with the
client's business strategy;
. accelerating the deployment of the solution;
. integrating the solution with the client's existing business practices
and processes;
. offering the client a secure, reliable and scalable solution; and
. preserving the flexibility to modify the solution to allow the client to
deploy emerging technologies faster than its competitors.
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We were organized in Delaware in September 1995 under the name "Business
Solutions Group, LLC." In November 1999, following our acquisition of
IconixGroup, Inc., we changed our name to Iconixx Corporation. Our principal
executive offices are located at 8300 Boone Boulevard, Vienna, VA 22182 and our
telephone number is (703) 790-9008. Our website can be found at
www.iconixx.com. Information contained on our website is not intended to be a
prospectus and is not incorporated into this prospectus.
The Offering
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<S> <C>
Common stock offered ............... shares
Common stock to be outstanding after
this offering...................... shares
Use of proceeds..................... To repay indebtedness and for general
corporate purposes, including funding our
operations, working capital and possible
acquisitions of complementary businesses.
Proposed Nasdaq National Market
Symbol............................. ICXX
</TABLE>
The shares of common stock to be outstanding after this offering is
based on the shares outstanding as of , 2000 and includes shares
of common stock being sold by us in this offering. The number of shares of
common stock that will be outstanding after this offering excludes shares
of common stock underlying options granted under our 1999 stock option plan and
outstanding as of April 30, 2000 at a weighted average exercise price of $
per share.
Assumptions That Apply To This Prospectus
Unless we indicate otherwise, all share amounts and financial information in
this prospectus assume the following:
. an increase in the number of our authorized shares of common stock to be
effected on completion of this offering;
. no exercise by the underwriters of their over-allotment option;
. the conversion of all currently outstanding shares of our convertible
preferred stock into shares of our common stock;
. the conversion of our currently outstanding convertible promissory notes
into shares of our common stock; and
. a -for- stock split to be effected before completion of this offering.
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Summary Actual and Pro Forma Financial Data
(in thousands, except per share data)
The following summary actual and pro forma financial data have been derived
from:
. our audited consolidated financial statements for each of the three years
in the period ended December 31, 1999;
. our unaudited consolidated financial statements for the three months
ended March 31, 2000; and
. our unaudited pro forma condensed combined financial data included
elsewhere in this prospectus.
You should read the information below with our consolidated financial
statements and the related notes, "Use of Proceeds," "Capitalization," "Pro
Forma Condensed Combined Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31, 2000
------------------------------------ -----------------------
Actual Pro Forma Actual Pro Forma
----------------------- 1999
1997 1998 1999
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $18,568 $49,898 $48,978 $78,957 $ 14,026 $ 20,533
Gross profit............ 3,636 9,373 9,678 26,971 4,491 8,219
Income (loss) from
operations............. 2,923 6,175 2,152 (23,465) (3,908) (6,444)
Net income (loss)
attributable to common
stockholders........... 2,953 6,300 (199) (33,033) (10,089) (14,267)
Basic and diluted net
income (loss) per
common share........... $ 0.16 $ 0.34 $ (0.01) $ (0.85) $ (0.22) $ (0.26)
<CAPTION>
As of March 31, 2000
-----------------------
Actual As Adjusted
<S> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 4,639
Working capital......... 5,095
Total assets............ 102,986
Total debt and other
long-term obligations.. 17,500
Class A convertible
preferred stock........ 92,846
Stockholders' (deficit)
equity................. (20,774)
</TABLE>
3
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus, including our financial statements and the related notes before you
decide to buy our common stock. The trading price of our common stock could
decline due to any of these risks, and you could lose all or part of your
investment.
Risks Related to Our Business
Our limited operating history, particularly in light of our recent
acquisitions, makes it difficult for you to evaluate our business and to
predict our future success.
Our senior management team came together in September 1998 through the
formation of Empyrean Group, Inc. Our limited operating history as a combined
company may make it difficult for you to predict our future success. In August
1999, we recapitalized Business Solutions Group, Inc., a provider of systems
and software development and network architecture consulting services to the
telecommunications industry with approximately 190 professionals at the time of
the recapitalization. In November 1999, we acquired IconixGroup, a web
development, strategy and branding firm with approximately 65 professionals,
and renamed our combined operations "Iconixx Corporation." In March 2000, we
acquired three additional companies:
. Lead Dog Design, Inc., a provider of web, multimedia and print design
services with approximately 45 professionals;
. Internet Information Services, Inc., a provider of Internet technology
consulting and professional services with approximately 55 professionals;
and
. EnterpriseWorks, LLC, a provider of web-based information technology
solutions, including e-business, customer care, sales force automation
and infrastructure design services, with approximately 130 professionals.
You should evaluate our chances of financial and operational success in
light of the risks, uncertainties, expenses, delays and difficulties associated
with operating a new business, many of which are beyond our control. You should
not rely on the historical results of operations of the acquired companies as
indications of our future performance. The uncertainty of our future
performance and of our operation in a new and expanding market increase the
risk that your investment will decline.
We were not profitable in the first quarter of 2000 and do not expect to
achieve profitability in the near future, if ever.
We had a loss from operations of $3.9 million for the three months ended
March 31, 2000. As a result of our continued amortization of the goodwill we
acquired in our recent acquisitions and our intention to spend significant time
and money to acquire and invest in sales and marketing, operating companies and
the infrastructure required to support our combined operations, we expect to
continue to incur net losses for the foreseeable future and may never become
profitable. As of March 31, 2000, we had goodwill and other intangible assets
of approximately $81.9 million, net of accumulated amortization. The charges we
expect to incur in connection with the amortization of these intangible assets
will adversely affect our net income for the foreseeable future. Additionally,
we may not ever realize the value of these intangible assets. In the future, as
events or changes in circumstances indicate that the carrying amount of our
intangible assets may not be recoverable, we may take an additional charge to
our earnings. If we take an additional charge or charges, our results of
operations would likely suffer.
If our operating results fluctuate from quarter to quarter, we may fail to meet
the expectations of our investors and analysts, and our stock price would
likely decline.
Our financial results may fluctuate from quarter to quarter. In future
quarters, our operating results may not meet investors' and public market
analysts' expectations. If that happens, the price of our common stock may
fall. Many factors can cause these fluctuations, including:
4
<PAGE>
. the number, size, timing and scope of our projects;
. client concentration;
. long and unpredictable sales cycles;
. contract terms of projects;
. project delays or cancellations;
. competition for and utilization of employees;
. how well we estimate the resources we need to complete projects;
. the integration of acquired businesses;
. pricing changes in the industry; and
. economic conditions specific to the Internet and information technology
consulting.
A high percentage of our operating expenses, particularly personnel and
rent, are fixed in advance of any particular quarter. As a result, if we
experience unanticipated changes in our projects, including fluctuations in our
Sprint projects similar to those that have occurred in the past, or in our
employee utilization rates, we could experience large variations in quarterly
operating results and losses in any particular quarter. Due to these factors,
we believe you should not compare our quarter-to-quarter operating results to
predict our future performance.
Because we have grown rapidly and we expect our growth to continue, we may have
difficulty managing our growth effectively, which could adversely affect the
quality of our services and the results of our operations.
We have grown rapidly and expect to continue to grow rapidly by acquiring
new companies, hiring new employees and serving new industry and geographic
markets. We have acquired five companies since August 1999. The integration of
these acquisitions presents us with significant financial, managerial and
operational challenges. Further, as a result of these acquisitions, the total
number of professionals under our current senior management team has grown from
six to 480 between September 1998 and March 31, 2000, and several members of
our senior management team have only recently joined us. Our recent growth has
placed, and is expected to continue to place, a significant strain on our
management and our operating and financial systems. We do not believe our
recent growth rate is sustainable for the long term.
Our personnel, systems, procedures and controls may be inadequate to support
our future operations. To accommodate the anticipated increase in the number of
projects, clients and size of our operations, we will need to hire, train and
retain appropriate personnel to manage our operations. We will also need to
improve our financial and management controls, reporting systems and operating
systems. We currently plan to implement or redesign several internal systems,
including our financial, accounting, human resources, resource planning, sales
force automation and knowledge management systems. We may encounter
difficulties in developing and implementing these new systems. If we are unable
to meet these challenges, the quality of our services may suffer, causing us to
lose customers and revenues.
Future acquisitions or investments could disrupt our ongoing business, distract
our management and employees, increase our expenses and adversely affect our
results of operations.
We expect to continue to grow rapidly by acquiring new companies, increasing
both the number of clients served and the number and types of products and
services we offer. Any acquisitions or investments we make in the future will
involve risks. We may not be able to make acquisitions or investments on
commercially acceptable terms. If we do acquire a company, we could have
difficulty retaining and assimilating that company's personnel. In addition, we
could have difficulty assimilating acquired products, services or
5
<PAGE>
technologies into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees, increase our expenses and
materially and adversely affect our results of operations.
The companies we target for acquisition may not have audited financial
statements and often have varying degrees of internal controls and detailed
financial information. As a result, we may acquire undisclosed liabilities or
experience lower-than-expected revenues or higher-than-expected costs, which
could adversely affect our operating results. Furthermore, we may issue equity
securities or incur debt to pay for future acquisitions. If we issue equity
securities, your ownership share of Iconixx could be reduced. If we obtain debt
financing, we may be required to agree to restrictions on our activities that
could impair our ability to execute our business plan.
Our future success depends on our ability to keep pace with rapid technological
changes, evolving industry standards and changing client requirements.
The market for the e-business solutions we provide is relatively new and
evolving rapidly. Our future success will depend, in part, upon our ability to
provide services that are accepted by our clients as an integral part of their
business model. Demand and market acceptance for recently introduced services
are subject to a high level of uncertainty. The level of demand for e-business
solutions will depend upon a number of factors, including the following:
. the growth in consumer access to, and acceptance of, new interactive
technologies;
. the adoption of Internet-based business models; and
. the development of technologies, including wireless and broadband network
architectures and applications, that facilitate two-way communication
between companies and targeted audiences.
We have a limited number of significant clients, including Sprint, which
provided 57.4% of our pro forma revenues for 1999. If we lose a major client or
significant project, our revenues would be adversely affected.
We generate much of our revenues from a limited number of major clients. As
a result, if we lose a major client or large project, our revenues would be
adversely affected. In 1999, for example, giving effect to our five recent
acquisitions as if they had all occurred on January 1, 1999, our largest
client, Sprint, accounted for approximately 57.4% of our revenues. Based upon
contract orders currently outstanding, our agreement with Sprint expires
December 2000. This agreement may, however, be terminated by Sprint before then
on 14 days' notice to us. We perform varying amounts of work for specific
clients from year to year. A major client in one year may not use our services
in another year. In addition, we may derive revenues from a major client that
constitute a large portion of a particular quarter's revenues. If we were to
lose Sprint or any of our other major clients or if Sprint or any of our major
clients were to cancel or significantly reduce a large project's scope, our
revenues could decline. Also, if we fail to collect a large account receivable,
we could be subjected to significant financial exposure.
We have many short-term engagements that can be cancelled with little or no
notice without penalty. If clients, including the start-up ventures we service,
terminate engagements with us, our results of operations could suffer.
Our engagements with clients are generally short-term. Also, most clients
can reduce or cancel their engagements for our services without penalty and
with little or no notice. If a significant client or a number of small clients
terminate or significantly reduce business relationships with us, our revenues
could decline significantly. Consequently, you should not predict or anticipate
our future revenues based on the number of clients we have or the number and
size of our existing projects. When a client postpones, significantly reduces
the scope of or cancels a project, we have to shift our employees to other
projects in an attempt to minimize the resulting adverse impact on our
operating results.
6
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In addition, we believe that an increasing portion of our future revenues
could be derived from emerging companies formed specifically to conduct
business over the Internet. These companies often have little or no earnings or
cash flow, and their businesses are more likely to fail than those of more
mature companies. As a result, these clients may cancel their engagements
without paying our fees in a timely fashion, if at all.
If we fail to meet our clients' expectations, we could damage our reputation
and have difficulty attracting new business.
Many of our projects are complex and critical to our clients. As a result,
if we fail or are unable to meet a client's expectations, we could damage our
reputation. This could adversely affect our ability to attract new business
from that client or others. If we fail to perform adequately on a project, a
client could sue us for economic damages. Any claims brought against us could
exceed the level of our insurance. The insurance we carry may not continue to
be available on economically reasonable terms, or at all. If we lose a lawsuit
arising from one or more claims that are uninsured or in excess of our
insurance coverage or cause us to agree to premium increases or other adverse
changes to our insurance policies, our revenues could be adversely affected.
If we are unable to leverage our knowledge of network architectures, we may be
unable to successfully increase or maintain our client base and revenues.
To date, we have generated a majority of our revenues from network
architecture consulting services related to large-scale, complex networks
through our work with Sprint. We believe that we will continue to derive a
significant portion of our revenues from providing these services to Sprint and
other clients. As a result, our future success depends on the continued growth
and acceptance of large-scale, complex computer networks and the current trend
among our clients to use third-party providers. If the growth in the use of
networks does not continue, our business may not grow and our revenues may
decline.
If our cash needs change, we may not be able to obtain sufficient funds to
execute our business plan in the future.
We expect that the net proceeds of this offering, together with our cash
from operations, will be sufficient to fund our operations for the next 12
months. If, however, our cash needs change as a result of our desire to pursue
additional acquisitions, accelerate our growth or otherwise, we may require
additional financing earlier to fund operations, capital expenditures for
expansion and acquisitions. If we obtain additional equity financing, the per
share value of our outstanding common stock may be diluted. If we obtain
additional debt financing, we may be required to agree to restrictions on our
activities that could impair our ability to execute our business plan. For
example, these restrictions may prohibit us from incurring additional debt or
making acquisitions without lender approval. In general, if we are unable to
obtain financing on favorable terms, we may be unable to implement our business
plan.
We could lose money on our fixed-price contracts.
From time to time, we enter into fixed-price, fixed-time contracts, rather
than contracts based on payment for time and materials. On occasion, we fix the
price or timeframe before we finalize the design specifications. If we
miscalculate the resources or time we need for these projects, we could lose
money on these projects.
We could become involved in disputes with our clients over intellectual
property rights, which could cause us to lose clients, incur significant
expenses and pay damages.
In our normal course of business, we develop software applications for
specific client engagements. From time to time, we sell ownership of the
software to the client on completion of the engagement, although we generally
retain a license for limited uses. Issues relating to ownership of and rights
to use software applications and frameworks can be complicated. We may become
involved in disputes that affect our ability to sell or use similar
applications and frameworks we created for particular clients. A successful
claim could subject us to significant liability that would have a material
adverse effect on our liquidity and capital
7
<PAGE>
resources. In addition, even the successful defense of a claim could require us
to incur substantial costs and result in diversion of our management's efforts
and damage to our brand perception by our clients.
We sometimes enter into non-compete agreements with our clients and agree not
to perform services for our clients' competitors, which reduces the number of
our prospective clients and sources of revenues.
We sometimes agree to enter into contracts which contain restrictive
provisions that prohibit us from performing the same or substantially similar
services or developing similar products for our clients' competitors. These
restrictive provisions generally last for the term of our contract and may
remain in effect for up to two years after the completion of the project. These
restrictive provisions reduce the number of our prospective clients and our
sources of revenues.
Risks Related to Our Industry
We may not be able to hire and retain highly skilled professionals, which would
affect our ability to compete effectively.
To succeed, we must hire and retain professionals who are highly skilled in
the Internet and its rapidly changing technology. Because of the recent and
rapid growth of the Internet, individuals who have Internet expertise and can
perform the services we offer are scarce. Competition for these individuals,
therefore, is intense. We might not be able to hire enough professionals or to
train, motivate, retain and manage the professionals we are able to hire. This
could hinder our ability to complete existing projects and bid for new
projects. In addition, because the competition for qualified professionals in
the Internet industry is intense, hiring, training, motivating, retaining and
managing professionals with the strategic, technical and creative skills we
need is both time-consuming and expensive.
We may not compete successfully with our competitors, which could result in
reduced revenues.
Our market is intensely competitive, highly fragmented and subject to rapid
technological change. We may not compete successfully with our competitors. We
currently compete both for client assignments and experienced professionals
principally with the following:
. large systems integrators and outsourcing firms;
. consulting arms of the "Big Five" accounting firms;
. network services firms;
. full service e-business solutions providers;
. e-business technology solutions providers; and
. creative e-business solutions providers.
Many of these businesses have longer operating histories and significantly
greater financial, technical, marketing and managerial resources than we do. In
addition, our markets have relatively low barriers to entry. We expect to
continue to face competition from new market entrants. Competition in our
market is based primarily on the following factors:
. Internet expertise and talent;
. quality, pricing and speed of service delivery;
. client references;
. integrated strategy, technology and creative design services; and
. vertical industry knowledge.
Many of these competitive factors are outside of our control. These factors
include our competitors' hiring and retention of senior staff, development of
software that is competitive with our products and services and response to
client needs.
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Lack of growth or decline in Internet usage could cause our business to suffer.
We have derived most of our revenues from projects involving the Internet.
The Internet is relatively new and rapidly evolving. The market for our
services may not develop as we anticipate, our services may not be adopted and
individual users in business or at home may not use the Internet or the
wireless and broadband networks and applications we design, develop and deliver
for commerce and communication. A number of factors may inhibit Internet usage.
These factors include inadequate network infrastructure, security concerns,
inconsistent service quality and lack of cost-effective, high-speed service. On
the other hand, if Internet usage grows, the Internet infrastructure may not
support the demands this growth will place on it. The Internet's performance
and reliability may decline. In addition, outages and delays have occurred
throughout the Internet network infrastructure that have interrupted Internet
service. If these outages or delays occur frequently in the future, Internet
usage could grow more slowly or decline.
We face risks associated with government regulation of, and legal uncertainties
surrounding, the Internet.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could increase our cost of doing business or
otherwise have a material adverse effect on our business. Laws and regulations
directly applicable to Internet communications, commerce and advertising are
becoming more prevalent. The laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws governing
intellectual property, copyright, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of e-business may prompt
calls for more stringent consumer protection laws, both in the United States
and abroad which could adversely affect our business.
Risks Related to this Offering
We are controlled by a small group of stockholders, whose interests may differ
from yours.
Our directors, executive officers and affiliates currently beneficially own
approximately % of the outstanding shares of our common stock, and after this
offering will beneficially own approximately % of the outstanding shares of
our common stock. Accordingly, these stockholders will be able to determine the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval, including mergers, acquisitions, consolidations and
the sale of all or substantially all of our assets, and also the power to
prevent or cause a change in control. The interests of these stockholders may
differ from your interests.
You will experience immediate and substantial dilution and pay a higher price
for our stock than existing stockholders.
If you purchase stock in this offering, you will pay more for your shares
than the amounts paid by existing stockholders for their shares. As a result,
you will experience immediate and substantial dilution of approximately $ per
share. For more information, see the section of this prospectus captioned
"Dilution."
Our stock has not traded publicly, and after this offering its market price may
fluctuate widely.
The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters based on factors that
may not be indicative of future market performance. The initial public offering
price may bear no relationship to the price at which the common stock will
trade upon completion of this offering. An active public market for our common
stock may not develop or be sustained after this offering, and the market price
could fall below the initial public offering price. The market price of our
common stock could fluctuate substantially after this offering due to:
. future announcements concerning us or our competitors;
9
<PAGE>
. quarterly fluctuations in operating results;
. announcements of acquisitions or technological innovations; or
. changes in earnings estimates or recommendations by analysts.
In addition, the stock prices of many technology companies fluctuate widely
for reasons which may be unrelated to operating results. Fluctuations in our
common stock's market price may affect our visibility and credibility in the e-
business solutions market.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business and the market price of our common stock.
We may allocate this offering's net proceeds in ways with which you and other
stockholders may not agree.
We have not determined how the majority of the proceeds of this offering
will be spent. Our management may spend this offering's net proceeds in ways
with which you and our other stockholders may not agree. See "Use of Proceeds."
Future sales of our common stock in the public market could lower our stock
price and impair our ability to raise funds in new stock offerings.
Sales of a large number of shares after this offering, or the perception
that these sales could occur, could adversely affect the market price of our
common stock and could impair our ability to raise funds in additional stock
offerings. The shares of common stock sold in this offering will generally be
freely tradable without restriction or further registration under the
Securities Act. The remaining outstanding shares of our common stock will
be restricted from resale under federal securities laws. Holders of restricted
shares will generally be entitled to sell these shares in the public market
pursuant to a registration statement or without registration either under Rule
144 or any other applicable exemption under the Securities Act.
As soon as practicable after this offering we intend to register up to
shares of common stock subject to outstanding stock options or reserved for
issuance under our stock plans. As of the date of this prospectus, options to
purchase shares of common stock were outstanding. In addition, upon
completion of this offering, the holders of shares of common stock have the
right to request registration of these shares in future public offerings of our
equity securities.
10
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains 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," "could,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of these terms or other similar words. These statements are only predictions.
The outcome of the events described in these forward-looking statements is
subject to risks. Actual results could differ materially. The section captioned
"Risk Factors" and those sections captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" as
well as other sections in this prospectus discuss some of the factors that
could contribute to these differences.
The forward-looking statements made in this prospectus relate only to events
as of the date on which the statements are made. We undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events.
This prospectus also contains market data related to our business and
industry. This market data includes projections that are based on a number of
assumptions. If these assumptions turn out to be incorrect, actual results may
differ from the projections based on these assumptions. As a result, our
markets may not grow at the rates projected by these data, or at all. The
failure of these markets to grow at these projected rates may have a material
adverse effect on our business, results of operations and financial condition,
and the market price of our common stock.
11
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock we are offering will be approximately $ based upon an assumed initial
public offering price of $ per share, after deducting underwriting discounts
and commissions and the estimated offering expenses payable by us. If the
underwriters exercise their over-allotment option in full, we estimate that the
net proceeds will be approximately $ .
The principal purposes of this offering are:
.to increase our equity capital;
.to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in a marketplace where
several of our current and prospective competitors are, or may in the
future be, public companies; and
. to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We intend to use $ of the net proceeds of this offering to repay all of
the existing indebtedness under our credit facility. We incurred a significant
portion of the outstanding indebtedness to fund our five recent acquisitions.
At April 30, 2000, the interest rate on our credit facility was % and it
matures in August 2004. An affiliate of Banc of America Securities LLC, one of
the representatives of the underwriters, is a lender on our credit facility
and, upon application of the net proceeds from this offering, will receive its
proportionate share of the amount of the credit facility to be repaid.
We intend to use the remaining net proceeds for general corporate purposes,
including funding our operations, capital expenditures, working capital and
acquisitions of complementary businesses. As part of our growth strategy, we
are continually evaluating and engaging in discussions with acquisition
candidates. There can be no assurance that any of these discussions will lead
to acquisitions. Until they are used, we will invest the net proceeds of the
offering in short-term marketable securities.
The foregoing represents our intentions based upon our present plans and
business conditions. The occurrence of unforeseen events or changed business
conditions, however, could result in our applying the proceeds of this offering
in a manner other than as described in this prospectus.
DIVIDEND POLICY
We do not anticipate paying any dividends on our common stock in the
foreseeable future. We currently intend to retain all of our earnings, if any,
for use in our business. We may also incur debt in the future which may
prohibit or restrict the payment of dividends.
12
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of March 31, 2000 on (a) an
actual basis and (b) an as adjusted basis to reflect:
. the sale of shares of our common stock in this offering at an assumed
initial public offering price of $ per share, net of $ of offering
expenses, and the application of the net proceeds of this offering;
. the exchange of all shares of Class A convertible preferred stock,
including related accrued dividends, for shares of our common stock
at an exchange rate based on an assumed initial public offering price of
$ per share; and
. the exchange of $2.6 million of convertible subordinated notes payable
for shares of our common stock at an exchange rate based on an
assumed initial public offering price of $ per share.
You should read this table together with "Use of Proceeds," "Pro Forma
Condensed Combined Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus.
The amounts shown for stockholders' equity (deficit) and common stock
exclude 1,055,342 shares of common stock reserved for issuance under our 1999
stock option plan.
<TABLE>
<CAPTION>
As of March 31, 2000
---------------------
Actual As Adjusted
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................... $ 4,639 $
======== =====
Credit facility......................................... $ 13,800 $
Convertible subordinated notes payable.................. 2,650
Other long-term liabilities(1).......................... 1,050
Class A convertible preferred stock, $0.01 par value,
actual, 150,000 shares authorized, 88,556 shares issued
and outstanding, liquidation value of $92,845,760; pro
forma as adjusted, shares issued and
outstanding(2)......................................... 92,846
Stockholders' equity (deficit):
Common stock, $0.01 par value, 99,850,000 shares
authorized; 53,855,713 and shares issued and
outstanding; actual and as adjusted, respectively.... 589
Additional paid-in capital............................ 27,300
Notes receivable-stockholders......................... (414)
Treasury stock, 5,000,000 shares at cost.............. (10,282)
Deferred compensation................................. (1,447)
Retained earnings (accumulated deficit)............... (36,520)
-------- -----
Total stockholders' equity (deficit)................ (20,774)
-------- -----
Total capitalization.............................. $ 89,572 $
======== =====
</TABLE>
- --------
(1) Other long-term liabilities reflect amounts due to former IconixGroup
shareholders.
(2) Class A convertible preferred stock is recorded at its liquidation value;
shares issued and outstanding does not reflect $4.3 million in paid-in-kind
dividends accrued as of March 31, 2000.
13
<PAGE>
DILUTION
Our net tangible book value as of March 31, 2000 was $ , or $ per share
of common stock. Net tangible book value per share represents the amount of
total tangible assets less total liabilities, divided by the number of shares
of common stock outstanding.
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
net tangible book value per share of common stock immediately after completion
of this offering. After giving effect to our sale of shares of common stock
at an assumed initial public offering price of $ per share, and after
deducting underwriting discounts and commissions and the estimated offering
expenses payable by us, our adjusted net tangible book value as of March 31,
2000 would have been $ or $ per share. This represents an immediate
increase in tangible book value per share to existing shareholders of $ and
an immediate dilution in tangible book value per share to new investors
purchasing shares in the offering of $ per share. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Net tangible book value per share as of March 31, 2000......... $
Increase per share attributable to new investors...............
----
Net tangible book value per share after this offering............
----
Dilution per share to new investors.............................. $
====
</TABLE>
The following table presents on an adjusted pro forma basis as of March 31,
2000, the number of shares of common stock purchased from us and the total
consideration paid to us and by new investors:
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration
-------------- --------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors...........
--- ----- -------- ----------
Total................. 100.0% $ 100.0%
=== ===== ======== ==========
</TABLE>
The above discussion excludes:
. any shares we may issue under the over-allotment option; and
. shares of common stock issuable upon the exercise of options
outstanding under our stock option plans at a weighted average
exercise price of $ as of . To the extent any of these stock
options are exercised, there will be further dilution to new
investors.
14
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following tables contain selected financial data of Iconixx Corporation
for each of the five years in the period ended December 31, 1999, and for each
of the three months ended March 31, 1999 and 2000. The consolidated statement
of operations data for each of the years ended December 31, 1997, 1998 and 1999
and the balance sheet data as of December 31, 1998 and 1999 are derived from
financial statements audited by Arthur Andersen LLP, independent public
accountants, and are included elsewhere in this prospectus. The balance sheet
data as of December 31, 1997 have also been derived from financial statements
audited by Arthur Andersen LLP. The statement of operations data and the
balance sheet data as of and for the years ended December 31, 1995 and 1996 are
unaudited and, in the opinion of management, have been prepared on the same
basis as our audited consolidated financial statements included elsewhere in
this prospectus. The consolidated statement of operations data for each of the
three months ended March 31, 1999 and 2000 and the balance sheet data as of
March 31, 2000 are derived from our unaudited financial statements included
elsewhere in this prospectus. The balance sheet data as of March 31, 1999 are
also derived from our unaudited financial statements. The pro forma
consolidated statements of operations data for the year ended December 31, 1999
and for the three months ended March 31, 2000 are derived from unaudited pro
forma condensed combined statement of operations included elsewhere in this
prospectus. In the opinion of management, this unaudited information includes
all adjustments, consisting of only normally recurring adjustments, necessary
for a fair presentation of such information. The historical results are not
necessarily indicative of results to be expected for any future period. You
should read the data below together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for period-to-period
analyses, and our consolidated financial statements and related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
------------------------------------------------------------ -----------------------------------
Pro forma Pro forma
1995 1996 1997 1998 1999 1999 1999 2000 2000
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues............. $ -- $5,643 $18,568 $49,898 $48,978 $ 78,957 $14,053 $ 14,026 $ 20,533
Cost of revenues..... -- 4,895 14,932 40,525 39,300 51,986 11,639 9,535 12,314
------ ------ ------- ------- ------- --------- ------- -------- --------
Gross profit......... -- 748 3,636 9,373 9,678 26,971 2,414 4,491 8,219
Operating expenses:
Selling, general and
administrative...... 84 197 689 3,170 5,189 20,126 795 5,211 9,315
Depreciation and
amortization........ -- 7 24 28 1,918 30,310 24 3,188 5,348
Loss on divestiture
of operating
division............ -- -- -- -- 419 -- 419 -- --
------ ------ ------- ------- ------- --------- ------- -------- --------
Total operating
expenses........... 84 204 713 3,198 7,526 50,436 1,238 8,399 14,663
------ ------ ------- ------- ------- --------- ------- -------- --------
Income (loss) from
operations.......... (84) 544 2,923 6,175 2,152 (23,465) 1,176 (3,908) (6,444)
Interest expense..... -- -- -- -- (335) (1,369) -- (256) (341)
Interest and other
income.............. -- -- 30 125 154 191 30 58 60
------ ------ ------- ------- ------- --------- ------- -------- --------
Income before
provision (benefit)
for income taxes.... (84) 544 2,953 6,300 1,971 (24,643) 1,206 (4,106) (6,725)
Provision (benefit)
for income taxes.... -- -- -- -- 4 (2,540) -- (371) --
------ ------ ------- ------- ------- --------- ------- -------- --------
Net income (loss).... (84) 544 2,953 6,300 1,967 (22,103) 1,206 (3,735) (6,725)
Dividends on Class A
convertible
preferred stock..... -- -- -- -- 2,166 10,930 -- 6,354 7,542
Net income (loss)
attributable to
common
stockholders........ $ (84) $ 544 $ 2,953 $ 6,300 $ (199) $(33,033) $ 1,206 $(10,089) $(14,267)
====== ====== ======= ======= ======= ========= ======= ======== ========
Distributions to
stockholders (1).... -- 50 1,468 4,822 3,321 -- 1,532 -- --
====== ====== ======= ======= ======= ========= ======= ======== ========
Basic and diluted net
income (loss) per
common share........ $(0.00) $ 0.02 $ 0.16 $ 0.34 $ (0.01) $ (0.85) $ 0.07 $ (0.22) $ (0.26)
====== ====== ======= ======= ======= ========= ======= ======== ========
Weighted average
common shares
outstanding......... 18,500 18,500 18,500 18,500 28,281 39,061 18,500 46,433 53,856
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------- As of March 31,
1995 1996 1997 1998 1999 2000
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $-- $691 $1,153 $1,261 $ 1,537 $ 4,639
Working capital........ 6 318 1,768 3,212 1,840 5,095
Total assets........... 869 947 3,605 7,150 39,116 102,986
Total debt and other
long-term obligations
(2)................... -- 118 146 -- 10,200 17,500
Class A convertible
preferred stock....... -- -- -- -- 53,322 92,846
Stockholders' equity
(deficit)............. 16 331 1,816 3,294 (33,175) (20,774)
</TABLE>
- --------
(1) Prior to August 1999, we made distributions to our stockholders while
operating under Subchapter S of the Internal Revenue Code.
(2) Total debt includes current and long-term portion of notes payable and
capital lease obligations, liabilities to former IconixGroup shareholders,
and our credit facility.
16
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following tables present the unaudited pro forma condensed combined
statements of operations of Iconixx Corporation for the year ended December 31,
1999 and for the three months ended March 31, 2000. The pro forma condensed
combined statement of operations for the year ended December 31, 1999 gives
effect, on a pro forma basis, to the acquisitions we made in 1999 and 2000 and
the disposition of our professional staffing division, or PSD, as if these
transactions occurred on January 1, 1999. The pro forma condensed combined
statement of operations for the three months ended March 31, 2000, gives
effect, on a pro forma basis, to the acquisitions we made in 2000, as if these
acquisitions occurred on January 1, 1999. The pro forma condensed combined
statements of operations for the year ended December 31, 1999 and for the three
months ended March 31, 2000 also give effect, on a pro forma as adjusted basis,
to reflect:
. the reduction of interest expense due to the exchange of promissory notes
with an aggregate value of $2.6 million, which are convertible into
shares of our common stock upon completion of this offering;
. the reduction of the dividends on preferred stock resulting from the
conversion of 88,556 shares of Class A convertible preferred stock, which
has a liquidation preference, including accrued and unpaid dividends of
$92.8 million as of March 31, 2000, for shares of our common stock; and
. the reduction of interest expense resulting from the repayment of our
credit facility.
In August 1999, we acquired Empyrean Group, Inc. for $1.7 million. The
purchase consideration consisted of 1,639 shares of our convertible preferred
stock and 862,500 shares of our common stock. In November 1999, we acquired
IconixGroup, Inc. for $26.0 million. The purchase consideration consisted of
$19.0 million in cash, $2.7 million in convertible subordinated notes payable,
1.8 million shares of common stock, assumption of debt of $365,000 and 3,467.5
shares of convertible preferred stock. In March 2000, we acquired all of the
capital stock of Lead Dog Design, Inc. for $14.3 million. The purchase
consideration consisted of $10.0 million in cash, 1.0 million shares of common
stock and 3,000 shares of convertible preferred stock. In March 2000, we
acquired substantially all of the assets and assumed substantially all of the
liabilities of EnterpriseWorks LLC, for $27.5 million. The purchase
consideration consisted of $17.0 million in cash and 3.9 million shares of
common stock. In March 2000, we acquired some of the assets and assumed some of
the liabilities of Internet Information Services, Inc. for $17.6 million. The
purchase consideration consisted of $13.0 million in cash, 600,000 shares of
common stock and 2,220 shares of convertible preferred stock.
The acquisitions we made were accounted for using the purchase method of
accounting. The purchase method of accounting allocates the aggregate purchase
price to the assets acquired and liabilities assumed based upon their relative
fair values. The excess of purchase price over the fair value of tangible and
identifiable intangible assets acquired, net of liabilities assumed, has been
reflected as goodwill. We believe that the preliminary allocations are
reasonable. However, in some cases, the final allocations will be based upon
valuations and other studies that are not yet complete. As a result, the
allocations reflected in the accompanying statements may be revised as
additional information becomes available, and the revised allocations could
differ from those shown.
The information in the pro forma condensed combined statement of operations
for the year ended December 31, 1999 has been derived from the audited
statements of operations for the year ended December 31, 1999 of Iconixx
Corporation, Lead Dog Design, Internet Information Services, and
EnterpriseWorks and the audited statement of operations of Empyrean Group, Inc.
for the eight months ended August 31, 1999, all of which are included elsewhere
in this prospectus, and from the unaudited statement of operations of
IconixGroup, Inc. for the period from January 1, 1999 through November 3, 1999.
The information in the pro forma condensed combined statement of operations
for the three months ended March 31, 2000 has been derived from the unaudited
statement of operations of Iconixx Corporation for the
17
<PAGE>
three months ended March 31, 2000, included elsewhere in this prospectus, and
the unaudited statements of operations for the companies acquired in 2000 for
the periods during 2000 prior to their acquisitions.
The unaudited pro forma condensed combined statements of operations are
based upon currently available information and assumptions and estimates which
management believes are reasonable. These assumptions and estimates, however,
may change. The pro forma condensed combined statements of operations for the
year ended December 31, 1999 and for the three months ended March 31, 2000
include approximately $754,000 and $778,000 in special compensation paid to
management of the acquired companies. These amounts have not been eliminated as
the charges were not a direct result of the acquisition. These statements are
presented for comparative purposes only and do not purport to be indicative of
the actual results of operations that might have occurred or expected future
results. You should read the unaudited condensed combined pro forma financial
data and related notes together with our consolidated financial statements and
related notes and the audited financial statements and the related notes of the
companies we acquired included elsewhere in this prospectus.
18
<PAGE>
Iconixx Corporation
Unaudited Pro Forma Combined Condensed Statement of Operations
For the Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro forma
Historical Adjustments
------------------------------------------------------------- ----------------
Internet
Empyrean Iconix Lead Dog Enterprise Information Offering
Iconixx Group(a) Group(a) Design(a) Works(a) Services(a) PSD(k) Other Pro forma Adjustments
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $48,978 $ -- $ 9,750 $3,959 $9,643 $7,193 $(566) $ -- $ 78,957 $ --
Cost of
revenues......... 39,300 -- 4,084 1,416 4,035 3,564 (413) -- 51,986 --
------- ------- ------- ------ ------ ------ ----- -------- -------- -------
Gross profit.... 9,678 -- 5,666 2,543 5,608 3,629 (153) -- 26,971 --
Operating
expenses:
Selling, general
and
administrative.. 5,189 1,253 6,997 1,882 4,456 3,104 (141) (2,614)(b) 20,126 --
Depreciation and
amortization.... 1,918 8 263 93 199 71 -- 27,758 (c) 30,310 --
Loss on
divestiture of
operating
division........ 419 -- -- -- -- -- (419) -- -- --
------- ------- ------- ------ ------ ------ ----- -------- -------- -------
Total operating
expenses........ 7,526 1,261 7,260 1,975 4,655 3,175 (560) 25,144 50,436 --
------- ------- ------- ------ ------ ------ ----- -------- -------- -------
Income (loss)
from operations.. 2,152 (1,261) (1,594) 568 953 454 407 (25,144) (23,465) --
Interest
expense.......... (335) -- (25) -- (59) (75) -- (875)(d) (1,369) 1,369(h)
Other income
(expense), net... 154 10 27 -- -- -- -- -- 191 --
------- ------- ------- ------ ------ ------ ----- -------- -------- -------
Income (loss)
before provision
(benefit) for
income taxes..... 1,971 (1,251) (1,592) 568 894 379 407 (26,019) (24,643) 1,369
Provision
(benefit) for
income taxes..... 4 -- (766) 72 65 -- -- (1,915)(f) (2,540) --
------- ------- ------- ------ ------ ------ ----- -------- -------- -------
Net income
(loss)........... 1,967 $(1,251) $ (826) $ 496 $ 829 $ 379 $ 407 (24,104) (22,103) 1,369
======= ======= ====== ====== ====== =====
Dividends on
Class A
convertible
preferred stock.. 2,166 8,764 (g) 10,930 (10,930)(i)
------- -------- -------- -------
Net (loss) income
attributable to
common
stockholders..... $ (199) $(32,868) $(33,033) $12,299
======= ======== ======== =======
Basic and diluted
net (loss) income
per common
share............ $ (0.01) $ (0.85)
======= ========
Weighted average
common shares
outstanding(j)... 28,281 39,061
======= ========
<CAPTION>
Pro forma
As Adjusted
<S> <C> <C>
Revenues......... $ 78,957
Cost of
revenues......... 51,986
-----------
Gross profit.... 26,971
Operating
expenses:
Selling, general
and
administrative.. 20,126
Depreciation and
amortization.... 30,310
Loss on
divestiture of
operating
division........ --
-----------
Total operating
expenses........ 50,436
-----------
Income (loss)
from operations.. (23,465)
Interest
expense.......... --
Other income
(expense), net... 191
-----------
Income (loss)
before provision
(benefit) for
income taxes..... (23,274)
Provision
(benefit) for
income taxes..... (2,540)
-----------
Net income
(loss)........... (20,734)
Dividends on
Class A
convertible
preferred stock.. --
-----------
Net (loss) income
attributable to
common
stockholders..... $(20,734)
===========
Basic and diluted
net (loss) income
per common
share............ $
===========
Weighted average
common shares
outstanding(j)...
===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
19
<PAGE>
Iconixx Corporation
Unaudited Pro Forma Combined Condensed Statement of Operations
Three Months Ended March 31, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
------------------------------------------
Internet
Lead Dog Enterprise Information Pro forma Offering Pro forma
Iconixx Design(a) Works(a) Services(a) adjustments Pro forma adjustments As adjusted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 14,026 $ 776 $ 3,699 $ 2,032 $ -- $ 20,533 $ -- $20,533
Cost of revenues........ 9,535 316 1,551 912 -- 12,314 -- 12,314
-------- ----- ------- ------- ------ -------- ------- -------
Gross profit........... 4,491 460 2,148 1,120 -- 8,219 -- 8,219
Operating expenses:
Selling, general and
administrative........ 5,211 524 4,503 1,803 (2,726)(b) 9,315 -- 9,315
Depreciation and
amortization.......... 3,188 27 85 15 2,033 (c) 5,348 -- 5,348
-------- ----- ------- ------- ------ -------- ------- -------
Total operating
expenses.............. 8,399 551 4,588 1,818 (693) 14,663 -- 14,663
-------- ----- ------- ------- ------ -------- ------- -------
Income (loss) from
operations............. (3,908) (91) (2,440) (698) 693 (6,444) -- (6,444)
Interest expense........ (256) -- (34) (25) (26)(d) (341) 341 (h) --
Other income (expense),
net.................... 58 (65) (737) (496) 1,300 (e) 60 -- 60
-------- ----- ------- ------- ------ -------- ------- -------
Income (loss) before
provision (benefit) for
income taxes........... (4,106) (156) (3,211) (1,219) 1,967 (6,725) 341 (6,384)
Provision (benefit) for
income taxes........... (371) -- -- -- 371 (f) -- -- --
-------- ----- ------- ------- ------ -------- ------- -------
Net income (loss)....... $ (3,735) $(156) $(3,211) $(1,219) 1,596 (6,725) 341 (6,384)
===== ======= =======
Dividends on Class A
convertible preferred
stock.................. 6,354 1,188 (g) 7,542 (7,542)(i) --
-------- ------ -------- ------- -------
Net (loss) income
attributable to common
stockholders........... $(10,089) $ 408 $(14,267) $ 7,883 $(6,384)
======== ====== ======== ======= =======
Basic and diluted net
(loss) income per
common share........... $ (0.22) $ (0.26) $
======== ======== =======
Weighted average common
shares outstanding(j).. 46,433 53,856
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma condensed combined financial statements.
20
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
For the Year Ended December 31, 1999 and for the Three Months Ended March 31,
2000
The following adjustments were applied to our condensed combined statements
of operations and the financial data of the companies we acquired in 1999 and
2000 to arrive at the unaudited pro forma condensed combined statements of
operations.
(a) In the pro forma condensed combined statement of operations for the
year ended December 31, 1999, these columns reflect the actual historical
results of operations for the acquisitions we completed in 1999 from
January 1, 1999 to the date prior to which each respective acquisition was
consummated, and for the companies we acquired in 2000, for the full year
ended December 31, 1999. In the pro forma condensed combined statement of
operations for the three months ended March 31, 2000, these columns reflect
the actual results of operations for the acquisitions we completed in 2000
from January 1, 2000 to the date prior to which each respective acquisition
was consummated.
(b) Reflects the elimination of stock-based and other acquisition-
related compensation recorded by the acquired companies prior to their
acquisition by us that arose as a direct result of the acquisitions, as
follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
(in thousands)
<S> <C> <C>
EnterpriseWorks....................... $ -- $1,863
Internet Information Services......... -- 863
IconixGroup........................... 2,614 --
------ ------
$2,614 $2,726
====== ======
</TABLE>
(c) Reflects the amortization expense related to identifiable intangible
assets and goodwill. These amounts are being amortized over the estimated
useful life of each asset, primarily three years.
(d) Reflects a full year of interest expense on acquisition debt
financing assuming the amounts outstanding under the credit facility were
drawn on January 1, 1999. The increase in the interest expense is a result
of the amounts drawn under the credit facility to the balance outstanding
as of March 31, 2000 of approximately $13,800,000 at a weighted average
interest rate of 8.0%. Additionally, the increase results from convertible
subordinated notes issued to selling shareholders with a principal balance
of approximately $2,650,000 as of March 31, 2000 that bear an interest rate
of 10.0%. The adjustment is as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
(in thousands)
<S> <C> <C>
Interest on acquisition debt
financing.......................... $1,104 $275
Interest on notes to selling
shareholders....................... 265 66
Less: related interest recorded by
our acquired companies and us...... (494) (315)
------ ----
Net adjustment...................... $ 875 $ 26
====== ====
</TABLE>
(e) Reflects the elimination of the costs of investment advisors and
other professionals incurred by Lead Dog Design ($65,000), EnterpriseWorks
($739,000) and Internet Information Services ($496,000) that were directly
attributable to their acquisition by us.
(f) Reflects the incremental benefit for federal and state income taxes
relating to the historical income tax provisions for the acquired companies
and the termination of our status as an S Corporation. The
21
<PAGE>
estimated tax benefit for the year ended December 31, 1999 and for the
three months ended March 31, 2000 reflect the tax impact of the previous
pro forma adjustments:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
(in thousands)
<S> <C> <C>
Income tax benefit.................. $(2,540) $ --
Less: historical tax benefit
recorded by Iconixx and the
companies we acquired........... (625) (371)
------- -----
Net adjustment...................... $(1,915) $ 371
======= =====
</TABLE>
(g) Reflects a full year of dividends on the Class A convertible
preferred stock issued to finance our acquisitions.
(h) Reflects the elimination of interest expense as a result of the
repayment of the bank credit facility and the exchange of promissory notes
with an aggregate value of $2.6 million, which are convertible into shares
of our common stock as a result of this offering:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
(in thousands)
<S> <C> <C>
Repayment of credit facility......... $1,104 $275
Exchange of notes payable into shares
of our common stock................. 265 66
------ ----
Net adjustment....................... $1,369 $341
====== ====
</TABLE>
(i) Reflects the elimination of dividends on our preferred stock as a
result of the exchange of Class A convertible preferred stock in connection
with this offering.
(j) Pro forma and pro forma as adjusted weighted average common shares
outstanding consist of the following:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
(in thousands)
<S> <C> <C>
Weighted average common shares
outstanding during period........... 28,281 46,433
Common shares issued in connection
with the acquisitions completed
during the periods, weighted for
the period prior to their
acquisition........................ 10,780 7,423
------ ------
Pro forma weighted average common
shares outstanding during period.... 39,061 53,856
Exchange of Class A convertible
preferred stock at an assumed
initial public offering price of
$ per share....................
------ ------
Exchange of promissory notes with an
aggregate value of $2.6 million,
which are convertible into shares
of our common stock at an assumed
initial public offering price of
$ ..............................
------ ------
Common shares issued in offering....
------ ------
Pro forma as adjusted weighted
average common shares outstanding
during the periods..................
------ ------
</TABLE>
22
<PAGE>
If the closing date of this offering occurs after , the number of
shares of common stock to be issued on the exchange, assuming an initial public
offering price of $ , would increase by approximately shares per month
thereafter.
Following this offering, our authorized capital stock will consist of
shares of common stock of which there will be shares issued and
outstanding. There will be no shares of Class A convertible preferred stock
issued and outstanding following this offering.
(k) Reflects the effect of our divestiture of our professional staffing
division, which occurred on February 1, 1999, as though it had occurred on
January 1, 1999.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations with "Selected Consolidated Financial Data," "Pro Forma
Condensed Combined Financial Data," our consolidated financial statements and
related notes and the financial statements of the acquired businesses included
elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Please see the sections
captioned "Risk Factors" and "Special Note Regarding Forward-Looking
Statements."
Overview
We are a leading end-to-end e-business solutions provider focused on
leveraging wireless, broadband and other emerging technologies to enhance our
clients' businesses. We deliver comprehensive, high-quality e-business
solutions that capitalize on the interdependency of user experience, mission-
critical business applications and robust network infrastructure to enhance
value in online business. Our services include e-business strategy and
planning, user experience, business functionality and network infrastructure.
These services, combined with our deep expertise in wireless and broadband
technologies, enable us to create dynamic, media-rich and scalable e-business
solutions for our clients that allow them to increase speed to market and
e-commerce activity. We enjoy long-standing relationships with our clients,
which range from the Global 1000 to emerging growth companies.
We were formed in September 1995 under the name Business Solutions Group,
LLC. At that time, we provided network architecture consulting and development
services within the telecommunications industry, primarily to Sprint, for which
we developed a business model responsive to its procurement and operational
needs. In order to respond quickly to increasing demands from Sprint, we
adopted a flexible staffing approach by sourcing engagements through a
combination of independent consultants and employees. We negotiated long-term
billing rates lower than the general market rates for similar skill sets but
sufficiently high enough to ensure the longevity of the programs. We focused on
developing and servicing engagements with voice, data and broadband components
within the Sprint environment, particularly in the direct design and
development of the Sprint Integrated On-Demand Network, or ION, rather than
market our services to others. This strategy enabled us to minimize indirect
expenses such as selling, general and administrative costs. Overall, this
combination of long-term contract rates, flexible staffing plan, focus on our
key customer requirements and minimized indirect costs supported the profitable
growth in our business from our inception through July 1999.
In February 1999, we divested a professional staffing business which was a
separate division of our company, unrelated to our core business within the
telecommunications industry. In August 1999, we converted from a limited
liability company to a corporation. Subsequent to this conversion, we were
recapitalized through an investment by Thayer ITECH Holdings, LLC. As part of
the recapitalization, we redeemed an aggregate of 27,027 shares of common stock
from our sole stockholder, BSG Holdings, Inc., for $10.0 million. In its
investment, Thayer purchased 58,378 of those shares of common stock from BSG
Holdings, Inc. for $21.6 million. Each of the issued and outstanding shares of
common stock held by BSG Holdings, Inc. and Thayer was then converted into 185
shares of common stock and 0.3515 shares of convertible preferred stock.
In August 1999, we acquired Empyrean Group, Inc., a management services
company formed for the purpose of building a web services and development
provider, through the acquisition of all of Empyrean's capital stock. The
acquisition strengthened our management team and allowed us to expand our
business model to include a strategy for delivering end-to-end e-business
solutions. Our network architecture consulting and development services
provided us with one component of our strategy. We recognized, however, that we
needed to expand our service offerings to enable us to provide a comprehensive
set of solutions to other clients. As a result, we created a template to
evaluate potential acquisitions which would provide us with skills in
e-business strategy and planning, branding, web design and engineering and
development of business applications.
24
<PAGE>
Our acquisitions in November 1999 and March 2000, which are detailed below,
provided us with the skill sets and resources to execute our strategy. In
November 1999, we acquired IconixGroup, Inc., a web development, strategy and
branding firm, which provided us with web services and development
capabilities. In addition, IconixGroup provided off-line/print and branding
services. Concurrent with this acquisition, we changed our name to Iconixx
Corporation to capitalize on the brand name recognition of IconixGroup.
In March 2000, we acquired all of the capital stock of Lead Dog Design,
Inc., a provider of web, multimedia and print design services. The acquisition
of Lead Dog Design, Inc. brought our services to the New York and Los Angeles
metropolitan markets and deepened our web and multimedia design and development
skills. We also acquired substantially all of the assets and assumed
substantially all of the liabilities of EnterpriseWorks LLC, a provider of web-
based information technology solutions, including e-business, customer care,
sales force automation and infrastructure design services. Finally, we acquired
some of the assets and assumed some of the liabilities of Internet Information
Services, Inc., an Internet technology consulting and professional services
firm with expertise in the development of custom web applications that
integrate with diverse platforms, third-party tools and legacy applications.
We have been operating as an integrated company since April 1, 2000. Our
post-acquisition activities include the application of a company-wide operating
methodology, the development of a high-quality sales and marketing organization
on a company-wide level, and the implementation of a new management information
system and operating infrastructure. In addition, our professionals are
currently working together to form full-service project teams to better service
our customers.
We provide our services to clients in a variety of industries, including
financial services, energy and utilities, information technology/dot-coms and
telecommunications. Although many of our clients engage us to provide a
comprehensive set of services for their e-business solutions, our clients,
Sprint and USWest, in the telecommunications industry engaged us principally to
provide network architecture consulting and development services. The services
we provide to USWest share many of the characteristics of the services we
provide to Sprint. Therefore, to monitor our operating performance, including
our revenue growth and gross profit as a percentage of revenues, we have
segregated our business into two segments: web services and telecom consulting
services. Web services consist primarily of web strategy, design and
development, as well as technical consulting and development of web-related
applications. In addition, we are pursuing opportunities to integrate our
expertise with wireless, broadband and other emerging technologies into our web
service offerings. Telecom consulting services consist primarily of systems
engineering and network architecture services, including services which employ
both wireless and broadband technologies, within the telecommunications
industry.
Web services represented approximately 41% and 52% of our total pro forma
revenues during the year ended December 31, 1999 and the three months ended
March 31, 2000, respectively. In addition, web services currently provide gross
profit as a percentage of revenues averaging approximately 55%. As web services
is a growth industry where demand currently exceeds supply, resistance to
billing rate increases is not as strong as telecom consulting services. In
addition, our use of employees rather than independent contractors within this
segment generally results in a lower cost of revenues, and therefore increased
gross profit. Although we anticipate that our gross profit as a percentage of
revenues will remain consistent in the near future periods, pressure on web
services billing rates may increase as the supply of these services also
increases.
During the year ended December 31, 1999 and the three months ended March 31,
2000, telecom consulting services represented approximately 59%, of which
Sprint was 57%, and 47%, of which Sprint was 43%, of our pro forma revenues. We
have entered into a master service agreement with Sprint, under which contract
orders exist through December 2000. Due to the anticipated duration and
importance of the current projects for Sprint, we expect that Sprint will
continue to engage us in periods subsequent to December 2000. However, as we
grow our customer base, we expect the impact of customer concentration with
Sprint to diminish over time.
25
<PAGE>
Our telecom consulting services provide gross profit as a percentage of
revenues averaging approximately 20%. Within the telecommunications industry,
contract commitments are longer in nature. However, there exists a downward
pressure on billing rates for the duration of the commitment and in future
commitments, restricting the potential for growth through increased prices. In
addition, our current staffing model, which includes the use of independent
contractors to maintain flexibility in meeting fluctuating Sprint requirements,
results in increased cost of revenues, and therefore decreased gross profits,
as independent contractors are often more expensive than our employees.
However, this flexibility in our staffing model allows us to eliminate nearly
all non-billable time from our historical telecom business. We anticipate that
our gross profit as a percentage of revenues within telecom consulting services
will remain consistent in future periods, as significant room for growth of
billing rates or decrease in related costs does not exist.
Our telecom consulting professionals are beginning to work within our web
services segment to provide end-to-end e-business solutions. As this trend
continues, we expect that our overall gross profit as a percentage of revenues
will increase.
We derive a substantial majority of our revenues from professional services
billed primarily on a time and materials basis, with a limited number of fixed-
price contracts. Revenues from time and materials projects are recognized as
services are performed, based on fixed hourly rates for direct labor hours
expended. Revenues from fixed-price contracts are recognized based on the
percentage of completion method of accounting, with costs and estimated profits
recorded as the work is performed. We make provisions for estimated losses on
uncompleted contracts on a contract-by-contract basis and recognize these
provisions in the period in which the losses are determined.
Changes in contract scope and estimated profitability, including final
contract settlements, may result in adjustments to costs and revenues and are
recognized in the period in which the adjustments are determined. Any payments
received in advance of services performed are recorded as deferred revenue;
services performed prior to billing are recorded as unbilled revenue. The
majority of our customers reimburse us for direct expenses allocated to a
project, such as airfare, lodging and meals, through either direct
reimbursement or through fully loaded billing rates. Direct reimbursements are
excluded from revenues and netted against the expense incurred. In addition,
our customers reimburse us for direct costs of production, such as materials
and supplies. The reimbursement of production costs for which we bear a risk of
loss is included in revenues.
We currently derive a portion of our revenues from emerging companies formed
specifically to conduct business over the Internet. These companies often have
little or no earnings or cash flow, and their businesses are more likely to
fail than those of more mature companies. To ensure that all revenues are
realized, we typically do not perform services for these types of companies
unless we receive a substantial initial deposit, the company has been funded
for operating under its business plan, or there is strong evidence indicating
near-term funding. Although historically we have done so on a very limited
basis, we may accept a limited equity interest in the client in lieu of a
portion of our fees. In these circumstances, we require a clear basis of
valuation to determine the value of the interest to be received.
Gross profit represents revenues recognized less the direct cost of related
revenues. Cost of revenues includes salaries, benefits and related payroll
expenses, as well as costs of independent consultants, associated with the
generation of revenues. Payroll and related costs for billable consultants are
included in cost of revenues based on billable time; costs related to non-
billable time are included in selling, general and administrative expenses, as
discussed below. Therefore, our gross margins are not affected by trends in the
utilization of our billable consultants. In addition, cost of revenues includes
direct expenses such as travel, net of reimbursement, and direct costs.
Selling and marketing expenses comprise the salaries, commissions and
related employee benefits of sales and marketing employees, and the cost of
sales, marketing and advertising activities. Selling and marketing expenses are
increasing, and we anticipate that they will continue to increase in future
periods as we continue to build our sales and marketing organization and expand
our marketing strategy to promote the Iconixx brand.
26
<PAGE>
General and administrative expenses include management, accounting, legal
and human resources costs. General and administrative expenses also include
facilities costs, recruiting, training and other corporate costs. As indicated
above, non-billable time related to our billable consultants is reflected
within general administrative expenses and therefore is directly affected by
trends in utilization.
Depreciation and amortization expenses relates primarily to goodwill and
other intangibles related to the acquisitions, as well as normal operating
property and equipment. Goodwill and other identifiable intangibles are
amortized on a straight-line basis over their estimated useful lives, primarily
three years. As of March 31, 2000, goodwill and other identifiable intangibles,
net of accumulated amortization, related to the acquisitions approximated $81.9
million. Property and equipment are depreciated on straight-line basis over
their estimated useful lives, ranging from three to ten years.
Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in our financial statements or tax returns.
Our income tax rates may vary from the federal statutory rate, predominately
due to goodwill and other intangible amortization and the utilization of net
operating loss carryforwards acquired in one of the acquisitions. For the year
ended December 31, 1999 and the three months ended March 31, 2000, we
recognized an effective tax rate of 0.2% and 9.0%. These effective rates differ
from statutory rates due in part to our election to be taxed as an S
corporation before August 1999.
Combined Quarterly Results of Operations
The combined results of operations of the acquired businesses for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, cost of revenues and selling, general and
administrative expenses of the individual businesses on a historical basis. The
combined results also exclude the effect of pro forma adjustments and may not
be comparable to, and may not be indicative of, post-acquisition results.
The following tables show unaudited combined quarterly financial data for
the periods indicated. We derived this data from our unaudited financial
statements and the unaudited financial statements of the companies we have
acquired. In the opinion of our management, they include all adjustments, which
consist only of normal recurring adjustments, necessary to present fairly the
financial results for the periods. Results of operations for any prior fiscal
quarter may not be necessarily indicative of results for any future period.
27
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
June
March 31, 30, September 30, December 31, March 31,
1999 1999 1999 1999 2000
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Web services............... $ 6,457 $ 7,980 $ 8,554 $ 9,378 $10,603
Telecom consulting
services(1)............... 14,053 13,000 10,855 9,246 9,930
------- ------- ------- ------- -------
Total revenues............ 20,510 20,980 19,409 18,624 20,533
------- ------- ------- ------- -------
Cost of revenues:
Web services............... 2,738 3,505 3,495 4,312 4,692
Telecom consulting
services(1)............... 11,639 10,734 8,717 7,259 7,622
------- ------- ------- ------- -------
Total cost of revenues.... 14,377 14,239 12,212 11,571 12,314
------- ------- ------- ------- -------
Gross profit............ $ 6,133 $ 6,741 $ 7,197 $ 7,053 $ 8,219
======= ======= ======= ======= =======
Selling, general and
administrative
expenses(1)................ $ 4,893 $ 4,881 $ 6,193 $ 6,914 $12,041 (2)
======= ======= ======= ======= =======
<CAPTION>
As a Percentage of Total Revenues:
<S> <C> <C> <C> <C> <C>
Revenues:
Web services............... 31.5% 38.0% 44.1% 50.4% 51.6%
Telecom consulting
services.................. 68.5 62.0 55.9 49.6 48.4
------- ------- ------- ------- -------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- -------
Cost of revenues:
Web services(3)............ 42.4 43.9 40.9 46.0 44.3
Telecom consulting
services(3)............... 82.8 82.6 80.3 78.5 76.8
------- ------- ------- ------- -------
Total cost of revenues.... 70.1 67.9 62.9 62.1 60.0
------- ------- ------- ------- -------
Gross profit............ 29.9% 32.1% 37.1% 37.9% 40.0%
======= ======= ======= ======= =======
Selling, general and
administrative expenses.... 23.9% 23.3% 31.9% 37.1% 58.6%(2)
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Amounts include operating results from the professional staffing division
before we divested it.
(2) Amount includes stock-based and other special compensation of $3.5 million,
or 17.1% of total revenues.
(3) Calculated as a percentage of total related revenues and not total
revenues, therefore amounts will not total.
Our quarterly results have varied in the past and will continue to do so in
the future due to a number of factors including, but not limited to, changes in
average billing rates, utilization rates and personnel additions, as well as
the timing of expenses. Accordingly, our results for any given quarter or
series of quarters are not necessarily indicative of our results for any future
period.
Our revenues from web services have increased steadily from quarter to
quarter during 1999, reflecting a wider customer base and smaller engagements
compared to telecom consulting services. Since the three months ended March 31,
1999, web services has grown from 31.5% of total combined revenues to 51.6% of
total combined revenues, and we expect this trend to continue, reflecting the
strong customer demand for our web services. The growth in web services has
also accounted for increases in total combined gross margin, from 29.9% in the
three months ended March 31, 1999 to 40.0% in the three months ended March 31,
2000. This improvement is explained by the growth in web services revenues
which generated gross margins of 55% and more, while gross margins from telecom
consulting services average about 20%.
Our revenues from telecom consulting services varied from quarter to quarter
as we adjusted our staffing in response to the workload at Sprint. In the
respective three months ended March 31 and June 30, 1999,
28
<PAGE>
workload requirements were high as we completed key development phases of the
ION project at Sprint prior to its deployment. In the respective three months
ended September 30 and December 31, 1999, as the ION project moved to
deployment, our workload decreased accordingly. We expect to continue to
experience variations in workload in telecom consulting services, and expect
that our revenues will fluctuate from quarter to quarter.
As a result of our divestiture of an operating division, total combined
revenues decreased after the three months ended March 31, 1999. The decrease in
revenues during the respective three months ended September 30 and December 31,
1999 is partially a result of our engagements providing off-line/print
services, which provide most of their revenues during the respective three
months ended March 31 and June 30 each year. This trend is not expected to
continue in future periods as the off-line/print portion of work is not one of
our growth areas.
29
<PAGE>
Results of Operations
The following table shows our selected historical operating data and that
data as a percentage of revenues.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
----------------------- ----------------
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
Revenues........................ $18,568 $49,898 $48,978 $14,053 $ 14,026
Cost of revenues................ 14,932 40,525 39,300 11,639 9,535
------- ------- ------- ------- --------
Gross profit.................... 3,636 9,373 9,678 2,414 4,491
Operating expenses:
Selling, general and
administrative expenses...... 689 3,170 5,189 795 5,211
Depreciation and amortization
expenses..................... 24 28 1,918 24 3,188
Loss on divestiture of
operating division........... -- -- 419 419 --
------- ------- ------- ------- --------
Total operating expenses.... 713 3,198 7,526 1,238 8,399
------- ------- ------- ------- --------
Income (loss) from operations... 2,923 6,175 2,152 1,176 (3,908)
Interest expense................ -- -- (335) -- (256)
Interest and other income....... 30 125 154 30 58
------- ------- ------- ------- --------
Income before provision
(benefit) for income taxes..... 2,953 6,300 1,971 1,206 (4,106)
Provision (benefit) for income
taxes.......................... -- -- 4 -- (371)
------- ------- ------- ------- --------
Net income (loss)............... 2,953 6,300 1,967 1,206 (3,735)
Dividends on Class A convertible
preferred stock................ -- -- 2,166 -- 6,354
------- ------- ------- ------- --------
Net income (loss) attributable
to common stockholders......... $ 2,953 $ 6,300 $ (199) $ 1,206 $(10,089)
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
As a Percentage of Revenues:
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 80.4 81.2 80.2 82.8 68.0
----- ----- ----- ----- -----
Gross profit.......................... 19.6 18.8 19.8 17.2 32.0
----- ----- ----- ----- -----
Operating expenses:
Selling, general and administrative
expenses........................... 3.7 6.4 10.6 5.6 37.2
Depreciation and amortization
expense............................ 0.1 0.0 3.9 0.2 22.7
Loss on divestiture of operating
division........................... 0.0 0.0 0.9 3.0 0.0
----- ----- ----- ----- -----
Income (loss) from operations......... 15.8 12.4 4.4 8.4 (27.9)
----- ----- ----- ----- -----
Interest expense...................... 0.0 0.0 (0.7) 0.0 (1.8)
Interest and other income............. 0.1 0.2 0.3 0.2 0.4
----- ----- ----- ----- -----
Income before provision (benefit) for
income taxes......................... 15.9 12.6 4.0 8.6 (29.3)
Provision (benefit) for income taxes.. 0.0 0.0 0.0 0.0 (2.6)
----- ----- ----- ----- -----
Net income (loss)..................... 15.9 12.6 4.0 8.6 (26.7)
Dividends on Class A convertible
preferred stock...................... 0.0 0.0 4.4 0.0 45.3
----- ----- ----- ----- -----
Net income (loss) attributable to
common stockholders.................. 15.9% 12.6% (0.4%) 8.6% (72.0%)
===== ===== ===== ===== =====
</TABLE>
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The following discussion addresses our historical, combined and pro forma
results of operations.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Revenues. Revenues remained consistent at $14.0 million during the three-
month periods ended March 31, 2000 and March 31, 1999. On a combined basis,
revenues remained consistent at $20.5 million during the three-month periods
ended March 31, 2000 and March 31, 1999. On both a historical and a combined
basis, revenues remained consistent as additional revenues and revenue growth
from our acquisitions offset the decline in revenues as a result of our
divestiture of an operating division in 1999, which contributed $566,000 in
revenues during the three months ended March 31, 1999, as well as decreased
Sprint revenues of approximately $3.5 million.
Gross Profit. Gross profit increased $2.1 million, or 86.0%, to $4.5 million
for the three months ended March 31, 2000 from $2.4 million for the three
months ended March 31, 1999. On a combined basis, gross profit increased $2.1
million, or 34.0%, to $8.2 million for the three months ended March 31, 2000
from $6.1 million for the three months ended March 31, 1999. On a historical
and a combined basis, the increase was primarily attributable to the increase
in web services revenues, which carry a lower direct cost of revenues, as
compared to revenues generated from Sprint.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million to $5.2 million for the three
months ended March 31, 2000 from $795,000 for the three months ended March 31,
1999. On a combined basis, selling, general and administrative expenses
increased $7.1 million to $12.0 million for the three months ended March 31,
2000 from $4.9 million for the three months ended March 31, 1999. The increase
was primarily attributable to:
. on a historical and a combined basis, the formation of our expanded
sales and marketing team;
. on a historical and a combined basis, increased management and
infrastructure to support our operations on a post-acquisition and
integration basis;
. on a historical and a combined basis, the movement in revenue to a
higher percentage of web services, which carries a higher amount of
selling, general and administrative expenses;
. on a historical basis, the inclusion of payroll and related costs of
billable employees for non-billable time; and
. on a combined basis, stock-based and other special compensation costs of
$3.5 million.
On a pro forma basis, selling, general and administrative expenses were $9.3
million during the three months ended March 31, 2000. This pro forma amount
excludes $2.7 million of stock-based and other special compensation costs
incurred by the acquired companies upon their respective acquisitions.
Depreciation and Amortization Expense. Depreciation and amortization
increased to $3.2 million for the three months ended March 31, 2000 from
$24,000 for the three months ended March 31, 1999, representing primarily
amortization of goodwill and other intangibles resulting from the acquisitions,
as well as additional depreciation and amortization from the acquisitions of
IconixGroup and Lead Dog. On a pro forma basis, depreciation and amortization
was $5.3 million during the three months ended March 31, 2000, representing a
full three months of goodwill and identifiable intangible amortization assuming
all of the acquisitions occurred on January 1, 1999.
Loss on Divestiture of Operating Division. Loss on divestiture of an
operating division of $419,000 in the three months ended March 31, 1999
represents costs incurred related to the termination of certain employment
agreements in 1999 as a result of selling the assets of an operating division.
This amount has been adjusted in the pro forma results of operations.
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Dividends on Convertible Preferred Stock. Dividends on convertible preferred
stock of $6.4 million during the three months ended March 31, 2000 include the
accretion of the annual 15% dividend to be paid in kind in preferred shares of
$2.1 million. In addition, dividends include $4.3 million resulting from the
rights to purchase common stock at a discount to its fair value in connection
with the issuance of preferred stock in March 2000. On a pro forma basis,
dividends on preferred stock were $7.5 million during the three months ended
March 31, 2000, representing additional accretion assuming all preferred stock
issuances took place January 1, 1999.
Provision (Benefit) for Income Taxes. Benefit for income taxes of $371,000
during the three months ended March 31, 2000 was a result of losses during that
period. During the three months ended March 31, 1999, we operated under
Subchapter S of the Internal Revenue Code, and therefore no provision for
income taxes was necessary. On a pro forma basis, we had no benefit for income
taxes during the three months ended March 31, 2000.
Years Ended December 31, 1999, 1998 and 1997
Revenues. Revenues increased $31.3 million from $18.6 million in 1997 to
$49.9 million in 1998 and decreased $920,000, or 1.8%, to $49.0 million in
1999. On a combined basis, revenues increased $10.7 million, or 15.6%, to $79.5
million in 1999 from $68.8 million in 1998. On a historical basis, the increase
in revenues in 1998 was primarily a result of significant increased activity at
Sprint during that period. The decrease in revenues in 1999 is primarily the
result of the divestiture of an operating division, which contributed
approximately $3.4 million in revenues during 1998, as compared to $566,000
during 1999, offset by additional revenues from the acquisition of IconixGroup.
On a combined basis, the increase in revenues in 1999 was primarily the result
of an average revenue growth at the acquired businesses of approximately 75%
based on an increase in both billing rates and headcount, offset by the
divestiture of an operating division. On a pro forma basis, revenues for the
year ended December 31, 1999 were $79.0 million, as revenues from the divested
operating division have been excluded.
Gross Profit. Gross profit increased $5.7 million from $3.6 million in 1997
to $9.4 million in 1998 and $305,000, or 3.3%, to $9.7 million in 1999. On a
combined basis, gross profit increased $7.7 million, or 39.7%, from $19.4
million in 1998 to $27.1 million in 1999. On a historical basis, gross profit
as a percentage of revenues remained constant at approximately 19.0%. On a
combined basis, gross profit as a percentage of revenues increased from 28.2%
in 1998 to 34.1% in 1999 primarily as a result of a higher percentage of
revenues derived from web services, which realize a higher gross profit as a
percentage of revenues. On a pro forma basis, gross profit for the year ended
December 31, 1999 was $27.0 million, as gross profit from the divested
operating division has been excluded.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.5 million from $689,000 in 1997 to $3.2
million in 1998 and $2.0 million, or 63.7%, to $5.2 million during 1999. On a
combined basis, selling, general and administrative expenses increased $9.8
million from $12.9 million in 1998 to $22.9 million in 1999. On both a
historical and combined basis, selling, general and administrative expenses as
a percentage of revenues increased. The increases are due to increased
management and infrastructure to support both increased activities at Sprint in
1998 as well as our operations as a whole post-acquisition in 1999. On a
combined basis, selling, general and administrative expenses include stock and
special compensation charges in 1999 in the amount of $3.5 million. On a pro
forma basis, selling, general and administrative expenses during the year ended
December 31, 1999 were $20.1 million and exclude $141,000 in costs from the
divested operating division and $2.7 million of stock-based and other special
compensation costs incurred by the acquired companies upon their respective
acquisitions.
Depreciation and Amortization. Depreciation and amortization remained
consistent at approximately $25,000 in 1997 and 1998 and increased to $1.9
million in 1999, representing amortization of goodwill and other identifiable
intangibles resulting from the acquisitions, as well as additional depreciation
and amortization from the acquisitions. On a pro forma basis, depreciation and
amortization was $30.3 million during the year
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ended December 31, 1999, representing a full year of amortization of goodwill
and identifiable intangibles, assuming all of the acquisitions occurred as of
January 1, 1999.
Loss on Divestiture of Operating Division. Loss on divestiture of an
operating division of $419,000 in the year ended December 31, 1999 represents
costs incurred related to the termination of certain employment agreements in
1999 as a result of selling the assets of an operating division. This amount
has been adjusted in the pro forma results of operations.
Dividends on Convertible Preferred Stock. Dividends of $2.2 million in 1999
relate to the convertible preferred stock issuance in August 1999. On a pro
forma basis, dividends on preferred stock were $10.9 million during the year
ended December 31, 1999, representing additional dividends assuming all stock
issuances took place as of January 1, 1999.
Liquidity and Capital Resources
Since our inception in 1995, we have financed our business primarily with
cash from operations. We paid for our acquisitions through borrowings under the
credit facility described below, the sale of common and preferred stock under
two equity purchase agreements and the issuance of convertible, subordinated
notes payable. For details on these transactions, see the discussion of the
sale of common and preferred stock and the terms of the convertible,
subordinated notes payable under the section of this prospectus captioned
"Related Party Transactions." As of March 31, 2000, we had $4.6 million in cash
and cash equivalents.
In August 1999, we entered into a secured loan agreement with two commercial
lenders, providing a credit facility of up to $40.0 million and maturing in
August 2004. Borrowings under the facility were used as payment for redemption
of treasury stock, the acquisitions and for working capital purposes.
Outstanding borrowings under the facility bear interest, at our option, at the
lender's base rate plus a defined percentage or LIBOR plus a defined
percentage. In addition, a commitment fee on the unused facility is charged on
a quarterly basis. The credit facility includes restrictive covenants, which
require us, among other things, to maintain minimum levels of earnings before
interest, taxes, and depreciation and amortization, or EBITDA, ratios of total
debt to EBITDA, total debt to capitalization, and place limits on capital
expenditures. We intend to repay amounts outstanding under the credit facility
with the proceeds of the offering. As of March 31, 2000, borrowings on the
credit facility were equal to $13.8 million, and the amount of the unused
facility was $25.2 million. Banc of America Securities LLC, an affiliate of
Bank of America, N.A., one of the commercial lenders, is also one of the
representatives of the underwriters for this offering.
Net cash provided by operating activities increased in the three months
ended March 31, 2000 to $1.6 million from $1.2 million in the three months
ended March 31, 1999, primarily as a result of timing of payment of accounts
payable offset by cash receipt of accounts receivable. Net cash provided by
operating activities decreased in the year ended December 31, 1999 to $5.7
million from $5.0 million in the year ended December 31, 1998, due primarily to
the decrease in net income before depreciation and amortization and the
increase in payment of accounts payable and accrued expenses, offset by cash
receipts on accounts receivable. Net cash provided by operating activities
increased in the year ended December 31, 1998 to $5.0 million from $2.0 million
in the year ended December 31, 1997, due primarily to the increase in net
income and the deferral of accounts payable, offset by an increase in accounts
receivable.
Net cash used in investing activities increased to $42.0 million during the
three months ended March 31, 2000 from $34,000 during the three months ended
March 31, 1999, primarily due to the three acquisitions completed in 2000, as
well as construction activity on new office space being leased in Bethesda,
Maryland. Net cash used in investing activities increased in December 31, 1999
to $20.4 million from $78,000 in December 31, 1998 and $53,000 in December 31,
1997 as result of the IconixGroup acquisition.
Net cash provided by financing activities increased $45.1 million during the
three months ended March 31, 2000 to $43.6 million from $1.5 million used
during the three months ended March 31, 1999, primarily due to
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issuance of common and preferred stock in 2000, as well as borrowings under the
credit facilities. Net cash provided by financing activities increased in 1999
to $14.9 million from net cash used in financing activities in 1998 of $4.8
million, as a result of borrowings under the credit facility, the issuance of
common stock and the issuance of convertible preferred stock, all offset by
debt repayments and the redemption of treasury stock. Net cash used in
financing activities in 1998 increased to $4.8 million from $1.5 million due
primarily to increased distributions paid in 1998.
On a historical basis, capital expenditures were $1.4 million, $656,000,
$78,000 and $53,000 in the three months ended March 31, 2000, and the years
ended December 31, 1999, 1998 and 1997, respectively. Total capital
expenditures for 2000 are expected to be approximately $5.5 million, consisting
primarily of construction costs incurred related to newly leased office space
in Bethesda, Maryland, computer equipment purchased in relation to revenue
generation and the new management information system and operating
infrastructure currently being implemented.
We have issued letters of credit under the credit facility in the aggregate
amount of $1.0 million as guarantees under current and future office space and
construction.
We believe that our current cash and cash equivalents, together with cash
generated from operations combined with available borrowings under the credit
facility, and without giving effect to the initial public offering, will be
sufficient to meet our foreseeable working capital needs for at least the next
12 months. If, however, our cash needs change as a result of our desire to
pursue additional acquisitions, accelerate our growth or otherwise, we may
require additional financing to fund operations, capital expenditures for
expansion and acquisitions. As part of our growth strategy, we are continually
evaluating and engaging in discussions with acquisition candidates. There can
be no assurance that any of these discussions will lead to acquisitions.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement of Financial Accounting
Standards No. 133, as amended, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000, and management has not yet determined its
effect on our financial statements or disclosures.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB No.
101"), "Revenue Recognition in Financial Statements", which provides guidance
on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. This bulletin outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosure related
to revenue recognition policies. In March 2000, the SEC issued SAB No. 101A--
Amendment: Revenue Recognition in Financial Statements ("SAB No. 101A") which
amends the transition provisions of SAB No. 101 until the second fiscal quarter
for registrants with a fiscal year beginning after December 15, 1999. We will
apply the accounting and disclosures of SAB No. 101 during the fiscal quarter
ending June 30, 2000. Our management believes that the impact of SAB No. 101
and SAB No. 101A will not have a material effect on our financial position or
results of operations.
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BUSINESS
Overview
We are a leading end-to-end e-business solutions provider focused on
leveraging broadband, wireless and other emerging technologies to enhance our
clients' businesses. We deliver comprehensive, high-quality e-business
solutions that capitalize on the interdependency of user experience, mission-
critical business applications and robust network infrastructure to enhance
value in online business. Our services include e-business strategy and
planning, user experience, business functionality and network infrastructure.
These services, combined with our deep expertise in wireless and broadband
technologies, enable us to create dynamic, media-rich and scalable e-business
solutions for our clients that allow them to increase speed to market and
e-commerce activity. We enjoy long-standing relationships with our clients, who
range from the Global 1000 to emerging growth companies.
Because organizations generally find it more efficient for one firm to serve
as the single source providing all of these services, we believe that our end-
to-end services provide us with a competitive advantage in the marketplace. As
a part of our e-business strategy and planning services, we assist our clients
in developing e-business models, web channels and Internet strategies, and
designing business processes and network architectures. Our user experience
services include branding and web design to create an engaging experience for
our client's customers. To provide each client with an e-business solution that
supports its Internet strategy and provides a compelling user experience, our
business functionality services include the development and integration of
custom-designed applications, commercially available software packages and
legacy applications that allow users to access data and execute transactions
over the Internet. Our network infrastructure services include the planning,
designing and implementing of server and network architectures that support
transaction-intensive applications, integrate a client's e-business solutions
with its existing network and deliver wireless and broadband content.
We manage the delivery of these services using a collaborative approach
within our cross-functional teams that is designed to create business value by:
. implementing a state-of-the-art solution that is aligned with the
client's business strategy;
. accelerating the deployment of the solution;
. integrating the solution with the client's existing business practices
and processes;
. offering the client a secure, reliable and scalable solution; and
. preserving the flexibility to modify the solution to allow the client to
deploy emerging technologies faster than its competitors.
Industry Background
The broad adoption of the Internet as a new channel of communication and
commerce is redefining and fundamentally changing the economics of business and
the interactions among merchants, customers, employees, suppliers and
distribution partners. To compete in this changing environment, organizations
are seeking solutions that will allow them to use the Internet to decrease the
time it takes to get their products and services to the market, expand their e-
commerce activity, realize process efficiencies and enhance their brand
awareness. As a result, organizations are demanding a full range of e-commerce
capabilities, network services and customer relationship and supply chain
management applications.
The recent evolution of the communications and Internet infrastructure has
heightened the level of sophistication users demand of Internet applications.
The emergence of wireless applications and devices and broadband technologies
is producing a fundamental change in the types of e-business solutions
organizations require. As a result, today's e-business solutions are becoming
increasingly complex and need to be more flexible and scalable to take
advantage of new market opportunities.
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Users' demand for access to Internet content has grown to the point where an
increasing number of users demand anytime, anywhere access without having to
sit at their computers. Improved wireless networks and coverage have increased
due to recent advances in wireless technology that provide users with the
ability to access the Internet through new devices such as web-enabled cell
phones, personal digital assistants, or PDAs, and other handheld devices. In
addition to consumer applications which allow wireless access to stock quotes,
restaurant reviews and driving directions, businesses are increasingly using
wireless devices to allow employees and customers to access corporate databases
and applications remotely. To meet this demand, the Gartner Group has estimated
that by 2004, 70% of new wireless phones and 40% of new PDAs will use wireless
technology to provide users with direct access to web content and enterprise
networks.
This rising demand for wireless access to the Internet is forcing
organizations to significantly alter the way they interact with users. To
provide compelling interaction through wireless devices and applications,
organizations require e-business solutions that balance the speed of content
delivery with the complexity and functionality of the content provided. Because
of the limited display sizes of most wireless devices, wireless solutions must
reconfigure and customize data for each user and device. In addition, the
solutions must be adaptable to meet the challenges presented by the growing
variety of wireless devices, each of which employs a distinct display format.
Moreover, as wireless Internet traffic and transaction activity increase, e-
business solutions must be reliable and have strong access control and
security.
In addition to the increased demand for expanded access to the Internet,
users are requiring dynamic, media-rich content, such as real-time audio and
streaming video, as well as the ability to execute more complex e-commerce
transactions. This evolving user requirement has created increasing demand for
greater bandwidth access, commonly referred to as broadband, which in part has
helped to spur new market opportunities. Organizations require more advanced
broadband technologies with the capabilities to deliver media-rich content and
complex e-commerce transactions. Delivering dynamic, media-rich content and
applications requires geographically distributed computer systems connected by
broadband networks to create a reliable and scalable infrastructure. Before
integrating broadband capabilities into their existing systems, however,
organizations face several challenges. Organizations frequently lack a thorough
understanding of emerging broadband technology and how it can best be used to
deliver compelling content to their customers. In addition, they must be able
to evolve their existing infrastructures not only to facilitate delivery of new
media-rich applications and complex transactions, but also to integrate them
with their existing offerings.
Compounding the difficulty of capitalizing on the emerging technologies in
today's market, such as wireless and broadband, organizations are further
handicapped by a shortage of high quality, experienced technical professionals.
Given this shortage, many organizations lack the resources and in-house
technological expertise to design and deliver e-business solutions.
Organizations are focusing on their core businesses to increase their speed to
market and better manage their total costs. As a result, they are increasingly
relying on third-party Internet professional service firms to provide the
knowledge and technical expertise necessary to design, develop, implement and
integrate e-business solutions. International Data Corporation has estimated
that the market for Internet and e-commerce services worldwide will grow from
$7.8 billion in 1998 to $84.3 billion in 2003.
Despite the size of this market opportunity, there are relatively few
Internet professional services firms that can design, develop and deliver
comprehensive e-business solutions that integrate and utilize wireless and
broadband technologies. These end-to-end solutions providers must provide a
balanced suite of service offerings, from user experience to extensive
technical network architectures. To capitalize on today's wireless
technologies, e-business solutions providers must be able to balance the speed
of content delivery with the provision of compelling content, which is often
difficult because of the limited space in wireless device display areas. At the
same time, these providers must offer broadband solutions that can be
successfully integrated with today's existing network architectures, while
retaining the ability to deliver media-rich content to users. As a result,
today's e-business solutions providers must not only offer end-to-end solution
capabilities, but also address the challenges that arise with wireless,
broadband and other emerging technologies.
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The Iconixx Solution
Iconixx is a leading e-business solutions provider focused on leveraging
wireless, broadband and other emerging technologies to enhance our clients'
businesses. We deliver comprehensive e-business solutions that capitalize on
the interdependency of user experience, mission-critical business applications
and robust network infrastructure to enhance value in online businesses. Our
formula for client success is based on the following key principles, which we
apply to each client engagement:
Comprehensive Services
We offer our clients comprehensive, end-to-end e-business services,
including extensive capabilities in wireless and broadband technologies. These
services help our clients develop and execute their Internet strategies to
transform their businesses. Our services include e-business strategy and
planning, user experience, business functionality and network infrastructure.
The knowledge and expertise we possess in the emerging broadband and wireless
technologies enhances our ability to provide cutting-edge solutions.
Deep Expertise in Wireless and Broadband Network Technologies
We have created our total solution with a focus on the design, development
and delivery of scalable networks that not only can meet clients' current
needs, but also can support next generation developments, including wireless
and broadband content and applications. We gained our ability to deliver these
cutting-edge solutions from our intimate involvement in building advanced
network infrastructures and enabling technologies for our clients in the
telecommunications industry. Our in-depth knowledge of network architectures
helps us integrate emerging technologies into existing systems and enables us
to develop complex, media-rich applications and content.
Integrated Delivery of Solutions
We deliver our solution for each engagement through a cross-functional team
of strategists, creative designers, technical experts and network architecture
specialists using a collaborative approach. By utilizing our Insight
methodology and leveraging our strength across the entire spectrum of e-
business solutions, we believe our balanced approach to client engagements
ensures that clients receive the optimal solution for their needs. We believe
that this integrated approach allows us to deliver comprehensive e-business
solutions that can be integrated seamlessly and quickly, increasing the
client's speed to market and providing a single point of accountability for the
engagement. To facilitate the integration of the solution, we use an engagement
manager for each transaction who ensures overall client satisfaction, maintains
client relationships, coordinates the efforts of our professionals and serves
as the primary contact person for the client.
Proven Frameworks and Methodologies for Reliable Solutions
By following an experience-based engagement methodology and leveraging the
skills of our project team members, we can rapidly deliver solutions that
satisfy our clients' needs. Our system of knowledge management enables us to
leverage the institutional knowledge of team members to hold best practices,
lessons learned and reusable frameworks. In addition, through our centers of
excellence program, our strategy, creative, technical and network engineering
professionals exchange ideas within a variety of online and in-person forums.
We believe our approach creates not only a speed to market advantage for our
clients but also ensures consistent delivery quality of our solutions and
enhances our ability to integrate new team members efficiently.
Growth Strategy
Our objective is to be a leader in the e-business solutions market by
continuing to deliver high quality, end-to-end e-business solutions utilizing
wireless and broadband capabilities. To achieve our objective, we plan to
pursue the following strategies:
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Leverage Our Expertise in Wireless and Broadband Technologies
We intend to leverage our knowledge of wireless and broadband technologies
to create more comprehensive e-business solutions. We expect knowledge of
broadband and wireless infrastructures to play an increasingly important role
in the development and delivery of the next generation of e-business solutions.
We have extensive experience providing network infrastructures and enabling
technologies in the telecommunications industry. As a result, we understand
these new infrastructures and technologies and the challenges they present in
terms of the creation of applications and content. This understanding provides
us with a competitive advantage in the delivery of solutions capitalizing on
wireless and broadband technologies. In addition, we intend to enhance our
cutting-edge technical expertise by creating development labs through which we
plan to take advantage of our knowledge of wireless, broadband and other
emerging technologies to build new and innovative networks and infrastructures.
Develop and Expand Client Relationships
We intend to develop and expand our client relationships by providing an
end-to-end e-business service offering to our clients. We also intend to
capitalize on our wireless and broadband expertise by marketing those services
to existing and prospective clients. In addition, we intend to continue to
cross-sell our expertise in different areas as projects evolve. For example, we
are actively marketing the knowledge and skills of our network architecture
consultants to clients who have engaged us initially only to provide services
related to e-business strategy and web design.
Attract and Retain Experienced Professionals
We intend to continue to attract and retain experienced professionals in the
areas of business strategy, design, development and programming, network
architecture, engagement management and emerging technologies. In today's
competitive hiring environment, we believe our ability to attract and retain
skilled technical professionals depends on our ability to provide opportunities
to work on cutting-edge, highly challenging projects, our commitment to ongoing
professional development and our ability to maintain a culture that motivates,
recognizes and rewards outstanding work and professionalism. To communicate our
message to potential hires, we plan to utilize our growing internal recruiting
team, our employee referral program and our access to external resources
including web sites, placement agencies and advertising programs.
Pursue Selective Acquisitions
We intend to pursue selective acquisitions to provide us with increased
geographic coverage, closer proximity to our clients and a larger pool of
experienced technical professionals. We will evaluate potential acquisition
candidates based on their skills and experience, client relationships, cultures
and ability to be easily integrated into our existing organization.
Build Brand Awareness
We intend to create brand value for Iconixx by promoting client successes
and through aggressive sales and marketing. We are concentrating on increasing
visibility and awareness within target audiences of current and prospective
clients, employees and industry opinion leaders. Our marketing efforts include
national advertising, public relations efforts and executives' speaking
engagements. We believe that as awareness of the Iconixx brand grows, we will
be able to shorten our sales cycle by leveraging our reputation in the
industry. In addition, we believe that a strong brand will help us to attract
and retain qualified strategy, creative, technical, network engineering and
management professionals.
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Services
With clients taking on increasingly large and mission-critical projects, our
comprehensive solution has evolved to include a broad range of e-business
service offerings that we believe is rare in the market today. Our end-to-end
solutions concentrate on:
. strategy and planning;
. user experience;
. business functionality; and
. systems infrastructure.
We believe that our end-to-end offerings provide us with a competitive
advantage because organizations generally find it more efficient for one firm
to serve as the single source providing all of these services. As a result, we
believe that our balanced expertise across each area differentiates us from our
competitors.
[GRAPH]
Iconixx Services
- -------------------------------------------------------------------------------
STRATEGY AND PLANNING
E-Business Technology Planning Business Process Planning
- -------------------------------------------------------------------------------
USER EXPERIENCE BUSINESS FUNCTIONALITY SYSTEMS INFRASTRUCTURE
- -------------------------------------------------------------------------------
Branding Application Development Broadband
- -------------------------------------------------------------------------------
Information Architecture Business Application
Integration Wireless
- -------------------------------------------------------------------------------
Interface Design Database Modeling Enterprise Implementation
- -------------------------------------------------------------------------------
Experience Engineering Back-Office Applications Systems Architecture
- -------------------------------------------------------------------------------
Systems Integration
- -------------------------------------------------------------------------------
Performance Modeling
- -------------------------------------------------------------------------------
Strategy and Planning
Successful Internet strategies address the interplay between corporate
strategy and technology. We begin engagements by working with our clients to
understand their markets and business opportunities. Our consultants consider
how technology enables and constrains business models, corporate brands and
relationships our clients have with their customers, suppliers and employees.
To ensure that the solutions we deliver to our clients support their overall
strategic vision, we assist our clients in developing e-business models, web
channels and Internet strategies. In addition, we assist clients in defining
business processes and technology architectures.
User Experience
Public perception of organizations is increasingly shaped by the experiences
and messages the organizations deliver over the Internet. Accordingly, when
designing web sites, Intranets and other multimedia presentations, we assign
great importance to creating an engaging experience for our clients' customers.
Our user experience services include branding, a practice in which we design
graphics intended to exemplify our client's electronic corporate identity. With
our interface design service, we create visually compelling web sites employing
logical information architectures and content mapping to enable intuitive
navigation. Through our user experience engineering services, we customize the
presentation of information on our clients' web sites consistent with their
branding and functional objectives. In addition, many of our clients also
engage us to support our user experience services with our off-line/print
business.
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Business Functionality
We recognize that our creative efforts to build a positive user experience
are inextricably linked with the functionality of the solutions we deliver. To
provide our clients with a solution that supports their business strategies, we
combine our user experience services with development of business applications
designed to allow users to access data and execute transactions with our
clients over the Internet. Our business functionality services include the
development and integration of custom-designed applications, commercially
available software packages and legacy applications. By creating custom
applications or integrating software packages, we deploy business applications
such as customer relationship management, sales force automation and business
intelligence. Our database modeling expertise allows our teams to create highly
customized and context-driven applications. In addition, we integrate customer
and partner-facing applications with traditional back-office applications. This
range of abilities allows us to effectively deliver the business functionality
required to create a complete e-business solution.
Network Infrastructure
Creating a positive user experience requires careful planning and
construction of architectures that integrate the client's e-business solution
with its existing networks and systems. Our engineers have extensive experience
in developing infrastructures that are reliable, robust and redundant. We
provide our clients with a wide range of Internet engineering services,
including enterprise implementation, network architecture integration and
performance modeling. Our skills include planning, designing and implementing
server and network architectures that support transaction-intensive database
applications and the delivery of wireless and broadband content. We expect
knowledge of wireless and broadband infrastructures to play an increasingly
important role in the development and delivery of the next generation of e-
business solutions.
Our Client Engagement Approach
Our client engagement approach forms the backbone of our delivery of e-
business solutions to our clients. We developed our approach on the premise
that prospective clients desire to create business value by achieving the
following key objectives through their e-business initiatives:
. implement a state-of-the-art solution that is aligned with the client's
business strategy;
. accelerate the deployment of the solution;
. integrate the solution with the client's existing business practices and
processes;
. offer the client a secure, reliable and scalable solution; and
. preserve the flexibility to modify the solution to allow the client to
deploy emerging technologies and functionality faster than its
competitors.
Project Management
We believe that the design, development and delivery of e-business solutions
require constant communication between our clients and our technical
professionals. To maximize the efficiency of this constant communication, our
project teams are led by an engagement manager who serves as the single point
of accountability for the client. The engagement manager ensures overall client
satisfaction and maintains our long-term relationship with the client. The
engagement manager communicates with the client about all aspects of the
engagement, including discussing the scope, cost and schedule issues that arise
during the course of our work. In addition, the engagement manager obtains
feedback from the client regarding our work in progress and serves as the
liaison between the client and our cross-functional teams.
We also assign an interactive director to each of our project teams to
oversee its creative professionals, which generally consist of designers,
information architects and branding consultants. Using design expertise and
creative skills, the interactive director balances the various graphical,
navigational and technical
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considerations to maximize the brand value and ease of navigation for the
solution we are providing. We believe that our project management approach
allows us to:
. focus the engagement manager on client interaction to ensure constant
alignment of client expectations with our project planning and technical
considerations;
. maintain a constant focus on overall design strategy and the desired user
experience;
. provide efficient coordination of all phases of the project;
. ensure the project remains on-schedule and on-budget;
. identify additional services that we may provide to our clients; and
. increase client satisfaction.
Insight Methodology
Our proprietary Insight methodology enables our project teams to understand
and plan for the complete life-cycle of each client engagement. This
methodology, beginning with the strategy phase and continuing through the
solution deployment and evolution phases, provides project teams with an
understanding of the interdependencies of all elements of engagements from
design to technical architecture. Our engagement managers work with each client
in the definition phase to clearly delineate the specific tasks and objectives
for both the Iconixx team and the client and to streamline the course of the
engagement. Understanding the entire life-cycle, coupled with our flexibility
to enter engagements at any stage, provides our project teams with the ability
to move quickly through the delivery process and the ability to effectively
address each client's needs. Additionally, the life-cycle perspective of our
Insight methodology ensures constant delivery quality and facilitates our
integration of new team members as we continue to grow.
Our Insight methodology consists of several components that we apply to each
client engagement. The following chart shows a graphical representation of the
various components:
[GRAPH APPEARS HERE]
[The chart shows a graphical representation of the various components of our
methodology. Those components are each represented within a series of black
boxes connected with lines and arrows. On the left side of the chart, the
first box represents define and is connected with three lines to the next
three components labeled architect, develop and integrate.
There are small arrows connecting architect, develop, integrate and test,
deploy and evolve. Integrate and test are represented with a circular graphic
illustrating the iterative process of the integrate and test components of
our methodology.]
Define. We begin each engagement with an in-depth working session with the
project team to understand market factors, business drivers, desired results,
business processes and business opportunities. Our consultants consider how
technology enables and constrains business models, corporate brands and the
relationships clients have with their customers, suppliers and employees. Tasks
in subsequent phases are integrated into the working plan in a pragmatic way,
which balances the needs of the client, the project timeline and the
deliverable quality. Starting with define, our methodology provides for
multiple points of entry into each phase.
Architect. Once the objectives and desired results are in place, our team of
strategists, designers, developers and engineers creates a detailed plan
outlining the interdependencies of the user experience, business functionality
and infrastructure. This plan outlines the delivery schedule and the technical
requirements, as well as initial design concepts, for the solution. The result
is a comprehensive design and technology vision for the engagement.
Develop. We have developed expertise in rapidly developing and delivering
prototypes of our proposed solutions to help our clients visualize the look and
feel, functionality and overall user experience. To enable our clients to
visualize their solutions very early in the development process, we use rapid
prototyping techniques
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including wireframe models, storyboards, use cases and logic trees. Because our
engagement managers communicate with our clients about each prototype
delivered, our clients are integral to the development process and provide
critical feedback to enhance the solutions we deliver. After delivering a
functional prototype, we continually enhance the solution through a process we
refer to as "protocycling," in which we deliver to clients a rapidly developed
series of upgrades to the proposed solution that provide increasing levels of
functionality for review by our clients.
Integrate. As the project progresses, various elements each in development
must be brought together to form the complete solution. In addition to
connecting the design and branding elements to underlying applications and
source code, the client's desired business applications must also be integrated
with its existing databases, systems and networks. This integration is a vital
step in the creation of robust e-business solutions and requires constant
testing and performance evaluation to ensure viability.
Test. As each iteration of development is complete, we test the resulting
system for functionality, performance and scalability. Testing may also include
focus groups of target users or other methods to evaluate responses to the
solution's design and navigation concepts. Ultimately, being able to evaluate
performance at various stages of an engagement before it is deployed helps us
to create reliable, scalable solutions and increase client satisfaction.
Deploy. Once the project is ready for deployment, the delivery team works
closely with the client to secure an appropriate production environment. A
secure transition of the solution to an internal or external production
environment is essential in a timely launch of the solution. Our team works
closely with the client during this transition phase and conducts all necessary
training for ongoing maintenance processes. Additionally, our team also works
with the client throughout the rollout of the solution to create a successful
launch.
Evolve. After the solution is deployed, our engagement manager works with
the client to measure success and create a plan for ongoing development
requirements. This plan provides for the evolution of the solution through
future enhancements that might add business functionality, implement broadband
or wireless applications, incorporate new technologies or modify infrastructure
requirements. Our team also conducts an internal project review to capture
lessons learned, best practices and experiences with new technologies for our
corporate knowledge repository.
Knowledge Management
Through the development of hundreds of e-business solutions, we have gained
expertise and knowledge on issues ranging from branding trends to application
standards. We have created systems for knowledge management that currently
utilize our corporate intranet and existing databases. These systems include an
electronic filing cabinet with project histories, technologies used and contact
information. In addition, our intranet provides access to white papers
developed by our technologists and a library of reusable frameworks to assist
in the development of specific applications. To make our shared experiences
more widely available, we are evolving this system into a fully-automated,
searchable knowledge repository that will house detailed project case studies,
best practices and lessons learned from past experiences. This repository will
provide us the ability to continue to grow and support new team members with
the benefit of our prior work experience.
We are developing a cutting-edge development lab that will constitute
another essential element of our knowledge management initiative. A vital
aspect of the lab will be a wireless and broadband content delivery testing
center for use in evaluating various technologies and applications that must
adapt to the proliferation of personal computing devices. Additionally, the lab
will be equipped with a network center that can support the validation of
systems performance and availability models for large-scale distributed network
architectures.
Through our center of excellence program, a company-wide initiative that
combines formal training and development programs with an online community
provides personal support to professionals in each of the
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various disciplines within Iconixx, we enhance knowledge sharing and creative
and collaborative problem solving. This program affords new staff members the
ability to enhance their capabilities by working with experts in various
emerging technologies, it also creates a virtual professional community to
share information, discuss trends, establish corporate standards and identify
resources required to maintain our competitive edge.
Sales and Marketing
We market and sell our services to organizations that are introducing,
repositioning or expanding their e-business capabilities. We work to align our
sales and marketing activities with our organizational strengths, particularly
in those vertical industries for which we have developed significant expertise,
and we conduct these activities on both national and regional-office levels. In
addition, we work with many of the industry's leading technology providers,
including Asera, Versata, pcorder.com and Trilogy. These partners provide us
with a steady stream of lead generation and sales support for quality
engagements.
As of April 30, 2000, we had 34 sales and marketing professionals. We are
continuing to build a high-quality sales and marketing organization. These
professionals understand the complexity and urgency of each prospective client
engagement and the range of services we can offer through our end-to-end
solution. Our quota-driven sales approach relies on sales teams, as opposed to
individuals, to market and sell our end-to-end services. Corporate-level sales
activities include strategy and forecasting, handling of national and
international accounts, strategic-partner programs and maintenance of the
corporate proposal database. Specific lead-generation and qualification,
negotiation, contracting, and sales-support activities are managed at the
regional-office level. To increase our percentage of winning proposals, we
assign cross-disciplinary capture teams to develop sales strategies, conduct
background research and develop proposals tailored to the prospective client's
needs.
Our corporate marketing efforts are focused on building the Iconixx brand
and raising awareness of our firm, capabilities and clients. Corporate-level
activities include national advertising, industry analyst and media relations,
corporate web site management, trade show presence, executive speaking
engagements and collateral development. Regional-office marketing efforts
include participation in local media outreach, local networking events and
recruitment advertising.
Clients
We enjoy long-standing relationships of more than five years with our
clients, which range from Global 1000 companies to emerging growth companies,
most of which engage us for more than one project. We have significant
experience in four vertical industry segments: telecommunications, financial
services, energy and utilities, and information technology/dot-coms. During
1999, on a pro forma basis giving effect to our recent acquisitions, we derived
approximately 57.4% of our revenues from Sprint. If we were to lose Sprint as a
client, our revenues and operating results would significantly decline.
The following is a representative list of our clients:
Adelphia Communications GEICO Corporation Redbricks.com, LLC
Cable and Wireless USA, GE Information Services Riggs Bank, NA
Inc. Host Marriott Sallie Mae, Inc.
Columbia Energy Group Corporation Schlumberger, Ltd.
Corvis Corporation IDG World Expo N.F. Smith &
Crestline Capital The Loewen Group Associates, LP
Corporation Marriott International, Sprint
Dealer Solutions, LLC Inc. TotalFinaElf
DXP Enterprises, Inc. Novartis Crop URHere.com
Fannie Mae Protection USWest Information
Financial Passport, One World Networks Technologies
Inc. Potomac Electric Power Wrenchead.com, Inc.
Friedman Billings Company
Ramsey
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Case Studies
Sprint
Challenge: Sprint, a global telecommunications company serving more than 20
million businesses and residential customers, desired to develop a single
intelligent network to provide customers with high-speed Internet access as
well as integrated voice, video and data services. Sprint also wanted to equip
this network with tools allowing customers to allocate bandwidth dynamically to
meet their changing needs according to a usage-based fee structure.
Iconixx Solution: Sprint engaged us to assist in the design, development and
testing of this next-generation, Integrated On-Demand Network, or ION. We
developed and deployed an ION solution characterized by "dial-tone" quality and
capable of meeting the highly demanding operational parameters of the
telecommunications industry. Our solution achieved Sprint's scalability,
availability and throughput requirements. Specifically, we designed and
developed an integrated network-management framework, based on a multi-tiered
architecture featuring distributed databases and objects and deployed over
hundreds of operational nodes.
Our involvement in ION, which began during the technical-concept definition
phase, is ongoing and expanding beyond network technology-intensive services.
Sprint has engaged us to develop a web-centric user interface for ION
provisioning, customer support, and maintenance and a web-centric service layer
above their already-built network for composite services on demand such as
rapid video. We are providing interface design, experience-engineering
consultation focused on "look and feel" issues, and assisting as required with
middleware and other software solutions. A second initiative is underway to
develop a customer-facing, web-enabled solution for delivering ION
functionality and capability through Sprint's services and applications
framework. The applications will provide increased customer control for service
provisioning and monitoring. In addition, Sprint has expanded the scope of our
engagement into development of wireless and security applications.
Iconixx Results: ION is the first integrated voice/video/data network
offering made available to businesses, allowing customers to combine many
services into one intelligent system. The network is providing new efficiencies
and capabilities for customers like Communication Supply Corporation, the
largest privately owned communications distributor in the United States, which
estimates that its headquarters and operating units have experienced a 35%
reduction in overall network costs since migrating to ION. Further flexibility
and efficiencies are expected to occur when dynamic bandwidth allocation is
made available in October 2000.
URHere.com
Challenge: URHere.com is an e-travel company whose value proposition is to
provide travelers with relevant and customized information where they need it
and when they need it. URHere needed to solidify its e-business model to
establish itself as a leading e-travel company with strong brand positioning
and compelling web and wireless applications to provide personalized concierge
services and distribution of editorial and advertiser content.
Iconixx Solution: We were selected by URHere because of our combination of
wireless technology expertise and creative skills in the branding area. Using
those skills, we designed and built a functioning "proof of concept" web site
complete with searchable maps and geography-based "electronic concierge
services" that can be accessed through both data-ports and wireless devices.
The site incorporates a branding strategy including a distinctive logo that
supports the URHere customer value proposition and business model. When
launched, this site will allow travelers in unfamiliar environments to receive
pertinent information, make travel selections and build an itinerary based on a
personal profile and up to the minute selection queries.
Iconixx Results: Within three weeks of being awarded the project, we
demonstrated our facility with wireless technologies by building an application
of the URHere concept capable of delivering customized
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content anytime, anywhere. Through the use of the application we created,
URHere was able to demonstrate their concept to existing and potential
investors and strategic partners.
Redbricks.com
Challenge: Redbricks.com, founded in 1999 by a group of real estate and
mortgage-loan professionals, planned to become a destination portal for
commercial real-estate owners and developers. The Redbricks plan was to
facilitate quick loan structuring through applications to over 20 lenders,
produce property-specific market reports and maps and provide local and
national industry news.
Iconixx Solution: We provided end-to-end e-business services, including
business and technology strategy, including the integration with a proprietary
workflow transaction system, branding, and development of the entire interface
and systems development for the Redbricks web site. Our solution included the
establishment of Redbricks' desired loan marketplace, featuring a proprietary
tracking system developed by ellora.com that keeps borrowers informed of all
lender and service-provider activities until closing; property search;
presentation of third-party, syndicated news and other content; vendor research
capabilities; and user personalization services.
Iconixx Results: In March 2000, the Redbricks web site won the Most
Innovative Commercial Web Site award at the Inman Real Estate Connect 2000
conference. The site has allowed Redbricks to garner the necessary additional
funding to build phase two of its web site with expanded capabilities and to
increase the promotion of the company brand.
Wrenchead.com
Challenge: Wrenchead.com approached us with its vision to build an e-
commerce site for the sale of automotive parts and accessories. Wrenchead
needed to develop a comprehensive e-business plan and corporate identity that
would allow it to attract the capital required to build and expand its web
presence. Once funding was received, rapid web site development and launch
would be required.
Iconixx Solution: We provided an end-to-end e-business solution to
Wrenchead, beginning with strategy planning consultation. Our services included
concept development and competitive analysis, followed by corporate identity
and branding, as well as project planning and funding assistance. After
Wrenchead received an initial venture-capital infusion, we quickly launched a
prototype web site to promote the brand and collect customer information. We
then defined the site functionality, selected technology, and planned the
infrastructure--which was designed to eliminate down time, while leveraging
redundant capacity to improve overall performance.
Iconixx Results: In less than 12 weeks we developed and launched a robust e-
commerce solution, complete with an engaging user interface, customer
registration and personalization, and a database able to accommodate a 300,000-
part inventory cross-referenced to every automobile model manufactured since
1964. Our comprehensive e-business solutions enabled Wrenchead to develop and
attain its business goals, by attracting initial venture-capital funding and
launching an attractive, robust e-commerce web site. Wrenchead has since become
a top online merchant of auto parts and accessories. The company subsequently
received investments totaling over $120.0 million.
People and Culture
We believe our employees embody the intelligence, skills, creativity and
rapid response required to help our clients transform their businesses on the
Internet. As of March 31, 2000 we had 480 professionals, including 80
independent consultants. Our professionals are not represented by a collective
bargaining unit, and we believe our relationships with our professionals are
excellent.
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Recruiting and Retention
Our ability to attract and retain talented professionals is vital to our
continued growth. We intend to continue to attract and retain experienced
professionals in the areas of business strategy, design, development and
programming, network architecture, engagement management and emerging
technologies. To realize our anticipated future growth, we are aggressively
recruiting professionals who have relevant experience, leading- edge technical
skills and an innovative mindset. We use multiple sources to identify potential
candidates, including Internet career sites, job fairs, professional recruiters
and placement agencies and an employee referral program.
Our ability to retain our employees is strengthened by our culture, clear
career progression, strong financial rewards, including excellent benefits and
stock options, structured job training and effective internal communications.
We place a strong emphasis on continued professional development in areas as
diverse as graphic design trends, new and emerging technologies, management
skills and leadership training. Our training programs are both internal and
external and range from small working groups of experienced technical
professionals who share knowledge of various languages and programs within the
organization to encouraging enthusiastic designers to register for upcoming
national seminars on the latest design trends.
All of these factors, combined with the high caliber of client work, help us
recruit and retain valuable professionals. In addition, we have created skill-
focused centers of excellence in all of our regional locations. The director of
each center is responsible, through internal promotions, transfers and new
hires, for helping to nurture and promote the skills represented by that
center. We believe this program encourages individual career mentoring.
Culture
We describe our culture as "seriously cool," in that we combine the serious
mission-critical business challenges of our clients with a cool and casual work
environment and interpersonal interactions within the company. This creates an
opportunity for our team members to work in a fun, casual environment while
making significant contributions to the success of our clients. At Iconixx,
employees have the opportunity to work on challenging, complex e-business
projects for high-visibility clients. Our employees' develop and deploy
cutting-edge technologies and third-party products, resulting in advanced e-
business solutions.
Our culture supports a wide range of professional interests among our
employees--a natural result of hiring professionals with different skill sets,
interests and personalities. To meet our corporate goal of providing clients
with end-to-end e-business solutions, we employ three distinct types of
professionals: strategists, designers and engineers. They work closely together
in cross-functional project teams to take full advantage of the expertise of
each team member.
We believe our future success depends on our ability to maintain an overall
corporate culture of excellence that accepts and nurtures the development and
growth of employees with a wide range of expertise. We intend to provide a
variety of opportunities for employees to continue developing their skills,
ranging from informal lunchtime classes to attendance at leading industry
conferences, seminars and workshops. In addition, we support after-hours
employee activities that nurture the corporate culture, including company
sports teams and participation in local charitable projects.
Competition
As Iconixx delivers Internet-related solutions meeting a broad range of
client needs, competition in our marketspace is intense. In addition to
prospective clients' internal information systems departments, our competitors
include:
. large systems integrators and outsourcing firms;
. consulting arms of the "Big Five" accounting firms;
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. network services firms;
. full service e-business solutions providers;
. e-business technology solutions providers; and
. creative e-business solutions providers.
Many of these businesses have longer operating histories and significantly
greater financial, technical, marketing and managerial resources than we do. In
addition, our markets have relatively low barriers to entry. We expect to
continue to face competition from new market entrants. Competition in our
market is based primarily on the following factors:
. Internet expertise and talent;
. quality, pricing and speed of service delivery;
. client references;
. integrated strategy, technology and creative design services; and
. vertical industry knowledge.
Many of these competitive factors are outside of our control. These factors
include our competitors' hiring and retention of senior staff, development of
software that is competitive with our products and services and response to
client needs.
Based on our skills, the projects that we have built, feedback and
references from satisfied clients, our engagement approach and our
methodologies, we believe we compete favorably.
Intellectual Property
Our success is partially dependent upon our leading-edge proprietary
technology and information. We rely upon a combination of copyright, trademark
and trade secret laws and confidentiality procedures to protect our proprietary
technology and information. We generally enter into nondisclosure agreements
with our employees, contractors, consultants, distributors and corporate
partners and limit access to and distribution of our software, documentation
and other proprietary information.
In our normal course of business, we develop software applications for
specific client engagements. From time to time, we sell ownership of the
software to the client on completion of the engagement, although we generally
retain a license for limited uses. Issues relating to ownership of and rights
to use software applications and frameworks can be complicated. We may become
involved in disputes that affect our ability to sell or use similar
applications and frameworks we created for particular clients. A successful
claim could subject us to significant liability that would have a material
adverse effect on our liquidity and capital resources. In addition, even the
successful defense of a claim could require us to incur substantial costs and
result in diversion of our management's efforts and damage to our brand
perception by our clients.
In addition, we sometimes agree to enter into contracts which contain
restrictive provisions that prohibit us from performing the same or
substantially similar services or developing similar products for our clients'
competitors. These restrictive provisions generally last for the term of our
contract and may remain in effect for up to two years after the completion of
the project. These restrictive provisions reduce the number of our prospective
clients and our sources of revenues.
Facilities
Our executive offices are currently located at 8300 Boone Boulevard, Vienna,
Virginia. Our main office is located in approximately 80,000 square feet of
leased office space in Bethesda, Maryland. We anticipate
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moving our executive offices to this space in 2001. Our lease in Bethesda has a
term of seven years and expires in 2007. We maintain additional offices in
Bethesda, Maryland; New York, New York; Atlanta, Georgia; Austin and Houston,
Texas; Kansas City, Kansas; Denver, Colorado; Los Angeles and San Diego,
California; and Paris, France. We lease all of our office space in each of
these cities. We expect that we may need additional space as we expand our
business. We believe that we will be able to obtain additional space as needed.
Legal Proceedings
There are no material pending legal proceedings to which we or any of our
subsidiaries are a party or of which any of our property or any property of any
of our subsidiaries is the subject.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The following table shows information about each of our directors, executive
officers and key employees as of April 30, 2000.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Stuart C. Johnson............... 57 Chairman, President, Chief Executive
Officer and Director
Graham B. Perkins............... 51 Vice President, Chief Financial Officer,
Secretary and Treasurer
President of Network Architecture and
John R. McDougall............... 60 Consulting
Leo C. Mullen................... 51 President of Eastern Region
D. Derrik Deyhimi............... 33 President of Western Region
David T. Fu..................... 43 Vice President of Business Development
Jason H. Levine................. 33 Vice President, General Counsel and
Assistant Secretary
Thomas B. Modly................. 39 Vice President of Corporate Development
Matthew B. Walker............... 39 Vice President and Chief Technology Officer
William K. Stephens............. 56 Vice President of Sales and Marketing
Carolyn T. Jenkins.............. 33 Vice President of Human Resources
Christopher Clark............... 34 Vice President and Chief Business Strategy
Officer
Patricia A. Withers............. 51 Director of Administration and Assistant
Secretary
Carl J. Rickertsen.............. 40 Director
Robert E. Michalik.............. 31 Director
Phillip G. Norton............... 56 Director
</TABLE>
Stuart C. Johnson has served as our Chairman, President, Chief Executive
Officer and a director since August 1999. From September 1998 through August
1999, Mr. Johnson was the Chairman, President and Chief Executive Officer of
Empyrean Group, Inc., which we acquired in September 1999. From July 1997
through October 1998, he was a business consultant for S.C. Johnson &
Associates. From April 1995 through July 1997, Mr. Johnson served in a variety
of executive positions at Bell Atlantic and companies affiliated with Bell
Atlantic, most recently as President of Bell Atlantic's Business and
Information Services Group. He also served as Chairman and Chief Executive
Officer of Bell Atlantic Video Services Company and helped found Bell Atlantic
Network Integration Company. Mr. Johnson is a director of PowerCerv Corp.
Graham B. Perkins has served as our Vice President, Chief Financial Officer,
Treasurer and Secretary since August 1999. From September 1998 through August
1999, Mr. Perkins served as Chief Financial Officer, Vice President, Treasurer
and Secretary of Empyrean Group. From January 1993 through September 1998, Mr.
Perkins served in various executive positions at Bell Atlantic and companies
affiliated with Bell Atlantic, including as Vice President of International
Finance and Chief Financial Officer of the International Telecom Group at Bell
Atlantic. He also held roles as Chief Financial Officer of Bell Atlantic
International, Chief Financial Officer of Large Business and Information
Services Group, and Vice President and Chief Financial Officer of Bell Atlantic
Video Services.
John R. McDougall has served as President of our Network Architecture and
Consulting division since August 1999. Mr. McDougall founded Business Solutions
Group, LLC, the predecessor of our company and served as our President from
September 1995 through August 1999. From September 1993 through September 1995,
he was Vice President and General Manager, Information Technology Consulting
for SECOR International, Inc. He also served as Executive Vice President of The
Titan Corporation, a high technology, commercial and government systems
engineering company.
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Leo C. Mullen has served as the president of our Eastern Region since
November 1999. From May 1994 through November 1999, Mr. Mullen was the
President and Chief Executive Officer of IconixGroup, Inc., which we acquired
in November 1999.
D. Derrik Deyhimi has served as President of our Western Region since April
2000. In March 1997, Mr. Deyhimi co-founded Enterprise Works, LLC, where he
served as President and Chief Executive Officer from July 1997 through March
2000. We acquired Enterprise Works in March, 2000. From January 1995 through
March 1997, Mr. Deyhimi was a director and served as Executive Vice President
and Chief Technology Officer of BSI Consulting, Inc.
David T. Fu has served as our Vice President of Business Development since
August 1999. From November 1998 through August 1999, Mr. Fu served as Vice
President of Empyrean Group. From February 1994 through November 1998, Mr. Fu
was a Managing Director of Galway Partners, LLC, where he was involved in the
formation of new business ventures in the financial and technology industries.
His prior experience also includes business development and management roles at
Bell Atlantic Video Services, Network Management Inc. and IBM.
Jason H. Levine has served as our Vice President and General Counsel since
April 2000, and served as our Vice President of Strategic Projects from August
1999 through April 2000. From September 1998 through August 1999, Mr. Levine
served as Director of Corporate Development for Empyrean Group. From August
1994 through September 1998, Mr. Levine managed his own financial consulting
practice focusing on profitability management for small and medium-sized
entities. Mr. Levine's experience also includes positions at Tucker Anthony and
Merrill Lynch, where he executed debt structuring and refinancing, financial
analysis, investment management, due diligence and securities registration.
Thomas B. Modly has served as our Vice President of Corporate Development
since August 1999. From October 1998 through August 1999, Mr. Modly was the
Vice President of Corporate Development for Empyrean Group. From April 1996
through October 1998, Mr. Modly worked as a strategic consultant for Oxford
Associates, where he advised large companies on sales and marketing strategies.
From June 1992 through April 1996, Mr. Modly was Director of Corporate
Development for UNC Incorporated, where he focused on strategic planning,
corporate development and mergers and acquisitions.
Matthew B. Walker has served as our Chief Technology Officer since August
1999. From February 1999 through August 1999, Mr. Walker was the Chief
Technology Officer of Empyrean Group. From April 1998 through February 1999,
Mr. Walker was Senior Vice President and Chief Technology Officer of 24/7 Media
Inc., where he was responsible for software product development and strategic
sales opportunities. Mr. Walker was also one of the founders of Intelligent
Interactions Corp., an Internet technology firm, and served as its Chief
Technology Officer from February 1995 through April 1998, when it was acquired
by 24/7 Media. Mr. Walker has also held senior level positions with Oracle.
William K. Stephens has served as our Vice President of Sales and Marketing
since November 1999. From April 1995 through November 1999, Mr. Stephens served
as Chief Development Officer of IconixGroup, which we acquired in November
1999. Prior to joining IconixGroup, Mr. Stephens was President and Chief
Executive Officer of PRC Realty Systems, a provider of on-line real estate
information. He has also held senior level and international assignments with
Oracle, Martin Marietta and IBM.
Christopher Clark has served as our Vice President and Chief Business
Strategy Officer since April 2000. From January 1994 through March 2000, Mr.
Clark was Chairman and Chief Executive Officer of Internet Information
Services, Inc., which we acquired in March 2000.
Carolyn T. Jenkins has served as our Vice President of Human Resources since
April 2000. From January 1998 through April 2000, Ms. Jenkins served as the
Vice President of Human Resources and Operations for EnterpriseWorks, which we
acquired in March 2000. From August 1997 through January 1998, Ms. Jenkins
50
<PAGE>
was a technical recruiter for Smith & Associates. From April 1996 through July
1997, Ms. Jenkins was a technical recruiter and account representative for
Robert Half, Int'l., an employment contracting agency. From February 1994
through April 1996, Ms. Jenkins worked as an independent contractor assisting
start-up companies with the development of their business and marketing plans.
Patricia A. Withers has served as a Director of Administration and Assistant
Secretary since August 1999. From September 1998 through August 1999, Ms.
Withers was the Director of Administration for the Empyrean Group. From June
1993 through August 1998 she was a Project Manager for Learning Tree
International, a provider of information technology training courses and
products.
Carl J. Rickertsen has served as one of our directors and as a member of our
compensation committee since August 1999. Mr. Rickertsen has been a partner in
Thayer Capital Partners since September 1994. Mr. Rickertsen acted as a private
financial consultant from 1993 through August 1994 and was a partner at Hancock
Park Associates, a private equity investment firm based in Los Angeles, from
1989 to 1993. Mr. Rickertsen currently serves as a director of e-Plus, Inc.,
Global Vacation Group, Inc., Colorado Prime, Inc. and SAGA SYSTEMS, Inc.
Robert E. Michalik has served as one of our directors and as a member of our
audit and compensation committees since August 1999. Mr. Michalik has been a
Vice President at Thayer Capital Partners since August 1996. From August 1995
through August 1996, Mr. Michalik was an associate at UBS Capital Corporation.
Mr. Michalik currently serves as a director of IESI Corporation, Primary
Investors, L.L.C., Renaissance Interactive Holding Corporation and is Chairman
of Bikeshop.com, Inc.
Phillip G. Norton has served as one of our directors and as Chairman of our
audit committee since October 1999. Mr. Norton has served as the Chairman,
Chief Executive Officer and President of e-Plus, Inc. since January 1993.
Nomination of Directors
Some of our stockholders have the right to nominate members of our board of
directors under the terms of a stockholders agreement we entered into with
them. Under the terms of the stockholders agreement, all parties are required
to vote their shares for the nominated directors. These rights terminate upon
the completion of this offering. Specifically, Thayer ITECH Holdings, LLC has
the right to nominate three members to our board of directors, and the
following members of senior management have the right to nominate one member to
our board of directors: Stuart C. Johnson, Graham B. Perkins, Thomas B. Modly,
Jason H. Levine, Matthew B. Walker, Patricia A. Withers, William K. Stephens
and David T. Fu. One position on the board of directors is reserved for our
Chief Executive Officer. The director designees of Thayer ITECH Holdings are as
follows: Carl J. Rickertsen; Robert E. Michalik; and Phillip G. Norton.
As of April 30, 2000, the director nominee of management had not been
selected.
There are no family relationships among any of our directors or executive
officers.
Terms of Directors
Our board of directors currently consists of four directors. Upon completion
of this offering, the board of directors will be expanded to directors and
divided into three classes, with each class serving for a different term of
three years. At each annual meeting of the stockholders, successors to those
directors whose terms are expiring will be elected by our stockholders.
Directors in whose terms will expire in 2001 are , and . Directors
whose terms will expire in 2002 are , and . Directors whose terms
will expire in 2003 are , and .
Committees of the Board of Directors
Our board of directors has established an audit committee and a compensation
committee. The audit committee is responsible for reviewing and supervising the
preparation of our financial statements in cooperation with our independent
public accountants. The members of the audit committee are Phillip G. Norton
and Robert E. Michalik.
51
<PAGE>
The compensation committee is responsible for administering our stock option
plan, which is described below, and for reviewing and approving all
compensation arrangements for our executive officers. The members of the
compensation committee are Robert E. Michalik, Carl J. Rickertsen and Stuart C.
Johnson.
None of the members of the audit committee or the compensation committee
perform the same function for any other entity whose executive officers serve
on our board of directors.
Compensation Committee Interlocks and Insider Participation
The three members of our compensation committee are as follows: Robert E.
Michalik, Carl J. Rickertsen and Stuart C. Johnson. Robert E. Michalik is an
officer of Thayer ITECH Holdings and TC Management Partners IV, and Carl J.
Rickertsen is a member of the limited liability company that ultimately
controls both of these companies. As described below in "Related Party
Transactions," Thayer ITECH Holdings entered into a series of agreements with
us in August 1999, including agreements for the purchase of our stock, a
stockholders agreement and a registration rights agreement. A Thayer ITECH
Holdings affiliate, TC Management Partners IV, LLC, also entered into a
professional services agreement with us that requires us to pay quarterly fees
and other fees connected to the completion of debt or equity financings. Stuart
C. Johnson is our Chairman, President and Chief Executive Officer and has
served in those positions since August 1999.
Director Compensation
We currently have no plan for the compensation of our directors. We are in
the process of finalizing a plan to compensate our directors.
Executive Compensation
The following table presents a summary of compensation paid to our chief
executive officer and each of our other four most highly compensated executive
officers whose salary and bonus exceeded $100,000 during the year ended
December 31, 1999. In compiling this table, we have included amounts paid to
these executives as executive officers of the companies we have acquired since
January 1, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------- ------------
Restricted All Other
Name and Principal Positions Year Salary Bonus Stock Awards Compensation
<S> <C> <C> <C> <C> <C>
Stuart C. Johnson(1)(2)....... 1999 $180,000 $ 94,000 -- $29,191
Chairman, President and Chief
Executive Officer
Christopher Clark............. 1999 174,000 208,500 -- --
Vice President and Chief
Business Strategy Officer
Leo C. Mullen................. 1999 285,600 34,000 -- --
President of Eastern Region
William K. Stephens(3)........ 1999 275,000 10,000 $18,750 --
Vice President of Sales and
Marketing
D. Derrik Deyhimi............. 1999 200,000 70,000 -- --
President of Western Region
</TABLE>
- --------
(1) As of December 31, 1999, Mr. Johnson held shares of restricted stock
worth $ , assuming only for the purpose of calculating this value that
the value of a share of restricted stock on December 31, 1999 was $ , the
assumed initial public offering price. These shares vest as follows:
52
<PAGE>
25% vest following the executive's first anniversary of employment and the
remainder vests at a rate of approximately 2.08% per month for the next
three years. Mr. Johnson holds these shares through his limited partnership
interest in the Stuart C. Johnson Family Limited Partnership. Mr. Johnson's
children, as general partners, share voting and investment power over these
shares.
(2) All other compensation consists of transaction fees paid to Mr. Johnson
pursuant to the Professional Services Agreement between Iconixx and TC
Management Partners dated August 12, 1999.
(3) Mr. Stephens received $18,750 of compensation through his purchase from
the company of 125,000 shares of restricted stock at a per share price of
$0.10 when such shares were deemed to have a fair market value of $0.25
per share. As of December 31, 1999, Mr. Stephens held shares of
restricted stock worth $ , assuming only for the purpose of
calculating this value that the value of a share of restricted stock on
December 31, 1999 was $ , the assumed initial public offering price.
These shares vest as follows: 25% vest following the executive's first
anniversary of employment and the remainder vests at a rate of
approximately 2.08% per month for the next three years.
Option Grants in Last Fiscal Year
No options were granted to, exercised by or owned by any of the named
executive officers during 1999.
Executive Long-Term Incentive Plan
The following table presents information related to restricted common stock
that is subject to performance based vesting purchased by our chief executive
officer and each of our other most highly compensated executive officers whose
salary and bonus exceeded $100,000 during the fiscal year ended December 31,
1999. These shares are only eligible for vesting upon a sale of our company,
or after the completion of this offering. Vesting will occur after the
completion of this offering, if at all, only upon the occurrence of one of the
following measuring events: the executive's death; the executive's permanent
disability; the executive's termination without cause; or the second
anniversary of the completion of this offering, assuming a public market
continues to exist for our stock. The number of shares that vest upon the
occurrence of one of the measuring events is based on Thayer ITECH Holdings'
return on its investment. Thayer ITECH Holdings' return on its investment is
determined by the value of Thayer ITECH Holdings' Iconixx stock and any cash
Thayer ITECH Holdings has received from the sale or redemption of Iconixx
stock on the applicable measurement date. If the shares have not already
vested, all shares will vest on the eighth anniversary of their grant,
regardless of Thayer ITECH Holdings' return.
Long-Term Incentive Plans--
Awards in Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>
Estimated Future Payouts
------------------------------------
Threshold (1) Target (2) Maximum (3)
Number of Maturation (number of (number of (number of
Name Shares Period shares) shares) shares)
<S> <C> <C> <C> <C> <C>
Stuart C. Johnson.... 1,514,375 8 years 378,594 946,485 1,514,375
Christopher Clark.... -- -- -- -- --
Leo C. Mullen........ -- -- -- -- --
William K. Stephens.. 125,000 8 years 31,250 78,125 125,000
D. Derrik Deyhimi.... -- -- -- -- --
</TABLE>
- --------
(1) Threshold relates to a 25.00% return on Thayer ITECH Holdings' investment.
(2) Target relates to a 32.50% return on Thayer ITECH Holdings' investment.
(3) Maximum relates to a 40.00% return on Thayer ITECH Holdings' investment.
53
<PAGE>
1999 Stock Option Plan
The Board of Directors and our stockholders approved the 1999 Stock Option
Plan of Iconixx Corporation on October 29, 1999. The plan was amended on
December 15, 1999 and again on April 26, 2000. The purpose of the 1999 Stock
Option Plan is to enable us and our affiliates to attract, retain and motivate
their employees and service providers by providing for or increasing the
proprietary interests of such persons in our company.
Under the 1999 Stock Option Plan, a number of shares of common stock equal
to 7% of our issued and outstanding shares of common stock is reserved for
issuance. No more than 2,000,000 shares of stock in total may be issued
pursuant to incentive stock options. At April 30, 2000, there were 2,721,690
shares of common stock available for grant under the 1999 Stock Option Plan. At
April 30, 2000, there were 170 participants in the 1999 Stock Option Plan.
Administration. The 1999 Stock Option Plan is administered by our
Compensation Committee. Subject to the terms of the plan, the Compensation
Committee may select participants to receive awards, determine the types of
awards and terms and conditions of awards, and interpret provisions of the
plan. The term of each stock option is fixed by the Compensation Committee and
may not exceed 10 years from the date of grant. The Compensation Committee
determines at what time or times each option may be exercised and the period of
time, if any, after retirement, death, disability or termination of employment
during which options may be exercised. Options may be made exercisable in
installments. The exercisability of options may be accelerated by the
Compensation Committee. The interpretation and construction by the Compensation
Committee of any term or provision of the plan or of any option granted under
it is final, unless otherwise determined by the Board in which event the
determination by the Board shall be final. The Committee may from time to time
adopt rules and regulations for carrying out the plan and, subject to the
provisions of the plan, may prescribe the form or forms of the instruments
evidencing any option granted under the plan.
Amendment and Termination. The Board of Directors may alter, amend, suspend
or terminate the 1999 Stock Option Plan at any time, provided that no such
action shall deprive an optionee, without the optionee's consent, of any option
granted to the optionee pursuant to the plan or of any of the optionee's rights
under such option. Amendments will be submitted for stockholder approval to the
extent required by the Internal Revenue Code or other applicable laws.
Eligible Persons. The persons eligible to be considered for the grant of
options under the 1999 Stock Option Plan are any persons regularly employed on
a full-time or part-time basis by us or an affiliate and any consultant or
advisor to us or an affiliate who renders bona fide services to us or an
affiliate other than in connection with the offer or sale of securities in a
capital raising transaction.
Options. The 1999 Stock Option Plan permits the granting of options to
purchase shares of common stock intended to qualify as incentive stock options
under the Internal Revenue Code and stock options that do not qualify as
incentive stock options.
The exercise price of each stock option intended to be an incentive stock
option may not be less than 100% of the fair market value of our common stock
on the date of grant. In the case of persons holding 10% or more of our
outstanding and issued shares of common stock who receive incentive stock
options, the exercise price may not be less than 110% of the fair market value
of our common stock on the date of grant. Options not intended to be incentive
stock options may have exercise prices of no less than the par value of our
common stock on the date of grant. An exception to these requirements is made
for options that we grant in substitution for options held by employees of
companies that we acquire. In such a case the exercise price is adjusted to
preserve the economic value of the employee's stock option from his or her
former employer.
Effect of Specified Corporate Transactions. Change of control transactions
involving us, such as a sale of the company, may cause awards granted under the
1999 Stock Option Plan to vest, unless the awards are continued or substituted
for in connection with the change of control transaction.
54
<PAGE>
Adjustments for Stock Dividends and Similar Events. In the event of a
reorganization, recapitalization, stock split, reverse stock split, stock
dividend or the like, the Compensation Committee will make appropriate
adjustments in the number and/or kind of shares or securities for which options
may thereafter be granted under the 1999 Stock Option Plan and for which
options then outstanding under the plan may thereafter be exercised. Any such
adjustment in outstanding options will be made without changing the aggregate
exercise price applicable to the unexercised portions of such options.
Plan Duration. Options may not be granted under the 1999 Stock Option Plan
more than 10 years after the date of the adoption of the plan.
401(k) Plans
We sponsor the Iconixx Web Development 401(k) Profit Sharing Plan and the
Iconixx Systems Engineering, Inc. 401(k) Profit Sharing Plan, both defined
contribution plans intended to qualify under Section 401 of the Internal
Revenues Code. Under the Iconixx Web Development plan, employees who are at
least 21 years old and U.S. residents are generally eligible to participate.
Participants may make pre-tax contributions to the plan of up to 15% of their
eligible earnings, so long as these contributions do not exceed the statutorily
prescribed annual limit. Each participant is fully vested as to his or her
contributions and the investment earnings. We may make matching contributions
to the plan. Each participant is vested in our contributions and the
corresponding investment earnings after six years of service. Contributions by
the participants or Iconixx to the plan, and the income earned on these
contributions, are generally not taxable to the participants until withdrawn.
Contributions by us are generally deductible when made. Participant and company
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
Under the Iconixx Systems Engineering plan, employees who are U.S. residents
are generally eligible to participate. Participants may make pre-tax
contributions to the plan of up to 15% of their eligible earnings, so long as
these contributions do not exceed the statutorily prescribed annual limit. Each
participant is fully vested in his or her contributions and the investment
earnings. We may make matching contributions to the plan. Each participant who
has provided at least 500 hours of service is vested as to our contributions
and the corresponding investment earnings at a rate of 20% per year.
Contributions by the participants or Iconixx to the plan, and the income earned
on these contributions, are generally not taxable to the participants until
withdrawn. Contributions by us are generally deductible when made. Participant
and company contributions are held in trust as required by law. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
Employment Agreements
We have entered into executive employment agreements with Stuart C. Johnson,
Christopher Clark, Leo C. Mullen, William K. Stephens, and D. Derrik Deyhimi.
Each agreement has an initial term of three years. Except for Mr. Deyhimi's
agreement, each agreement automatically renews for successive one-year periods,
unless we or the executive provides notice to terminate the employment
relationship. Except for Mr. Clark, who is entitled to receive an annual base
salary of $175,000, each executive is entitled to receive an annual base salary
of $180,000. Commencing with the fiscal year 2000, each executive is eligible
to receive a bonus of up to 120% of his annual base salary.
If we terminate Messrs. Johnson's, Stephens', Mullen's or Deyhimi's
employment without cause, or if they terminate their employment for good
reason, each of these executives is entitled to receive severance equal to one
year's annual base salary, plus, with respect to Messrs. Johnson and Stephens,
pro-rated bonus payments based on the bonus paid to the executive for the
previous fiscal year. If we terminate Mr. Clark's employment without cause, he
is entitled to receive severance equal to the greater of nine month's salary
and the salary for the period from his termination date to the first
anniversary of his employment agreement.
55
<PAGE>
We can terminate Mr. Johnson's employment for "performance cause."
Performance cause means that he has failed to achieve a minimum acceptable
financial performance for the company for any one-year period as determined by
our board of directors. If Mr. Johnson is terminated for performance cause, we
will continue to pay him a monthly portion of his annual base salary for a
period of six months.
Each executive employment agreement requires that the executive protect our
proprietary and confidential information, and prohibits the executive from
competing with us for a period of time following his termination.
Messrs. Clark, Mullen and Deyhimi have each agreed to pay liquidated damages
to us if they are terminated with cause or if they voluntarily terminate their
employment with us without good reason during the three-year initial term of
their agreements. Except for Mr. Clark's agreement, which provides for
liquidated damages of between $100,000 and $300,000, the amount of liquidated
damages for each executive ranges from $150,000 to $350,000. The precise amount
of liquidated damages would vary based on the number of years of service of the
executive with our company at the time of termination. Those executives have
also pledged shares of our capital stock to secure their obligations to pay the
liquidated damages under the executive employment agreements.
Limitation of Liability and Indemnification Matters
Upon the completion of this offering, our amended and restated certificate
of incorporation will provide that our directors will not be liable for
monetary damages to us or our stockholders for any breach of fiduciary duties
to the fullest extent permitted by Delaware law. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive
relief or rescission.
In addition, our amended and restated certificate of incorporation and
bylaws will require us to indemnify our directors and officers to the fullest
extent permitted by Delaware law. At present, we are not aware of any pending
or threatened material litigation or proceeding involving any director or
officer where indemnification will be required or permitted. We believe that
the provisions in our amended and restated certificate of incorporation and
bylaws are necessary to attract and retain qualified persons as directors and
officers.
56
<PAGE>
RELATED PARTY TRANSACTIONS
Recapitalization Agreement
Under the terms of a recapitalization agreement dated August 11, 1999,
Thayer ITECH Holdings purchased 58,378.378 shares of our common stock from BSG
Holdings, Inc., our sole stockholder at that time, for an aggregate purchase
price of $21,600,000. As part of the recapitalization agreement, we borrowed
$10,000,000 under a $40,000,000 revolving credit facility we obtained in a
transaction arranged by Thayer ITECH Holdings. We used the proceeds of the loan
to redeem 27,027.027 shares of common stock from BSG Holdings for $370.00 per
share. Following the redemption we amended and restated our certificate of
incorporation to provide for the exchange of each share of our outstanding
common stock immediately prior to the effective time of the recapitalization
for 185 shares of our common stock and 0.3515 shares of our preferred stock. In
connection with the recapitalization, we incurred costs of $652,000 for non-
recurring transaction costs, including fees related to the professional
services agreement with TC Management Partners, IV, LLC and Thayer ITECH
Holdings' expenses associated with the negotiation and execution of the
recapitalization and related agreements.
John R. McDougall, the President of our Network, Architecture and Consulting
Division, was the President of our company at the time of the recapitalization.
Mr. McDougall and his wife also beneficially owned, and continue to own, 70% of
BSG Holdings. As a result, Mr. McDougall and his wife received $22,119,895 from
the redemption of BSG Holdings' stock. BSG Holdings now owns 2,700,000 shares
of our common stock and 5,130 shares of our preferred stock.
Thayer Equity Purchase
Under an equity purchase agreement dated August 12, 1999, Thayer ITECH
Holdings purchased 19,200,000 shares of our common stock at a purchase price of
$0.10 per share. Under the equity purchase agreement, Thayer ITECH Holdings
also agreed to purchase, at our request, up to 36,480 shares of our preferred
stock at a purchase price of $1,000 per share. Thayer ITECH Holdings, together
with its affiliate TC ITECH, LLC, purchased all 36,480 of those preferred
shares between November 1999 and March 2000.
Under an equity purchase agreement dated March 22, 2000, Thayer ITECH
Holdings purchased an additional 3,000,000 shares of our common stock at $1.30
per share and an additional 16,100 shares of our preferred stock at a purchase
price of $1,000 per share. We paid Thayer ITECH Holdings' expenses associated
with the execution and negotiation of the equity purchase agreements. We also
agreed to pay the future expenses of Thayer ITECH Holdings that arise from the
modification or enforcement of the equity purchase and related agreements.
Professional Services Agreement
In connection with the recapitalization and Thayer ITECH Holdings'
investments, we entered into a professional services agreement dated August 12,
1999 with TC Management Partners IV, LLC, an affiliate of Thayer ITECH
Holdings. In accordance with this agreement, TC Management received a one-time
payment of $370,000 upon the closing of the recapitalization. TC Management is
also entitled to receive a quarterly management fee of $50,000 and an
investment fee equal to 1% of the consideration received by us in connection
with any debt or equity financing, excluding this offering. TC Management
agreed to assign 15% of all fees it receives from any future equity financing
to us on behalf of Messrs. Johnson, Perkins, Walker, Fu, Modly and Levine and
Ms. Withers. Under this agreement, we have paid TC Management a total of
$741,432 in connection with debt and equity financings and our executives
approximately $130,841. The professional services agreement terminates upon the
completion of this offering.
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<PAGE>
Stockholders Agreement
In connection with the recapitalization and Thayer ITECH Holdings'
investments, we have entered into a stockholders agreement with Thayer ITECH
Holdings, members of our management and the other stockholders of our company.
The stockholders agreement provides, among other things, that our board of
directors will consist of five members, of which Thayer ITECH Holdings has the
right to nominate three, members of our management one, and one position is
reserved for our chief executive officer. Under the terms of the stockholders
agreement, all parties are required to vote their shares for the nominated
directors. The stockholders agreement terminates upon the completion of this
offering, except for a provision that prohibits all parties to the agreement
from selling their company stock in a public sale for a period of 120 days
beginning on the effective date of this offering.
Registration Rights Agreement
In connection with the recapitalization and Thayer ITECH Holdings'
investments, we entered into a registration rights agreement with Thayer ITECH
Holdings, members of our management team who purchased common stock pursuant to
employment agreements and stockholders of our operating companies who received
shares of our common stock in connection with our acquisition of their
companies. For details regarding the terms of this agreement, see "Shares
Eligible for Future Sale."
Loans to Executives
We have loaned Messrs. Fu, Modly and Levine the following amounts to
purchase shares of our common stock:
<TABLE>
<CAPTION>
Executive Loan Amount
<S> <C>
David T. Fu.................................................... $161,142
Thomas B. Modly................................................ 136,143
Jason H. Levine................................................ 132,392
</TABLE>
The loans are full recourse, and each of these officers has pledged a
portion of their common stock holdings as collateral for the loan. The interest
rate for each loan is the lesser of 9.00% and the highest rate permitted by
applicable law, which interest compounds monthly. Each of these officers must
repay the outstanding balance and accrued interest according to an amortization
schedule that terminates on August 31, 2003.
Note in Favor of an Executive
In connection with the acquisition of IconixGroup, we issued convertible
promissory notes in the amounts of $1,211,429 to each of Leo C. Mullen and his
wife, Helene Patterson. Interest on these obligations accrues at 10% annually,
payable quarterly. We must pay the full principal amount and any accrued
interest of both of these notes no later than May 5, 2005. Upon 60 days notice
of this offering, Mr. Mullen and Ms. Patterson can each request that we convert
their note into shares of our common stock based on the offering price or that
we repay the outstanding balance of their note, with our senior lender's
consent, within five days after the completion of this offering.
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<PAGE>
Executive Stock Purchases
The following executives purchased restricted shares of our common stock as
follows:
<TABLE>
<CAPTION>
Number of Shares Aggregate
Name of Executive of Common Stock Purchase Price
<S> <C> <C>
Stuart C. Johnson.......................... 3,028,571 $337,142
Graham B. Perkins.......................... 1,328,571 167,142
David T. Fu................................ 1,428,571 177,142
Jason H. Levine............................ 1,041,071 138,392
Thomas B. Modly............................ 1,278,571 162,142
Matthew B. Walker.......................... 1,278,571 162,142
</TABLE>
We have a limited right to repurchase the shares of common stock purchased
by these executives upon termination of their employment with us. The
repurchase price per share depends on whether the restricted shares of common
stock have vested. The repurchase price for unvested shares equals the lower of
the Executive's purchase price or the fair market value for each share of our
common stock at the time of termination. The repurchase price for each vested
share equals the fair market value at the time of termination. If we do not
exercise our right to repurchase all of the restricted shares within 60 days
after the executive's termination, then Thayer ITECH Holdings has the right to
repurchase the executive's restricted shares on the same terms. Our and Thayer
ITECH Holdings' repurchase rights with respect to vested shares terminate upon
the completion of this offering.
For each executive, one-half of the executive's shares vest as follows: 25%
vest following the executive's first anniversary of employment with us and the
remainder vests at a rate of approximately 2.08% per month for the next three
years. All of these shares vest upon a sale of the company and 20% vest
automatically if the executive is terminated without cause. If the executive is
terminated for cause prior to the earlier of the fourth anniversary of the
applicable employment agreement or the effective date of this offering, then
all of that executive's restricted shares will be deemed to be unvested shares.
For each executive, the other half of the executive's restricted shares are
only eligible for vesting upon a sale of our company, or after the completion
of this offering. Vesting will occur after the completion of this offering, if
at all, only upon the occurrence of one of the following measuring events: the
executive's death; the executive's permanent disability; the executive's
termination without cause; or the second anniversary of the completion of this
offering, assuming a public market continues to exist for our stock. The number
of shares that vest upon the occurrence of one of the measuring events is based
on Thayer ITECH Holdings' return on its investment. Thayer ITECH Holdings'
return on its investment is determined by the value of our stock held by Thayer
ITECH Holdings and any cash Thayer ITECH Holdings has received from the sale or
redemption of our stock on the applicable measurement date. If the shares have
not already vested, all shares will vest on the eighth anniversary of their
grant, regardless of Thayer ITECH Holdings' return.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows the number and percentage of outstanding shares of
our common stock that were owned as of April 30, 2000 and that will be owned
immediately following this offering by:
. each person who we know to be the beneficial owner of more than 5% of our
outstanding common stock;
. each of our directors and each of the executive officers named in the
summary compensation table; and
. all of our directors and executive officers as a group.
As of April 30, 2000, there were 53,957,606 shares of common stock
outstanding. Following this offering, we will have shares of common stock
outstanding. None of our stockholders will sell shares in this offering.
Unless indicated otherwise below, the address for each stockholder is c/o
Iconixx Corporation, 8300 Boone Boulevard, Suite 250, Vienna, VA 22182. Except
as indicated below, the persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
<TABLE>
<CAPTION>
Percentage of
Shares Outstanding
Number of Shares ------------------------------
Name Beneficially Owned Before Offering After Offering
<S> <C> <C> <C>
Thayer ITECH Holdings,
L.L.C. (1)..............
BSG Holdings, Inc. (2)...
Stuart C. Johnson (3)....
Christopher Clark (4)....
Leo C. Mullen (5)........
D. Derrik Deyhimi........ 989,313
William K. Stephens...... 250,000
Phillip G. Norton........
Robert Michalik..........
Carl J. Rickertsen.......
All directors and
executive officers as a
group (8 persons)(6)....
</TABLE>
- --------
* Less than one percent.
(1) Includes shares of common stock that Thayer ITECH Holdings will receive
upon the conversion of 73,100 shares of our preferred stock, assuming
conversion based on an assumed initial public offering price of $ per
share. Includes 190,581 shares of common stock beneficially owned by TC
ITECH, L.L.C. and shares of common stock that TC ITECH will receive
upon the conversion of 362,100 shares of our preferred stock held by TC
ITECH. TC ITECH is an affiliate of Thayer ITECH Holdings by virtue of the
common control of Thayer Equity Investors IV, L.P. The address for Thayer
ITECH Holdings is 1455 Pennsylvania Avenue, NW, Washington, DC 20004.
(2) Includes shares of common stock that BSG Holdings, Inc. will receive
upon the conversion of 5,130 shares of our preferred stock, assuming
conversion based on an assumed initial public offering price of $ per
share. Mr. McDougall is the co-trustee of two trusts that own 70% of BSG
Holdings, and he shares voting and investment power over these shares with
his wife. The address of BSG Holdings is 284 S. Main Street, Suite 700,
Alpharetta, GA 30004.
(3) Mr. Johnson holds these shares through his limited partnership interest in
the Stuart C. Johnson Family Limited Partnership. Mr. Johnson's children,
as general partners, share voting and investment power over these shares.
(4) Includes shares of common stock that Mr. Clark will receive upon the
conversion of 1,443 shares of our preferred stock, assuming conversion
based on an assumed inital public offering price of $ per share. Includes
39,375 shares of Mr. Clark's common stock and 145.6875 shares of preferred
stock are
60
<PAGE>
held in trust for the benefit of Mr. Clark's children, with Mr. Clark's
mother-in-law as trustee. Mr. Clark does not have voting or investment
power over these shares and disclaims beneficial ownership.
(5) The number of shares owned includes shares of common stock that Mr.
Mullen will receive upon the conversion of 1,535,100 shares of preferred
stock, assuming conversion based on an assumed initial public offering
price of $ per share. Mr. Mullen holds these shares through Mullen
Patterson, LLC and shares investment and voting control over them with his
wife. Includes shares of common stock that Mr. Mullen has the right to
receive upon the conversion of a convertible promissory note, and
shares of common stock that his wife has the right to receive upon the
conversion of a convertible promissory note.
(6) Includes shares of common stock issuable upon conversion of
outstanding preferred stock and convertible promissory notes based on an
assumed initial public offering price of $ per share.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our currently authorized capital stock consists of 99,850,000 shares of
common stock, par value $.01 per share, and 150,000 shares of preferred stock,
par value $.01 per share.
As of April 30, 2000, there were 53,957,606 shares of common stock
outstanding held by 36 stockholders of record, and 89,103.076 shares of our
preferred stock outstanding held by 17 stockholders of record. Upon the closing
of this offering, each share of preferred stock will convert into shares of
common stock. Based on the number of shares of common stock outstanding on
April 30, 2000 and the conversion of the preferred stock, upon completion of
this offering, we will have outstanding shares of common stock. In
addition, as of April 30, 2000 there were outstanding stock options to purchase
a total of 1,055,342 shares of common stock at a weighted average exercise
price of $0.68 per share.
Common Stock
Each common stockholder of record is entitled to one vote for each
outstanding share of our common stock owned by that stockholder on every matter
properly submitted to the stockholders for their vote. After satisfaction of
the dividend rights of holders of preferred stock, holders of common stock are
entitled to any dividend declared by the board of directors out of funds
legally available for this purpose, and, after the payment of liquidation
preferences to holders of preferred stock, holders of common stock are entitled
to receive, on a pro rata basis, all our remaining assets available for
distribution to the stockholders in the event of our liquidation, dissolution
or winding up. Holders of common stock do not have any preemptive right to
become subscribers or purchasers of additional shares of any class of our
capital stock. The outstanding shares of common stock are, and the shares of
common stock offered in this offering will be, when issued and paid for, fully
paid and non-assessable. The rights, preferences and privileges of holders of
common stock may be adversely affected by the rights of the holders of shares
of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Holders of preferred stock prior to the completion of this offering are
entitled to cumulative dividends at the rate of 15% per year. Any dividend
payable for each share of preferred stock will cease to accrue on the earlier
of our liquidation, or its conversion into our common stock. Upon the
completion of this offering, each share of preferred stock will be converted
into common stock at a conversion rate equal to $1,000 plus accrued dividends,
divided by the offering price.
Upon the completion of this offering, our amended and restated certificate
of incorporation will allow us to issue, without stockholder approval,
preferred stock having rights senior to those of the common stock. Our board of
directors will be authorized, without further stockholder approval, to issue up
to shares of preferred stock in one or more series, and to fix the rights,
preferences, privileges and restrictions of any series of preferred stock,
including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, and to fix the number of shares
constituting any series and the designations of these series.
Our future issuance of any preferred stock may have the effect of delaying
or preventing a change in control. Our future issuance of any preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of common stock. The future issuance of
any preferred stock could also have the effect of decreasing the market price
of the common stock.
62
<PAGE>
Anti-Takeover Provisions
General
Upon completion of this offering, our amended and restated certificate of
incorporation and bylaws will contain some limited provisions that are intended
to enhance the likelihood of continuity and stability in the composition of our
board of directors and in the policies formulated by our board of directors. In
addition, provisions of Delaware law may hinder or delay an attempted takeover
our company other than through negotiation with our board of directors. These
provisions could have the effect of discouraging attempts to acquire us or
remove incumbent management even if some or a majority of our stockholders
believe this action to be in their best interest, including attempts that might
result in the stockholders' receiving a premium over the market price for the
shares of common stock held by stockholders.
Classified Board
Our amended and restated certificate of incorporation will provide for the
division of our board of directors into three classes of directors, serving
staggered three-year terms. Our certificate of incorporation will also provide
that the approval of the holders of at least two-thirds of the shares entitled
to vote and the approval of a majority of our entire board of directors will be
necessary for the alteration, amendment or repeal of sections of our
certificate of incorporation relating to the election and classification of our
board of directors, limitation of director liability, indemnification and the
vote requirements for these amendments to our certificate of incorporation.
These provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of our company.
Removal of Directors; Vacancies
Our amended and restated certificate of incorporation will provide that
directors may be removed only for cause. In addition, vacancies and newly
created directorships resulting from any increase in the size of the board of
directors may be filled only by the affirmative vote of a majority of the
directors then in office, even if they do not constitute a quorum, or by a sole
remaining director. These provisions will prevent stockholders from removing
incumbent directors without cause and filling the resulting vacancies with
their own nominees.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust.
Listing
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "ICXX."
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect our common stock's prevailing market price. Upon completion of
this offering, we will have outstanding shares of our common stock,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options. Of these shares, all of the shares sold in this
offering will generally be freely tradable without restriction or further
registration under the Securities Act.
The remaining shares of common stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under
Securities Act Rule 144 or 701. We summarize these rules below.
Rule 144
Under Rule 144, shares of common stock will be freely tradable 90 days
after this offering closes. Sales of these shares of common stock will be
limited under lock-up agreements with the underwriters and a stockholders
agreement with our company. In general, under Rule 144, beginning 90 days after
the closing of this offering, a person who has owned shares of our common stock
for at least one year would be entitled to sell within any three-month period 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 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 filing of a
notice on Form 144 with respect to that sale.
Sales under Rule 144 are also governed by manner of sale provisions and
notice requirements, and current public information about Iconixx must be
available.
Under Rule 144(k), no shares of common stock will be freely tradable after
the completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with some of the restrictions, including the holding period, contained in Rule
144.
Registration Rights
Upon the completion of this offering, Thayer ITECH Holdings or a majority of
the holders of shares who are parties to a registration rights agreement with
us generally have the right to require us to register their shares under the
Securities Act as follows:
. up to two times on Form S-1 at our expense;
. an unlimited number of times on Form S-1 at their expense; and
. up to four times on Forms S-2 or S-3 or any other short-form registration
at our expense.
The holders of approximately shares of common stock, assuming conversion of
all of our outstanding preferred stock, will be entitled to require us to
register their shares under the Securities Act. In addition, we are required to
register these stockholders' shares at our expense at any time we register
shares of our common stock for our own account.
64
<PAGE>
Stock Options
As soon as practicable after this offering, we intend to file a registration
statement under the Securities Act covering shares of common stock reserved
for issuance under our 1999 Stock Option Plan. As of April 30, 2000, options to
purchase 1,055,342 shares of common stock were outstanding. The registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares registered under
this registration statement will, provided options have vested and Rule 144
volume limitations applicable to our affiliates are complied with, be available
for sale in the open market shortly after this offering closes, and in the case
of our officers, directors and stockholders who have entered into lock-up
agreements, after the 180-day lock-up agreements expire.
Lock-Up Agreements
Each of us, our executive officers and directors and substantially all of
our stockholders have agreed, subject to exceptions, not to (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase 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 (ii) 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 (regardless of whether any of the transactions described in
clause (i) or (ii) is to be settled by the delivery of common stock, or such
other securities, in cash or otherwise) for a period of 180 days after the date
of the final prospectus for this offering without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. However, 25% of the shares
of common stock subject to the restrictions described above will be released
from these restrictions if the last reported sale price of the common stock on
the Nasdaq National Market is at least twice the offering price for 20 of the
30 consecutive trading days ending on the last trading day of the 90-day period
after the date of the final prospectus. These shares will be released on the
later to occur of the 90-day period after the date of the final prospectus and
the second trading day after the first public release of our quarterly results.
An additional 25% of the shares subject to the restrictions described above
will be released from these restrictions if the last reported sale price of the
common stock on the Nasdaq National Market is at least twice the offering price
for 20 of the 30 consecutive trading days ending on the last trading day on the
135-day period after the date of the final prospectus.
All of our existing stockholders are parties to a stockholders agreement
under which they are prohibited from selling their stock in a public sale for a
period of 120 days after the effective date of this offering.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated as
of , 2000, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc., Banc of
America Securities LLC and DLJdirect Inc., the "underwriters," have severally
agreed to purchase from us the respective number of shares of common stock
shown opposite their names below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............
Bear, Stearns & Co. Inc..........................................
Banc of America Securities LLC...................................
DLJdirect Inc....................................................
---
Total..........................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
included in this offering are subject to approval of legal matters by their
counsel and to customary conditions, including the effectiveness of the
registration statement, the continuing correctness of our representations, the
listing of the common stock for quotation on the Nasdaq National Market and no
occurrence of an event that would have a material adverse effect on us. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock, other than those covered by the over-allotment option described
below, if they purchase any of the shares of common stock.
The underwriters propose to offer initially some of the shares of common
stock directly to the public at the public offering price on the cover page of
this prospectus and some of the shares of common stock to dealers, including
the underwriters, at the initial public offering price less a concession not in
excess of $ per share. The underwriters may allow, and these dealers may re-
allow, a concession not in excess of $ per share to other dealers. After the
initial offering of the common stock to the public, the representatives of the
underwriters may change the public offering price and these 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 to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
<S> <C> <C>
Per share........................................ $ $
Total.......................................... $ $
</TABLE>
We estimate expenses related to this offering will be $ million.
Iconixx has granted to the underwriters an option, exercisable within 30
days after the date of the underwriting agreement, to purchase up to
additional shares of common stock at the initial public offering price less
underwriting fees. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with the offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to conditions, to purchase a number of additional shares
approximately proportionate to that underwriter's initial purchase commitment.
66
<PAGE>
Iconixx has agreed to indemnify the underwriters against specified
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect of any of
those liabilities.
At our request, the underwriters have reserved for sale up to shares of
common stock offered by this prospectus for sale at the initial public offering
price to our employees, officers and directors and other persons designated by
us. The number of shares of common stock available for sale to the general
public will be reduced to the extent these individuals purchase or confirm for
purchase, orally or in writing, these reserved shares. Any reserved shares not
purchased or confirmed for purchase will be offered by the underwriters to the
general public on the same basis as the other shares offered by this
prospectus.
Other than in the United States, no action has been taken by Iconixx or the
underwriters that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction where action for that purpose is
required. The shares of common stock offered through this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements associated with the offer and sale of any
the shares of common stock offered through this prospectus be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. You
should inform yourself and observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any shares
of common stock included in this offering in any jurisdiction where that would
not be permitted or legal.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, is facilitating the distribution of the shares sold in this
offering over the Internet. Some of the underwriters and their affiliates
engage in transactions with, and perform services for, Iconixx and its
affiliates, and have engaged in and may in the future engage in commercial and
investment banking and other transactions with Iconixx and its affiliates.
We entered into a web site development agreement in October of 1999 with
Bear, Stearns & Co. Inc., one of the representatives of the underwriters. The
agreement provides for our development and design of a new navigational system
and interface for various pages comprising Bear, Stearns & Co. Inc.'s "Client
Toolkit" web site. The agreement provides for continuing work on a time and
materials basis at our customary rates.
We entered into a Business Loan and Security Agreement and related
promissory note on August 12, 1999 with First Union Commercial Corporation and
Bank of America, N.A., an affiliate of Banc of America Securities LLC, one of
the representatives of the underwriters. The agreement created a revolving
credit facility under which we can borrow up to $40.0 million. Bank of America,
N.A. agreed to loan us up to $20.0 million under the revolving credit facility.
As of April 30, 1999, we had borrowed approximately $13.0 million under the
revolving credit facility of which $6.5 million is borrowed from Bank of
America, N.A. As described in "Use of Proceeds," we intend to pay in full the
outstanding balance on the revolving credit facility upon completion of this
offering.
Stabilization
In connection with the 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 the offering, creating a
syndicate short position. The underwriters may bid for and purchase shares of
common stock in the open market to cover a syndicate short position or to
stabilize the price of the common stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if Donaldson, Lufkin & Jenrette Securities Corporation repurchases
previously distributed common stock in syndicate covering transactions, in
stabilization transactions or otherwise if Donaldson, Lufkin & Jenrette
Securities Corporation receives a report that indicates that the clients of
such syndicate members have purchased the common stock and immediately resold
the shares for a profit. 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, may end any of these activities at
any time, and in any event will discontinue these activities no later than 30
days after the closing of this offering.
67
<PAGE>
Pricing of the Common Stock
Prior to this offering, there has been no established trading market for our
common stock. The initial public offering price of our common stock will be
determined by negotiation between Iconixx and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price will include:
. the history of and the prospects for the industry in which Iconixx
competes;
. Iconixx's past and present operations;
. Iconixx's historical results of operations;
. Iconixx's prospects for future earnings;
. the recent market prices of securities of generally comparable companies;
and
. the general condition of the securities markets at the time of this
offering.
68
<PAGE>
LEGAL MATTERS
Hogan & Hartson L.L.P., Washington, D.C., will pass upon the validity of the
issuance of the shares being offered. Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts, will act as counsel for the underwriters.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION ABOUT ICONIXX CORPORATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock being offered. This prospectus contains all information about
Iconixx and our common stock that would be material to an investor. The
registration statement includes exhibits and schedules to which you should
refer for additional information about us. You may inspect a copy of the
registration statement and the exhibits and schedules to the registration
statement without charge at the offices of the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549. You
may obtain copies of all or any part of the registration statement from the
Public Reference Section of the SEC, 450 Fifth Street, Washington, D.C. 20549
upon the payment of the prescribed fees. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains a web site at www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants like us that
file electronically with the SEC.
We intend to furnish holders of our common stock with annual reports
containing audited financial statements certified by an independent public
accounting firm and make available quarterly reports containing unaudited
condensed financial information for the first three fiscal quarters of each
fiscal year.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Iconixx Corporation, formerly Business Solutions Group, LLC
Report of Independent Public Accountants.................................. F-3
Consolidated Balance Sheets as of December 31, 1998 and 1999 and March 31,
2000 (unaudited)......................................................... F-4
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998, and 1999 and for the Three Months Ended March 31, 1999 and
2000 (unaudited)......................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998, and 1999 and for the Three Months Ended
March 31, 2000 (unaudited)............................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998, and 1999 and for the Three Months Ended March 31, 1999 and
2000 (unaudited)......................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
Empyrean Group, Inc. (A Development Stage Company)
Report of Independent Public Accountants.................................. F-24
Balance Sheets as of December 31, 1998 and August 31, 1999................ F-25
Statements of Operations From Inception (February 12, 1998) to December
31, 1998 and for the Eight Months Ended August 31, 1999.................. F-26
Statements of Stockholders' Equity (Deficit) From Inception (February 12,
1998) to December 31, 1998 and for the Eight Months Ended August 31,
1999..................................................................... F-27
Statements of Cash Flows From Inception (February 12, 1998) to December
31, 1998 and for the Eight Months Ended August 31, 1999.................. F-28
Notes to Financial Statements ............................................ F-29
The Invisions Group, Ltd. and Subsidiary
Report of Independent Public Accountants.................................. F-32
Consolidated Balance Sheets as of June 30, 1998 and 1999, and September
30, 1999 (unaudited)..................................................... F-33
Consolidated Statements of Operations for the Years Ended June 30, 1998
and 1999, and for the Three Months Ended September 30, 1998 and 1999
(unaudited).............................................................. F-34
Consolidated Statements of Stockholders' Equity for the Years Ended June
30, 1998 and 1999, and for the Three Months Ended September 30, 1999
(unaudited).............................................................. F-35
Consolidated Statements of Cash Flows for the Years Ended June 30, 1998
and 1999, and for the Three Months Ended September 30, 1998 and 1999
(unaudited).............................................................. F-36
Notes to Consolidated Financial Statements ............................... F-37
Lead Dog Design, Inc.
Report of Independent Public Accountants.................................. F-45
Balance Sheets as of December 31, 1998 and 1999........................... F-46
Statements of Operations for the Years Ended December 31, 1998 and 1999... F-47
Statements of Stockholders' Equity for the Years Ended December 31, 1998
and 1999................................................................. F-48
Statements of Cash Flows for the Years Ended December 31, 1998 and 1999... F-49
Notes to Financial Statements ............................................ F-50
EnterpriseWorks, LLC
Report of Independent Public Accountants.................................. F-56
Balance Sheets as of December 31, 1998 and 1999........................... F-57
Statements of Operations for the Years Ended December 31, 1998 and 1999... F-58
Statements of Members' Equity for the Years Ended December 31, 1998, and
1999..................................................................... F-59
Statements of Cash Flows for the Years Ended December 31, 1998, and 1999.. F-60
Notes to Financial Statements ............................................ F-61
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Internet Services Division of Internet Information Services, Inc.
(A Fully Integrated Business of IIS, Inc.)
Report of Independent Public Accountants................................. F-67
Balance Sheets as of December 31, 1998 and 1999.......................... F-68
Statements of Operations and Changes in Division Equity (Deficit) for the
Years Ended December 31, 1998 and 1999.................................. F-69
Statements of Cash Flows for the Years Ended December 31, 1998 and 1999.. F-70
Notes to Financial Statements ........................................... F-71
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Iconixx Corporation:
We have audited the accompanying consolidated balance sheets of Iconixx
Corporation (formerly Business Solutions Group, LLC) as of December 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of Iconixx Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
May 9, 2000
F-3
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
As of December
31,
--------------- As of March
1998 1999 31, 2000
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $1,261 $ 1,537 $ 4,639
Accounts receivable, net........................ 5,773 6,139 10,217
Prepaid expenses and other current assets....... 34 302 1,403
------ -------- --------
Total current assets.......................... 7,068 7,978 16,259
------ -------- --------
Property and equipment, net....................... 82 1,231 3,975
Intangible assets, net............................ -- 29,094 81,895
Other assets...................................... -- 813 857
------ -------- --------
Total assets.................................. $7,150 $ 39,116 $102,986
====== ======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable................................ $3,547 $ 3,659 $ 4,264
Accrued liabilities............................. 309 2,479 6,900
------ -------- --------
Total current liabilities..................... 3,856 6,138 11,164
------ -------- --------
Long-term liabilities:
Credit facility................................. -- 6,500 13,800
Convertible subordinated notes payable.......... -- 2,650 2,650
Due to former IconixGroup shareholders.......... -- 1,050 1,050
Deferred income taxes........................... -- 2,631 2,250
------ -------- --------
Total long-term liabilities................... -- 12,831 19,750
------ -------- --------
Total liabilities............................. 3,856 18,969 30,914
------ -------- --------
Class A convertible preferred stock, $0.01 par
value, $1,000 liquidation value, 150,000 shares
authorized; 51,156 and 88,556 shares issued and
outstanding in 1999 and 2000, respectively;
aggregate liquidation preference plus accrued and
unpaid dividends of $53,322, and $92,846,
respectively..................................... -- 53,322 92,846
------ -------- --------
Commitments and contingencies (Note 15)
Stockholders' equity (deficit):
Common stock, $0.01 par value; 99,850,000 shares
authorized; 18,500,000, 50,387,500, and
58,855,713 shares issued and 18,500,000,
45,187,500, and 53,855,713 outstanding as of
1998, 1999 and 2000, respectively.............. 185 504 589
Additional paid-in capital...................... -- 4,554 27,300
Notes receivable--stockholders.................. -- (325) (414)
Treasury stock, 5,200,000 and 5,000,000 shares
at cost as of 1999 and 2000, respectively...... -- (10,302) (10,282)
Deferred compensation........................... -- (1,175) (1,447)
Retained earnings (accumulated deficit)......... 3,109 (26,431) (36,520)
------ -------- --------
Total stockholders' equity (deficit).......... 3,294 (33,175) (20,774)
------ -------- --------
Total liabilities and stockholders' equity
(deficit).................................... $7,150 $ 39,116 $102,986
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
----------------------- ----------------
1997 1998 1999 1999 2000
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues........................... $18,568 $49,898 $48,978 $14,053 $ 14,026
Cost of revenues................... 14,932 40,525 39,300 11,639 9,535
------- ------- ------- ------- --------
Gross profit....................... 3,636 9,373 9,678 2,414 4,491
Operating expenses:
Selling, general and
administrative.................. 689 3,170 5,189 795 5,211
Depreciation and amortization.... 24 28 1,918 24 3,188
Loss on divestiture of operating
division........................ -- -- 419 419 --
------- ------- ------- ------- --------
Total operating expenses....... 713 3,198 7,526 1,238 8,399
------- ------- ------- ------- --------
Income (loss) from operations...... 2,923 6,175 2,152 1,176 (3,908)
Interest expense................... -- -- (335) -- (256)
Interest and other income.......... 30 125 154 30 58
------- ------- ------- ------- --------
Income before provision (benefit)
for income taxes.................. 2,953 6,300 1,971 1,206 (4,106)
Provision (benefit) for income
taxes............................. -- -- 4 -- (371)
------- ------- ------- ------- --------
Net income (loss).................. 2,953 6,300 1,967 1,206 (3,735)
Dividends on Class A convertible
preferred stock................... -- -- 2,166 -- 6,354
------- ------- ------- ------- --------
Net income (loss) attributable to
common stockholders............... $ 2,953 $ 6,300 $ (199) $ 1,206 $(10,089)
======= ======= ======= ======= ========
Basic and diluted net income (loss)
per share......................... $ 0.16 $ 0.34 $ (0.01) $ 0.07 $ (0.22)
======= ======= ======= ======= ========
Weighted average common shares
outstanding....................... 18,500 18,500 28,281 18,500 46,433
======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A
Convertible
Preferred
Stock
--------------
Amount Shares
<S> <C> <C>
Balance,
December 31,
1996............ $ -- --
Net income...... -- --
Distribution to
stockholders.... -- --
------- ------
Balance,
December 31,
1997............ -- --
Net income...... -- --
Distribution to
stockholders.... -- --
------- ------
Balance,
December 31,
1998............ -- --
Net income...... -- --
Distribution to
stockholders.... -- --
Repurchase of
common stock
together with
recapitalization
costs........... -- --
Preferred stock
dividend........ 25,650 25,650
Issuance of
common stock and
preferred stock
for cash........ 20,400 20,400
Issuance of
stock in
connection with
acquisition of
Empyrean Group,
Inc............. 1,639 1,639
Issuance of
stock in
connection with
acquisition of
IconixGroup,
Inc............. 3,467 3,467
Deferred
compensation
upon issuance of
stock options .. -- --
Repurchase of
officer shares,
net............. -- --
Interest accrued
net of
payments........ -- --
Amortization of
deferred
compensation.... -- --
Accrued
dividends on
preferred
stock........... 2,166 --
------- ------
Balance,
December 31,
1999............ 53,322 51,156
Net loss
(unaudited)..... -- --
Issuance of
common stock and
preferred stock
in connection
with acquisition
of Lead Dog
Design, Inc.
(unaudited)..... 3,000 3,000
Issuance of
common stock and
preferred stock
for cash
(unaudited)..... 32,180 32,180
Issuance of
common stock in
connection with
acquisition of
EnterpriseWorks,
LLC
(unaudited)..... -- --
Issuance of
common stock and
preferred stock
in connection
with acquisition
of Internet
Information
Services, Inc.
(unaudited)..... 2,220 2,220
Deferred
compensation
upon issuance of
stock options
(unaudited)..... -- --
Repayments on
notes
receivable-
stockholders,
net of interest
accrual of $4
(unaudited)..... -- --
Amortization of
deferred
compensation
(unaudited)..... -- --
Accrued
dividends on
preferred stock
and value of
beneficial
common stock
purchase right
(unaudited)..... 2,124 --
------- ------
Balance, March
31, 2000
(unaudited)..... $92,846 88,556
======= ======
<CAPTION>
Stockholders' Equity (Deficit)
-----------------------------------------------------------------------------------------------------------
Retained Total
Common Stock Additional Notes Treasury Stock Earnings Stockholders'
----------------- Paid-In Receivable- --------------------- Deferred (Accumulated Equity
Amount Shares Capital Stockholders Amount Shares Compensation Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996............ $185 18,500,000 $ -- $ -- $ -- -- $ -- $ 146 $ 331
Net income...... -- -- -- -- -- -- -- 2,953 2,953
Distribution to
stockholders.... -- -- -- -- -- -- -- (1,468) (1,468)
------ ---------- ---------- ------------ --------- ----------- ------------ ------------ -------------
Balance,
December 31,
1997............ 185 18,500,000 -- -- -- -- -- 1,631 1,816
Net income...... -- -- -- -- -- -- -- 6,300 6,300
Distribution to
stockholders.... -- -- -- -- -- -- -- (4,822) (4,822)
------ ---------- ---------- ------------ --------- ----------- ------------ ------------ -------------
Balance,
December 31,
1998............ 185 18,500,000 -- -- -- -- -- 3,109 3,294
Net income...... -- -- -- -- -- -- -- 1,967 1,967
Distribution to
stockholders.... -- -- 190 -- -- -- -- (3,321) (3,131)
Repurchase of
common stock
together with
recapitalization
costs........... -- -- -- -- (10,282) (5,000,000) -- (370) (10,652)
Preferred stock
dividend........ -- -- -- -- -- -- -- (25,650) (25,650)
Issuance of
common stock and
preferred stock
for cash........ 292 29,200,000 2,628 (321) -- -- -- -- 2,599
Issuance of
stock in
connection with
acquisition of
Empyrean Group,
Inc............. 9 862,500 77 -- -- -- -- -- 86
Issuance of
stock in
connection with
acquisition of
IconixGroup,
Inc............. 18 1,825,000 438 -- -- -- -- -- 456
Deferred
compensation
upon issuance of
stock options .. -- -- 769 -- -- -- (769) -- --
Repurchase of
officer shares,
net............. -- -- 452 -- (20) (200,000) (435) -- (3)
Interest accrued
net of
payments........ -- -- -- (4) -- -- -- -- (4)
Amortization of
deferred
compensation.... -- -- -- -- -- -- 29 -- 29
Accrued
dividends on
preferred
stock........... -- -- -- -- -- -- -- (2,166) (2,166)
------ ---------- ---------- ------------ --------- ----------- ------------ ------------ -------------
Balance,
December 31,
1999............ 504 50,387,500 4,554 (325) (10,302) (5,200,000) (1,175) (26,431) (33,175)
Net loss
(unaudited)..... -- -- -- -- -- -- -- (3,735) (3,735)
Issuance of
common stock and
preferred stock
in connection
with acquisition
of Lead Dog
Design, Inc.
(unaudited)..... 10 1,000,000 1,290 -- -- -- -- -- 1,300
Issuance of
common stock and
preferred stock
for cash
(unaudited)..... 30 3,000,000 4,110 (145) 20 200,000 -- -- 4,015
Issuance of
common stock in
connection with
acquisition of
EnterpriseWorks,
LLC
(unaudited)..... 39 3,868,213 10,442 -- -- -- -- -- 10,481
Issuance of
common stock and
preferred stock
in connection
with acquisition
of Internet
Information
Services, Inc.
(unaudited)..... 6 600,000 2,333 -- -- -- -- -- 2,339
Deferred
compensation
upon issuance of
stock options
(unaudited)..... -- -- 341 -- -- -- (341) -- --
Repayments on
notes
receivable-
stockholders,
net of interest
accrual of $4
(unaudited)..... -- -- -- 56 -- -- -- -- 56
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- -- 69 -- 69
Accrued
dividends on
preferred stock
and value of
beneficial
common stock
purchase right
(unaudited)..... -- -- 4,230 -- -- -- -- (6,354) (2,124)
------ ---------- ---------- ------------ --------- ----------- ------------ ------------ -------------
Balance, March
31, 2000
(unaudited)..... $589 58,855,713 $27,300 $(414) $(10,282) (5,000,000) $(1,447) $(36,520) $(20,774)
====== ========== ========== ============ ========= =========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------- -------------------
1997 1998 1999 1999 2000
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............ $ 2,953 $ 6,300 $ 1,967 $ 1,206 $ (3,735)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Depreciation and
amortization............... 24 28 1,918 24 3,188
Stock-based compensation.... -- -- 46 -- 69
Deferred income tax
benefit.................... -- -- (103) -- (471)
Changes in operating assets
and liabilities, net of
effect of business
combinations:
Accounts receivable........ (2,341) (3,368) 1,530 (3,762) 722
Prepaid expenses and other
current assets............ 174 (18) (5) (417) (363)
Accounts payable........... 1,144 1,904 (568) 588 240
Accrued liabilities and
other..................... 29 162 831 81 1,872
Deferred revenue........... -- -- 130 3,435 65
------- ------- -------- -------- ---------
Net cash provided by
operating activities..... 1,983 5,008 5,746 1,155 1,587
------- ------- -------- -------- ---------
Cash flows from investing
activities:
Acquisition of property and
equipment................... (53) (78) (656) (34) (1,387)
Cash paid in connection with
business combinations, net
of cash acquired............ -- -- (19,762) -- (40,653)
------- ------- -------- -------- ---------
Net cash used in investing
activities............... (53) (78) (20,418) (34) (42,040)
------- ------- -------- -------- ---------
Cash flows from financing
activities:
Distributions paid........... (1,468) (4,822) (3,131) (1,532) --
Net borrowings under credit
facility.................... -- -- 6,500 -- 7,300
Cash paid for financing
costs....................... -- -- (744) -- --
Issuance of common stock for
cash........................ -- -- 2,595 -- 4,015
Issuance of convertible
preferred stock for cash.... -- -- 20,400 -- 32,180
Payment on notes receivable--
stockholders................ -- -- -- -- 60
Repurchase of common stock
and recapitalization costs.. -- -- (10,672) -- --
------- ------- -------- -------- ---------
Net cash (used in)
provided by financing
activities............... (1,468) (4,822) 14,948 (1,532) 43,555
------- ------- -------- -------- ---------
Net increase (decrease) in
cash and cash equivalents.... 462 108 276 (411) 3,102
Cash and cash equivalents at
beginning of period.......... 691 1,153 1,261 1,261 1,537
------- ------- -------- -------- ---------
Cash and cash equivalents at
end of period................ $ 1,153 $ 1,261 $ 1,537 $ 850 4,639
======= ======= ======== ======== =========
Cash paid for interest........ $ -- $ -- $ 283 $ -- $ 256
======= ======= ======== ======== =========
Supplemental disclosure of
noncash investing and
financing activities:
Stock dividends on Class A
convertible preferred
stock....................... $ -- $ -- $ 27,816 $ -- $ 2,124
Stock issued in connection
with business combinations.. -- -- 5,648 -- 19,340
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
1. Business Description:
Iconixx Corporation (the "Company," a Delaware corporation, formerly
Business Solutions Group, LLC), is an Internet services company formed to
develop and deliver end-to-end e-business solutions leveraging emerging
broadband and wireless technologies to enable clients to create value over the
Internet. Services provided include e-business strategy, business process
planning, web design, commerce applications and broadband systems engineering
services. The Company is headquartered in Vienna, Virginia, and has locations
across the United States and in Europe.
In November 1999, the Company changed its name to Iconixx Corporation
concurrent with its acquisition of IconixGroup, Inc. (see Note 5). Subsequent
to December 31, 1999, the Company has completed three additional acquisitions,
which have expanded the Company's web development and consulting services (see
Note 5).
The Company's operations are subject to certain risks and uncertainties,
including the susceptibility of the Company's services to rapid technological
change, increased competition from existing service providers and new entrants,
lack of an operating history, existence of fixed price contracts, realizability
of intangible assets and government regulations.
2. Summary of Significant Accounting Policies and Practices:
Unaudited Interim Financial Statements
The accompanying consolidated balance sheet as of March 31, 2000, and the
accompanying consolidated statements of operations and cash flows for the three
months ended March 31, 1999 and 2000, are unaudited. The unaudited consolidated
financial statements include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of such financial statements. The data disclosed in the notes to
the financial statements for these periods, are unaudited. The results of
operations for the three months ended March 31, 2000, are not necessarily
indicative of the results expected for the entire fiscal year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Equity Investment
The equity method of accounting is used to account for investments over
which the Company has significant influence and consolidation is not required
(see Note 7).
Revenue Recognition
Revenues from consulting and information technology development services,
and the related labor costs, are recognized when the services are performed.
Revenues from time and materials contracts are recognized based on fixed hourly
rates for direct labor hours expended. Revenues from fixed-price contracts are
recognized on the percentage-of-completion method, with costs and estimated
profits recorded as work is performed.
Cost of Revenues
Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Direct labor costs and related expenses are included in cost of revenues based
on billable hours; costs related to unbillable time are included in selling,
general and administrative expenses. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in contract performance and estimated profitability,
including final contract settlements, may result in revisions to costs and
revenues and are recognized in the period in which the revisions are
determined. Unbilled receivables on contracts are comprised of costs, plus
earnings on certain contracts in excess of actual billings on such contracts.
Cash received in excess of costs incurred is classified as deferred revenue.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line method over the estimated useful lives of the individual assets
as follows: furniture and fixtures, five to ten years; and office equipment,
three to five years. Leasehold improvements are amortized over the lesser of
the estimated useful life of the asset or the remaining lease term.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Company reviews its recorded goodwill, other
intangibles and long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When deemed necessary, goodwill and other intangibles are assessed
for possible impairment based upon a number of factors, including turnover of
the acquired workforce and the undiscounted value of expected future operating
cash flows in relation to the Company's net investment in each subsidiary. The
Company recognizes an impairment loss when the sum of the expected future cash
flows is less than the carrying amount of the asset. The measurement of the
impairment losses to be recognized is based upon the difference between the
fair value and the carrying amount of the assets. The Company has not recorded
a provision for impairment of long-lived assets or intangible assets associated
with its acquired businesses.
F-9
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
Internal Use Computer Software
In accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," the Company will capitalize
costs related to software and implementation in connection with its internal
use software systems. Such costs are amortized principally over three years.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and credit facilities. In
management's opinion, the carrying amounts of these financial instruments
approximate their fair value at December 31, 1999.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on
the date of grant between the fair value of the Company's stock and the amount
an employee must pay to acquire the stock.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133, as
amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000, and management has not yet determined its effect on the
Company's financial statements or disclosures.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB No.
101"), "Revenue Recognition in Financial Statements", which provides guidance
on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. This bulletin outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosure related
to revenue recognition policies. In March 2000, the SEC issued SAB No. 101A--
Amendment: Revenue Recognition in Financial Statements ("SAB No. 101A") which
amends the transition provisions of SAB No. 101 until the second fiscal quarter
for registrants with a fiscal year beginning after December 15, 1999. We will
apply the accounting and disclosures of SAB No. 101 during the fiscal quarter
ending June 30, 2000. Our management believes that the impact of SAB No. 101
and SAB No. 101A will not have a material effect on our financial position or
results of operations.
Income Taxes
Until August 1999, the Company elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under the provisions, the Company
did not pay corporate income taxes on its taxable income. Instead, the
shareholders were liable for individual income taxes on their respective shares
of the Company's taxable income. Accordingly, there is no provision for income
taxes in the accompanying financial statements for periods prior to August
1999. In August 1999, the Company became a C corporation and therefore, became
subject to Federal and state income taxes.
F-10
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Business Concentration and Credit Risk
During 1997, 1998, and 1999, the Company had one customer in the
telecommunications industry that accounted for approximately 98.0, 93.0 and
93.0 percent, of revenues and 100.0, 91.0 and 39.0 percent of accounts
receivable, respectively. This telecommunications customer is currently in the
process of being acquired. The Company's Master Service Agreement with this
customer expires at the time of completion of the contract orders issued
thereunder. The current contract orders expire in December 2000. The Company's
management believes that this relationship will continue and that the present
terms of the Master Service Agreement will be extended, however, there can be
no assurances such extensions will occur. The loss of this customer would have
a material adverse effect on the Company's operations. Had the 1999 and 2000
acquisitions, as described in Note 5, occurred on January 1, 1999, this
customer would have accounted for approximately 57.4 percent and 43.7 percent
of pro forma revenues for the year ended December 31, 1999 and the three months
ended March 31, 2000, respectively. Substantially all net revenues were earned
from customers in the United States.
Earnings Per Share
SFAS No. 128 "Earnings Per Share," requires the presentation of basic and
diluted earnings per share. Basic net income (loss) per share is computed by
dividing income (loss) attributable to common stockholders by the weighted
average number of common shares outstanding for the period. The diluted net
income (loss) per share data is computed using the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents,
unless the common stock equivalents are antidilutive.
The Company has 905,000 and 1,146,692 stock options outstanding as of
December 31, 1999 and March 31, 2000 respectively. In addition, the Company has
$2.6 million in subordinated convertible notes payable and $92.8 million in
Class A Convertible Preferred Stock, including accrued dividends, which are
convertible into shares of common stock upon a qualified initial public
offering at the initial public offering price.
Pro Forma Net Income (Loss)
The following unaudited pro forma income data for the year ended December
31, 1999, include a provision for federal and state income taxes as if the
Company had been a C corporation for the year presented. The effective income
tax rate reflects the combined federal and state income taxes at an assumed
rate of 38.6 percent. The following summarizes this pro forma income data (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December
31, 1999
(Unaudited)
<S> <C>
Income before income taxes....................................... $1,971
Pro forma tax provision ......................................... 1,495
------
Pro forma net income ............................................ $ 476
======
</TABLE>
F-11
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
The effective tax rate, on a pro forma basis, is higher than the federal
statutory rate of 34.0% primarily due to state and local income taxes and
nondeductible amortization of certain intangible assets.
3. Stockholders' Equity:
Recapitalization
On August 12, 1999, the Company was recapitalized ("the Recapitalization")
pursuant to an agreement between the Company, its existing shareholder, BSG
Holdings Inc. ("BSG Holdings"), Business Solutions Group, Inc. and Thayer ITECH
Holdings, LLC ("Thayer"). Prior to the Recapitalization, the Company had
100,000 shares of issued and outstanding common stock, all of which were owned
by BSG Holdings. Pursuant to the Recapitalization, the Company redeemed an
aggregate of 27,027 shares (5,000,000 after stock split) of common stock for
$10.0 million from BSG Holdings and Thayer purchased 58,378 shares for $21.6
million in cash subject to certain adjustments and escrow holdbacks as
described in the Recapitalization Agreement. The redemption was financed with
$10.0 million in borrowings under the Company's credit facility (see Note 12).
Following the redemption, the Company amended and restated its Certificate
of Incorporation to authorize two classes of capital stock: common stock with a
par value of $0.01 per share and the Preferred Stock (see Note 4) with a par
value of $0.01 per share and a liquidation value of $1,000 per share. At that
time, each issued and outstanding share of capital stock was converted into 185
shares of common stock and 0.3515 shares of Preferred Stock. The conversion
into Preferred Stock was accounted for as a noncash dividend in August 1999,
and the conversion into common stock was accounted for as a stock split. All
share and per share amounts have been restated to reflect this common stock
split.
The Recapitalization may give rise to additional tax basis and if such basis
is affirmed, the benefit will be credited directly to equity.
Fees incurred in connection with the Recapitalization of approximately
$652,000 are reflected in the accompanying statement of stockholders' equity
(deficit) as a distribution for amounts paid to Thayer (see Note 7) and as cost
of treasury shares for professional fees to acquire the shares.
Equity Purchase Agreement
On August 12, 1999, the Company entered into an equity purchase agreement
with Thayer which provided for the Company to sell 57,000 shares of Preferred
Stock for $57.0 million or $1,000 per share and 30 million shares of common
stock for $3.0 million or $0.10 per share, to Thayer. As part of the
Recapitalization, discussed above, 20,520 shares of Preferred Stock and 10.8
million shares of common stock were sold to Thayer. Subsequent to the
Recapitalization, in August 1999 Thayer purchased the additional 19,200,000
shares of common stock for $1.9 million. In November 1999, to finance part of
the acquisition of IconixGroup (see Note 5), the Company sold 20,400 shares of
Preferred Stock for $20.4 million. In March 2000, to finance the acquisition of
Lead Dog Design, Inc. ("Lead Dog") and EnterpriseWorks, LLC ("EnterpriseWorks")
(see Note 5), the Company sold the remaining 16,080 shares of Preferred Stock
for $16.1 million. Also in March 2000, the Company entered into an additional
equity purchase agreement with Thayer, providing for 16,100 shares of
F-12
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
Preferred Stock for $16.1 million or $1,000 per share and 3,000,000 shares of
common stock for $3.9 million or $1.30 per share. In March 2000, the Company
recorded a dividend on the Preferred Stock of approximately $4.3 million
resulting from the right to purchase common stock at a discount from its fair
value. All amounts under the second equity purchase agreement were sold to
Thayer in March 2000 related to the EnterpriseWorks and Internet Information
Services, Inc. ("IIS") acquisitions (see Note 5), with an additional $2.0
million in cash received by the Company for working capital purposes. Both of
the equity agreements place restrictions on, among other things, dividends, the
redemption and issuance of debt and equity securities, acquisitions, sales of
assets and related party transactions. Such restrictions will terminate upon
the occurrence of certain events, including the closing of a qualified initial
public offering (as defined in the agreements).
On April 10, 2000, the Company completed a stock rights offering to the
existing stockholders of the Company. A total of 101,893 shares of common stock
were purchased at $1.30 per share and 547 shares of Preferred Stock were
purchased at $1,000 per share. The Company will recognize a dividend for the
excess of the fair value of the common stock over the $1.30 purchase price.
Stock Option Plan
The Company adopted the 1999 Stock Option Plan (the "Stock Option Plan") to
assist the Company in attracting and retaining qualified employees, directors,
consultants and advisors. The Stock Option Plan, as amended, provides for the
issuance of stock options for up to 7 percent of the outstanding shares of
common stock of the Company. Options granted under the Stock Option Plan may be
either incentive stock options ("ISOs") or nonstatutory stock options ("NSOs").
Options issued under the Stock Option Plan have a maximum term of ten years
from the date of grant.
In December 1999, after the Company had completed the acquisition of
IconixGroup, Inc. (see Note 5), the Company granted NSOs to employees to
purchase 905,100 shares of common stock at an exercise price of $0.45 per share
when the fair value was approximately $1.30 (as determined by an independent
appraisal), resulting in deferred compensation at the date of grant of
approximately $769,000. The options vest under two different schedules over a
four-year period. Compensation expense recognized during 1999 for these options
totaled approximately $16,000. Had compensation cost for the plan been
determined based on the estimated fair value of the options at the grant dates
consistent with the method of SFAS No. 123, pro forma net loss attributable to
common stockholders would have been approximately $854,000 or a net loss of
$0.03 per share for 1999. The weighted-average fair value of the options
granted by the Company during 1999 based on the Black-Scholes option pricing
model is estimated to be $0.97 per option assuming the following: no dividend
yield, risk-free interest rate of 5.0 percent, an expected term of the options
of four years and an expected volatility of 45.0 percent.
In March 2000, in connection with the EnterpriseWorks acquisition (see Note
5), the Company granted stock options to certain employees as of the date of
closing of the acquisition to purchase 241,592 shares of common stock. The fair
value of the common stock as of the grant date exceeded the exercise price of
$1.30, resulting in deferred compensation at the date of the grant of
approximately $341,000. These options vest over a one-year period.
F-13
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
The following summarizes option activity during 1999:
<TABLE>
<CAPTION>
Weighted-
Number Average
of Exercise
Shares Price
<S> <C> <C>
Granted in 1999............................................ 905,100 $0.45
Cancelled in 1999.......................................... -- --
------- -----
Options outstanding, December 31, 1999..................... 905,100 $0.45
======= =====
Options exercisable, December 31, 1999..................... -- $ --
======= =====
</TABLE>
In April 2000, the Company approved the issuance of additional options to
purchase approximately 1,842,000 shares of common stock.
4. Class A Convertible Preferred Stock:
Holders of Class A Convertible Preferred Stock (the "Preferred Stock") are
entitled to dividends to be paid in additional Preferred Stock at a rate of
15.0 percent per annum. The Preferred Stock carries a liquidation preference
equal to the liquidation value ($1,000 per share) plus any accrued but unpaid
dividends. The Company, at the option of the holders, may be required to redeem
shares of Preferred Stock upon completion of a qualified initial public
offering ("IPO"). Upon any redemption, the redemption price shall be the
liquidation value plus any accrued but unpaid dividends. In the event that the
Company effects a qualified IPO, all outstanding Preferred Stock not previously
redeemed shall be converted into common stock at a rate equal to the
liquidation value plus any accrued but unpaid dividends divided by the per
share IPO price.
On May 9, 2000, in connection with a planned IPO, Thayer agreed to waive its
right to require the Company to redeem its shares of Preferred Stock provided
that the IPO closes on or before December 31, 2000. As a result, no holder of
Preferred Stock has a right to require the Company to redeem its shares of
Preferred Stock prior to the closing of the planned IPO, provided the IPO
closes on or before December 31, 2000.
5. Acquisitions:
1999 Acquisitions
On September 1, 1999, the Company acquired all of the issued and outstanding
capital stock of Empyrean Group, Inc. ("EGI"), which is based in Vienna,
Virginia, for approximately $1.7 million. The Company issued 1,639 shares of
Preferred Stock and 862,500 shares of common stock as consideration for the
transaction.
On November 2, 1999, the Company acquired all of the issued and outstanding
common stock of IconixGroup, Inc. ("IconixGroup"), which is based in Bethesda,
Maryland, and provides web development and print services. The aggregate
purchase price was approximately $26.0 million, plus transaction costs,
consisting of $19.0 million in cash, $2.7 million in convertible subordinated
notes payable (see Note 13), $365,000 in assumed debt, $456,250 in common stock
(1,825,000 shares valued at $0.25 per share), and $3.5 million in Preferred
Stock (3,467.5 shares $0.01 par value with a $1,000 liquidation value per
share).
F-14
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
Allocation of Purchase Consideration
The acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the recognized purchase price has been allocated,
based on preliminary estimates of fair value, to the tangible assets acquired
and liabilities assumed and, with the advice of independent valuation experts,
to the identifiable intangible assets, as of the acquisition dates. The Company
has recorded identifiable intangibles on the 1999 Acquisitions, as follows (in
thousands):
<TABLE>
<CAPTION>
Appraised Value Useful Life
<S> <C> <C>
Customer lists................................... $4,450 3 years
Assembled workforce.............................. 1,400 3 years
</TABLE>
As of December 31, 1999, the purchase price in excess of identified tangible
and intangible assets and liabilities assumed in the amount of $25,071,000 was
allocated to goodwill. As a result of the early stage of development of the
internet and electronic commerce, the dynamics of this rapidly evolving
industry and the expectation of increasing competition, the recorded goodwill
is being amortized on a straight-line basis over three years, the estimated
period of its benefit.
The following unaudited pro forma consolidated amounts give effect to the
1999 acquisitions as if they had occurred on January 1, 1998, by consolidating
the results of operations of the 1999 acquisitions with the results of the
Company for the years ended December 31, 1998 and 1999. The pro forma amounts
do not purport to be indicative of the results of operations that would have
been achieved had the transactions been in effect for the periods presented and
should not be construed as being representative of future results of operations
(in thousands).
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1998 1999
<S> <C> <C>
Revenues.................................................. $58,889 $ 58,728
Net loss attributable to common stockholders.............. (8,973) (12,890)
Basic and diluted net loss per share...................... (0.42) (0.43)
</TABLE>
2000 Acquisitions
On March 10, 2000, the Company acquired all of the outstanding common stock
of Lead Dog, a New York-based provider of Internet design, development and
strategy and multimedia creations primarily for financial services,
entertainment and healthcare industries. The aggregate purchase price was
approximately $14.3 million, plus transaction costs, consisting of $10.0
million paid in cash, $1.3 million paid in the form of 1,000,000 shares of
common stock, and $3.0 million paid in the form of 3,000 shares of Iconixx
Class A Preferred Stock.
On March 23, 2000, the Company acquired substantially all of the assets and
assumed certain liabilities of EnterpriseWorks, a Houston-based provider of
web-based information technology solutions, including e-business, customer
care, sales force automation and infrastructure design services. The aggregate
purchase price was approximately $27.5 million, plus transaction costs,
consisting of $17.0 million paid in cash and $10.5 million paid in the form of
3,868,213 shares of common stock.
F-15
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
On March 24, 2000, the Company acquired certain assets and assumed certain
liabilities of IIS, a Bethesda, Maryland-based provider of Internet, extranet
and intranet consulting, integration and support services primarily to Fortune
1000 businesses and government and not-for-profit organizations. The aggregate
purchase price was approximately $17.6 million, plus transaction costs,
consisting of $13.0 million paid in cash, $2.4 million paid in the form of
600,000 shares of common stock, and $2.2 million paid in the form of 2,220
shares of Preferred Stock.
6. Divestiture of Operating Division:
On February 1, 1999, the Company entered into an agreement to transfer
certain division assets to two former employees in return for the cancellation
of their employment agreements with respect to the management of the division.
The Company incurred $419,000 in expenses related to the termination of these
agreements. Revenues for the division for the years ended December 31, 1997,
1998, and 1999, were approximately $101,000, $3,378,000, and $566,000,
respectively. Operating loss for the same periods from the division was
approximately $(9,000), $(1,774,000), and $(407,000), respectively.
7. Related-Party Transactions:
Amounts due to officers of the Company totaled $40,310 as of December 31,
1998 and are presented in accrued liabilities in the accompanying balance
sheets. These amounts are non-interest-bearing and due on demand.
The Company had a 25.0 and 33.0 percent interest in Melange Solutions, LLC
("Melange") as of December 31, 1998 and 1999, respectively. This investment
which totaled approximately $10,000 at December 31, 1998 and 1999, was included
in "other assets" in the accompanying balance sheets. Melange is a limited
liability company that was formed for software product development purposes and
to provide information technology consulting services. Melange is currently
acting as a subcontractor for the Company. Payments made to Melange for
contract services totaled approximately $431,000 and $793,000 in 1998 and 1999,
respectively. On April 10, 2000, Melange finalized dissolution proceedings with
the Delaware Secretary of State. Management believes that the dissolution of
Melange will not have a material impact on the Company's financial statements.
The Company holds notes receivable from several officers of the Company in
the aggregate amount of $325,000 and $414,000 as of December 31, 1999 and March
31, 2000, respectively, which relate to the issuance of stock. These notes
receivable bear interest at a rate of 9.0 percent, with annual payments
required until maturity in 2003. Such amounts have been classified as a
component of stockholders' equity (deficit) on the accompanying balance sheets.
As part of the acquisition of IconixGroup (see Note 5), the Company acquired
the right to certain net operating loss carryforwards, valued on a tax-effected
basis at approximately $1.1 million. To the extent these net operating losses
are utilized by the Company for a tax benefit, corresponding amounts will be
paid to the sellers of IconixGroup as additional purchase price. As of December
31, 1999, a deferred tax asset has been recorded related to these net operating
losses (see Note 15), with a corresponding liability classified as due to
former IconixGroup shareholders on the accompanying balance sheet.
F-16
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
Thayer (see Note 3) provides certain financial advisory and management
services to the Company under a professional services agreement. The agreement
is to continue until the earlier of (i) the date that Thayer ceases to hold
certain ownership percentages and (ii) an IPO of not less than $30.0 million.
Under the terms of the agreement, the Company is to pay Thayer (i) an annual
management fee of $200,000, paid quarterly; (ii) a fee equal to 1.0 percent of
amounts received by the Company in connection with any equity or debt
financing; and (iii) reimbursement of travel and out-of-pocket expenses.
Additionally, the agreement required the Company to pay Thayer $370,000 upon
closing the Recapitalization in August 1999. Under the agreement, approximately
$680,000 was paid to Thayer in 1999 of which approximately $90,000 is included
in selling, general and administrative expenses, $370,000 is reflected as a
distribution to Thayer as part of the Recapitalization and approximately
$220,000 is included in direct acquisition costs for the 1999 Acquisitions.
8. Accounts Receivable:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Accounts receivable............................... $5,773 $5,729 $10,160
Unbilled accounts receivable...................... -- 496 859
Allowance for doubtful accounts................... -- (86) (802)
------ ------ -------
Accounts receivable, net........................ $5,773 $6,139 $10,217
====== ====== =======
</TABLE>
9. Property and Equipment:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------ March 31,
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Computers and equipment............................ $ 74 $ 947 $2,436
Furniture and fixtures............................. 77 125 698
Leasehold improvements............................. -- 319 1,114
---- ------ ------
151 1,391 4,248
Accumulated depreciation and amortization.......... (69) (160) (273)
---- ------ ------
Property and equipment, net........................ $ 82 $1,231 $3,975
==== ====== ======
</TABLE>
F-17
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
10. Intangible Assets:
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
(Unaudited)
<S> <C> <C>
Customer lists..................................... $ 4,450 $13,000
Assembled workforce................................ 1,400 3,900
Goodwill........................................... 25,071 69,857
------- -------
30,921 86,757
Accumulated amortization........................... (1,827) (4,862)
------- -------
Intangible assets, net........................... $29,094 $81,895
======= =======
</TABLE>
11. Accrued Liabilities:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Accrued compensation............................... $ 200 $ 696 $2,579
Accrued bonuses.................................... 69 522 743
Deferred revenue................................... 40 317 593
Other accrued liabilities.......................... -- 944 2,985
----- ------- ------
Accrued liabilities.............................. $ 309 $ 2,479 $6,900
===== ======= ======
</TABLE>
12. Credit Facility:
On August 12, 1999, the Company entered into a revolving credit facility
with two commercial lenders (the "credit facility"). The facility provides
borrowings of up to $40,000,000, bears interest at the Company's option (the
lender's base rate plus a defined percentage or LIBOR plus 2.0 percent), and
matures on August 11, 2004. For the period from August 12, 1999 to December 31,
1999, the average interest rate, average month-end borrowings and highest
balance were 7.46 percent, $7,900,000 and $10,000,000, respectively. As of
December 31, 1999, borrowings on the credit facility totaled $6,500,000.
The Company also incurred arrangement and commitment fees in connection with
securing the credit facility, totaling $700,000 as well as other direct costs
that were capitalized and are being amortized over the life of the credit
facility based on the effective interest method. Deferred financing costs are
included in other assets on the accompanying consolidated balance sheet and
$51,680 of related amortization is included in interest expense on the
accompanying consolidated statement of operations for the year ended December
31, 1999. A fee for unused credit amounts may also be incurred on a quarterly
basis, based on a pricing schedule determined by the agreement. The credit
facility also includes certain restrictive covenants which require the Company,
among other things, to maintain minimum levels of earnings before interest,
taxes, and depreciation
F-18
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
and amortization ("EBITDA"), ratios of total debt to EBITDA, total debt to
capitalization, and places limits on capital expenditure. As of December 31,
1999, the Company was in compliance with all of its covenants.
13. Convertible Subordinated Notes Payable:
In connection with the acquisition of IconixGroup, the Company issued
$2,650,000 in convertible subordinated notes payable to the former
shareholders. The notes bear interest at 10.0 percent per annum, with interest
payments due quarterly. The notes are convertible into shares of common stock
upon an initial public offering at the IPO price. The notes mature and are
payable in full on May 3, 2005.
14. Segment Reporting:
In late 1998, the Company started a professional staffing business as a
separate division, and began operating as two reportable segments: telecom
consulting services ("Telecom") and Professional Services Division ("PSD").
During 1999 after the acquisition of IconixGroup (see Note 5), the Company
began operating another reportable segment: Web and Other Related Services
("Web").
Currently the Company only operates two reported segments, Telecom and Web,
as it divested the PSD segment on February 1, 1999 (see Note 6). Telecom
includes operations related to the Company's provision of systems engineering
and network architecture services using wireless and broadband technologies.
Web includes the operations related to the Company's provision of web strategy,
design and development, as well as technical consulting and development of web-
related applications. The accounting principles of the segments are the same as
those applied in the consolidated financial statements. The evaluation of
segment's performance is based on the accumulation of revenues and specific
costs identified to the segment's operations. No amounts of overhead generated
by the corporate management team are allocated to the segments and are
presented as "Other" below.
The following is a summary of information about each of the Company's
reportable segments that is used by the Company to measure the segment's
operations (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------
Telecom PSD Consolidated
<S> <C> <C> <C>
Revenues....................................... $46,520 $ 3,378 $49,898
Depreciation and amortization.................. 28 -- 28
Interest income (expense), net................. 125 -- 125
Segment income (loss).......................... 8,074 (1,774) 6,300
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
---------------------------------------------
Telecom Web PSD Other Consolidated
<S> <C> <C> <C> <C> <C>
Revenues..................... $46,588 $ 1,824 $ 566 $ -- $48,978
Depreciation and
amortization................ 18 1,673 -- 227 1,918
Interest income (expense),
net......................... 87 3 -- (271) (181)
Segment income (loss)........ 5,928 (1,638) (407) (1,916) 1,967
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------
Telecom PSD Consolidated
<S> <C> <C> <C>
Revenues............................... $ 13,487 $ 566 $14,053
Depreciation and amortization.......... 24 -- 24
Interest income (expense), net......... 30 -- 30
Segment income (loss).................. 1,613 (407) 1,206
</TABLE>
F-19
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
------------------------------------------
Telecom Web Other Consolidated
<S> <C> <C> <C> <C>
Revenues......................... $9,930 $ 4,096 $ -- $14,026
Depreciation and amortization.... 12 2,703 473 3,188
Interest income (expense), net... -- -- (198) (198)
Segment income (loss)............ 1,319 (2,345) (2,709) (3,735)
</TABLE>
15. Commitments and Contingencies:
Senior Management Agreement
The Company reserved shares pursuant to a Senior Management Agreement dated
August 12, 1999, between the Company and certain executives of the Company,
whereby 10,000,000 shares of common stock were reserved for issuance to the
executives. In connection with the Recapitalization, the Company issued all
10,000,000 restricted shares to the executives at $0.10 per share, the fair
value as of that date. The shares vest based upon both the passage of time and
the performance of the Company. 5,000,000 of the shares vest ratably at 25.0
percent per year ("Time Vesting Shares"). The other 5,000,000 shares become
fully vested after eight years, which may be accelerated based upon the
performance of the Company, as defined in the agreements ("Performance Vesting
Shares").
In October 1999, upon separation by one executive, the Company repurchased
562,500 shares of unvested shares at the original cost of $0.10 per share.
Pursuant to a separation agreement with this executive, the Company permitted
the executive to vest in 112,500 shares of previously unvested Performance
Vesting Shares, and as a result, the Company recorded approximately $17,000 of
compensation expense related to these shares.
Of the 562,500 shares repurchased, 362,500 shares were sold to executives in
November 1999 for $0.10 per share, at which the fair value was determined to be
$1.30 per share. The Company recorded $435,000 of deferred compensation at the
date of sale, and, through December 31, 1999, recognized approximately $13,000
of compensation expense. The October 1999 repurchase of officer shares is
reflected net of the shares sold in November 1999 in the accompanying
consolidated statements of stockholders' equity (deficit). The remaining
200,000 shares repurchased were sold to executives in February 2000 for $1.30
per share.
Retirement Plan
During 1998, the Company terminated its defined benefit pension plan and
distributed all funds to the participants. Net pension costs associated with
the plan totaled approximately $136,000 for 1998. The Company currently
operates a defined contribution plan.
In 1999, the Company established a deferred compensation 401(k) tax savings
plan (the "Plan"). Contributions up to statutory limits could be made by
eligible employees on a voluntary basis. The Company has the option to make
discretionary contributions to the Plan. The Company made no discretionary
contributions for the year ended December 31, 1999.
F-20
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
In connection with the acquisition of IconixGroup, the Company added another
401(k) tax savings plan (the "Matching Plan"). Contributions up to statutory
limits could be made by eligible employees on a voluntary basis. The Company
matches 50.0 percent of the first 6.0 percent of employee contributions.
Operating Leases
The Company leases office space and office equipment under cancelable and
noncancelable operating leases with terms varying between 1 and 10 years.
Future minimum lease payments under all operating leases at December 31, 1999,
were as follows (in thousands):
<TABLE>
<CAPTION>
earYEnded December 31,
<S> <C>
2000............................................................... $ 936
2001............................................................... 777
2002............................................................... 670
2003............................................................... 660
2004............................................................... 580
Thereafter......................................................... 3,097
------
$6,720
======
</TABLE>
Rent expenses under all operating leases were approximately $94,000 and
$301,400 for 1998 and 1999, respectively.
The Company has subleased certain office space to a customer for a two-year
period beginning in 1999. Future minimum rental amounts to be received under
this noncancelable lease are $68,200, $74,400, and $6,200 for 1999, 2000, and
2001, respectively.
Letters of Credit
The Company has issued letters of credit under its credit facility in the
amount of $500,000 in 1999 and an additional $525,000 in April 2000 as
guarantees under current and future office space and construction.
Litigation
The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a material adverse effect on the financial position or future operating
results of the Company and adequate provisions for any potential losses have
been made in the accompanying financial statements.
16. Income Taxes:
The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes," for financial reporting purposes. Deferred tax assets or liabilities at
the end of each period are determined using the currently enacted tax rates to
apply to taxable income in the period in which the deferred tax asset or
liability is expected
F-21
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
to be settled or realized. The 1999 Acquisitions gave rise to significant
differences between financial reporting and tax bases of certain assets. In
connection with the acquisition of IconixGroup, the Company acquired a net
operating loss carryforward ("NOL") of approximately $2.7 million, which can be
used to offset future taxable income, subject to certain annual limitations.
The estimated tax benefit from the NOL carryforward is approximately $1.1
million and expires in 2019. See Note 7 for related amounts due to the selling
stockholders of IconixGroup.
The sources of and differences between the financial accounting and tax
bases of the Company's assets and liabilities, which give rise to the net
deferred tax liability as of December 31, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
(Unaudited)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward...................... $ 848 $ 796
Accrued expenses..................................... 101 137
Allowance for doubtful accounts...................... 33 262
Intangible assets.................................... -- 114
Other................................................ 46 59
Deferred tax liabilities:
Intangible assets.................................... (3,442) (3,138)
Other................................................ (83) (80)
------- -------
Net deferred tax liability......................... $(2,497) $(1,850)
======= =======
</TABLE>
The net deferred tax liability is presented on the accompanying balance
sheets as $134,000 and $400,000 in other current assets and $2,631,000 and
$2,250,000 in long-term liabilities, respectively.
The components of the provision (benefit) for income taxes during the period
ended December 31, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
(Unaudited)
<S> <C> <C>
Current:
Federal.............................................. $ 9 $ 2
State................................................ 98 98
----- -----
Total.............................................. 107 100
Deferred:
Federal.............................................. (84) (384)
State................................................ (19) (87)
----- -----
Total.............................................. (103) (471)
----- -----
Income tax provision (benefit)..................... $ 4 $(371)
===== =====
</TABLE>
F-22
<PAGE>
ICONIXX CORPORATION
(Formerly Business Solutions Group, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1999 and March 31, 2000
(Information as of March 31, 2000 and for the Three Months
Ended March 31, 1999 and 2000 is Unaudited)
The provision (benefit) for income taxes differed from the amounts computed
at the statutory rate, as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1999 2000
(Unaudited)
<S> <C> <C>
Provision (benefit) for income taxes computed at
federal statutory rate of 34.0%................ $ 670 $(1,396)
Income during period which Company was an S
Corporation.................................... (1,019) --
State income taxes, net of federal deduction.... 107 107
Nondeductible amortization of certain intangible
assets......................................... 484 816
Other, net...................................... (238) 102
------- -------
Total......................................... $ 4 $ (371)
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Empyrean Group, Inc.:
We have audited the accompanying consolidated balance sheets of Empyrean
Group, Inc. (a Delaware Corporation, formerly Brightlight Solutions Integration
Company) as of December 31, 1998, and August 31, 1999, and the related
statements of operations, stockholders' equity (deficit) and cash flows from
inception (February 12, 1998) to December 31, 1998, and the eight months ended
August 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 auditing standards generally
accepted in the United States. 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 financial position of Empyrean Group, Inc. as of
December 31, 1998, and August 31, 1999, and the results of its operations and
its cash flows from inception (February 12, 1998) to December 31, 1998, and the
eight months ended August 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
February 11, 2000
F-24
<PAGE>
EMPYREAN GROUP, INC.
(A Development Stage Company)
BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
As of As of
December 31, August 31,
1998 1999
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 967 $ 69
Prepaid expenses and other current assets........... 31 31
------ -------
Total current assets.............................. 998 100
------ -------
Property and equipment, net........................... 57 54
Deposits.............................................. 51 51
------ -------
Total assets...................................... $1,106 $ 205
====== =======
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable.................................... $ 26 $ 13
Accrued liabilities................................. 41 404
------ -------
Total current liabilities......................... 67 417
------ -------
Commitments and contingencies (Note 6)
Redeemable preferred stock, liquidation value $1.00
per share, 8,000,000 shares authorized; 1,500,000
shares issued and outstanding; aggregate liquidation
preference plus accrued and unpaid dividends of
$1,532 and $1,613, respectively...................... 1,532 1,613
------ -------
Stockholders' equity (deficit):
Common stock, $0.01 par value; 15,000,000 shares
authorized; 2,106,000 shares issued and
outstanding........................................ 21 21
Additional paid in capital.......................... 23 23
Accumulated deficit................................. (537) (1,869)
------ -------
Total stockholders' equity (deficit).............. (493) (1,825)
------ -------
Total liabilities and stockholders' equity
(deficit)........................................ $1,106 $ 205
====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
EMPYREAN GROUP, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
From Inception
(February 12,
1998) to Eight Months Accumulated
December 31, Ended August Since
1998 31, 1999 Inception
<S> <C> <C> <C>
Operating expenses:
Selling, general and
administrative..................... $ 512 $ 1,253 $ 1,765
Depreciation and amortization....... 4 8 12
----- ------- -------
Total operating expenses.......... 516 1,261 1,777
----- ------- -------
Loss from operations.................. (516) (1,261) (1,777)
Other income:
Interest income..................... 11 10 21
----- ------- -------
Loss before provision for income
taxes................................ (505) (1,251) (1,756)
Provision for income taxes............ -- -- --
----- ------- -------
Net loss.............................. (505) (1,251) (1,756)
Divendends on preferred stock......... 32 81 113
----- ------- -------
Net loss attributable to common
stockholders......................... $(537) $(1,332) $(1,869)
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
EMPYREAN GROUP, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
From Inception (February 12, 1998) to December 31, 1998, and For the
Eight Months Ended August 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
-------------------------------------------------------
Losses That Have
Preferred Accumulated Total
Stock Common Stock Additional During the Stockholders'
------------- ------------- Paid-In Development Equity
Amount Shares Amount Shares Capital Stage (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 12,
1998 (Inception)....... $ -- -- $-- -- $-- -- $ --
Issuance of common
stock................ -- -- 21 2,106 14 -- 35
Issuance of preferred
stock................ 1,500 1,500 -- -- -- -- --
Accrued dividends on
preferred stock...... 32 -- -- -- -- (32) (32)
Stock-based
compensation......... -- -- -- -- 9 -- 9
Net loss.............. -- -- -- -- -- (505) (505)
------ ----- ---- ----- ---- ------- -------
Balance, December 31,
1998................... 1,532 1,500 21 2,106 23 (537) (493)
Net loss.............. -- -- -- -- -- (1,251) (1,251)
Accrued dividends on
preferred stock...... 81 -- -- -- -- (81) (81)
------ ----- ---- ----- ---- ------- -------
Balance, August 31,
1999................... $1,613 1,500 $ 21 2,106 $ 23 $(1,869) $(1,825)
====== ===== ==== ===== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
EMPYREAN GROUP, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
From Inception
(February 12, 1998) Eight Months Accumulated
to December 31, Ended August 31, Since
1998 1999 Inception
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $ (505) $(1,251) $(1,756)
Adjustments to reconcile
net loss to net cash used
in operating activities--
Depreciation and
amortization............ 4 8 12
Stock compensation....... 9 -- 9
Changes in operating
assets and liabilities,
net of noncash items:
Increase in deposits
and prepaid expenses.. (82) -- (82)
Increase (decrease) in
accounts payable...... 26 (13) 13
Increase in accrued
expenses.............. 41 363 404
------ ------- -------
Net cash used in
operating
activities.......... (507) (893) (1,400)
------ ------- -------
Cash flows from investing
activities:
Acquisition of property and
equipment................. (61) (5) (66)
------ ------- -------
Net cash used in
investing
activities.......... (61) (5) (66)
------ ------- -------
Cash flows from financing
activities:
Cash received from sale of
preferred stock........... 1,500 -- 1,500
Cash received from capital
contribution.............. 35 -- 35
------ ------- -------
Net cash provided by
financing
activities.......... 1,535 -- 1,535
------ ------- -------
Net increase (decrease) in
cash and cash equivalents... 967 (898) 69
Cash and cash equivalents at
beginning of period......... -- 967 --
------ ------- -------
Cash and cash equivalents at
end of period............... $ 967 $ 69 $ 69
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
EMPYREAN GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, and August 31, 1999
1. Business Description:
Empyrean Group, Inc. ("EGI" or the "Company") was incorporated under the
name Brightlight Solutions Integration Company on February 12, 1998, under the
laws of the state of Delaware. The Company changed its name to Empyrean Group,
Inc. in September 1998. EGI is headquartered in Vienna, Virginia.
The Company was in the development stage, had limited operating history, and
had not recognized revenues to date. Since its inception, the Company's
operations consisted of raising capital and hiring a management team. The
Company's operations are subject to certain risks and uncertainties, including
among others, current and potential competitors with greater resources and
longer operating histories; rapidly changing technology; and dependence on key
management personnel.
On September 1, 1999, all of the Company's issued and outstanding capital
stock was acquired by Iconixx Corporation (formerly, Business Solutions Group,
LLC), for approximately $1,725,000. Iconixx Corporation issued 1,639 shares of
Class A Convertible Preferred stock and 862,500 shares of common stock as
consideration for the transaction.
2. Summary of Significant Accounting Policies and Practices:
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is recorded using the straight-line method over
the estimated useful lives of the individual assets as follows: furniture and
fixtures, five years; and computer equipment, three years. Leasehold
improvements are amortized over the lesser of the estimated useful life of the
asset or the remaining lease term.
Development Costs
Development costs are charged to expense as incurred and are included in
selling, general and administrative expenses.
F-29
<PAGE>
EMPYREAN GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, and August 31, 1999
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable and accounts payable. In management's opinion,
due to the short-term nature of these instruments, the carrying amounts of
these financial instruments approximate their fair value at August 31, 1999.
Redeemable Preferred Stock
Holders of Class A Convertible Preferred stock (the "Preferred stock") are
entitled to cumulative cash dividends at a rate of 8 percent per annum. The
Preferred stock carries a liquidation preference equal to the liquidation value
($1.00 per share) plus any accrued but unpaid dividends. The Company, may be
required to convert shares of Preferred stock into shares of common stock upon
completion of a qualified initial public offering ("IPO"). Upon any conversion,
the conversion price shall be the liquidation value. At anytime following five
years from the first issuance of Preferred stock, the holders of a majority of
the outstanding shares of Preferred stock may request redemption of all, but
not less than all, of the Preferred stock. The redemption price shall be equal
to the liquidation value plus all accrued and unpaid dividends.
Income Taxes
Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. Through August 31, 1999,
the Company incurred losses and has recorded a valuation allowance against the
related deferred tax asset.
3. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, August 31,
1998 1999
<S> <C> <C>
Computer equipment...................................... $19 $21
Furniture and fixtures.................................. 37 40
Leasehold improvements.................................. 5 5
--- ---
61 66
Accumulated depreciation................................ (4) (12)
--- ---
Property and equipment, net........................... $57 $54
=== ===
</TABLE>
4. Accrued Liabilities:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, August 31,
1998 1999
<S> <C> <C>
Accrued compensation.................................... $ 37 $179
Accrued bonuses......................................... -- 223
Other accrued liabilities............................... 4 2
---- ----
Accrued liabilities................................... $ 41 $404
==== ====
</TABLE>
F-30
<PAGE>
EMPYREAN GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, and August 31, 1999
5. Stock Option Plan:
The Company adopted the 1998 Stock Option Plan (the "Plan") to promote long-
term growth and profitability of the Corporation by (i) providing key people
with incentives to improve stockholder value and to contribute to the growth
and financial success of the Corporation, and (ii) enabling the Corporation to
attract, retain and reward the best-available persons for positions of
substantial responsibility. The Plan provides for the issuance up to 1,000,000
shares of common stock of the Company. Participation in the Plan shall be open
to all employees, officers, directors and consultants of the Company, or any
affiliate of the Company, as may be selected by the Administrator from time to
time. Options granted under the Stock Option Plan may be either incentive stock
options ("ISOs") or nonstatutory stock options ("NSOs"). The Company accounts
for options granted to employees in accordance with APB Opinion No. 25.
During 1998, options to purchase 810,900 shares were granted to Company
employees at the estimated fair value with an exercise price of $0.10 per
share. The options vest over a five-year period. Had compensation expense for
the plan been determined based on the estimated fair value of the option at the
grant dates consistent with SFAS No. 123, net loss for the period ended
December 31, 1999 would have been approximately $498,000. The weighted-average
fair value of the options granted by the Company during 1998 is estimated to be
$0.10 per option assuming the following: no dividend yield, risk-free interest
rate of 5.0 percent, an expected term of the options of four years and an
expected volatility of 45.0 percent. In connection with the acquisition, the
Plan was terminated and all options were forfeited.
6. Commitments and Contingencies:
Operating Lease
The Company leases office space under cancelable and noncancelable operating
leases. Future minimum lease payments for the four months ended December 31,
1999 are approximately $36,000. Future minimum lease payments under all
operating leases for other periods, are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C>
2000.................................................................. $112
2001.................................................................. 115
2002.................................................................. 19
----
$246
====
</TABLE>
Rent expense under all operating leases was approximately $27,000 and
$73,000 for 1998 and the eight months ended August 31, 1999, respectively.
Litigation
The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a material adverse effect on the financial position or future operating
results of the Company and adequate provision for any potential losses have
been made in the accompanying financial statements.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of The Invisions Group, Ltd.:
We have audited the accompanying consolidated balance sheets of The
Invisions Group, Ltd. (a Maryland corporation), and subsidiary as of June 30,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Invisions Group, Ltd., and subsidiary as of June 30, 1998 and 1999, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
March 3, 2000
F-32
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
As of June
30, As of
------------- September 30,
1998 1999 1999
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash............................................. $ 153 $ 374 $ 124
Accounts receivable, less allowance of $19,000,
$50,000 and $100,000, respectively.............. 2,473 1,827 1,812
Unbilled receivables............................. 171 340 328
Prepaid expenses and other current assets........ 90 47 167
------ ------ ------
Total current assets........................... 2,887 2,588 2,431
Property and equipment, net........................ 564 439 454
------ ------ ------
Total assets................................... $3,451 $3,027 $2,885
====== ====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................. $ 992 $ 200 $ 613
Accrued liabilities.............................. 1,080 1,015 588
Line of credit................................... -- 350 175
Current portion of long-term debt................ 42 54 55
------ ------ ------
Total current liabilities...................... 2,114 1,619 1,431
------ ------ ------
Long-term debt, net of current portion............. 215 155 141
Deferred tax liability............................. 172 82 27
------ ------ ------
Total liabilities.............................. 2,501 1,856 1,599
------ ------ ------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $0.01 par value; 1,500,000 shares
authorized, 831,250 issued and outstanding as of
June 30, 1998, 1999 and September 30, 1999,
respectively.................................... 8 8 8
Additional paid-in capital....................... 225 225 225
Retained earnings................................ 717 938 1,053
------ ------ ------
Total stockholders' equity..................... 950 1,171 1,286
------ ------ ------
Total liabilities and stockholders' equity..... $3,451 $3,027 $2,885
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-33
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
June 30, September 30,
-------------- --------------
1998 1999 1998 1999
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues.................................... $8,852 $9,165 $1,403 $2,760
Cost of revenues................................ 4,909 4,086 626 1,230
------ ------ ------ ------
Gross profit.................................... 3,943 5,079 777 1,530
Operating expenses:
Selling, general and administrative........... 3,551 4,400 1,064 1,245
Depreciation and amortization................. 200 270 66 75
------ ------ ------ ------
Total operating expenses.................... 3,751 4,670 1,130 1,320
------ ------ ------ ------
Income (loss) from operations................... 192 409 (353) 210
------ ------ ------ ------
Other income (expense), net:
Other income, net............................. 18 6 1 6
Interest expense, net......................... (40) (35) (7) (8)
------ ------ ------ ------
Total other expense, net.................... (22) (29) (6) (2)
------ ------ ------ ------
Income (loss) before income taxes............... 170 380 (359) 208
Income tax provision (benefit).................. 79 159 (140) 93
------ ------ ------ ------
Net income (loss)............................... $ 91 $ 221 $ (219) $ 115
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-34
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended June 30, 1998 and 1999, and
Three Months Ended September 30, 1999 (Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997.............. 831,250 $ 8 $225 $ 626 $ 859
Net income........................ -- -- -- 91 91
------- ---- ---- ------ ------
Balance, June 30, 1998.............. 831,250 8 225 717 950
Net income........................ -- -- -- 221 221
------- ---- ---- ------ ------
Balance, June 30, 1999.............. 831,250 8 225 938 1,171
Net income (unaudited)............ -- -- -- 115 115
------- ---- ---- ------ ------
Balance, September 30, 1999
(unaudited)........................ 831,250 $ 8 $225 $1,053 $1,286
======= ==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-35
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended September
June 30, 30,
------------ -------------
1998 1999 1998 1999
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 91 $ 221 $ (219) $ 115
Adjustments to reconcile net income to net cash
flows provided by (used in) operating
activities--
Depreciation and amortization................. 200 270 66 75
Loss on sale of property and equipment........ -- 16 -- --
Deferred income taxes......................... (116) (198) -- (46)
Changes in assets and liabilities:
Accounts receivable, net.................... (615) 646 1,023 15
Unbilled receivables........................ 95 (169) (136) 12
Prepaid expenses and other current assets... (63) 56 (47) (129)
Accounts payable............................ 442 (792) (60) 381
Accrued liabilities......................... 127 30 (773) (395)
----- ----- ------ -----
Net cash flows provided by (used in)
operating activities..................... 161 80 (146) 28
----- ----- ------ -----
Cash flows used for investing activities:
Purchases of property and equipment............. (292) (194) (75) (90)
Proceeds from sale of property.................. -- 33 -- --
----- ----- ------ -----
Net cash flows used in investing
activities............................... (292) (161) (75) (90)
----- ----- ------ -----
Cash flows provided by financing activities:
Proceeds from long-term debt.................... 281 -- 250 --
Proceeds from short-term borrowing.............. 600 350 -- 100
Proceeds from shareholder loans................. -- 100 -- --
Payments on short-term borrowing................ (600) -- (12) (275)
Principal payments on shareholder loans......... -- (100) -- --
Principal payments on long-term debt............ (219) (48) -- (13)
----- ----- ------ -----
Net cash flows provided by (used in)
financing activities..................... 62 302 238 (188)
----- ----- ------ -----
Net change in cash................................ (69) 221 17 (250)
Cash, beginning of period......................... 222 153 153 374
----- ----- ------ -----
Cash, end of period............................... $ 153 $ 374 $ 170 $ 124
===== ===== ====== =====
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 26 $ 45 $ 7 $ 8
===== ===== ====== =====
Cash paid for taxes............................. 156 209 78 245
===== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-36
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
1. Business Description
The Invisions Group, Ltd., and its subsidiary IconixGroup, Inc.
(collectively the "Company") are providers of Internet and print media
professional services. The Company provides customers with web engineering,
digital branding, and print media services. The Company is headquartered in
Bethesda, Maryland.
In October 1998, the Company completed an IRC Section 368B reorganization,
in which all assets, liabilities, and operations were transferred into
IconixGroup, Inc., a wholly owned subsidiary of The Invisions Group, Ltd., from
the former parent company and its subsidiary. Prior periods' balances are
stated to reflect the reorganization.
The Company's operations are subject to certain risks and uncertainties,
including the susceptibility of the Company's services to rapid technological
change, increased competition from existing service providers and new entrants,
lack of a significant operating history, existence of fixed price contracts,
government regulations, and dependence upon key members of the management team.
In November 1999, all of the Company's outstanding common stock was acquired
by Iconixx Corporation for approximately $26.0 million. Purchase consideration
was paid in the form of $19.0 million in cash, $2.7 million in convertible
subordinated notes payable, $365,000 in assumed debt, $456,250 in common stock
and $3.5 million in Iconixx Class A preferred stock.
2. Summary of Significant Accounting Policies and Practices:
Unaudited Interim Financial Information
The financial information as of September 30, 1999, and for the three months
ended September 30, 1998 and 1999, is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company's management
considers necessary for a fair presentation of the Company's operating results
and cash flows for such periods. Results for the three-month period ended
September 30, 1999, are not necessarily indicative of results to be expected
for the full fiscal year of 2000 or for any future period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
The Invisions Group, Ltd., and its wholly owned operating subsidiary,
IconixGroup, Inc. All material intercompany accounts and transactions have been
eliminated upon consolidation.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-37
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Revenue Recognition
Revenues from consulting and information technology development services,
and the related labor costs, are recognized when the services are performed.
Revenues from time and materials contracts are recognized based on fixed hourly
rates for direct labor hours expended. Revenues from fixed-price contracts are
recognized on the percentage-of-completion method, with costs and estimated
profits recorded as work is performed.
Cost of Revenues
Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Direct labor costs and related expenses are included in cost of revenues based
on billable hours; costs related to unbillable time are included in selling,
general and administrative expenses. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in contract performance and estimated profitability,
including final contract settlements, may result in revisions to costs and
revenues and are recognized in the period in which the revisions are
determined. Unbilled receivables on contracts are comprised of costs, plus
earnings on certain contracts in excess of contractual billings on such
contracts. Cash received in excess of costs incurred is classified as deferred
revenue.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," the Company reviews its long-lived assets and identifiable
assets to be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount should be addressed. Impairment
is measured by comparing the carrying value to the estimated undiscounted
future cash flows expected to result from the use of the assets and their
eventual dispositions. The Company recognizes an impairment loss when the sum
of the expected future cash flows is less than the carrying amount of the
asset. The measurement of the impairment loss to be recognized is based upon
the difference between the fair value and carrying amount of the assets. The
Company has not recorded a provision for impairment of long-lived assets.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and credit facilities. In
management's opinion, the carrying amounts of these financial instruments
approximate their fair value at June 30, 1999.
Income Taxes
The Company accounts for income taxes under SFAS 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 income tax returns. Under this method,
deferred tax liabilities
F-38
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Business Concentrations and Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company performs
periodic evaluations of its customer base and establishes allowances for
estimated credit losses.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform with the current period presentation.
3. Property and Equipment:
Property and equipment are stated at cost, net of accumulated depreciation
and amortization, and consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
------------
1998 1999
<S> <C> <C>
Equipment...................................................... $ 853 $ 928
Leasehold improvements......................................... 340 341
Accumulated depreciation and amortization...................... (629) (830)
----- -----
Property and equipment, net.................................. $ 564 $ 439
===== =====
</TABLE>
Equipment depreciation is calculated using the straight-line method over the
estimated useful lives of the assets, ranging from three to five years.
Leasehold improvements are depreciated over the lesser of the life of the lease
or their useful lives.
4. Accrued Liabilities:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
-------------
1998 1999
<S> <C> <C>
Accrued compensation.......................................... $ 48 $ 192
Accrued bonuses............................................... 362 303
Accrued professional fees..................................... -- 20
Deferred revenue.............................................. 218 235
Accrued taxes................................................. 95 206
Other accrued liabilities..................................... 357 59
------ ------
Accrued liabilities......................................... $1,080 $1,015
====== ======
</TABLE>
F-39
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
5. Short-Term Borrowing:
In March 1997, the Company entered into a $250,000 short-term line of credit
arrangement. The line of credit had an interest rate of prime plus 0.5 percent
(9.0 percent at June 30, 1998) and the Company paid no commitment fee on the
unused balance. No amount was outstanding as of June 30, 1998. This line of
credit was collateralized by the assets of the Company and was personally
guaranteed by the Company's majority stockholders.
In May 1999, the Company entered into a $500,000 short-term line of credit
arrangement. The line of credit bears an interest rate of prime (7.75 percent
at June 30, 1999) and the Company pays a commitment fee of 0.375 percent on the
unused balance. The amount outstanding at June 30, 1999 was $350,000. This line
of credit is collateralized by the assets of the Company and is personally
guaranteed by the Company's majority stockholders.
The credit agreement requires the Company to maintain certain monthly
financial covenants, which include tangible net worth, current ratio, leverage
ratio, and interest coverage ratio, as defined in the credit agreement.
In connection with the acquisition by Iconixx Corporation, these lines of
credit were extinguished.
During the year ended, June 30, 1999, the Company received a shareholder
loan totaling $100,000 that was paid in full as of June 30, 1999. In connection
with the loan, the Company paid interest at a rate of 7.8 percent.
6. Long-Term Debt:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
---------
1998 1999
<S> <C> <C>
Equipment note........................................................ $257 $209
Less--Current portion................................................. 42 54
---- ----
$215 $155
==== ====
</TABLE>
The note is due in December 2002 and the interest rate at June 30, 1999 was
8.75 percent.
Future minimum payments of debt (exclusive of interest payments and short-
term borrowings) are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
<S> <C>
2000.................................................................. $ 54
2001.................................................................. 58
2002.................................................................. 64
2003.................................................................. 33
Thereafter............................................................ --
----
Total............................................................... $209
====
</TABLE>
F-40
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
In August 1999, the Company entered into a ten-year lease agreement for
office space which commenced on December 15, 1999. The minimum annual rent is
approximately $525,000 and will be adjusted each subsequent year.
In September 1999, the Company amended its existing line of credit
arrangement, which increased the borrowing limit to $1,000,000 and extended the
expiration date to October 31, 2000. The amended line of credit also changed
its tangible net worth, current ratio, leverage ratio, and interest coverage
ratio covenants.
In connection with the acquisition by Iconixx Corporation, this debt was
extinguished.
7. Income Taxes:
The following table is a summary of the significant components of the
deferred tax assets and liabilities (in thousands):
<TABLE>
<CAPTION>
June 30,
------------
1998 1999
<S> <C> <C>
Deferred tax asset:
Vacation....................................................... $ 8 $ 40
Depreciation................................................... -- 26
Other.......................................................... 18 58
----- -----
26 124
----- -----
Deferred tax liability:
Cash to accrual adjustment..................................... (258) (172)
Other.......................................................... (35) (21)
----- -----
(293) (193)
----- -----
Deferred tax liability, net.................................. $(267) $ (69)
===== =====
</TABLE>
The Company's current deferred tax asset is included in prepaid expenses and
other current assets in the accompanying consolidated balance sheets.
The components of the income tax provision included in the statements of
operations consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
June 30,
------------
1998 1999
<S> <C> <C>
Current:
Federal........................................................... $ 155 $ 284
State............................................................. 40 73
Deferred tax benefit.............................................. (116) (198)
----- -----
Income tax provision.............................................. $ 79 $ 159
===== =====
</TABLE>
F-41
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
The statutory federal income tax rate, reconciled to the effective income
tax rate provision is as follows (in thousands):
<TABLE>
<CAPTION>
Year
Ended
June 30,
---------
1998 1999
<S> <C> <C>
Statutory federal income tax rate.................................... $52 $129
State income taxes, net of federal income tax effect................. 8 20
Non-deductible expenses.............................................. 19 10
--- ----
Total.............................................................. $79 $159
=== ====
</TABLE>
8. Stock Option Plan:
In January 1999, the Company adopted a stock option plan, which provides for
the grant of incentive and nonqualified stock options to employees, board
members and consultants. Under the terms of the plan, the Company may issue up
to 168,750 options to acquire one share of common stock each. Options vest over
a three and one-half to four-year period and are exercisable over a ten-year
period from the date of grant. Upon a change in control of the Company, as
defined by the plan, all issued options vest and are immediately exercisable.
As of June 30, 1999, 144,550 options had been issued under the plan and 24,200
options were available for future issuance.
The Company grants stock options with exercise prices at least equal to the
then fair market value of the Company's common stock. Shares from the exercise
of options carry a right of first refusal buy back provision in which the
Company may repurchase shares.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Exercise Weighted-
Number Price Average
of Options Per Share Exercise Price
<S> <C> <C> <C>
Outstanding at June 30, 1998............. -- $ -- $ --
Options granted........................ 144,550 6-18 8.43
Options exercised...................... -- -- --
Options cancelled...................... 1,250 6 6
------- ----- -----
Outstanding at June 30, 1999............. 143,300 $6-18 $8.43
======= ===== =====
</TABLE>
As of June 30, 1999, none of the outstanding options to purchase shares of
common stock were exercisable. The weighted-average remaining contractual life
of options outstanding at June 30, 1999, was approximately 9.6 years.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a "fair
value based method" of accounting for an employee stock option or similar
equity instrument. Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period.
SFAS No. 123 allows an entity to continue to use the intrinsic value method
of accounting for options granted under qualified plans for employees as
defined by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and management has elected to do so. Under the
intrinsic
F-42
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
value method, compensation cost is the excess, if any, of the fair value of the
stock at grant date or other measurement date over the amount an employee must
pay to acquire the stock. However, entities electing to remain with the
accounting in APB Opinion No. 25 must make pro forma disclosures of net income,
as if the fair value based method of accounting had been applied. Accordingly,
if the Company had used the fair value accounting provisions of SFAS No. 123,
the pro forma net income for June 30, 1999, would not have differed materially
from that reported.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants: no dividend yield, zero percent volatility, risk-free interest rate of
6 percent and estimated lives of ten years.
In connection with the acquisition by Iconixx Corporation, the Company
repurchased all of the outstanding stock options for $2.6 million, for which
the Company recorded compensation expense prior to the consummation of the
acquisition by Iconixx Corporation.
9. Stockholders' Agreement:
Prior to fiscal 1998, the Company entered into a Corporate Stock Agreement
with its employee stockholders that contained certain formula buyback
provisions described below. Effective in fiscal year 1999, the Company entered
into a new Corporate Stock Agreement and terminated its old agreement with the
employee stockholders. The new agreement contains fair value buyback
provisions, also described below. In addition, the Company granted options to
three employee stockholders and three other employees that if exercised require
the Company to execute the same buyback provisions contained in the new
Corporate Stock Agreement.
The prior Corporate Stock Agreement's buyback provisions required that upon
termination of employment, death, or disability, remaining stockholders be
given the option to purchase all shares held by the withdrawing, deceased, or
disabled stockholder. If the remaining stockholders did not elect to purchase
the shares of the withdrawing, deceased, or disabled stockholder, the Company
was required to purchase those shares at a formula price based upon the
Company's earnings. The formula redemption price per share, whether purchased
by other existing stockholders or by the Company, was calculated as the sum of
"Adjusted Earnings" for the three preceding completed fiscal years, divided by
total shares outstanding. Adjusted Earnings for any fiscal year was defined as
taxable income, plus bonuses in excess of authorized salaries, plus deferred
compensation plan contributions allocable to that fiscal year.
The Company accounted for shares issued to three stockholder employees under
variable plan accounting through fiscal 1998. Accordingly, the Company re-
measured the value of the stock outstanding at the end of each period by
recording compensation expense and a corresponding increase in additional paid-
in capital. Cumulative compensation expense recorded under variable plan
accounting through June 30, 1998 was $110,072. No compensation expense was
recorded in connection with shares issued to the Company's two founders.
The new Corporate Stock Agreement replaced the formula buyback provisions
with fair value provisions. In the event of termination of employment, death,
or disability, the Company may at its option, repurchase the withdrawing,
deceased, or disabled employee's shares at fair market value. Before the
Company may exercise
F-43
<PAGE>
THE INVISIONS GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1998 and 1999
(Information as of September 30, 1999, and for the Three Months
Ended September 30, 1998 and 1999 is Unaudited)
its option to repurchase the shares, other remaining shareholders have a first
option to purchase the shares at the same fair market price.
Also under the new agreement, if an employee shareholder wishes to transfer
shares to another individual or entity, the remaining shareholders or the
Company may purchase the shares under the same fair value terms. If an employee
shareholder wishes to sell shares, the other remaining shareholders or the
Company may elect to purchase those shares at the same bona fide offer price
received by the selling employee shareholder from a third party.
Under the terms of the new agreement, the Company accounted for its shares
and options outstanding under fixed plan accounting in accordance with
provisions of APB No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no associated compensation expense was recorded during fiscal year
1999.
10. Commitments and Contingencies:
Operating Leases
The Company leases various office spaces and equipment for periods ranging
from approximately one to eight years. Future minimum lease payments under
these operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
<S> <C>
2000.............................................................. $152,331
2001.............................................................. 32,204
2002.............................................................. 2,116
Thereafter........................................................ --
--------
Total........................................................... $186,651
========
</TABLE>
Rent expense charged to operations during the years ended June 30, 1998 and
1999, was approximately $284,000 and $270,000, respectively.
Litigation
The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a material adverse effect on the financial position or future operating
results of the Company and adequate provision for any potential losses have
been made in the accompanying financial statements.
11. Profit-sharing Plan:
The Company has a profit sharing plan covering all U.S. employees who are at
least 21 years of age. Employees are eligible to join the plan on their date of
hire. The Company makes discretionary contributions to the plan based on
Company profitability. Company contributions vest over a six-year period. The
Company's contribution to the plan was approximately $220,000 for the year
ended June 30, 1998, and $0 for the year ended June 30, 1999. On July 1, 1999,
the Company added a 401(k) savings feature to the plan and changed the plan
year-end to December 31. For the period July 1, 1999 through December 31, 1999,
the Company matched 50.0 percent of the first 6.0 percent of employee
contributions.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Lead Dog Design, Inc.:
We have audited the accompanying balance sheets of Lead Dog Design, Inc. (a
New York Corporation) as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of Lead Dog Design, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
March 11, 2000
F-45
<PAGE>
LEAD DOG DESIGN, INC.
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
As of
December
31,
-----------
1998 1999
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................ $245 $ 106
Accounts receivable, net......................................... 132 897
---- ------
Total current assets........................................... 377 1,003
Property and equipment, net........................................ 160 395
Other assets....................................................... 22 138
---- ------
Total assets................................................... $559 $1,536
==== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................................. $ 2 $ 44
Accrued liabilities.............................................. 110 348
Due to related parties........................................... 30 8
---- ------
Total current liabilities...................................... 142 400
Long-term liabilities:
Deferred rent.................................................... 23 26
---- ------
Total liabilities.............................................. 165 426
---- ------
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock, no par value, 200 shares authorized, 160.6 and 200
shares issued and outstanding in 1998 and 1999, respectively.... 9 494
Retained earnings................................................ 385 616
---- ------
Total stockholders' equity..................................... 394 1,110
---- ------
Total liabilities and stockholders' equity..................... $559 $1,536
==== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
LEAD DOG DESIGN, INC.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1998 1999
<S> <C> <C>
Net revenues..................................................... $1,425 $3,959
Cost of revenues................................................. 539 1,416
------ ------
Gross profit................................................... 886 2,543
Operating expenses:
Selling, general and administrative............................ 442 1,882
Depreciation and amortization.................................. 52 93
------ ------
Total operating expenses..................................... 494 1,975
------ ------
Income from operations before provision for income taxes......... 392 568
Provision for local income taxes................................. 36 72
------ ------
Net income................................................... $ 356 $ 496
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
LEAD DOG DESIGN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
------------- Retained Stockholders'
Amount Shares Earnings Equity
<S> <C> <C> <C> <C>
Balance, December 31, 1997................ $ 9 160.60 $ 29 $ 38
Net income.............................. -- -- 356 356
---- ------ ----- ------
Balance, December 31, 1998................ 9 160.60 385 394
Net income.............................. -- -- 496 496
Issuance of common stock for cash....... 150 2.99 -- 150
Issuance of common stock as
compensation........................... 335 36.41 -- 335
Distributions to stockholders........... -- -- (265) (265)
---- ------ ----- ------
Balance, December 31, 1999................ $494 200.00 $ 616 $1,110
==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
LEAD DOG DESIGN, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December
31,
------------
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 356 $ 496
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization................................ 52 93
Warrants received............................................ -- (95)
Stock compensation........................................... -- 335
Loss on investment........................................... -- 7
Changes in operating assets and liabilities:
Accounts receivable........................................ (52) (766)
Deposits and other......................................... (11) (18)
Accounts payable........................................... (10) 42
Accrued expenses........................................... 51 116
Provision for deferred revenue............................. -- 73
Deferred taxes............................................. 2 49
Deferred rent.............................................. 23 2
----- -----
Net cash provided by operating activities................ 411 334
----- -----
Cash flows from investing activities:
Acquisition of property and equipment.......................... (171) (326)
Purchase of investments........................................ (5) (10)
----- -----
Net cash used in investing activities.................... (176) (336)
----- -----
Cash flows from financing activities:
Distributions paid............................................. -- (265)
Issuance of common stock for cash.............................. -- 150
Repayment of amounts due to related-parties loans.............. -- (22)
Borrowings from related party.................................. 9 --
----- -----
Net cash provided by (used in) financing activities...... 9 (137)
----- -----
Net increase (decrease) in cash and cash equivalents............. 244 (139)
Cash and cash equivalents at beginning of year................... 1 245
----- -----
Cash and cash equivalents at end of year......................... $ 245 $ 106
===== =====
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ -- $ --
===== =====
Cash paid for income taxes..................................... 1 59
===== =====
Non-cash transactions:
Stock warrants received in lieu of cash for services
performed..................................................... $ -- $ 95
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
LEAD DOG DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
1. Business Description:
Lead Dog Design, Inc. (the "Company," a New York Subchapter S corporation),
is an Internet services company that provides e-business strategy, business
process planning, web design, commerce applications and broadband systems
engineering services. The Company is headquartered in New York City, New York.
The Company's operations are subject to certain risks and uncertainties,
including the susceptibility of the Company's services to rapid technological
change, increased competition from existing service providers and new entrants,
lack of significant operating history, existence of fixed price contracts,
government regulations, and dependence upon key members of the management team.
On March 10, 2000, all of the outstanding common stock of the Company was
sold to Iconixx Corporation. Purchase consideration was paid in the form of
$10.0 million in cash, 1,000,000 shares of Iconixx common stock, and $3.0
million paid in the form of 3,000 shares of Iconixx Class A preferred stock.
2. Summary of Significant Accounting Policies and Practices:
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States equires 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Investments
The equity method of accounting is used to account for investments over
which the Company has significant influence (see Note 3).
Investments at December 31, 1999, are principally stock warrants received
from customers for services rendered and are presented in "other assets" on the
accompanying balance sheet. The Company accounts for its investments under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Under SFAS
115, the Company classifies its equity securities as available-for-sale.
Under SFAS 115, available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Dividend and interest income are
recognized when earned. Realized gains and losses for securities classified as
available-for-sale are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Revenue Recognition
Revenues from consulting and information technology development services,
and the related labor costs, are recognized when the services are performed.
Revenues from time and materials contracts are recognized based on fixed hourly
rates for direct labor hours expended. Revenues from fixed-price contracts are
recognized
F-50
<PAGE>
LEAD DOG DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
on the percentage-of-completion method based on labor hours, with costs and
estimated profits recorded as work is performed.
Cost of Revenues
Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Direct labor costs and related expenses are included in cost of revenues based
on billable hours; costs related to unbillable time are included in selling,
general, and administrative expenses. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in contract performance and estimated profitability,
including final contract settlements, may result in revisions to costs and
revenues and are recognized in the period in which the revisions are
determined. Unbilled receivables on contracts are comprised of costs, plus
earnings on certain contracts in excess of contractual billings on such
contracts. Cash received in excess of costs incurred is classified as deferred
revenue.
During 1999, the Company entered into agreements with four customers whereby
the Company received equity securities as payment for services rendered. These
arrangements accounted for approximately 5.0 percent of the Company's revenues.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are recorded using the double-
declining balance method over the estimated useful lives of the individual
assets as follows: software, three years; furniture and fixtures, five to ten
years; and computers and equipment, three to ten years. Leasehold improvements
are amortized over the lesser at the estimated useful life of the asset or the
remaining lease term.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Company reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company recognizes an impairment loss when the sum of the expected future cash
flows is less than the carrying amount of the asset. The measurement of the
impairment losses to be recognized is based upon the difference between the
fair value and the carrying amount of the assets. The Company has not recorded
a provision for impairment of long-lived assets.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, and accounts payable. In management's
opinion, the carrying amounts of these financial instruments approximate their
fair value at December 31, 1999.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on
the date of grant between the fair value of the Company's stock and the amount
an employee must pay to acquire the stock.
F-51
<PAGE>
LEAD DOG DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Income Taxes
The Company elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under the provisions, the Company did not pay federal or
state income taxes on its taxable income. Instead, the stockholders were liable
for individual income taxes on their respective shares of the Company's federal
and state taxable income. Accordingly, there is no provision for federal and
state income taxes in the accompanying financial statements. However, the
Company was subject to New York City income taxes.
New York City income taxes are accounted for using an asset and liability
approach that requires the recognition of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
Business Concentration and Credit Risk
The following table summarizes the revenues and accounts receivable from
clients in excess of 10.0 percent of total revenues and accounts receivable:
<TABLE>
<CAPTION>
Revenues for the Accounts
Year Ended Receivable as of
December 31, December 31,
1999 1999
<S> <C> <C>
Company A.................................. 28% 11%
Company B.................................. 18 *
Company C.................................. * 13
</TABLE>
- --------
* Represents less than 10.0% of total
3. Related-Party Transactions:
Amounts due to officers of the Company totaled approximately $30,000 and
$8,000 at December 31, 1998 and 1999, respectively, and are presented as "Due
to related parties" in the accompanying balance sheets. These amounts are non-
interest-bearing and due on demand.
In January 1999 the Company granted 36.41 shares of the Company's common
stock to a member of senior management and recorded compensation expense of
$335,000.
The Company has a 33.0 percent interest in P2K Design.com, LLC ("P2K"). This
investment, which approximated $8,300 at December 31, 1999, was included in
"other assets" in the accompanying balance sheet. P2K is a limited liability
company that was formed to provide Internet design and consulting services for
the healthcare industry.
F-52
<PAGE>
LEAD DOG DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
On November 1, 1999, the Company sold 2.99 shares of its common stock for
$150,000 to a family member of the majority stockholders. The transaction was
valued by management at its estimated fair value at the date of the transaction
which approximates an arms length transaction.
4. Accounts Receivable:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------
1998 1999
<S> <C> <C>
Accounts receivable............................................... $150 $1,038
Unbilled accounts receivable...................................... -- 70
Accounts receivable from affiliates............................... -- 2
Allowance for doubtful accounts................................... (18) (213)
---- ------
Accounts receivable, net........................................ $132 $ 897
==== ======
</TABLE>
5. Property and Equipment:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
<S> <C> <C>
Computers and equipment............................................ $162 $ 328
Furniture and fixtures............................................. 77 142
Leasehold improvements............................................. 4 55
Software........................................................... -- 46
---- -----
243 571
Accumulated depreciation and amortization.......................... (83) (176)
---- -----
Property and equipment, net...................................... $160 $ 395
==== =====
</TABLE>
6. Other Assets:
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
---------
1998 1999
<S> <C> <C>
Deposits............................................................. $ 17 $ 35
Investment in P2K.................................................... -- 8
Stock warrants from customer......................................... -- 95
Other investments.................................................... 5 --
---- ----
Other assets....................................................... $ 22 $138
==== ====
</TABLE>
F-53
<PAGE>
LEAD DOG DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
7. Accrued Liabilities:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
---------
1998 1999
<S> <C> <C>
Accrued city taxes................................................... $ 2 $ 51
Deferred revenue..................................................... -- 73
Accrued commissions.................................................. 5 26
Other accrued liabilities............................................ 103 198
---- ----
Accrued liabilities................................................ $110 $348
==== ====
</TABLE>
8. Commitments and Contingencies:
On June 7, 1999, the Company entered into a revolving credit facility with a
commercial lender (the "Facility"). The Facility provides borrowings of up to
$200,000 and bears interest at the lender's prime rate plus 1.0 percent (9.5
percent at December 31, 1999). The Company has not used the line and has no
borrowings outstanding at December 31, 1999.
In connection with the acquisition by Iconixx Corporation, the Facility was
extinguished.
Operating Leases
The Company leases office space and office equipment under cancelable and
noncancelable operating leases, with various expirations through 2004. Future
minimum lease payments under all operating leases at December 31, 1999, were as
follows (in thousands):
<TABLE>
<CAPTION>
YeraEnded December 31,
<S> <C>
2000................................................................. $220
2001................................................................. 213
2002................................................................. 198
2003................................................................. 121
2004................................................................. 1
----
$753
====
</TABLE>
Rent expense under all operating leases was approximately $32,373 and
$139,071 for 1998 and 1999, respectively.
Litigation
The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a material adverse effect on the financial position or future operating
results of the Company and adequate provision for any potential losses have
been made in the accompanying financial statements.
9. Income Taxes:
The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes," for financial reporting purposes. Deferred tax assets or liabilities at
the end of each period are determined using the currently enacted tax rates to
apply to taxable income in the period in which the deferred tax asset or
liability is expected to be settled or realized.
F-54
<PAGE>
LEAD DOG DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
The sources of and differences between the financial accounting and tax
basis of the Company's assets and liabilities that give rise to the net
deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
December
31,
----------
1998 1999
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................................. $ (4) $(19)
Accounts payable, accrued liabilities, and other................. (14) (40)
Deferred tax liabilities:
Accounts receivable.............................................. 20 98
Other............................................................ -- 12
---- ----
$ 2 $ 51
==== ====
</TABLE>
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year
Ended
December
31,
---------
1998 1999
<S> <C> <C>
Local taxes:
Current............................................................. $34 $23
Deferred............................................................ 2 49
--- ---
Provision for income taxes........................................ $36 $72
=== ===
</TABLE>
The provision for income taxes differed from the amounts computed at the
statutory rate, as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December
31,
------------
1998 1999
<S> <C> <C>
Income tax computed at federal statutory rate..................... $ 133 $ 268
Less impact of federal S corporation election..................... (133) (268)
City income taxes................................................. 35 70
Other, net........................................................ 1 2
----- -----
$ 36 $ 72
===== =====
</TABLE>
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EnterpriseWorks, LLC:
We have audited the accompanying balance sheets of EnterpriseWorks, LLC (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, members' equity, and cash flows for the years ended December 31,
1998 and 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 auditing standards generally
accepted in the United States. 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 financial position of EnterpriseWorks, LLC, as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
March 23, 2000
F-56
<PAGE>
ENTERPRISEWORKS, LLC
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
As of
Assets December 31,
--------------
1998 1999
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 337 $ 132
Accounts receivable net of allowance of $58 and $46 at
December 31, 1998 and 1999, respectively.................... 843 2,706
Receivables from employees................................... 21 14
Prepaid expenses and other current assets.................... 41 96
------ ------
Total current assets....................................... 1,242 2,948
Property and equipment, net.................................... 387 775
Other assets................................................... 25 43
------ ------
Total assets............................................... $1,654 $3,766
====== ======
Liabilities and Members' Equity
Current liabilities:
Revolving line of credit..................................... $ 199 $ 263
Accounts payable............................................. 144 181
Accrued liabilities.......................................... 444 1,512
Current portion of long-term debt............................ 99 239
Current portion of capital lease obligation.................. 5 52
------ ------
Total current liabilities.................................. 891 2,247
Long-term liabilities:
Notes payable, less current portion.......................... 261 325
Capital lease obligation, less current portion............... 11 40
Other long-term liabilities.................................. -- 38
------ ------
Total long-term liabilities................................ 272 403
------ ------
Total liabilities.......................................... 1,163 2,650
------ ------
Commitments and contingencies (Note 7)
Members' equity:
Capital--
Voting units............................................... 800 800
Nonvoting units............................................ -- 2,126
Deferred compensation........................................ -- (1,926)
Retained earnings (accumulated deficit)...................... (309) 116
------ ------
Total members' equity...................................... 491 1,116
------ ------
Total liabilities and members' equity...................... $1,654 $3,766
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE>
ENTERPRISEWORKS, LLC
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1999
<S> <C> <C>
Net revenues.................................................... $3,953 $9,643
Cost of revenues................................................ 1,645 4,035
------ ------
Gross profit................................................ 2,308 5,608
Operating expenses:
Selling, general and administrative........................... 2,323 4,456
Depreciation and amortization................................. 33 199
------ ------
Total operating expenses.................................... 2,356 4,655
Income (loss) from operations................................... (48) 953
Interest expense................................................ 7 59
------ ------
Income (loss) before provision for taxes........................ (55) 894
Provision for taxes............................................. -- 65
------ ------
Net (loss) income......................................... $ (55) $ 829
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE>
ENTERPRISEWORKS, LLC
STATEMENTS OF MEMBERS' EQUITY
For the Years Ended December 31, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Retained
Capital Earnings
---------------- Deferred (Accumulated
Voting Nonvoting Compensation Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997.. $500 $ -- $ -- $(254) $ 246
Capital contributions..... 300 -- -- -- 300
Net loss.................. -- -- -- (55) (55)
---- ------ ------- ----- ------
Balance, December 31, 1998.. 800 -- -- (309) 491
Distributions to members... -- -- -- (404) (404)
Issuance of non-voting
units...................... -- 2,126 (2,126) -- --
Amortization of deferred
compensation............... -- -- 200 -- 200
Net income................. -- -- -- 829 829
---- ------ ------- ----- ------
Balance, December 31, 1999.. $800 $2,126 $(1,926) $ 116 $1,116
==== ====== ======= ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE>
ENTERPRISEWORKS, LLC
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income............................................ $ (55) $ 829
Adjustments to reconcile net (loss) income to net cash (used
in) provided by operating activities--
Depreciation and amortization.............................. 33 199
Stock-based compensation................................... -- 200
Changes in assets and liabilities, net of non-cash items:
Accounts receivable...................................... (554) (1,856)
Prepaid expenses and other current assets................ (52) (73)
Accounts payable......................................... 19 37
Accrued liabilities...................................... 373 665
Other liabilities........................................ -- 38
----- -------
Net cash (used in) provided by operating activities.... (236) 39
Cash flows from investing activities:
Acquisition of property and equipment........................ (397) (483)
----- -------
Net cash used in investing activities.................. (397) (483)
Cash flows from financing activities:
Capital contributions from members........................... 300 --
Net proceeds from line of credit............................. 199 64
Proceeds from long-term debt................................. 360 327
Repayment of long-term debt.................................. -- (122)
Repayment of capital lease obligations....................... (1) (30)
----- -------
Net cash provided by financing activities.............. 858 239
----- -------
Increase (decrease) in cash and cash equivalents............... 225 (205)
Cash and cash equivalents at beginning of year................. 112 337
----- -------
Cash and cash equivalents at end of year....................... $ 337 $ 132
===== =======
Cash paid for interest......................................... $ 7 $ 59
===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE>
ENTERPRISEWORKS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
1. Business Description:
EnterpriseWorks, LLC (the "Company"), was organized as a limited liability
company in the state of Texas on July 1, 1997. The Company provides consulting
and software development services to its customers and is headquartered in
Houston, Texas.
The Company is a majority-owned subsidiary of a privately held holding
company with investments in distribution, manufacturing, and service
businesses.
The Company's operations are subject to certain risks and uncertainties,
including the susceptibility of the Company's services to rapid technological
change, increased competition from existing service providers and new entrants,
lack of a significant operating history, existence of fixed price contracts,
government regulations, and dependence upon key members of the management team.
On March 23, 2000 substantially all of the net assets of the Company were
sold to Iconixx Corporation. Purchase consideration was paid in the form of
$17.0 million in cash and 3,868,213 shares of Iconixx common stock.
2. Summary of Significant Accounting Policies and Practices:
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the individual assets when placed into service as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................................... 3 years
Computers and equipment.............................................. 3 years
</TABLE>
Leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the remaining lease term.
Taxes
As the Company is a limited liability company, the Company is not subject to
federal income taxes. All earnings are reported by the owners for federal
income tax purposes. However, the Company is subject to state taxes and has
accrued $65,670 for state taxes as of December 31, 1999.
F-61
<PAGE>
ENTERPRISEWORKS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Revenue Recognition
Revenues from consulting and information technology development services,
and the related labor costs, are recognized when the services are performed.
Revenues from time and materials contracts are recognized based on fixed hourly
rates for direct labor hours expended. Revenues from fixed-price contracts are
recognized on the percentage-of-completion method, with costs and estimated
profits recorded as work is performed.
Cost of Revenues
Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Direct labor costs and related expenses are included in cost of revenues based
on billable hours; costs related to unbillable time are included in selling,
general, and administrative expenses. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in contract performance and estimated profitability,
including final contract settlements, may result in revisions to costs and
revenues and are recognized in the period in which the revisions are
determined. Unbilled receivables on contracts are comprised of costs, plus
earnings on certain contracts in excess of contractual billings on such
contracts. Cash received in excess of costs incurred is classified as deferred
revenue.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets to be Disposed Of," the Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company recognizes an
impairment loss when the sum of the expected future cash flows is less than the
carrying amount of the asset. The measurement of the impairment loss recognized
is based upon the difference between the fair value and the carrying amount of
the asset. The Company has not recorded a provision for impairment of long-
lived assets.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and credit facilities. In
management's opinion, the carrying amounts of these financial instruments
approximate their fair value at December 31, 1999.
Business Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist principally of trade receivables. The Company's policy is to
evaluate each customer's financial condition and determine the amount of credit
to be extended. The Company does not, as a matter of policy, require collateral
on credit granted to customers. Sales to the Company's top three customers
accounted for approximately 30.0 and 46.0 percent of 1999 and 1998 revenues,
respectively. At December 31, 1999, three customers represented 47.0 percent of
the Company's accounts receivable balance, and at December 31, 1998, three
customers represented 61.0 percent of the Company's accounts receivable
balance.
F-62
<PAGE>
ENTERPRISEWORKS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
3. Debt:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
<S> <C> <C>
The Company has a $360,000 note payable to a commercial
bank ("Term 1"). The note was entered into by the Company
on December 17, 1998, and matures on December 17, 2001,
at which point all accrued and unpaid interest and
principal are due. Interest accrues on a monthly basis at
the bank's prime rate (7.75 and 8.50 percent at December
31, 1998 and 1999, respectively). Principal and interest
payments are due monthly on the 17th of the month. The
note is secured by all accounts receivable and fixed
assets of the Company and is guaranteed by the Company's
parent. The Company accrued and paid interest related to
the note of approximately $25,000 and $1,000 for the
years ending December 31, 1998 and 1999, respectively.... $360,000 $262,000
The Company has a $120,000 note payable to a commercial
bank ("Term 2"). The note was entered into by the Company
on April 29, 1999, and matures on January 29, 2002, at
which point all accrued and unpaid interest and principal
are due. Interest accrues on a monthly basis at the
bank's prime rate (8.50 percent at December 31, 1999).
Principal and interest payments are due monthly on the
29th of the month. The note is secured by all accounts
receivable and fixed assets of the Company and is
guaranteed by the Company's parent. The Company accrued
and paid interest related to the note of approximately
$6,000 for the year ending December 31, 1999............. -- 100,000
The Company has a $350,000 note payable to a commercial
bank ("Term 3"). The note was entered into by the Company
on September 2, 1999, and matures on June 2, 2002, at
which point all accrued and unpaid interest and principal
are due. Interest accrues on a monthly basis at the
bank's prime rate (8.50 percent at December 31, 1999).
Principal and interest payments are due monthly on the
2nd of the month. The note is secured by all accounts
receivable and fixed assets of the Company and is
guaranteed by the Company's parent. The Company accrued
and paid interest related to the note of approximately
$8,000 for the year ending December 31, 1999. The Company
drew the final $143,000 of the note subsequent to year-
end...................................................... -- 202,000
-------- --------
Total................................................... 360,000 564,000
Less--Current maturities.................................. (99,000) (239,000)
-------- --------
Long-term notes payable................................. $261,000 $325,000
======== ========
</TABLE>
The notes payable were not assumed by Iconixx Corporation as a result of the
acquisition.
The Company's original revolving line of credit with a commercial bank ("Old
LOC"), entered into on July 10, 1998, provided for a revolving credit facility
not to exceed $650,000 or 80.0 percent of accounts receivable. Interest accrued
on a monthly basis at the bank's prime rate (7.75 percent and 8.50 percent at
December 31, 1998 and 1999, respectively). The Old LOC was secured by the
Company's accounts receivable and was guaranteed by the Company's parent. The
Old LOC matured on December 17, 1999. The Company incurred and paid
approximately $18,000 and $5,000 of interest expense during 1999 and 1998,
respectively, related to the Old LOC.
Concurrent with the termination of the Old LOC on December 17, 1999, the
Company entered into another revolving line of credit with a commercial bank
("New LOC").
The New LOC provides for a revolving credit facility not to exceed
$1,500,000. Interest accrues on a monthly basis at the bank's prime rate (8.50
percent at December 31, 1999). The New LOC is secured by the
F-63
<PAGE>
ENTERPRISEWORKS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Company's accounts receivable and property and equipment and is secured by the
Company's parent. The New LOC matures on December 12, 2000. At December 31,
1999, the Company had approximately $1,237,000 available for use on the New
LOC. The Company incurred approximately $1,000 of interest expense during 1999
related to the New LOC.
The Company's New LOC agreement contains various restrictive covenants,
which among other things, require that the Company maintain a minimum tangible
net worth of $650,000 until June 29, 2000 and $750,000 from June 30, 2000 to
December 12, 2000. In addition, the Company must maintain a debt service
coverage ratio of at least 1.25 on a cumulative twelve-month basis. The New LOC
was not assumed by Iconixx Corporation as a result of the acquisition.
Scheduled maturities of debt are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
2000...................................................................... $239
2001...................................................................... 277
2002...................................................................... 48
----
$564
====
</TABLE>
4. Members' Equity:
Members' equity consists of 8,500,000 voting units as of December 31, 1999.
In December 1999, the Company's Board of Directors authorized the issuance of
1,275,000 nonvoting membership units ("Nonvoting units") to selected employees
in exchange for 1,225,000 units under the Company's Unit Appreciation Rights
bonus program (see Note 9). Similar to the units exchanged, the Nonvoting units
vest over a five-year period beginning December 31, 1999. As a result of the
issuance of the Nonvoting units, the Company recorded deferred compensation of
$2,126,000 (the estimated fair value of the units at the date of grant), which
is classified on the balance sheet as a reduction to equity. The Company
amortized $200,000 of compensation expense related to the units that had vested
as of December 31, 1999.
In connection with the acquisition by Iconixx Corporation (see Note 1), the
Company recognized compensation expense related to the acceleration of vesting
on the unvested units.
5. Profit-Sharing Plan:
The Company participates in a 401(k) profit-sharing plan and trust (the
"Plan"). All employees of the Company are eligible to participate upon
employment with the Company. Participants may elect to contribute up to 15.0
percent of their salaries to the Plan, and the Company makes discretionary
contributions. Participants immediately vest 100.0 percent in their own
contributions and vest in employer discretionary contributions over a seven-
year period starting at the end of the third year of service. Total 401(k)
employer discretionary contributions were $75,573 and $126,188 in 1998 and
1999, respectively.
In connection with the acquisition by Iconixx Corporation, the Plan was
terminated.
6. Related-Party Transactions:
The Company had approximately $1,138,000 and $1,280,000 in revenue,
excluding reimbursable expenses, from a commonly controlled affiliate during
1998 and 1999, respectively. The Company prices services to the entity at a
slight discount as compared to unaffiliated entities.
F-64
<PAGE>
ENTERPRISEWORKS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
The amounts included in the Company's accounts receivable balance from the
same affiliate were approximately $144,000 and $245,000 at December 31, 1998
and 1999, respectively.
The Company has an agreement with an affiliated entity in which the Company
pays the entity $3,500 a month for certain administrative services. Fees under
the agreement were $42,000 for each of the years ending December 31, 1998 and
1999.
The Company accrued $403,450 of distributions payable to the members as of
December 31, 1999.
In addition, in December 1998, the Company purchased approximately $179,000
of fixed assets from an affiliated entity. The purchase price approximated the
assets' fair value.
7. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------
1998 1999
<S> <C> <C>
Computers and equipment........................................... $314 $ 831
Furniture and fixtures............................................ 70 130
Leasehold improvements............................................ 36 46
---- ------
420 1,007
Accumulated depreciation and amortization......................... (33) (232)
---- ------
Property and equipment, net..................................... $387 $ 775
==== ======
</TABLE>
The Company purchased two software programs in 1999. Both software programs
were not installed as of December 31, 1999, and are presented in fixed assets.
8. Commitments and Contingencies:
Leases
The Company leases office space and office equipment under several
noncancelable operating leases that expire in various years through 2002. Rent
expense under such operating leases was approximately $154,300 in 1998 and
$197,943 in 1999. In 1999, the Company leased computer equipment under a
capital lease with a cost of approximately $80,000. In 1998, the Company leased
office equipment under capital leases with a cost of $16,200. The future
minimum lease payments under capital leases and noncancelable operating leases
with initial terms of one year or more are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ended December 31, Leases Leases
<S> <C> <C>
2000.......................................................... $ 60 $ 278
2001.......................................................... 42 282
2002.......................................................... -- 277
2003.......................................................... -- 276
2004.......................................................... -- 23
----- ------
Total payments.............................................. $ 102 $1,136
======
Less--Amount representing interest............................ (10)
-----
Present value of net minimum lease payments................. $ 92
=====
</TABLE>
Depreciation of capital lease assets is included in depreciation expense.
F-65
<PAGE>
ENTERPRISEWORKS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Litigation
The Company is from time-to-time the subject of, or involved in, judicial
proceedings. Management and legal counsel believe that any liability or loss
resulting from such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
9. Unit Appreciation Rights:
The Company instituted a unit appreciation right bonus program ("UAR") on
July 23, 1998. Participants of the program, and the number of units granted to
each participant, are determined by the Board of Directors, as are each
respective participant's UAR grants. Granted units do not represent any
ownership interest in the Company, nor hold any voting power. The exercise
price for granted units is based upon the adjusted book value per share, as
defined. Units vest on an individual participant basis. The Company records a
liability for the adjusted book value of units granted and outstanding, with a
corresponding charge to compensation expense. UAR expense and the related
liability were $38,220 for the year ended December 31, 1999. No expense or
liability was recorded in 1998 because the adjusted book value at the date of
grant was greater than the adjusted book value at December 31, 1998.
In March 2000, the Company repurchased all outstanding unit appreciation
rights from participants for approximately $704,000. As a result of the
repurchase, the Company recognized $666,000 in additional compensation expense.
F-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders
Internet Information Services, Inc.:
We have audited the accompanying balance sheets of the Internet Services
Division (the "Division") of Internet Information Services, Inc., ("IIS") as of
December 31, 1998 and 1999, and the related statements of operations and
changes in division equity (deficit), and cash flows for the years ended
December 31, 1998 and 1999. These financial statements are the responsibility
of the Division's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of the Division, at December
31, 1998 and 1999, and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1999, in conformity with accounting
principles generally accepted in the United States.
The Division is a fully integrated business of IIS; consequently, as
indicated in Note 1, these financial statements have been derived from the
consolidated financial statements and accounting records of IIS, and reflect
significant assumptions and allocations. Moreover, as indicated in Note 1, the
Division relies on IIS for administrative, management and other services. The
financial position, results of operation and cash flows of the Division could
differ from those that would have resulted had the Division operated
autonomously or as an entity independent from IIS.
Arthur Andersen LLP
Vienna, Virginia
March 24, 2000
F-67
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
As of
December 31,
--------------
1998 1999
<S> <C> <C>
Assets
Current assets:
Accounts receivable, net...................................... $ 896 $1,640
Prepaid expenses and other assets............................. 53 37
------ ------
Total current assets........................................ 949 1,677
Property and equipment, net..................................... 148 150
------ ------
Total assets................................................ $1,097 $1,827
====== ======
Liabilities and Division Equity (Deficit)
Current liabilities:
Accounts payable.............................................. $ 434 $ 291
Accrued compensation and benefits............................. 148 357
Notes payable................................................. 868 807
------ ------
Total liabilities........................................... 1,450 1,455
------ ------
Commitments and contingencies (Note 9)
Division equity (deficit)....................................... (353) 372
------ ------
Total liabilities and division equity (deficit)............. $1,097 $1,827
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
STATEMENTS OF OPERATIONS AND CHANGES IN DIVISION EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1999
<S> <C> <C>
Net revenues.................................................... $4,850 $7,193
Cost of revenues................................................ 2,354 3,564
------ ------
Gross profit................................................ 2,496 3,629
Operating expenses:
Selling, general and administrative........................... 2,461 3,104
Depreciation and amortization................................. 67 71
------ ------
Total operating expenses.................................... 2,528 3,175
------ ------
Operating (loss) income......................................... (32) 454
Interest expense................................................ 42 75
------ ------
Income (loss) before provision for income taxes................. (74) 379
Provision for income taxes...................................... -- --
------ ------
Net (loss) income........................................... (74) 379
Net advanced (to) from IIS.................................. (272) 127
Amortization of deferred compensation........................... -- 219
Division equity (deficit), beginning of year.................... (7) (353)
------ ------
Division equity (deficit), end of year.......................... $ (353) $ 372
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-69
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ........................................... $ (74) $ 379
Adjustments to reconcile net income (loss) to net cash (used
in) provided by operating activities--
Depreciation and amortization.............................. 67 71
Stock-based compensation................................... -- 219
Changes in operating assets and liabilities:
Accounts receivable...................................... 303 (744)
Prepaid expenses and other assets........................ 3 16
Accounts payable......................................... (500) (143)
Accrued expenses......................................... 67 209
------ ------
Net cash (used in) provided by operating activities.... (134) 7
------ ------
Cash flows from investing activities:
Acquisition of property and equipment........................ (78) (73)
------ ------
Net cash used in investing activities.................. (78) (73)
Cash flows from financing activities:
Repayment of stockholders note payable....................... 2 298
Proceeds from line of credit................................. 482 (359)
Advances from (to) IIS....................................... (272) 127
------ ------
Net cash provided by financing activities.............. $ 212 $ 66
------ ------
Net change in cash..................................... $ -- $ --
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
1. Business Description and Basis of Presentation:
Internet Information Services, Inc. ("IIS") was incorporated in the State of
Maryland in 1993. During 1998 and from January 1 through April 1, 1999, IIS
operated an Internet services division and a computer hardware reselling
division. Effective April 1, 1999, the net assets of the computer hardware
reselling division were transferred to a newly formed, wholly owned subsidiary
of IIS.
On March 24, 2000, IIS entered into an agreement to sell the majority of the
assets and liabilities of its Internet services division (the "Division") to
Iconixx Corporation. The Division focuses on Internet-based projects and
provides services such as integration of disparate systems, e-commerce
application development, and e-commerce infrastructure.
As an integrated business of IIS, the Division did not prepare separate
financial statements in accordance with accounting principles generally
accepted in the United States in the normal course of operations. Accordingly,
the accompanying financial statements have been derived by extracting the
assets, liabilities, revenues and expenses of IIS from the consolidated assets,
liabilities, revenue and expenses directly attributable to IIS as well as
allocations deemed reasonable by management to present the financial position,
results of operations and cash flows of the Division on a stand-alone basis.
The allocation methodologies have been described within the respective
footnotes and management considers the allocations to be reasonable. The
financial position, results of operations and cash flows of IIS are
management's best estimate of those that may have been achieved had the
Division operated autonomously or as an entity independent of IIS. The Division
operates in one business segment.
The Division's operations are subject to certain risks and uncertainties,
including the susceptibility of IIS' services to rapid technological change,
increased competition from existing service providers and new entrants, lack of
a significant operating history, government regulations, and dependence upon
key members of the management team.
On March 24, 2000, substantially all of the net assets of the Division were
sold to Iconixx Corporation. Purchase consideration was paid in the form of
$13.0 milion paid in cash, 600,000 shares of Iconixx common stock, and $2.2
million paid in the form of 2,220 shares of Iconixx Class A Preferred Stock.
2. Summary of Significant Accounting Policies and Practices:
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The most significant assumptions and
estimates relate to the allocation of certain operating and overhead expenses.
Actual results could differ from those estimates.
Cash Flows
IIS does not maintain separate cash accounts and all cash receipts and
disbursements are made through IIS' cash management system. For purposes of the
statements of cash flows, all transactions between IIS and the Division have
been accounted for as having been settled in cash at the time the transaction
was recorded by IIS.
F-71
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Revenue Recognition
Revenues from consulting services, and the related labor costs, are
recognized when the services are performed. The Division currently operates on
time and materials contracts and revenues are recognized based on fixed hourly
rates for direct labor hours expended.
Cost of Revenues
Cost of revenues includes all direct and labor costs related to contract
performance and does not include any related depreciation expense. Direct labor
costs and related expenses are included in cost of revenues based on billable
hours; costs related to unbillable time are included in selling, general, and
administrative expenses. Unbilled receivables on contracts are comprised of
costs, plus earnings on certain contracts in excess of contractual billings on
such contracts.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are recorded using the double-
declining balance method over the estimated useful lives of the individual
assets as follows: furniture, five years and computer equipment, three years.
Software depreciation is recorded using the straight-line method over three
years.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Division reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Division recognizes an impairment loss
when the sum of the expected future cash flows is less than the carrying amount
of the asset. The measurement of the impairment losses recognized is based upon
the difference between the fair value and the carrying amount of the asset. The
Division has not recorded a provision for impairment of long-lived assets.
Fair Value of Financial Instruments
The Division's financial instruments consist primarily of accounts
receivable and accounts payable. In management's opinion, the carrying amounts
of these financial instruments approximate their fair value at December 31,
1999.
Income Taxes
In 1998, IIS was taxed pursuant to subchapter C of the Internal Revenue
Code. As such, income taxes for the Division are accounted for using an asset
and liability approach that requires the recognition of taxes
F-72
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
payable or refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in
IIS' financial statements or tax returns. The measurement of current and
deferred tax liabilities and assets are based on provisions of the enacted tax
law. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that, based on available evidence, are not expected
to be realized. Income taxes were allocated to the Division using the separate
return method.
In 1999, IIS elected to be taxed pursuant to subchapter S of the Internal
Revenue Code ("S corporation"). In lieu of Corporate income taxes, the
shareholders of an S corporation are taxed on their proportionate share of IIS'
taxable income. Therefore, no provision for income taxes has been included in
the accompanying 1999 financial statements of the Division.
Business Concentration and Credit Risk
The following tables summarize the approximate revenues and accounts
receivable from customers in excess of 10.0 percent of total revenues and
accounts receivable as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
Revenues for
the Year Ended
-----------------
1998 1999
<S> <C> <C>
Customer A............................................... 70% 52%
Customer B............................................... 12 *
</TABLE>
<TABLE>
<CAPTION>
Accounts Receivable
-------------------
1998 1999
<S> <C> <C>
Customer A............................................ 23% 66%
</TABLE>
- --------
* Represents less than 10% of total
3. Accounts Receivable:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
<S> <C> <C>
Accounts receivable............................................. $ 924 $ 1,031
Unbilled accounts receivable.................................... 7 649
Allowance for doubtful accounts................................. (35) (40)
----- -------
Accounts receivable, net........................................ $ 896 $ 1,640
===== =======
</TABLE>
F-73
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
4. Property and Equipment:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
<S> <C> <C>
Computers and equipment................................. $ 61 $ 135
Furniture and fixtures.................................. 103 29
Hardware................................................ 136 185
Software................................................ 37 61
--------- ---------
337 410
Accumulated depreciation and amortization............... (189) (260)
--------- ---------
Property and equipment, net........................... $ 148 $ 150
========= =========
5. Notes Payable:
<CAPTION>
December 31,
--------------------
1998 1999
<S> <C> <C>
Note payable to a bank prime rate plus 0.75 percent per
annum (9.25 percent at December 31, 1998), principal
and interest payable monthly, expires December 31,
1999, secured by Division customer receivables......... $ 16,000 $ --
Note payable to a bank prime rate plus 0.75 percent per
annum (8.75 percent at December 31, 1998), principal
and interest payable monthly, expires June 30, 1999,
secured by Division customer receivables............... 300,000 --
Note payable to a bank at bank prime rate plus 0.75
percent per annum (9.25 percent at December 31, 1999),
principal and interest payable monthly, expires
November 30, 2000, secured by Division customer
receivables............................................ -- 214,000
Note payable to IIS stockholders at 9.00 percent per
annum, principal and interest payable on demand........ -- 300,000
Non interest bearing note payable to IIS stockholders
payable on demand...................................... 2,000 --
IIS's revolving credit facility provides for a revolving
credit facility not to exceed $550,000 and $650,000 as
of December 31, 1998 and 1999, respectively. The credit
agreement bears interest at the bank's prime rate plus
1.00 percent and 0.75 percent, respectively, per annum
(8.75 and 9.25 percent at December 31, 1998 and 1999,
respectively), matures on May 1, 2000, and is secured
by Division receivables................................ 550,000 293,000
--------- ---------
Total notes payable................................... 868,000 807,000
--------- ---------
Less--Current maturities................................ (868,000) (807,000)
--------- ---------
Long-term notes payable............................... $ -- $ --
========= =========
</TABLE>
At December 31, 1998 and 1999, IIS had $0 and $356,292 available for use on
the line of credit. IIS's revolving credit agreement contains various
restrictive covenants, which among other things, require that IIS maintain a
minimum tangible net worth.
F-74
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
IIS incurred and paid approximately $41,503 and $74,888 of interest expense
during 1998 and 1999, respectively. These amounts have been reflected in the
accompanying financial statements of the Division.
6. Stock Option Plan:
IIS adopted the 1997 Stock Option Plan (the "Stock Option Plan") as an
incentive to encourage stock ownership by officers and directors and executive
and professional employees of IIS. The Stock Option Plan provides for the
issuance of stock options not to exceed 800,000 shares of common stock of the
Company. Options granted under the Stock Option Plan may be either incentive
stock options ("ISOs") or nonqualified stock options. Options issued under the
Stock Option Plan have a maximum term of ten years from the date of grant. IIS,
and therefore the Division, account for options granted in accordance with APB
Opinion No. 25.
During 1998 and 1999, options to purchase 200,000 and 387,321 shares,
respectively, were granted to Division employees at an exercise price of $1.00
per share. During 1999 the estimated fair value of the options granted was
$2.80, resulting in deferred compensation at the date of grant of approximately
$361,137, recorded in Division Equity. Options granted during 1998 had exercise
prices equal to or greater than fair value. The options vest over a three-year
period. Compensation expense recognized during 1999 totaled approximately
$218,614. Had compensation cost for the plan been determined based on the
estimated fair value of the options at the grant dates consistent with the
method of SFAS No. 123, net income would have been approximately $468,988. The
weighted-average fair value of the options granted by the Division during 1998
and 1999, is estimated to be $0.43 and $2.80, respectively, per option based on
the Black-Scholes option pricing model assuming the following: no dividend
yield, risk-free interest rate of 5.0 percent, an expected term of the options
of four years and an expected volatility of 45.0 percent.
In connection with the acquisition by Iconixx Corporation, the Division
repurchased all of the outstanding stock options, for which the Division
recorded $863,000 of additional compensation expense prior to the consummation
of the acquisition by Iconixx Corporation.
7. Profit-Sharing Plan:
The Division participates in a 401(k) profit-sharing plan and trust (the
"Plan"). All employees of the Division are eligible to participate upon
employment. Participants may elect to contribute up to 15.0 percent of their
salaries to the Plan. Employees are 20.0 percent vested at the end of their
third year and incrementally vest at the rate of 20.0 percent per year until
fully vested at the end of the sixth year of employment. In connection with the
acquisition by Iconixx Corporation, the Plan was terminated.
8. Related-Party Transactions:
IIS provided financing and performed certain internet services to a business
owned by the majority stockholder of IIS. Costs incurred by IIS totaled
approximately $41,000 and such costs were reimbursed by the majority
stockholder. As of December 31, 1999, approximately $7,070 is included in
prepaid expenses and other assets as amount due from a stockholder of IIS.
9. Commitments and Contingencies:
Operating Leases
IIS leases office space and office equipment under several noncancelable
operating leases that expire at various years through 2001. The Division's
lease expense under such operating leases was approximately $95,000 in 1998 and
$105,000 in 1999, which management allocated to the Division based on
headcount.
F-75
<PAGE>
THE INTERNET SERVICES DIVISION OF
INTERNET INFORMATION SERVICES, INC.
(A Fully Integrated Business of IIS, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Future minimum lease payments under all operating leases at December 31, 1999,
were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
2000.................................................................. $111
2001.................................................................. 85
----
Total payments...................................................... $196
====
</TABLE>
Litigation
IIS and the Division are periodically a party to disputes arising from
normal business activities. In the opinion of management, resolution of these
matters will not have a material adverse effect on the final position or future
operating results of IIS or the Division, and adequate provision for any
potential losses has been made in the accompanying financial statements.
10. Income Taxes:
The Division followed the provisions of SFAS No. 109, "Accounting for Income
Taxes," for financial reporting purposes for 1998. Deferred tax assets or
liabilities at the end of each period are determined using the currently
enacted tax rates to apply to taxable income in the period in which the
deferred tax asset or liability is expected to be settled or realized.
As the Division income before income tax provision for the year ended
December 31, 1998 was not significant, no provision for income tax was
recorded. In addition, no substantial book to tax differences existed at
December 31, 1998, and therefore, no deferred income tax asset or liability was
recorded.
11. Division Equity:
Because IIS is a fully integrated business, the Company's accounting records
do not distinguish its investment in IIS between debt and permanent capital.
The intercompany balance has been classified as Division Equity in these
financial statements as there is no debt instrument and no defined repayment
period.
F-76
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[LOGO OF ICONIXX]
Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
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 the 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. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000, (25 days after the date of this prospectus), all dealers that
effect transactions in these shares of common stock may be required to deliver
a prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table shows the various fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the common stock being registered under this registration
statement. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Registration fee....................................................... $22,770
NASD filing fee........................................................ 9,125
Nasdaq National Market listing fee.....................................
Printing and engraving expenses........................................
Legal fees and expenses................................................
Accounting fees and expenses...........................................
Blue Sky fees and expenses (including legal fees)......................
Transfer agent and registrar fees and expenses.........................
Miscellaneous..........................................................
-------
Total................................................................ $
=======
</TABLE>
Iconixx will bear all expenses shown above.
Item 14. Indemnification of Directors and Officers.
Upon completion of this offering, the Certificate of Incorporation and
Bylaws of the Registrant will provide for the indemnification of the
Registrant's directors and officers to the fullest extent authorized by, and
subject to the conditions set forth in the Delaware General Corporation Law
(the "DGCL"), except that the Registrant will indemnify a director or officer
in connection with a proceeding (or part thereof) initiated by the person only
if the proceeding (or part thereof) was authorized by the Registrant's Board of
Directors. The indemnification provided under the Certificate of Incorporation
and Bylaws includes the right to be paid by the Registrant the expenses
(including attorneys' fees) in advance of any proceeding for which
indemnification may be had in advance of its final disposition, provided that
the payment of those expenses (including attorneys' fees) incurred by a
director or officer in advance of the final disposition of a proceeding may be
made only upon delivery to the Registrant of an undertaking by or on behalf of
the director or officer to repay all amounts so paid in advance if it is
ultimately determined that the director or officer is not entitled to be
indemnified. According to the Bylaws, if a claim for indemnification is not
paid by the Registrant within 60 days after a written claim has been received
by the Registrant, the claimant may at any time thereafter bring an action
against the Registrant to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant will be entitled to be paid also
the expense of prosecuting the action.
As permitted by the DGCL, the Registrant's Certificate of Incorporation will
provide that directors of the Registrant shall not be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, relating to unlawful payment of
dividends or unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit. As a result of
this provision, the Registrant and its stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
Under the Bylaws, the Registrant will have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Registrant, or is or was serving at the request
II-1
<PAGE>
of the Registrant as a director, officer, employee, partner (limited or
general) or agent of another corporation or of a partnership, joint venture,
limited liability company, trust or other enterprise, against any liability
asserted against the person or incurred by the person in that capacity, or
arising out of the person's status, and related expenses, whether or not the
Registrant would have the power to indemnify the person against liability under
the provisions of the DGCL. The Registrant maintains director and officer
liability insurance on behalf of its directors and officers.
The Underwriting Agreement provides that the underwriters are obligated,
under specified circumstances, to indemnify directors, officers and controlling
persons of the Registrant against specified liabilities, including liabilities
under the Securities Act of 1933, as amended. Reference is made to the form of
Underwriting Agreement to be filed as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities.
Since our company was recapitalized in August 1999, we have sold and issued
the following unregistered securities:
(a) On August 12, 1999, pursuant to a recapitalization agreement among
Thayer ITECH Holdings, LLC ("Thayer"), the Registrant, BSG Holdings, Inc. ("BSG
Holdings") and the stockholders of BSG Holdings (the "Recapitalization
Agreement"), the Registrant issued 58,378.378 shares of common stock, par value
$.01 per share ("Common Stock"), to Thayer for an aggregate purchase price of
$21,600,000.
(b) On August 12, 1999, pursuant to the Recapitalization Agreement, the
Registrant was recapitalized and issued (i) 10,800,000 shares of common stock
and 20,520 shares of Class A Convertible Preferred Stock, par value $.01 per
share ("Convertible Preferred Stock"), to Thayer in exchange for all of the
shares of common stock then held by Thayer and (ii) 2,700,000 shares of common
stock and 5,130 shares of Convertible Preferred Stock to BSG Holdings in
exchange for all of the shares of Common Stock then held by BSG Holdings.
(c) On August 12, 1999, pursuant to an equity purchase agreement (the
"August Thayer Purchase Agreement") between the Registrant, Thayer and an
affiliate of Thayer, TC ITECH, LLC ("TC ITECH"), the Registrant issued (i)
19,009,419 shares of Common Stock to Thayer for an aggregate purchase price of
$1,900,419 and (ii) 190,581 shares of Common Stock to TC ITECH for an aggregate
purchase price of $19,058.
(d) On August 12, 1999, in connection with entering into senior management
agreements with certain of our executive officers and key employees, the
Registrant issued an aggregate of 10,000,000 shares of Common Stock to these
employees for an aggregate consideration of $1,000,000.
(e) On September 1, 1999, in connection with the acquisition of Empyrean
Group, Inc., the Registrant issued 862,500 shares of Common Stock and 1,638.75
shares of Convertible Preferred Stock to FBR Venture Partners, LP ("FBR"), in
exchange for all of the issued and outstanding capital stock of Empyrean Group,
Inc.
(f) Between November 2, 1999 and March 22, 1999, pursuant to the August
Thayer Purchase Agreement, the Registrant issued (i) 36,117.90 shares of
Convertible Preferred Stock to Thayer for an aggregate purchase price of
$36,117,900 and (ii) 362.1 shares of Convertible Preferred Stock to TC ITECH
for an aggregate purchase price of $362,100.
(g) On November 3, 1999, in connection with the acquisition of IconixGroup,
Inc. ("IconixGroup"), the Registrant issued an aggregate of 1,825,000 shares of
Common Stock and 3,467.5 shares of Convertible Preferred Stock to the
stockholders of IconixGroup as part of the consideration for all of the issued
and outstanding capital stock of IconixGroup.
(h) On November 12, 1999, in connection with entering into a senior
management agreement with William K. Stephens, the Registrant issued 250,000
shares of Common Stock to Mr. Stephens for an aggregate purchase price of
$25,000.
(i) On November 29, 1999, pursuant to an existing senior management
agreement, the Registrant issued 112,500 shares of Common Stock to Jason H.
Levine for an aggregate purchase price of $11,250.
II-2
<PAGE>
(j) On March 8, 2000, subject to existing senior management agreements, the
Registrant issued an aggregate of 200,000 shares of Common Stock to certain of
our executive officers and key employees for an aggregate purchase price of
$260,000.
(k) On March 10, 2000, in connection with the acquisition of Lead Dog
Design, Inc. ("Lead Dog"), the Registrant issued 1,000,000 shares of Common
Stock and 3,000 shares of Convertible Preferred Stock to the stockholders of
Lead Dog as part of the consideration for all of the issued and outstanding
capital stock of Lead Dog.
(l) On March 22, 2000, pursuant to an equity purchase agreement with Thayer,
the Registrant issued (i) 3,000,000 shares of Common Stock and (ii) 16,100
shares of Convertible Preferred Stock to Thayer for an aggregate purchase price
of $20,000,000.
(m) On March 23, 2000, in connection with the acquisition of some of the
assets of Internet Information Services, Inc. ("IIS"), the Registrant issued
600,000 shares of Common Stock and 2,220 shares of Convertible Preferred Stock
to the stockholders of IIS as part of the consideration for the asset
acquisition.
(n) On March 23, 2000, in connection with the acquisition of substantially
all of the assets for Enterpriseworks, LLC, the Registrant issued an aggregate
of 3,868,213 shares of Common Stock to the members of EnterpriseWorks, LLC as
part of the consideration for the asset acquisition.
(o) On April 17, 2000, in connection with a stock offering to some of its
existing stockholders, the Registrant issued Common Stock and Convertible
Preferred Stock to stockholders who elected to participate in the offering as
follows: 86,250 shares of Common Stock and 462.875 shares of Convertible
Preferred Stock to FBR for an aggregate consideration of $575,000; 8,343 shares
of Common Stock and 44.775 shares of Convertible Preferred Stock to Gretchen
Frederick for an aggregate consideration of $55,621; 3,650 shares of Common
Stock and 19.588 shares of Convertible Preferred Stock to Mark A. Smith for an
aggregate consideration of $24,333; 3,650 shares of Common Stock and 19.588
shares of Convertible Preferred Stock to Sidney F. Barcelona for an aggregate
consideration of $24,333.
The sales and issuances of securities in the transactions described above
were exempt from registration under the Securities Act by virtue of Section
4(2) or Rule 701 or Regulation D promulgated thereunder.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients received adequate
information about Iconixx or had access, through employment or other
relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation to be filed upon the
closing of this offering
3.2* Form of Amended and Restated Bylaws to be effective upon the closing of this
offering
4.1 Specimen certificate representing the Common Stock
5.1* Opinion of Hogan & Hartson L.L.P. with respect to legality of the common stock.
10.1* Iconixx Corporation 1999 Stock Option Plan, as amended
10.2* Iconixx Web Development, Inc. 401(k) Profit Sharing Plan
10.3* Iconixx Systems Engineering, Inc. 401(k) Profit Sharing Plan
10.4 Equity Purchase Agreement by and among Empyrean Group Holdings and Thayer ITECH
Holdings, L.L.C. dated August 12, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.5 Equity Purchase Agreement between Iconixx Corporation, Thayer ITECH Holdings,
L.L.C. and TC ITECH, L.L.C. dated March 22, 2000
10.6 Stockholders Agreement by and among Empyrean Group Holdings, Inc., Thayer ITECH
Holdings, L.L.C. and The Other Stockholders of Empyrean Group Holdings, Inc.
together with Joinders
10.7 Registration Rights Agreement by and among Empyrean Group Holdings, Inc., and
Thayer ITECH Holdings, L.L.C. together with Joinders
10.8 Contribution Agreement by and Among Empyrean Group Holdings, Inc. and Executives
together with Joinder and First Amendment
10.9 Form of Senior Management Agreements between Empyrean Group Holdings, Inc. and
the following executive officers:
10.9.1.1 Stuart C. Johnson schedule of material terms
10.9.1.2 Graham B. Perkins schedule of material terms
10.9.1.3 Thomas B. Modly schedule of material terms
10.9.1.4 Jason H. Levine schedule of material terms
10.9.1.5 Matthew B. Walker schedule of material terms
10.9.1.6 David T. Fu schedule of material terms
10.9.1.7 William K. Stephens schedule of material terms
10.10 Employment Agreement dated November 3, 1999 between IconixGroup, Inc. and Leo C.
Mullen
10.11 Employment Agreement dated August 12, 1999 between BSG Solutions, Inc. and John
R. McDougall
10.12 Employment Agreement dated March 23, 2000 between Iconixx Web Development, Inc.
and Christopher Clark
10.13 Employment Agreement dated March 23, 2000 between Iconixx-Houston and D. Derrik
Deyhimi
10.14 Master Services Agreement dated January 1, 1996, as amended, between
Sprint/United Management Company and Iconixx Systems Engineering, Inc. (by
assignment from its affiliate Business Solutions Group, LLC)
10.15 Recapitalization Agreement dated August 11, 1999 by and among Thayer ITECH
Holdings, L.L.C., Business Solutions Group, Inc., BSG Holdings, Inc. and The
Stockholders of BSG Holdings, Inc.
10.16 Business Loan and Security Agreement dated as of August 12, 1999 by and among
Empyrean Group Holdings, Inc., BSG Solutions, Inc. (as Borrowers), First Union
Commercial Corporation, Bank of America, N.A. (as Lenders), and First Union
National Bank (as Agent) and Bank of America (as Co-Lead Arranger)
10.17 Stock Purchase Agreement dated October 29, 1999 by and among Empyrean Group
Holdings, Inc., IconixGroup, Inc., The Invisions Group, Ltd. and The Stockholders
of The Invisions Group, Ltd.
10.18 Stock Purchase Agreement dated February 23, 2000 by and among Iconixx
Corporation, Lead Dog Design, Inc. and The Stockholders of the Lead Dog Design,
Inc.
10.19 Asset Purchase Agreement by and Among Iconixx Corporation, Iconixx-Houston, Inc.,
EnterpriseWorks, L.L.C. and Certain Members of EnterpriseWorks, L.L.C.
10.20 Professional Services Agreement dated August 12, 1999 between TC Management
Partners IV, L.L.C. and Empyrean Group Holdings, Inc.
10.21 Sublease Agreement dated April 24, 2000 between Chevy Chase Bank, F.S.B. and
Iconixx Corporation.
10.22 Web Site Development Agreement dated as of November 2, 1999 by and between Bear,
Stearns & Co. Inc. and Lead Dog Designs, Inc.
10.23 Asset Purchase Agreement by and among Iconixx Corporation, Iconixx Web
Development, Inc., Internet Information Services, Inc. and the Majority
Shareholders of Internet Information Services, Inc. dated March 23, 2000.
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, are not
applicable or the information is included in the consolidated financial
statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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.
The undersigned registrant hereby undertakes that:
(1) For purposes 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
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf on its
behalf by the undersigned, thereunto duly authorized, in the city of Vienna,
Commonwealth of Virginia, on May 12, 2000.
ICONIXX CORPORATION
/s/ Stuart C. Johnson
By: _________________________________
Stuart C. Johnson
Chairman and Chief Executive
Officer
Each person whose signature appears below constitutes and appoints Stuart C.
Johnson and Jason H. Levine, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, from such person and in each person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement or any registration
statement relating to this registration statement under Rule 462 under the
Securities Act of 1933 and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, 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 said attorneys-in-fact
and agents or any of them, or his or their 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 as of May 12, 2000 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Stuart C. Johnson Chairman, President, Chief
______________________________________ Executive Officer and
Stuart C. Johnson Director (Principal
Executive Officer)
/s/ Graham B. Perkins Chief Financial Officer
______________________________________ (Principal Financial and
Graham B. Perkins Accounting Officer)
/s/ Carl J. Rickertsen Director
______________________________________
Carl J. Rickertsen
/s/ Phillip G. Norton Director
______________________________________
Phillip G. Norton
/s/ Robert Michalik Director
______________________________________
Robert Michalik
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Iconixx Corporation:
We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Iconixx Corporation
included in this registration statement and have issued our report thereon
dated May 9, 2000. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The accompanying Schedule II--
Valuation and Qualifying Accounts for Iconixx Corporation is the responsibility
of Iconixx Corporation's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not a part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Vienna, Virginia
May 9, 2000
S-1
<PAGE>
SCHEDULE II
ICONIXX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additions
-------------------
Beginning Charged Ending
Balance Deductions to Expense Other(1) Balance
--------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Period Ending December 31,
1997
Allowance for Doubtful
Accounts................... $-- $-- $-- -- $--
Period Ending December 31,
1998
Allowance for Doubtful
Accounts................... $-- $-- $-- -- $--
Period Ending December 31,
1999
Allowance for Doubtful
Accounts................... $-- $-- $-- 86 $ 86
</TABLE>
- --------
(1) Recorded through purchase accounting in connection with the acquisition of
IconixGroup, Inc. in accordance with APB No. 16.
S-2
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation to be filed upon the
closing of this offering
3.2* Form of Amended and Restated Bylaws to be effective upon the closing of this
offering
4.1 Specimen certificate representing the Common Stock
5.1* Opinion of Hogan & Hartson L.L.P. with respect to legality of the common stock.
10.1* Iconixx Corporation 1999 Stock Option Plan, as amended
10.2* Iconixx Web Development, Inc. 401(k) Profit Sharing Plan
10.3* Iconixx Systems Engineering, Inc. 401(k) Profit Sharing Plan
10.4 Equity Purchase Agreement by and among Empyrean Group Holdings and Thayer ITECH
Holdings, L.L.C. dated August 12, 1999
10.5 Equity Purchase Agreement between Iconixx Corporation, Thayer ITECH Holdings,
L.L.C. and TC ITECH, L.L.C. dated March 22, 2000
10.6 Stockholders Agreement by and among Empyrean Group Holdings, Inc., Thayer ITECH
Holdings, L.L.C. and The Other Stockholders of Empyrean Group Holdings, Inc.
together with Joinders
10.7 Registration Rights Agreement by and among Empyrean Group Holdings, Inc., and
Thayer ITECH Holdings, L.L.C. together with Joinders
10.8 Contribution Agreement by and Among Empyrean Group Holdings, Inc. and Executives
together with Joinder and First Amendment
10.9 Form of Senior Management Agreements between Empyrean Group Holdings, Inc. and
the following executive officers:
10.9.1.1 Stuart C. Johnson schedule of material terms
10.9.1.2 Graham B. Perkins schedule of material terms
10.9.1.3 Thomas B. Modly schedule of material terms
10.9.1.4 Jason H. Levine schedule of material terms
10.9.1.5 Matthew B. Walker schedule of material terms
10.9.1.6 David T. Fu schedule of material terms
10.9.1.7 William K. Stephens schedule of material terms
10.10 Employment Agreement dated November 3, 1999 between IconixGroup, Inc. and Leo C.
Mullen.
10.11 Employment Agreement dated August 12, 1999 between BSG Solutions, Inc. and John
R. McDougall
10.12 Employment Agreement dated March 23, 2000 between Iconixx Web Development, Inc.
and Christopher Clark
10.13 Employment Agreement dated March 23, 2000 between Iconixx-Houston and D. Derrik
Deyhimi
10.14 Master Services Agreement dated January 1, 1996, as amended, between
Sprint/United Management Company and Iconixx Systems Engineering, Inc. (by
assignment from its affiliate Business Solutions Group, LLC)
10.15 Recapitalization Agreement dated August 11, 1999 by and among Thayer ITECH
Holdings, L.L.C., Business Solutions Group, Inc., BSG Holdings, Inc. and The
Stockholders of BSG Holdings, Inc.
10.16 Business Loan and Security Agreement dated as of August 12, 1999 by and among
Empyrean Group Holdings, Inc., BSG Solutions, Inc. (as Borrowers), First Union
Commercial Corporation, Bank of America, N.A. (as Lenders), and First Union
National Bank (as Agent) and Bank of America (as Co-Lead Arranger)
10.17 Stock Purchase Agreement dated October 29, 1999 by and among Empyrean Group
Holdings, Inc., IconixGroup, Inc., The Invisions Group, Ltd. and The Stockholders
of The Invisions Group, Ltd.
10.18 Stock Purchase Agreement dated February 23, 2000 by and among Iconixx
Corporation, Lead Dog Design, Inc. and The Stockholders of the Lead Dog Design,
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.19 Asset Purchase Agreement by and Among Iconixx Corporation, Iconixx-Houston, Inc.,
EnterpriseWorks, L.L.C. and Certain Members of EnterpriseWorks, L.L.C.
10.20 Professional Services Agreement dated August 12, 1999 between TC Management
Partners IV, L.L.C. and Empyrean Group Holdings, Inc.
10.21 Sublease Agreement dated April 24, 2000 between Chevy Chase Bank, F.S.B. and
Iconixx Corporation
10.22 Web Site Development Agreement dated as of November 2, 1999 by and between Bear,
Stearns & Co. Inc. and Lead Dog Designs, Inc.
10.23 Asset Purchase Agreement by and among Iconixx Corporation, Iconixx Web
Development, Inc., Internet Information Services, Inc. and the Majority
Shareholders of Internet Information Services, Inc. dated March 23, 2000.
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
Exhibit 4.1
NUMBER SHARES
- --------- INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE -----------
- --------------------------------------------------------------------------------
ICONIXX CORPORATION
- --------------------------------------------------------------------------------
TOTAL AUTHORIZED ISSUE 100,000,000 SHARES
99,850,000 SHARES PAR VALUE $.01 EACH 150,000 SHARES PAR VALUE $.01 EACH
COMMON STOCK SERIES A CONVERTIBLE PREFERRED STOCK
See Reverse for
Certain Definitions
This is to Certify that is the owner of
-----------------------------------------
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Iconixx Corporation
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. Witness, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated
- --------------------------- [SEAL] ---------------------------
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as thought they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ..... Custodian .......
(Cust) (Minor)
TEN ENT - as tenants by the under Uniform Gifts to Minors Act .........
entireties (State)
JT TEN - as joint tenants with
right of survivorship
and not as tenants in
common
Additional abbreviations may also be used though not in the above
list
For value received hereby sell, assign and transfer unto
-----
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE.
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint Attorney
--------------------------------------------------------------
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------ -----
In presence of
- ---------------------------------------- --------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 10.4
- --------------------------------------------------------------------------------
EQUITY PURCHASE AGREEMENT
between
EMPYREAN GROUP HOLDINGS, INC.
and
THAYER ITECH HOLDINGS, L.L.C.
Dated August 12, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I AUTHORIZATION AND CLOSING.........................................1
1.1 Authorization of the Stock.....................................1
1.2 Purchase and Sale of the Stock at Initial Closing..............2
(a) Initial Purchase......................................2
(b) Use of Proceeds of Initial Purchase...................2
(c) Initial Closing.......................................2
1.2 Subsequent Take-Downs of Class A Preferred.....................3
(a) Request for Takedowns.................................3
(b) Subsequent Closings...................................3
(c) Termination...........................................3
ARTICLE II CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING.............4
2.1 Initial Closing Conditions.....................................4
(a) Representations and Warranties, Covenants.............4
(b) Management Agreements.................................4
(c) Stockholders Agreement................................4
(d) Professional Services Agreement.......................4
(e) Compliance with Applicable Laws.......................4
(f) Waiver................................................5
2.2 Subsequent Closing Conditions..................................5
(a) Representations and Warranties, Covenants.............5
(b) Compliance with Applicable Laws.......................5
(c) Board Approval........................................5
(d) Waiver................................................5
ARTICLE III COVENANTS.......................................................6
3.1 Financial Statements and Other Information.....................6
3.2 Inspection of Property.........................................7
3.3 Restrictions...................................................7
3.4 Unrelated Business Taxable Income..............................8
3.5 Hart-Scott-Rodino Compliance...................................8
3.6 Confidentiality................................................9
3.7 Termination....................................................9
ARTICLE IV TRANSFER OF RESTRICTED SECURITIES................................9
4.1 Transfer of Restricted Securities..............................9
-i-
<PAGE>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................10
5.1 Organization and Corporate Power...............................10
5.2 Capital Stock and Related Matters..............................10
5.3 Subsidiaries; Investments......................................11
5.4 Authorization; No Breach.......................................11
5.5 Violation of Laws..............................................11
5.6 Governmental Consent, etc......................................11
5.7 Disclosure.....................................................12
ARTICLE VI PURCHASER'S REPRESENTATIONS AND WARRANTIES.......................12
6.1 Purchaser's Investment Representations.........................12
6.2 Authorization; No Breach.......................................12
6.3 Brokerage......................................................13
6.4 Governmental Consent, etc......................................13
ARTICLE VII DEFINITIONS.....................................................13
ARTICLE VIII MISCELLANEOUS..................................................16
8.1 Expenses.......................................................16
8.2 Remedies.......................................................16
8.3 Consent to Amendments..........................................16
8.4 Survival of Representation and Warranties......................16
8.5 Successors and Assigns.........................................16
8.6 Severability...................................................17
8.7 Counterparts...................................................17
8.8 Descriptive Headings; Interpretation...........................17
8.9 Governing Law..................................................17
8.10 Notices.......................................................17
8.11 Entire Agreement..............................................18
LIST OF EXHIBITS
- ----------------
Exhibit A Amended and Restated Certificate of Incorporation of Empyrean Group
Holdings, Inc.
Exhibit B Capitalization Schedule
-ii-
<PAGE>
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of August 12, 1999, between EMPYREAN GROUP
HOLDINGS, INC., a Delaware corporation (formerly, Business Solutions Group,
Inc.) (the "Company"), THAYER ITECH HOLDINGS, L.L.C., a Delaware limited
liability company ("Thayer Holdings"), and each of the other persons or entities
set forth in the Schedule of Purchasers attached hereto (collectively with
----------------------
Thayer Holdings, the "Purchasers" and individually a "Purchaser"). Except as
otherwise indicated herein, capitalized terms used herein are defined in Section
-------
7 hereof.
- -
Recitals:
--------
A. The Company is engaged in the computer software solutions and
information technology consulting business.
B. Pursuant to a Recapitalization Agreement dated August 11, 1999 (the
"Recapitalization Agreement") by and among the Company, Thayer Holdings, BSG
Holdings, Inc., and each of Jack McDougall, Marsh Nelson, Philip Duong and the
other stockholders of BSG Holdings, Inc. (collectively, the "BSG Stockholders"),
Thayer Holdings has acquired an aggregate of (i) 20,520 shares of the Company's
Class A Preferred Stock, par value $.01 per share (the "Class A Preferred"), and
(ii) 10,800,000 shares of the Company's Common Stock, $.01 par value per share
(the "Common").
C. At the Initial Closing, the Purchasers desire to purchase from the
Company, and the Company desires to sell to the Purchasers (i) an aggregate of
36,480 shares of Class A Preferred and (ii) an aggregate of 19,200,000 shares of
the Common, in the amount set forth opposite each Purchaser's name on the
Schedule of Purchasers attached hereto.
- ----------------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
AUTHORIZATION AND CLOSING
-------------------------
1.1 Authorization of the Stock. The Company shall authorize the issuance
--------------------------
and sale to the Purchasers of up to an aggregate of 36,480 shares of Class A
Preferred and an aggregate of 19,200,000 shares of Common, each having the
rights and preferences set forth in Exhibit A attached hereto. The Class A
---------
Preferred and the Common are collectively referred to herein as the "Stock."
<PAGE>
1.2 Purchase and Sale of the Stock at Initial Closing.
-------------------------------------------------
(a) Initial Purchase. Subject to the terms and conditions set forth in
----------------
this Section 1.2 and in Section 2.1, at the Initial Closing, the Company shall
----------- -----------
sell to each Purchaser and, each Purchaser shall purchase from the Company:
(i) that number of shares of the Class A Preferred set forth
opposite such Purchaser's name in the Schedule of Purchasers attached
----------------------
hereto, at a purchase price of $1,000 per share; and
(ii) that number of shares of the Common set forth opposite such
Purchaser's name set forth in the Schedule of Purchasers attached hereto,
at a purchase price of $0.10 per share.
(b) Use of Proceeds of Initial Purchase. The funds obtained by the
-----------------------------------
Company from the Purchasers at the Initial Closing shall, together with debt
financing provided by First Union National Bank, N.A. and NationsBank, National
Association ("Lenders") pursuant to the Credit Agreement (the "Credit
Agreement") dated August 12, 1999, as amended, between Lender, the Company and
its Subsidiaries, be used to (i) finance the Company's costs of consummating the
transactions contemplated by the Recapitalization Agreement and (ii) provide
funds for the Company's working capital requirements.
(c) Initial Closing. The closing of the purchase and sale of the Stock
---------------
to be purchased pursuant to Sections 1.2(a) (the "Initial Closing") shall take
---------------
place at the offices of Hogan & Hartson, LLP, 555 Thirteenth Street, NW,
Washington, D.C., 20004 at 10:00 a.m. on August 12, 1999 or at such other place
or on such other date as may be mutually agreeable to the Company and the
Purchasers. At the Initial Closing, the Company shall deliver to each Purchaser
stock certificates evidencing the Stock to be purchased by such Purchaser,
registered in such Purchaser's name, upon payment of the purchase price thereof
by, at the Company's option, either a cashier's or certified check, or by wire
transfer of immediately available funds to such account as designated by the
Company.
-2-
<PAGE>
1.3 Subsequent Take-Downs of Class A Preferred.
------------------------------------------
(a) Request for Takedowns. The Company may from time to time request
---------------------
that Thayer Holdings purchase from the Company up to 36,480 additional shares of
Class A Preferred at a purchase price of $1,000 per share (an aggregate purchase
price of $36,480,000) (such purchases are referred to as "Take-Downs"). Such
requests shall be made in conjunction with and for the purpose of funding future
acquisitions of information technology consulting and related businesses by the
Company and shall be presented to Thayer Holdings in writing. Thayer Holdings
shall accept or reject such Take-Down within 10 business days of receiving such
request, such request shall not be unreasonably refused by Thayer Holdings. The
Company and Thayer Holdings shall agree upon a date (the "Subsequent Closing
Date") for the closing (the "Subsequent Closing") of the additional shares of
Class A Preferred to be purchased in connection with such Take-Down.
(b) Subsequent Closings. Subsequent Closings shall take place on the
-------------------
Subsequent Closing Date at the offices of Hogan & Hartson LLP, 555 Thirteenth
Street, NW, Washington, D.C. 20004, or at such other place as shall be agreed to
by Thayer Holdings and the Company. At a Subsequent Closing, upon the
satisfaction of the provisions of this Section 1.3 and of Section 2.2, the
----------- -----------
Company shall deliver to Thayer Holdings stock certificates evidencing the
shares of Class A Preferred to be purchased by Thayer Holdings registered in its
name, upon payment of the purchase price thereof by, at the Company's option,
either a cashier's or certified check, or by wire transfer of immediately
available funds to such account as designated by the Company.
(c) Termination. The provisions of this Section 1.3 shall terminate on
----------- -----------
the earlier to occur of the following events: (i) the written consent of the
Company and the holders of greater than 50% of the outstanding shares of Class A
Preferred sold pursuant to this Agreement; (ii) a Drag-Along Sale (as defined in
the Stockholders Agreement); (iii) a merger or other business combination
involving the Company in which the holders of the Company's capital stock
immediately prior to the effective time of such merger or business combination
own less than 50% of the capital stock of the surviving corporation (determined
on a fully-diluted basis) immediately after the effective time of such merger or
business combination; or (iv) the closing of an IPO Event (as defined in the
Stockholders Agreement).
ARTICLE II
CONDITIONS OF THE PURCHASERS' OBLIGATIONS
AT CLOSINGS
2.1 Initial Closing Conditions. The obligation of the Purchasers to
--------------------------
purchase and pay for the Stock at the Initial Closing is subject to the
satisfaction as of the Initial Closing of the following conditions:
(a) Representations and Warranties, Covenants. The representations and
-----------------------------------------
warranties contained in Section 5 hereof shall be true and correct at and as of
---------
-3-
<PAGE>
the Initial Closing as though then made, except to the extent of changes caused
by the transactions expressly contemplated herein; and the Company shall have
performed in all material respects all of the covenants required to be performed
by it hereunder prior to the Initial Closing.
(b) Management Agreements. The Company shall have entered into a senior
---------------------
management agreement (the "Management Agreements"), with each of Stuart C.
Johnson, Graham B. Perkins, Thomas B. Modly, Jason H. Levine, Bruce H. Allen,
Matthew B. Walker, Patricia A. Withers and David T. Fu (the "Executives"), the
Management Agreements shall not have been amended or modified and shall be in
full force and effect as of the Initial Closing, and each Executive shall have
purchased the Stock proposed to be purchased by him thereunder.
(c) Stockholders Agreement. The Purchasers and the Executives shall
----------------------
have executed a joinder agreement to the Stockholders Agreement dated August 12,
1999 (the "Stockholders Agreement"), and the Stockholders Agreement shall be in
full force and effect as of the Initial Closing.
(d) Professional Services Agreement. The Company and TC Management
-------------------------------
Partners, L.L.C., a Delaware limited liability company, shall have entered into
a Professional Services Agreement dated August 12, 1999 (the "Professional
Services Agreement"), and the Professional Services Agreement shall be in full
force and effect as of the Initial Closing.
(e) Compliance with Applicable Laws. The purchase of Stock by the
-------------------------------
Purchasers hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject the Purchasers to any penalty,
liability or, in the Purchasers' sole judgment, other onerous conditions under
or pursuant to any applicable law or governmental regulation, and shall be
permitted by laws and regulations of the jurisdictions to which the Purchasers
are subject.
(f) Waiver. Any condition specified in this Section 2.1 may be waived
------
only if such waiver is set forth in a writing executed by the Purchasers.
2.2 Subsequent Closing Conditions. The obligation of Thayer Holdings to
-----------------------------
purchase and pay for shares of Class A Preferred at a Subsequent Closing in
connection with a Take-Down is subject to the satisfaction as of the Subsequent
Closing of the following conditions:
(a) Representations and Warranties, Covenants. The representations and
-----------------------------------------
warranties contained in Section 5 hereof shall be true and correct in all
---------
material respects at and as of the Subsequent Closing as though then made,
except:
(i) to the extent expressly made as of an earlier date;
(ii) to the extent of changes caused by the transactions expressly
contemplated herein or by the transactions for which such Take-Down is
being made (or for which prior Take-Downs have been made) and the Company
-4-
<PAGE>
shall have performed in all material respects all of the covenants required
to be performed by it hereunder prior to the Subsequent Closing; and
(iii) to reflect the fact that additional shares of Class A
Preferred have been issued to Thayer Holdings pursuant to Section 1.3.
-----------
(b) Compliance with Applicable Laws. The purchase of Stock by Thayer
-------------------------------
Holdings pursuant to such Subsequent Closing shall not be prohibited by any
applicable law or governmental regulation, shall not subject Thayer Holdings to
any penalty, liability or, in Thayer Holdings' sole judgment, other onerous
conditions under or pursuant to any applicable law or governmental regulation,
and shall be permitted by laws and regulations of the jurisdictions to which
Thayer Holdings is subject.
(c) Board Approval. The Board shall have approved the purchase of Stock
--------------
by Thayer Holdings and the use of proceeds, including the consummation of any
acquisition, for which the Take-Down is being made.
(d) Waiver. Any condition specified in this Section 2.2 may be waived
------
only if such waiver is set forth in a writing executed by Thayer Holdings.
ARTICLE III
COVENANTS
3.1 Financial Statements and Other Information. The Company shall deliver
------------------------------------------
to Thayer Holdings so long as it holds any Investor Stock:
(a) as soon as available but in any event within 45 days after the end
of each month in each fiscal year, unaudited consolidated statements of income
and cash flows of the Company and its Subsidiaries for the period from the
beginning of the fiscal year to the end of such month, and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such month, all
prepared in accordance with generally accepted accounting principles,
consistently applied, subject to the absence of footnote disclosures and to
normal year-end adjustments;
(b) within 120 days after the end of each fiscal year, consolidating
and consolidated statements of income and cash flows of the Company and its
Subsidiaries for such fiscal year, and consolidating and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such fiscal year,
setting forth in each case comparisons to the annual budget and to the preceding
fiscal year, all prepared in accordance with generally accepted accounting
principles, consistently applied, and accompanied by (i) with respect to the
consolidated portions of such statements (except with respect to budget data),
an opinion containing no exceptions or qualifications (except for qualifications
regarding specified contingent liabilities) of Arthur Andersen, LLP or an
independent accounting firm of recognized national
-5-
<PAGE>
standing acceptable to Thayer Holdings, and (ii) a copy of such firm's annual
management letter to the Board;
(c) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder); and
(d) with reasonable promptness, such other information and financial
data concerning the Company and its Subsidiaries as Thayer Holdings may
reasonably request.
Each of the financial statements referred to in Sections 3.1 (a) and (b)
---------------- ---
shall be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end audit adjustments (none of
which would, alone or in the aggregate, be materially adverse to the financial
condition, operating results, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole).
3.2 Inspection of Property. The Company shall permit any representatives
----------------------
designated by Thayer Holdings (so long as Thayer Holdings holds any Investor
Stock), upon reasonable notice and during normal business hours and such other
times as any such holder may reasonably request, to (i) visit and inspect any of
the properties of the Company and its Subsidiaries, (ii) examine the corporate
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and (iii) discuss the affairs, finances and
accounts of any such corporations with the directors, officers, key employees
and independent accountants of the Company and its Subsidiaries.
3.3 Restrictions. Except as expressly contemplated by the purchase
------------
agreements relating to the acquisition of Empyrean Group, Inc., this Agreement,
the Recapitalization Agreement or an agreement to be entered into in connection
with a transaction for which a Take-Down is being made, the Company shall not
without the prior written consent of either (x) a majority of the members of the
Company's Board of Directors (the "Board") appointed by Thayer Holdings and
Thayer Equity Investors IV, L.P. pursuant to any resolution of the Board or (y)
the holders of a majority of the outstanding Investor Preferred or, in the event
no Investor Preferred is outstanding, without the prior written consent of the
holders of a majority of the Investor Common:
(a) directly or indirectly declare or pay any dividends or make any
distributions upon any of its equity securities, other than payments of
dividends on, or redemption payments in respect of, the Class A Preferred
pursuant to the Certificate of Incorporation;
(b) except pursuant to the Management Agreements and the Stockholders
Agreement, directly or indirectly redeem, purchase or otherwise acquire, or
permit any Subsidiary to redeem, purchase or otherwise acquire, any of the
Company's equity securities (including, without limitation, warrants, options
and other rights to acquire equity securities),
-6-
<PAGE>
(c) except as expressly contemplated by the Management Agreements
authorize, issue, sell or enter into any agreement providing for the issuance
(contingent or otherwise), or permit any Subsidiary to authorize, issue, sell or
enter into any agreement providing for the issuance (contingent or otherwise)
of, (i) any notes or debt securities containing equity features or (ii) any
equity securities (or any securities convertible into or exchangeable for any
equity securities) or rights to acquire any equity securities, other than the
issuance of equity securities by a Subsidiary to the Company or another
Subsidiary;
(d) merge or consolidate with any Person or permit any Subsidiary to
merge or consolidate with any Person (other than a wholly owned Subsidiary);
(e) sell, lease or otherwise dispose of, or permit any Subsidiary to
sell, lease or otherwise dispose of, more than 5% of the consolidated assets of
the Company and its Subsidiaries (computed on the basis of book value,
determined in accordance with generally accepted accounting principles
consistently applied, or fair market value, determined by the Board in its
reasonable good faith judgment) in any transaction or series of related
transactions (other than sales of inventory in the ordinary course of business);
(f) liquidate, dissolve or effect a recapitalization or reorganization
in any form of transaction (including, without limitation, any reorganization
into partnership form);
(g) acquire, or permit any Subsidiary to acquire, any material interest
in any business (whether by a purchase of assets, purchase of stock, merger or
otherwise), or enter into any material joint venture;
(h) enter into, or permit any Subsidiary to enter into, the ownership,
active management or operation of any business other than the operation of
information technology consulting businesses;
(i) enter into, or permit any Subsidiary to enter into, any transaction
with any of its or any Subsidiary's officers, directors, employees or Affiliates
or any individual related by blood, marriage or adoption to any such Person or
any entity in which any such Person or individual owns a beneficial interest,
except for normal employment arrangements and benefit programs on reasonable
terms and except as otherwise expressly contemplated by this Agreement, the
Management Agreements and the Professional Services Agreement; or
(j) create, incur, assume or suffer to exist, or permit any Subsidiary
to create, incur, assume or suffer to exist, Indebtedness exceeding the amounts
approved therefor by the Board in the annual budget.
3.4 Unrelated Business Taxable Income. The Company shall not engage in any
---------------------------------
transaction which is reasonably likely to cause Thayer Holdings or any of its
limited partners which are exempt from income taxation under Section 501(a) of
the IRC and, if applicable, any pension plan that any such trust may be a part
of, to recognize unrelated business taxable income as defined in Section 512 and
Section 514 of the IRC.
-7-
<PAGE>
3.5 Hart-Scott-Rodino Compliance. In connection with any transaction in
----------------------------
which the Company is involved which is required to be reported under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to
time (the "HSR Act"), the Company shall prepare and file all documents with the
Federal Trade Commission and the United States Department of Justice which may
be required to comply with the HSR Act, and shall promptly furnish all materials
thereafter requested by any of the regulatory agencies having jurisdiction over
such filings, in connection with the transactions contemplated thereby. The
Company shall take all reasonable actions and shall file and use reasonable best
efforts to have declared effective or approved all documents and notifications
with any governmental or regulatory bodies as may be necessary or may reasonably
be requested under federal antitrust laws for the consummation of the subject
transaction; provided that this Section 3.5 shall not be interpreted as
-----------
requiring the Company to divest of any lines of business or other assets.
3.6 Confidentiality. Except as otherwise required by law or judicial order
---------------
or decree or by any governmental agency or authority, Thayer Holdings shall use
its best efforts to maintain the confidentiality of all nonpublic information
obtained by Thayer Holdings pursuant to Section 3.1 or 3.2, which the Company
----------- ---
has reasonably designated as proprietary or confidential in nature; provided
that Thayer Holdings may disclose such information to other Purchasers (who
shall be bound by this provision) or in connection with the sale or transfer, or
proposed sale or transfer, of any shares of Investor Stock, if the transferee or
proposed transferee agrees in writing to be bound by the provisions hereof.
3.7 Termination. Upon (i) a Drag-Along Sale (as defined in the Stockholders
-----------
Agreement), (ii) an IPO Event (as defined in the Stockholders Agreement) or
(iii) such time as the Investor Common constitutes less than 10% of the
fully-diluted Common Stock, Section 3.1, 3.2 and 3.3 shall terminate without
----------- --- ---
further action and shall be of no further force and effect.
ARTICLE IV
TRANSFER OF RESTRICTED SECURITIES
---------------------------------
4.1 Transfer of Restricted Securities.
---------------------------------
(a) Restricted Securities are transferable only pursuant to (i) public
offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A of the
Securities Act (or any similar rule or rules then in force) if such rule or
rules are available and (iii) subject to the conditions specified in Section
-------
4.1(b) below, any other legally available means of transfer.
- ------
(b) In connection with the transfer of any Restricted Securities (other
than a transfer described in Section 4.1(a)(i) or (ii) above), the holder
----------------- ----
thereof shall deliver written notice to the Company describing in reasonable
detail the transfer or proposed transfer, together with an opinion of Hogan &
Hartson LLP, or other counsel which (to the Company's reasonable satisfaction)
is knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act. In addition, if the holder of the
Restricted Securities delivers to the Company an
-8-
<PAGE>
opinion of Hogan & Hartson LLP, or such other counsel that no subsequent
transfer of such Restricted Securities shall require registration under the
Securities Act, the Company shall promptly upon such contemplated transfer
deliver new certificates for such Restricted Securities which do not bear a
customary Securities Act legend. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the holder
thereof shall not transfer the same until the prospective transferee has
confirmed to the Company in writing its agreement to be bound by the conditions
contained in this Section 4.1 and Section 6.1.
----------- -----------
(c) Upon the request of the Purchaser, the Company shall promptly
supply to the Purchasers or their respective prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities Act.
(d) Each Purchaser agrees to execute and deliver to the Company and
Thayer Holdings a joinder to the Stockholders Agreement and to cause any of its
prospective transferees to execute and deliver to the Company and Thayer
Holdings a joinder to the Stockholders Agreement prior to making any transfer of
Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As a material inducement to the Purchasers to enter into this Agreement and
purchase the Stock, the Company hereby represents and warrants to the Purchasers
that:
5.1 Organization and Corporate Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the state of
Delaware and is qualified to do business in every jurisdiction in which the
failure to so qualify might reasonably be expected to have a material adverse
effect on the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole. The
Company has all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement.
5.2 Capital Stock and Related Matters.
---------------------------------
(a) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of 100,000,000 shares of stock, of
which (i) 150,000 shares shall be designated as Class A Preferred and (ii)
99,850,000 shares shall be designated as Common Stock. The issued and
outstanding Class A Preferred Stock and the Common Stock are as set forth on
Exhibit B hereto. As of the Closing, the Company shall not be subject to any
- ---------
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any warrants, options or other rights
to acquire its capital stock, except pursuant to this Agreement and the
Management Agreements. As of the Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and nonassessable.
-9-
<PAGE>
(b) Based in part on the investment representations of (i) the Purchasers
in Section 6.1 hereof, (ii) the Executives in paragraph l(c) of the Management
----------- -------------
Agreements, and (iii) the purchasers in the Empyrean Merger Agreement, the
Company has not violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its capital stock, and the
offer, sale and issuance of the Stock hereunder and pursuant to Section 1.3
-----------
hereof do not and will not require registration under the Securities Act or any
applicable state securities laws.
5.3 Subsidiaries; Investments. Prior to the Recapitalization Agreement
-------------------------
closing, the Company did not own or hold any shares of stock or any other
security or interest in any other Person.
5.4 Authorization; No Breach. The execution, delivery and performance of
------------------------
this Agreement, the Management Agreements, the Stockholders Agreement, the
Professional Services Agreement, the Recapitalization Agreement and all other
agreements contemplated hereby to which the Company is a party have been duly
authorized by the Company. This Agreement, the Management Agreements, the
Stockholders Agreement, the Professional Services Agreement, the
Recapitalization Agreement and all other agreements contemplated hereby each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms. The execution and delivery by the Company of this
Agreement, the Management Agreements, the Stockholders Agreement, the
Professional Services Agreement, the Recapitalization Agreement and all other
agreements contemplated hereby to which the Company is a party, the offering,
sale and issuance of the Stock hereunder and pursuant to Section 1.2(a), the
--------------
Amended and Restated Certificate of Incorporation and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company do not
and will not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's capital
stock or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of, or
(vi) require any authorization, consent, approval, exemption or other action by
or notice to any court or administrative or governmental body pursuant to, the
Certificate of Incorporation or bylaws of the Company, or any law, statute, rule
or regulation to which the Company is subject, or any agreement, instrument,
order, judgment or decree to which the Company is a party or by which it is
bound.
5.5 Violations of Laws. Except as set forth in the Disclosure Schedule to
------------------
the Recapitalization Agreement, the Company has not (i) violated any laws or
governmental rules or regulations, which violation would reasonably be expected
to have a material adverse effect upon the financial condition, operating
results, assets, operations or business prospects of the Company; (ii) received
notice of any such material violation; or (iii) become subject to any material
clean up liability, and the Company has no reason to believe it may become
subject to any material clean up liability, under any federal, state or local
environmental law, rule or regulation.
5.6 Governmental Consent, etc. Except for approvals under the HSR Act, no
-------------------------
material permit, consent, approval or authorization of, or declaration to or
filing with, any
-10-
<PAGE>
governmental authority is required in connection with the execution, delivery
and performance by the Company of this Agreement or the other agreements
contemplated hereby, or the consummation by the Company of any other
transactions contemplated hereby or thereby.
5.7 Disclosure. Neither this Agreement nor any of the schedules,
----------
attachments, written statements, documents, certificates or other items prepared
or supplied to the Purchasers by or on behalf of the Company with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading. There is no fact which the Company has not disclosed to
the Purchasers in writing and of which any of its officers, directors or
executive employees is aware and which has had or might reasonably be
anticipated to have a material adverse effect upon the existing or expected
financial condition, operating results, assets, customer or supplier relations,
employee relations or business prospects of the Company.
ARTICLE VI
PURCHASERS REPRESENTATIONS AND WARRANTIES
-----------------------------------------
As a material inducement to the Company to enter into this Agreement, each
Purchaser hereby represents and warrants to the Company, with respect to itself
and not jointly, as follows:
6.1 Purchaser's Investment Representations. Such Purchaser (i) is acquiring
--------------------------------------
the Restricted Securities purchased hereunder or acquired pursuant hereto for
its own account with the present intention of holding such securities for
purposes of investment, (ii) has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws and (iii) is an "accredited investor" as
defined in the Securities Act; provided that nothing contained herein shall
prevent such Purchaser and subsequent holders of Restricted Securities from
transferring such securities in compliance with the provisions of Article IV
----------
hereof. Each certificate for Restricted Securities shall be imprinted with a
customary securities legend in a form provided by the Company's counsel.
6.2 Authorization; No Breach. The execution, delivery and performance of
------------------------
this Agreement, the Stockholders Agreement and all other agreements contemplated
hereby to which such Purchaser is a party have been duly authorized by such
Purchaser. This Agreement, the Stockholders Agreement and all other agreements
contemplated hereby to which a Purchaser is a party each constitutes a valid and
binding obligation of such Purchaser, enforceable in accordance with its terms.
The execution and delivery by such Purchaser of this Agreement, the Stockholders
Agreement and all other agreements contemplated hereby to which such Purchaser
is a party, and compliance with the respective terms hereof and thereof by such
Purchaser do not and will not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon such Purchaser's capital stock or assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any
-11-
<PAGE>
court or administrative or governmental body pursuant to, the charter or
organizational documents of such Purchaser, if applicable, or any law, statute,
rule or regulation to which such Purchaser is subject, or any agreement,
instrument, order, judgment or decree to which such Purchaser is a party or by
which it is bound.
6.3 Brokerage. Other than the Professional Services Agreement, there are no
---------
claims for brokerage commissions, finders, fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon such Purchaser. Such Purchaser shall pay,
and hold the Company harmless against, any liability, loss or expense
(including, without limitation, attorneys, fees and out-of-pocket expenses)
arising in connection with any such claim.
6.4 Governmental Consent, etc. No permit, consent, approval or
-------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by such
Purchaser of this Agreement or the other agreements contemplated hereby, or the
consummation by such Purchaser of any other transactions contemplated hereby or
thereby.
ARTICLE VII
DEFINITIONS
-----------
For the purposes of this Agreement, the following terms have the meanings
set forth below:
"Affiliate" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such particular
person or entity.
"Class A Preferred" has the meaning set forth in Recital B of this
---------
Agreement.
"Certificate of Incorporation" means the Company's amended and restated
Certificate of Incorporation filed with the Secretary of State of the State of
Delaware on August 12, 1999.
"Common" has the meaning set forth in Recital B of this Agreement.
---------
"Common Stock" means collectively, the Common and any other class of the
Company's common stock, $.01 par value per share.
"Credit Agreement" has the meaning set forth in Section 1.2(b).
--------------
"Existing Stockholders" has the meaning set forth in Recital B of this
---------
Agreement.
"HSR Act" has the meaning set forth in Section 3.5.
-----------
-12-
<PAGE>
"Indebtedness" means all indebtedness for borrowed money (including
purchase money obligations), all indebtedness under revolving credit
arrangements, all capitalized lease obligations and all guarantees of any of the
foregoing.
"Initial Closing" has the meaning set forth in Section 1.2(c).
--------------
"Investor Common" means (i) the Common Stock issued hereunder and (ii) any
Common Stock issued or issuable with respect to the Common Stock referred to in
clause (i) above by way of stock dividends or stock splits or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares of Investor Common, such shares
shall cease to be Investor Common when they have been (a) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering, them or (b) distributed to the public through a broker,
dealer or market maker pursuant to Rule 144 under the Securities Act (or any
similar rule then in force).
"Investor Preferred" means (i) the Class A Preferred issued hereunder and
(ii) any Class A Preferred issued or issuable with respect to the Class A
Preferred referred to in clause (i) above by way of stock dividends or stock
splits or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular shares of Investor
Preferred, such shares shall cease to be Investor Preferred when they have been
(a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar rule then in force) or (c) redeemed by the
Company.
"Investor Stock" means the Investor Preferred and the Investor Common.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"Management Agreements" has the meaning set forth in Section 2.1(b).
--------------
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Professional Services Agreement" has the meaning set forth in Section
-------
2.1(d).
- ------
"Recapitalization Agreement" has the meaning set forth in Recital D.
---------
"Restricted Securities" means (i) the Stock issued hereunder and (ii) any
securities issued with respect to the securities referred to in clause (i) above
by way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Restricted Securities, such securities
-13-
<PAGE>
shall cease to be Restricted Securities when they have (A) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (B) become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act or
(C) been otherwise transferred and new certificates for them not bearing a
customary Securities Act legend have been delivered by the Company in accordance
with Section 4.1(b). Whenever any particular securities cease to be Restricted
--------------
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a customary Securities
Act legend.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Stockholders Agreement" has the meaning set forth in Section 2.1(c).
--------------
"Stock" has the meaning set forth in Section 1.1 of this Agreement.
-----------
"Subsidiary" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors or
otherwise are, at the time as of which any determination is being made, owned by
the Company either directly or through one or more Subsidiaries.
"Take Downs" has the meaning set forth in Section 1.3(a).
--------------
" Thayer Holdings" means Thayer ITECH Holdings, L.L.C.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Expenses. The Company agrees to pay, and hold Thayer Holdings harmless
--------
against liability for the payment of, (i) the fees and expenses of its counsel
arising in connection with the negotiation and execution of this Agreement and
the consummation of the transactions contemplated by this Agreement, (ii) the
fees and expenses incurred with respect to any amendments or waivers (whether or
not the same become effective) under or in respect of this Agreement, the
Management Agreements, the Stockholders Agreement, the Professional Services
Agreement, the other agreements contemplated hereby and the Certificate of
Incorporation, (iii) stamp and other taxes which may be payable in respect of
the execution and delivery of this Agreement or the issuance, delivery or
acquisition of any shares of Stock purchased hereunder or in accordance with
Section 1.3 hereof, and (iv) the fees and expenses incurred with respect to the
- -----------
interpretation or enforcement of the rights of Thayer Holdings
-14-
<PAGE>
granted under this Agreement, the Management Agreements, the Stockholders
Agreement, the Professional Services Agreement, the other agreements
contemplated hereby and the Certificate of Incorporation and the Company's
bylaws.
8.2 Remedies. Each holder of Investor Stock shall have all rights and
--------
remedies set forth in this Agreement and the Certificate of Incorporation and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
8.3 Consent to Amendments. Except as otherwise expressly provided herein,
---------------------
the provisions of this Agreement may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding shares of Investor Common. No other
course of dealing between the Company and the holder of any Stock or any delay
in exercising any rights hereunder or under the Certificate of Incorporation
shall operate as a waiver of any rights of any such holders. For purposes of
this Agreement, shares of Stock held by the Company or any Subsidiaries shall
not be deemed to be outstanding.
8.4 Survival of Representation and Warranties. All representations and
-----------------------------------------
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchasers or on their behalf
8.5 Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the respective
successors and permitted assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the Purchaser's benefit as a
purchaser or holder of Stock are also for the benefit of, and enforceable by,
any permitted subsequent holder of such Stock. The rights and obligations of the
Thayer Holdings under this Agreement and the agreements contemplated hereby may
be assigned by the Thayer Holdings at any time, in whole or in part, to any
investment fund managed by TC Management Partners, L.L.C. or any other Affiliate
of Thayer Holdings, or any successor thereto.
8.6 Severability. Whenever possible, each provision of this Agreement shall
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating, the remainder of this
Agreement.
8.7 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
-15-
<PAGE>
8.8 Descriptive Headings; Interpretation. The descriptive headings of this
------------------------------------
Agreement are inserted for convenience only and do not constitute a Section of
this Agreement. The use of the word "including" in this Agreement shall be by
way of example rather than by limitation.
8.9 Governing Law. This Agreement and the exhibits and schedules hereto
-------------
shall be governed by and construed in accordance with the internal laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
8.10 Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient by reputable express service (charges prepaid), 24 hours after being
sent by overnight courier service (charges prepaid), 48 hours after being
deposited to the recipient by United States mail, first class, postage prepaid,
or sent by facsimile. Such notices, demands and other communications shall be
sent to the Purchasers and to the Company at the address indicated below:
If to the Company:
-----------------
Empyrean Group Holdings, Inc.
8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
Attention: Jason Levine
Graham Perkins
Tel No: (703) 740-9276
Fax No: (703) 740-9033
Empyrean Group Holdings, Inc.
c/o Thayer Capital Partners
1455 Pennsylvania Avenue NW, Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Daniel Raskas
Tel No.: (202) 371-0150
Fax No.: (202) 371-0391
If to the Purchasers:
--------------------
To each Purchaser at the address set forth in the Schedule
--------
of Purchasers attached hereto
-------------
-16-
<PAGE>
with a copy to:
Hogan & Hartson, LLP
Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Christopher J. Hagan
Tel No.: (202) 637-5600
Fax No.: (202) 637-5910
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
8.11 Entire Agreement. Except as otherwise expressly set forth herein, this
----------------
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
[THIS SPACE INTENTIONALLY LEFT BLANK]]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
------------------------------------
Name: Stuart C. Johnson
Title: President & CEO
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, IV, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert Michalik
-------------------------------
Name: Robert Michalik
Title: Vice President
[OTHER PURCHASERS]
-18-
<PAGE>
SCHEDULE OF PURCHASERS
(INITIAL CLOSING INVESTMENT)
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of Class A Aggregate
of Common at Preferred at Investment ($)
Name and Address of Purchaser Initial Closing Initial Closing at Initial Closing
- -------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Thayer Itech Holdings, LLC (Thayer Equity 19,009,419 0 $1,900,941.90
Investors IV, L.P.)
c/o Thayer Capital Partners
1455 Pennsylvania Avenue, NW, Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Daniel Raskas
Tel No: (202) 371-0150
Fax No: (202) 371-0391
TC ITECH, L.L.C. 190,581 0 $381,158.10
c/o Thayer Capital Partners
1455 Pennsylvania Avenue, NW, Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Daniel Raskas
Tel No: (202) 371-0150
Fax No: (202) 371-0391
-------------------- -------------------- --------------------
TOTAL 19,200,000 2,282,100.0
==================== ==================== ====================
</TABLE>
-19-
<PAGE>
SCHEDULE OF PURCHASERS
(FUTURE PREFERRED INVESTMENTS)
<TABLE>
<CAPTION>
Number of Total Number of Aggregate
Additional Shares Shares of Class A Additional
of Class A Preferred to be Investment ($)
Name and Address of Purchaser Preferred to be Purchased by such for Additional
Purchased after Purchaser Shares of
Initial Closing (including Initial Preferred Stock
Closing Shares)
- -------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Thayer Itech Holdings, L.L.C. (Thayer 36,117.9 36,117.9 $36,117,900
Equity Investors IV, L.P.)
c/o Thayer Capital Partners
1455 Pennsylvania Avenue, NW, Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Daniel Raskas
Tel No: (202) 371-0150
Fax No: (202) 371-0391
TC ITECH, L.L.C. 362.1 362.1 $362,100
c/o Thayer Capital Partners
1455 Pennsylvania Avenue, NW, Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Daniel Raskas
Tel No: (202) 371-0150
Fax No: (202) 371-0391
-------------------- -------------------- --------------------
TOTAL 36,480 36,480 $36,480,000
==================== ==================== ====================
</TABLE>
-20-
<PAGE>
Exhibit 10.5
- --------------------------------------------------------------------------------
EQUITY PURCHASE AGREEMENT
between
ICONIXX CORPORATION
and
THAYER ITECH HOLDINGS, L.L.C.
and
TC ITECH, L.L.C.
Dated March 22, 2000
- --------------------------------------------------------------------------------
<PAGE>
LIST OF EXHIBITS
- ----------------
Exhibit A Amended and Restated Certificate of Incorporation of Iconixx
Corporation
Exhibit B Capitalization Schedule
-i-
<PAGE>
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of March 22, 2000, between ICONIXX CORPORATION, a
Delaware corporation (formerly, Empyrean Group Holdings, Inc.) (the "Company"),
THAYER ITECH HOLDINGS, L.L.C., a Delaware limited liability company ("Thayer
Holdings"), and each of the other persons or entities set forth in the Schedule
--------
of Purchasers attached hereto (collectively with Thayer Holdings, the
- -------------
"Purchasers" and individually a "Purchaser"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 7 hereof.
---------
Recitals:
--------
At the Closing, the Purchasers desire to purchase from the Company, and the
Company desires to sell to the Purchasers (i) an aggregate of 16,100 shares of
the Company's Class A Preferred Stock, par value $.01 per share (the "Class A
Preferred") and (ii) an aggregate of 3,000,000 shares of the Company's Common
Stock, $.01 par value per share (the "Common"), in the amount set forth opposite
each Purchaser's name on the Schedule of Purchasers attached hereto.
----------------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
AUTHORIZATION AND CLOSING
-------------------------
1.1 Authorization of the Stock. The Company shall authorize the issuance
--------------------------
and sale to the Purchasers of up to an aggregate of 16,100 shares of Class A
Preferred and an aggregate of 3,000,000 shares of Common, each having the rights
and preferences set forth in Exhibit A attached hereto. The Class A Preferred
---------
and the Common are collectively referred to herein as the "Stock."
1.2 Purchase and Sale of the Stock at Closing.
-----------------------------------------
(a) Purchase of Stock. Subject to the terms and conditions set forth in
-----------------
this Section 1.2 and in Section 2.1, at the Closing, the Company shall sell to
----------- -----------
each Purchaser and, each Purchaser shall purchase from the Company:
(i) that number of shares of the Class A Preferred set forth
opposite such Purchaser's name in the Schedule of Purchasers attached
----------------------
hereto, at a purchase price of $1,000 per share; and
<PAGE>
(ii) that number of shares of the Common set forth opposite such
Purchaser's name set forth in the Schedule of Purchasers attached hereto,
at a purchase price of $1.30 per share.
(b) Use of Proceeds of Purchase. The funds obtained by the Company from
---------------------------
the Purchasers at the Closing shall, together with debt financing provided by
First Union National Bank, N.A. and NationsBank, National Association pursuant
to the Credit Agreement dated August 12, 1999, as amended, between Lender, the
Company and its Subsidiaries, be used to (i) finance the Company's costs of
consummating the acquisitions of the assets of EnterpriseWorks, LLC and Internet
Information Systems, Inc. (the "Acquisitions") and (ii) provide funds for the
Company's working capital requirements.
(c) Closing. The closing of the purchase and sale of the Stock to be
-------
purchased pursuant to Sections 1.2(a) (the "Closing") shall take place at the
---------------
offices of Hogan & Hartson, LLP, 555 Thirteenth Street, NW, Washington, D.C.,
20004 at 10:00 a.m. on March 23, 2000 or at such other place or on such other
date as may be mutually agreeable to the Company and the Purchasers. At the
Closing, the Company shall deliver to each Purchaser stock certificates
evidencing the Stock to be purchased by such Purchaser, registered in such
Purchaser's name, upon payment of the purchase price thereof by, at the
Company's option, either a cashier's or certified check, or by wire transfer of
immediately available funds to such account as designated by the Company.
ARTICLE II
CONDITIONS OF THE PURCHASERS' OBLIGATIONS
AT CLOSING
2.1 Closing Conditions. The obligation of the Purchasers to purchase and
------------------
pay for the Stock at the Closing is subject to the satisfaction as of the
Closing of the following conditions:
(a) Representations and Warranties, Covenants. The representations and
-----------------------------------------
warranties contained in Section 5 hereof shall be true and correct at and as of
---------
the Closing as though then made, except to the extent of changes caused by the
transactions expressly contemplated herein; and the Company shall have performed
in all material respects all of the covenants required to be performed by it
hereunder prior to the Closing.
(b) Consummation of Acquisitions. The Company shall have entered into
----------------------------
at least one of the two definitive purchase agreements with respect to the
Acquisitions and such Acquisition Agreement(s) shall be in full force and effect
as of the Closing.
(c) Compliance with Applicable Laws. The purchase of Stock by the
-------------------------------
Purchasers hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject the Purchasers to any penalty,
liability or, in the Purchasers' sole judgment, other onerous conditions under
or pursuant to any applicable law or governmental regulation, and
-2-
<PAGE>
shall be permitted by laws and regulations of the jurisdictions to which the
Purchasers are subject.
(d) Waiver. Any condition specified in this Section 2.1 may be waived
------
only if such waiver is set forth in a writing executed by the Purchasers.
(e) Board Approval. The Board shall have approved the purchase of Stock
--------------
by the Purchasers and the use of proceeds, including the consummation of the
Acquisitions.
ARTICLE III
COVENANTS
---------
3.1 Intentionally Left Blank.
------------------------
ARTICLE IV
TRANSFER OF RESTRICTED SECURITIES
---------------------------------
4.1 Transfer of Restricted Securities.
---------------------------------
(a) Restricted Securities are transferable only pursuant to (i) public
offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A of the
Securities Act (or any similar rule or rules then in force) if such rule or
rules are available and (iii) subject to the conditions specified in Section
-------
4.1(b) below, any other legally available means of transfer.
- ------
(b) In connection with the transfer of any Restricted Securities (other
than a transfer described in Section 4.1(a)(i) or (ii) above), the holder
----------------- ----
thereof shall deliver written notice to the Company describing in reasonable
detail the transfer or proposed transfer, together with an opinion of Hogan &
Hartson LLP, or other counsel which (to the Company's reasonable satisfaction)
is knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act. In addition, if the holder of the
Restricted Securities delivers to the Company an opinion of Hogan & Hartson LLP,
or such other counsel that no subsequent transfer of such Restricted Securities
shall require registration under the Securities Act, the Company shall promptly
upon such contemplated transfer deliver new certificates for such Restricted
Securities which do not bear a customary Securities Act legend. If the Company
is not required to deliver new certificates for such Restricted Securities not
bearing such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing its agreement to
be bound by the conditions contained in this Section 4.1 and Section 6.1.
----------- -----------
(c) Upon the request of the Purchaser, the Company shall promptly
supply to the Purchasers or their respective prospective transferees all
information regarding the
-3-
<PAGE>
Company required to be delivered in connection with a transfer pursuant to Rule
144A of the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As a material inducement to the Purchasers to enter into this Agreement and
purchase the Stock, the Company hereby represents and warrants to the Purchasers
that:
5.1 Organization and Corporate Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the state of
Delaware and is qualified to do business in every jurisdiction in which the
failure to so qualify might reasonably be expected to have a material adverse
effect on the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole. The
Company has all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement.
5.2 Capital Stock and Related Matters.
---------------------------------
(a) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of 100,000,000 shares of stock, of
which (i) 150,000 shares shall be designated as Class A Preferred and (ii)
99,850,000 shares shall be designated as Common Stock. The issued and
outstanding Class A Preferred Stock and the Common Stock are as set forth on
Exhibit B hereto. As of the Closing, all of the outstanding shares of the
- ---------
Company's capital stock shall be validly issued, fully paid and nonassessable.
(b) Based in part on the investment representations of the Purchasers
in Section 6.1 hereof, the offer, sale and issuance of Stock hereunder does not
and will not require registration under the Securities Act or any applicable
state securities laws.
5.3 Authorization; No Breach. The execution, delivery and performance of
------------------------
this Agreement and all other agreements contemplated hereby to which the Company
is a party have been duly authorized by the Company. This Agreement and all
other agreements contemplated hereby each constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement and all other agreements
contemplated hereby to which the Company is a party, the offering, sale and
issuance of the Stock hereunder and pursuant to Section 1.2(a), the Amended and
--------------
Restated Certificate of Incorporation and the fulfillment of and compliance with
the respective terms hereof and thereof by the Company do not and will not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption
-4-
<PAGE>
or other action by or notice to any court or administrative or governmental body
pursuant to, the Certificate of Incorporation or bylaws of the Company, or any
law, statute, rule or regulation to which the Company is subject, or any
agreement, instrument, order, judgment or decree to which the Company is a party
or by which it is bound.
5.4 Violations of Laws. The Company has not (i) violated any laws or
------------------
governmental rules or regulations, which violation would reasonably be expected
to have a material adverse effect upon the financial condition, operating
results, assets, operations or business prospects of the Company; (ii) received
notice of any such material violation; or (iii) become subject to any material
clean up liability, and the Company has no reason to believe it may become
subject to any material clean up liability, under any federal, state or local
environmental law, rule or regulation.
5.5 Governmental Consent, etc. Except for approvals under the HSR Act, no
-------------------------
material permit, consent, approval or authorization of, or declaration to or
filing with, any governmental authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby including the Acquisitions.
5.6 Disclosure. Neither this Agreement nor any of the schedules,
----------
attachments, written statements, documents, certificates or other items prepared
or supplied to the Purchasers by or on behalf of the Company with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading. There is no fact which the Company has not disclosed to
the Purchasers in writing and of which any of its officers, directors or
executive employees is aware and which has had or might reasonably be
anticipated to have a material adverse effect upon the existing or expected
financial condition, operating results, assets, customer or supplier relations,
employee relations or business prospects of the Company.
ARTICLE VI
PURCHASERS REPRESENTATIONS AND WARRANTIES
-----------------------------------------
As a material inducement to the Company to enter into this Agreement, each
Purchaser hereby represents and warrants to the Company, with respect to itself
and not jointly, as follows:
6.1 Purchaser's Investment Representations. Such Purchaser (i) is acquiring
--------------------------------------
the Restricted Securities purchased hereunder or acquired pursuant hereto for
its own account with the present intention of holding such securities for
purposes of investment, (ii) has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws and (iii) is an "accredited investor" as
defined in the Securities Act; provided that nothing contained herein shall
prevent such Purchaser and subsequent holders of Restricted Securities from
transferring such securities in compliance with
-5-
<PAGE>
the provisions of Article IV hereof. Each certificate for Restricted Securities
----------
shall be imprinted with a customary securities legend in a form provided by the
Company's counsel.
6.2 Authorization; No Breach. The execution, delivery and performance of
------------------------
this Agreement and all other agreements contemplated hereby to which such
Purchaser is a party have been duly authorized by such Purchaser. This Agreement
and all other agreements contemplated hereby to which a Purchaser is a party
each constitutes a valid and binding obligation of such Purchaser, enforceable
in accordance with its terms. The execution and delivery by such Purchaser of
this Agreement, the Stockholders Agreement and all other agreements contemplated
hereby to which such Purchaser is a party, and compliance with the respective
terms hereof and thereof by such Purchaser do not and will not (i) conflict with
or result in a breach of the terms, conditions or provisions of, (ii) constitute
a default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon such Purchaser's capital stock or assets pursuant to,
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to, the charter or
organizational documents of such Purchaser, if applicable, or any law, statute,
rule or regulation to which such Purchaser is subject, or any agreement,
instrument, order, judgment or decree to which such Purchaser is a party or by
which it is bound.
ARTICLE VII
DEFINITIONS
-----------
For the purposes of this Agreement, the following terms have the meanings
set forth below:
"Affiliate" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such particular
person or entity.
"Class A Preferred" has the meaning set forth in the Recitals to this
Agreement.
"Certificate of Incorporation" means the Company's amended and restated
Certificate of Incorporation filed with the Secretary of State of the State of
Delaware on August 12, 1999.
"Closing" has the meaning set forth in Section 1.2(c).
--------------
"Common" has the meaning set forth in Recitals to this Agreement.
"Common Stock" means collectively, the Common and any other class of the
Company's common stock, $.01 par value per share.
-6-
<PAGE>
"Indebtedness" means all indebtedness for borrowed money (including
purchase money obligations), all indebtedness under revolving credit
arrangements, all capitalized lease obligations and all guarantees of any of the
foregoing.
"Investor Common" means (i) the Common Stock issued hereunder and (ii) any
Common Stock issued or issuable with respect to the Common Stock referred to in
clause (i) above by way of stock dividends or stock splits or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares of Investor Common, such shares
shall cease to be Investor Common when they have been (a) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering, them or (b) distributed to the public through a broker,
dealer or market maker pursuant to Rule 144 under the Securities Act (or any
similar rule then in force).
"Investor Preferred" means (i) the Class A Preferred issued hereunder and
(ii) any Class A Preferred issued or issuable with respect to the Class A
Preferred referred to in clause (i) above by way of stock dividends or stock
splits or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular shares of Investor
Preferred, such shares shall cease to be Investor Preferred when they have been
(a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar rule then in force) or (c) redeemed by the
Company.
"Investor Stock" means the Investor Preferred and the Investor Common.
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Restricted Securities" means (i) the Stock issued hereunder and (ii) any
securities issued with respect to the securities referred to in clause (i) above
by way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Restricted Securities, such securities shall cease to be
Restricted Securities when they have (A) been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (B) become eligible for sale pursuant to Rule 144(k) (or any
similar provision then in force) under the Securities Act or (C) been otherwise
transferred and new certificates for them not bearing a customary Securities Act
legend have been delivered by the Company in accordance with Section 4.1(b).
--------------
Whenever any particular securities cease to be Restricted Securities, the holder
thereof shall be entitled to receive from the Company, without expense, new
securities of like tenor not bearing a customary Securities Act legend.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
-7-
<PAGE>
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Stock" has the meaning set forth in Section 1.1 of this Agreement.
-----------
"Subsidiary" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors or
otherwise are, at the time as of which any determination is being made, owned by
the Company either directly or through one or more Subsidiaries.
"Thayer Holdings" means Thayer ITECH Holdings, L.L.C.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Expenses. The Company agrees to pay, and hold Thayer Holdings harmless
--------
against liability for the payment of, (i) the fees and expenses of Thayer
Holdings' counsel arising in connection with the negotiation and execution of
this Agreement and the consummation of the transactions contemplated by this
Agreement, (ii) the fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effective) under or in respect of this
Agreement and the Certificate of Incorporation, (iii) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any shares of Stock purchased
hereunder or in accordance with Section 1.3 hereof, and (iv) the fees and
expenses incurred with respect to the interpretation or enforcement of the
rights of Thayer Holdings granted under this Agreement and the other agreements
contemplated hereby and the Certificate of Incorporation and the Company's
bylaws.
8.2 Remedies. Each holder of Investor Stock shall have all rights and
--------
remedies set forth in this Agreement and the Certificate of Incorporation and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
8.3 Consent to Amendments. Except as otherwise expressly provided herein,
---------------------
the provisions of this Agreement may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding shares of Investor Common. No other
course of dealing between the Company and the holder of any Stock or any delay
in exercising any rights hereunder or under the Certificate of Incorporation
-8-
<PAGE>
shall operate as a waiver of any rights of any such holders. For purposes of
this Agreement, shares of Stock held by the Company or any Subsidiaries shall
not be deemed to be outstanding.
8.4 Survival of Representation and Warranties. All representations and
-----------------------------------------
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchasers or on their behalf
8.5 Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the respective
successors and permitted assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the Purchaser's benefit as a
purchaser or holder of Stock are also for the benefit of, and enforceable by,
any permitted subsequent holder of such Stock. The rights and obligations of the
Thayer Holdings under this Agreement and the agreements contemplated hereby may
be assigned by the Thayer Holdings at any time, in whole or in part, to any
investment fund managed by TC Management Partners, L.L.C. or any other Affiliate
of Thayer Holdings, or any successor thereto.
8.6 Severability. Whenever possible, each provision of this Agreement shall
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating, the remainder of this
Agreement.
8.7 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
8.8 Descriptive Headings; Interpretation. The descriptive headings of this
------------------------------------
Agreement are inserted for convenience only and do not constitute a Section of
this Agreement. The use of the word "including" in this Agreement shall be by
way of example rather than by limitation.
8.9 Governing Law. This Agreement and the exhibits and schedules hereto
-------------
shall be governed by and construed in accordance with the internal laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
-9-
<PAGE>
8.10 Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient by reputable express service (charges prepaid), 24 hours after being
sent by overnight courier service (charges prepaid), 48 hours after being
deposited to the recipient by United States mail, first class, postage prepaid,
or sent by facsimile. Such notices, demands and other communications shall be
sent to the Purchasers and to the Company at the address indicated below:
If to the Company:
-----------------
Iconixx Corporation
8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
Attention: Jason Levine
Graham Perkins
Tel No: (703) 790-9276
Fax No: (703) 790-9033
If to the Purchasers:
--------------------
To each Purchaser at the address set forth in the Schedule
--------
of Purchasers attached hereto
-------------
with a copy to:
Hogan & Hartson, LLP
Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Christopher J. Hagan
Tel No.: (202) 637-5600
Fax No.: (202) 637-5910
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
8.11 Entire Agreement. Except as otherwise expressly set forth herein, this
----------------
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ICONIXX CORPORATION
By: /s/ Graham Perkins
----------------------------------
Name: Graham Perkins
Title: Vice President/CFO
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, IV, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert Michalik
----------------------------------
Name: Robert Michalik
Title: Vice President
TC ITECH, L.L.C.
By: /s/ Robert Michalik
----------------------------------
Name: Robert Michalik
Title: President
[OTHER PURCHASERS]
-11-
<PAGE>
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of Class A Aggregate
of Common at Preferred at Investment ($)
Name and Address of Purchaser Closing Closing at Closing
- -------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Thayer Equity Investors IV, L.P. 3,000,000 16,100 20,000,000
c/o Thayer Capital Partners
1455 Pennsylvania Avenue, NW, Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Tel No: (202) 371-0150
Fax No: (202) 371-0391
-------------------- -------------------- --------------------
TOTAL 3,000,000 16,100 $20,000,000
==================== ==================== ====================
</TABLE>
-12-
<PAGE>
JOINDER AGREEMENT
TO EQUITY PURCHASE AGREEMENT
----------------------------
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") and certain parties to the Equity
Purchase Agreement, dated as of March 22, 2000 (the "Equity Purchase
Agreement"), by and among Iconixx Corporation, a Delaware corporation (the
"Company"), Thayer ITECH Holdings, L.L.C., a Delaware limited liability company
("Thayer Holdings") and TC ITECH, L.L.C. a Delaware limited liability company
("TC ITECH"). Capitalized terms used but not defined herein shall have the
meanings given such terms in the Equity Purchase Agreement.
Pursuant to the Equity Purchase Agreement, the Company has sold to Thayer
Holdings an aggregate of 3,000,000 shares of Common Stock, par value $0.01 per
share, of the Company ("Common Stock") at a price of $1.30 per share and an
aggregate of 16,100 shares of Convertible Class A Preferred Stock, par value
$0.01 per share, of the Company ("Preferred Stock") at a price of $1,000 per
share. The Joining Party, as a stockholder of the Company, is entitled to
purchase from the Company up to 86,250 shares of Common Stock and up to 462.875
shares of Preferred Stock.
By executing this Joinder, the Joining Party agrees to purchase from the
Company 86,250 shares of Common Stock at a price of $1.30 per share and 462.875
shares of Preferred Stock at a price of $1,000 per share, for an aggregate
purchase price of $575,000, according to the terms and subject to the conditions
set forth in the Equity Purchase Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder, the Joining Party will be deemed to be a
party to the Equity Purchase and shall have all of the rights and obligations of
a "Purchaser" thereunder as if he or she had executed the Equity Purchase
Agreement. The Joining Party hereby ratifies, as of the date hereof, and agrees
to be bound by, all of the terms, provisions and conditions contained in the
Equity Purchase Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: April 17, 2000
THE JOINING PARTY:
-----------------
FBR TECHNOLOGY VENTURE PARTNERS, L.L.C.
By: /s/ Gene Riechers
---------------------------------------
Name: Gene Riechers
Title: Managing Director
APPROVED BY:
-----------
ICONIXX CORPORATION
By: /s/ Jason H. Levine
---------------------------------------
Name: Jason H. Levine
Title: General Counsel
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-----------------------
Name: Robert E. Michalik
Title: Vice President
<PAGE>
Exhibit 10.6
STOCKHOLDERS AGREEMENT
By and Among
Empyrean Group Holdings, Inc.
(formerly, Business Solutions Group, Inc.),
Thayer ITech Holdings, L.L.C.,
and
The Other Stockholders of
Empyrean Group Holdings, Inc.
Dated as of August 12, 1999
-i-
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..................................................2
ARTICLE II GENERAL TRANSFERABILITY RESTRICTIONS.........................3
ARTICLE III RIGHTS OF FIRST REFUSAL....................................4
3.1 Notice.........................................................4
3.2 Company Right..................................................4
3.3 Thayer Right...................................................4
3.4 Consummation...................................................4
3.5 Selling Stockholder Right......................................5
ARTICLE IV TAG ALONG RIGHTS............................................5
4.1 Notice.........................................................5
4.2 Stockholders Right.............................................5
4.3 Consummation...................................................6
4.4 Securities Laws................................................7
ARTICLE V DRAG ALONG RIGHTS............................................7
5.1 Drag Along Sale................................................7
5.2 Drag Notice....................................................7
5.3 Form of Consideration..........................................7
5.4 Consummation...................................................8
ARTICLE VI PUBLIC OFFERING.............................................8
ARTICLE VII BOARD OF DIRECTORS.........................................9
7.1 Composition of the Board.......................................9
7.2 Removal........................................................9
7.3 Vacancy........................................................9
7.4 Quorum.........................................................9
7.5 Voting.........................................................9
7.6 Expenses.......................................................10
7.7 Representations................................................10
7.8 Conflict.......................................................10
ARTICLE VIII CONFIDENTIALITY...........................................10
ARTICLE X TERMINATION; ADDITIONAL PARTIES...............................10
10.1 Termination...................................................10
10.2 Additional Parties............................................11
ARTICLE XI MISCELLANEOUS...............................................11
11.1 Legend........................................................11
11.2 No Waiver of Rights...........................................11
11.3 Amendment.....................................................12
11.4 Entire Agreement; Successors; Third Parties...................12
11.5 No Assignment.................................................12
11.6 Notices.......................................................12
11.7 Captions......................................................13
11.8 Counterparts..................................................13
-i-
<PAGE>
11.9 Governing Law and Venue.......................................13
11.10 Severability.................................................13
11.11 Transfers; Transfers in Violation of Agreement...............13
11.12 Specific Performance.........................................13
11.13 Further Assurances...........................................14
11.14 Publicity....................................................14
-ii-
<PAGE>
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement") is made and entered into as
of August 12, 1999, by and among Empyrean Group Holdings, Inc. (formerly,
Business Solutions Group, Inc.), a Delaware corporation (the "Company"); Thayer
ITech Holdings, L.L.C., a Delaware limited liability company ("Thayer"); the
Stockholders of the Company listed on Exhibit A hereto (the "Stockholders"); and
---------
each other holder of Equity Securities who hereafter executes a Joinder
Agreement agreeing to be bound by the terms hereof. Certain capitalized terms
used herein are defined in Article I.
---------
Recitals
--------
A. Pursuant to a Recapitalization Agreement (the "Recapitalization
Agreement"), dated as of August 11, 1999, by and among Business Solutions Group,
Inc. (predecessor to the Company), Thayer, BSG Holdings, Inc. ("Parent"), and
the shareholders of BSG Holdings, Thayer, the Company, and Parent each own
shares of the Company's common stock (the "Common Stock") and shares of the
Company's preferred stock (the "Preferred Stock"). The Common Stock and the
Preferred Stock shall have voting and other rights and preferences as set forth
in the Amended and Restated Certificate of Incorporation dated August 12, 1999,
as amended from time to time (the "Amended and Restated Certificate of
Incorporation").
B. Pursuant to a Merger Agreement, to be entered into in August 1999, by
and among the Company, Empyrean Group, Inc. and FBR Technology Venture Partners,
LP. ("FBR"), FBR will receive shares of the Company's Common Stock and Preferred
Stock.
C. In connection with such transactions, the Company and the Stockholders
have determined that it is in their respective best interests to enter into, and
perform under, this Agreement.
D. Any other Persons who purchase shares of the Company's capital stock
shall become parties to this Agreement with respect to all of such capital stock
by executing a Joinder Agreement.
E. The Company and the Stockholders desire to enter into this Agreement for
the purposes, among others, of (i) assuring continuity in the ownership of the
Company, (ii) limiting the manner and terms by which the Stockholders' capital
stock of the Company may be transferred.
<PAGE>
Agreement
---------
In consideration of the foregoing and the covenants set forth herein and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, in addition to terms defined elsewhere
herein, the following terms when used herein shall have the following meanings:
1.1 "Affiliate," with respect to any Person, shall mean (i) any other
Person that directly or indirectly, controls, is controlled by, or is under
common control with, such Person or (ii) a general or limited partner of such
Person.
1.2 "Board" shall mean the Board of Directors of the Company.
1.3 "Confidential Information" means (i) the terms and provisions of this
Agreement and the Transactions and (ii) all confidential information (for
purposes of this Agreement, confidential information shall refer to all
information which is the subject of reasonable efforts by the Company to
maintain its non-public character or to otherwise prevent such information from
becoming widely known) and trade secrets of the Company or its Affiliates
including, without limitation, any of the same comprising 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. Confidential Information shall
not include any information (a) which is disclosed pursuant to subpoena or other
legal process, (b) which has been publicly disclosed, or (c) which is
subsequently disclosed to any third party not in breach of a confidentiality
agreement.
1.4 "Equity Securities" shall mean (i) any securities of the Company having
voting rights with respect to the election of the Board not contingent upon
default, including, but not limited to, shares of the Common Stock, (ii) any
securities evidencing any equity ownership interest in the Company including,
but not limited to, the Preferred Stock, and (iii) any securities convertible
into or exercisable or exchangeable for any of the foregoing securities.
1.5 "Family Members" with respect to an individual, shall mean such
individual's spouse, parents, siblings and children.
1.6 "IPO Event" shall mean an underwritten public offering, pursuant to an
effective registration statement under the Securities Act, that is underwritten
by one or more nationally-recognized investment banking firms and results in the
Company receiving, prior to redemption of any Preferred Stock, not less than
$30,000,000 in aggregate cash proceeds from such offering.
-2-
<PAGE>
1.7 "Liquidation Value" shall have the meaning assigned to such term in the
Amended and Restated Certificate of Incorporation.
1.8 "Permitted Transfer" shall mean a Transfer of shares of Common Stock by
a Stockholder to (i) one or more Family Members of such Stockholder, or if such
Stockholder is an individual, to such Stockholder's estate; or (ii) a trust
solely for the benefit of one or more Family Members of such Stockholder;
provided that, prior to any such Transfer, each transferee shall execute a
Joinder Agreement. Any transferee receiving Common Stock pursuant to a Permitted
Transfer shall be included within the definition of "Stockholder" for purposes
of this Agreement.
1.9 "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government body.
1.10 "Pro Rata Share" shall mean the holder's pro rata share of the
outstanding Common Stock which shall be a fraction calculated by dividing (i)
the number of shares of Common Stock held by the holder as of the applicable
date plus the number of shares of Common Stock issuable upon conversion,
exercise or exchange of all other outstanding Equity Securities held by the
holder as of the applicable date, by (ii) the total number of shares of Common
Stock outstanding as of such date plus the total number of shares of Common
Stock issuable upon conversion, exercise or exchange of all other outstanding
Equity Securities as of such date.
1.11 "Securities Act" shall mean the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.
1.12 "Stockholders" shall mean collectively the Persons listed on Exhibit A
hereto and each other Person, other than Thayer or its Affiliates, that becomes
a holder of Equity Securities and agrees in writing to be bound by and comply
with the terms of this Agreement.
1.13 "Transfer" shall mean any actual or proposed disposition of all or a
portion of an interest (legal or equitable) by any means, direct or indirect,
absolute or conditional, voluntary or involuntary, including, but not limited
to, by sale, assignment, put, transfer, pledge, hypothecation, mortgage or other
encumbrance, operation of law, distribution, settlement, exchange, waiver,
abandonment, gift, alienation, bequest or disposal.
ARTICLE II
GENERAL TRANSFERABILITY RESTRICTIONS
Except for Permitted Transfers and other Transfers in compliance with
Articles II, III, IV and V of this Agreement, no Stockholder shall Transfer or
cause or permit to be Transferred any Equity Securities owned or controlled by
such Stockholder, and any purported Transfer in violation hereof shall be null
and void. Notwithstanding the foregoing, all repurchases or purchases of any
Equity Securities issued pursuant to any management agreements with
-3-
<PAGE>
employees of the Company (the "Management") shall be excluded from the
provisions of this Agreement.
ARTICLE III
RIGHTS OF FIRST REFUSAL
Before any Equity Securities owned or controlled by a Stockholder (a
"Selling Stockholder") may be Transferred (other than in a Permitted Transfer or
a Transfer pursuant to Article IV or V hereof) prior to the effective date of an
---------- -
IPO Event, Thayer and the Company shall be offered the following rights with
respect to such Equity Securities:
3.1 Notice. The Selling Stockholder shall first deliver a written notice (a
------
"Stockholder Notice") to the Company and Thayer stating (i) that the Selling
Stockholder desires to Transfer such Equity Securities, (ii) the number and type
of Equity Securities proposed to be Transferred and (iii) the price and other
material terms of the proposed Transfer. The Stockholder Notice shall be
accompanied by a certificate of the Selling Stockholder certifying that it has
received from a third party a bona fide offer to acquire such Equity Securities
at such price and on such terms as are set forth in the Stockholder Notice and
shall identify such third party.
3.2 Company Right. Within twenty (20) days after receipt of a Stockholder
-------------
Notice (the "Company Period"), the Company may elect, by delivering to the
Selling Stockholder and to Thayer a written notice (a "Company Notice") of its
election, to purchase all or any part of the Equity Securities to which the
Stockholder Notice refers, on the same terms and conditions specified in such
Stockholder Notice (or, if such offer is not all in cash, on economically
equivalent terms and conditions as determined in good faith by the Company and
specified in the Company Notice) and indicating the number of shares the Company
desires to repurchase. In the event that the Company does not elect to purchase
any of such Equity Securities, the Company shall send a notice to such effect to
the Selling Stockholder and to Thayer prior to the end of the Company Period.
3.3 Thayer Right. In the event that the Company does not elect to purchase
------------
during the Company Period all of the Equity Securities to which the Stockholder
Notice refers, then Thayer may elect, by delivering to the Selling Stockholder a
written notice (a "Thayer Notice"), within thirty (30) days after Thayer's
receipt of the Stockholder Notice (the "Thayer Period"), of its election to
acquire, on the same terms and conditions specified in the Stockholder Notice
(or, if such offer is not all in cash, on economically equivalent terms and
conditions as determined in good faith by Thayer and specified in the Thayer
Notice), all of such Equity Securities that the Company has not elected to
purchase.
3.4 Consummation. In the event that the Company and/or Thayer elects to
------------
acquire Equity Securities pursuant to this Article III, the Company, Thayer and
-----------
the Selling Stockholder shall consummate the sale and purchase of such Equity
Securities within sixty (60) days after the date that the Company and Thayer
have received the Stockholder Notice.
-4-
<PAGE>
3.5 Selling Stockholder Right. To the extent the Company and Thayer do not
-------------------------
exercise their respective rights under this Article III within the specified
-----------
time periods, the Selling Stockholder may Transfer the Equity Securities
specified in its Stockholder Notice (and not purchased by the Company or Thayer)
to the third party specified in such Stockholder Notice at the price and on the
terms specified in such notice, provided that (i) such Transfer is consummated
within one hundred twenty (120) days of the date of delivery of such Stockholder
Notice and (ii) prior to the Transfer, such third party agrees in writing to
execute a Joinder Agreement.
ARTICLE IV
TAG ALONG RIGHTS
Until the earlier of (a) the effective date of an IPO Event or (b) the date
when Thayer's Pro Rata Share (together with any Affiliates of Thayer) is less
than fifty-one percent (51%), Thayer shall not engage in a transaction
(including a merger, consolidation or similar business combination) that
involves the Transfer by Thayer (together with any Affiliates of Thayer) to a
third party of Common Stock representing greater than fifty percent (50%) of the
outstanding Common Stock held by Thayer (other than a "Drag Along Sale" as
defined in Article V below and other than a Transfer to one or more Affiliates
---------
of Thayer and/or Family Members of such Affiliates) without first offering the
other Stockholders the right to participate in such Transfer in the following
manner:
4.1 Notice. Thayer shall first deliver a written notice (a "Transfer
------
Notice") to the Stockholders stating (i) Thayer's desire to Transfer shares of
Common Stock to a third party, (ii) the number of shares of Common Stock
proposed to be Transferred and (iii) the price and the other general terms of
the proposed Transfer, including any escrow of funds from such sale. Such notice
may be provided before Thayer has identified a purchaser or purchasers for such
Equity Securities; provided, however, that Thayer shall promptly inform the
Stockholders in writing of the purchaser's or purchasers' identity once it is
known to Thayer.
4.2 Stockholders Right. Each Stockholder may elect, by delivering to Thayer
------------------
a written notice (a "Tag Along Notice") of its election within fifteen (15) days
after receipt of the Transfer Notice (the "Tag Along Period"), to participate in
Thayer's Transfer of Common Stock on the same terms and conditions specified in
the Transfer Notice. The Tag Along Notice shall specify the maximum number of
Common Stock shares that the Stockholder (a "Tag Along Stockholder") may elect
to Transfer which number shall not exceed the product (rounded down to the
nearest whole number) of (i) a fraction, the numerator of which is the number of
Common Stock shares proposed to be Transferred by Thayer, and the denominator of
which is the aggregate number of Common Stock shares owned by Thayer, multiplied
by (ii) the number of shares of Common Stock owned by the Stockholder plus the
number of shares of Equity Securities then convertible into Common Stock or
which will become convertible into Common Stock as a result of the transaction
contemplated by the Transfer Notice. Thayer shall use its commercially
reasonable best efforts to interest the third party in purchasing all the shares
of Common Stock specified by Tag Along Stockholders in the Tag Along Notices, in
addition to
-5-
<PAGE>
the Common Stock that the third party may already have agreed to purchase from
Thayer. If the third party refuses to purchase all of such additional shares of
Common Stock, then Thayer may sell Common Stock to such third party only if
Thayer and each Tag Along Stockholder are entitled to sell to such third party
an amount of Common Stock equal to the product (rounded down to the nearest
whole number) obtained by multiplying (x) the aggregate number of Common Stock
shares such third party is willing to acquire by (y) a fraction, the numerator
of which is the number of Common Stock shares owned by Thayer or the Tag Along
Stockholder plus the number of shares of Equity Securities then convertible into
Common Stock or which will become convertible into Common Stock as a result of
the transaction contemplated by the Transfer Notice, as the case may be, and the
denominator of which is the aggregate number of Common Stock shares owned by
Thayer and all the Tag Along Stockholders.
4.3 Consummation.
------------
(a) At least ten (10) days prior to the consummation of a Transfer by
Thayer described in a Transfer Notice and not before the earlier of (x) the end
of the Tag Along Period and (y) the receipt by Thayer of a Tag Along Notice from
each Stockholder, Thayer shall provide written notice (a "Consummation Notice")
to each Tag Along Stockholder stating (i) the identity of the third party
transferee, (ii) the number of shares of Common Stock that such Tag Along
Stockholder will be entitled to sell to such third party pursuant to this
Article IV, and (iii) the date the Transfer will be consummated. At least five
- ----------
(5) days prior to the date of such consummation, each Tag Along Stockholder
shall deliver to Thayer for Transfer to the third party one or more
certificates, properly endorsed for Transfer, which represent the number of
shares of Common Stock such Tag Along Stockholder is entitled to sell as
provided in the Consummation Notice. The certificate(s) delivered to Thayer by
each Tag Along Stockholder shall be Transferred to the third party identified in
the Consummation Notice, as part of the consummation of the Transfer of Common
Stock pursuant to the terms and conditions specified in the Transfer Notice and
the Consummation Notice. Upon receipt of the proceeds of the Transfer, Thayer
shall promptly remit to each Tag Along Stockholder that portion of such proceeds
to which such Tag Along Stockholder is entitled by reason of such Stockholder's
participation in such Transfer together with any stock certificates for any
shares not sold in the Transfer.
(b) In connection with a Transfer pursuant to this Article IV, each Tag
Along Stockholder shall be required to make representations and warranties
regarding the Common Stock that such Stockholder proposes to Transfer,
including, but not limited to, such Stockholder's ownership of and authority to
Transfer such Common Stock, the absence of any liens or other encumbrances on
such stock, and the compliance of such Transfer with the federal and state
securities laws and all other applicable laws and regulations. In addition, each
Tag Along Stockholder who is either a director or an executive officer of the
Company or the holder of more than five percent (5%) of the outstanding Common
Stock (other than John R. McDougall, D. Marshall Nelson or Philip H. Duong
unless such person is then serving as a director of the Company or the Company's
Chief Executive Officer or Chief Operating Officer) shall also be required to
provide customary representations and warranties regarding the Company.
-6-
<PAGE>
4.4 Securities Laws. Notwithstanding anything to the contrary in this
---------------
Article IV, Thayer shall have no obligation to permit a Stockholder, and no
- ----------
Stockholder shall have a right, to participate as a Tag Along Stockholder in a
Thayer Transfer of Common Stock in the event that such Stockholder's Transfer
(i) would not be exempt from all registration requirements under federal and
state securities laws or (ii) would violate, or cause Thayer's Transfer to
violate, any applicable federal or state laws.
ARTICLE V
DRAG ALONG RIGHTS
5.1 Drag Along Sale. In the event that, prior to the effective date of an
---------------
IPO Event, Thayer, in its sole discretion, determines to accept an offer from a
third party that is not an Affiliate of Thayer to purchase all of the Equity
Securities then held by Thayer and the Stockholders, then each Stockholder shall
be required to sell all the shares of Common Stock and Preferred Stock (together
with any other Equity Securities) held by such Stockholder pursuant to such
offer (the "Drag Along Sale"). If the Drag Along Sale is structured as a (i)
merger or consolidation, each holder of Equity Securities shall waive any
dissenters' rights, appraisal rights or similar rights in connection with such
merger or consolidation or (ii) sale of stock, each holder of Equity Securities
shall agree to sell all of its, her or his Equity Securities and rights to
acquire Equity Securities on the terms and conditions approved by the Board and
Thayer. Each seller of Equity Securities in such Drag Along Sale (i) shall be
subject to the same terms and conditions of sale and (ii) shall execute such
documents and take such actions as may be reasonably required by the Board and
Thayer.
5.2 Drag Notice. Thayer shall provide each Stockholder with written notice
-----------
(the "Drag Notice") of a Drag Along Sale at least fifteen (15) days prior to the
date of consummation of such sale (the "Drag Along Sale Date"). Each Drag Notice
shall set forth: (i) the identity of the third party transferee in the Drag
Along Sale, (ii) the price and the other general terms of the proposed Transfer
and (iii) the Drag Along Sale Date.
5.3 Form of Consideration. The provisions of this Article V shall apply
--------------------- ---------
regardless of the form of consideration received in the Drag Along Sale. Upon
the consummation of the Drag Along Sale, (i) each holder of Common Stock shall
receive the same form of consideration and the same amount of consideration per
share; (ii) if any holders of Common Stock are given an option as to the form
and amount of consideration to be received, each holder of Common Stock shall be
given the same option; (iii) unless waived by Thayer and the holders of a
majority of the then outstanding shares of Preferred Stock not owned by Thayer
or its Affiliates, each holder of Preferred Stock shall receive an amount (prior
to any amounts received by any holder of Common Stock with respect thereto) in
such Drag Along Sale equal to, and in any event no more than, the amount such
holder would be entitled to receive as the Liquidation Value of such holder's
shares of Preferred Stock; and (iv) any non-cash consideration received by a
class of Equity Securities pursuant to the terms of the Drag Along Sale shall be
allocated among the transferors of such class of Equity Securities pro rata
based upon each transferor's percentage ownership of such class of shares sold
in the Drag Along Sale.
-7-
<PAGE>
5.4 Consummation.
------------
(a) At least five (5) days prior to the date of consummation of a Drag
Along Sale, each Stockholder shall deliver to Thayer for Transfer to the third
party one or more certificates, properly endorsed for Transfer, which represent
all of the shares of Equity Securities held by such Stockholder. The
certificate(s) delivered to Thayer by each Stockholder shall be Transferred to
the third party transferee identified in the Drag Notice, as part of the
consummation of the Drag Along Sale. Upon receipt of the proceeds of the Drag
Along Sale, Thayer shall promptly remit to each Stockholder that portion of such
proceeds to which such Stockholder is entitled by reason of such Stockholder's
participation in such sale.
(b) In connection with a Drag Along Sale, each Stockholder shall be
required to make representations and warranties regarding the Equity Securities
that such Stockholder Transfers in such sale, including, but not limited to,
such Stockholder's ownership of and authority to Transfer such Equity
Securities, the absence of any liens or other encumbrances on such securities.
In addition, each Stockholder who is either a director or an executive officer
of the Company or the holder of more than five percent (5%) of the outstanding
Common Stock (other than John R. McDougall, D. Marshall Nelson or Philip H.
Duong unless such person is then serving as a director of the Company or the
Company's Chief Executive Officer or Chief Operating Officer) shall also be
required to provide customary representations and warranties regarding the
Company. Notwithstanding the foregoing, in the event that any portion of the
consideration in a Drag-Along Sale is subject to escrow or a future contingency,
each Stockholder's right to the proceeds of the Drag-Along Sale shall be
proportionally subject to such escrow and/or contingency and the future payments
due therefrom.
ARTICLE VI
PUBLIC OFFERING
Other than the Preferred Stock whose rights and obligations upon the
occurrence of an IPO Event shall be determined exclusively by reference to the
Company's Amended and Restated Certificate of Incorporation, as amended, in the
event that the Board and the holders of a majority of the outstanding shares of
Common Stock approve proceeding with an IPO Event, Thayer and the Stockholders
shall take all reasonably necessary or desirable actions in connection with the
consummation of the IPO Event. If the IPO Event is an underwritten offering and
the managing underwriters advise the Company in writing that in their opinion
the capital structure of the Company shall adversely affect the marketability of
the offering, each Stockholder shall consent to and vote for a recapitalization,
reorganization and/or exchange of the capital of the Company into securities
that the managing underwriters, the Board and holders of a majority of the
outstanding shares of Common Stock find acceptable and shall take all necessary
or desirable actions in connection with the consummation of the
recapitalization, reorganization and/or exchange; provided, however, that (i)
the resulting securities reflect and are consistent with the relative rights and
preferences among the outstanding classes of securities set forth in the
Company's Amended and Restated Certificate of Incorporation, as amended and such
recapitalization, reorganization or exchange is otherwise fair and reasonable to
the Company and the holders of each class of the
-8-
<PAGE>
Company's Equity Securities taking into account each of the relative
rights and preferences and (ii) the Company shall reimburse each
Stockholder for the reasonable expenses incurred by such Stockholder in
taking such actions. Each holder of Equity Securities shall not effect any
public sale or distribution (including sales pursuant to Rule 144) of
Equity Securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
120-day period beginning on the effective date of an IPO Event, unless the
underwriters managing such IPO Event otherwise agree.
ARTICLE VII
BOARD OF DIRECTORS
7.1 Composition of the Board. Each Stockholder shall vote all of his or its
------------------------
shares of Common Stock and any other voting Equity Securities of the Company
over which such Stockholder has voting control and shall take all other
necessary or desirable actions within his or its control (whether in his or its
capacity as a Stockholder, director, member of a board committee or officer of
the Company or otherwise, and including, without limitation, attendance at
meetings in person or by proxy for purposes of obtaining a quorum and execution
of written resolutions in lieu of meetings), and the Company shall take all
necessary and desirable actions within its control (including, without
limitation, calling special Board and Stockholder meetings), so that (i) the
authorized number of directors on the Board shall be established at five (5)
directors, and (ii) the following persons shall be elected to the Board at each
election of directors: (A) one representative shall be the Company's Chief
Executive Officer; (B) one representative shall be designated by a vote of the
holders of the Common Stock held by Management; and (C) three (3)
representatives shall be designated on behalf of Thayer by Thayer Equity
Investors IV, L.P.
7.2 Removal. The removal from the Board (with or without cause) of any
-------
director shall be made only upon the written request of the Person or Persons
entitled to designate such director pursuant to Section 3.1 above, but only upon
-----------
such written request and under no other circumstances
7.3 Vacancy. In the event that any representative designated hereunder for
-------
any reason ceases to serve as a member of the Board during his term of office,
the resulting vacancy on the Board shall be filled by a representative
designated by the Person or Persons entitled to designate such director pursuant
to Section 3.1 above.
-----------
7.4 Quorum. A majority of the Directors, including at least one of the two
------
(2) representatives not designated by Thayer, shall constitute a quorum. If no
quorum is present at a meeting of the Board of Directors, such meeting shall be
adjourned for a period of two (2) weeks, or such other period of time as shall
be agreed upon by all the Directors, and notice of the adjourned meeting shall
be provided to all Directors in accordance with the Company's Bylaws.
7.5 Voting. The Board of Directors shall decide by majority vote any
------
election or question brought before the meeting, unless the election or question
is one upon which, under
-9-
<PAGE>
an express provision of law, a greater vote is required, in which case such
express provision shall govern and control the decision of such election or
question.
7.6 Expenses. The Company shall pay the reasonable out-of-pocket expenses
--------
incurred by each director named hereunder in connection with attending the
meetings of the Board and any committee thereof.
7.7 Representations. Each Stockholder represents that he, she or it has not
---------------
granted and is not a party to any proxy, voting trust or other agreement which
is inconsistent with or conflicts with the provisions of this Agreement, and no
holder of Equity Securities shall grant any proxy or become party to any voting
trust or other agreement which is inconsistent with or conflicts with the
provisions of this Agreement.
7.8 Conflict. The Stockholders shall take such action as may be necessary
--------
to amend any provision in the Company's Certificate of Incorporation or ByLaws
to in order to remedy any inconsistency between any provision of the Company's
Certificate of Incorporation or ByLaws with any provision of this Article VII.
-----------
ARTICLE VIII
CONFIDENTIALITY
Other than John R. McDougall, Philip H. Duong and D. Marshall Nelson whose
confidentiality obligations will be governed by the terms of their respective
employment agreements, each Investor who is an officer or employee of the
Company or its subsidiaries agrees to treat and hold in confidence and not
disclose all Confidential Information that such Investor may have obtained from
the Company or any Affiliate of the Company as a result of owning any of the
Company's Equity Securities or the performance of this Agreement so long as the
Investor is an officer or employee of the Company and for a period of two (2)
years thereafter; provided, however, that an Investor shall have the right to
utilize or disclose confidential information in connection with and in
furtherance of the Company's business or in connection with the Company's
capital raising and financial or other strategic planning. In the event that any
Investor is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, such Investor shall notify the Company promptly of the request or
requirement.
[ARTICLE IX - RESERVED]
ARTICLE X
TERMINATION; ADDITIONAL PARTIES
10.1 Termination. All rights and obligations set forth in this
-----------
Agreement (other than in Article VI), to the extent not previously terminated,
----------
shall terminate upon the earlier of (i) the effective date of an IPO Event; (ii)
the written agreement of Thayer and the holders of at least fifty percent (50%)
of outstanding Common Stock held by the Stockholders other than
-10-
<PAGE>
Thayer; or (iii) the closing of a Drag Along Sale. Article VI shall terminate
----------
upon the earlier of (i) 180 days after the effective date of an IPO Event (other
than the Company's agreement to reimburse expenses described in clause (ii) of
Article VI) or (ii) the closing of a Drag-Along Sale.
- ----------
10.2 Additional Parties. Without the prior written consent of Thayer, the
------------------
Company shall not issue or sell after the date hereof, any shares of Common
Stock or Preferred Stock to any individual or entity without such individual or
entity becoming a party to this Agreement by execution and delivery of a Joinder
to this Agreement in the form of Exhibit B attached hereto. Any such additional
---------
party shall become a Stockholder subject to and bound by all the terms and
conditions of this Agreement. All additional shares of capital stock issued by
the Company to such purchasers shall be deemed to be "Equity Securities" owned
by a Stockholder for purposes of this Agreement. The Company shall promptly add
to the List (as described in Section 11.6) the name and address of each new
------------
party hereto.
ARTICLE XI
MISCELLANEOUS
11.1 Legend. All certificates evidencing Equity Securities restricted by
------
this Agreement shall bear a legend indicating the existence of the restrictions
imposed hereby and a stop transfer order may be placed with respect to such
securities. The legend referred to in the preceding sentence shall be
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TRANSFER RESTRICTIONS AND OTHER TERMS OF A STOCKHOLDERS AGREEMENT
DATED AS OF AUGUST 12, 1999, AMONG EMPYREAN GROUP HOLDINGS, INC.
(FORMERLY, BUSINESS SOLUTIONS GROUP, INC.), AND CERTAIN
STOCKHOLDERS THEREOF AND MAY NOT BE TRANSFERRED EXCEPT IN
ACCORDANCE WITH SUCH AGREEMENT. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF EMPYREAN GROUP HOLDINGS, INC. AND
WILL BE FURNISHED UPON REQUEST TO THE HOLDER OF RECORD OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE.
11.2 No Waiver of Rights. No failure or delay on the part of any party in
-------------------
the exercise of any power or right hereunder shall operate as a waiver thereof.
No single or partial exercise of any right or power hereunder shall operate as a
waiver of such right or power or of any other right or power. The waiver by any
party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any other or subsequent breach hereunder. Except as
otherwise expressly provided herein, all rights and remedies existing under
-11-
<PAGE>
this Agreement are cumulative with, and not exclusive of, any rights or remedies
otherwise available.
11.3 Amendment. Except as otherwise expressly set forth in this Agreement,
---------
this Agreement may be amended or supplemented only by the written agreement of
the Company, Thayer and the holders of at least fifty percent (50%) of all
outstanding shares of Common Stock held by the Stockholders other than Thayer.
11.4 Entire Agreement; Successors; Third Parties. This Agreement contains
-------------------------------------------
the entire agreement among the parties with respect to the transactions
contemplated hereby and supersedes all prior arrangements or understandings with
respect thereto, written or oral. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors, heirs, executors, administrators and permitted assigns.
Except as specifically set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities.
11.5 No Assignment. No party hereto may assign any of its rights or
-------------
obligations under this Agreement to any other person, except that Thayer may
assign part or all of its rights and obligations hereunder to one or more
Affiliates of Thayer and its successors and assigns.
11.6 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company to:
Empyrean Group Holdings, Inc.
8300 Boone Boulevard
Suite 250
Vienna, VA 22182
Attention: Jason H. Levine
Facsimile: (703) 790-9033
Telephone: (703) 790-9276
If to Thayer:
c/o Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D.C. 20004
Attention: Daniel Raskas
Robert Michalik
Facsimile: (202) 371-0391
-12-
<PAGE>
Telephone: (202) 371-0150
During the term of this Agreement, the Company shall maintain a current
list of all Stockholders (the "List"), including their names, addresses and
facsimile numbers, if any, for purposes of sending notices and other
communications pursuant to this Section 11.6. At the request of any party
------------
hereto, the Company promptly shall provide a copy of the List to such party. All
notices to any of the Stockholders shall be sent to the addresses set forth on
the List (an initial copy of which is attached hereto as Exhibit A). All
---------
deliveries of notice shall be deemed effective when received by the persons
entitled to such receipt or when delivery has been attempted but refused by such
person or persons.
11.7 Captions. The captions contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
11.9 Governing Law and Venue. The validity, interpretation, construction
-----------------------
and performance of this Agreement shall be governed by the laws of the State of
Delaware applicable to agreements made and entirely to be performed within such
jurisdiction. The party bringing any action under this Agreement shall only be
entitled to choose the federal or local courts in the Eastern District of the
Commonwealth of Virginia as the venue for such action, and each party consents
to the jurisdiction of the court chosen in such manner for such action.
11.10 Severability. The provisions of this Agreement are severable, and the
------------
unenforceability of any provision of this Agreement shall not affect the
enforceability of the remainder of this Agreement. The parties acknowledge that
it is their intention that if any provision of this Agreement is determined by a
court to be invalid, illegal or unenforceable as drafted, that provision should
be construed in a manner designed to effectuate the purpose of that provision to
the greatest extent possible under applicable law.
11.11 Transfers; Transfers in Violation of Agreement. Prior to Transferring
----------------------------------------------
any Equity Securities to any Person, the transferring Stockholder shall cause
the prospective transferee to execute and deliver to the Company and Thayer a
Joinder to this Agreement in the form of Exhibit B hereto. Any Transfer or
---------
attempted Transfer of any Equity Securities in violation of any provision of
this Agreement shall be void, and the Company shall not record such transfer on
its books or treat any purported transferee of such Equity Securities as the
owner of such shares for any purpose.
11.12 Specific Performance. The rights of the parties under this Agreement
--------------------
are unique and the failure of a party to perform its obligations hereunder would
irreparably harm the other parties hereto. Accordingly, the parties shall, in
addition to such other remedies as may be available at law or in equity, have
the right to enforce their rights hereunder by actions for specific performance
to the extent permitted by law.
-13-
<PAGE>
11.13 Further Assurances. Each of the parties hereto agrees to execute all
------------------
such further instruments and documents and to take all such further action as
any other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
11.14 Publicity. No party shall issue any press release or
---------
undertake any publicity concerning this Agreement or any of the transactions
contemplated hereby without the prior written consent of Thayer.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of the day and year first
above written.
EMPYREAN GROUP HOLDINGS, INC.
formerly, Business Solutions Group, Inc.)
By: /s/ Stuart C. Johnson
----------------------------------------
Name: Stuart C. Johnson
----------------------------------------
Title: President & CEO
----------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: /s/ Robert E. Michalik
----------------------------------------
Name: Robert E. Michalik
----------------------------------------
Title: President
----------------------------------------
STOCKHOLDERS
BSG HOLDINGS, INC.
By: /s/ John R. McDougall
----------------------------------------
Name: John R. McDougall
----------------------------------------
Title: President
----------------------------------------
FBR TECHNOLOGY VENTURE
PARTNERS, LP
By: /s/ Gene Riechers
----------------------------------------
Its: Gene Riechers
Title: Managing Director
-15-
<PAGE>
/s/ Stuart C. Johnson
----------------------------------------
Stuart C. Johnson
/s/ Thomas B. Modly
----------------------------------------
Thomas B. Modly
/s/ Jason H. Levine
----------------------------------------
Jason H. Levine
/s/ Bruce H. Allan
----------------------------------------
Bruce H. Allan
/s/ Matthew B. Walker
----------------------------------------
Matthew B. Walker
/s/ Graham B. Perkins
----------------------------------------
Graham B. Perkins
/s/ David T. Fu
----------------------------------------
David T. Fu
/s/ Patricia A. Withers
----------------------------------------
Patricia A. Withers
-16-
<PAGE>
EXHIBIT A to
Stockholders Agreement
----------------------
LIST OF HOLDERS
---------------
Stockholders:
- ------------
Thayer ITech Holdings, LLC
c/o Thayer Equity Investors III, L.P.
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D.C. 20004
Attention: Daniel Raskas
Robert Michalik
Facsimile: (202) 371-0391
Telephone: (202) 371-0150
BSG Holdings, Inc.
284 S. Main Street
Suite 700
Alpharetta, Georgia 30004
FBR Technology Venture Partners, LP
1001 19th Street North
Arlington, VA 22209
For either:
Stuart C. Johnson
Thomas B. Modly
Graham B. Perkins
David T. Fu
Jason H. Levine
Matthew B. Walker
Bruce H. Allan or
Patricia A. Withers
c/o Empyrean Group, Inc.
8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
A-1
<PAGE>
EXHIBIT B to
Stockholders Agreement
----------------------
FORM OF JOINDER AGREEMENT
-------------------------
This Joinder Agreement (this "Joinder Agreement") is made as of the date
written below by the undersigned (the "Joining Party") and the parties to the
Stockholders Agreement, dated as of August 12, 1999, as amended from time to
time (the "Stockholders Agreement") among Empyrean Group Holdings, Inc., Thayer
and the Stockholders. Capitalized terms used but not defined herein shall have
the meanings given such terms in the Stockholders Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder Agreement, the Joining Party will be
deemed to be a party to the Stockholders Agreement and shall have all of the
obligations of a "Stockholder" thereunder as if it had executed the Stockholders
Agreement. The Joining Party hereby ratifies, as of the date hereof, and agrees
to be bound by, all of the terms, provisions and conditions contained in the
Stockholders Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: _______________________________
STOCKHOLDER [ENTITY]
Address:
_____________________________________ By: ____________________________________
_____________________________________ Name: ____________________________
_____________________________________ Title: ____________________________
Tel:_________________________________
Fax:_________________________________
-OR-
_______________________________________
[Signature of Individual]
_______________________________________
Print Name
B-1
<PAGE>
JOINDER AGREEMENT
TO STOCKHOLDERS AGREEMENT
-------------------------
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") and certain parties to the
Stockholders Agreement, dated as of August 12, 1999 (the "Stockholders
Agreement") among Empyrean Group Holdings, Inc., a Delaware corporation (the
"Company"), and the stockholders of the Company. Capitalized terms used but not
defined herein shall have the meanings given such terms in the Stockholders
Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder, the Joining Party will be deemed to be a
party to the Stockholders Agreement and shall have all of the rights and
obligations of a "Stockholder" thereunder as if it had executed the Stockholders
Agreement. The Joining Party and the Company hereby ratify, as of the date
hereof, and agree to be bound by, all of the terms, provisions and conditions
contained in the Stockholders Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: November 3, 19990
STOCKHOLDER /s/ Leo C. Mullen
-----------------------------------------
Leo C. Mullen
Address:
10817 Stanmore Drive
Potomac, MD 20854
Tax I.D. No.: ###-##-####
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
------------------------------------
Its: Stuart C. Johnson
------------------------------------
Chairman, President and CEO
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------------------
Its: Robert E. Michalik
------------------------------------
Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of
the date written below.
Date: November 3, 1999
STOCKHOLDER /s/ Helene Patterson
-----------------------------------------
Helene Patterson
Address:
10817 Stanmore Drive
Potomac, MD 20854
Tax I.D. No.: ###-##-####
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
------------------------------------
Its: Stuart C. Johnson
------------------------------------
Chairman, President and CEO
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------------------
Its: Robert E. Michalik
------------------------------------
Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of
the date written below.
Date: November 3, 1999
STOCKHOLDER /s/ Sidney E. Barcelona
-----------------------------------------
Sidney E. Barcelona
Address:
3323 18th Street, N.W.
Washington, DC 20010
Tax I.D. No.: ###-##-####
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
------------------------------------
Its: Chairman, President and CEO
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------------------
Its: Robert E. Michalik
------------------------------------
Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of
the date written below.
Date: November 3, 1999
STOCKHOLDER /s/ Gretchen Frederick
-----------------------------------------
Gretchen Frederick
Address:
34923 Snickersville Turnpike
Round Hill, VA 22141
Tax I.D. No.: ###-##-####
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
------------------------------------
Its: Stuart C. Johnson
------------------------------------
Chairman, President and CEO
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------------------
Its: Robert E. Michalik
------------------------------------
Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of
the date written below.
Date: November 3, 1999
STOCKHOLDER /s/ Mark A. Smith
-----------------------------------------
Mark A. Smith
Address:
1604 Great Falls Street
McLean, VA 22101
Tax I.D. No.: ###-##-####
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
------------------------------------
Its: Stuart C. Johnson
------------------------------------
Chairman, President & CEO
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert Michalik
------------------------------------
Its: Robert E. Michalik
------------------------------------
Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: November 19, 1999
STOCKHOLDER /s/ William K. Stephens
-----------------------------------------
William K. Stephens
Address:
____________________________________
____________________________________
Tax I.D. No.: ______________________
APPROVED BY:
ICONIXX CORPORATION
(f/k/a EMPYREAN GROUP HOLDINGS, INC.)
By: /s/ Stuart C. Johnson
------------------------------------
Its: Stuart C. Johnson
------------------------------------
Chairman, President & CEO
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------------------
Its: Robert E. Michalik
------------------------------------
Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of January 18, 2000.
"STOCKHOLDER"
MULLEN PATTERSON, L.L.C.
By: /s/ Helene Patterson & Leo C. Mullen
------------------------------------
Its: Managers
------------------------------------
Address:
Tax I.D. No.:
APPROVED BY:
ICONIXX CORPORATION
(formerly known as
EMPYREAN GROUP HOLDINGS, INC.)
By: /s/ Stuart C. Johnson
------------------------------------
Its: Chairman, President & CEO
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------------------
Its: Robert E. Michalik
Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 8, 2000
STOCKHOLDER STUART C. JOHNSON FAMILY LIMITED
PARTNERSHIP
By: /s/ Kelly J. Stanley
-----------------------------------------
Address:
_______________________________
_______________________________
_______________________________
Tax I.D. No.: 54-6453713
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
--------------------------------------
Name: Jason H. Levine
Title: Vice President and Assistant Secretary
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
----------------------------
Name: Robert E. Michalik
Title: Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 10, 2000
STOCKHOLDER /s/ Ronald P. Heffernan
-----------------------------------------
Ronald P. Heffernan
Address:
306 Ivy Ct.
- ------------------------------------
Franklin Lks, NJ 07417
- ------------------------------------
- ------------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 10, 2000
STOCKHOLDER /s/ Michael Matteo
-----------------------------------------
Michael Matteo
Address:
1136 Morris Rd.
- ---------------------------------
Wymewood, PA 19096
- ---------------------------------
- ---------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 10, 2000
STOCKHOLDER /s/ Lucia Chang Heffernan
-----------------------------------------
Lucia Chang Heffernan
Address:
306 Ivy Ct.
- -------------------------------------
Franklin Lakes, NJ 07417
- -------------------------------------
- -------------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 10, 2000
STOCKHOLDER /s/ Monica Hsu
-----------------------------------------
Monica Hsu
Address:
160 Wea #19L
- --------------------------------
NY, NY 10023
- --------------------------------
- --------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 10, 2000
STOCKHOLDER
The Kelly A. Heffernan Trust
By: /s/ Ronald Heffernan
-------------------------------------
Name: Ronald Heffernan as attorney in fact
-------------------------------------
Address:
920 Cyprus Way
- --------------------------------
Boca Raton, FL
- --------------------------------
- --------------------------------
Tax I.D. No.: 13-7224727
----------
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
-------------------------------------
Name: Graham B. Perkins
-------------------------------------
Title: Vice President & Secretary
-------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
--------------------------
Name: Robert E. Michalik
--------------------------
Title: Vice President
--------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 10, 2000
STOCKHOLDER
The Tracy Heffernan Cipully Trust
By: /s/ Ronald Heffernan
Name: Ronald Heffernan as attorney in fact
-------------------------------------
Address:
920 Cyprus Way
- -------------------------------
Boca Raton, FL
- -------------------------------
- -------------------------------
Tax I.D. No.: 13-7224728
----------
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 10, 2000
STOCKHOLDER /s/ Robert Friedman as Attorney in Fact
-------------------------------------------
David Musicant
Address:
573 Farmdale Rd.
- --------------------------------
Franklin Lakes, NJ
- --------------------------------
- --------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
------------------------------------
Name: Graham B. Perkins
------------------------------------
Title: Vice President & Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
--------------------------
Name: Robert E. Michalik
--------------------------
Title: Vice President
--------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
STOCKHOLDER /s/ Christopher Clark
-------------------------------------------
Christopher Clark
Address:
13912 Saddleview Drive
- -----------------------------
N. Potomac, MD 20870
- -----------------------------
- -----------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
--------------------------
Name: Robert E. Michalik
--------------------------
Title: Vice President
--------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
STOCKHOLDER /s/ Timothy Meinhardt
---------------------------
Timothy Meinhardt
Address:
14615 Crossway Road
- -----------------------------
Rockville, MD 20853
- -----------------------------
- -----------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Derrik Deyhimi
-----------------------------
Derrik Deyhimi
Address:
19315 Foxtree Ln
- -----------------------------
Houston, TX 77094
- -----------------------------
- -----------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkiins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER AB Holdings, L.L.C.
By: /s/ Robert G. Ackerley
----------------------------------
Name: Robert G. Ackerley
----------------------------------
Title: President
----------------------------------
Address:
5306 Hollister
- -------------------------------
Houston, TX 77040
- -------------------------------
- -------------------------------
Tax I.D. No.: ___-__-____
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Scott Heath
------------------------------
Scott Heath
Address:
1106 Jackson #A
- ---------------------------------
Houston, TX 79006
- ---------------------------------
- ---------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ David Mosley
------------------------------
David Mosley
Address:
3603 Hugginsway St.
- --------------------------------
Pearland, TX 77584
- --------------------------------
- --------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Jeff Jamison
-----------------------------
Jeff Jamison
Address:
Suite 400, 5301 Hollister
- ---------------------------------
Houston, TX 77040
- ---------------------------------
- ---------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secrerary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Lance Hack
----------------------------
Lance Hack
Address:
5301 Hollister
- -------------------------------
Houston, TX 77040
- -------------------------------
- -------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Carolyn Jenkins
------------------------------
Carolyn Jenkins
Address:
5301 Holliser, Ste. 400
- ------------------------------
Houston, TX 77040
- ------------------------------
- ------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Shane Byers
--------------------------
Shane Byers
Address:
5301 Hollister
- -----------------------------
Suite 400
- -----------------------------
Houston, TX
- -----------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Roman Bartik
----------------------------
Roman Bartik
Address:
1441 Walee St., #302
- --------------------------------
Denver, CO 80202
- --------------------------------
- --------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Genie Neukomm
------------------------------
Genie Neukomm
Address:
3131 Castlewood
- -----------------------------
Houston, TX 77025
- -----------------------------
- -----------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Matthew H. Hartzell
-------------------------------
Matthew H. Hartzell
Address:
5306 Hollister
- ------------------------------
Houston, TX 77040
- ------------------------------
- ------------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
----------------------------------
Name: Graham B. Perkins
----------------------------------
Title: Vice President & Secretary
----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS AGREEMENT (this "Agreement") is made as of August 12, 1999, by
and among EMPYREAN GROUP HOLDINGS, INC. (formerly known as "Business Solutions
Group, Inc."), a Delaware corporation (the "Company"), THAYER ITECH HOLDINGS,
L.L.C., a Delaware limited liability company (the "Investor"), and each other
Person listed on the Schedule of Holders attached hereto as Exhibit A (together
------------------- ---------
with the Investor, the "Stockholders").
Recitals:
--------
A. The Company, the Investor, BSG Holdings, Inc. (the "Parent") and
certain other individuals are parties to a Recapitalization Agreement dated
August 11, 1999 (the "Purchase Agreement") pursuant to which the Investor and
Parent received shares of the Company's Common Stock and Preferred Stock. In
order to induce the Investor and Parent to enter into the Purchase Agreement,
the Company agreed to provide the registration rights set forth in this
Agreement. Any other Persons who purchase capital stock of the Company may, with
the consent of the Company's Board of Directors and the Investor, become parties
to this Agreement by executing a Joinder Agreement and such Registrable
Securities held by such Person shall be classified in such Joinder Agreement as
either Investor Registrable Securities, Seller Registrable Securities or
Management Registrable Securities, as appropriate.
B. Unless otherwise provided in this Agreement, capitalized terms
used herein shall have the meanings set forth in Section 8 hereof.
---------
Agreement
---------
The parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time, the holders of a
-------------------------
majority of the Registrable Securities may request registration under the
Securities Act of all or any portion of their Registrable Securities on Form S-1
or any similar long-form registration ("Long-Form Registrations").
(b) Long-Form Registrations. The Investor or the holders of a
-----------------------
majority of the Registrable Securities shall be entitled to request (i) two
Long-Form Registrations in which the Company shall pay all Registration Expenses
("Company-paid Long-Form Registrations") and (ii) an unlimited number of
Long-Form Registrations in which the holders of Registrable Securities included
in such registration shall pay their share of the Registration Expenses as set
forth in Section 5 hereof. A registration shall not count as one of the
---------
permitted
<PAGE>
Company-paid Long-Form Registrations until it has become effective and no Long-
Form Registration shall count as one of the permitted Company-paid Long-Form
Registrations unless the holders of Registrable Securities are able to register
and sell at least 90% of the Registrable Securities requested to be included in
such registration; provided that in any event the Company shall pay all
Registration Expenses in connection with any registration initiated as a
Company-paid Long-Form Registration whether or not it has become effective and
whether or not such registration has counted as one of the permitted Company-
paid Long-Form Registrations.
(c) Short-Form Registrations. In addition to the Long-Form
------------------------
Registrations provided pursuant to Section l(b), the Investor or the holders of
------------
a majority of the Registrable Securities shall be entitled to request four
registrations under the Securities Act of all or part of their Registrable
Securities on Forms S-2 or S-3 or any similar short-form registration
("Short-Form Registrations") in which the Company shall pay all Registration
Expenses. After the Company has become subject to the reporting requirements of
the Securities Exchange Act, the Company shall use its best efforts to make
Short-Form Registrations on Form S-3 available for the sale of Registrable
Securities.
(d) Demand Registrations. All registrations requested pursuant
--------------------
to Sections l(a), (b) and (c) are referred to herein as "Demand Registrations."
------------------ ---
Demand Registrations shall be Short-Form Registrations whenever the Company is
permitted to use any applicable short form. Each request for a Demand
Registration shall specify the approximate number of Registrable Securities
requested to be registered and the anticipated per share price range for such
offering. Within ten days after receipt of any such request, the Company shall
give written notice of such requested registration to all other holders of
Registrable Securities and, except as provided in Section 1(e) below, shall
------------
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
(e) Priority on Demand Registrations. The Company shall not
--------------------------------
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders of Registrable
Securities making such Demand Registration, the Company shall include in such
registration: (i) first, the Investor Registrable Securities requested to be
included in such registration, pro rata among the holders of such Investor
Registrable Securities on the basis of the number of shares owned by such
holders; (ii) second, the Seller Registrable Securities requested to be included
in such registration, pro rata among the holders of such Seller Registrable
Securities on the basis of the number of shares owned by such holders; (iii)
third, the Management Registrable Securities requested to be included in such
registration, pro rata among the holders of such Management Registrable
Securities on the basis of the number of shares owned by such holders; and (iv)
fourth, other
-2-
<PAGE>
securities requested to be included in such registration, pro rata among the
holders thereof on the basis of the number of their securities requested to be
included therein. Without the consent of the Company and the holders of a
majority of the Registrable Securities included in such registration, any
Persons other than holders of Registrable Securities who participate in Demand
Registrations must pay their share of the Registration Expenses as provided in
Section 5 hereof.
- ---------
(f) Restrictions on Long-Form Registrations. The Company shall
---------------------------------------
not be obligated to effect any Long-Form Registration within 180 days after the
effective date of a previous Long-Form Registration or a previous registration
in which the holders of Registrable Securities were given piggyback rights
pursuant to Section 2 and in which there was no reduction in the number of
---------
Registrable Securities requested to be included. The Company may postpone for up
to 180 days the filing or the effectiveness of a registration statement for a
Demand Registration if the Company and the holders of a majority of the
Registrable Securities agree that such Demand Registration would reasonably be
expected to have a material adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer, reorganization or similar transaction; provided that in such event, the
holders of Registrable Securities initially requesting such Demand Registration
shall be entitled to withdraw such request and, if such request is withdrawn,
such Demand Registration shall not count as one of the permitted Company-paid
Long Form Registrations hereunder and the Company shall pay all Registration
Expenses in connection with such registration. The Company may delay a Demand
Registration hereunder only once in any twelve-month period.
(g) Selection of Underwriters. The holders of a majority of
-------------------------
the Registrable Securities included in any Long-Form Registration, which is a
Demand Registration, shall have the right to select the investment banker(s) and
manager(s) to administer the offering.
(h) Other Registration Rights. Except as provided in this
-------------------------
Agreement, the Company shall not grant to any Persons the right to request the
Company to register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, without the
prior written consent of the holders of a majority of the Registrable
Securities.
-3-
<PAGE>
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to
------------------
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration or a registration on Form S-4, Form S-8 or any successor
form) and the registration form to be used may be used for the registration of
Registrable Securities (a "Piggyback Registration"), the Company shall give
prompt written notice to all holders of Registrable Securities of its intention
to effect such a registration. The Company shall include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 25 days after the receipt of the
Company's notice. Notwithstanding the foregoing, in the event of the Company's
Initial Public Offering, no Piggyback Registration shall be permitted without
the approval of the Company's Board of Directors.
(b) Piggyback Expenses. The Registration Expenses of the
------------------
holders of Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback
---------------------------------
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company shall include in
such registration (i) first, the securities the Company proposes to sell; (ii)
second, the Investor Registrable Securities requested to be included in such
registration, pro rata among the holders of such Investor Registrable Securities
on the basis of the number of shares owned by such holders; (iii) third, the
Seller Registrable Securities requested to be included in such registration, pro
rata among the holders of such Seller Registrable Securities on the basis of the
number of shares owned by such holders; (iv) fourth, the Management Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Management Registrable Securities on the basis of the number of
shares owned by such holders; and (v) fifth, other securities requested to be
included in such registration, pro rata among the holders thereof on the basis
of the number of their securities requested to be included therein; provided,
however that in any Piggyback Registration other than the Initial Public
Offering of the Company's Common Stock, the holders of Registrable Securities
shall be permitted to include in any such registration on pro rata basis not
less than 25% of the number of shares of Common Stock proposed to be sold in
such offering, unless the holders of a majority of the Registrable Securities
requesting such Piggyback Registration agree in writing to reduce such position
or to waive their rights under this proviso.
(d) Priority on Secondary Registrations. If a Piggyback
-----------------------------------
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the holders of a majority of
the Registrable Securities to be included in such registration, the Company
shall include in such registration (i) first, the securities requested to be
included therein by the holders requesting such
-4-
<PAGE>
registration, (ii) second, the Investor Registrable Securities requested to be
included in such registration, pro rata among the holders of such Investor
Registrable Securities on the basis of the number of shares owned by such
holders; (iii) third, the Seller Registrable Securities requested to be included
in such registration, pro rata among the holders of such Seller Registrable
Securities on the basis of the number of shares owned by such holders; (iv)
fourth, the Management Registrable Securities requested to be included in such
registration, pro rata among the holders of such Management Registrable
Securities on the basis of the number of shares owned by such holders; and (v)
fifth, other securities requested to be included in such registration, pro rata
among the holders thereof on the basis of the number of their securities
requested to be included therein
(e) Selection of Underwriters. If any Piggyback Registration
-------------------------
is an underwritten offering, the selection of investment banker(s) and
manager(s) for the offering must be approved by the Investor. Such approval
shall not be unreasonably withheld.
(f) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 2, and if such previous registration has
not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4, Form S-8 or any successor form), whether
on its own behalf or at the request of any holder or holders of such securities,
until a period of at least 180 days has elapsed from the effective date of such
previous registration, unless a shorter period of time is approved by the
Investor (which approval shall not be unreasonably withheld), or unless such
registration is a "shelf registration" on Form S-3 that the holders of
Registrable Securities have requested to be kept effective for a period of more
than 180 days.
3. Holdback Agreements.
-------------------
(a) Holders of Registrable Securities. Each holder of
---------------------------------
Registrable Securities shall not effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 120-day period beginning on
the effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration in which Registrable Securities are included (except as
part of such underwritten registration), unless the underwriters managing the
Demand Registration or Piggyback Registration otherwise agree.
(b) The Company. The Company shall not effect any public sale
-----------
or distribution of any of its equity securities, or any securities convertible
into or exchangeable or exercisable for such securities, during the seven days
prior to and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such Demand Registration or Piggyback Registration or
pursuant to registrations on Form S-4, Form S-8 or any successor form), unless
the underwriters managing the registered public offering otherwise agree.
-5-
<PAGE>
4. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective; provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall furnish to the counsel
selected by the holders of a majority of the Registrable Securities included in
such registration statement copies of all such documents proposed to be filed,
which documents shall be subject to the review and comment of such counsel;
(b) notify each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the Securities and Exchange Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than 180 days and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
provided, however, that if the Company is eligible to use Form S-3, the holders
of Registrable Securities may require the Company to keep such registration
effective as a "shelf registration" for a period of up to two years;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction;
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the
-6-
<PAGE>
statements therein not misleading, and, at the request of any such seller, the
Company shall prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule llAa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including effecting a stock split or
a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months beginning with the
first day of the Company's first full calendar quarter after the effective date
of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities, which holder,
in the Company's sole and exclusive judgment, might be deemed to be an
underwriter or a controlling Person of the Company, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be included;
-7-
<PAGE>
(l) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
(m) subject to Section 4(d) above, use its best efforts to
------------
cause any Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the sellers thereof to consummate the disposition
of such Registrable Securities;
(n) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request; provided
that such Registrable Securities constitute at least 10% of the securities
covered by such registration statement; and
(o) if the offering is underwritten, and at the request of any
seller of Registrable Securities, use its best efforts to furnish on the date
that Registrable Securities are delivered to the underwriters for sale pursuant
to such registration an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, stating that such registration statement has become effective
under the Securities Act and that (i) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (ii) the registration statement, the related
prospectus and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act (except that such
counsel need not express any opinion as to financial statements contained
therein) and (iii) to such other matters as reasonably may be requested by
counsel for the underwriters or by such seller or its counsel.
5. Registration Expenses.
---------------------
(a) Payment of Registration Expenses. All expenses incident to
--------------------------------
the Company's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, fees and disbursements of custodians, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), shall be borne as provided in this Agreement, except
that the Company shall, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be
-8-
<PAGE>
registered on each securities exchange on which similar securities issued by the
Company are then listed or on, the NASD automated quotation system.
(b) Reimbursement of Registration Expenses. In connection with
--------------------------------------
each Demand Registration and each Piggyback Registration, the Company shall
reimburse the holders of Registrable Securities included in such registration
for the reasonable fees and disbursements of one counsel chosen by the holders
of a majority of the Registrable Securities included in such registration and
for the reasonable fees and disbursements of each additional counsel retained by
any holder of Registrable Securities for the purpose of rendering a legal
opinion on behalf of such holder in connection with any underwritten Demand
Registration or Piggyback Registration.
(c) Payment of Registration Expenses by Holders of Registrable
----------------------------------------------------------
Securities. To the extent Registration Expenses are not required to be paid by
- ----------
the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be payable by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. Indemnification.
---------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify, to the extent permitted by law, each holder of Registrable
Securities, its officers and directors and each Person who controls such holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
such holder expressly for use therein or by such holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company shall indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) Indemnification by the Holders of Registrable Securities.
--------------------------------------------------------
In connection with any registration statement in which a holder of Registrable
Securities is participating, each such holder shall furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any such registration statement or prospectus and, to the
extent permitted by law, shall indemnify the Company, its directors and officers
and each Person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact contained in the
registration statement,
-9-
<PAGE>
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such holder; provided that
the obligation to indemnify shall be individual, not joint and several, for each
holder and shall be limited to the net amount of proceeds received by such
holder from the sale of Registrable Securities pursuant to such registration
statement.
(c) Procedure for Indemnification. Any Person entitled to
-----------------------------
indemnification hereunder shall (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
(provided that the failure to give prompt notice shall not impair any Person's
right to indemnification hereunder to the extent such failure has not prejudiced
the indemnifying party) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party shall not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent shall not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) Survival. The indemnification provided for under this
--------
Agreement shall remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and shall survive the transfer of
securities.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder unless such Person:
(a) in the case of a registration which is underwritten,
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements; provided, however, that no holder of less than 10%
of any Registrable Securities included in any underwritten registration (other
than an executive officer or director of the Company) shall be required to make
any representations or warranties to the Company or the underwriters (other than
representations and warranties regarding such holder and such holder's intended
method of distribution) or to undertake any indemnification obligations to the
Company or the underwriters with respect thereto, except as otherwise provided
in Section 6 hereof;
---------
(b) as expeditiously as possible, notifies the Company, at any
time when a prospectus relating to such Person's Registrable Securities is
required to be delivered under the Securities Act, of the happening of any event
as a result of which such prospectus
-10-
<PAGE>
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading;
(c) complies with all reasonable requests made by the Company
or its counsel with respect to the registration of such Person's Registrable
Securities, including, without limitation, providing access to all relevant
books and records; and
(d) completes, executes and delivers all questionnaires,
powers of attorney, indemnities, underwriting agreements and other usual and
customary documents necessary or appropriate with respect to the offering of
such Person's Registrable Securities, and in the case of a registration which is
underwritten, necessary or appropriate under the terms of such underwriting
arrangements (subject to the provision in Section 7(a) above).
------------
8. Definitions.
-----------
(a) The term "Common Stock" means shares of the Company's
common stock, par value $.01 per share.
(b) The term "Initial Public Offering" means the first
registered public offering of the Company's Common Stock by the Company under
the Securities Act with net proceeds to the Company, prior to any redemptions of
Preferred Stock, of not less than $30 million.
(c) The term "Investor Registrable Securities" means all
Registrable Securities initially issued to and held by the Investor or FBR
Technology Venture Partners, LP or any Registrable Securities issued to any
other institutional investor providing financing to the Company. Investor
Registrable Securities will continue to be Investor Registrable Securities if
held or acquired by any holder of Registrable Securities.
(d) The term "Management Agreement" means collectively those
certain Management Agreements dated August 12, 1999 between the Company and each
of Stuart C. Johnson, Graham B. Perkins, Thomas B. Modly, Bruce H. Allan, David
T. Fu, Jason H. Levine, Matthew B. Walker and Patricia A. Withers.
(e) The term "Management Registrable Securities" means all
Registrable Securities initially held by officers, independent outside directors
or employees of the Company, including those issued under any Management
Agreement. Management Registrable Securities will continue to be Management
Registrable Securities if held or acquired by any holder of Registrable
Securities.
(f) The term "Merger Agreement" means that certain Agreement
and Plan of Merger to be entered into in August, 1999 by and among the Company,
Empyrean Group, Inc. and FBR Technology Venture Partners, LP.
-11-
<PAGE>
(g) The term "Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, limited liability
company, trust or unincorporated organization.
(h) The term "Preferred Stock" means shares of the Company's
preferred stock, par value $.01 per share.
(i) The term "Purchase Agreement" has the meaning set forth in
Recital A to this Agreement.
- ---------
(j) The term "Registration Expenses" has the meaning set forth
in Section 5 above.
---------
(k) The term "Registrable Securities" means (i) any Common
Stock issued pursuant to the Purchase Agreement, the Merger Agreement or any
Management Agreement (whether issued before or after the date hereof), (ii) any
other Common Stock issued or issuable with respect to the securities referred to
in clause (i) by way of a stock dividend or stock split or in connection with an
exchange or combination of shares, recapitalization, merger, consolidation or
other reorganization, and (iii) any other shares of Common Stock held by Persons
holding securities described in clauses (i) and (ii), inclusive above. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when they have been distributed to the public pursuant to a offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force). For purposes of this Agreement, a Person shall
be deemed to be a holder of Registrable Securities whenever such Person has the
right to acquire such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
(l) The term "Securities Act" means the Securities Act of
1933, as amended, or any similar federal law then in force.
(m) The term "Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended, or any similar federal law then in force.
(n) The term "Seller Registrable Securities" means all
Registrable Securities held by the Parent or any Registrable Securities issued
by the Company to the former shareholders and/or employees of any business
acquired by the Company or its subsidiaries to the extent such Registrable
Securities are issued in connection with the acquisition of such acquired
business by the Company. Seller Registrable Securities will continue to be
Seller Registrable Securities if held or acquired by any holder of Registrable
Securities.
9. Miscellaneous.
-------------
-12-
<PAGE>
(a) No Inconsistent Agreements. The Company shall not
--------------------------
hereafter enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the holders of Registrable
Securities in this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company
--------------------------------------------
shall not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. Any Person having rights under any provision of
--------
this Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided
----------------------
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of at least 60% of the
Registrable Securities; provided, however, that no changes shall be made in the
relative priorities of the Investor Registrable Securities, the Management
Registrable Securities and the Seller Registrable Securities in connection with
any registration hereunder without the consent of a majority of the outstanding
Registrable Securities held by the holders of each of the Investor Registrable
Securities, the Seller Registrable Securities and the Management Registrable
Securities, each voting as a separate class.
(e) Successors and Assigns. All covenants and agreements in
----------------------
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(f) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts; Facsimile Transmission. This Agreement may
------------------------------------
be executed simultaneously in two or more counterparts, any one of which need
not contain the signatures of more than one party, but all such counterparts
taken together shall constitute one
-13-
<PAGE>
and the same Agreement. Each party to this Agreement agrees that it will be
bound by its own telecopied signature and that it accepts the telecopied
signature of each other party to this Agreement.
(h) Descriptive Headings. The descriptive headings of this
--------------------
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic laws of the State of Delaware, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Delaware.
(j) Notices. All notices, demands or other communications to
-------
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or 48 hours after deposited in the United
States mail, first class, to the recipient by postage prepaid or by facsimile.
Such notices, demands and other communications shall be sent to the Investor and
to each Purchaser at the addresses indicated on the Schedule of Holders and to
-------------------
the Company at the address of its corporate headquarters (currently 8300 Boone
Boulevard, Suite 250, Vienna, Virginia 22182, Attention: General Counsel) or to
such other address or to the attention of such other Person as the recipient
party has specified by prior written notice to the sending party.
(k) Stockholders' Agreement. Notwithstanding anything above to
-----------------------
the contrary, all transfers of Registrable Securities are subject to the
provisions of the Stockholders' Agreement and shall be made in accordance with
such provisions.
(l) New Parties. During the term of this Agreement, the
-----------
Company may, with the consent of the Company's Board of Directors and the
Investor, permit additional Persons to become parties to this Agreement by
executing a Joinder Agreement, and the Schedule of Holders attached hereto as
-------------------
Exhibit A shall be revised and updated accordingly.
- ---------
(m) Termination of Agreement. All registration rights granted
------------------------
hereunder will expire and this Agreement will be terminated at such time as 85%
of the Registrable Securities originally issued by the Company to the Investor
pursuant to the Purchase Agreement and the Recapitalization Agreement have been
sold to the public (either in an offering registered under the Securities Act or
pursuant to Rule 144 promulgated under the Securities Act), and the average
daily trading volume of the Common Stock over the six-month period immediately
preceding the termination is at least one-quarter of one percent (1/4%) of the
Company's outstanding Common Stock.
-14-
<PAGE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
-----------------------------------
Name: Stuart C. Johnson
-----------------------------------
Title: President & CEO
-----------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: /s/ Robert E. Michalik
-----------------------------------
Name: Robert E. Michalik
-----------------------------------
Title: President
-----------------------------------
BSG HOLDINGS, INC.
By: /s/ John R. McDougall
-----------------------------------
Name: John R. McDougall
-----------------------------------
Title: President
-----------------------------------
FBR TECHNOLOGY VENTURE PARTNERS, LP
By: /s/ Gene Riechers
-----------------------------------
Its: General Partner's Managing Director
By:
-----------------------------------
Name: Gene Riechers
-----------------------------------
Title: Managing Director
-----------------------------------
/s/ Stuart C. Johnson
--------------------------------------------
Stuart C. Johnson
/s/ Graham B. Perkins
--------------------------------------------
Graham B. Perkins
-16-
<PAGE>
/s/ Bruce H. Allan
--------------------------------------------
Bruce H. Allan
/s/ Thomas B. Modly
--------------------------------------------
Thomas B. Modly
/s/ David T. Fu
--------------------------------------------
David T. Fu
/s/ Jason H. Levine
--------------------------------------------
Jason H. Levine
/s/ Matthew B. Walker
--------------------------------------------
Matthew B. Walker
/s/ Patricia A. Withers
--------------------------------------------
Patricia A. Withers
-17-
<PAGE>
EXHIBIT A to
Registration Agreement
----------------------
SCHEDULE OF HOLDERS
-------------------
Investor:
- --------
Thayer ITech Holdings, LLC
c/o Thayer Equity Partners
1455 Pennsylvania Avenue, N.W., Suite 350
Washington, D.C. 20004
Attention: Chris Temple
Other Stockholders:
- ------------------
BSG Holdings, Inc.
284 S. Main Street
Suite 700
Alpharetta, Georgia 30004
FBR Technology Venture Partners, LP
1001 19th Street North
Arlington, VA 22209
Stuart C. Johnson
Thomas B. Modly
Graham B. Perkins
David T. Fu
Matthew B. Walker
Bruce H. Allan
Jason H. Levine
Patricia A. Withers
c/o Empyrean Group Holdings, Inc.
8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
-18-
<PAGE>
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
This Joinder Agreement (this "Joinder") is made as of the date
written below by the undersigned (the "Joining Party") and certain parties to
the Registration Rights Agreement, dated as of August 12, 1999 (the
"Registration Agreement"), among Empyrean Group Holdings, Inc., a Delaware
corporation (the "Company"), and the stockholders of the Company. Capitalized
terms used but not defined herein shall have the meanings given such terms in
the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder, the Joining Party will be
deemed to be a party to the Registration Agreement and shall have all of the
rights and obligations of a "Stockholder" thereunder as if it had executed the
Registration Agreement. The Joining Party, and the Company hereby ratify, as of
the date hereof, and agree to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
The Company and the Joining Party acknowledge, agree and
confirm that for all purposes under the Registration Agreement, all shares of
Common Stock received by Joining Party (i) pursuant to Section 2.2(d) of the
Stock Purchase Agreement, dated as of October 28, 1999, by and among the
Company, IconixGroup, Inc., The Invisions Group, Ltd. and the Stockholders of
The Invisions Group, Ltd. (the "Stock Purchase Agreement"), (ii) upon conversion
of any shares of Preferred Stock received by Joining Party pursuant to Section
2.2(d) of the Stock Purchase Agreement, including any additional shares of
Preferred Stock received as dividends thereon, and (iii) upon conversion of the
"Seller Note" (as such term is defined in the Stock Purchase Agreement) received
by Joining Party pursuant to Section 2.2(b) of the Stock Purchase Agreement,
shall be deemed Seller Registrable Securities.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written
below.
Date: November 3, 1999 /s/ Leo C. Mullen
----------------------------- ------------------------------------
Leo C. Mullen
Address:
4927 Auburn Avenue
Bethesda, Maryland 20814
Tax I.D. No.: ###-##-####
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
--------------------------------
Name: Stuart C. Johnson
--------------------------------
Title: Chairman, President and CEO
--------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
--------------------------------
Its: Robert E. Michalik
--------------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: November 3, 1999 /s/ Helene Patterson
-------------------- --------------------
Helene Patterson
Address:
4927 Auburn Avenue
Bethesda, Maryland 20814
Tax I.D. ###-##-####
-------------------
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
---------------------------
Name: Stuart C. Johnson
---------------------------
Title: Chairman, President and CEO
---------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
---------------------------
Its: Robert E. Michalik
---------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: November 3, 1999 /s/ Sidney E. Barcelona
--------------------------- -------------------------------
Sidney E. Barcelona
Address:
4927 Auburn Avenue
Bethesda, Maryland 20814
Tax I.D. No. ###-##-####
-----------
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
---------------------------
Name: Stuart C. Johnson
---------------------------
Title: Chairman, President and CEO
---------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
---------------------------
Its: Robert E. Michalik
---------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: November 3, 1999 /s/ Gretchen Frederick
----------------------------- ------------------------------------
Gretchen Frederick
Address:
4927 Auburn Avenue
Bethesda, Maryland 20814
Tax I.D. No.:###-##-####
-----------
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
---------------------------
Name: Stuart C. Johnson
---------------------------
Title: Chairman, President and CEO
---------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
---------------------------
Its: Robert E. Michalik
---------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: November 3, 1999 /s/ Mark A. Smith
----------------------------- ------------------------------------
Mark A. Smith
Address:
4927 Auburn Avenue
Bethesda, Maryland 20814
Tax I.D. No.:###-##-####
-----------
APPROVED BY:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
---------------------------
Name: Stuart C. Johnson
---------------------------
Title: Chairman, President and CEO
---------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
---------------------------
Its: Robert E. Michalik
---------------------------
<PAGE>
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") and certain parties to the
Registration Rights Agreement, dated as of August 12, 1999 (the "Registration
Agreement"), among Iconixx Corporation (formerly known as Empyrean Group
Holdings, Inc.), a Delaware corporation (the "Company"), and the stockholders of
the Company. Capitalized terms used but not defined herein shall have the
meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder, the Joining Party will be
deemed to be a party to the Registration Agreement and shall have all of the
rights and obligations of a "Stockholder" thereunder as if it had executed the
Registration Agreement. The Joining Party, and the Company hereby ratify, as of
the date hereof, and agree to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
The Company and the Joining Party acknowledge, agree and confirm that
for all purposes under the Registration Agreement, all shares of Common Stock
received by Joining Party (i) pursuant to Section 2.2(d) of the Stock Purchase
Agreement, dated as of October 28, 1999, by and among the Company, IconixGroup,
Inc., The Invisions Group, Ltd. and the Stockholders of The Invisions Group,
Ltd. (the "Stock Purchase Agreement"), (ii) upon conversion of any shares of
Preferred Stock received by Joining Party pursuant to Section 2.2(d) of the
Stock Purchase Agreement, including any additional shares of Preferred Stock
received as dividends thereon, and (iii) upon conversion of the "Seller Note"
(as such term is defined in the Stock Purchase Agreement) received by Joining
Party pursuant to Section 2.2(b) of the Stock Purchase Agreement, shall be
deemed Seller Registrable Securities.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Joinder Agreement as of the date written below.
Date: November 3, 1999 /s/ William K. Stephens
------------------------------------
William K. Stephens
Address:
4927 Auburn Avenue
Bethesda, Maryland 20814
Tax I.D. No.: ###-##-####
-----------
APPROVED BY:
ICONIXX CORPORATION
(f/k/a EMPYREAN GROUP HOLDINGS, INC.)
By: /s/ Stuart C. Johnson
---------------------------
Name: Stuart C. Johnson
---------------------------
Title: Chairman, President & CEO
---------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
---------------------------
Its: Robert E. Michalik
---------------------------
<PAGE>
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") and certain parties to the
Registration Rights Agreement, dated as of August 12, 1999, among Iconixx
Corporation (formerly known as Empyrean Group Holdings, Inc.), a Delaware
corporation (the "Company"), and the stockholders of the Company (the
"Registration Agreement" ). Capitalized terms used, but not defined herein,
shall have the meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder, the Joining Party will be
deemed to be a party to the Registration Agreement and shall have all of the
rights and obligations of a "Stockholder" thereunder as if it had executed the
Registration Agreement. The Joining Party, and the Company hereby ratify, as of
the date hereof, and agree to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
The Company and the Joining Party acknowledge, agree and confirm that
for all purposes under the Registration Agreement, all shares of Common Stock
received by the Joining Party (i) by stock power, dated January 18, 2000, from
Leo C. Mullen and (ii) by stock power, dated January 18, 2000, from Helene
Patterson shall be deemed Seller Registrable Securities.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of January 18, 2000.
MULLEN PATTERSON, L.L.C.
By: /s/ Helene Patterson & Leo C. Mullen
------------------------------------
Its: Managers
------------------------------------
Address:
Tax I.D. No.:
APPROVED BY:
ICONIXX CORPORATION
(formerly known as
EMPYREAN GROUP HOLDINGS, INC.)
By: /s/ Stuart C. Johnson
------------------------------------
Its: Stuart C. Johnson
------------------------------------
Chairman, President & CEO
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors, III, L.P.
Its: Managing Member
By: TC Equity Partners, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------------------
Its: Vice President
------------------------------------
<PAGE>
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") and certain parties to the
Registration Rights Agreement, dated as of August 12, 1999 (the "Registration
Agreement"), by and among Iconixx Corporation (formerly Empyrean Group Holdings,
Inc.), a Delaware corporation ("Iconixx"), and the Stockholders of Iconixx.
Capitalized terms used but not defined herein shall have the meanings given such
terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder, the Joining Party will be
deemed to be a party to the Registration Agreement and shall have all of the
rights and obligations of a "Stockholder" thereunder as if he or she had
executed the Registration Agreement. The Joining Party and Iconixx hereby
ratify, as of the date hereof, and agree to be bound by, all of the terms,
provisions and conditions contained in the Registration Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Joinder Agreement as of the date written below.
Date: March 8, 2000
STOCKHOLDER: STUART C. JOHNSON FAMILY LIMITED
PARTNERSHIP
By:/s/
------------------------------------
Address:
- -------------------------
- -------------------------
- -------------------------
Tax I.D. No.: 54-6453713
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
--------------------------------------
Name: Jason H. Levine
Title: Vice President and Assistant Secretary
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
--------------------------------------
Name: Robert E. Michalik
Title: Vice President
<PAGE>
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
This Joinder Agreement (this "Joinder") is made as of the date
written below by the undersigned (the "Joining Party") and certain parties to
the Registration Rights Agreement, dated as of August 12, 1999 (the
"Registration Agreement"), by and among Iconixx Corporation (formerly Empyrean
Group Holdings, Inc.), a Delaware corporation ("Iconixx"), and the Stockholders
of Iconixx. Capitalized terms used but not defined herein shall have the
meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder, the Joining Party will be
deemed to be a party to the Registration Agreement and shall have all of the
rights and obligations of a "Stockholder" thereunder as if he or she had
executed the Registration Agreement. The Joining Party and Iconixx hereby
ratify, as of the date hereof, and agree to be bound by, all of the terms,
provisions and conditions contained in the Registration Agreement.
Iconixx and the Joining Party acknowledge, agree and confirm
that all shares of Common Stock received by the Joining Party: (i) pursuant to
Section 2.2(c) of the Stock Purchase Agreement, dated as of February 23, 2000,
- --------------
by and among Iconixx, Lead Dog Design, Inc., a New York corporation, and Ronald
P. Heffernan, Michael Matteo, Lucia Chang Heffernan, Monica Hsu, the Kelly A.
Heffernan Trust, the Tracy Heffernan Cipully Trust and David Musicant (the
"Stock Purchase Agreement"); and (ii) upon conversion of any shares of Preferred
Stock received by the Joining Party pursuant to Section 2.2(c) of the Stock
--------------
Purchase Agreement, including any additional shares of Preferred Stock received
as dividends thereon, shall be deemed Seller Registrable Securities for all
purposes under the Registration Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Joinder Agreement as of the date written below.
Date: March 10, 2000
STOCKHOLDER: /s/ Ronald P. Heffernan
----------------------------------
Ronald P. Heffernan
Address:
306 Ivy Ct.
- -------------------------
Franklin Lks, NJ 07417
- -------------------------
- -------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
--------------------------
Name: Jason H. Levine
--------------------------
Title: Vice President
--------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 10, 2000
STOCKHOLDER: /s/ Michael Matteo
-------------------------------
Michael Matteo
Address:
1136 Morris Road
- ------------------------
Wynnewood, PA 19096
- ------------------------
- ------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------
Name: Jason H. Levine
------------------------
Title: Vice President
------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-------------------------
Name: Robert E. Michalik
-------------------------
Title: Vice President
-------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 10, 2000
STOCKHOLDER: /s/ Lucia Chang Heffernan
-----------------------------------
Lucia Chang Heffernan
Address:
306 Ivy Ct
- ----------------------------
Franklin Lakes, NJ 07417
- ----------------------------
- ----------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
-------------------------
Name: Jason H. Levine
-------------------------
Title: Vice President
-------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 10, 2000
STOCKHOLDER: /s/ Monica Hsu
--------------------------
Monica Hsu
Address:
160 Wea #19L
- -----------------------
NY, NY 10023
- -----------------------
- -----------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
---------------------------
Name: Jason H. Levine
---------------------------
Title: Vice President
---------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
--------------------------
Name: Robert E. Michalik
--------------------------
Title: Vice President
--------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 10, 2000
STOCKHOLDER:
The Kelly A. Heffernan Trust
By: /s/ Ronald Heffernan
-----------------------
Name: Ronald Heffernan
-----------------------
Title: Attorney in fact
Address:
920 Cyprus Way
- ---------------------
Boca Raton, FL
- ---------------------
- ---------------------
Tax I.D. No.: 13-7224727
----------
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
-----------------------------
Name: Jason H. Levine
-----------------------------
Title: Vice President
-----------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-------------------------
Name: Robert E. Michalik
-------------------------
Title: Vice President
-------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 10, 2000
STOCKHOLDER:
The Tracy Heffernan Cipully Trust
By: /s/ Ronald Heffernan
-----------------------------
Name: Ronald Heffernan
-----------------------------
Title: Attorney in Fact
-----------------------------
Address:
920 Cyprus Way
- ---------------------
Boca Raton, FL
- ---------------------
- ---------------------
Tax I.D. No.: 13-7224728
----------
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
---------------------------
Name: Jason H. Levine
---------------------------
Title: Vice President
---------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-------------------------
Name: Robert E. Michalik
-------------------------
Title: Vice President
-------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 10, 2000
STOCKHOLDER /s/ Robert Friedman as Attorney in Fact
---------------------------------------
David Musicant
Address:
573 Farmdale Rd.
- -----------------------
Franklin Lakes, NJ
- -----------------------
- -----------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
----------------------------
Name: Jason H. Levine
----------------------------
Title: Vice President
----------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-------------------------
Name: Robert E. Michalik
-------------------------
Title: Vice President
-------------------------
<PAGE>
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
This Joinder Agreement (this "Joinder") is made as of the date
written below by the undersigned (the "Joining Party") and certain parties to
the Registration Rights Agreement, dated as of August 12, 1999 (the
"Registration Agreement"), by and among Iconixx Corporation (formerly Empyrean
Group Holdings, Inc.), a Delaware corporation ("Iconixx"), and the Stockholders
of Iconixx. Capitalized terms used but not defined herein shall have the
meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder, the Joining Party will be
deemed to be a party to the Registration Agreement and shall have all of the
rights and obligations of a "Stockholder" thereunder as if he, she or it had
executed the Registration Agreement. The Joining Party and Iconixx hereby
ratify, as of the date hereof, and agree to be bound by, all of the terms,
provisions and conditions contained in the Registration Agreement.
Iconixx and the Joining Party acknowledge, agree and confirm
that all shares of: (i) Common Stock received by the Joining Party pursuant to
Section 2.7(c)(i) of the Asset Purchase Agreement, dated as of March 23, 2000,
- -----------------
by and among Iconixx Corporation, a Delaware corporation ("Iconixx"), Iconixx
Web Development, Inc., a Maryland corporation and wholly-owned subsidiary of
Iconixx, Internet Information Services, Inc., a Maryland corporation (the
"Company"), and certain shareholders of the Company (the "Asset Purchase
Agreement"); and (ii) Preferred Stock received by the Joining Party pursuant to
Section 2.7(c)(ii) of the Asset Purchase Agreement, shall be deemed Seller
- ------------------
Registrable Securities for all purposes under the Registration Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
STOCKHOLDER: /s/ Christopher Clark
-------------------------------
Christopher Clark
Address:
13912 Saddleview Drive
- -------------------------
N. Potomac, MD 20878
- -------------------------
- -------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
-----------------------------
Name: Graham B. Perkins
-----------------------------
Title: Vice President & Secretary
-----------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-------------------------
Name: Robert E. Michalik
-------------------------
Title: Vice President
-------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
STOCKHOLDER: /s/ Timothy Meinhardt
-----------------------------
Timothy Meinhardt
Address:
14615 Crossway Road
- -----------------------
Rockville, MD 20853
- -----------------------
- -----------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
-----------------------------
Name: Graham B. Perkins
-----------------------------
Title: Vice President & Secretary
-----------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
------------------------
Name: Robert E. Michalik
------------------------
Title: Vice President
------------------------
<PAGE>
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
This Joinder Agreement (this "Joinder") is made as of the date
written below by the undersigned (the "Joining Party") and certain parties to
the Registration Rights Agreement, dated as of August 12, 1999 (the
"Registration Agreement"), by and among Iconixx Corporation (formerly Empyrean
Group Holdings, Inc.), a Delaware corporation ("Iconixx"), and the stockholders
of Iconixx. Capitalized terms used but not defined herein shall have the
meanings given such terms in the Registration Agreement.
The Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder, the Joining Party will be deemed to be a
party to the Registration Agreement and shall have all of the rights and
obligations of a "Stockholder" thereunder as if he, she or it had executed the
Registration Agreement. The Joining Party and Iconixx hereby ratify, as of the
date hereof, and agree to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
Iconixx, the Investor and the Joining Party acknowledge, agree
and confirm that all shares of Common Stock received by the Joining Party from
EnterpriseWorks, L.L.C., a Texas limited liability company (the "Company")
following the closing of the transactions contemplated by the Asset Purchase
Agreement, dated as of March 23, 2000, by and among Iconixx, Iconixx - Houston,
Inc., a Delaware corporation and wholly-owned subsidiary of Iconixx, the Company
and certain members of the Company, shall be deemed Seller Registrable
Securities for all purposes under the Registration Agreement. Iconixx, the
Investor and the Joining Party further acknowledge, agree and confirm that the
shares of Common Stock received by the Joining Party shall, as Seller
Registrable Securities, be deemed Registrable Securities for all purposes under
the Registration Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Derrik Deyhimi
------------------------------
Derrik Deyhimi
Address:
19315 Foxtree Ln
- ------------------------
Houston, TX 77094
- ------------------------
- ------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
--------------------------------------
Name: Jason H. Levine
--------------------------------------
Title: Vice President & Assistant Secretary
--------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert Michalik
----------------------------
Name: Robert Michalik
----------------------------
Title: Vice President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER AB Holdings, L.L.C.
By: /s/ Robert G. Ackerley
----------------------------
Name: Robert G. Ackerley
----------------------------
Title: President
----------------------------
Address:
5306 Hollister
- -----------------------
Houston, Texas 77040
- -----------------------
- -----------------------
Tax I.D. No.: 88-0382723
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------
Name: Jason H. Levine
------------------------------
Title: Vice President & Secretary
------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
----------------------------
Name: Robert Michalik
----------------------------
Title: Vice President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Scott Heath
---------------------------
Scott Heath
Address:
1106 Jackson, #A
- ------------------------
Houston, TX 77006
- ------------------------
- ------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-----------------------------
Name: Robert Michalik
-----------------------------
Title: Vice President
-----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ David Mosley
---------------------------
David Mosley
Address:
3603 Hugginsway St.
- -----------------------
Pearland, TX 77584
- -----------------------
- -----------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
-------------------------------------
Name: Jason H. Levine
-------------------------------------
Title: Vice President & Assistant Secretary
-------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
--------------------------
Name: Robert Michalik
--------------------------
Title: Vice President
--------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Jeff Jamison
--------------------------
Jeff Jamison
Address:
Suite 400, 5301 Hollister
- ---------------------------
Houston, TX 77040
- ---------------------------
- ---------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
-------------------------------------
Name: Jason H. Levine
-------------------------------------
Title: Vice President & Assistant Secretary
-------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-----------------------------
Name: Robert E. Michalik
-----------------------------
Title: Vice President
-----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Lance Hack
--------------------------
Lance Hack
Address:
5301 Hollister
- -----------------------
Houston, TX 77040
- -----------------------
- -----------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
----------------------------
Name: Robert E. Michalik
----------------------------
Title: Vice President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Carolyn Jenkins
-----------------------------
Carolyn Jenkins
Address:
5301 Hollister, Ste 400
- --------------------------
Houston, TX 77040
- --------------------------
- --------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
----------------------------
Name: Robert Michalik
----------------------------
Title: Vice President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Shane Byers
------------------------
Shane Byers
Address:
5301 Hollister
- ---------------------
Suite 400
- ---------------------
Houston, TX
- ---------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-----------------------------
Name: Robert E. Michalik
-----------------------------
Title: Vice President
-----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Roman Bartik
-----------------------------
Roman Bartik
Address:
1441 Wazee St., #302
- -------------------------
Denver, CO 80202
- -------------------------
- -------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
----------------------------
Name: Robert Michalik
----------------------------
Title: Vice President
----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Joinder Agreement as of the date written below.
Date: March 23, 2000
STOCKHOLDER /s/ Genie Neukomm
-----------------------------
Genie Neukomm
Address:
3131 Castlewood
- ------------------------
Houston, TX 77025
- ------------------------
- ------------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
---------------------------
Name: Robert Michalik
---------------------------
Title: Vice President
---------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 23, 2000
--
STOCKHOLDER /s/ Matthew H. Hartzell
---------------------------------
Matthew H. Hartzell
Address:
5306 Hollister
- -----------------------
Houston, TX 77009
- -----------------------
- -----------------------
Tax I.D. No.: ###-##-####
--- -- ----
APPROVED BY:
ICONIXX CORPORATION
By: /s/ Jason H. Levine
------------------------------------
Name: Jason H. Levine
------------------------------------
Title: Vice President & Assistant Secretary
------------------------------------
THAYER ITECH HOLDINGS, L.L.C.
By: Thayer Equity Investors IV, L.P.
Its: Managing Member
By: TC Equity Partners IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Michalik
-------------------------
Name: Robert Michalik
-------------------------
Title: Vice President
-------------------------
<PAGE>
Exhibit 10.8
CONTRIBUTION AGREEMENT
This Contribution AGREEMENT (this "Agreement") is made and entered into as
of August 12, 1999, by and among Empyrean Group Holdings, Inc. (formerly,
Business Solutions Group, Inc.), a Delaware corporation (the "Company"), and the
members of the Company's management team named on the signature page hereto
(each, an "Executive" and, together, the "Executives"), and each other person
who hereafter acquires Management Shares (as such term is defined below) and
executes a Joinder Agreement agreeing to be bound by the terms hereof. Terms not
otherwise defined herein shall have the meanings assigned to such terms in the
Company's Management Agreements (as hereinafter defined).
Recitals
--------
A. Pursuant to those certain Senior Management Agreements (individually a
"Management Agreement" and collectively, the "Management Agreements"), each
dated approximately as of the date hereof with each of the Executives 10,000,000
shares in the aggregate of the Company's Common Stock, par value $.01 per share,
have been reserved for issuance to each of the Executives (the "Management
Shares"), subject to certain vesting conditions as set forth in each of the
Management Agreements.
B. In the event that the board of directors of the Company (the "Board")
resolves to issue Management Shares to a new manager or executive of the Company
or its subsidiaries (a "New Executive") pursuant to a Management Agreement
between the Company and the New Executive, each of the Executives hereby agrees
to resell to the Company for resale to the New Executive a portion of each
Executive's Management Shares as determined pursuant to this Agreement.
Agreement
---------
NOW, THEREFORE, to induce the Company to employ such New Executive, which
employment shall reasonably be expected to benefit each of the Executives by
enhancing the value of the Company and the Management Shares, each of the
parties intending to be legally bound hereby agree as follows:
1. Resale of Shares. In the event that, prior to the effective date of an
----------------
Initial Public Offering, the Company elects, upon approval of the Board,
including the vote of all Executives then members of the Board, to offer shares
of its Common Stock to a New Executive, then each Executive shall be required to
sell to the Company the number of Management Shares held by such Executive
determined pursuant to Section 3 below (a "Reoffer Sale"). Each Executive in
---------
1
<PAGE>
such Reoffer Sale (i) shall be subject to the same terms and conditions of sale
and (ii) shall execute such documents and take such actions as may be reasonably
required by the Board.
2. Reoffer Notice. The Company shall provide each Executive with written
--------------
notice (the "Reoffer Notice") of a Reoffer Sale at least ten (10) days prior to
the date of consummation of such repurchase (the "Reoffer Sale Date"). Each
Reoffer Notice shall set forth: (i) the identity of the New Executive in the
Reoffer Sale, (ii) the price and the other general terms of the proposed sale of
Management Shares to the New Executive; (iii) the number of Management Shares to
be repurchased from each Executive; and (iv) the Reoffer Sale Date.
3. Calculation of Number of Reoffer Shares. The number of Management Shares
---------------------------------------
to be repurchased from each Executive in a Reoffer Sale shall be determined by
the following formula:
EROS = ROS x (EMS / TMS)
WHERE:
EROS = The number of Management Shares to be repurchased from
the Executive in the Reoffer Sale.
ROS = The number of Management Shares to be sold to the New Executive
EMS = The number of Management Shares then owned by Executive
TMS = The total number of Management Shares owned by all
Executives as a group.
For example, if the Company proposes to sell 1,000 shares of Common Stock
to a New Executive, the total number of Management Shares outstanding owned by
all Executives is 25,000 and an individual Executive owns 5,000 Management
Shares, then the number of shares to be repurchased from such Executive is 200
shares (EROS = 1,000 x (5,000 / 25,000) or 1,000 x .20 = 200)
4. Shares Repurchased; Purchase Price. The Management Shares to be
----------------------------------
repurchased from an Executive shall be repurchased from an Executive's Vested
Shares and Unvested Shares on a pro rata basis (i.e., 50% of such shares shall
be repurchased from Executive's Time Vesting Shares (proportional among the Time
Vesting Shares then vested and unvested) and 50% from Executive's Performance
Vesting Shares). The repurchase price for Management Shares repurchased by the
Company in the Reoffer Sale shall be paid in cash and shall be equal to the
greater of (i) the purchase price to be paid by the New Executive for such
shares and (ii) the purchase price originally paid by the Executive for such
Management Shares.
2
<PAGE>
5. Consummation. At least two (2) days prior to the date of consummation of
------------
a Reoffer Sale, each Executive shall deliver to the Company one or more
certificates, together with stock power, which represent all of the Management
Shares to be repurchased from such Executive. Upon receipt of the proceeds of
the Reoffer Sale, the Company shall promptly remit to each Executive that
portion of such proceeds to which such Executive is entitled by reason of such
Executive's participation in such sale.
6. Legend. All certificates evidencing Management Shares restricted by this
------
Agreement shall bear a legend indicating the existence of the restrictions
imposed hereby and a stop transfer order may be placed with respect to such
securities. The legend referred to in the preceding sentence shall be
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE REPURCHASE RIGHTS CONTAINED
IN THE CONTRIBUTION AGREEMENT DATED AS OF
AUGUST 12, 1999, AMONG EMPYREAN GROUP
HOLDINGS, INC. (FORMERLY, BUSINESS SOLUTIONS
GROUP, INC.), AND CERTAIN STOCKHOLDERS
THEREOF AND MAY NOT BE TRANSFERRED EXCEPT IN
ACCORDANCE WITH SUCH AGREEMENT. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE
OF EMPYREAN GROUP HOLDINGS, INC. AND WILL BE
FURNISHED UPON REQUEST TO THE HOLDER OF RECORD
OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE.
7. Amendment. Except as otherwise expressly set forth in this Agreement,
---------
this Agreement may be amended or supplemented only by the written agreement of
the Company, the Investor and the holders of at least fifty percent (50%) of all
outstanding shares of Common Stock held by the Executives.
8. Entire Agreement; Successors; Third Parties. This Agreement contains the
-------------------------------------------
entire agreement among the parties with respect to the transactions contemplated
hereby and supersedes all prior arrangements or understandings with respect
thereto, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors, heirs, executors, administrators and permitted assigns. Except as
specifically set forth herein, nothing in this Agreement, expressed or implied,
is intended to confer upon any party, other than the parties hereto and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities.
9. Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile or sent by
3
<PAGE>
overnight express or by registered or certified mail, postage prepaid, at the
addresses of each Executive and the Company set forth in the Management
Agreement of even date herewith.
10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
11. Governing Law and Venue. The validity, interpretation, construction and
-----------------------
performance of this Agreement shall be governed by the laws of the State of
Virginia applicable to agreements made and entirely to be performed within such
jurisdiction. The party bringing any action under this Agreement shall only be
entitled to choose the federal or local courts in the Eastern District of
Virginia as the venue for such action, and each party consents to the
jurisdiction of the court chosen in such manner for such action.
12. Severability. The provisions of this Agreement are severable, and the
------------
unenforceability of any provision of this Agreement shall not affect the
enforceability of the remainder of this Agreement. The parties acknowledge that
it is their intention that if any provision of this Agreement is determined by a
court to be invalid, illegal or unenforceable as drafted, that provision should
be construed in a manner designed to effectuate the purpose of that provision to
the greatest extent possible under applicable law.
13. Transfers; Transfers in Violation of Agreement. Prior to Transferring
----------------------------------------------
any Management Securities to any Person, the transferring Executive shall cause
the prospective transferee to execute and deliver to the Company a Joinder to
this Agreement. Any Transfer or attempted Transfer of any Management Securities
in violation of any provision of this Agreement shall be void, and the Company
shall not record such transfer on its books or treat any purported transferee of
such Management Securities as the owner of such shares for any purpose.
14. Specific Performance. The rights of the parties under this Agreement
--------------------
are unique and the failure of a party to perform its obligations hereunder would
irreparably harm the other parties hereto. Accordingly, the parties shall, in
addition to such other remedies as may be available at law or in equity, have
the right to enforce their rights hereunder by actions for specific performance
to the extent permitted by law.
15. Further Assurances. Each of the parties hereto agrees to execute all
------------------
such further instruments and documents and to take all such further action as
any other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of the day and year first
above written.
EMPYREAN GROUP HOLDINGS, INC.
(formerly, Business Solutions Group, Inc.)
By: /s/ Stuart C. Johnson
---------------------------------
Name: Stuart C. Johnson
Title: President and CEO
EXECUTIVE
/s/ Stuart C. Johnson
------------------------------------------
Stuart C. Johnson
/s/ Thomas B. Modly
------------------------------------------
Thomas B. Modly
/s/ Jason H. Levine
------------------------------------------
Jason H. Levine
/s/ Graham B. Perkins
------------------------------------------
Graham B. Perkins
/s/ Bruce H. Allan
------------------------------------------
Bruce H. Allan
/s/ David T. Fu
------------------------------------------
David T. Fu
/s/ Matthew B. Walker
------------------------------------------
Matthew B. Walker
/s/ Patricia A. Withers
------------------------------------------
Patricia A. Withers
5
<PAGE>
FIRST AMENDMENT TO
CONTRIBUTION AGREEMENT
THIS FIRST AMENDMENT TO CONTRIBUTION AGREEMENT (this "Amendment") is made
and entered into as of the 12th day of November, 1999, by and among ICONIXX
CORPORATION, a Delaware corporation, formerly known as Empyrean Group Holdings,
Inc. ("Iconixx"), BSG SOLUTIONS, INC., a Georgia corporation ("BSG") and
ICONIXGROUP, INC., a Maryland corporation ("IconixGroup").
WHEREAS, Iconixx and BSG (the "Existing Borrowers") are parties to a
Contribution Agreement (the "Contribution Agreement") dated as of August 12,
1999, which was executed and delivered by the Existing Borrowers to First Union
National Bank (the "Agent") in connection with and as a condition precedent to
the transactions contemplated by that certain Business Loan and Security
Agreement dated as of August 12, 1999 (the "Loan Agreement"), made by and among
the Existing Borrowers, the Agent, and First Union Commercial Corporation and
Bank of America N.A., as the Lenders; and
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of
November 3, 1999, by and among Iconixx, IconixGroup, The Invisions Group, Ltd.,
a Maryland corporation ("Invisions Group"), and Leo C. Mullen, Helene Patterson
and certain others (the "Stockholders"), IconixGroup became a subsidiary of
Iconixx; and
WHEREAS, IconixGroup has agreed to become a "Borrower" under the Loan
Agreement by executing and delivering to the Agent a Joinder Agreement (as
defined in the Loan Agreement) immediately following its execution and delivery
of this Amendment; and
WHEREAS, the Existing Borrowers and IconixGroup desire to amend the
Contribution Agreement in certain respects to satisfy certain conditions
precedent to the Agent's acceptance of the Joinder Agreement, all pursuant to
the terms and provisions of this Amendment.
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. All capitalized terms used herein and not otherwise defined
-----------
herein shall have the meanings given such terms in both the Contribution
Agreement and Loan Agreement.
<PAGE>
2. Joinder to the Contribution Agreement. IconixGroup hereby (a) agrees to
-------------------------------------
become a "Borrower" under the Contribution Agreement; and (b) joins in, becomes
a party to, and agrees to comply with and be bound by each and all of the terms
and conditions of the Contribution Agreement, to the same extent as if
IconixGroup were an original signatory thereto. Iconix, together with the
Existing Borrowers, shall be jointly and severally liable for the performance of
any and all past, present and future obligations and liabilities of any Borrower
under and in connection with the Contribution Agreement.
3. Future Joinders to Contribution Agreement. Any present or future
-----------------------------------------
subsidiary of any Borrower in which such Borrower now or hereafter owns,
directly or indirectly, an ownership interest of greater than fifty percent
(50%) shall, at the Agent's option, execute and deliver to the Agent a Joinder
to Contribution Agreement in the form attached hereto as Exhibit 1 (a "Joinder
to Contribution Agreement"), pursuant to which such subsidiary shall join in and
become a party to, and agree to comply with and be bound by each and all of the
terms and conditions of the Contribution Agreement to the same extent as if the
future or present subsidiary were an original signatory thereto. Any party
executing the Joinder to Contribution agreement shall be jointly and severally
liable for the performance of any and all past, present and future obligation
and liabilities of any Borrower under and in connection with the Contribution
Agreement.
4. Entire Amendment. Except to the extent specifically modified hereby, the
----------------
terms and provisions of the Contribution Agreement shall continue in full force
and effect. The terms and provisions of the Contribution Agreement are
incorporated into this Amendment as if fully set forth herein. In the event of a
conflict between the Contribution Agreement and this Amendment, the latter shall
control.
5. Effective Date. This Amendment shall be effective as of the date first
--------------
above written.
6. Counterparts; Facsimile Transmission. This Amendment may be executed in
------------------------------------
any number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument. A party's signature
appearing on this Amendment sent by facsimile transmission shall be binding as
evidence of that party's acceptance and agreement to the terms hereof.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives as of the date first written
above.
ICONIXX CORPORATION,
a Delaware corporation
By: /s/ Graham B. Perkins
-------------------------------
Name: Graham B. Perkins
Title: Vice President, Treasurer and
Secretary
BSG SOLUTIONS, INC., a Georgia corporation
By: /s/ Graham B. Perkins
-------------------------------
Name: Graham B. Perkins
Title: Vice President, Treasurer and
Secretary
ICONIXGROUP, INC., a Maryland corporation
By: /s/ Graham B. Perkins
-------------------------------
Name: Graham B. Perkins
Title: Vice President, Treasurer and
Secretary
Accepted as of the 12th day of November, 1999:
- ---------------------------------------------
FIRST UNION NATIONAL BANK, as Agent
By: /s/ Mary S. Dolan
-------------------------
Name: Mary S. Dolan
Title: Vice President
8
<PAGE>
Schedule A
Joinder to Contribution Agreement
Re: Contribution Agreement dated August 12,1999, as amended, (the
"Contribution Agreement") by and among ICONIXX CORPORATION, a
Delaware corporation, formerly known as Empyrean Group Holdings,
Inc. ("Iconixx"), BSG SOLUTIONS, INC., a Georgia corporation
("BSG") and ICONIXGROUP, INC., a Maryland corporation
("IconixGroup") and any person or entity who has become a
borrower party thereto pursuant to the Contribution Agreement.
The undersigned hereby (i) agrees to becomes a "Borrower" under the
Contribution Agreement; and (ii) joins in, become a party to, and agrees to
comply with and be bound by the terms and conditions of the Contribution
Agreement, to the same extent as of the undersigned were an original signatory
thereto. The undersigned shall hereafter be jointly and severally liable for the
performance of any and all past, present and future obligations of any Borrower
in connection with the Contribution Agreement.
Capitalized terms used and not defined herein shall have the meaning
ascribed to such terms in the Loan Agreement.
In Witness Whereof, the undersigned has duly executed and delivered this
Joinder Agreement effective as of the _______ of _____________________, ______
[Corporate Seal] ____________________________
a _____________ corporation
Attest:
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- -----------------------------
9
<PAGE>
JOINDER AGREEMENT
TO CONTRIBUTION AGREEMENT
-------------------------
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") and certain parties to the
Contribution Agreement, dated as of August 12, 1999 (the "Contribution
Agreement") among Iconixx Corporation (formerly known as Empyrean Group
Holdings, Inc.), a Delaware corporation (the "Company"), and the Executives of
the Company. Capitalized terms used but not defined herein shall have the
meanings given such terms in the Contribution Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder, the Joining Party will be deemed to be a
party to the Contribution Agreement and shall have all of the rights and
obligations of an "Executive" thereunder as if it had executed the Contribution
Agreement. The Joining Party and the Company hereby ratify, as of the date
hereof, and agree to be bound by, all of the terms, provisions and conditions
contained in the Contribution Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as
of the date written below.
Date: November 19, 1999
EXECUTIVE
/s/ William K. Stephens
--------------------------------------
William K. Stephens
APPROVED BY:
ICONIXX CORPORATION
(f/k/a EMPYREAN GROUP HOLDINGS, INC.)
By: /s/ Stuart C. Johnson
---------------------------------
Its: Stuart C. Johnson
Chairman, President and CEO
<PAGE>
JOINDER AGREEMENT
TO CONTRIBUTION AGREEMENT
-------------------------
This Joinder Agreement (this "Joinder") is made as of the date written
below by the undersigned (the "Joining Party") and certain parties to the
Contribution Agreement, dated as of August 12, 1999 (the "Contribution
Agreement") among Iconizz Corporation (formerly known as Empyrean Group
Holdings, Inc.), a Delaware corporation (the "Company"), and the Executives of
the Company. Capitalized terms used but not defined herein shall have the
meanings given such terms in the Contribution Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and confirms
that, by its execution of this Joinder, the Joining Party will be deemed to be a
party to the Contribution Agreement and shall have all of the rights and
obligations of an "Executive" thereunder as if it had executed the Contribution
Agreement. The Joining Party and the Company hereby ratify, as of the date
hereof, and agree to be bound by, all of the terms, provisions and conditions
contained in the Contribution Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: March 8, 2000
EXECUTIVE
STUART C. JOHNSON FAMILY LIMITED
PARTNERSHIP
/s/
-----------------------------------------------
APPROVED BY:
ICONIXX CORPORATION
(f/k/a EMPYREAN GROUP HOLDINGS, INC.)
By: /s/ Jason H. Levine
-----------------------------------------
Jason H. Levine
Vice President and Assistant Secretary
<PAGE>
Joinder to Contribution Agreement
Re: Contribution Agreement dated August 12, 1999, as amended,
(the "Contribution Agreement") by and among ICONIXX CORPORATION,
a Delaware corporation, formerly known as Empyrean Group
Holdings, Inc. and certain of its subsidiaries and affiliates
that have become borrower parties hereto pursuant to the
Contribution Agreement.
The undersigned hereby (i) agrees to becomes a "Borrower" under the
Contribution Agreement; and (ii) joins in, become a party to, and agrees to
comply with and be bound by the terms and conditions of the Contribution
Agreement, to the same extent as of the undersigned were an original signatory
thereto. The undersigned shall hereafter be jointly and severally liable for the
performance of any and all past, present and future obligations of any Borrower
in connection with the Contribution Agreement.
Capitalized terms used and not defined herein shall have the meaning
ascribed to such terms in the Loan Agreement.
In Witness Whereof, the undersigned has duly executed and delivered this
Joinder Agreement effective as of the 12th day of March, 2000.
[Corporate Seal] LEAD DOG DESIGN, INC.
Attest:
By:/s/ Jason H. Levine By:/s/ Graham Perkins
---------------------------------- -------------------------------
Name: Jason H. Levine Name: Graham Perkins
Title: Assistant Secretary Title: Chief Financial Officer
Date: March 10, 2000 Date: March 10, 2000
<PAGE>
Exhibit 10.9
SENIOR MANAGEMENT AGREEMENT
---------------------------
THIS AGREEMENT (this "Agreement") is made as of August 12, 1999, between
EMPYREAN GROUP HOLDINGS, INC., a Delaware corporation (formerly Business
Solutions Group, Inc., the "Company"), and the Executive whose name appears on a
Signature Page hereto ("Executive"). This Agreement is entered into individually
with each of the Executives named on the signature pages hereto. Except for the
numbered matters in [__] which are reflected on each individual Executive's
Annex A attached hereto, this Agreement shall be the same for each of the
- -------
Executives named on the signature pages; provided, however, that all references
herein to Executive or Executive Stock shall be deemed to refer only to such
individual Executive and his Executive Stock (including the portion of Executive
Stock held by such Executive's Permitted Transferees).
Recitals
--------
A. The Company and Executive desire to enter into an agreement pursuant to
which Executive will purchase, and the Company will sell, [1] shares of the
Company's Common Stock, par value $.01 par value per share (the "Common Stock")
and [2] shares of the Company's Class A Preferred Stock, $.01 par value per
share (the "Preferred Stock"). All shares of Common Stock and Preferred Stock
purchased by an Executive are referred to herein as "Executive Stock" (as
further defined in Section 10).
----------
B. The execution and delivery of this Agreement by the Company and
Executive is a condition to the purchase of shares of Common Stock and Preferred
Stock by Thayer ITech Holdings, L.L.C. (the "Investor") pursuant to a purchase
agreement between the Company and the Investor (the "Equity Purchase
Agreement"). Certain provisions of this Agreement are intended for the benefit
of, and will be enforceable by, the Investor.
C. Certain definitions are set forth in Section 10 of this Agreement.
----------
Agreement
---------
The parties hereto agree as follows:
PROVISIONS RELATING TO EXECUTIVE STOCK
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Pursuant to the terms of this Agreement, Executive will purchase,
and the Company will sell, an aggregate of [1] shares of Common Stock at a price
of $.10 per share. At the time of such purchase, the Company will deliver to
Executive the certificates
1
<PAGE>
representing such Executive Stock, and Executive will deliver to the Company [3]
in the aggregate amount of $[4].
(b) Within 30 days after Executive purchases any Executive Stock from the
Company, Executive will make an effective election with the Internal Revenue
Service under Section 83(b) of the Internal Revenue Code and the regulations
promulgated thereunder in the form of Annex A attached hereto.
-------
(c) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to this
Agreement will be acquired for Executive's own account and not with a view
to, or intention of, distribution thereof in violation of the Securities
Act, or any applicable state securities laws, and the Executive Stock will
not be disposed of in contravention of the Securities Act or any applicable
state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his investment in
the Executive Stock for an indefinite period of time because the Executive
Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or
an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Executive
Stock and has had full access to such other information concerning the
Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive is a resident of [5].
(d) As an inducement to the Company to issue the Executive Stock to
Executive, as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the Executive Stock to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company and its Subsidiaries or affect the right of the Company to terminate
Executive's employment at any time for any reason pursuant to Section 7 hereof.
---------
2
<PAGE>
2. Vesting of Certain Executive Stock.
----------------------------------
(a) Except as otherwise provided in Section 2(d) below, [6] shares or
------------
50% of the Common Stock issued pursuant to Section 1(a) above (the "Time Vesting
------------
Shares") shall become vested in accordance with the following schedule, if as of
each such date Executive is still employed by the Company or any of its
Affiliates:
Cumulative Percentage of
Date Common Stock to be Vested
---- -------------------------
First Anniversary of
the Date hereof 25%
Second Anniversary
of the Date hereof 50%
Third Anniversary
of the Date hereof 75%
Fourth Anniversary
of the date hereof 100%
Notwithstanding the foregoing, if Executive ceases to be employed by the Company
or its Affiliates on any date after the first anniversary of the date hereof but
prior to the fourth anniversary, the cumulative percentage of Time Vesting
Shares to become vested will be determined on a pro rata basis according to the
number of full months elapsed since the prior anniversary date (for example if 5
full months have elapsed since the first anniversary date, then an additional
5/12 (10.41%) or a total of 35.41% shall have become vested). Notwithstanding
the foregoing sentence, (i) all Time Vesting Shares shall become vested in the
event of a Sale of the Company and (ii) an additional 20% of all Time Vesting
Shares (not to exceed 100%) shall become vested in the event that Executive has
been terminated without Cause. Notwithstanding the foregoing, in the event that
Executive is terminated for Cause prior to the earlier of (i) the fourth
anniversary of the date hereof or (ii) the effective date of an Initial Public
Offering, then all Time Vesting Shares (whether or not then vested) will be
deemed to be "Unvested Shares" for purposes of this Agreement.
(b) [6] shares or 50% of the Common Stock issued pursuant to Section 1(a)
above (the "Performance Vesting Shares") shall become vested in accordance with
the following schedule if the Investor shall have earned or deemed to have
earned the Return set forth below as of any Date of Determination (as defined
below):
Cumulative Percentage
of Performance
Return Vesting Shares "Vested"
------ -----------------------
25.00% 25.00%
26.50% 32.50%
28.00% 40.00%
29.50% 47.50%
31.00% 55.00%
-3-
<PAGE>
32.50% 62.50%
34.00% 70.00%
35.50% 77.50%
37.00% 85.00%
38.50 92.50%
40.00% or more 100.00%
The above "Return" shall be calculated (each a "Date of Determination") at any
time after Market Liquidity exists (i.e., at any date that Market Liquidity
exists and the Investor would have achieved a specified Return set forth above
as of such date if it sold all of its remaining Company equity securities on
such date, the requisite percentage of Performance Shares will vest) and at the
following times: (i) upon a Sale of the Company and (ii) after the effective
date of an Initial Public Offering upon the occurrence of either (A) Executive's
death or permanent disability or (B) upon Executive's having been terminated
without Cause. Notwithstanding anything in this Agreement to the contrary, all
Performance Vesting Shares then outstanding will become Vested Shares on the
eighth anniversary of the date hereof.
(c) All shares of Preferred Stock acquired by Executive will vest
immediately upon such purchase.
(d) Upon the occurrence of a Sale of the Company, all Time Vesting Shares
which have not yet become vested shall become vested at the time of such event.
Shares of Executive Stock which have become vested (whether pursuant to Section
-------
2(a) or 2(b) above or upon purchase thereof (i.e., the shares referred to in
- ---- ----
Section 2(c) above)) are referred to herein as "Vested Shares," and all other
- ------------
shares of Executive Stock are referred to herein as "Unvested Shares".
3. Repurchase Option.
-----------------
(a) In the event that Executive ceases to be employed by the Company and
its Affiliates for any reason (the "Termination"), then, subject to Section 3(g)
------------
below, all of the Executive Stock (whether held by Executive or one or more of
Executive's Permitted Transferees) will be subject to repurchase by the Company
and the Investor pursuant to the terms and conditions set forth in this Section
-------
3 (the "Repurchase Option").
- -
(b) In the event of Termination, (i) the purchase price for each Unvested
Share of Common Stock will be the lower of (A) Executive's Original Cost for
such share and (B) the Fair Market Value for such share; (ii) the purchase price
for each Vested Share of Common Stock will be the Fair Market Value for such
share; and (iii) the purchase price for each share of Preferred Stock will be
the Liquidation Value of such share (as defined in the Company's Restated
Certificate of Incorporation) plus all accrued and unpaid dividends thereon.
(c) Subject to Section 3(g) below, the Board shall use its reasonable best
------------
efforts to purchase all or any portion of the Unvested Shares and the Vested
Shares subject to repurchase by delivering written notice (the "Repurchase
Notice") to the holder or holders of the Executive Stock within 90 days after
Termination (a "Company Repurchase Option"). The
-4-
<PAGE>
Repurchase Notice will set forth the number of Unvested Shares and Vested Shares
of each class to be acquired from each holder pursuant to such Company
Repurchase Option (it being understood that the Company shall first apply all
amounts utilized to repurchase Executive Stock to the repurchases of Unvested
Shares, with the balance, if any, to be utilized to repurchase Vested Shares),
the aggregate consideration to be paid for such shares and the time and place
for the closing of the transaction.
(d) If for any reason the Company does not elect to purchase all of the
Executive Stock pursuant to the Repurchase Option, the Investor shall be
entitled to exercise any unutilized portion of the Company Repurchase Option for
the repurchase of shares (it being understood that the Investor shall first
apply all amounts utilized to repurchase Executive Stock to the repurchases of
Unvested Shares, with the balance, if any, to be utilized to repurchase Vested
Shares) of any class of Executive Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 60 days
after Termination, the Company shall give written notice (the "Option Notice")
to the Investor setting forth the number of Available Shares and the purchase
price for the Available Shares. The Investor may elect to purchase any or all of
the Available Shares by giving written notice to the Company within twenty (20)
days after the Option Notice has been given by the Company. As soon as
practicable, and in any event within ten (10) days, after the expiration of the
twenty (20) day period set forth above, the Company shall notify each holder of
Executive Stock to be repurchased as to the number of shares of each class being
purchased from such holder by the Investor (the "Supplemental Repurchase
Notice"). At the time the Company delivers the Supplemental Repurchase Notice to
the holder(s) of Executive Stock, the Company shall also deliver written notice
to the Investor setting forth the number of shares of each class the Investor
will purchase, the aggregate purchase price and the time and place of the
closing of the transaction.
(e) The closing of the purchase of the Executive Stock pursuant to the
Repurchase Option shall take place on the date designated by the Company in the
Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 45 days after the delivery of the Repurchase Notice. The Company will
pay for the Executive Stock to be purchased by it pursuant to the Repurchase
Option by first offsetting amounts outstanding under any bona fide debts owed by
Executive to the Company. The Investor will pay for the Executive Stock to be
purchased by it pursuant to the Repurchase Option by delivery of a check or wire
transfer of funds in the aggregate amount of the purchase price for such shares.
The Company and the Investor will be entitled to receive customary
representations and warranties from the sellers regarding such sale.
(f) Notwithstanding anything to the contrary contained in this Agreement,
all repurchases of Executive Stock by the Company shall be subject to any
customary restrictions contained in applicable corporate and securities laws and
in the Company's and its Subsidiaries' debt and equity financing agreements. If
any such restrictions prohibit the repurchase of Executive Stock hereunder which
the Company is otherwise entitled or required to make, the Company may make such
repurchases as soon as it is permitted to do so under such restrictions.
-5-
<PAGE>
(g) Any shares of Executive Stock not purchased by the Company or the
Investor pursuant to a Repurchase Option after Termination of the Executive's
employment with the Company for any reason shall vest in full and shall no
longer be subject to the provisions of Sections 2 or 3 of this Agreement.
---------- -
(h) Notwithstanding any other provision of this Agreement, after the
closing date of an Initial Public Offering, Vested Shares shall not be subject
to the Repurchase Option.
4. Restrictions on Transfer of Executive Stock. The Executive Stock is
-------------------------------------------
subject to certain restrictions on transfer and certain tag-along and drag-along
rights which are provided for in the Stockholders Agreement, and nothing in this
Agreement shall be deemed to amend, modify or limit in any way the restrictions
on the issuance of shares of Preferred Stock or Common Stock set forth in the
Equity Purchase Agreement, in the Stockholders Agreement or in any other
agreement to which the Company is bound. Except for Permitted Transfers and
Transfers pursuant to the Repurchase Option, the Executive may not Transfer or
cause or permit to be Transferred any Unvested Shares, and any purported
Transfer in violation hereof shall be null and void.
5. Additional Restrictions on Transfer of Executive Stock.
------------------------------------------------------
(a) Legend. The certificates representing the Executive Stock will bear a
------
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A (1) SENIOR MANAGEMENT
AGREEMENT BETWEEN THE COMPANY AND AN EXECUTIVE OF THE COMPANY
DATED AUGUST 12, 1999 AND (2) STOCKHOLDERS AGREEMENT AMONG THE
COMPANY AND CERTAIN OF ITS STOCKHOLDERS, DATED AS OF AUGUST
12, 1999, AS AMENDED FROM TIME TO TIME. COPIES OF SUCH
AGREEMENTS MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
-6-
<PAGE>
(b) Opinion of Counsel. No holder of Executive Stock may sell, transfer or
------------------
dispose of any Executive Stock (except pursuant to an effective registration
statement under the Securities Act) without first delivering to the Company an
opinion of counsel (reasonably acceptable in form and substance to the Company)
that neither registration nor qualification under the Securities Act and
applicable state securities laws is required in connection with such Transfer.
6. Stockholder Agreements. Nothing contained in this Agreement shall be
----------------------
deemed to limit in any way the restrictions on the shares of Preferred Stock or
Common Stock set forth in the Equity Purchase Agreement, in the Stockholders
Agreement or in any other agreement to which the Company is bound. By execution
of this Agreement, Executive hereby agrees to execute a joinder to and to be
bound by the terms and conditions of the Stockholders Agreement.
PROVISIONS RELATING TO EMPLOYMENT
7. Employment. The Company hereby engages Executive to serve as [7] of the
----------
Company, and Executive agrees to serve the Company, during the Service Term (as
defined in Section 7(d) hereof) in the capacities, and subject to the terms and
------------
conditions, set forth in this Agreement.
(a) Services. During the Service Term, Executive, as [7], shall have all
--------
the duties and responsibilities customarily rendered by [7] officers of
companies of similar size and nature and as may be delegated from time to time
by the Board and [8]. Executive will devote his best efforts and substantially
all of his business time and attention (except for vacation periods and periods
of illness or other incapacity) to the business of the Company and its
Affiliates. Notwithstanding the foregoing, and provided that such activities do
not interfere with the fulfillment of Executive's obligations hereunder,
Executive may (A) serve as a director or trustee of any charitable or non-profit
entity; (B) acquire investment interests in one or more entities which are not,
directly or indirectly, in competition with the Company or its Subsidiaries and
which do not have a material business relationship with the Company; (C) own up
to 3% of the outstanding voting securities of any publicly-held company; or (D)
[9]. Unless the Company and Executive agree to the contrary, Executive's place
of employment shall be at the Company's principal executive offices in the
Washington, D.C. metropolitan area; provided, however, that Executive will
travel to such other locations of the Company and its Affiliates as may be
reasonably necessary and/or as required by the Board in its sole discretion in
order to discharge his duties hereunder.
(b) Salary, Bonus and Benefits.
--------------------------
(i) Salary and Bonus. During the Service Term, the Company will pay
----------------
Executive a base salary (the "Annual Base Salary") as the Board may
designate from time to time, at the rate of not less than $[10] per annum
payable bi-weekly; provided, however, that the Annual Base Salary shall be
subject to review annually by the Board for upward increases thereon. The
-7-
<PAGE>
Executive will be eligible to receive an annual bonus in an amount not to
exceed [11]% of Executive's Annual Base Salary for such year (other than in
1999 for which Executive's annual bonus shall be determined in accordance
with the offer letter provided to such Executive by the Company), in each
case as determined by the Board.
(ii) Benefits. During the Service Term, Executive will be entitled to
--------
such other benefits approved by the Board and generally made available to
the Company's senior executives. These benefits shall include customary
vacation time, healthcare benefits, expense reimbursement, 401(k) or
similar plans and, after an IPO Event, the right to be eligible to receive
grants of stock options pursuant to the Company's then existing stock
option plans.
(c) Termination.
-----------
(i) Events of Termination. Executive's employment with the Company
---------------------
shall cease upon:
(A) Executive's death.
(B) Executive's voluntary retirement at age 65 or older.
(C) Executive's disability, which means his incapacity due to
physical or mental illness such that he is unable to perform the
essential functions of his previously assigned duties for a period of
six months in any twelve month period and such incapacity has been
determined to exist by either (1) the Company's disability insurance
carrier or (2) by the Board in good faith based on competent medical
advice in the event that the Company does not maintain disability
insurance on the Executive.
(D) Termination by the Company by the delivery to Executive of a
written notice from the Board that Executive has been terminated
("Notice of Termination") with or without Cause or Performance
Cause[12]. "Cause" shall mean:
(1) Executive's (aa) conviction of a felony or Executive's
commission of any other act or omission involving dishonesty or
fraud with respect to the Company or any of its Affiliates or any
of their customers, vendors or suppliers or involving intentional
discrimination or intentional harassment with respect to the
employees of the Company or its Subsidiaries, (bb)
misappropriation of funds or assets of the Company or (cc)
engaging in any conduct relating to (i) the Company's business or
(ii) involving moral turpitude, that is reasonably likely to
bring the Company or any of its Affiliates into public disgrace
or disrepute;
-8-
<PAGE>
(2) Executive's failure to perform or substantial neglect of
his reasonable duties, after written notice thereof from the Board,
and such failure or neglect has not been cured within 30 days after
Executive receives notice thereof from the Board;
(3) Executive's gross negligence or willful misconduct in
the performance of his duties hereunder that results, or is
reasonably expected to result, in material damage to the Company;
or
(4) Executive's engaging in intentional or willful conduct
constituting a breach of Sections 8 or 9 hereof.
---------- -
In order for the termination to be effective: Executive must be notified in
writing (which writing shall specify the cause in reasonable detail) of any
termination of his employment for Cause or Performance Cause. Executive will
then have the right, within ten days of receipt of such notice, to file a
written request for review by the Company. In such case, Executive will be
given the opportunity to be heard, personally or by counsel, by the Board
and a majority of the Directors must thereafter confirm that such
termination is either for Cause or Performance Cause. If the Directors do
not provide such confirmation, the termination shall be treated as other
than for Cause or Performance Cause. Notwithstanding anything to the
contrary contained in this paragraph, Executive shall have the right after
termination has occurred to appeal any determination by the Board to
arbitration in accordance with the provisions of Section 12(h) hereof.
-------------
(E) Executive's voluntary resignation by the delivery to the Board of
written notice from Executive that Executive has resigned with or
without Good Reason; provided that in either event, Executive shall
provide the Company with at least 45 days written notice of any
resignation. "Good Reason" shall mean Executive's resignation from
employment with the Company within 45 days after the occurrence of
any one of the following:
(1) the failure of the Company to pay an amount owing
to Executive hereunder after Executive has provided the Company with
written notice of such failure and such payment is in fact owed and
has not thereafter been made within 15 days of the delivery of such
written notice;
(2) a substantial reduction in Executive's duties from
those previously assigned to such Executive such that Executive is no
longer a manager or officer of the Company; or
-9-
<PAGE>
(3) the required relocation of Executive from the
Washington, D.C. area without his consent.
The delivery by the Executive of notice to the Company that
he does not intend to renew this Agreement as provided in Section 7(d)
------------
shall constitute a resignation by the Execution without Good Reason unless
such notice fulfills the requirements of Section 7(c)(i)(E)(1) , (2) or
--------------------- ---
(3) above.
---
(ii) Rights on Termination.
---------------------
(A) In the event that termination is by Executive with Good
Reason or by the Company without either Cause or Performance Cause, the
Company will continue to pay Executive a monthly portion of the Annual
Base Salary plus a monthly portion of the Executive's bonus for the prior
year for a period equal to 12 months commencing on the date of termination
on regular salary payment dates. In the event that termination is by the
Company for Performance Cause, the Company will continue to pay Executive
a monthly portion of the Annual Base Salary for a period equal to six-
months commencing on the date of termination on regular salary payment
dates. The payments to Executive pursuant to the foregoing two sentences
are referred to as the "Severance Payments."
(B) If the Company terminates Executive's employment for
Cause, if Executive retires or if Executive resigns without Good Reason
(including by operation of the last paragraph of Section 7(c)(i)(E)), the
-------------------
Company's obligations to pay any compensation or benefits under this
Agreement will cease effective as of the date of termination. Executive's
right to receive any health or other benefits will be determined under the
provisions of applicable plans, programs or other coverages.
(C) If Executive's employment terminates because of Executive's
death or disability, the Company will pay Executive or his estate an
amount, if any, equal to his maximum bonus for the current year prorated
to reflect the number of days Executive has worked during the year in
which he dies or becomes disabled (such amount to be paid after the end of
such year when bonuses are normally paid to other senior executives of the
Company).
Notwithstanding the foregoing, the Company's obligation to Executive for
severance payments or other rights under either subparagraphs (A) or (B) above
----------------- ---
shall cease if Executive is in violation of the provisions of Sections 8 or 9
---------------
hereof. Until such time as Executive has received all of his Severance Payments,
he will be entitled to continue to receive any health, life, accident and
disability insurance benefits provided by the Company to Executive under this
Agreement. If Executive dies or is permanently disabled, then Executive or his
estate shall be
-10-
<PAGE>
entitled to any disability income or life insurance payments from any insurance
policies paid for by the Company or its Affiliates as specified in such
policies.
(d) Term of Employment. Unless Executive's employment under this Agreement
------------------
is sooner terminated as a result of Executive's termination in accordance with
the provisions of Section 7(c) above, Executive's employment under this
------------
Agreement shall commence on August 12, 1999 and shall terminate on the third
anniversary of the date thereof (the "Service Term"); provided, however, that
Executive's employment under this Agreement, and the Service Term, shall be
automatically renewed for one-year periods commencing on the third anniversary
of the date hereof and, thereafter, on each successive anniversary of such date
unless either the Company or Executive notifies the other party in writing
within six months prior to any such anniversary that it or he desires to
terminate Executive's employment under this Agreement as of such anniversary.
All references herein to "Service Term" shall include any renewals thereof.
8. Confidential Information and Goodwill; Inventions. Executive
-------------------------------------------------
acknowledges and agrees that:
(a) As a necessary function of Executive's employment hereunder, Executive
will have access to and utilize Confidential Information which constitutes a
valuable and essential asset of the Company's business.
(b) The Confidential Information, observations and data obtained by him
during the course of his performance under this Agreement concerning the
business and affairs of the Company are the property of the Company, including
information concerning the acquisition opportunities in or reasonably related to
the Business of which Executive becomes aware during the Service Term.
Therefore, Executive agrees that he will not disclose to any unauthorized person
or use for his own account any of the Confidential Information without the
Board's written consent. Executive agrees to deliver to the Company at the
termination of his employment, or at any other time the Company may request, all
memoranda, notes, plans, records, reports and other documents (including copies
thereof) relating to the Company, the Business or any other Confidential
Information.
(c) All inventions, innovations, developments, improvements, methods,
designs, analyses, drawings, software, copyrights, patents, trademarks, reports
and all similar or related information (whether or not patented or patentable)
developed by Executive during the Service Term which (i) directly or indirectly
relate to the Company or its Affiliates or the Business, or (ii) result from any
work performed by Executive while employed by the Company or its Affiliates
shall belong to the Company and its Affiliates. Executive shall promptly
disclose all such inventions to the Board and perform all actions reasonably
requested by the Board (whether during or after the Service Term) to establish
and confirm such ownership (including, without limitation, assignments,
consents, powers of attorney and other instruments).
9. Noncompetition and Nonsolicitation.
----------------------------------
(a) Noncompetition. Executive acknowledges that in the course of his
--------------
employment with the Company he will become familiar with the Company's and its
Affiliates'
-11-
<PAGE>
trade secrets and with other confidential information concerning the Company and
that his services will be of special, unique and extraordinary value to the
Company and its Affiliates. Therefore, Executive agrees that, during the Service
Term and for a period of 12 months after termination thereof; provided, however,
that in the event that Executive has been terminated by the Company without
either Cause or Performance Cause or the Executive has resigned for Good Reason,
such period of time after the Service Term shall be limited to the time period
during which the Executive is entitled to receive Severance Payments
(collectively, the "Noncompete Period"), he shall not directly or indirectly
own, manage, control, participate in, consult with, render services for, or in
any manner engage in any business competing with the Business of the Company and
its Subsidiaries or any businesses with which the Executive has knowledge that
the Company or its Subsidiaries have firm documented or Board-approved plans to
engage in at the time of the termination of the Executive's employment with the
Company.
(b) Nonsolicitation. During the Noncompete Period and for a period of 12
---------------
months thereafter, Executive shall not directly or indirectly through another
entity (i) induce or attempt to induce any senior management employee of the
Company or any Subsidiary or, to the actual knowledge of the Executive, any
other employee of the Company or any Subsidiary, to leave the employ of the
Company or such Subsidiary, or in any way interfere with the relationship
between the Company or any Subsidiary and any employee thereof or (ii) induce or
attempt to induce any customer, supplier, vendor, licensee or other business
relation of the Company or any Subsidiary to cease doing business with the
Company or such Subsidiary, or to modify its business relationship with the
Company in a manner adverse to the Company or any Subsidiary, or in any way
disparage the Company or its Subsidiaries to any such customer, supplier,
vendor, licensee or business relation of the Company or any Subsidiary.
(c) Enforcement. The Executive understands and agrees that the sale of the
-----------
Executive Stock to Executive pursuant to Section 1 of this Agreement and the
---------
terms and conditions of Executive's employment hereunder are in consideration
for Executive's covenants contained in Section 8 and 9 of this Agreement. If, at
--------- -
the time of enforcement of Section 8 or 9 of this Agreement, a court holds that
--------- -
the restrictions stated herein are unreasonable under circumstances then
existing the parties hereto agree that the maximum duration, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum duration, scope and area
permitted by law. Because Executive's services are unique and because Executive
has access to confidential information, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provisions hereof (without posting a bond or
other security).
-12-
<PAGE>
GENERAL PROVISIONS
10. Definitions.
-----------
"Affiliate" of any Person means any other Person which directly or
indirectly controls, is controlled by or is under common control with such
Person.
"Board" means the Company's board of directors or the board of
directors or similar management body of any successor of the Company.
"Business" means any business of the Company or its Subsidiaries now or
hereafter engaged in during the Service Term, including without limitation the
business of providing information technology consulting services, systems
integration and software systems applications.
"Competitive Activity" means any business or activity of Executive or
any third party that is the same as the Business or competitive with the
Business.
"Confidential Information" means all confidential information and trade
secrets of the Company and its Affiliates including, without limitation, the
following: the identity, written lists, or descriptions of any customers,
referral sources or Organizations; financial statements, cost reports, or other
financial information; information technology or intellectual property developed
by or utilized by the Company, contract proposals or bidding information;
business plans; training and operations methods and manuals; personnel records;
fee structures; and management systems, policies or procedures, including
related forms and manuals. "Confidential Information" shall not include any
information or knowledge which: (a) is in the public domain other than by
Executive's breach of this Agreement or (b) is disclosed to Executive lawfully
by a third party who is not under any obligation of confidentiality.
"Executive Stock" will mean all shares of Common Stock and Preferred
Stock purchased by Executive pursuant to this Agreement. Such shares will
continue to be Executive Stock in the hands of any holder other than Executive
(except for the Company, any transferee permitted by the Stockholders Agreement
(other than to a Permitted Transferee) and except for transferees in a Public
Sale), and except as otherwise provided herein, each such other holder of
Executive Stock will succeed to all rights and obligations attributable to
Executive as a holder of Executive Stock hereunder. Executive Stock will also
include shares of the Company's capital stock issued with respect to Executive
Stock by way of a stock split, stock dividend or other recapitalization.
Notwithstanding the foregoing, all Unvested Shares shall remain Unvested Shares
after any Transfer thereof.
"Family Members" with respect to an individual shall mean such
individual's spouse, parents, siblings, children and grandchildren.
"Fund$" shall mean the aggregate amount invested by Investor to
purchase shares of the Company's Common Stock and Preferred Stock pursuant to
the Equity
-13-
<PAGE>
Purchase Agreement dated of even date herewith and the Recapitalization
Agreement involving the Company dated August 11, 1999.
"Fair Market Value" of each share of Executive Stock means the average of
the closing prices of the sales of Common Stock on all securities exchanges on
which such Common Stock may at the time be listed, or, if there have been no
sales on any such exchange on any day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on any day
such Common Stock is not so listed, the average of the representative bid and
asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if
on any day such Common Stock is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Market Value
is being determined and the 20 consecutive business days prior to such day. If
at any time such Common Stock is not listed on any securities exchange or quoted
in the NASDAQ System or the over-the-counter market, the Fair Market Value will
be the fair value of such Common Stock (without minority discount) determined in
good faith by an independent appraisal firm selected by the Board, that is
reasonably acceptable to the Executive. The costs of such appraisal firm shall
be split evenly between the Company and the Executive.
"Initial Public Offering" shall mean the completion of the first Public
Offering of the Company's Common Stock with net proceeds to the Company prior to
any redemptions of the Preferred Stock of not less than $30 million.
"Market Liquidity" shall be deemed to exist after two years following the
effective date of an Initial Public Offering, if, and so long as, a Public
Market exists for the Common Stock.
"Organization" means any organization that has contracted with the Company
for the performance of services in connection with the Business.
"Original Cost" means with respect to each share of Common Stock purchased
hereunder, $.10 (as proportionately adjusted for all subsequent stock splits,
stock dividends and other recapitalizations).
"Permitted Transfer" shall mean a Transfer of Common Stock by the Executive
to (i) one or more Family Members of the Executive or (ii) to a trust solely for
the benefit of one or more Family Members of the Executive, provided that, prior
to any such Transfer, each transferee shall agree in writing, in a form
satisfactory to the Company, that such transferee shall receive and hold such
Common Stock subject to the provisions of this Agreement.
"Permitted Transferee" shall have the meaning assigned to such term in the
Stockholders Agreement.
-14-
<PAGE>
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Public Offering" means the sale in an underwritten public offering
registered under the Securities Act of shares of the Company's Common Stock.
"Public Market" for the Common Stock of the Company shall mean such Common
Stock is traded on a national exchange, the NASDAQ National Market System or any
registered interdealer quotation system involving at least three registered
market makers.
"Public Market Price" shall mean the average of the closing trading prices
of the Common Stock in the Public Market averaged over the four-calendar week
period immediately preceding the date upon which the determination of whether a
"Public Market" exists is made.
"Public Sale" means any sale pursuant to a registered public offering under
the Securities Act or any sale to the public pursuant to Rule 144 promulgated
under the Securities Act effected through a broker, dealer or market maker.
"Return" shall mean the annual rate of return which, when used to calculate
the net present value of the Cash Inflows and the Cash Outflows as of the Date
of Determination, causes such net amount to equal zero. As used in this
definition, "Cash Inflows" shall include, without duplication, (i) all cash
payments received by the Investor on or prior to the Date of Determination with
respect to Common Stock and Preferred Stock acquired with the Fund$ on or prior
to the Date of Determination (whether such payments are received from the
Company or any third party and whether such payments are received as interests,
dividends, proceeds with respect to sale or redemption of such securities, upon
a liquidation of the Company or otherwise), (ii) the fair market value of all
non-cash consideration received by the Investor in connection with the sale of
any Common Stock or Preferred Stock acquired by the Investor with Fund$, (iii)
if Market Liquidity exists on the Date of Determination, the Public Market Price
on the Date of Determination of any shares of Common Stock (including Common
Stock issuable upon conversion of Preferred Stock) acquired with Fund$ held by
the Investor on the Date of Determination, and (iv) if no Market Liquidity
exists on the Date of Determination, the Fair Market Value on the Date of
Determination of any shares of Common Stock (including Common Stock issuable
upon conversion of Preferred Stock) acquired with Fund$ held by the Investor on
the Date of Determination. As used in this definition, "Cash Outflows" shall
include the sum of all cash payments and investments made by the Investor to and
in the Company to purchase Common Stock and/or Preferred Stock acquired with
Fund$.
"Sale of the Company" means any transaction or series of transactions
pursuant to which any Person or Person(s) acting as a "Group" (as such term is
defined under the rules and regulations of the Securities Exchange Act of 1934,
as amended) other than the Investor and its Affiliates in the aggregate
acquire(s) (i) capital stock of the Company possessing the voting power (other
than voting rights acquiring only in the event of a default, breach or
-15-
<PAGE>
event of noncompliance) to elect a majority of the Board (whether by merger,
consolidation, reorganization, combination, sale or transfer of the Company's
capital stock, stockholder or voting agreement, proxy, power of attorney or
otherwise) or (ii) all or substantially all of the Company's assets determined
on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Stockholders Agreement" means the Stockholders Agreement dated as of
August 12, 1999 among the Company, the Executive, the Investor and other
stockholders of the Company that may become a party thereto, as amended or
restated from time to time.
"Subsidiary" means any corporation of which the Company owns securities
having a majority of the ordinary voting power in electing the board of
directors directly or through one or more subsidiaries.
"Transfer" means to sell, transfer, assign, pledge or otherwise dispose of
all or any portion of any interest (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law, including upon
death).
11. Notices. Any notice provided for in this Agreement must be in writing
-------
and must be either personally delivered, mailed by first class United States
mail (postage prepaid, return receipt requested) or sent by reputable overnight
courier service (charges prepaid) or by facsimile to the recipient at the
address below indicated:
If to the Executive:
-------------------
c/o Empyrean Group Holdings, Inc.
8300 Boone Boulevard, Suite 250
Vienna, VA 22182
Tel No.: (703) 790-9008
Fax No.: (703) 790-9033
with a copy to:
--------------
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Bruce A . Rosenblum
Tel No.: (202) 457-5111
Fax NO.: (202) 457-5151
-16-
<PAGE>
If to the Investor or the Company:
---------------------------------
c/o Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, NW
Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
David McCoy
Tel No.: (202) 371-0150
Fax No.: (202) 371-0391
with a copy to:
--------------
Hogan & Hartson, LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Christopher J. Hagan
Tel No.: (202) 637-5771
Fax No.: (202) 637-5910
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
12. General Provisions.
------------------
(a) Expenses. The Company agrees to pay Executive's reasonable legal,
--------
accounting and other expenses incurred in connection with the negotiation and
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement; provided, however, that the Company will in no
event be responsible for any such expenses incurred in excess of $10,000 for
Executive and all other executives executing signature pages hereto as a group.
(b) Transfers in Violation of Agreements. Any Transfer or attempted
-------------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
or the Stockholders Agreement shall be void, and the Company shall not record
such Transfer on its books or treat any purported transferee of such Executive
Stock as the owner of such stock for any purpose.
(c) Severability. Subject to the provisions of Section 9(c) above, whenever
------------
possible, each provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
but this Agreement will be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained
herein.
-17-
<PAGE>
(d) Complete Agreement. This Agreement, those documents expressly referred
------------------
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) Counterparts. This Agreement may be executed in separate counterparts,
------------
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investor and their respective successors and assigns
(including subsequent holders of Executive Stock); provided that the rights and
obligations of Executive under this Agreement shall not be assignable except as
otherwise specifically provided herein.
(g) Choice of Law. The corporate law of the Company's state of
-------------
incorporation will govern all questions concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity and interpretation of this Agreement and the exhibits hereto will be
governed by and construed in accordance with the internal laws of the
Commonwealth of Virginia, without giving effect to any choice of law or conflict
of law provision or rule (whether of the Commonwealth of Virginia or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the Commonwealth of Virginia.
(h) Remedies and Arbitration. Each of the parties to this Agreement
------------------------
(including the Investor) will be entitled to enforce its rights under this
Agreement to recover damages and costs (including reasonable attorney's fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. Except for the remedies of the Company
provided in Section 9(c) hereof, the parties hereto agree to (i) initially
------------
submit any dispute arising out of or relating to this Agreement to mediation and
(ii) in the event such mediation is unsuccessful, to submit any disputes arising
out of or relating to this Agreement to binding arbitration in Washington, D.C.
administered by the American Arbitration Association under its Commercial
Arbitration Rules, before a panel of one arbitrator (such arbitrator to be
selected by lot or the mutual agreement of two other arbitrators, one chosen by
the Company and one by the Executive), and judgment on the award rendered by the
arbitrator may be entered into any court having jurisdiction thereof. The
prevailing party in any arbitration shall be entitled to recover its reasonable
attorneys' fees and costs from the other party or parties.
(i) Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
and waived only with the prior written consent of the Company, Executive and the
Investor.
(j) Business Days. If any time period for giving notice or taking action
-------------
hereunder expires on a day which is a Saturday, Sunday or holiday in the state
in which
-18-
<PAGE>
the Company's chief executive office is located, the time period shall be
automatically extended to the business day immediately following such Saturday,
Sunday or holiday.
(k) Termination. This Agreement shall survive the termination of
-----------
Executive's employment with the Company and shall remain in full force and
effect after such termination.
(l) Generally Accepted Accounting Principles; Adjustments of Numbers. Where
----------------------------------------------------------------
any accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, such determination or calculation
shall continue to be made in accordance with the Company's previous accounting
methods and policies. All numbers set forth herein which refer to share prices
or amounts will be appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and other recapitalizations affecting the
subject class of stock.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
Date: EMPYREAN GROUP HOLDINGS, INC.
-------------------------------------------------------
Stuart C. Johnson, Chairman, President & CEO
Address: 8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
Date:
-------------------------------------------------------
Graham B. Perkins, Vice President & Secretary
Address: 8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
Date:
-------------------------------------------------------
Jason H. Levine, Vice President
Address: 8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
Date:
-------------------------------------------------------
Thomas B. Modly
Date:
-------------------------------------------------------
Bruce H. Allan
Date:
-------------------------------------------------------
David T. Fu
-20-
<PAGE>
Date:
-------------------------------------------------------
Matthew B. Walker
Date:
-------------------------------------------------------
Patricia A. Withers
Date: THAYER ITECH HOLDINGS, L.L.C.
-------------------------------------------------------
Robert E. Michalik, President
Address: c/o Thayer Equity Partners
1455 Pennsylvania Avenue, N.W., Suite 350
Washington, D.C. 20004
Attention: Chris Temple
-21-
<PAGE>
Exhibit 10.9.1.1
ANNEX A
Stuart C. Johnson
Employment Terms
1. 3,000,000 shares of Common Stock.
2. 0 shares of Preferred Stock
3. a check.
4. $300,000.
5. Commonwealth of Virginia
6. 1,500,000 shares of Common Stock.
7. Chief Executive Officer
8. the Company's Chairman of the Board
9. The Executive is on the PowerCerv Corporation, the Virginia Tech Foundation
Board, the Virginia Tech Corporate Research Center and the Board of
Advisors to the Northern Virginia Technology Council.
10. $180,000
11. 120%
12. Performance Cause is applicable to the Executive. "Performance Cause" shall
mean failure to achieve a minimum acceptable financial performance for the
Company as determined by the Board for any period of 12 consecutive months for
which financial statements are available; provided, however, that the Board
shall determine in good faith if any adjustments thereto are necessary or
appropriate to account for extraordinary or nonrecurring events (including but
not limited to Acts of God, substantive information technology consulting
industry events (e.g., materially adverse tax or regulatory changes), strikes,
wars, terrorism, economic downturns) or other circumstances that should be
included or disregarded in order to fairly determine whether the Company has
failed to achieve such financial performance.
-1-
<PAGE>
Exhibit 10.9.1.2
ANNEX A
Graham B. Perkins
Employment Terms
1. 1,300,000 shares of Common Stock.
2. 0 shares of Preferred Stock
3. a check.
4. $130,000.
5. Commonwealth of Virginia
6. 650,000 shares of Common Stock.
7. Vice President, Chief Financial Officer, Treasurer and Secretary
8. Chief Executive Officer
9. None
10. $170,000
11. 120%
12. Performance Cause is applicable to the Executive. "Performance Cause" shall
mean failure to achieve a minimum acceptable financial performance for the
Company as determined by the Board for any period of 12 consecutive months for
which financial statements are available; provided, however, that the Board
shall determine in good faith if any adjustments thereto are necessary or
appropriate to account for extraordinary or nonrecurring events (including but
not limited to Acts of God, substantive information technology consulting
industry events (e.g., materially adverse tax or regulatory changes), strikes,
wars, terrorism, economic downturns) or other circumstances that should be
included or disregarded in order to fairly determine whether the Company has
failed to achieve such financial performance.
-1-
<PAGE>
Exhibit 10.9.1.3
ANNEX A
Thomas B. Modly
Employment Terms
1. 1,250,000 shares of Common Stock.
2. 0 shares of Preferred Stock
3. a check in the amount of $25,000 and a promissory note in the amount of
$100,000, representing a total investment
4. $125,000.
5. State of Maryland
6. 625,000 shares of Common Stock.
7. Vice President - Corporate Development
8. Chief Executive Officer
9. None
10. $140,000
11. 120 %
12. Performance Cause is inapplicable to the Executive.
-1-
<PAGE>
Exhibit 10.9.1.4
ANNEX A
Jason H. Levine
Employment Terms
1. 900,000 shares of Common Stock.
2. 0 shares of Preferred Stock
3. a check in the amount of $1,000 and a promissory note in the amount of
$89,000, representing a total investment
4. $90,000.
5. State of Maryland
6. 450,000 shares of Common Stock.
7. Vice President - Strategic Projects
8. Chief Executive Officer
9. None
10. $90,000
11. 120 %
12. Performance Cause is inapplicable to the Executive.
1
<PAGE>
Exhibit 10.9.1.5
ANNEX A
Matthew B. Walker
Employment Terms
1. 1,250,000 shares of Common Stock.
2. 0 shares of Preferred Stock
3. a check
4. $125,000.
5. Commonwealth of Virginia
6. 625,000 shares of Common Stock.
7. Vice President and Chief Technology Officer
8. Chief Executive Officer
9. None
10. $140,000
11. 120 %
12. Performance Cause is inapplicable to the Executive.
1
<PAGE>
Exhibit 10.9.1.6
ANNEX A
David T. Fu
Employment Terms
1. 1,400,000 shares of Common Stock.
2. 0 shares of Preferred Stock
3. a check in the amount of $15,000 and a promissory note in the amount of
$125,000, representing a total investment
4. $140,000.
5. State of Maryland
6. 700,000 shares of Common Stock.
7. Vice President - Business Development & Marketing
8. Chief Executive Officer
9. The Executive is on the Board of Directors of Greenspring Fund, the Board
of Advisors of the Taiwan Mezzanine Fund I and is a member of the
Management Committee of PRC Equity Advisors, LLC.
10. $170,000
11. 120 %
12. Performance Cause is inapplicable to the Executive.
1
<PAGE>
Exhibit 10.9.1.7
JOINDER TO SENIOR MANAGEMENT AGREEMENT
Between Empyrean Group Holdings, Inc. and certain individual Executives
ANNEX A
William K. Stephens
Employment Terms
1. 250,000 shares of Common Stock
2. 0 shares of Preferred Stock
3. a check by November 12, 1999
4. $25,000
5. State of Maryland
6. 125,000 shares of Common Stock.
7. Vice President - Sales & Marketing
8. Chief Executive Officer
9. None
10. $180,000
11. 120%
12. Performance Cause is inapplicable to the Executive
The following modifications are mutually agreed to by Executive and Company:
"Date Hereof" - with respect to Time Vesting or other anniversaries of
- -------------
employment the phrase "Date Hereof", whether capitalized or not, shall mean
November 4, 1999.
7(b)(i) - Delete the phrase "(other than in 1999 for which Executive's annual
- ------- ------
bonus shall be determined in accordance with the offer letter provided to
such Executive by the Company)".
7(b)(ii) - At the end of the section Add the sentence "Executive will remain on
- -------- ---
the payroll of and receive benefits through the IconixGroup subsidiary
until such time that he can be transitioned to a different management
entity without adverse economic impact on his current investments in the
IconixGroup 401-K and Profit Sharing Plan benefits."
1
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Agreement is dated as of November 3, 1999 by and between IconixGroup,
Inc., a Maryland corporation (the "Company") and Leo C. Mullen (the
-------
"Executive").
---------
Recitals:
--------
A. Empyrean Group Holdings, Inc., a Delaware corporation ("Empyrean
--------
Holdings"), the Company, The Invisions Group, Ltd. ("Invisions Group") and the
- -------- ---------------
stockholders of Invisions Group (the "Sellers"), have entered into a Stock
-------
Purchase Agreement dated as of October 29, 1999 (the "Stock Purchase Agreement")
------------------------
providing for the purchase of all of the outstanding shares of the capital stock
of Invisions Group from Sellers;
B. Pursuant to the Stock Purchase Agreement, the Executive received a
substantial portion of the purchase price paid by Empyrean Holdings pursuant to
the Stock Purchase Agreement;
C. The Company is a wholly-owned subsidiary of Invisions Group;
D. Following the closing of the transactions contemplated by the Stock
Purchase Agreement, substantially all of the shares of Invisions Group have been
purchased by Empyrean Holdings;
E. The Company and Empyrean Holdings recognize that Executive's services
have contributed to the goodwill inherent in the Company's business, which
goodwill constitutes a substantial asset of the Company purchased by Empyrean
Holdings;
F. The Company and Empyrean Holdings have required Executive to enter into
this Agreement as a condition precedent to the purchase of the Sellers' stock by
Empyrean Holdings pursuant to the Stock Purchase Agreement;
G. As an employee of the Company, Executive will be given access to or come
into contact with certain proprietary and/or confidential information of the
Company and Empyrean Holdings; and
H. The Company and the Executive desire to enter into this Agreement to
provide for the terms and conditions of the Executive's employment with the
Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings.
<PAGE>
"Board" means the Company's board of directors.
-----
"Business" means the business of providing information technology
--------
consulting services, web-site design and graphic and printing design services in
the United States of America.
"Business Day" means any day other than a Saturday or Sunday or a day on
------------
which commercial banks are required or authorized to close in Bethesda,
Maryland.
"Cause" means (i) a material breach of this Agreement by the Executive;
-----
(ii) the conviction by the Executive of a felony, a crime involving theft,
dishonesty or moral turpitude or any other act or omission which in the
reasonable determination of the Board is highly likely to cause material harm to
the standing and reputation of the Company or Empyrean Holdings; (iii) the
Executive's substantial and repeated failure to report to work other than by
reason of death or Permanent Disability; (iv) the Executive's willful failure or
gross negligence in the performance of his assigned duties for the Company,
which failure continues for more than ten (10) or more days following the
Executive's receipt of written notice specifying the manner in which the
Executive is in default of his duties; (v) the Executive's failure to comply
with or failure to perform the reasonable directives of the Board or violation
of any statutory or common law duty of loyalty to the Company or Empyrean
Holdings; or (vi) any material misrepresentation or material non-disclosure by
the Executive to the Board in connection with the performance of Executive's
duties after the date hereof. For purposes hereof, whether or not the Executive
has committed an act or omission of the type referred to in subparagraphs (i)
through (vi) above will be determined by the Board in its reasonable discretion,
based upon the facts known to the Board at the relevant time.
"Companies" means collectively Empyrean Holdings, the Company and their
---------
Subsidiaries.
"Confidential Information" shall have the meaning assigned to such term in
------------------------
the Stock Purchase Agreement.
"Good Reason" means (i) any material and permanent reduction in Executive's
-----------
title, position or responsibilities such that Executive is no longer an
executive or manager of the Company or its successor or (ii) the relocation of
Executive's office at which he is to perform his duties to a location more than
30 miles from Bethesda, Maryland, except for required travel on Empyrean
Holdings' or the Company's business to an extent reasonably consistent with his
business travel obligations prior to the acquisition of the Company by Empyrean
Holdings.
"Permanent Disability" means the Executive is unable to perform, by reason
--------------------
of physical or mental incapacity, his then duties or obligations to the Company,
for a period of 90 consecutive days or a total period of 180 days in any 360-day
period.
-2-
<PAGE>
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or any other entity, including a
governmental entity or any department, agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time.
"Subsidiary" means, with respect to any Person, any Person of which (i) if
----------
a corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership, membership or other
similar ownership interests thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in another Person if such Person or Persons
shall be allocated a majority of the gains or losses of or shall be or control
the managing director or a general partner of such other Person.
2. Employment. The Company agrees to employ the Executive, and the
----------
Executive hereby accepts employment with the Company on a full-time basis
consistent with the Executive's position and duties, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in Section 2(c) (the "Employment Period").
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive shall serve as
President of the Company and Executive shall have the duties, responsibilities
and authority that are designated by the Board and the Company's Chairman,
subject to the direction and supervision of the Company's Chairman and the
Company's Board. Notwithstanding the foregoing, it is agreed and understood that
Executive's primary responsibility shall be to the business of the Company with
the Executive spending such amount of time devoted to the business of Empyrean
Holdings as is mutually agreed on from time to time by the Executive and the
Company.
(ii) The Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Companies, provided, however, that Executive shall be able to serve as a
director of TravelGuide Software, Inc. so long as it does not unreasonably
interfere with his duties hereunder. The Executive shall perform his duties and
-3-
<PAGE>
responsibilities to the best of his abilities in a diligent, trustworthy,
businesslike and efficient manner.
(b) Salary and Benefits.
-------------------
(i) During the Employment Period, Executive's base salary shall be
$180,000 per year (such annual salary, as it may be adjusted upward by the Board
in its discretion, being referred to as the "Base Salary"). The Base Salary
-----------
shall be payable in regular installments in accordance with the Company's
general payroll practices, shall be subject to customary withholding and may be
increased (but not decreased) at the discretion of the Board.
(ii) In addition to the Base Salary, Executive will be eligible for
and shall be eligible to receive an annual cash incentive bonus payment for each
fiscal year of up to $75,000 (each, a "Performance Bonus"), commencing with the
-----------------
fiscal year ending December 31, 1999 (prorated for such year based on the number
of days elapsed in such year from the date hereof until December 31, 1999) in an
amount to be determined by the Company's Board. Beginning with Empyrean
Holdings' fiscal year ending December 31, 2000, the aggregate amount of the
Performance Bonus shall be in an amount, as determined by the Company's Board,
not to exceed 120% of Executive's then current Base Salary.
(iii) The Company will reimburse Executive for all reasonable travel
and other expenses incurred by Executive in connection with the performance of
his duties and obligations under this Agreement. Executive shall comply with
such reasonable limitations and reporting requirements with respect to expenses
as may be established by the Company from time to time.
(iv) In addition, Executive will be entitled to participate in all
compensation or employee benefit plans or programs and receive all benefits and
perquisites for which salaried employees of the Company generally are eligible
under any plan or program now or established later by the Company on the same
basis as similarly situated senior executives of the Companies. Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs, in accordance with program provisions. Nothing in this
Agreement will preclude the Company from amending or terminating any of the
plans or programs applicable to salaried employees or senior executives as long
as such amendment or termination is applicable to all salaried employees or
senior executives, as the case may be, so long as such plans or programs are
replaced with plans no less favorable, in the aggregate, than existing plans.
(c) Term. The Employment Period shall initially extend until October 31,
----
2002 but shall be extended for an additional one-year period on each anniversary
date of the date hereof after October 31, 2002 unless either the Company or
Executive gives the other 60 days prior written notice of its or his intention
not to further extend the term of Executive's
-4-
<PAGE>
employment; provided that Executive's employment shall terminate prior to such
date (x) upon Executive's death or Permanent Disability or (y) upon resolution
of the Board, with or without Cause.
(d) Severance. If Executive's employment with the Company is terminated
---------
by the Company without Cause or if Executive terminates his employment with the
Company for Good Reason, the Executive shall be entitled to (i) receive an
amount equal to the greater of (a) Executive's Base Salary from the date of
termination until the expiration of the first anniversary of the date hereof or
(b) Executive's Base Salary for twelve (12) months following the date of such
termination and (ii) for the 12-month period following the date of such
termination, all health care benefits to which he was previously entitled. All
amounts payable to Executive pursuant to this provision shall be payable, as
determined by the Board in its discretion, either in one lump sum payment within
30 days of the date of such termination or in regular installments in accordance
with the Company's regular payroll practices and subject to customary
withholding. The Executive hereby agrees that no severance compensation shall be
payable in the event of termination for Cause or by resignation other than for
Good Reason, death or Permanent Disability and the Executive hereby waives any
claim for severance compensation except as set forth in this Section 2(d).
(e) Termination or Reduction of Severance. If Executive breaches any of
-------------------------------------
the provisions of Section 5 or Section 6 hereof and if Executive fails to cure
such breach, in all material respects, within 15 days after the Company has
given to Executive notice of such breach, the Company shall no longer be
obligated to make any payments pursuant to Section 2(d) above.
3. Representations and Warranties of the Executive.
-----------------------------------------------
(i) The Executive:
(1) has not been convicted within the last five years of any
felony or misdemeanor in connection with the offer, purchase, or sale of any
security or any felony involving fraud or deceit, including, but not limited to,
forgery, embezzlement, obtaining money under false pretenses, larceny, or
conspiracy to defraud;
(2) is not currently subject to any state administrative
enforcement order or judgment entered by a state securities administrator within
the last five years or is subject to any state's administrative enforcement
order or judgment in which fraud or deceit, including, but not limited to,
making untrue statements of material facts and omitting to state material facts,
was found and the order or judgment was entered within the last five years; and
-5-
<PAGE>
(3) is a citizen of the United States of America and resident of
the State of Maryland.
(ii) This Agreement constitutes the legal, valid and binding obligations
of the Executive, enforceable in accordance with its terms, and the execution,
delivery and performance of this Agreement by the Executive does not and will
not conflict with, violate or cause a breach of any agreement, contract or
instrument to which the Executive is a party or any judgment, order or decree to
which the Executive is subject.
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Executive that:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland. The Company has all
requisite corporate power and authority to carry out the transactions
contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement has been
duly authorized by the Company. This Agreement constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement, and the fulfillment of
and compliance with the respective terms hereof by the Company, do not and shall
not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's capital
stock or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of, or
(vi) require any authorization, consent, approval, exemption or other action by
or notice to any court or administrative or governmental body pursuant to, the
charter or bylaws of the Company, or any law, statute, rule or regulation to
which the Company is subject, or any agreement, instrument, order, judgment or
decree to which the Company is subject.
5. Confidentiality and Ownership.
-----------------------------
(a) Information. The Executive agrees that, except to the extent
-----------
required by applicable law, statute, ordinance, rule, regulation or orders of
courts or regulatory authorities, he shall not disclose to any unauthorized
person or use for his own account any Confidential Information without the prior
written consent of the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public other than
as a result of the Executive's acts or omissions to act. The Executive shall
deliver to the Company at the termination of such Executive's employment, or at
any other time the Board may request, all memoranda, notes, plans, records,
reports, computer tapes and software and other documents and data (and copies
thereof) relating to the Confidential Information, Work Product (as defined
below) and the business of the Companies which he may then possess or have under
his control.
-6-
<PAGE>
(b) Inventions and Patents. The Executive agrees that all inventions,
----------------------
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Companies'
actual or firmly planned business, research and development or existing or
future products or services and which are conceived, developed or made by the
Executive prior to the date hereof while employed by the Company ("Work
----
Product") belong to the Companies. The Executive will promptly disclose such
- -------
Work Product to the Board and perform all actions reasonably requested by the
Board (whether during or after the Executive's employment period) to establish
and confirm such ownership (including, without limitation, assignments,
consents, powers of attorney and other instruments).
6. Non-compete, Non-solicitation.
-----------------------------
(a) The Executive acknowledges that in the course of his employment with
the Company he has become familiar, and he will become familiar, with the
Company's trade secrets and with other Confidential Information and that his
services have been and will be of special, unique and extraordinary value to the
Company. Therefore, the Executive agrees that he shall not, during the time
period ending on the later of (i) the fourth anniversary of the date hereof or
(ii) 12 months after the Termination of Executive's employment hereunder (the
"Covenant Period"), directly or indirectly own, operate, manage, control,
---------------
participate in, consult with, advise, or engage in services for any Person
engaged in the Business in competition with the Business or in any manner engage
in any start up of a business (including by himself or in association with any
person, firm, corporate or other business organization or through any other
entity) in competition with the Business as in existence on the date of
Termination of the Executive's employment or the Business that will be engaged
in by the Companies within three months after the date of such Termination
pursuant to firm plans of the Companies in effect as of the date of Termination,
within the United States, Canada & Mexico. Nothing herein shall prohibit the
Executive from (i) being a passive owner of not more than 5% of the outstanding
stock or equity of a Person which is publicly traded, so long as the Executive
has no active participation in the business of such Person or (ii) serving as a
director or stockholder of TravelGuide Software, Inc., so long as the Executive
has no active participation in the business of such Person.
(b) During the Covenant Period, the Executive shall not directly or
indirectly through another entity (i) directly induce or attempt to induce any
employee of or independent contractor to the Company or, to the extent known by
the Executive, the other Companies, to leave the employ of or breach contracts
with the Companies, or in any way deliberately interfere with the relationship
between the Companies and any employee thereof, including without limitation,
inducing or attempting to induce any union, employee or group of employees to
interfere with the Business or operations of any of the Companies, (ii) hire any
person who was an employee of the Company or any executive officer of any of the
Companies at any time within the six month period prior to the date the
Executive employs or seeks to employ such
-7-
<PAGE>
person, or (iii) induce or attempt to induce any customer, supplier,
distributor, franchisee, licensee or other business relation of the Company or,
to the extent known by the Executive, the other Companies, to cease doing
business with any of the Companies, or in any way deliberately interfere with
the relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Companies.
(c) The Executive agrees that: (i) the covenants set forth in this
Section 6 are reasonable in geographical and temporal scope and in all other
respects, (ii) the Company would not have entered into this Agreement but for
the covenants of the Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 6, a court shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances then existing, the parties agree that the maximum duration,
scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law.
(e) The Executive recognizes and affirms that in the event of his
material breach of any provision of this Section 6, money damages would be
inadequate and the Company would have no adequate remedy at law. Accordingly,
the Executive agrees that in the event of a breach or a threatened breach by the
Executive of any of the provisions of this Section 6, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
7. Liquidated Damages and Pledge of Collateral.
-------------------------------------------
(a) Executive, as an employee of the Company, understands that (i)
Executive's services have contributed to the goodwill inherent in the Company's
business, which goodwill constitutes a substantial asset of the Company
purchased by Empyrean Holdings and (ii) Executive's continued employment with
the Company following the Closing Date is of vital importance to the Company. In
consideration for the purchase price paid to Executive pursuant to the Stock
Purchase Agreement, Executive agrees that, subject to the provisions of Sections
7(b) and 7(f) below, in the event that either Executive is terminated by the
Company for Cause or Executive resigns without Good Reason, then Executive shall
be required to pay to the Company upon the date of Executive's actual
termination (such date referred to as the "Termination Date"), the amount
determined in accordance with the following schedule as liquidated damages (the
"Damages"):
-8-
<PAGE>
Occurrence of Termination Date Damages Amount
------------------------------ --------------
On or prior to the first anniversary $350,000.00
of the date hereof
After the first anniversary and on $250,000.00
or prior to the second anniversary of
the date hereof
After the second anniversary and on or $150,000.00
prior to October 31, 2002;
provided, however the termination of this Agreement due to the
death or the Permanent Disability of the Executive (as
determined by the Board in its good faith judgment) shall not
be deemed to be a resignation by Executive.
(b) The Company and the Executive agree that the Company's
first recourse for non-payment of any Damages payable by the Executive pursuant
to the provisions set forth above shall be to the "Collateral" (as defined in
paragraph (e) below). The Company and the Executive further agree that the value
of the Collateral to be surrendered in payment of any Damages shall be
determined based on the "Collateral Valuation" determination provided in the
Pledge Agreement (as defined in paragraph (e) below).
(c) Executive and the Company agree that it is impossible to
determine with any reasonable accuracy the amount of prospective damages to
either party upon breach of this Agreement by the other. The Executive and the
Company further agree that the damages set forth above are reasonable, and not a
penalty, based upon the facts and circumstances of the parties at the time of
entering this Agreement, and with due regard to future expectations.
(d) If the Executive's employment hereunder is terminated by
the Company without Cause or is terminated due to the death or Permanent
Disability of the Executive, then the Executive shall not be required to pay any
Damages and shall be entitled to the return and release of all Collateral (as
defined below).
(e) As collateral for Executive's obligations under this
Agreement, Executive agrees to enter into that certain Pledge Agreement attached
hereto as Exhibit A (the "Pledge Agreement") in which Executive agrees to pledge
---------
to the Company the Pledged Shares (as defined in the Pledge Agreement) attached
to the Pledge Agreement; provided, however, that the Pledged Shares and/or the
proceeds received after the sale of such Pledged Shares in accordance with the
Pledge Agreement and such other collateral as allowed under the Pledge Agreement
(collectively, the "Collateral") shall be in an aggregate value at the Closing
Date equal to the Damages. In the event that the Executive does not pay the
Damages payable as determined in accordance with the schedule set forth in
Section 7(a) above within 30 days following the
- ------------
-9-
<PAGE>
Termination Date, the Company shall have the right to take legal possession and
ownership of an equivalent portion of the Collateral (as determined in the
Pledge Agreement).
(f) In the event the Executive resigns within 30 days following either (i)
a Change in Control (defined below) or (ii) an event constituting Good Reason,
the Executive shall not be required to pay any Damages and shall be entitled to
the prompt return and release of all Collateral.
(i) "Change of Control" as used herein shall be deemed to have
occurred if:
(A) Any "Person" (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 ("Exchange Act") as modified
and used in Sections 13(b) and 14(b) of the Exchange Act)
other than Thayer ITech Holdings, L.L.C. ("Thayer")), is or
becomes the "Beneficial Owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of Empyrean Holdings or the Company representing
more than 50% of the combined voting power of Empyrean
Holdings' or the Company's then outstanding voting
securities;
(B) The stockholders of Empyrean Holdings or the Company approve
a merger or consolidation of Empyrean Holdings or the
Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of
Empyrean Holdings or the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving or parent company) 50% or more of the combined
voting power of the voting securities of Empyrean Holdings,
the Company or such surviving or parent entity outstanding
immediately after such merger or consolidation; or
(C) The stockholders of Empyrean Holdings or the Company approve
a plan of complete liquidation of Empyrean Holdings or the
Company or an agreement for the sale or disposition by
Empyrean Holdings or the Company of all or substantially all
of Empyrean Holdings' or the Company's assets (or any
transaction having a similar
-10-
<PAGE>
effect) other than such a sale or disposition to Thayer or
its Affiliates.
8. Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient with a confirmation of receipt and accompanied by a certified or
registered mailing. Such notices, demands and other communications will be sent
to the address indicated below:
To the Company:
--------------
c/o Empyrean Group Holdings, Inc.
8300 Boone Boulevard, Suite 250
Vienna, VA 22182
Fax: (703) 790-9033
Attn: Stuart C. Johnson, CEO
with copies (which shall not constitute notice) to:
--------------------------------------------------
Thayer Capital Partners
1455 Pennsylvania Avenue
Suite 350
Washington, DC 20004
Fax: 202-371-0391
Attn: Robert Michalik
with copies (which shall not constitute notice) to:
--------------------------------------------------
Hogan & Hartson, LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Fax: 202-637-5910
Attn: Christopher J. Hagan
To the Executive:
----------------
c/o IconixGroup, Inc.
4927 Auburn Avenue
-11-
<PAGE>
Bethesda, Maryland 20814
Fax: (301) 718-6230
Attn: Leo C. Mullen
with copies to:
--------------
Shaw Pittman
2300 N Street, N.W.
Washington, D.C. 20037
Attention: Thomas J. Plotz
Fax No.: (202) 663-8007
Tel.No.: (202) 663-8544
Shaw Pittman
1676 International Drive
McLean, Virginia 22102-4835
Attention: Richard C. Donaldson, Esq.
Fax No.: (703) 790-7901
Tel.No.: (703) 790-7959
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9. Miscellaneous.
-------------
(a) Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement and the agreements referred to
------------------
herein embody the complete agreement and understanding among the parties and
supersede and preempt any prior understandings, agreements or representations by
or among the parties, written or oral, which may have related to the subject
matter hereof.
(c) Waiver of Jury Trial. The parties to this Agreement each hereby
--------------------
waives, to the fullest extent permitted by law, any right to trial by jury of
any claim, demand, action, or cause of action (i) arising under this Agreement
or (ii) in any way connected with or related or incidental to the dealings of
the parties hereto in respect of
-12-
<PAGE>
this Agreement or any of the transactions related hereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity, or
otherwise. The parties to this Agreement each hereby agrees and consents that
any such claim, demand, action, or cause of action shall be decided by court
trial without a jury and that the parties to this Agreement may file an original
counterpart of a copy of this Agreement with any court as written evidence of
the consent of the parties hereto to the waiver of their right to trial by jury.
(d) Counterparts; Facsimile Transmission. This Agreement may be executed
------------------------------------
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement. This Agreement may also be executed
and delivered by facsimile transmission.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by the
Executive, the Company, and their respective successors and assigns.
(f) Governing Law. All issues concerning this Agreement shall be
-------------
governed by and construed in accordance with the laws of the State of Maryland,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Maryland or any other jurisdiction) that would cause
the application of the law of any jurisdiction other than the State of Maryland.
(g) Remedies. Each of the parties to this Agreement will be entitled to
--------
enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and the
Executive.
* * * * *
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ICONIXGROUP, INC.
By: /s/ Stuart C.Johnson
-------------------------------
Its: Stuart C. Johnson
Chairman
/s/ Leo C. Mullen
----------------------------------------
Leo C. Mullen
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
This Agreement is dated as of August 12, 1999 by and between BSG
Solutions, Inc., a Georgia corporatio (the "Company") and John R. McDougall
-------
(the "Executive").
---------
Recitals:
--------
A. Thayer ITech Holdings, LLC ("Thayer IT"), Empyrean Group Holdings,
---------
Inc. (formerly Business Solutions Group, Inc.), a Delaware corporation
("Empyrean Holdings"), BSG Holdings, Inc. and the stockholders of BSG Holdings,
-----------------
Inc. (the "Sellers"), have entered into a Recapitalization Agreement dated as of
-------
August 11, 1999 (the "Recapitalization Agreement") providing for the
--------------------------
recapitalization of Empyrean Holdings and the purchase of certain shares of the
capital stock of Empyrean Holdings from Sellers;
B. Pursuant to the Recapitalization Agreement, the Executive, as an
affiliate of a Seller, received a substantial portion of the purchase price paid
by Thayer IT and Empyrean Holdings pursuant to the Recapitalization Agreement;
C. Following the closing of the transactions contemplated by the
Recapitalization Agreement, substantially all of the operating assets and
liabilities of Empyrean Holdings have been contributed to the Company, a wholly-
owned subsidiary of Empyrean Holdings;
D. The Company and Empyrean Holdings recognize that Executive's
services have contributed to the goodwill inherent in the Company's business,
which goodwill constitutes a substantial asset of the Company purchased by
Thayer IT and Empyrean Holdings;
E. The Company and Empyrean Holdings have required Executive to enter
into this Agreement as a condition precedent to the purchase of the Sellers'
stock by Thayer IT and Empyrean Holdings pursuant to the Recapitalization
Agreement;
F. As an employee of the Company, Executive will be given access to
or come into contact with certain proprietary and/or confidential information of
the Company and Empyrean Holdings; and
G. The Company and the Executive desire to enter into this Agreement
to provide for the terms and conditions of the Executive's employment with the
Company.
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings.
"Board" means the Company's board of directors.
-----
"Business" means the business of providing information technology
--------
consulting services in the United States of America.
"Business Day" means any day other than a Saturday or Sunday or a day
------------
on which commercial banks are required or authorized to close in Atlanta,
Georgia.
"Cause" means (i) a material breach of this Agreement by the
-----
Executive; (ii) the commission by the Executive of a felony, a crime involving
theft, dishonesty or moral turpitude or any other act or omission which in the
reasonable determination of the Board is likely to cause material harm to the
standing and reputation of the Company or Empyrean Holdings; (iii) the
Executive's substantial and repeated failure to report to work or perform
his/her duties to the Company or Empyrean Holdings as determined by the Board in
good faith other than by reason of death or Permanent Disability; (iv) the
Executive's failure to comply with, failure to perform or disregard of the
reasonable directives of the Board or violation of any statutory or common law
duty of loyalty to the Company or Empyrean Holdings; or (v) any material
misrepresentation or material non-disclosure by the Executive to the Board in
connection with the performance of Executive's duties after the date hereof.
For purposes hereof, whether or not the Executive has committed an act or
omission of the type referred to in subparagraphs (i) through (v) above will be
determined by the Board in its reasonable discretion, based upon the facts known
to the Board at the relevant time.
"Companies" means collectively Empyrean Holdings, the Company and
---------
their Subsidiaries.
"Confidential Information" shall have the meaning assigned to such
------------------------
term in the Recapitalization Agreement.
"Permanent Disability" means the Executive is unable to perform, by
--------------------
reason of physical or mental incapacity, his then duties or obligations to the
Company, for a period of 60 consecutive days or a total period of 90 days in any
360-day period.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or any other entity, including a
governmental entity or any department, agency or political subdivision thereof.
-2-
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Subsidiary" means, with respect to any Person, any Person of which
----------
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership, membership
or other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in another Person if such Person or
Persons shall be allocated a majority of the gains or losses of or shall be or
control the managing director or a general partner of such other Person.
2. Employment. The Company agrees to employ the Executive, and the
----------
Executive hereby accepts employment with the Company on a full-time basis
consistent with the Executive's position and duties, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in Section 2(c) (the "Employment Period").
-----------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive shall serve as
President of the Company and Group President of Systems Engineering and
Executive shall have the duties, responsibilities and authority that designated
by the Board and the Company's Chairman, subject to the direction and
supervision of the Company's Chairman and the Company's Board. Notwithstanding
the foregoing, it is agreed and understood that Executive's primary
responsibility shall be to the business of the Company with the Executive
spending such amount of time devoted to the business of Empyrean Holdings as is
mutually agreed on from time to time by the Executive and the Company.
(ii) The Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Companies. The Executive shall perform his duties and responsibilities to
the best of his abilities in a diligent, trustworthy, businesslike and efficient
manner.
-3-
<PAGE>
(b) Salary and Benefits.
-------------------
(i) During the Employment Period, Executive's base salary shall
be $180,000 per year (such annual salary, as it may be adjusted upward by the
Board in its discretion, being referred to as the "Base Salary"). The Base
-----------
Salary shall be payable in regular installments in accordance with the Company's
general payroll practices, shall be subject to customary withholding and may be
increased (but not decreased) at the discretion of the Board.
(ii) In addition to the Base Salary, Executive will be eligible
for and shall be eligible to receive an annual cash incentive bonus payment for
each fiscal year of up to $75,000 (each, a "Performance Bonus"), commencing with
-----------------
the fiscal year ending December 31, 1999 (prorated for such year based on the
number of days elapsed in such year from the date hereof until December 31,
1999) in an amount to be determined by the Company's Board.
(iii) The Company will reimburse Executive for all reasonable
travel and other expenses incurred by Executive in connection with the
performance of his duties and obligations under this Agreement. Executive shall
comply with such reasonable limitations and reporting requirements with respect
to expenses as may be established by the Company from time to time.
(iv) In addition, Executive will be entitled to participate in
all compensation or employee benefit plans or programs and receive all benefits
and perquisites for which salaried employees of the Company generally are
eligible under any plan or program now or established later by the Company on
the same basis as similarly situated senior executives of the Companies.
Executive will participate to the extent permissible under the terms and
provisions of such plans or programs, in accordance with program provisions.
Nothing in this Agreement will preclude the Company from amending or terminating
any of the plans or programs applicable to salaried employees or senior
executives as long as such amendment or termination is applicable to all
salaried employees or senior executives, as the case may be, so long as such
plans or programs are replaced with plans no less favorable, in the aggregate,
than existing plans.
(c) Term. The Employment Period shall initially extend until August
----
12, 2002 but shall be extended for an additional one-year period on each
anniversary date of the date hereof after August 12, 2002 unless either the
Company or Executive gives the other prior written notice of its or his
intention not to further extend the term of Executive's employment; provided
that Executive's employment shall terminate prior to such date (x) upon
Executive's death or Permanent Disability or (y) upon resolution of the Board,
with or without Cause.
(d) Severance. If Executive's employment with the Company is
---------
terminated by the Company without Cause, the Executive shall be entitled to (i)
receive an amount equal to the
-4-
<PAGE>
greater of (a) Executive's Base Salary from the date of termination until the
expiration of the first anniversary of the date hereof or (b) Executive's Base
Salary for nine (9) months following the date of such termination and (ii) for
the 9-month period following the date of such termination, all health care
benefits to which he was previously entitled. All amounts payable to Executive
pursuant to this provision shall be payable, as determined by the Board in its
discretion, either in one lump sum payment within 30 days of the date of such
termination or in regular installments in accordance with the Company's regular
payroll practices and subject to customary withholding. The Executive hereby
agrees that no severance compensation shall be payable in the event of
termination for Cause or by resignation, death or Permanent Disability and the
Executive hereby waives any claim for severance compensation except as set forth
in this Section 2(d).
(e) Termination or Reduction of Severance. If Executive breaches any
-------------------------------------
of the provisions of Section 5 or Section 6 hereof and if Executive fails to
cure such breach, in all material respects, within 15 days after the Company has
given to Executive notice of such breach, the Company shall no longer be
obligated to make any payments pursuant to Section 2(d) above.
3. Representations and Warranties of the Executive.
-----------------------------------------------
(i) The Executive:
(1) has not been convicted within the last five years of any
felony or misdemeanor in connection with the offer, purchase, or sale of any
security or any felony involving fraud or deceit, including, but not limited to,
forgery, embezzlement, obtaining money under false pretenses, larceny, or
conspiracy to defraud;
(2) is not currently subject to any state administrative
enforcement order or judgment entered by a state securities administrator within
the last five years or is subject to any state's administrative enforcement
order or judgment in which fraud or deceit, including, but not limited to,
making untrue statements of material facts and omitting to state material facts,
was found and the order or judgment was entered within the last five years; or
(3) is a citizen of the United States of America and resident
of the State of Georgia.
(ii) This Agreement constitutes the legal, valid and binding
obligations of the Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by the Executive does not
and will not conflict with, violate or cause a breach of any agreement, contract
or instrument to which the Executive is a party or any judgment, order or decree
to which the Executive is subject.
-5-
<PAGE>
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Executive that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Georgia. The Company has all
requisite corporate power and authority to carry out the transactions
contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement has been
duly authorized by the Company. This Agreement constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement, and the fulfillment of
and compliance with the respective terms hereof by the Company, do not and shall
not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's capital
stock or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of, or
(vi) require any authorization, consent, approval, exemption or other action by
or notice to any court or administrative or governmental body pursuant to, the
charter or bylaws of the Company, or any law, statute, rule or regulation to
which the Company is subject, or any agreement, instrument, order, judgment or
decree to which the Company is subject.
5. Confidentiality and Ownership.
-----------------------------
(a) Information. The Executive agrees that, except to the extent
-----------
required by applicable law, statute, ordinance, rule, regulation or orders of
courts or regulatory authorities, he shall not disclose to any unauthorized
person or use for his own account any Confidential Information without the prior
written consent of the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public other than
as a result of the Executive's acts or omissions to act. The Executive shall
deliver to the Company at the termination of such Executive's employment, or at
any other time the Board may request, all memoranda, notes, plans, records,
reports, computer tapes and software and other documents and data (and copies
thereof) relating to the Confidential Information, Work Product (as defined
below) and the business of the Companies which he may then possess or have under
his control.
(b) Inventions and Patents. The Executive agrees that all inventions,
----------------------
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Companies'
actual or firmly planned business, research and development or existing or
future products or services and which are conceived, developed or made by the
Executive prior to the date hereof while employed by the Company ("Work
Product") belong to the Companies. The Executive will promptly disclose such
Work
-6-
<PAGE>
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after the Executive's employment period) to establish and
confirm such ownership (including, without limitation, assignments, consents,
powers of attorney and other instruments).
6. Non-compete, Non-solicitation.
-----------------------------
(a) The Executive acknowledges that in the course of his employment
with the Company he has become familiar, and he will become familiar, with the
Company's trade secrets and with other Confidential Information and that his
services have been and will be of special, unique and extraordinary value to the
Company. Therefore, the Executive agrees that he shall not, during the time
period ending on the later of (i) the fourth anniversary of the date hereof or
(ii) 18 months after the Termination of Executive's employment hereunder (the
"Covenant Period"), directly or indirectly own, operate, manage, control,
- ----------------
participate in, consult with, advise, or engage in services for any Person
engaged in the Business in competition with the Business or in any manner engage
in any start up of a business (including by himself or in association with any
person, firm, corporate or other business organization or through any other
entity) in competition with the Business as in existence on the date of
Termination of the Executive's employment or the Business that will be engaged
in by the Companies within three months after the date of such Termination
pursuant to firm plans of the Companies in effect as of the date of Termination,
within the United States, Canada & Mexico. Nothing herein shall prohibit the
Executive from being a passive owner of not more than 5% of the outstanding
stock or equity of a Person which is publicly traded, so long as the Executive
has no active participation in the business of such Person.
(b) During the Covenant Period, the Executive shall not directly or
indirectly through another entity (i) directly induce or attempt to induce any
employee of or independent contractor to the Company or, to the extent known by
the Executive, the other Companies, to leave the employ of or breach contracts
with the Companies, or in any way deliberately interfere with the relationship
between the Companies and any employee thereof, including without limitation,
inducing or attempting to induce any union, employee or group of employees to
interfere with the Business or operations of any of the Companies, (ii) hire any
person who was an employee of the Company or any executive officer of any of the
Companies at any time within the six month period prior to the date the
Executive employs or seeks to employ such person, or (iii) induce or attempt to
induce any customer, supplier, distributor, franchisee, licensee or other
business relation of the Company or, to the extent known by the Executive, the
other Companies, to cease doing business with any of the Companies, or in any
way deliberately interfere with the relationship between any such customer,
supplier, distributor, franchisee, licensee or business relation and the
Companies.
(c) The Executive agrees that: (i) the covenants set forth in this
Section 6 are reasonable in geographical and temporal scope and in all other
respects, (ii) the Company would not have entered into this Agreement but for
the covenants of the Executive contained herein,
-7-
<PAGE>
and (iii) the covenants contained herein have been made in order to induce the
Company to enter into this Agreement.
(d) If, at the time of enforcement of this Section 6, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) The Executive recognizes and affirms that in the event of his
material breach of any provision of this Section 6, money damages would be
inadequate and the Company would have no adequate remedy at law. Accordingly,
the Executive agrees that in the event of a breach or a threatened breach by the
Executive of any of the provisions of this Section 6, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
7. Liquidated Damages and Pledge of Collateral.
--------------------------------------------
(a) Executive, as an employee of the Company, understands that (i)
Executive's services have contributed to the goodwill inherent in the Company's
business, which goodwill constitutes a substantial asset of the Company
purchased by Empyrean Holdings and (ii) Executive's continued employment with
the Company following the Closing Date is of vital importance to the Company.
In consideration for the purchase price paid to Executive pursuant to the
Recapitalization Agreement, Executive agrees that, subject to the provisions of
Section 7(b) below, in the event that either Executive is terminated by the
Company for Cause or Executive resigns for any reason, then Executive shall be
required to pay to the Company upon the date of Executive's actual termination
(such date referred to as the "Termination Date"), the amount determined in
accordance with the following schedule as liquidated damages (the "Damages"):
-8-
<PAGE>
Occurrence of Termination Date Damages Amount
------------------------------ --------------
On or prior to the first anniversary $350,000.00
of the date hereof
After the first anniversary and on $250,000.00
or prior to the second anniversary of
the date hereof
After the second anniversary and on or $150,000.00
prior to the third anniversary of the
date hereof;
provided, however the termination of this Agreement due to the death
or the Permanent Disability of the Executive (as determined by the
Board in its good faith judgment) shall not be deemed to be a
resignation by Executive.
(b) The Company and the Executive agree that the Company's first
recourse for non-payment of any Damages payable by the Executive pursuant to the
provisions set forth above shall be to the "Collateral" (as defined in paragraph
(e) below). The Company and the Executive further agree that the value of the
Collateral to be surrendered in payment of any Damages shall be determined based
on the "Collateral Valuation" determination provided in the Pledge Agreement (as
defined in paragraph (e) below).
(c) Executive and the Company agree that it is impossible to determine
with any reasonable accuracy the amount of prospective damages to either party
upon breach of this Agreement by the other. The Executive and the Company
further agree that the damages set forth above are reasonable, and not a
penalty, based upon the facts and circumstances of the parties at the time of
entering this Agreement, and with due regard to future expectations.
(d) If the Executive's employment hereunder is terminated by the
Company without Cause or is terminated due to the death or Permanent Disability
of the Executive, then the Executive shall not be required to pay any Damages
and shall be entitled to the return and release of all Collateral (as defined
below).
(e) As collateral for Executive's obligations under this Agreement,
Executive agrees to enter into that certain Pledge Agreement attached hereto as
Exhibit A (the "Pledge Agreement") in which Executive agrees to pledge to the
- ---------
Company the Pledged Shares (as defined in the Pledge Agreement) attached to the
Pledge Agreement; provided, however, that the Pledged Shares and/or the proceeds
received after the sale of such Pledged Shares in accordance with the Pledge
Agreement and such other collateral as allowed under the Pledge Agreement
(collectively, the "Collateral") shall be in an aggregate value at the Closing
Date equal to the Damages. In the event that the Executive does not pay the
Damages payable as determined in
-9-
<PAGE>
accordance with the schedule set forth in Section 7(a) above within 30 days
following the Termination Date, the Company shall have the right to take legal
possession and ownership of an equivalent portion of the Collateral (as
determined in the Pledge Agreement).
(f) In the event the Executive resigns within 30 days following either
(i) a Change in Control (defined below) or (ii) an event constituting Good
Reason (defined below), the Executive shall not be required to pay any Damages
and shall be entitled to the prompt return and release of all Collateral.
(i) "Change of Control" as used herein shall be deemed to have
occurred if:
(A) Any "Person" (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 ("Exchange Act") as
modified and used in Sections 13(b) and 14(b) of the
Exchange Act) other than Thayer ITech Holdings, L.L.C.
("Thayer")), is or becomes the "Beneficial Owner" (as
defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Empyrean Holdings or
the Company representing more than 50% of the combined
voting power of Empyrean Holdings' or the Company's
then outstanding voting securities;
(B) The stockholders of Empyrean Holdings or the Company
approve a merger or consolidation of Empyrean Holdings
or the Company with any other corporation, other than a
merger or consolidation which would result in the
voting securities of Empyrean Holdings or the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving or
parent company) 50% or more of the combined voting
power of the voting securities of Empyrean Holdings,
the Company or such surviving or parent entity
outstanding immediately after such merger or
consolidation; or
(C) The stockholders of Empyrean Holdings or the Company
approve a plan of complete liquidation of Empyrean
Holdings or the Company or an agreement for the sale or
disposition by Empyrean Holdings or the Company of all
or substantially all of Empyrean Holdings' or the
Company's assets (or any transaction having a similar
-10-
<PAGE>
effect) other than such a sale or disposition to Thayer
or its Affiliates.
(ii) "Good Reason" as used herein shall mean:
(A) Any material and permanent reduction in Executive's
title, position or responsibilities such that Executive
is no longer an executive or manager of the Company or
its successor, or
(B) The relocation of Executive's office at which he is to
perform his duties to a location more than 30 miles
from the location of which the Executive performed his
duties immediately following the acquisition of
Empyrean Holdings by Thayer, except for required travel
on Empyrean Holdings' business to an extent reasonably
consistent with his business travel obligations prior
to the acquisition of Empyrean Holdings by Thayer.
8. Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient with a confirmation of receipt and accompanied by a certified or
registered mailing. Such notices, demands and other communications will be sent
to the address indicated below:
To the Company:
--------------
c/o Empyrean Group Holdings, Inc.
8300 Boone Boulevard, Suite 250
Vienna, VA 22182
Fax: (703) 790-9033
Attn: Stuart C. Johnson, CEO
with copies (which shall not constitute notice) to:
--------------------------------------------------
Thayer Capital Partners
1455 Pennsylvania Avenue
Suite 350
Washington, DC 20004
Fax: 202-371-0391
Attn: Robert Michalik
-11-
<PAGE>
with copies (which shall not constitute notice) to:
--------------------------------------------------
Hogan & Hartson, LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Fax: 202-637-5910
Attn: Christopher J. Hagan
To the Executive:
----------------
c/o Business Solutions Group, Inc.
284 S. Main Street
Suite 700
Alpharetta, Georgia 30004
Fax: 770-360-5520
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9. Miscellaneous.
-------------
(a) Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement and the agreements referred to
------------------
herein embody the complete agreement and understanding among the parties and
supersede and preempt any prior understandings, agreements or representations by
or among the parties, written or oral, which may have related to the subject
matter hereof.
(c) Waiver of Jury Trial. The parties to this Agreement each hereby
--------------------
waives, to the fullest extent permitted by law, any right to trial by jury of
any claim, demand, action, or cause of action (i) arising under this Agreement
or (ii) in any way connected with or related or incidental to the dealings of
the parties hereto in respect of this Agreement or any of the transactions
related hereto, in each case whether now existing or hereafter arising, and
whether in contract, tort, equity, or otherwise. The parties to this Agreement
each hereby agrees and consents that any such claim, demand, action, or cause
-12-
<PAGE>
of action shall be decided by court trial without a jury and that the parties to
this Agreement may file an original counterpart of a copy of this Agreement with
any court as written evidence of the consent of the parties hereto to the waiver
of their right to trial by jury.
(d) Counterparts; Facsimile Transmission. This Agreement may be
------------------------------------
executed simultaneously in two or more counterparts, any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together will constitute one and the same Agreement. This Agreement may also be
executed and delivered by facsimile transmission.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by the
Executive, the Company, and their respective successors and assigns.
(f) Governing Law. All issues concerning this Agreement shall be
-------------
governed by and construed in accordance with the laws of the State of Georgia,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Georgia or any other jurisdiction) that would cause the
application of the law of any jurisdiction other than the State of Georgia.
(g) Remedies. Each of the parties to this Agreement will be entitled
--------
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and the
Executive.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BSG SOLUTIONS, INC.
By: /s/ Stuart C. Johnson
----------------------------------
Its: Stuart C. Johnson
Chairman
/s/ John R. McDougall
---------------------------------------
John R. McDougall
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is dated as of
March 23, 2000, by and between Iconixx Web Development, Inc., a
Maryland corporation (the "Company") and Christopher Clark (the "Executive").
Recitals:
--------
A. Iconixx Corporation, a Delaware corporation ("Iconixx"), the
Company, Internet Information Services, Inc., a Maryland corporation ("IIS"),
and the Executive and Timothy Meinhardt (collectively, the "Majority
Shareholders") have entered into an Asset Purchase Agreement dated as of March
23, 2000 (the "Asset Purchase Agreement") providing for the purchase by Iconixx,
through the Company, of substantially all of the assets of the Business (other
than those related to the Hardware/Software Business operated under a separately
incorporated entity known as IIS Systems, Inc., and certain domain names
specified in the Asset Purchase Agreement) (the "Business Assets") from IIS;
B. Pursuant to the Asset Purchase Agreement, the Executive, as one of
the Majority Shareholders, received a substantial portion of the purchase price
paid by the Company pursuant to the Asset Purchase Agreement;
C. Following the closing of the transactions contemplated by the
Asset Purchase Agreement, substantially all of the Business Assets have been
purchased by Iconixx through the Company;
D. The Company and Iconixx recognize that the Executive's services
have contributed to the goodwill inherent in the Business, which goodwill
constitutes a substantial asset of the Business Assets purchased by the Company;
E. The Company and Iconixx have required the Executive to enter into
this Agreement as a condition precedent to the purchase of the Business Assets
pursuant to the Asset Purchase Agreement;
F. As an employee of the Company, the Executive will be given access
to or come into contact with certain proprietary and/or confidential information
of the Company and Iconixx; and
G. The Company and the Executive desire to enter into this Agreement
to provide for the terms and conditions of the Executive's employment with the
Company.
<PAGE>
Agreement:
---------
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings.
(a) "Board" means the Company's board of directors.
-----
(b) "Business" means the business of providing information technology
--------
consulting services, web design and graphic printing design services in the
United States of America.
(c) "Business Day" means any day other than a Saturday or Sunday or a
------------
day on which commercial banks are required or authorized to close in Bethesda,
MD.
(d) "Cause" means: (i) a material breach of this Agreement by the
-----
Executive that is not corrected within ten (10) days after notice thereof; (ii)
the conviction by the Executive of a felony, a crime involving theft, dishonesty
or moral turpitude, or any other act or omission which, in the reasonable
determination of the Board, is likely to cause material harm to the standing and
reputation of the Company or Iconixx; (iii) the Executive's substantial and
repeated failure to report to work, other than by reason of death or Permanent
Disability; (iv) the Executive's willful failure or gross negligence in the
performance of his assigned duties for the Company, which failure continues for
more than ten (10) or more days following the Executive's receipt of written
notice specifying the manner in which the Executive is in default of his duties;
(v) the Executive's failure to comply with or failure to perform the reasonable
directives of the Board or any statutory or common law duty of loyalty to the
Company or Iconixx that is not corrected within ten (10) days after notice
thereof; or (vi) any material misrepresentation or material non-disclosure by
the Executive to the Board in connection with the performance of Executive's
duties after the date hereof. For purposes hereof, whether or not the Executive
has committed an act or omission of the type referred to in subparagraphs (i)
through (vi) above will be determined by the Board in its reasonable discretion,
based upon the facts known to the Board at the relevant time.
(e) "Change in Control" has occurred when: (i) any "Person" (as
-----------------
defined in Section 3(a)(9) of Exchange Act, as modified and used in Sections
13(b) and 14(b) of the Exchange Act, other than Thayer), is or becomes the
"Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Iconixx or the Company representing more than
fifty percent (50%) of the combined voting power of the Company's or Iconixx's
then outstanding voting securities; (ii) the stockholders of Iconixx approve a
merger or consolidation of Iconixx with any other corporation, other than a
merger or consolidation which would result in the voting securities of Iconixx
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or parent company) fifty percent (50%) or more of the
-2-
<PAGE>
combined voting power of the voting securities of Iconixx or such surviving or
parent entity immediately after such merger or consolidation; or (iii) the
stockholders of Iconixx approve a plan of complete liquidation of Iconixx or an
agreement for the sale or disposition by Iconixx of all or substantially all of
Iconixx's assets (or any transaction having a similar effect) other than such a
sale or disposition to Thayer or its Affiliates.
(f) "Companies" means, collectively, Iconixx, the Company and their
---------
Subsidiaries.
(g) "Confidential Information" shall have the meaning assigned to such
------------------------
term in the Asset Purchase Agreement.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(i) "Good Reason" means (i) any material and permanent reduction in
-----------
the Executive's title, position or responsibilities such that the Executive is
no longer an executive or manager of the Company or its successor, or (ii) the
relocation of the Executive's office at which he is to perform his duties to a
location more than thirty (30) miles from Bethesda, Maryland, except for
required travel on Iconixx's or the Company's business to an extent reasonably
consistent with his business travel obligations prior to the acquisition of IIS
by Iconixx, through the Company.
(j) "Permanent Disability" means the Executive is unable to perform,
--------------------
by reason of physical or mental incapacity, his then duties or obligations to
the Company, for a period of ninety (90) consecutive days or a total period of
one hundred and eighty (180) days in any three hundred and sixty (360) day
period.
(k) "Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or any other entity, including a
governmental entity or any department, agency or political subdivision thereof.
(l) "Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
(m) "Subsidiary" means, with respect to any Person, any Person of
----------
which: (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof, is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof; or (ii) if a partnership,
association or other business entity, a majority of the partnership, membership
or other similar ownership interests thereof, is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof.
-3-
<PAGE>
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in another Person if such Person or Persons (x) shall be
allocated a majority of the gains or losses of such Person, or (y) shall be, or
shall control, the managing director or a general partner of such other Person.
(n) "Thayer" means Thayer Equity Investors IV, L.P., a Delaware
------
limited partnership.
2. Employment. The Company agrees to employ the Executive, and the
----------
Executive hereby accepts employment with the Company, on a full-time basis
consistent with the Executive's position and duties, upon the terms and
conditions set forth in this Agreement, and for the period beginning on the date
hereof and ending as provided in Section 2(c) (the "Employment Period").
------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive shall serve as
Vice President - Chief Business Strategy Officer, have the duties,
responsibilities and authority that are designated by the Board and the Chairman
(or his successor), and be subject to the direction and supervision of the Board
and the Chairman (or his successor).
(ii) The Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Companies. The Executive shall perform his duties and responsibilities to
the best of his abilities in a diligent, trustworthy, businesslike and efficient
manner.
(b) Salary and Benefits.
-------------------
(i) During the Employment Period, the Executive's base salary
shall be $175,000 per year (such annual salary, as it may be adjusted upward by
the Board in its discretion, the "Base Salary"). The Base Salary shall be
payable in regular installments in accordance with the Company's general payroll
practices, shall be subject to customary withholding, and may be increased (but
not decreased) at the discretion of the Board.
(ii) In addition to the Base Salary, Executive will be eligible
for and shall be eligible to receive an annual cash incentive bonus payment for
each fiscal year of up to 120% of the Executive's Base Salary (each, a
"Performance Bonus"), commencing with the fiscal year ending December 31, 2000
(such Performance Bonus to be prorated for such year based on the number of days
elapsed in such year from the date hereof until December 31, 2000) in an amount
to be determined by the Board in its sole discretion.
(iii) The Company will reimburse the Executive for all reasonable
travel and other expenses incurred by the Executive in connection with the
-4-
<PAGE>
performance of his duties and obligations under this Agreement. The Executive
shall comply with such reasonable limitations and reporting requirements with
respect to expenses as may be established by the Company from time to time.
(iv) In addition, the Executive will be entitled to participate in
all compensation or employee benefit plans or programs and receive all benefits
and perquisites for which salaried employees or senior executives of the Company
generally are eligible under any plan or program now or established later by the
Company, on the same basis as similarly situated salaried employees or senior
executives of the Company. The Executive will participate to the extent
permissible under the terms and provisions of such plans or programs, in
accordance with plan or program provisions. Nothing in this Agreement will
preclude the Company from amending or terminating any of the plans or programs
applicable to salaried employees or senior executives as long as (A) such
amendment or termination is applicable to all salaried employees or senior
executives and (B) such plans or programs are replaced with plans or programs no
less favorable, in the aggregate, than existing plans or programs.
(c) Term. The Employment Period shall initially extend until March
----
23, 2003 and shall be extended for additional one-year periods ending on each
anniversary date of March 23, 2003 unless (A) either the Company or the
Executive gives the other 60-day prior written notice of its or his intention
not to further extend the term of the Executive's employment or (B) the
Executive's employment terminates prior to such date as a result of either the
Executive's death or Permanent Disability or upon resolution of the Board, with
or without Cause.
(d) Severance. If the Executive's employment with the Company is
---------
terminated by the Company without Cause, the Executive shall be entitled to
receive: (A) an amount equal to the greater of (1) the Executive's Base Salary
from the date of termination until the expiration of the first anniversary of
the date hereof, or (2) the Executive's salary for a nine (9) month period
following the date of such termination; and (B) for the nine (9) month period
following the date of such termination, all health care benefits to which he was
previously entitled (the "Severance Payments"). The salary portion of the
Severance Payments payable pursuant to this Section 2(d) shall be payable, as
------------
determined by the Board in its sole discretion, either in one lump sum payment
within thirty (30) days of the date of such termination or in regular
installments in accordance with the Company's regular payroll practices and
subject to customary withholding. The Executive hereby agrees that no Severance
Payments shall be payable in the event of termination for Cause or by
resignation, death or Permanent Disability and the Executive hereby waives any
claim for severance compensation except as set forth in this Section 2(d). The
------------
Executive shall give at least sixty (60) days notice of any resignation without
Good Reason of his employment with the Company.
(e) Termination or Reduction of Severance. If the Executive breaches
-------------------------------------
any of the provisions of Section 5 or Section 6 hereof and if the Executive
--------- ---------
fails to cure such breach, in all material respects, within either (i) 15 days
after the Company has given to the Executive notice of such breach or (ii) a
reasonable period thereafter (not to exceed 45 days of
-5-
<PAGE>
notice) as long as the Executive commences good faith efforts to cure such
breach within the 15 day period and continues those efforts thereafter until
such breach is cured within the 45 day period, the Company shall no longer be
obligated to make any Severance Payments pursuant to Section 2(d) above.
------------
3. Representations and Warranties of the Executive.
-----------------------------------------------
(a) The Executive hereby represents and warrants to the Company
that he:
(i) has not been convicted within the last five (5) years of (A)
any felony or misdemeanor in connection with the offer, purchase, or sale of any
security; or (B) any felony involving fraud or deceit (including, without
limitation, forgery, embezzlement, obtaining money under false pretenses,
larceny, or conspiracy to defraud);
(ii) is not currently subject to (A) any state administrative
enforcement order or judgment entered by a state securities administrator within
the last five (5) years or (B) any state's administrative enforcement order or
judgment, in which fraud or deceit (including, without limitation, making untrue
statements of material facts or omitting to state material facts) was found,
that was entered within the last five (5) years; and
(iii) is a citizen of the United States of America and resident
of the State of Maryland.
(b) This Agreement constitutes the legal, valid and binding
obligations of the Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by the Executive does not
and will not conflict with, violate or cause a breach of any agreement, contract
or instrument to which the Executive is a party or any judgment, order or decree
to which the Executive is subject.
4. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to the Executive that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to carry out the transactions
contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement has been
duly authorized by the Company. This Agreement constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement, and the fulfillment of
and compliance with the respective terms hereof by the Company, do not and shall
not: (A) conflict with or result in a breach of the terms, conditions or
provisions of, (B) constitute a default under, (C) result in the creation of any
lien, security interest, charge or encumbrance upon the Company's capital stock
-6-
<PAGE>
or assets pursuant to, (D) give any third party the right to modify, terminate
or accelerate any obligation under, (E) result in a violation of, or (F) require
any authorization, consent, approval, exemption or other action by or notice to
any court or administrative or governmental body pursuant to, the charter or
bylaws of the Company, any law, statute, rule or regulation to which the Company
is subject, or any agreement, instrument, order, judgment or decree to which the
Company is subject.
5. Confidentiality and Ownership.
-----------------------------
(a) Confidential Information. The Executive agrees that, except to
------------------------
the extent required by applicable law, statute, ordinance, rule, regulation or
orders of courts or regulatory authorities, he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of the Executive's acts or omissions to act.
The Executive shall deliver to the Company at the termination of such
Executive's employment, or at any other time the Board may request, all
memoranda, notes, plans, records, reports, computer tapes and software and other
documents and data (and all copies thereof) relating to the Confidential
Information, Work Product (as defined below) and the Business of the Companies
which he may then possess or have under his control.
(b) Inventions and Patents. The Executive agrees that all inventions,
----------------------
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information (whether or not patentable) that
relate to the Companies' actual or firmly planned business, research and
development or existing or future products or services and that are conceived,
developed, or made by the Executive while employed by the Company ("Work
Product") belong to the Companies. The Executive will promptly disclose such
Work Product to the Board and perform all actions reasonably requested by the
Board (whether during or after the Executive's employment period) to establish
and confirm such ownership (including, without limitation, executing
assignments, consents, powers of attorney and other instruments).
6. Non-compete, Non-solicitation.
-----------------------------
(a) The Executive acknowledges that, in the course of his employment
with the Company, he has become familiar and/or will become familiar with the
Company's trade secrets and with other Confidential Information and that his
services have been and will be of special, unique and extraordinary value to the
Company, and that the Company's ability to accomplish its purposes and to
successfully pursue its business plan and compete in the marketplace depend
substantially upon the skills and expertise of the Executive. Therefore, and in
further consideration of the compensation being paid to the Executive, the
Executive agrees that he shall not, during the time period ending on the later
of (i) the third anniversary of the date hereof or (ii) twelve (12) months after
the Termination of the Executive's employment hereunder (the "Covenant Period"),
directly or indirectly, own, operate, manage, control, participate in,
-7-
<PAGE>
consult with, advise, or engage in services for any Person engaged in the
Business in competition with the Business or in any manner engage in any start
up of a business (including by himself or in association with any person, firm,
corporation or other business organization or through any other entity) in
competition with the Business as in existence on the date of Termination of the
Executive's employment or the Business that will be engaged in by the Companies
within three (3) months after the date of such Termination pursuant to firm
plans of the Companies in effect as of the date of Termination, within the
United States, Canada & Mexico. Nothing herein shall prohibit the Executive from
being: (i) a passive owner of not more than five percent (5%) of the outstanding
stock or equity of a Person which is publicly traded, so long as the Executive
has no active participation in the business of such Person; and (ii) a
shareholder of Pizza.com, LLC and IIS Systems, Inc., so long as such ownership
interest in Pizza.com, LLC and IIS Systems, Inc. does not require, in the
aggregate, greater than six hours per month of the Executive's non-business
time.
(b) During the Covenant Period, the Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of or independent contractor to the Company or, to the extent known by the
Executive, the other Companies, to leave the employ of or breach contracts with
the Companies, or in any way deliberately interfere with the relationship
between the Companies and any employee thereof (including, without limitation,
inducing or attempting to induce any union, employee or group of employees to
interfere with the Business or operations of any of the Companies), (ii) hire
any person who was an employee of the Company or any executive officer of any of
the Companies at any time within the six (6) month period prior to the date the
Executive employs or seeks to employ such person, or (iii) induce or attempt to
induce any customer, supplier, distributor, franchisee, licensee or other
business relation of the Company or, to the extent known by the Executive, the
other Companies, to cease doing business with any of the Companies, or in any
way deliberately interfere with the relationship between any such customer,
supplier, distributor, franchisee, licensee or business relation and the
Companies.
(c) The Executive agrees that: (i) the covenants set forth in this
Section 6 are reasonable in geographical and temporal scope and in all other
- ----------
respects; (ii) the Company would not have entered into this Agreement but for
the covenants of the Executive contained herein; and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 6, a court shall
---------
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law.
(e) Available Remedies. The Executive recognizes and affirms that in
------------------
the event of his material breach of any provision of this Section 6, money
---------
damages would be
-8-
<PAGE>
inadequate and the Company would have no adequate remedy at law. Accordingly,
the Executive agrees that in the event of a breach or a threatened breach by the
Executive of any of the provisions of this Section 6, the Company, in addition
to other rights and remedies existing in its favor, may apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security therefor).
7. Liquidated Damages and Pledge of Collateral.
--------------------------------------------
(a) The Executive, as an employee of the Company, understands that:
(i) the Executive's services have contributed to the goodwill inherent in the
Company's business, which goodwill constitutes a substantial asset of the
Company purchased by the Company; and (ii) the Executive's continued employment
with the Company following the Closing Date is of vital importance to the
Company. In consideration for the purchase price paid to the Executive pursuant
to the Asset Purchase Agreement and the salary to be paid to the Executive
pursuant to this Agreement, the Executive agrees that, subject to the provisions
of Section 7(b) below, in the event that either (i) the Executive is terminated
------------
by the Company for Cause or (ii) the Executive resigns for any reason other
those set forth in Section 7(d) below, then the Executive shall be required to
------------
pay to the Company upon the earlier of (A) the receipt of notice of such
termination or (B) the date of the Executive's actual termination (such date,
the "Termination Date"), the amount determined in accordance with the following
schedule as liquidated damages (the "Damages"):
Occurrence of Termination Date Damages Amount
------------------------------ --------------
On or prior to the first anniversary $300,000
of the date hereof
After the first anniversary and on $200,000
or prior to the second anniversary of
the date hereof
After the second anniversary and on or $100,000
prior to the third anniversary of the
date hereof;
(b) The Executive and the Company agree that the Company's first
recourse for non-payment of any Damages payable by the Executive pursuant to the
provisions set forth above shall be to the "Collateral" (as defined below). The
Company and the Executive further agree that the value of the Collateral to be
surrendered in payment of any Damages shall be determined according to the
"Collateral Valuation" procedure set forth in the Pledge Agreement (as defined
in Section 7(e), below).
------------
(c) The Executive and the Company agree that it is impossible to
determine with any reasonable accuracy the amount of prospective damages to the
Company
-9-
<PAGE>
upon breach of this Agreement by the Executive. The Executive and the Company
further agree that the damages set forth above are reasonable, and not a
penalty, based upon the facts and circumstances of the parties at the time of
entering this Agreement, and with due regard to future expectations.
(d) The Executive and the Company agree that if either (i) the
Executive's employment hereunder is terminated by the Company without Cause or
due to the death or Permanent Disability of the Executive (as determined by the
Board in good faith); or (ii) the Executive resigns within thirty (30) days
following either (A) a Change in Control, or (B) an event constituting Good
Reason, then the Executive shall not be required to pay any Damages and shall be
entitled to the return and release of all "Collateral" (as defined below).
(e) As collateral for the Executive's obligations under this
Agreement, the Executive agrees to enter into that certain Pledge Agreement
attached hereto as Exhibit A (the "Pledge Agreement") in which Executive agrees
---------
to pledge to the Company the Pledged Securities (as defined in the Pledge
Agreement) attached to the Pledge Agreement. The Pledged Securities and/or the
proceeds received after the sale of such Pledged Securities in accordance with
the Pledge Agreement and such other collateral as is allowed under the Pledge
Agreement (collectively, the "Collateral") shall be in an aggregate value at the
Closing Date equal to the sum of $300,000, subject to adjustment as set forth in
the Pledge Agreement. If the Executive does not pay the Damages payable in
accordance with the schedule set forth in Section 7(a), above within thirty (30)
------------
days following the date of termination of the Executive's employment with the
Company, the Company shall have the right to take legal possession and ownership
of an appropriate portion of the Collateral (as determined in the Pledge
Agreement), in addition to pursuing any and all other legal remedies that it may
have concerning the Damages.
(f) As discussed in the Pledge Agreement, if the Executive shall not
be required to pay any Damages, the Executive shall be entitled to the prompt
return and release of all Collateral.
8. Notices. All notices, demands or other communications to be given or
--------
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
sent via a nationally recognized overnight courier, or sent via facsimile to the
recipient with a confirmation of receipt and accompanied by a certified or
registered mailing. Such notices, demands and other communications will be sent
to the address indicated below:
If to the Company or Iconixx:
----------------------------
Iconixx Corporation
8300 Boone Boulevard, Suite 250
Vienna, Virginia 22182
Fax: (703) 790-9033
Attn: Jason H. Levine
-10-
<PAGE>
with copies (which shall not constitute notice) to:
--------------------------------------------------
Thayer Capital Partners, L.L.P.
1455 Pennsylvania Avenue, Suite 350
Washington, D.C. 20004
Fax: (202) 371-0391
Attn: Robert Michalik
with copies (which shall not constitute notice) to:
--------------------------------------------------
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Fax: (202) 637-5910
Attn: Christopher J. Hagan, Esq.
If to the Executive:
--------------------
Iconixx Web Development, Inc.
7979 Old Georgetown Road
Second Floor
Bethesda, Maryland 20814
Attn: Chris Clark
Fax: (301) 718-8890
Tel.: (301) 718-1770
with copies (which shall not constitute notice) to:
--------------------------------------------------
Simon, Turnbull & Martin
2000 Pennsylvania Avenue, NW
Suite 4600
Washington, D.C. 20006-1812
Attn: Jeffrey L. Squires, Esq.
Fax: (202) 785-2273
Tel.: (202) 785-7659
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9. Miscellaneous.
-------------
(a) Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision of this Agreement or the validity, legality or
enforceability of the Agreement in any other jurisdiction. In such event, this
Agreement will be
-11-
<PAGE>
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement and the agreements referred to
------------------
herein embody the complete agreement and understanding among the parties and
supersede and preempt any prior understandings, agreements or representations by
or among the parties, written or oral, which may have related to the subject
matter hereof.
(c) Waiver of Jury Trial. The parties to this Agreement each hereby
--------------------
waives, to the fullest extent permitted by law, any right to trial by jury of
any claim, demand, action, or cause of action: (i) arising under this Agreement;
or (ii) in any way connected with or related or incidental to the dealings of
the parties hereto in respect of this Agreement or any of the transactions
related hereto, in each case whether now existing or hereafter arising, and
whether in contract, tort, equity, or otherwise. The parties to this Agreement
each hereby agrees and consents that any such claim, demand, action, or cause of
action shall be decided by court trial without a jury and that the parties to
this Agreement may file an original counterpart of a copy of this Agreement with
any court as written evidence of the consent of the parties hereto to the waiver
of their right to trial by jury.
(d) Counterparts; Facsimile Transmission. This Agreement may be
------------------------------------
executed simultaneously in two or more counterparts, any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together will constitute one and the same Agreement. This Agreement may also be
executed and delivered by facsimile transmission.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by the
Executive and the Company, and their respective successors and assigns.
(f) Governing Law. All issues concerning this Agreement shall be
-------------
governed by and construed in accordance with the laws of the State of Maryland,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Maryland or any other jurisdiction) that would cause
the application of the law of any jurisdiction other than the State of Maryland.
(g) Remedies. Each of the parties to this Agreement will be entitled
--------
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement, and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may, in its sole discretion, apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or injunctive or other relief to enforce or prevent any
violations of the provisions of this Agreement.
-12-
<PAGE>
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and the
Executive.
* * * * *
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ICONIXX WEB DEVELOPMENT, INC.
By: /s/ Graham B. Perkins
---------------------
Name: Graham B. Perkins
Title: Vice President and Secretary
THE EXECUTIVE
/s/ Christopher Clark
---------------------
Christopher Clark
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
This Agreement is dated as of March 31, 2000 by and between Iconixx -
Houston, Inc., a Delaware corporation (the "Company") and D. Derrik Deyhimi (the
-------
"Executive").
---------
Recitals:
--------
A. Iconixx Corporation, a Delaware corporation ("Iconixx"), the Company, a
-------
wholly-owned subsidiary of Iconixx, EnterpriseWorks, L.L.C., a Texas limited
liability company ("EnterpriseWorks") and certain members of EnterpriseWorks
---------------
(the "Members"), have entered into an Asset Purchase Agreement dated as of March
-------
23, 2000 (the "Asset Purchase Agreement") providing for the purchase of
------------------------
substantially all of the assets of EnterpriseWorks by Iconixx, through the
Company;
B. Pursuant to the Asset Purchase Agreement, the Executive, as one of the
Members, received a substantial portion of the Purchase Price paid by the
Company for the Purchased Assets pursuant to the Asset Purchase Agreement;
C. The Company recognizes that the Executive's services have contributed
to the goodwill inherent in EnterpriseWorks' business, which goodwill
constitutes a substantial asset of EnterpriseWorks purchased by the Company;
D. The Company has required the Executive to enter into this Agreement as
a condition precedent to the purchase of the Purchased Assets pursuant to the
Asset Purchase Agreement;
E. As an employee of the Company, the Executive will be given access to or
come into contact with certain proprietary and/or confidential information of
the Company and Iconixx; and
F. The Company and the Executive desire to enter into this Agreement to
provide for the terms and conditions of the Executive's employment with the
Company.
Agreement:
---------
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings.
"Board" means the Company's board of directors.
-----
<PAGE>
"Business" means the business of providing information technology,
--------
enterprise resource and systems integration consulting in the United States of
America.
"Business Day" means any day other than a Saturday or Sunday or a day
------------
on which commercial banks are required or authorized to close in Houston, Texas.
"Cause" means (i) a material breach of this Agreement (including,
-----
without limitation, Sections 5 and 6) by the Executive, which remains
---------- -
uncorrected within thirty (30) days written notice to the Executive of such
breach; (ii) the conviction or arrest of the Executive of or for a felony, a
crime involving theft, dishonesty or moral turpitude; (iii) the Executive's
commission of any intentional discrimination or sexual harassment with respect
to the employees, customers or suppliers of the Company, Iconixx or their
Subsidiaries which, after due consultation with counsel, the Board reasonably
believes to be actionable after the Executive has been given an opportunity to
present his side of the allegations to the Board; provided, however, that
Executive shall have the right to appeal such judgment of the Board within five
days thereafter by notifying the Board in writing of his desire to submit such
matter to binding arbitration (such arbitration to be conducted in Houston,
Texas within 60 days thereafter before one arbitrator determined by the American
Arbitration Association under its commercial rules of arbitration); (iv) the
Executive's substantial and repeated failure to report to work or perform his
duties to the Company or Iconixx as determined by the Board in good faith, other
than by reason of death or Permanent Disability; (v) the Executive's willful
failure to comply with, failure to perform or conscious disregard of the
reasonable directives of the Board or uncorrected violation of any statutory or
common law duty of loyalty to the Company or Iconixx that is not cured within
thirty (30) days after written notice thereof is provided to the Executive; or
(vi) any material misrepresentation or material and willful non-disclosure by
the Executive to the Board in connection with the performance of Executive's
duties after the date hereof. For purposes hereof, whether or not the Executive
has committed an act or omission of the type referred to in subparagraphs (i)
through (vi) above will be determined by the Board in its reasonable, good faith
discretion, based upon the facts known to the Board at the relevant time.
"Change of Control" shall have the meaning set forth in Section 7(f).
----------------- ------------
"Companies" means collectively Iconixx, the Company and their
---------
Subsidiaries.
"Confidential Information" means (i) the terms and provisions of the
------------------------
Asset Purchase Agreement and the Acquisition and (ii) all confidential
information (for purposes of this Agreement and the Asset Purchase Agreement,
confidential information shall refer to all information which is the subject of
reasonable efforts by Iconixx and/or the Company to maintain its non-public
character or to otherwise prevent such information from becoming widely known)
and trade secrets of Iconixx, the Company or their Affiliates including, without
limitation, any of the same comprising the identity, lists or descriptions of
any customers, referral sources or
-2-
<PAGE>
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. Confidential Information shall not include any information (a) which is
disclosed pursuant to subpoena or other legal process, (b) which has been
publicly disclosed, or (c) which is subsequently disclosed to any third party
not in breach of a confidentiality agreement.
"Good Reason" shall have the meaning set forth in Section 7(f).
----------- ------------
"Permanent Disability" means the Executive is unable to perform, by
--------------------
reason of physical or mental incapacity, his then duties or obligations to the
Company, for a period of 90 consecutive days or a total period of 180 days in
any 360-day period.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or any other entity, including a
governmental entity or any department, agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Subsidiary" means, with respect to any Person, any Person of which
----------
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership, membership
or other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in another Person if such Person or
Persons shall be allocated a majority of the gains or losses of or shall be or
control the managing director or a general partner of such other Person.
2. Employment. The Company agrees to employ the Executive, and the
----------
Executive hereby accepts employment with the Company on a full-time basis
consistent with the Executive's position and duties, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in Section 2(c) (the "Employment Period").
------------ -----------------
-3-
<PAGE>
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive shall serve as
President of the Company and the President of the Western Region of Iconixx and
shall have the duties, responsibilities and authority that designated by the
Board and the Chief Executive Officer of Iconixx, subject to the direction and
supervision of the Board and the Chief Executive Officer of Iconixx.
Notwithstanding the foregoing, it is agreed and understood that the Executive's
primary responsibility shall be to the business of the Company with the
Executive spending such amount of time devoted to the business of the Companies
as is mutually agreed on from time to time by the Executive and the Company.
(ii) The Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Companies. The Executive shall perform his duties and responsibilities to
the best of his abilities in a diligent, trustworthy, businesslike and efficient
manner.
(b) Salary and Benefits.
-------------------
(i) During the Employment Period, the Executive's base salary
shall be $180,000 per year (such annual salary, as it may be adjusted upward by
the Board in its discretion, being referred to as the "Base Salary"). The Base
-----------
Salary shall be payable in regular installments in accordance with the Company's
general payroll practices, shall be subject to customary withholding and may be
increased (but not decreased) at the discretion of the Board.
(ii) In addition to the Base Salary, Executive will be eligible
for and shall be eligible to receive an annual cash incentive bonus payment for
each fiscal year not to exceed 120% of the Executive's Base Salary (each, a
"Performance Bonus") in an amount to be determined by the Company's Board.
- ------------------
(iii) The Company will reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Agreement. The
Executive shall comply with such reasonable limitations and reporting
requirements with respect to expenses as may be established by the Company from
time to time.
(iv) In addition, the Executive will be entitled to participate
in all compensation or employee benefit plans or programs and receive all
benefits and perquisites for which salaried employees of the Company generally
are eligible under any plan or program now or established later by the Company
on the same basis as similarly situated senior executives of the Companies. The
Executive will participate to the extent permissible under the terms and
-4-
<PAGE>
provisions of such plans or programs, in accordance with program provisions.
Nothing in this Agreement will preclude the Company from amending or terminating
any of the plans or programs applicable to salaried employees or senior
executives of the Companies as long as such amendment or termination is
applicable to all salaried employees or senior executives, as the case may be,
so long as such plans or programs are replaced with plans no less favorable, in
the aggregate, than existing plans.
(c) Term. The Employment Period shall initially extend until March 1,
----
2003 unless either the Company or the Executive gives the other sixty (60) days
prior written notice of its or his intention not to further extend the term of
the Executive's employment; provided that the Executive's employment shall
terminate prior to such date (x) upon the Executive's death or Permanent
Disability, (y) upon resolution of the Board, with or without Cause, or (z)
subject to the provisions contained herein, the Executive's resignation, with or
without Good Reason.
(d) Severance. If the Executive's employment with the Company is
---------
terminated by the Company without Cause, or if Executive terminates his
employment with the Company for Good Reason, the Executive shall be entitled to
receive an amount equal to the Executive's Base Salary (prior to any reduction)
for twelve (12) months following the date of such termination, including all
health care benefits to which he was previously entitled. All amounts payable
to the Executive pursuant to this provision shall be payable, as determined by
the Board in its discretion, either in one lump sum payment within 30 days of
the date of such termination or in regular installments in accordance with the
Company's regular payroll practices and subject to customary withholding. The
Executive hereby agrees that no severance compensation shall be payable in the
event of termination for Cause, resignation other than for Good Reason, or as a
result of death or Permanent Disability, and the Executive hereby waives any
claim for severance compensation except as set forth in this Section 2(d).
------------
(e) Termination or Reduction of Severance. If at any time after
-------------------------------------
termination of employment hereunder the Executive breaches any of the provisions
of Section 5 or Section 6 hereof and if the Executive fails to cure such breach,
--------- ---------
in all material respects, within 30 days after the Company has given to the
Executive written notice of such breach, the Company shall no longer be
obligated to make any payments pursuant to Section 2(d) above.
------------
-5-
<PAGE>
3. Representations and Warranties of the Executive.
-----------------------------------------------
(i) The Executive:
(1) has not been convicted within the last five years of
any felony or misdemeanor in connection with the offer, purchase, or sale of any
security or any felony involving fraud or deceit, including, but not limited to,
forgery, embezzlement, obtaining money under false pretenses, larceny, or
conspiracy to defraud;
(2) is not currently subject to any state administrative
enforcement order or judgment entered by a state securities administrator within
the last five years or is subject to any state's administrative enforcement
order or judgment in which fraud or deceit, including, but not limited to,
making untrue statements of material facts and omitting to state material facts,
was found and the order or judgment was entered within the last five years; or
(3) is a citizen of the United States of America and
resident of the State of Texas.
(ii) This Agreement constitutes the legal, valid and binding
obligations of the Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by the Executive does not
and will not conflict with, violate or cause a breach of any agreement, contract
or instrument to which the Executive is a party or any judgment, order or decree
to which the Executive is subject.
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Executive that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to carry out the transactions
contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement has been
duly authorized by the Company. This Agreement constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement, and the fulfillment of
and compliance with the respective terms hereof by the Company, do not and shall
not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's capital
stock or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a
-6-
<PAGE>
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice to any court or administrative or governmental body
pursuant to, the charter or bylaws of the Company, or any law, statute, rule or
regulation to which the Company is subject, or any agreement, instrument, order,
judgment or decree to which the Company is subject.
5. Confidentiality and Ownership.
-----------------------------
(a) Information. The Executive agrees that, except to the extent
-----------
required by applicable law, statute, ordinance, rule, regulation or orders of
courts or regulatory authorities, he shall not disclose to any unauthorized
person or use for his own account any Confidential Information without the prior
written consent of the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public other than
as a result of the Executive's acts or omissions to act. The Executive shall
deliver to the Company at the termination of such Executive's employment, or at
any other time the Board may request, all memoranda, notes, plans, records,
reports, computer tapes and software and other documents and data (and copies
thereof) relating to the Confidential Information, Work Product (as defined
below) and the business of the Companies which he may then possess or have under
his control.
(b) Inventions and Patents. The Executive agrees that all inventions,
----------------------
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Companies'
actual or firmly planned business, research and development or existing or
future products or services and which are conceived, developed or made by the
Executive prior to the date hereof while employed by the Company ("Work
----
Product") belong to the Companies. The Executive will promptly disclose such
- -------
Work Product to the Board and perform all actions reasonably requested by the
Board (whether during or after the Executive's employment period) to establish
and confirm such ownership (including, without limitation, assignments,
consents, powers of attorney and other instruments).
6. Non-compete, Non-solicitation, Transition.
-----------------------------------------
(a) The Executive acknowledges that in the course of his employment
with the Company he has become familiar, and he will become familiar, with the
Company's trade secrets and with other Confidential Information and that his
services have been and will be of special, unique and extraordinary value to the
Company. Therefore, the Executive agrees that he shall not, during the time
period ending on either (i) the third (3rd) anniversary of the date hereof, if
the Executive is terminated for Cause or resigns other than for Good Reason; or
(ii) the lesser of the third (3rd) anniversary of the date hereof; or twelve
(12) months after the Termination of the Executive's employment hereunder, if
the Executive is terminated without Cause or resigns for Good Reason (the
"Covenant Period"), directly or indirectly own, operate, manage, control,
---------------
participate in, consult with, advise, or engage in services for any Person
engaged in a business in competition with the Business or in any manner engage
in any start up of a business (including
-7-
<PAGE>
by himself or in association with any person, firm, corporate or other business
organization or through any other entity) in competition with the Business as in
existence on the date of Termination of the Executive's employment or the
Business that will be engaged in by the Companies within three months after the
date of such Termination pursuant to firm plans of the Companies in effect as of
the date of Termination and known to the Executive, within the United States,
Canada & Mexico. Notwithstanding the foregoing, if at any time the Company shall
default in the payment of the severance required under Section 2(d) and the
Company fails to remedy any such default upon thirty (30) days written notice
thereof, the Covenant Period shall terminate upon the expiration of such cure
period. Nothing herein shall prohibit the Executive from being a passive owner
of not more than 5% of the outstanding stock or equity of a Person which is
publicly traded, so long as the Executive has no active participation in the
business of such Person.
(b) During the Covenant Period and, in the event that Executive's
employment ends after September 30, 2002, for a period of six months after such
date of Termination, the Executive shall not directly or indirectly through
another entity (i) solicit any employee of or independent contractor to the
Company or, to the extent known by the Executive, the other Companies, to leave
the employ of or breach independent contractor contracts with the Companies, or
in any way deliberately interfere with the relationship between the Companies
and any employee thereof (including, without limitation, inducing or attempting
to induce any union, employee or group of employees to interfere with the
Business or operations of any of the Companies) or (ii) induce or attempt to
induce any customer, supplier, distributor, franchisee, licensee or other
business relation of the Company or, to the extent known by the Executive, the
other Companies, to cease doing business with any of the Companies, or in any
way deliberately interfere with the relationship between any such customer,
supplier, distributor, franchisee, licensee or business relation and the
Companies.
(c) During the Covenant Period, the Executive will not take any action
(or cause any such action to be taken by another Person) that primarily has the
effect of discouraging any vendor, lessor, licensor, customer, contractor,
subcontractor, supplier, or other business associate of the Company from
maintaining the same business relations with the Company after the Closing as it
maintained with EnterpriseWorks prior to the Closing. During the Covenant
Period, the Executive will refer all customer inquiries relating to the Business
to the Company.
(d) The Executive agrees that: (i) the covenants set forth in this
Section 6 are reasonable in geographical and temporal scope and in all other
- ---------
respects, (ii) the Company would not have entered into this Agreement but for
the covenants of the Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(e) If, at the time of enforcement of this Section 6, a court shall
---------
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then
-8-
<PAGE>
existing, the parties agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area and that the court shall be allowed to revise the restrictions contained
herein to cover the maximum period, scope and area permitted by law.
(f) The Executive recognizes and affirms that in the event of his
material breach of any provision of this Section 6, money damages would be
---------
inadequate and the Company would have no adequate remedy at law. Accordingly,
the Executive agrees that in the event of a breach or a threatened breach by the
Executive of any of the provisions of this Section 6, the Company, in addition
---------
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
7. Liquidated Damages and Pledge of Collateral.
--------------------------------------------
(a) The Executive, as an employee of the Company, understands that
(i) the Executive's services have contributed to the goodwill inherent in
EnterpriseWorks' business, which goodwill constitutes a substantial asset of
EnterpriseWorks purchased by the Company and (ii) the Executive's continued
employment with the Company following the Closing Date is of vital importance to
the Company. In partial consideration for the purchase price paid pursuant to
the Asset Purchase Agreement and distributed to the Executive, the Executive
agrees that, subject to the provisions of Section 7(b) below, in the event that
------------
either the Executive is terminated by the Company for Cause or the Executive
resigns for any reason other Good Reason, then the Executive shall be required
to pay to the Company upon the date of the Executive's actual termination (such
date referred to as the "Termination Date"), the amount determined in accordance
with the following schedule as liquidated damages (the "Damages"):
Occurrence of Termination Date Damages Amount
------------------------------ --------------
On or prior to the first anniversary $350,000.00
of the date hereof
After the first anniversary and on $250,000.00
or prior to the second anniversary of
the date hereof
After the second anniversary and on or $150,000.00
prior to the third (3rd) anniversary of the
date hereof;
-9-
<PAGE>
provided, however the termination of this Agreement due to the death
or the Permanent Disability of the Executive (as determined by the
Board in its good faith judgment) shall not be deemed to be a
resignation by Executive.
(b) The Company and the Executive agree that the Company's first
recourse for non-payment of any Damages payable by the Executive pursuant to the
provisions set forth above shall be to the "Collateral" (as defined in paragraph
(e) below). The Company and the Executive further agree that the value of the
Collateral to be surrendered in payment of any Damages shall be determined based
on the "Collateral Valuation" determination provided in the Pledge Agreement (as
defined in paragraph (e) below).
(c) The Executive and the Company agree that it is impossible to
determine with any reasonable accuracy the amount of prospective damages to
either party upon breach of this Agreement by the other. The Executive and the
Company further agree that the damages set forth above are reasonable, and not a
penalty, based upon the facts and circumstances of the parties at the time of
entering this Agreement, and with due regard to future expectations.
(d) If the Executive's employment hereunder is terminated by the
Company without Cause, the Executive resigns for Good Reason, or the Executive's
employment is terminated due to the death or Permanent Disability of the
Executive, then the Executive shall not be required to pay any Damages and shall
be entitled to the prompt return and release of all Collateral (as defined
below).
(e) As collateral for the Executive's obligations under this
Agreement, the Executive agrees to enter into that certain Pledge Agreement
attached hereto as Exhibit A (the "Pledge Agreement") in which the Executive
--------- ----------------
agrees to pledge to the Company the Pledged Shares (as defined in the Pledge
Agreement) attached to the Pledge Agreement; provided, however, that the Pledged
Shares and/or the proceeds received after the sale of such Pledged Shares in
accordance with the Pledge Agreement and such other collateral as allowed under
the Pledge Agreement (collectively, the "Collateral") shall be in an aggregate
value at the Closing Date equal to the Damages, with the number of Pledged
Shares (and value of other Collateral), to be reduced annually, based upon the
aggregate value of such Pledged Shares (and other Collateral) to an amount equal
to the then applicable Damages set forth in Section 7(a). In the event that the
------------
Executive does not pay the Damages payable as determined in accordance with the
schedule set forth in Section 7(a) above within 30 days following the
------------
Termination Date, the Company shall have the right to exercise its rights and
remedies with respect to the Collateral (as more particularly set forth in the
Pledge Agreement).
(f) In the event the Executive resigns within 30 days following either
(i) a Change in Control (defined below) or (ii) an event constituting Good
Reason (defined below), the Executive shall not be required to pay any Damages
and shall be entitled to the prompt return and release of all Collateral.
-10-
<PAGE>
(i) "Change of Control" as used herein shall be deemed to have
occurred if:
(A) Any "Person" or "Group" (as defined in Section
3(a)(9) of the Securities Exchange Act of 1934
("Exchange Act") as modified and used in Sections
13(d) and 14(d) of the Exchange Act) other than
Thayer ITech Holdings, L.L.C. ("Thayer")), is or
------
becomes the "Beneficial Owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of Iconixx or the Company
representing more than 50% of the combined voting
power of Iconixx' or the Company's then outstanding
voting securities;
(B) The stockholders of Iconixx or the Company approve a
merger or consolidation of Iconixx or the Company
with any other corporation, other than a merger or
consolidation which would result in the voting
securities of Iconixx or the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving or
parent company) 50% or more of the combined voting
power of the voting securities of Iconixx, the
Company or such surviving or parent entity
outstanding immediately after such merger or
consolidation; or
(C) The stockholders of Iconixx or the Company approve a
plan of complete liquidation of Iconixx or the Company
or an agreement for the sale or disposition by Iconixx
or the Company of all or substantially all of Iconixx'
or the Company's assets (or any transaction having a
similar effect) other than such a sale or disposition
to Thayer or its Affiliates.
(ii) "Good Reason" as used herein shall mean the Executive's
resignation within forty-five (45) days after the
occurrence of any of the following events:
(A) Any material and permanent reduction in the
Executive's title, position or responsibilities such
that the Executive is
-11-
<PAGE>
no longer the President of the Company or its successor
and the President of the Western Region of Iconixx,
(B) The required relocation of the Executive's office at
which he is to perform his duties to a location more
than 30 miles from the location of which the Executive
performed his duties immediately following the date
hereof, except for required travel on the Company's or
Iconixx' business to an extent reasonably consistent
with his business travel obligations prior to the
acquisition of EnterpriseWorks by the Company,
(C) A material breach of this Agreement by the Company
which remains uncorrected after thirty (30) days
written notice to the Company of such breach;
(D) At any point on or after the second anniversary of the
Closing, (i) the Chief Executive Officer of Iconixx
being someone other than Stuart C. Johnson or the
Executive; or (ii) someone other than the Executive
having been appointed Chief Operating Officer of
Iconixx or the functional equivalent of that position.
8. Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient with a confirmation of receipt and accompanied by a certified or
registered mailing. Such notices, demands and other communications will be sent
to the address indicated below:
To the Company:
--------------
c/o Iconixx Corporation
8300 Boone Boulevard, Suite 250
Vienna, VA 22182
Fax: (703) 790-9033
Attn: Jason H. Levine
-12-
<PAGE>
with copies (which shall not constitute notice) to:
--------------------------------------------------
Thayer Capital Partners
1455 Pennsylvania Avenue
Suite 350
Washington, DC 20004
Fax: 202-371-0391
Attn: Robert Michalik
with copies (which shall not constitute notice) to:
--------------------------------------------------
Hogan & Hartson, LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Fax: 202-637-5910
Attn: Christopher J. Hagan
To the Executive:
----------------
c/o EnterpriseWorks, Inc.
5301 Hollister, Suite 400
Houston, Texas 77040
Fax: 713-934-7711
Attn: D. Derrik Deyhimi
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9. Miscellaneous.
-------------
(a) Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement and the agreements referred to
------------------
herein embody the complete agreement and understanding among the parties and
supersede and preempt any prior understandings, agreements or representations by
or among the parties, written or oral, which may have related to the subject
matter hereof.
-13-
<PAGE>
(c) Counterparts; Facsimile Transmission. This Agreement may be
------------------------------------
executed simultaneously in two or more counterparts, any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together will constitute one and the same Agreement. This Agreement may also be
executed and delivered by facsimile transmission.
(d) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by the
Executive, the Company, and their respective successors and assigns.
(e) Governing Law. All issues concerning this Agreement shall be
-------------
governed by and construed in accordance with the laws of the State of Texas,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the law of any jurisdiction other than the State of Texas.
(f) Remedies. Each of the parties to this Agreement will be entitled
--------
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(g) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and the
Executive.
* * * * *
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<PAGE>
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Iconixx - Houston, Inc.
By: /s/ Graham B. Perkins
---------------------------------------------
Its: Graham B. Perkins
Vice President and Secretary
The Executive
/s/ Derrik Deyhimi
--------------------------------------------------
D. Derrik Deyhimi
<PAGE>
Exhibit 10.14
MASTER SERVICES AGREEMENT
BETWEEN
SPRINT/UNITED MANAGEMENT COMPANY
AND
BUSINESS SOLUTIONS GROUP, L.L.C.
THIS MASTER SERVICES AGREEMENT ("Agreement") effective January 1, 1996
("Effective Date"), between Sprint/United Management Company ("Sprint"), a
Kansas corporation, with an office at 9300 Metcalf Avenue, Overland Park, Kansas
66212, and Business Solutions Group, L.L.C. ("Consultant"), a Delaware
corporation, with an office at 163 Haynes Bridge Road, Suite 205-512,
Alpharetta, Georgia 30201.
The parties agree as follows:
1.0 SCOPE OF SERVICES
1.1 Consultant is in the business of providing programming
services utilizing C, C++, Windows, Smalltalk, and Network
Management computer programming languages and software
applications, respectively ("Services"). This Agreement is for
the provision of Services, including incidental deliverables
or goods, to Sprint by Consultant, as authorized and specified
in a written Contract Order, described below.
1.2 Sprint will issue a written contract order ("Contract Order")
to Consultant that will include:
a) delivery or work performance location;
b) invoicing instructions;
c) incorporation of the terms of this Agreement; and
d) the Contract number set forth in the upper right-hand
corner of this Agreement.
1.3 This Agreement does not authorize or commit Sprint to any
quantity or dollar amount of Services. Consultant may not
perform any Services without a Contract Order authorizing the
Services, signed by both Sprint and Consultant.
Page 1
<PAGE>
1.4 Consultant's performance will represent its best efforts and
be of the highest professional standards. Sprint may inspect
Consultant's performance and Consultant will facilitate
inspection. Sprint's inspection (or lack of inspection) will
not be an acceptance of Services or a waiver of any right or
warranty or preclude Sprint from rejecting defective Services.
1.5 Sprint may change the Services by additional or revised
drawings, specifications, exhibits or written change orders.
If Consultant believes the compensation should be modified as
a result of a change made by Sprint, Consultant must give
Sprint written notice of claim within seven (7) days after
notice of Sprint's change. Consultant must include with its
notice a detailed estimate of the effect on compensation and
the Contract Order. Consultant agrees to continue performance
pending resolution of its claim. Consultant waives any claim
not made by Consultant in accordance with this paragraph.
2.0 COMPENSATION
2.1 Rates. Sprint will pay Consultant in accordance with the
billing rate set forth below and in the applicable Contract
Order:
Job Classification Sprint Hourly Billing Rates
------------------ ---------------------------
Base Rate Large Engagement*
--------- -----------------
Managing Partner
Senior Partner
Senior Technical Consultant
Technical Consultant
Associate Technical Consultant
Administrative Support
* BSG rates for engagements which are scheduled for six months
or more (1000 hours or more in any given labor category)
except for Managing and Senior Partner categories where the
Large Engagement rates are in effect for engagements of three
months or more (500 hours or more).
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2.2 Reimbursement. Consultant will be reimbursed for travel,
living, and other expenses authorized by Sprint in the
Contract Order at reasonable and actual costs. Travel and
living expenses will not be reimbursed unless they are in
conformance with Sprint's travel reimbursement policies which
are as follows:
2.2.1.Consultant agrees to provide professional and
consulting services at Sprint's facilities. Sprint
agrees to reimburse Consultant for all reasonable travel
and living expenses incurred by Consultant in
conjunction with the Scope of Services, ss. 1.0. Such
expenses will be billed to Sprint after the completion
of the Services. Consultant will not include time for
travel by Consultant personnel in fees billed to Sprint.
Sprint must consent in writing to any reimbursable
expenses not estimated or authorized. All expenses paid
by Sprint to Consultant will be at cost basis with no
mark-up.
2.2.2 All travel (coach and economy class only) which is to be
reimbursed by Sprint and/or its affiliates must be
booked through the Sprint/United Travel Center by
calling (800) 347-2639. When making travel arrangements,
acknowledge that you are a Consultant for Sprint.
Booking through the Sprint/United Travel Center will
result in the least cost to Sprint.
2.2.3 The Consultant's travel (coach and economy class only)
expenditures should be appropriate to the Consultant's
business undertaken, and reasonable in the judgment of
both the Consultant and Sprint. For reimbursement,
Consultant must submit copies of receipts greater than
fifteen dollars ($15.00) for meals (tear tab receipts
are not acceptable); however, hotel, car rental, fuel
for rental cars require receipts regardless of the
amount. Consultant will be reimbursed for use of a
personal vehicle for business purposes at the current
rate (based on IRS regulations) in effect, plus parking
and toll fees. Consultant will utilize reasonable
parking facilities and rates. Parking receipts are
required for reimbursement of fifteen dollars ($15.00)
or more. The passenger flight coupon and travel
itinerary must be attached to the Consultant's expense
report. Sprint will not reimburse
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Consultant for personal expenses or personal long
distance phone calls.
2.3 Taxes, Duties and Fees. Consultant will pay when due, and the
compensation set forth in the Contract Order is inclusive of,
all local, state and federal sales and use taxes, excise
taxes, taxes on personal property owned by Consultant, duties
and all other governmental fees and taxes (excluding income
taxes) of whatever nature applicable to the performance of the
Services. These taxes, if any, will be separately stated, but
not billed, on Consultant's invoice.
2.4 Invoicing, Itemization and Payment Procedures. The
Contract Order will state specific invoicing instructions.
Consultant will invoice once per month. Invoices must be sent
in accordance with the invoicing instructions provided with
the Contract Order. Consultants must maintain and submit
itemized time records and expense reports with each invoice.
Unless stated otherwise in the Contract Order, undisputed
amounts will be paid within forty-five (45) days of receipt.
Disputed amounts will be paid, if owed, within forty-five (45)
days of resolution of the dispute.
2.5 Right to Offset. Sprint, without waiver or limitation of any
rights, may deduct from any amounts due Consultant in
connection with this Agreement, or any other Agreement between
Consultant and Sprint, any amounts owed by Consultant to
Sprint.
3.0 AFFILIATE TRANSACTIONS
This Agreement is entered into by Sprint on its own behalf and for
the benefit of all Sprint Corporation affiliated entities ("Sprint
Affiliates"). The term Sprint Affiliate means: a) any entity in
which Sprint Corporation holds or controls an equity or similar
interest, or b) any corporation, subsidiary, partnership, limited
liability company, joint venture or other entity controlling,
controlled by or under common control with Sprint Corporation,
directly or indirectly by or through one or more intermediaries. All
references to Sprint refer equally to Sprint Affiliates executing
Contract Orders with terms in accordance with this Agreement. No
commitment is made by Sprint or any Sprint Affiliate, nor any
liabilities accepted, except that set forth in a properly signed
Contract Order. All communications and invoices must
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reference the Contract number set forth in the upper right hand
corner of this Agreement and must be directed to the Affiliate
issuing the Contract Order pursuant to instructions issued in the
Contract Order. Services performed on behalf of any Sprint Affiliate
will be billed to or collected from only that Affiliate. Only the
Sprint Affiliate issuing a specific Contract Order under this
Agreement will incur any obligation or liability to Consultant for
any claim which may arise from or relate to that Contract Order.
4.0 TERM AND TERMINATION
4.1 The term of this Agreement begins on the Effective Date and
ends December 31, 1996. The terms of this Agreement will
continue in effect for any Contract Order that is outstanding
at the time of termination under this Agreement or expiration
of the term.
4.2 This Agreement and any Contract Order may be terminated in
whole or in part at any time with notice from Sprint without
liability; provided, however, in the event of termination for
convenience by Sprint, Sprint agrees to provide Consultant
with fourteen (14) days' prior notice of termination and with
compensation for Services rendered as hereafter provided.
Consultant will cease work on the termination date in Sprint's
notice and take all reasonable actions to minimize expenses
applicable to terminated work. Consultant will be compensated
for those Services actually provided to the effective date of
termination, if accepted by Sprint.
4.3 This Agreement, including any Contract Order, may be
terminated by Sprint without penalty if there is any change in
control or ownership of Consultant. Consultant must give
Sprint no less than thirty (30) days written notice of any
change in control or ownership of Consultant.
4.4 Upon termination of this Agreement or any Contract Order,
Consultant must, within twenty (20) days of the effective date
of termination, return all data, equipment, materials and
properties of Sprint.
5.0 INDEPENDENT CONTRACTOR
5.1 Consultant must comply with laws, regulations and orders
relating to equal employment opportunity, workers'
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compensation, unemployment compensation and FICA. Upon
request, Consultant will furnish Sprint with its EEO policies
and procedures, verification of workers' compensation,
unemployment compensation, FICA and the number of hours any
individual performs Services for Sprint within any 12
consecutive month period.
5.2 Consultant, its subcontractors, employees or agents are
independent contractors for all purposes and at all times.
Consultant has the responsibility for, and control over, the
means and details of performing the Services, subject to
Sprint's inspection. Consultant will provide all training,
hiring, supervising, hours of work, work policies and
procedures, work rules, compensation, payment for expenses and
discipline and termination of its employees.
5.3 Sprint will incur no responsibility or obligation to
employees, agents, subcontractors or other parties utilized by
Consultant to perform the Services set forth in this
Agreement. Such person or parties will, at all times, remain
employees, agents or subcontractors (whichever is applicable)
of Consultant.
5.4 Consultant is solely responsible for payment of wages,
salaries, fringe benefits and other compensation of, or
claimed by, Consultant's employees including, without
limitations, contributions to any employee benefit, medical or
savings plan and is responsible for all payroll taxes
including, without limitation, the withholding and payment of
all federal, state and local income taxes, FICA, unemployment
taxes and all other payroll taxes. Consultant is also solely
responsible for compliance with applicable Workers'
Compensation laws with respect to maintenance of workers'
compensation coverages on Consultant's employees. Consultant
will indemnify and defend Sprint from all claims by any
person, government or agency relating to payment of taxes and
benefits, including without limitation, any penalties and
interest which may be assessed against Sprint. Consultant will
similarly indemnify and defend Sprint from all claims by any
person or governmental agency which arise directly or
indirectly from any failure by Consultant to comply with
applicable Workers' Compensation laws with respect to
maintenance of Workers' Compensation coverage on Consultant's
employees.
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5.5 If Sprint determines that a Consultant-provided employee,
agent or subcontractor is not providing satisfactory service,
Sprint will advise Consultant and may require Consultant to
remove that individual or subcontractor. Sprint will only pay
for work actually performed by the removed individual or
subcontractor prior to Sprint's notice for removal and not for
transportation or per diem costs associated with replacing the
individual. Consultant will submit additional resumes to
Sprint for purposes of filling a vacancy at no additional
charge.
5.6 Consultant will require its employees, agents and
subcontractors to comply with the terms and conditions of this
Agreement.
6.0 PROPRIETARY INFORMATION
6.1 Consultant acknowledges that while performing this Agreement
it may have access to Sprint-owned trade secrets, including
but not limited to products, planned products, service or
planned service, Consultants, customers, prospective
customers, data, financial information, computer software,
processes, methods, knowledge, inventions, ideas, marketing
promotions, discoveries, current or planned activities,
research, development or other information relating to
Sprint's business activities or operations or those of its
customers or Consultants ("Proprietary Information").
6.2 This Agreement creates a confidential relationship between
Sprint and Consultant. Consultant will keep Proprietary
Information confidential and, except as authorized by Sprint
in writing, Consultant may only use Proprietary Information to
perform the Services as required under this Agreement, and may
only make copies necessary for performing the Services.
Consultant will label all Proprietary Information as
Proprietary to Sprint. Upon cessation of work, or upon
Sprint's request, Consultant will return all documents and
other materials in Consultant's control that contain or relate
to Proprietary Information.
6.3 Sprint may require signed Non-Disclosure Agreements from
Consultant's employees, agents or subcontractors.
6.4 Proprietary Information does not include information that
Consultant can demonstrate by written documentation:
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a) is rightfully known to Consultant prior to
negotiations leading to this Agreement;
b) is independently developed by Consultant without any
reliance on Proprietary Information; or
c) is or later becomes part of the public domain or is
lawfully obtained by Consultant from a third party;
d) is disclosed pursuant to judicial action or Government
regulations provided that Consultant notifies Sprint
prior to such disclosure and cooperates with Sprint in
the event Sprint elects to legally contest and avoid
such disclosure.
6.5 Consultant agrees that during the performance of Services for
and during the term of all Contract Orders under this
Agreement for any reason, Consultant's employees who are
engaged in the performance of services under this Agreement or
a Contract Order hereunder will not perform the same or
substantially similar services for any competitor of Sprint or
any affiliate or subsidiary of a Sprint competitor.
6.6 Consultant acknowledges that disclosure of Proprietary
Information by Consultant will cause irreparable injury to
Sprint, its customers and other Consultants, that is
inadequately compensable in monetary damages. Accordingly,
Sprint may seek injunctive relief in any court of competent
jurisdiction for the breach or threatened breach of this
Section, in addition to any other remedies in law or equity.
7.0 OWNERSHIP
7.1 All equipment, materials, drawings, software or data of every
description that Consultant receives directly or indirectly
from Sprint or from a third party on behalf of Sprint, or that
is paid for in whole or in part by Sprint, is the property of
Sprint. ("Sprint-owned"). Consultant must mark all such
property as Sprint-owned, and must return all Sprint-owned
property to Sprint upon Sprint's request, or upon the
termination or expiration of this Agreement, whichever is
earlier. Consultant is responsible and must account for all
Sprint-owned property, and bears the risk of loss while the
property is in Consultant's possession. Sprint-owned property
may only be used in
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Consultant's performance of this Agreement. Sprint may inspect
any agreements and associated records, including invoices, by
which Consultant acquires Sprint-owned property.
7.2 Consultant must promptly disclose and assign to Sprint all
intellectual property generated, conceived or developed under
this Agreement, including but not limited to proprietary
information, inventions conceived or reduced to practice as a
result of this Agreement and any resulting patents. Any works
of authorship in any form of expression, including but not
limited to manuals and software developed under this
Agreement, are works for hire and belong exclusively to
Sprint. If, by operation of law, the ownership of works for
hire do not automatically vest in Sprint, then Consultant will
take necessary steps to assign ownership to Sprint. Consultant
will provide reasonable assistance to Sprint to secure
intellectual property protection including but not limited to
assistance in the preparation and filing of any patent
applications, copyright registrations, and the execution of
all applications, assignments or other instruments for
perfection of protection or title. Consultant will pay its
employees any compensation due in connection with the
assignment of any intellectual property or invention.
Consultant warrants to Sprint that Consultant's employees are
subject to agreements which will secure Sprint's rights under
this section.
7.3 Consultant grants to Sprint a fully paid-up, worldwide license
to utilize any work previously owned by Consultant but
delivered to Sprint under this Agreement in any manner and in
all media now known or later conceived or created.
8.0 CONSULTANT WARRANTIES
8.1 Individuals assigned to provide Services will have the
expertise, skills, training and professional education to
perform the Services in a professional manner.
8.2 Sprint will receive clear title to all goods incidental to
Services performed as defined in the applicable Contract
Order.
8.3 Consultant warrants Services and goods to conform to the
Contract Order specifications for one (1) year after Sprint's
acceptance of the Services. Any materials and equipment that
may be provided will be new. At Sprint's request and at no
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charge, Consultant will promptly correct defects or provide
replacement Services for any non-conforming Services. If
Consultant fails to correct defects or replace Services within
twenty (20) days after written notice thereof, or for a
different amount of time mutually agreed to in writing by both
parties, Sprint may do so and charge Consultant for the cost
incurred.
8.4 To the best of its knowledge, after investigation, neither
Consultant nor its personnel has any existing obligation that
would violate or infringe upon the rights of third parties,
including property, contractual, employment, trademark, trade
secrets, copyright, patent, proprietary information and
non-disclosure rights, that might affect Consultant's ability
to fulfill Consultant's obligations under this Agreement.
8.5 Consultant will not disclose or deliver any proprietary
information of Consultant or any third party (such as software
and documentation) to Sprint except pursuant to a written
license agreement.
8.6 Neither Consultant, nor any of Consultant's employees or
agents, has offered or given anything of value to Sprint
employees or agents to secure this Agreement.
8.7 The prices stated for Services are at least as favorable as
those charged to any other for Consultant's customers for the
same or similar services.
8.8 Inspection, test acceptance, payment or use by Sprint of the
Services furnished do not affect Consultant's warranty
obligations.
9.0 SAFETY
9.1 Consultant will comply with all Occupational Safety & Health
Act (OSHA) regulations and all other applicable federal, state
and local rules and regulations which may apply to performance
of the Services. Consultant must immediately notify Sprint by
telephone (followed by written confirmation within twenty-four
(24) hours) of any product or material used in providing
Services which fails to comply with any applicable safety
rules or standards of any governmental agencies (including the
Environmental Protection Agency) or which contains a defect
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which could present a substantial risk to the public health or
of injury to the public or the environment.
9.2 If Consultant's work under this Agreement involves performance
on Sprint's or its customers' premises, Consultant must take
necessary precautions to prevent injury to persons or property
during the work and adhere to security procedures of Sprint or
its customers.
10.0 SUBCONTRACTS
Contractor may not subcontract any portion of the Services, without
Sprint's prior written consent, and will remain fully liable for the
work performed and for the acts or omissions of the subcontractor.
11.0 FEDERAL REQUIREMENTS
11.1 Federal Acquisition Requirements. If Sprint or the federal
government determines that this Agreement supports specific
requirements included in a Sprint contract or subcontract with
the federal government, Consultant will be subject to certain
federal procurement regulations contained in Sprint's contract
or subcontract. Consultant will be subject only to federal
procurement regulations that must be included in all
subcontracts as a matter of law.
11.2 Subcontracting Opportunities. Consultant must make an
accounting of dollars that are subcontracted to firms that are
Small Businesses under Small Disadvantaged Businesses or
Women-Owned Businesses under Small Business Administration
regulations. These dollars will be reported in writing to the
following address:
Small Business Coordinator
Sprint
903 E. 104th Street
Kansas City, MO 64131
12.0 LIABILITY AND INDEMNIFICATION
12.1 Consultant agrees to release, irrevocably and forever, Sprint,
and will defend, pay all judgments, expenses, and costs
(including attorney fees) and generally indemnify, defend and
save harmless Sprint from all liability, suit, claim or
proceeding
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("claims") resulting from the performance or non-performance
of this Agreement brought against Sprint by any person for any
damage, loss or destruction of any kind, including, without
limitation, loss to any property or for any personal injury,
including, without limitation, death, defamation and invasion
of privacy, to any person, including without limitation any
personnel of Sprint or Consultant if the loss, destruction,
injury or death results in whole or in part from the
negligence, error, omission or willful misconduct or breach of
this Agreement by Consultant.
12.2 Consultant agrees to handle and defend all claims brought
against Sprint or Sprint's customers, including without
limitation, Sprint's lessees, bailees, transferees and
assigns, so far as based on any claim that the work or
Services performed, or the goods furnished or manufactured by
Consultant in the course of this Agreement or any resulting
use or sale of any work, Service or goods constitutes an
infringement of any patent or copyright of any country, or
misappropriation of any trade secret, or constitutes a breach
of any moral right, right of publicity, or intellectual
property right.
12.3 If the sale or use of the goods or Services is enjoined,
Consultant must, at Sprint's option and Consultant's expense,
either:
a) procure for Sprint and its customers the right to use the
goods or Services; or
b) replace the goods or Services with equivalent
non-infringing goods or Services; or
c) modify the goods or Services so they become non-infringing;
or
d) remove the goods or Services and refund the purchase price,
including transportation, installation, removal and other
incidental charges.
12.4 Insurance coverage that Consultant agrees to obtain and
maintain under this Agreement must contain a provision
insuring the costs, expenses, and obligations of Consultant
under this Agreement.
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12.5 Sprint will notify Consultant in writing of any claims, and
will provide information, assistance and authority for
Consultant's handling and defense of the claim, all at
Consultant's expense.
12.6 Notwithstanding Consultant's obligations to handle and defend
all claims as set forth above, Sprint may, at Sprint's sole
option, take whatever action it deems reasonable and
appropriate in the handling, defense, or settlement of any
claim at Consultant's expense. However, Sprint will notify
Consultant in writing of any proposed settlement of claim.
Consultant will be bound to indemnify Sprint for the proposed
settlement amount, unless within twenty (20) days of notice,
Consultant brings an arbitration action to determine whether
or not the proposed settlement amount is reasonable. Sprint
will not be precluded from settling any claim, but Consultant
will only be required to indemnify Sprint for the amount held
to be reasonable by the arbitration proceeding.
12.7 Except for the indemnity provisions of Sections 12.2 and 12.3
of this Agreement, neither party will be liable to the other
for special, indirect or consequential loss or damage whether
or not such loss or damage is caused by the fault or
negligence of that party, its employees, agents, or
subcontractors.
13.0 INSURANCE
Consultant will obtain and maintain during the term of this
Agreement, with financially reputable insurers licensed to do
business in all jurisdictions where work is performed and that are
reasonably acceptable to Sprint, not less than the following
insurance:
13.1 Workers' Compensation as required under any Workers'
Compensation or similar law in the jurisdiction where work is
performed, with an Employer's Liability limit of not less than
$500,000 per accident.
13.2 Commercial General Liability, including coverage for
Contractual Liability and Products/Completed Operations
Liability, with a limit of not less than $1,000,000 combined
single limit per occurrence for bodily injury, personal injury
and property damage liability, naming Sprint as an additional
insured.
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13.3 Business Auto insurance covering the ownership, maintenance or
use of any owned, non-owned or hired automobile with a limit
of not less than $1,000,000 combined single limit per accident
for bodily injury and property damage liability, naming Sprint
as an additional insured.
13.4 "All Risk" Property insurance, covering not less than the full
replacement cost of Consultant's and subcontractor's, if any,
personal property while on a Sprint work location.
13.5 Certificates of Insurance. Consultant must, as a material
condition of this Agreement, prior to commencement of any work
and prior to any renewal of insurance, deliver to Sprint a
certificate of insurance, satisfactory in form and content to
Sprint, evidencing that the above insurance is in force and
will not be canceled or materially altered without first
giving Sprint thirty (30) days prior written notice.
Nothing contained in this section limits Consultant's
liability to Sprint to the limits of insurance certified or
carried.
14.0 RIGHT OF AUDIT
Consultant will maintain all records pertaining to Services
performed for a period of at least three (3) years after final
payment. Sprint may audit, copy and inspect the records at
reasonable times during the term of this Agreement and for the three
(3) year period to verify costs. Sprint or its authorized
representative will have the right to audit Consultant's performance
under this Agreement.
15.0 NOTICE
Communications relating to this Agreement except for delivery or
invoicing instructions set forth in the Contract Order, must be
identified by the Contract number, and the Contract Order number and
communicated by certified mail, return receipt requested, telex,
facsimile or overnight mail to the following addresses or as may be
later designated by written notice of the other party:
Sprint: Larry Matt
Sprint/United Management Company
9300 Metcalf Avenue
Mailstop: KSOPKB0802
Overland Park, Kansas 66212
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Phone: (913) 534-5190
Fax: (913) 534-3485
Consultant: Jack McDougall
Business Solutions Group
163 Haynes Bridge Road, Suite 205-512
Alpharetta, Georgia 30201
Phone: (770) 569-1450
Fax: (770) 569-1452
16.0 ARBITRATION
16.1 Arbitration. Any dispute arising out of or relating to this
Agreement will be finally settled by arbitration in accordance
with the rules of the American Arbitration Association
applying the substantive law of Kansas without regard to any
conflict of law provision. The arbitration will be governed by
the United States Arbitration Act, 9 U.S.C. section 1 et seq.,
------
and judgment upon the award rendered by the arbitrator(s) may
be entered by any court with jurisdiction. The arbitration
will be held in the Kansas City, Missouri metropolitan area.
The arbitrator(s) are not empowered to award damages in excess
of compensatory damages and each party waives any damages in
excess of compensatory damages.
Notwithstanding the foregoing, Sprint may bring a claim for
injunctive relief as provided in Section 6.6 in any court of
competent jurisdiction without first submitting the claim to
arbitration.
16.2 Continuing Performance. Consultant agrees to continue
performance during the pendency of any dispute, unless
performance is terminated by Sprint under Article 4.0.
16.3 Limitation of Claims. No claim may be brought by Consultant
after Sprint has made final payment to Consultant. Claims made
by Consultant may only be brought against the Sprint Affiliate
which issued the Contract Order giving rise to the claim.
17.0 GENERAL
17.1 Consultant Performance. Time is of the essence in Consultant's
performance. Sprint is not obligated to pay for Services
performed or goods delivered which do not conform to the
Contract Order.
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17.2 Material/Mechanic's Lien. Consultant will promptly pay for all
services, materials, equipment, labor used under this
Agreement, and will hold Sprint harmless from all losses,
expenses, and liabilities connected with Consultant's failure
to promptly pay for services, materials equipment or labor and
will keep Sprint premises free of claims or liens. Consultant
will furnish Sprint with a list of all its subcontractors
before work is performed on premises by subcontractors.
Consultant will furnish Sprint with lien waivers from all
subcontractors.
17.3 Ethics Code. Consultant agrees to comply with Sprint's Code of
Ethics, a copy of which has been provided to Consultant and is
incorporated in this Agreement.
17.4 Assignment. Sprint may assign this Agreement to any Sprint
Affiliate without the consent of Consultant. Otherwise, the
parties agree that this Agreement is personal in nature and
neither party may assign this Agreement or any of its rights
or delegate its obligations without the prior written consent
of the other party.
17.5 Governing Law. This Agreement is governed by and construed in
accordance with the laws of the State of Kansas without regard
to any conflict of laws provision.
17.6 Laws and Regulations. Consultant will comply with all local,
municipal, state, federal and governmental laws, orders, codes
and regulations in the performance of this Agreement and any
Contract Orders.
17.7 Permits and Licenses. Consultant will obtain and keep current
at Consultant's expense all governmental permits, certificates
and licenses (including professional licenses, if applicable)
necessary for Consultant to perform the Services.
17.8 Waiver. The waiver of a breach of any term or condition of
this Agreement will not constitute the waiver of any other
breach of the same or any other term.
17.9 Severability. If any provision of this Agreement is held to be
unenforceable, the remaining provisions will remain in effect,
to
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be construed as if the unenforceable provisions were
originally deleted.
17.10 Survival. Numbered provisions 6.0, 7.0, 8.0, 10.0, 12.0, 13.0,
14.0, 16.1, 17.5 and 17.11 will survive the termination or
extension of this Agreement, in addition to any other
provisions that by their content are intended to survive the
performance, termination or cancellation of this Agreement.
17.11 Publicity. Consultant will not, without Sprint's prior written
consent:
17.11.1 make any news release, public announcement, denial or
confirmation of this Agreement or its subject matter;
or
17.11.2 in any manner advertise or publish the fact of this
Agreement.
17.12 Remedies. All rights and remedies of the parties in law or
equity are cumulative and may be exercised concurrently or
separately. The exercise of one remedy will not be an election
of that remedy to the exclusion of other remedies.
18.0 SECURITY
18.1 Consultant warrants and agrees to provide pre-employment
screening background checks on each Consultant employee
assigned to Sprint in accordance with Sprint guidelines
required for Sprint employees including, but not limited to:
a) criminal history checks; b) education checks (if degree
indicated); c) employment checks (last 3 positions or last 5
years) if with same employer; d) reference checks (if any of
items a-c above cannot be completed; and e) drug screen
checks. Consultant warrants and agrees to provide Consultant
employees to Sprint who have successfully passed these
background checks, and Consultant's failure to do so will
constitute default by Consultant under this Agreement.
18.2 Consultant will be responsible for establishing, maintaining
and ensuring adherence to Sprint security requirements.
Security access rights to Sprint premises will be designated
by Sprint in accordance with Sprint security guidelines.
Consultant will
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abide by all procedures and policies
applicable to the Sprint premises access rights.
18.3 All Consultant employees will receive a contract vendor
security badge from Sprint prior to performing any portion of
the services and will be required to wear such badge at all
times while on Sprint's premises.
18.4 Security access rights to Sprint premises will be designated
by Sprint. Consultant will abide by all procedures and
policies applicable to Sprint premises access rights and
ensure compliance by its employees, agents and subcontractors.
18.5 Software security will be followed by Consultant and Sprint
for any application used by the other party. Sprint will
designate the required Sprint software access, if any, to
Consultant's employees and will make the request to Consultant
for Consultant software access for Sprint employees.
18.6 Any Security breach will be referred to Sprint's Corporate
Security. Consultant must make Consultant's employees, agents
and subcontractors available to facilitate investigations
related to loss or incidents.
18.7 Consultant will be responsible for any loss of Sprint property
arising out of or relating to the negligent act or omission of
Consultant in failing to maintain proper records and
documentation for Sprint property. Consultant will reimburse
Sprint for any loss of Sprint property at replacement cost.
19.0 ENTIRE AGREEMENT
This Agreement, together with the Contract Orders constitutes the
entire Agreement between Sprint and Consultant with respect to the
subject matter contained and may not be amended or modified except
by written document, signed by both parties. In the event of an
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inconsistency between the terms of this Agreement and those of a
Contract Order the provisions of the Contract Order control.
SIGNED:
SPRINT/UNITED MANAGEMENT COMPANY BUSINESS SOLUTIONS GROUP, L.L.C.
/s/ John M. D'Agostino /s/ D. Marshall Nelson
- ----------------------------------- --------------------------------------
(signature) (signature)
John M. D'Agostino D. Marshall Nelson
- ----------------------------------- --------------------------------------
(print name) (print name)
Lead Negotiator Corporate Secretary
- ----------------------------------- --------------------------------------
(title) (title)
11/3/95 11/7/95
- ----------------------------------- --------------------------------------
(date) (date)
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Contract Master Number
CM005115 MD
Amendment Number 1
AMENDMENT TO MASTER SERVICES AGREEMENT
between
BUSINESS SOLUTIONS GROUP, L.L.C.
and
SPRINT/UNITED MANAGEMENT COMPANY
THIS AMENDMENT is effective January 1, 1997, between SPRINT/UNITED
MANAGEMENT COMPANY, a Kansas corporation, ("SPRINT"), with an office at 903 East
104th Street, Kansas City, MO 64131, and BUSINESS SOLUTIONS GROUP, L.L.C.,
("SUPPLIER"), with an office at 1355 Protmarnock Drive, Alpharetta, GA 30202.
IN CONSIDERATION of the agreements, promises and representations set
forth below, the parties agree as follows:
1.0 AMENDMENT
The Contract effective January 1, 1996, Contract Number CM005115JMD
("Contract"), is amended as follows:
4.1 Completion Date - Delete "December 31, 1996" and replace with
"December 31, 1997."
All other terms of the Contract not modified here remain in full
force and effect.
In the event of a conflict between the terms of the Contract and
this Amendment, the Contract controls.
The parties' authorized representatives have signed below to signify
agreement.
SPRINT/UNITED MANAGEMENT BUSINESS SOLUTIONS GROUP, L.L.C.
COMPANY
BY: /s/ Gary D. Medford BY: /s/ D. Marshall Nelson
------------------------------ -------------------------------
NAME: Gary D. Medford NAME: D. Marshall Nelson
TITLE: AVP, Material & Services TITLE: Member and Senior Vice
Management President
DATE: DATE: 12/30/96
<PAGE>
AMENDMENT TO MASTER SERVICES AGREEMENT
BETWEEN
BUSINESS SOLUTIONS GROUP, L.L.C.
and
SPRINT/UNITED MANAGEMENT COMPANY
This Amendment is effective January 1, 1998, between Sprint/United
Management Company, a Kansas corporation ("Sprint"), with an office at 903 East
104th Street, Kansas City, MO 64131, and BUSINESS SOLUTIONS GROUP, L.L.C.,
("Supplier"), with an office at 1355 Protmarnock Drive, Alpharetta, GA 30202.
IN CONSIDERATION of the agreements, promises and representations set
forth below, the parties agree as follows:
1.0 AMENDMENT
The Contract effective January 1, 1996, Contract Number CM005115JMD
("Contract"), is amended as follows:
4.1 Completion Date - Delete "December 31, 1997" and replace with
"January 31, 1998."
All other terms of the Contract not modified herein remain in full
force and effect.
In the event of a conflict between the terms of the Contract and
this Amendment, the Contract controls.
The parties' authorized representatives have signed below to signify
agreement.
SPRINT/UNITED MANAGEMENT BUSINESS SOLUTIONS GROUP, L.L.C.
COMPANY
/s/ John W. Hays D. Marshall Nelson
- ----------------------------------------- ------------------------------------
(signature) (signature)
D.Marshall Nelson, Senior Vice
John Hays, Manager - Corporate Agreements President
- ----------------------------------------- ------------------------------------
(typed name and title) (typed name and title)
12/23/97 12/29/97
- ------------------------------------ ------------------------------------
(date) (date)
Sprint Proprietary Information
Page 21
<PAGE>
AMENDMENT TO MASTER AGREEMENT
BETWEEN
BUSINESS SOLUTIONS GROUP, L.L.C.
AND
SPRINT/UNITED MANAGEMENT COMPANY
This Amendment to the Master Services Agreement ("Agreement")
effective February 1, 1998, ("Effective Date") is between Sprint/United
Management Company, a Kansas corporation ("Sprint"), and BUSINESS SOLUTIONS
GROUP, L.L.C., ("Supplier"). Except as otherwise indicated, defined terms in
this Amendment have the same meaning as in the Agreement.
I. Background
----------
A. Supplier and Sprint entered into the Agreement January 1,
1996.
B. Previous amendments to the Agreement are as follows:
Amendment Number 1, effective January 1, 1997
Amendment Number 2, effective January 1, 1998
C. Sprint and Supplier agree to modify the Agreement as set
forth in this Amendment No. 3.
In consideration of the promises and agreements contained in this
Amendment, the parties agree as follows:
II. Amendment
---------
4.1 Completion Date - Delete "January 31, 1998" and replace with
"June 30, 1999".
III. General
-------
Other than as set forth above, the Agreement remains unchanged and
in full force and effect. In the event of a conflict between the
terms of the Agreement, (previous Amendments) and this Amendment,
this Amendment will control.
This Amendment No. 3 executed by authorized representatives of
Sprint and Supplier is made a part of and incorporates the terms
and conditions of the Agreement.
SPRINT/UNITED MANAGEMENT BUSINESS SOLUTIONS GROUP, L.L.C.
COMPANY
/s/ Vicki L. Moreno /s/ D. Marshall Nelson
- ------------------------------------ -----------------------------------
(signature) (signature)
Vicki L. Moreno, Manager - Corporate D. Marshall Nelson, Senior Vice
Agreements President
- ------------------------------------ -----------------------------------
(typed name and title) (typed name and title)
1/30/98 January 27, 1998
- ------------------------------------ -----------------------------------
(date) (date)
Sprint Proprietary Information
1 of 1
January 27, 1998
Page 22
<PAGE>
Amendment No. ____
Contract Master No. 005115 JMD
AMENDMENT TO MASTER AGREEMENT
BETWEEN
BUSINESS SOLUTIONS GROUP, L.L.C.
AND
SPRINT/UNITED MANAGEMENT COMPANY
This Amendment to the Master Services Agreement ("Agreement") effective
August 20, 1998, ("Effective Date") is between Sprint/United Management Company,
a Kansas corporation ("Sprint"), and BUSINESS SOLUTIONS GROUP, L.L.C.,
("Consultant"). Except as otherwise indicated, defined terms in this Amendment
have the same meaning as in the Agreement.
I. Background
- ----------------
A. Consultant and Sprint entered into the Agreement January 1, 1996.
B. Previous amendments to the Agreement are as follows:
Amendment Number 1, effective January 1, 1997
Amendment Number 2, effective January 1, 1998
Amendment Number 3, effective February 1, 1998
C. Sprint and Consultant agree to modify the Agreement as set forth
in this Amendment No. 4.
In consideration of the promises and agreements contained in this
Amendment, the parties agree as follows:
II. Amend Section 8.0 Consultant Warranties to add:
- -----------------------------------------------------
8.9 Consultant warrants that Consultant's provision of Services to Sprint,
and any related Deliverables provided to Sprint under this Agreement, will not
be adversely affected by the occurrence or use of dates before, on, or after
January 1, 2000 A.D., including dates and leap years between the twentieth and
twenty-first centuries ("Millennial Dates"). Any Deliverables (including any
software, hardware or firmware product(s) delivered by Consultant to Sprint)
will without error or omission, create, receive, store, process and output
(collectively, "Compute") information related to Millennial Dates. This warranty
includes, without limitation, that the Deliverables will accurately, and without
performance degradation, Compute Millennial Dates, date-dependent data,
date-related interfaces, or other date-related functions (including, without
limitation, calculating, comparing, and sequencing such functions). At Sprint's
request, Consultant will provide written evidence sufficient to demonstrate
adequate testing and conversion of the Deliverable to meet the foregoing
requirements. Consultant further warrants that Software used by Consultant to
produce Deliverables, reports or invoices under this Agreement will comply with
the Y2K Warranty contained herein.
III. General
- -------------
Other than as set forth above, the Agreement remains unchanged and in full force
and effect. In the event of a conflict between the terms of the Agreement,
(previous Amendments) and this Amendment, this Amendment will control.
Sprint Proprietary Information
Page 1 of 2
<PAGE>
This Amendment No. 4, executed by authorized representatives of Sprint and
Consultant, is made a part of and incorporates the terms and conditions of
the Agreement.
SPRINT/UNITED MANAGEMENT BUSINESS SOLUTIONS GROUP, L.L.C.
COMPANY
/s/ Douglas A. Whiteley /s/ D. Marshall Nelson
- -------------------------------------- ----------------------------------
(signature) (signature)
Douglas A. Whiteley - Senior Negoiator D. Marshall Nelson, Senior Vice
- -------------------------------------- President
(typed name and title) -----------------------------------
(typed name and title)
9/15/98 September 9, 1998
- ------------------------------------- -----------------------------------
(date) (date)
Sprint Proprietary Information
Page 2 of 2
Page 24
<PAGE>
TO
CONTRACT NO. ______________
AMENDMENT NO. 5 TO MASTER SERVICES AGREEMENT NO. CM005115JMD
BETWEEN
SPRINT/UNITED MANAGEMENT COMPANY
AND
BUSINESS SOLUTIONS GROUP, L.L.C.
This Amendment to the Master Services Agreement ("Agreement") effective
August 1, 1999 ("Effective Date") is between Sprint/United Management Company, a
Kansas corporation ("Sprint") and Business Solutions Group, L.L.C., a Delaware
corporation ("Supplier"). Except as otherwise indicated, defined terms in this
Amendment have the same meaning as in the Agreement.
I. Background
----------
A. Supplier and Sprint entered into the Agreement with an effective
date of January 1, 1996.
B. Previous amendments to the Agreement are as follows:
Amendment no. 1, effective January 1, 1997.
Amendment no. 2, effective January 1, 1998.
Amendment no. 3, effective February 1, 1998.
Amendment no. 4, effective September 15, 1998.
C. Sprint and Supplier agree to modify the Agreement as set forth in
this Amendment No. 5.
In consideration of the promises and agreements contained in this
Amendment, the parties agree as follows:
II. Amendment
---------
Revise Article 4.0 TERM AND TERMINATION, SECTION 4.1 to extend the
Expiration Date from June 30, 1999 through June 30, 2000.
III. General
-------
Other than as set forth above, the Agreement remains unchanged and in full
force and effect. In the event of a conflict between the terms of the
Agreement (previous Amendments) and this Amendment, this Amendment will
control.
Sprint Proprietary Information
Page 1 of 2
Page 25
<PAGE>
This Amendment No. 5 executed by authorized representatives of Sprint
and Supplier is made a part of and incorporates the terms and
conditions of the Agreement.
SPRINT/UNITED MANAGEMENT SUPPLIER
COMPANY
/s/ James P. Stevinson /s/ D. Marshall Nelson
- ------------------------------------ -----------------------------------------
(signature) (signature)
James P. Stevinson, Senior Negotiator D. Marshall Nelson, Senior Vice President
- ------------------------------------ -----------------------------------------
(typed name and title) (typed name and title)
7/15/99 7/16/99
- ------------------------------------ -----------------------------------------
(date) (date)
Sprint Proprietary Information
Page 2 of 2
7/13/99
Page 26
<PAGE>
Exhibit 10.15
- --------------------------------------------------------------------------------
RECAPITALIZATION AGREEMENT
by and among
THAYER ITECH HOLDINGS, L.L.C.
("Thayer Holdings")
BUSINESS SOLUTIONS GROUP, INC.
(the "Company")
BSG HOLDINGS, INC.
("BSG Parent")
and
THE STOCKHOLDERS OF BSG HOLDINGS, INC.
(the "Stockholders")
Dated August 11, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS......................................................2
1.1 Definitions........................................................2
ARTICLE II RECAPITALIZATION.................................................7
2.1 Stock Purchase.....................................................7
2.2 Payment of Purchase Price..........................................8
2.3 The Financing......................................................8
2.4 Redemption.........................................................8
2.5 Recapitalization...................................................8
2.6 Closing............................................................8
2.7 Escrow Arrangements................................................8
Financial Condition....................................................9
2.9 Closing Audit......................................................9
2.10 Post-Closing Net Working Capital Adjustment.......................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY, BSG PARENT AND STOCKHOLDERS...................................10
3.1 Capitalization.....................................................10
3.2 No Liens on Shares.................................................11
3.3 Subsidiaries.......................................................11
3.4 Other Rights to Acquire Capital Stock..............................11
3.5 Due Organization...................................................11
3.6 Due Authorization..................................................12
3.7 Financial Statements...............................................12
3.8 Certain Actions....................................................13
3.9 Properties.........................................................14
3.10 Licenses and Permits..............................................14
3.11 Intellectual Property.............................................15
3.12 Compliance with Laws..............................................16
3.13 Insurance.........................................................16
3.14 Employee Benefit Plans............................................16
(a) Employee Welfare Benefit Plans...............................16
(b) Employee Pension Benefit Plans...............................17
(c) Employment and Non-Tax Qualified Deferred
Compensation Arrangements..................................17
3.15 Contracts and Agreements..........................................17
3.16 Claims and Proceedings............................................18
3.17 Taxes.............................................................18
3.18 Personnel.........................................................19
3.19 Business Relations................................................20
3.20 Accounts Receivable; Accounts Payable; Customer Deposits;
Customer Deposits and Deferred Revenues..........................20
<PAGE>
(a) Accounts Receivable..........................................20
(b) Accounts Payable.............................................21
(c) Customer Deposits; Customer Deposits and Deferred Revenues...21
3.21 Bank Accounts; Investments........................................21
3.22 Customer Claims...................................................21
3.23 Brokers...........................................................21
3.24 Affiliated Transactions...........................................21
3.25 Funded Indebtedness; Letters of Credit; Undisclosed Liabilities...22
(a) Funded Indebtedness..........................................22
(b) Letters of Credit............................................22
(c) Undisclosed Liabilities......................................22
3.26 Year 2000.........................................................22
3.27 Information Furnished.............................................22
ARTICLE IV THAYER HOLDINGS' REPRESENTATIONS AND WARRANTIES.................23
4.1 Due Organization of Thayer Holdings................................23
4.2 Due Authorization..................................................23
4.3 No Brokers.........................................................23
4.4 Investment.........................................................23
4.5 Information Furnished..............................................23
ARTICLE V PRE-CLOSING COVENANTS OF THE COMPANY, BSG PARENT,
THAYER HOLDINGS AND STOCKHOLDERS.......................................24
5.1 Consents of Others.................................................24
5.2 Stockholders' Efforts..............................................24
5.3 Powers of Attorney.................................................24
5.4 Conduct of Business Pending Closing................................24
5.5 Access Before Closing..............................................25
ARTICLE VI POST-CLOSING COVENANTS...........................................25
6.1 General............................................................25
6.2 Transition.........................................................26
6.3 Confidentiality....................................................26
6.4 Covenant Not to Compete............................................26
6.5 Additional Matters.................................................26
6.6 Litigation Support.................................................27
6.7 Audits.............................................................27
6.8 Minimum Cash as of the Closing.....................................28
6.9 Stock Options......................................................28
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING.....28
7.1 Conditions to Thayer Holdings' Obligations.........................28
(a) Covenants, Representations and Warranties....................29
(b) Consents.....................................................29
(c) Leases.......................................................29
-ii-
<PAGE>
(d) Discharge of Indebtedness and Lien; Stockholder Loans........29
(e) Fee..........................................................29
(f) Transfer Taxes...............................................30
(h) Documents to be Delivered by Stockholders;
BSG Parent and the Company.................................30
(iv) Escrow Agreement......................................30
((ii) Opinion of Stockholder's Counsel.....................30
(iii) Certificates.........................................30
(iii) Release..............................................30
(v) Employment Agreements..................................30
(vi) Delivery of Purchased Shares..........................30
(vii) Redemption of Existing Common Stock..................30
(viii) Resignation of Directors............................31
(ix) Termination of Stockholder Agreements.................31
(i) Company Equity Arrangements...............................31
(j) Restated Certificate of Incorporation.....................31
(k) Financing.................................................31
7.2 Conditions to Stockholders', BSG Parent's and the Company's
Obligations...................................................31
(a) Covenants, Representations and Warranties.................31
(b) Consents..................................................31
(c) Documents to be Delivered by Thayer Holdings..............32
(ii) Escrow Agreement...................................32
(iii) Employment Agreements.............................32
(iii) Certificates......................................32
(iii) Legal Opinion.....................................32
(d) Company Equity Arrangements...............................32
(e) Payments to BSG Parent....................................32
ARTICLE VIII INDEMNIFICATION...............................................32
8.1 Indemnification by BSG Parent and Stockholders.....................32
8.2 Defense of Claims..................................................33
8.3 Escrow Claim.......................................................34
8.4 Tax Audits, Etc....................................................34
8.5 Indemnification of Stockholders, BSG Parent and the Company........34
8.6 Limits on Indemnification..........................................34
ARTICLE IX TERMINATION.....................................................35
9.1 Termination........................................................35
9.2 Effect of Termination..............................................36
ARTICLE X MISCELLANEOUS....................................................36
10.1 Modifications.....................................................36
10.2 Notices...........................................................36
10.3 Counterparts; Facsimile Transmission..............................38
10.4 Expenses..........................................................38
10.5 Binding Effect; Assignment........................................38
10.6 Entire and Sole Agreement.........................................38
-iii-
<PAGE>
10.7 Governing Law.....................................................38
10.8 Survival of Representations, Warranties and Covenants.............39
10.9 Invalid Provisions................................................39
10.10 Public Announcements.............................................39
10.11 Remedies Cumulative..............................................39
10.12 Third Parties....................................................39
10.13 No Strict Construction...........................................39
10.14 Disclosure Schedule..............................................40
-iv-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Amended and Restated Certificate of Incorporation
Exhibit B Form of Escrow Agreement
Exhibit C Opinion of the Company's and Stockholders' Counsel
Exhibit D Key Employees of the Company
Exhibit E Form of Release
Exhibit F-1 Form of John R. McDougall Employment Agreement
Exhibit F-2 Form of Marshall Nelson Employment
Exhibit F-3 Form of Philip Duong Employment Agreement
Exhibit G Stockholders Accounts and Wire Transfer Instructions((S) 2.4)
Exhibit H Ownership of Shares ((S) 3.1)
Exhibit I-1 Articles ((S) 3.5)
Exhibit I-2 Bylaws ((S) 3.5)
Exhibit I-3 Certificate of Incorporation((S) 3.5)
Exhibit I-4 Bylaws ((S) 3.5)
Exhibit I-5 Qualified Jurisdictions ((S) 3.6)
Exhibit J List of Properties ((S) 3.9)
Exhibit K List of Licenses and Permits ((S) 3.10)
Exhibit L List of Intellectual Property ((S) 3.11)
Exhibit M List of Insurance ((S) 3.13)
Exhibit N List of Contracts ((S) 3.15)
Exhibit O List of Personnel ((S) 3.18)
Exhibit P List of Deferred Revenues and Customer Deposits ((S) 3.20)
Exhibit Q List of Bank Accounts and Investments ((S) 3.21)
Exhibit R List of Letters of Credit and Customer Deposits ((S) 3.25(b))
Exhibit S List of Indebtedness ((S) 7.1(d))
Exhibit T Opinion of Thayer Holdings' Counsel
LIST OF SCHEDULES
Schedule of Leases
Disclosure Schedule
Recapitalization Schedule
Financial Statements
-v-
<PAGE>
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (this "Agreement") is entered into as of
August 11, 1999, by and among THAYER ITECH HOLDINGS, L.L.C., a Delaware limited
liability company ("Thayer Holdings"), BUSINESS SOLUTIONS GROUP, INC., a
Delaware corporation (the "Company") and BSG HOLDINGS, INC., a Georgia
corporation ("BSG Parent"), and John R. McDougall as trustee of the John R.
McDougall and Louise A. McDougall Trust dated July 24, 1998 and as trustee of
the Louise A. and John R. McDougall Trust dated July 24, 1998, D. Marshall
Nelson as trustee of the Nelson Family Trust dated May 22, 1995 and Philip H.
Duong as trustee of the Duong Family Trust dated November 28, 1998
(collectively, the "Stockholders").
Recitals
--------
Pursuant to this Agreement, the Company, which is engaged in the business
of providing information technology consulting services in the United States
(the "Business"), will be recapitalized in a series of transactions (the
"Transactions"). The Transactions will occur in the following steps:
A. THE CURRENT CAPITALIZATION OF THE COMPANY
On the date of this Agreement, the Company's capitalization consists of
100,000 shares of common stock, $.01 par value per share (the "Capital Stock").
BSG Parent is the owner of 100,000 shares of Capital Stock, which stock
represents all of the issued and outstanding stock of the Company (the "Existing
Shares"). The Stockholders own 100,000 shares of the capital stock of BSG
Parent, which stock represents all of the issued and outstanding shares of
capital stock of BSG Parent.
B. THE STOCK PURCHASE
Thayer Holdings desires to purchase from BSG Parent and BSG Parent desires
to sell to Thayer Holdings an aggregate of 58,378.378 shares of Capital Stock
(the "Stock Purchase") for a cash purchase price of $370 per share (an aggregate
purchase price of $21,600,000), subject to adjustment as provided herein.
C. THE FINANCING
Prior to the Closing, it is anticipated that the Company will enter into a
credit agreement or agreements with a financial institution or institutions (the
"Financing") to be arranged by Thayer Holdings, which Financing shall provide
for a loan or loans to the Company on commercially reasonable terms in
connection with the Transactions in the principal amount of up to approximately
$10,000,000 (the "Financing Proceeds").
<PAGE>
D. THE REDEMPTION
At Closing, 27,027.027 shares (the "Redemption Shares") of the Existing
Shares held by BSG Parent will be redeemed by the Company for a purchase price
of $370 per share (an aggregate redemption price of $10,000,000), subject to
adjustment and escrow holdbacks as provided herein (the "Redemption").
E. THE RECAPITALIZATION
Following the Redemption, the Company will recapitalize itself (the
"Recapitalization") by amending and restating its Certificate of Incorporation
to authorize two classes of capital stock, (i) the Common Stock, $.01 par value
(the "Common Stock") and (ii) the Class A Preferred Stock, par value $.01 per
share (the "Preferred Stock"). Pursuant to the Recapitalization, each issued and
outstanding share of Capital Stock will be exchanged for (i) 185 shares of
Common Stock and (ii).3515 shares of Preferred Stock. A chart showing the
details of the Recapitalization is attached as the Recapitalization Schedule
-------------------------
hereto.
Agreement
---------
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
Definitions. In this Agreement, the following terms have the meanings
-----------
specified or referred to in this Section 1.1 and shall be equally applicable to
-----------
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"AA" shall mean Arthur Andersen, L.L.P. and its successors.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Audited Closing Financial Statements" has the meaning specified in Section
2.9.
"BSG Parent" has the meaning specified in the first paragraph of this
Agreement.
"Business" has the meaning specified in the first recital of the Agreement.
-2-
<PAGE>
"Business Plan" means that certain five-year business plan of the Company
as presented to Thayer in June 1999. Except as specifically utilized herein with
respect to the Company's Intellectual Property being adequate to be able to
attain the anticipated diversity of the Company's future customer base, no
representation or warranty is hereby made by the Company, BSG Parent or
Stockholders with respect to the Business Plan or the Company's attainment of
its future projections as set forth in the Business Plan.
"Capital Stock" has the meaning specified in Recital A of the Agreement.
---------
"Closing" means the closing of the Stock Purchase followed by the
Redemption and subsequently the Recapitalization.
"Closing Date" has the meaning specified in Section 2.6.
-----------
"Closing Redemption Price" shall have the meaning assigned to such term in
Section 2.4(a).
- --------------
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning specified in Recital E of this Agreement.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Confidential Information" means (i) the terms and provisions of this
Agreement and the Transactions and (ii) all confidential information (for
purposes of this Agreement, confidential information shall refer to all
information which is the subject of reasonable efforts by the Company to
maintain its non-public character or to otherwise prevent such information from
becoming widely known) and trade secrets of the Company or its Affiliates
including, without limitation, any of the same comprising 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. Confidential Information shall
not include any information (a) which is disclosed pursuant to subpoena or other
legal process, (b) which has been publicly disclosed, or (c) which is
subsequently disclosed to any third party not in breach of a confidentiality
agreement.
"Contracts" has the meaning specified in Section 3.15.
------------
"Court Order" means any judgment, order, award or decree of any foreign,
federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Disclosure Schedule" means the Disclosure Schedule attached to this
Agreement pursuant to which exceptions to BSG Parent's, the Stockholders' and
the Company's specific representations and warranties set forth in Article III
-----------
(and listed on a Section-by-Section basis) are disclosed to Thayer Holdings
pursuant to said Article III.
-----------
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<PAGE>
"Encumbrance" means any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in
title or restrictive covenant.
"Environmental and OSHA Obligations" has the meaning specified in Section
-------
3.12.
- ----
"Equitable Exceptions" shall have the meaning specified in Section 3.6.
------------
"Equity Agreements" means those certain equity agreements between Thayer
Holdings, the Company, BSG Parent, the Stockholders and certain executives to be
entered into as of the Closing Date, including without limitation, the
Stockholders Agreement and the Registration Rights Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means First Union National Bank, N.A.
"Escrow Agreement" means the Escrow Agreement to be executed by and among
the Company, BSG Parent, the Stockholders, Thayer Holdings and the Escrow Agent
in the form of Exhibit B.
---------
"Escrow Period" has the meaning specified in Section 2.7.
-----------
"Escrow Sum" has the meaning specified in Section 2.7.
-----------
"Existing Shares" has the meaning specified in Recital A of the Agreement.
---------
"Financial Statements" has the meaning specified in Section 3.7.
-----------
"Financing" has the meaning specified in Recital C of the Agreement.
---------
"Financing Proceeds" has the meaning specified in Recital C of the
---------
Agreement.
"Force Majeure" shall mean any failure or delay caused by acts of god,
flood, fire, war or terrorism or any failure or delay caused by a governmental
blockage of all currency transactions between a foreign Governmental Body and
the United States of America.
"Funded Indebtedness" means all (i) indebtedness of the Company for
borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable in the ordinary course of business; (iv) indebtedness of others
guaranteed by the Company or secured by an Encumbrance on the Company's
property; (v) letters of credit or similar obligations; and (vi) indebtedness of
the Company under extended credit terms of more than 90 days from vendors
provided to the Company.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
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<PAGE>
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body having jurisdiction over the Company,
BSG Parent and/or the Stockholders.
"Governmental Permits" has the meaning specified in Section 3.10.
------------
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended and the rules and regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"Indemnifiable Costs" has the meaning specified in Section 8.1.
-----------
"Indemnified Parties" has the meaning specified in Section 8.1.
-----------
"Independent Accountants" has the meaning specified in Section 2.9.
-----------
"Intellectual Property" shall mean all of the following as they are related
primarily to the Business: (i) patents, patent applications, patent disclosures
and inventions (whether or not patentable and whether or not reduced to
practice); (ii) trademarks, service marks, trade dress, trade names, corporate
names, logos, slogans and Internet domain names, together with all goodwill
associated with each of the foregoing; (iii) copyrights and copyrightable works;
(iv) registrations, applications and renewals for any of the foregoing; (v)
trade secrets, confidential information and know-how (including but not limited
to ideas, formulae, compositions, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, business and marketing plans, and customer and supplier lists and
related information); and (vi) computer software (including but not limited to
data, data bases and documentation).
"Knowledge of the Company" (whether or not capitalized) shall mean actual
knowledge, after reasonable inquiry within the Company to persons with final or
direct responsibility, of the Stockholders and the officers and employees of the
Company. "Knowledge of the Stockholders" (whether or not capitalized) shall mean
actual knowledge of the Stockholders.
"Leases" shall mean the leases set forth on the Schedule of Leases
------------------
attached.
"Material" (whether or not capitalized) shall, where appropriate in context
of its use in making the representations and warranties set forth in Article
-------
III, be deemed to mean an amount of money greater than $100,000 individually or
- ---
$180,000 in the aggregate.
"Material Adverse Change" or "Material Adverse Effect" means a material
adverse change or effect on the assets, properties, Business, operations,
liabilities or financial condition of the Company and its subsidiaries, taken as
a whole. In determining whether a "Material Adverse Change" or "Material Adverse
Effect" has occurred in the context of the use of such terms in the Company's,
BSG Parent's and Stockholders' representations and warranties set
-5-
<PAGE>
forth in Article III, such terms shall refer to the occurrence of any single
-----------
event, or any series of related events, or set of related circumstances, which
results or likely will result in a loss to the Company, in excess of $100,000
per occurrence or $180,000 in the aggregate.
"Minimum Cash Deficit" has the meaning specified in Section 6.8.
-----------
"Net Working Capital" shall equal the Company's total current assets
(including cash and cash equivalents) minus its total current liabilities (other
than interest and the current portion of any indebtedness) including, without
limitation, any cash to accrual liability borne by the Company and any change in
control payments due to employees, subcontractors, vendors or customers as a
result of the transactions contemplated hereby, each as calculated in accordance
with GAAP.
"Net Working Capital Adjustment" has the meaning specified in Section 2.10.
------------
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.ss.ss.651 et
seq., any amendment thereto, and any regulations promulgated thereunder.
"Permitted Distributions" has the meaning specified in Section 3.8.
-----------
"Permitted Exception" means (a) liens for Taxes and other governmental
charges and assessments which are not yet due and payable, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet due
and payable, (c) purchase money security interest liens solely on the property
acquired pursuant to such credit purchase, or (d) other liens or imperfections
on property which are not material in amount or do not materially detract from
the value or the existing use of the property affected by such lien or
imperfection.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"Preferred Stock" has the meaning specified in Recital E of the Agreement.
---------
"Projected Net Working Capital" means $3,000,000.
"Purchase Price" has the meaning specified in Section 2.1.
-----------
"Purchased Shares" has the meaning specified in Section 2.1.
-----------
"Recapitalization" has the meaning specified in Recital E of the Agreement.
---------
"Redemption" has the meaning specified in Recital D of the Agreement.
---------
"Redemption Price" has the meaning specified in Section 2.4.
-----------
"Redemption Shares" has the meaning specified in Recital D of the
---------
Agreement.
-6-
<PAGE>
"Requirements of Laws" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Stock Purchase" has the meaning specified in Recital B of the Agreement.
---------
"Tax" or "Taxes" means any federal, state, local or foreign income,
alternative or add-on minimum, gross income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding or minimum tax, transfer, goods and services,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amounts imposed thereon by any Governmental Body.
"Tax Return" means any return, report or similar statement required to be
filed with respect to any Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
"Thayer Holdings" has the meaning specified in the first paragraph of this
Agreement.
"Transactions" has the meaning specified in the beginning of the recitals
of this Agreement.
ARTICLE II
RECAPITALIZATION
2.1. Stock Purchase. On the Closing Date and subject to the terms and
--------------
conditions set forth in this Agreement, BSG Parent shall sell and deliver to
Thayer Holdings an aggregate of 58,378.378 shares of the Capital Stock (the
"Purchased Shares"), free and clear of all Funded Indebtedness and all
Encumbrances, other than Permitted Exceptions and the restrictions imposed by
federal and state securities laws. The total purchase price for the Purchased
Shares (the "Purchase Price") shall be equal to $21,600,000, subject to any
adjustment required to be made pursuant to Section 2.10 below.
------------
2.2. Payment of Purchase Price. The Purchase Price shall be payable by
-------------------------
Thayer Holdings at the Closing (as defined in Section 2.6) in cash by wire
-----------
transfer of immediately available funds to BSG Parent's account as specified in
Exhibit G attached hereto.
- ---------
2.3. The Financing. On the Closing Date, the Company shall consummate the
-------------
Financing and shall borrow an amount equal to the Financing Proceeds in order to
consummate the Redemption.
-7-
<PAGE>
2.4. Redemption. On the Closing Date and subject to the terms and
----------
conditions set forth in this Agreement, the Company shall redeem the Redemption
Shares from BSG Parent. Subject to the terms of Section 2.7, which provision
-----------
requires certain holdbacks prior to the distribution of such price to BSG
Parent, the Redemption Shares shall be redeemed at a price of $370 per share,
for an aggregate gross redemption price of $10,000,000 (the "Redemption Price").
The Redemption Price shall be payable as follows:
(a) an aggregate of $6,500,000 shall be paid at Closing by wire
transfer of immediately available funds to BSG Parent's account as specified in
Exhibit G hereto (the "Closing Redemption Price"); and
- ---------
(b) $3,500,000 shall be paid in cash to the Escrow Agent at Closing
pursuant to Section 2.7 below to serve as the Escrow Sum (as defined below).
-----------
2.5. Recapitalization. Following the Stock Purchase and the Redemption and
----------------
on the Closing Date, the Company shall amend and restate its Certificate of
Incorporation to authorize the issuance of the two classes of the capital stock
(the Common Stock and the Preferred Stock) each having the rights and
preferences set forth in the Company's Amended and Restated Certificate of
Incorporation in substantially the form of Exhibit A attached hereto and as
---------
necessary to effect the Transactions. Pursuant to such amendment, each share of
Capital Stock issued and outstanding after the Stock Purchase and the Redemption
shall be exchanged for (i) 185 shares of Common Stock and (ii) .3515 shares of
Preferred Stock.
2.6. Closing. The Closing of the Transactions shall take place at 10:00
-------
a.m., Eastern Time, at the offices of Hogan & Hartson L.L.P., 555 13th Street,
N.W. in Washington, D.C. on August 12, 1999, or on a date mutually agreed to by
the parties (which date shall be as soon as practicable following the date on
which all of the conditions to Closing set forth in Sections 7.1 and 7.2 have
------------ ---
been satisfied) (the "Closing Date"), with an Effective Date as of August 1,
1999.
2.7. Escrow Arrangements. Pursuant to the Escrow Agreement to be entered
-------------------
into among Stockholders, BSG Parent, the Company, Thayer Holdings and the Escrow
Agent, $3,500,000 of the Redemption Price shall be delivered to the Escrow Agent
at Closing (such monies paid, together with all interest accrued thereon, is
hereinafter referred to as the "Escrow Sum"). The Escrow Sum shall be held
pursuant to the terms of the Escrow Agreement for payment from such Escrow Sum
of the amounts, if any, owing by BSG Parent to Thayer Holdings or the Company
pursuant to the provisions of the Net Working Capital Adjustment and the
indemnification provisions of Article VIII below. The Escrow Sum shall be
------------
reduced to an amount equal to (i) $1,500,000 (plus any good faith
indemnification or Net Working Capital Adjustment claims then pending against
the Escrow Sum) within five days after the 90th day following the Closing Date
and (ii) $1,000,000 (plus any good faith indemnification or Net Working Capital
Adjustment claims then pending against the Escrow Sum) within five days after
the 120th day following the Closing Date. To the extent claims against the
Escrow Sum are determined in favor of the Stockholders or BSG Holdings, as
appropriate, all amounts reserved against the Escrow Sum in connection with such
claims shall be remitted by the Stockholders or
-8-
<PAGE>
BSG Parent, as appropriate, as soon as practicable following any such
determination. On the first anniversary of the Closing Date (such one-year
period being referred to herein as the "Escrow Period"), such remaining portion
of the Escrow Sum not theretofore claimed by or paid to Thayer Holdings or the
Company in accordance with the terms of the Escrow Agreement and this Agreement
(together with any interest on such remaining portion of the Escrow Sum) shall
be disbursed to BSG Parent. All disbursements at the expiration of the Escrow
Period shall be paid in cash to BSG Parent at its account set forth in Exhibit G
---------
as updated from time to time. Stockholders, BSG Parent, the Company and Thayer
Holdings agree that each will execute and deliver such reasonable instruments
and documents as are furnished by any other party to enable such furnishing
party to receive those portions of the Escrow Sum to which the furnishing party
is entitled under the provisions of the Escrow Agreement and this Agreement.
2.8. Financial Condition. The Company's Net Working Capital at the Closing
-------------------
shall be not less than Projected Net Working Capital and the Company shall
continue to have at least $500,000 in cash and cash equivalents on hand at the
Closing or the Redemption Price payable at Closing will be reduced by the amount
of such deficit(s).
2.9. Closing Audit. Within 120 days following the Closing Date, there shall
-------------
be delivered to Thayer Holdings and to Stockholders an audit of the Company's
balance sheet as of the Closing Date (the "Audited Closing Financial
Statements"). The Audited Closing Financial Statements shall be audited by AA in
accordance with GAAP and Bennet Thrasher & Co. ("BT&C") shall be afforded a
reasonable opportunity to review the audit results (including any work papers
prepared in connection therewith). BT&C and AA shall mutually agree on the
Audited Closing Financial Statements. The cost of preparing the Audited Closing
Financial Statements shall be paid equally by the Stockholders and Thayer. In
the event that BT&C and AA cannot agree on the Audited Closing Financial
Statements, BT&C and AA shall jointly select and retain an independent "Big
Five" accounting firm (the "Independent Accountants") to review the disputed
matter(s) on the Audited Closing Financial Statements. In conducting such
review, BT&C and AA shall provide the Independent Accountants and BSG Parent
with customary access to the work papers of AA utilized in preparing the Audited
Closing Financial Statements. The final determination of such disputed matter(s)
by the Independent Accountants shall be utilized to determine all adjustments
described in Section 2.10 below and shall be final and binding on the parties
------------
solely for such purposes. The cost of retaining the Independent Accountants
shall be borne equally by the Stockholders and Thayer.
2.10. Post-Closing Net Working Capital Adjustment. The Redemption Price
-------------------------------------------
will be adjusted upward or downward, on a dollar-for-dollar basis, to reflect
the increase or decrease, if any, in Net Working Capital as reflected on the
Audited Closing Financial Statements from the Projected Net Working Capital (the
"Net Working Capital Adjustment"). The Net Working Capital Adjustment shall be
determined by referring to the Audited Closing Financial Statements. In the
event that the Net Working Capital Adjustment results in an increase in the
Redemption Price, then the Company shall pay such amount to BSG Parent and the
Stockholders in immediately available funds within ten (10) business days of
delivery of the Audited Closing Financial Statements as finally determined in
accordance with Section 2.9 above. In the event that the Net Working Capital
-----------
Adjustment results in a decrease in the
-9-
<PAGE>
Redemption Price, then the amount of any such decrease shall be payable to the
Company (i) first, from the Escrow Sum in immediately available funds within 15
days of the final determination of the Net Working Capital Adjustment up to an
aggregate amount from the Escrow Sum of $1,000,000 and (ii) second, the balance,
if any, by BSG Parent and the Stockholders in immediately available funds within
15 days of the final determination of the Net Working Capital Adjustment. All
payments required to be paid by BSG Parent, Stockholders or the Escrow Agent
pursuant to this Section 2.10 shall be deemed to be a downward adjustment to the
------------
Redemption Price and shall not be controlled or limited by any provision
contained in Article VIII hereof.
------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY, BSG PARENT AND STOCKHOLDERS
Except as set forth on the Disclosure Schedule attached hereto (which
Disclosure Schedule identifies the exception and references the applicable
representation so qualified), the Company, BSG Parent and Stockholders jointly
and severally represent and warrant to Thayer Holdings that:
3.1. Capitalization. The authorized capital stock of the Company
--------------
immediately prior to Closing consists of 100,000 shares of Capital Stock,
100,000 of which being the Existing Shares are issued and outstanding. All of
the Existing Shares are duly authorized, validly issued, fully paid, and
nonassessable. All of the Existing Shares are owned of record and beneficially
by BSG Parent. All of the outstanding shares of BSG Parent are owned of record
and beneficially by the Stockholders and the other Stockholders of BSG Parent in
the amounts set forth on Exhibit H hereto. None of the Existing Shares was
---------
issued or will be redeemed under this Agreement in violation of any preemptive
or preferential rights of any Person.
3.2. No Liens on Shares. BSG Parent owns the Existing Shares and the
------------------
Stockholders own all of the BSG Parent's shares, free and clear of any
Encumbrances other than the rights and obligations arising under this Agreement,
and none of the Existing Shares or the BSG Parent shares is subject to any
outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Existing Shares or the BSG Parent shares is
subject to any restriction on transfer thereof except for restrictions imposed
by applicable federal and state securities laws. At Closing pursuant to the
Redemption and the Stock Purchase, BSG Parent will have full corporate power and
authority to convey good and marketable title to the Redemption Shares and the
Purchased Shares, free and clear of any Encumbrances other than the restrictions
imposed by federal and state securities laws.
3.3. Subsidiaries. The Company does not own, directly or indirectly, any
------------
capital stock or ownership interests in any Person. The Stockholders do not own
any capital stock or ownership interests in any other Person engaged in the
Business other than BSG Parent (other than ownership of a publicly-held
corporation of which the Stockholders; or any of them
-10-
<PAGE>
own, or has real or contingent rights to own less than five percent of any class
of outstanding securities). BSG Parent does not own any capital stock or
ownership interests in any other Person other than the Company.
3.4. Other Rights to Acquire Capital Stock. Except as set forth in this
-------------------------------------
Agreement in respect of Thayer Holdings' rights to acquire the Purchased Shares,
there are no authorized or outstanding warrants, options, or rights of any kind
to acquire from the Company any equity or debt securities of the Company, or
securities convertible into or exchangeable for equity or debt securities of the
Company, and there are no shares of capital stock of the Company reserved for
issuance for any purpose nor any contracts, commitments, understandings or
arrangements which require the Company to issue, sell or deliver any additional
shares of its capital stock.
3.5. Due Organization. The Company is now a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Delaware
and has full corporate power and authority to own and lease its properties and
assets and to carry on the Business as now conducted. BSG Parent is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Georgia and has full corporate power and authority to own
and lease its properties and assets and to carry on the Business as now
conducted. Complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company and the Articles of Incorporation and Bylaws of BSG
Parent, and all amendments thereto, have been delivered to Thayer Holdings and
are attached hereto as Exhibits I-1, I-2, I-3 and I-4, respectively. The Company
------------ --- --- ---
is qualified to do business in the State of Delaware and in Georgia and in each
other jurisdiction in which the nature of the Business or the ownership of its
properties requires such qualification except where the failure to be so
qualified does not and could not reasonably be expected to have a Material
Adverse Effect. The jurisdictions in which the Company is so qualified are
listed on Exhibit I-5 attached hereto.
-----------
3.6. Due Authorization. The Company, BSG Parent and the Stockholders each
-----------------
have full power and authority to execute, deliver and perform this Agreement and
to carry out the Transactions. The execution, delivery, and performance of this
Agreement and the Transactions have been duly and validly authorized by all
necessary corporate action of the Company and BSG Parent. This Agreement has
been duly and validly executed and delivered by the Company, BSG Parent and
Stockholders and constitutes the valid and binding obligations of the Company,
BSG Parent and Stockholders, enforceable in accordance with its terms, except to
the extent that enforceability may be limited by laws affecting creditors'
rights and debtors' obligations generally, and legal limitations relating to
remedies of specific performance and injunctive and other forms of equitable
relief (the "Equitable Exceptions"). The execution, delivery, and performance of
this Agreement and the Transactions (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by the
Company, BSG Parent and Stockholders, do not (a) violate any Requirements of
Laws or any Court Order of any Governmental Body applicable to the Company, BSG
Parent or Stockholders, or their respective property, (b) violate or conflict
with, or permit the cancellation of, or constitute a default under, any Material
agreement to which the Company, BSG Parent or Stockholders are a party, or by
which any of them or any of their respective property is bound, (c) permit the
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<PAGE>
acceleration of the maturity of any Material indebtedness of, or indebtedness
secured by the property of, the Company, BSG Parent or Stockholders, (d) violate
or conflict with any provision of the charter or bylaws of the Company or BSG
Parent, or (e) except for filings or approvals under the HSR Act and such
consents, approvals, or registrations as may be required under applicable state
securities laws, require any material consent, approval or authorization of, or
notice to, or declaration, filing or registration with, any Governmental Body or
other third party.
3.7. Financial Statements. The following financial statements of the
--------------------
Company have been delivered to Thayer Holdings by the Company: unaudited balance
sheet of the Company as of December 31, 1996; audited balance sheets of the
Company for the year ended December 31, 1997 and December 31, 1998; unaudited
balance sheet of the Company as of June 30, 1999; unaudited statement of
operations of the Company for the fiscal years ended December 31, 1996 and
December 31, 1997; audited statement of operations and cash flows of the Company
for the year ended December 31, 1998; and unaudited statement of operations for
the five months ending June 30, 1999 (collectively, the "Financial Statements").
Copies of the Financial Statements are included in the Disclosure Schedule
-------------------
hereto. Other than the unaudited financial statements indicated above, including
the Financial Statements as of and for the six months ending June 30, 1999 (the
"Most Recent Financial Statements"), the Financial Statements have been prepared
in accordance with GAAP and the Most Recent Financial Statements to the
Company's Knowledge have been prepared in accordance with GAAP except as set
forth in Section 3.7 of the Disclosure Schedule. The Financial Statements
(including the notes thereto) have been prepared on a consistent basis
throughout the periods indicated and fairly present the financial position,
results of operations and changes in financial position of the Company as of the
indicated dates and for the indicated periods and are consistent with the books
and records of the Company (which books and records are correct and complete in
all material respects). Since the date of the last of such Financial Statements,
the Company has incurred no Material liabilities required by GAAP to be
reflected on the Company's balance sheet or notes thereto nor any other
obligations (whether absolute, contingent, or otherwise) which are (individually
or in the aggregate) Material (in amount or to the conduct of the Business); and
neither the Company nor Stockholders have Knowledge of any basis for the
assertion of any such Material liability or obligation. Since December 31, 1998,
the Company has not experienced any Material Adverse Change.
3.8. Certain Actions. Since December 31, 1998, the Company has not, except
---------------
as disclosed on any of the Financial Statements or notes thereto: (a) paid or
declared any dividends or distributions, or purchased, redeemed, acquired, or
retired any stock or indebtedness from BSG Parent or any Stockholder (other than
distributions to pay estimated income taxes of the Stockholders associated with
the income of the Company, distributions of the Company's net income for the
fiscal year ended December 31, 1998 and additional distributions by the Company,
all of which shall be deemed to be made on or prior to May 31, 1999 so long as
no Net Working Capital Adjustment of more than $50,000 would occur and at least
the level of Minimum Cash is retained, except, in either case, with the prior
consent of Thayer, which consent will not be unreasonably withheld (collectively
the "Permitted Distributions")); (b) made or agreed to make any loans or
advances or guaranteed or agreed to guarantee any loans or
-12-
<PAGE>
advances to any party whatsoever; (c) suffered or permitted any Encumbrance to
arise or be granted or created against or upon any of its assets, real or
personal, tangible or intangible; (d) canceled, waived, or released or agreed to
cancel, waive, or release any of its debts, rights, or claims against third
parties in excess of $10,000 individually or $50,000 in the aggregate; (e) sold,
assigned, pledged, mortgaged, or otherwise transferred, or suffered any Material
damage, destruction, or loss (whether or not covered by insurance) to, any
assets (except in the ordinary course of the Business); (f) amended its
operating agreement or certificate of incorporation; (g) outside the ordinary
course of business, paid or made a commitment to pay any severance or
termination payment to any employee or consultant; (h) made any Material change
in its method of management operation, accounting or reporting of income or
deductions for tax purposes or any change outside the ordinary course of the
Business in the Company's working capital other than Permitted Distributions;
(i) made any Material acquisitions, made any Material capital expenditures,
including, without limitation, replacements of equipment in the ordinary course
of the Business, or entered into commitments therefor, except for capital
expenditures or commitments therefor which do not, in the aggregate, exceed
$50,000; (j) made any investment or commitment therefor in any Person; (k) made
any payment or contracted for the payment of any bonus or other compensation or
personal expenses, other than (A) wages and salaries and business expenses paid
in the ordinary course of the Business, and (B) wage and salary adjustments made
in the ordinary course of the Business for employees who are not officers,
directors, or Stockholders of the Company; (l) made, amended or entered into any
written employment contract with any officers or key employees of the Company
listed on Exhibit D hereto or created or made any Material change in any bonus,
---------
stock option, pension, retirement, profit sharing or other employee benefit plan
or arrangement; (m) made or entered into any Contract greater than the smallest
of the Contracts scheduled in accordance with Section 3.15 of the Disclosure
Schedule; (n) made or entered into any agreement granting any Person any
registration or offer rights in respect of the Company's capital stock; (o)
entered into any non-competition agreement restricting the Company from engaging
in the Business; (p) made or entered into any employment agreement or other
agreement or other arrangement with any officer, director, Stockholder or
Affiliate of the Company; or (q) amended, experienced a termination or received
notice of actual or threatened termination or non-renewal of any Material
contract, agreement, lease, franchise or license to which the Company is a party
that would or could reasonably be expected to have a Material Adverse Effect.
3.9. Properties. Attached hereto as Exhibit J is a list containing a
---------- ---------
description of each interest in real property (including, without limitation,
leasehold interests) and each item of personal property utilized by the Company
in the conduct of the Business having a book or fair market value in excess of
$10,000 as of the date hereof. Except for Permitted Exceptions, such real and
personal properties are free and clear of Encumbrances. Stockholders and the
Company have delivered to Thayer Holdings copies of all real property leases and
a lien search obtained from the counties where the Company conducts business and
the Georgia Secretary of State office of all UCC liens of record against the
Company's personal property in the State of Georgia. All of the properties and
assets necessary for continued operation of the Business as currently conducted
(including, without limitation, all books, records, computers and computer
software and data processing systems) are owned, leased or licensed by the
Company and are
-13-
<PAGE>
reasonably suitable for the purposes for which they are currently being used.
With the exception of used equipment and inventory valued at no more than
$10,000 in the aggregate on the Company's Financial Statements, the physical
properties of the Company, including the real properties leased by the Company,
are in operating condition. Except for Permitted Exceptions, the Company has
title to all such properties and assets. The operation of the properties and
Business of the Company in the manner in which they are now and have been
operated does not violate any zoning ordinances, municipal regulations, or other
Requirements of Laws, except for any such violations which would not,
individually or in the aggregate, have a Material Adverse Effect. Except for
Permitted Exceptions, no restrictive covenants, easements, rights-of-way, or
regulations of record impair the uses of the properties of the Company for the
purposes for which they are now operated. All leases of real or personal
property by the Company are legal, valid, binding, enforceable and in full force
and effect and will not be terminated on or after the Closing Date as a result
of the failure to obtain any consents to the transactions contemplated hereby,
except for the Equitable Exceptions. All facilities leased by the Company have
received all material approvals from any Governmental Body (including
Governmental Permits) required to be obtained by the Company in connection with
the operation of the Business and have been operated and maintained in
accordance with all material Requirements of Laws applicable to the Company as a
lessee thereof. The Company owns no real property.
3.10. Licenses and Permits. Attached hereto as Exhibit K is a list of all
-------------------- ---------
material licenses, certificates, privileges, immunities, approvals, franchises,
authorizations and permits held or applied for by the Company from any
Governmental Body (herein collectively called "Governmental Permits"). The
Company has complied in all material respects with the terms and conditions of
all such Governmental Permits, and the Company has not received notification
from any Governmental Body of violation of any such Governmental Permit or the
Requirements of Laws governing the issuance or continued validity thereof. All
of such Governmental Permits are valid and in full force and effect. No
additional Governmental Permits are required from any Governmental Body thereof
in connection with the conduct of the Business which Governmental Permits, if
not obtained, would individually or in the aggregate have a Material Adverse
Effect.
3.11. Intellectual Property. Attached hereto as Exhibit L is a list and a
--------------------- ---------
brief description of all material Intellectual Property owned or utilized by the
Company. The Company has furnished Thayer Holdings with copies of all material
license agreements (including software licensing agreements) to which the
Company is a party, either as licensor or licensee, with respect to any
Intellectual Property. The Company has legal title to or the right to use all
the Intellectual Property and all inventions, processes, designs, formulae,
trade secrets and know-how utilized in the conduct of the Business as presently
conducted and, the Company has sufficient rights in the Intellectual Property to
permit diversification of the Company's customer base as set forth in the
Business Plan (the "Customer Diversification") without material impediment,
without the payment of any royalty or similar payment, and the Company is not
infringing on any Intellectual Property right of others and neither the Company
nor Stockholders have Knowledge of any infringement by others of any such rights
owned by the Company. The Company has not received notice of any charge, claim,
demand, complaint, action, suit, hearing,
-14-
<PAGE>
proceeding or investigation which challenges the Company's ownership or
licensing of any Intellectual Property, the Company's current uses or the
Company's compliance with the terms and conditions of any contracts, licenses,
agreements or Court Orders involving the Intellectual Property. Exhibit L
---------
contains a complete list of filings made with any Governmental Bodies with
regard to the Intellectual Property. All licenses set forth on Exhibit L are
---------
valid and binding obligations of the Company, and to the Knowledge of the
Company the other parties thereto, enforceable against the Company, and to the
Knowledge of the Company the other parties thereto in accordance with their
respective terms, except for the Equitable Exceptions. The Company owns and
possesses all right, title and interest in and to, or has the right to use
pursuant to a valid license, all Intellectual Property necessary for the
operation of the Business of the Company as presently conducted. The Company's
use of each item of the Intellectual Property owned or licensed by Company (i)
will not be terminated as a result of the transactions contemplated hereby; (ii)
does not interfere with the rights of any other Person based on the Company's
current use of such items or the Company's currently proposed use of such items
in order to permit the Customer Diversification without material impediment;
(iii) are in compliance with the material terms and conditions of all license or
other agreements relating to such items; and (iv) does not violate any material
Requirements of Laws or Courts Orders applicable to the Company or, to the
Company's Knowledge, any other party to any material license or other agreement
relating to such Intellectual Property. The Company is not in default (whether
or not after the giving of notice or the lapse of time or both) under any
material license, contract or other agreement relating to any Intellectual
Property.
3.12. Compliance with Laws. The Company has (i) complied in all material
--------------------
respects with all Requirements of Laws, Governmental Permits and Court Orders
applicable to the Business and has filed with the proper Governmental Bodies all
material statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and is in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, the Solid Waste Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Safe Drinking Water Act, OSHA, the
Toxic Substances Control Act and any similar state, local or foreign laws
(collectively "Environmental and OSHA Obligations") and all other Governmental
Body requirements, except where any such failure to comply or file would not, in
the aggregate, have a Material Adverse Effect. No claim has been made by any
Governmental Body (and, to the Knowledge of the Company and Stockholders, no
such claim is reasonably anticipated) to the effect that the Business fails to
comply, in any respect, with any Requirements of Laws, Governmental Permit or
Environmental and OSHA Obligation or that a Governmental Permit or Court Order
is necessary in respect thereto.
3.13. Insurance. Attached hereto as Exhibit M is a list of all coverages
--------- ---------
for fire, liability, or other forms of insurance and all fidelity bonds held by
or applicable to the Company. Copies of the binder for all such insurance
policies have been delivered to Thayer Holdings. The
-15-
<PAGE>
insurance maintained by the Company is customary and reasonably adequate for
companies engaged in the Business. To the best of the Company's and
Stockholders' Knowledge, no event relating to the Company has occurred which
will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. All of such insurance
coverages will not be terminated on or after the Closing Date as a result of the
failure to obtain any consents to the transactions contemplated hereby. The
Company is not in default under any such insurance policies.
3.14. Employee Benefit Plans.
----------------------
(a) Employee Welfare Benefit Plans. Except as set forth on Section
------------------------------ -------
3.14(a) of the Disclosure Schedule, the Company does not maintain or contribute
- ------- -------------------
to any "employee welfare benefit plan" as such term is defined in Section 3(1)
of ERISA. With respect to each such plan listed in the Disclosure Schedule, (i)
-------------------
the plan is in compliance with ERISA and all other applicable Requirements of
Laws; (ii) the plan has been administered in accordance with its governing
documents; (iii) neither the plan, nor any fiduciary with respect to the plan,
has engaged in any "prohibited transaction" as defined in Section 406 of ERISA
other than any transaction subject to a statutory or administrative exemption;
(iv) except for the processing of routine claims in the ordinary course of
administration, there is no litigation, arbitration or disputed claim
outstanding; and (v) all premiums due on any insurance contract through which
the plan is funded have been paid.
(b) Employee Pension Benefit Plans. Except as set forth in Section
------------------------------ -------
3.14(b) of the Disclosure Schedule, the Company does not maintain or contribute
- ------- -------------------
to any arrangement that is or may be an "employee pension benefit plan" relating
to employees, as such term is defined in Section 3(2) of ERISA. With respect to
each such plan: (i) the plan is qualified under Section 401(a) of the Code, and
any trust through which the plan is funded meets the requirements to be exempt
from federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA and all other applicable Requirements of Laws;
(iii) the plan has been administered in accordance with its governing documents
as modified by applicable law; (iv) the plan has not suffered an "accumulated
funding deficiency" as defined in Section 412(a) of the Code; (v) the plan has
not engaged in, nor has any fiduciary with respect to the plan engaged in, any
"prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of
the Code other than a transaction subject to statutory or administrative
exemption; (vi) the plan has not been subject to a "reportable event" (as
defined in Section 4043(b) of ERISA), the reporting of which has not been waived
by regulation of the Pension Benefit Guaranty Corporation; (vii) no termination
or partial termination of the plan has occurred within the meaning of Section
411(d)(3) of the Code; (viii) all contributions required to be made to the plan
or under any applicable collective bargaining agreement have been made to or on
behalf of the plan; (ix) there is no material litigation, arbitration or
disputed claim outstanding; (x) all applicable premiums due to the Pension
Benefit Guaranty Corporation for plan termination insurance have been paid in
full on a timely basis; and (xi) a favorable determination letter from the IRS
has been received by the Company with respect to such plan
-16-
<PAGE>
stating that such plan is so qualified; and to the Company's knowledge there are
no circumstances which would cause such plan to lose such qualified status.
(c) Employment and Non-Tax Qualified Deferred Compensation
------------------------------------------------------
Arrangements. The Company does not maintain or contribute to any retirement or
- ------------
deferred or incentive compensation or stock purchase, stock grant or stock
option arrangement entered into between the Company and any current or former
officer, consultant, director or employee of the Company that is not intended to
be and that is not a tax qualified arrangement under Section 401(a) of the Code.
3.15. Contracts and Agreements. Exhibit N hereto contains a list of all
------------------------ ---------
customer contracts, all employment contracts involving annual salaries greater
than $60,000 and all employment contracts with general managers or officers of
the Company. Exhibit N also contains a list of the 30 largest contracts (in
---------
terms of annual payments made or received with respect thereto) to which the
Company is a party or by which the Company or its properties are bound, a list
of any real estate or office building leases involving the Company and a list of
any contract or agreements, if any, prohibiting the Company from freely engaging
in the Business anywhere in the world (collectively, the "Contracts"). The
Company is not and, to the Knowledge of Stockholders and the Company, no other
party thereto is in default (and no event has occurred which, with the passage
of time or the giving of notice, or both, would constitute a default by the
Company) under any of the Contracts, and the Company has not waived any right
under any of the Contracts. All of the Contracts to which the Company is a party
are legal, valid, binding, enforceable and in full force and effect and will not
be terminated on or after the Closing Date as a result of the failure to obtain
any consents to the transactions contemplated hereby, except for the Equitable
Exceptions. The Company has not guaranteed any obligations of any other Person.
The Company has no present expectation or intention of not fully performing all
of its obligations under any Contract, the Company has no Knowledge of any
breach or anticipated breach by the other parties to any Contract and the
Company has not received notice of actual or threatened termination or non
renewal of any Contract.
3.16. Claims and Proceedings. There are no claims, actions, suits,
----------------------
proceedings, or investigations pending or, to the Knowledge of the Stockholders
or the Company, threatened against or affecting the Company or any of its
properties or assets, at law or in equity, before or by any court, municipality
or other Governmental Body. To the extent any are disclosed on the Disclosure
Schedule, none of such claims, actions, suits, proceedings, or investigations,
if adversely determined, will individually or in the aggregate result in any
Material Adverse Effect to the Company. The Company has not been and the Company
is not now, subject to any Court Order, stipulation, or consent of or with any
court or Governmental Body. No inquiry, action or proceeding has been instituted
or, to the Knowledge of the Stockholders or the Company, threatened or asserted
against the Stockholders, BSG Parent or the Company to restrain or prohibit the
carrying out of the Transactions or to challenge the validity of the
Transactions or any part thereof or seeking damages on account thereof. To the
Knowledge of the Company and Stockholders there is no basis for any such valid
claim or action.
-17-
<PAGE>
3.17. Taxes.
-----
(a) All Federal, foreign, state, county and local and other Taxes due
from the Company on or before the Closing have been paid and all Tax Returns
which are required to be filed by the Company on or before the date hereof have
been filed within the time and in the manner provided by all Requirements of
Laws or extensions were timely filed, and all such Tax Returns are true and
correct and accurately reflect the Tax liabilities of the Company in all
Material respects. No Tax Returns of the Company, BSG Parent or any of the
Stockholders are presently subject to an extension of the time to file. All
Taxes, assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes of which any of the Stockholders or the Company are
aware. For Governmental Bodies with respect to which the Company does not file
Tax Returns, no such Governmental Body has given the Company written
notification that the Company is or may be subject to taxation by that
Governmental Body. 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,
Stockholder, creditor, independent contractor or other party. The Company has
properly reflected for tax purposes in accordance with all Requirements of Laws
the status of all independent contractors, consultants and subcontractors. There
are no Tax liens on any of the property or assets of the Company.
(b) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code 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 is
not a party to any Tax allocation or sharing agreement. During the past seven
years, the Company has not and has never been (nor does the Company have any
liability for unpaid Taxes because it once was) a member of an affiliated group
during any part of which return year any corporation other than the Company also
was a member of the affiliated group.
(c) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the sale of the
Purchased Shares or the redemption of the Redemption Shares pursuant to this
Agreement.
(d) The Company and BSG Parent have each made a valid election under
Section 1362 of the Code and any corresponding state or local provisions to be
an S
-18-
<PAGE>
corporation within the meaning of Section 1361 of the Code for all taxable years
(or portions thereof) beginning on or after December 31, 1995 with respect to
the Company and since inception with respect to BSG Parent, no such S election
has been terminated (whether voluntarily, involuntarily or inadvertently,
including, without limitation, by taking any action defined in Section 1362(d)
of the Code) since such time. BSG Parent has made a valid election for the
Company to be qualified as a "Qualified Subchapter S subsidiary" under Section
1361 of the Code and applicable state laws effective as of the date that the
Stockholders contributed the stock of the Company to BSG Parent.
(e) The Company will not be required to include any amount in taxable
income or exclude any item of deduction or loss from taxable income for any
taxable period (or portion thereof) ending after the Closing Date (i) as a
result of a change in method of accounting for a taxable period ending on or
prior to the Closing Date: (ii) as a result of the transactions contemplated
hereby, (iii) as a result of any "closing agreement," as described in Code ss.
7121 (or any corresponding provision of state, local or foreign income Tax law)
entered into on or prior to the Closing Date, (iv) as a result of any sale
reported on the installment method where such sale occurred on or prior to the
Closing Date, or (v) as a result of any prepaid amount received on or prior to
the Closing Date.
3.18. Personnel. Buyer's have been provided with a list of the names and
---------
annual rates of compensation of the directors and executive officers of the
Company, and of the employees of the Company whose annual rates of compensation
during the calendar year ended December 31, 1998 (including base salary, bonus
and incentive pay) exceed (or by December 31, 1999 are expected to exceed)
$60,000 and the employment agreements, if any, pertaining to such employees.
Exhibit O also summarizes the bonus, profit sharing, percentage compensation,
- ---------
company automobile, club membership, and other like benefits, if any, paid or
payable to such directors, officers, and employees during the Company's calendar
year ended December 31, 1998 and to the date hereof. The employee relations of
the Company are generally good, there has been no unusual level of employee
departures and there is no pending or, to the Knowledge of Stockholders or the
Company, threatened labor dispute or union organization campaign. None of the
employees of the Company is covered by a collective bargaining agreement. The
Company is in compliance in all material respects with all Requirements of Laws
respecting employment and employment practices, including, without limitation,
the Fair Labor Standards Act of 1938, immigration hiring, terms and conditions
of employment, and wages and hours, and is not engaged in any unfair labor
practices. Neither the Company or Stockholders has Knowledge that any Person
listed on Exhibit D hereto will not agree to remain employed by the Company
---------
after the consummation of the Transactions. There is no unfair labor practice
claim against the Company before the National Labor Relations Board, or any
strike, dispute, slowdown, or stoppage pending or, to the Knowledge of the
Company and Stockholders, threatened against or involving the Company, and none
has previously occurred.
3.19. Business Relations. Neither the Company nor Stockholders has
------------------
Knowledge that any customer, supplier or licensor engaged in doing business with
the Company will cease to do business with the Company after the consummation of
the Transactions as previously conducted with the Company except for any
terminations which will not, in the
-19-
<PAGE>
aggregate, result in a Material Adverse Change. Neither the Stockholders nor the
Company has received any notice of cancellation of any Material business
arrangement between any Person and the Company nor do the Company or
Stockholders have Knowledge that the Business will be subject to cancellation of
any such business arrangement.
3.20. Accounts Receivable; Accounts Payable; Customer Deposits; Customer
------------------------------------------------------------------
Revenues and Deferred Revenues.
- ------------------------------
(a) Accounts Receivable. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company in the Financial
Statements are bona fide and represent amounts validly due for goods sold or
services rendered and, except for non-Material amounts, all such amounts will be
collected in full prior to December 31, 1999. With respect to such accounts,
notes, and loans receivable: (i) all are free and clear of any Encumbrances;
(ii) no claims of offset have been asserted in writing against any of such
accounts, notes, or loans receivable; and (iii) none of the obligors thereto has
given written notice that it will or may refuse to pay the full amount or any
portion thereof. Lists of the Company's accounts receivable as of May 31, 1999
(including any reconciliation to the accounts receivable entry on the balance
sheet included in the Most Recent Financial Statements) have been attached to
the Disclosure Schedule.
(b) Accounts Payable. The aggregate amount of accounts payable
----------------
reflected on the Most Recent Financial Statements are prepared in accordance
with GAAP except as adjusted for in the Net Working Capital Adjustment and,
after giving effect to such adjustment, reflect the accounts payable of the
Company as of May 31, 1999.
(c) Customer Deposits; Customer Revenues and Deferred Revenues.
----------------------------------------------------------
Exhibit P sets forth, as of the date specified therein all deferred revenues as
- ---------
of such date on an aggregate basis. For the period since December 31, 1998
through May 31, 1999, the Company's actual deposits and revenues from customer
contracts are not less than the Company's deposits and revenues from customer
contracts for the period December 31, 1997 through May 31, 1998.
3.21. Bank Accounts; Investments. Attached hereto as Exhibit Q is a list of
-------------------------- ---------
all banks or other financial institutions with which the Company has an account
or maintains a safe deposit box, showing the type and account number of each
such account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith. Exhibit Q also
---------
contains a list of all Material investments by the Company in any funds,
accounts, securities, certificates of deposit or instruments of any Person. All
of such investments are customary in form and amount for reasonably prudent
treasury investments of comparable businesses, none of which involve any type of
derivative, option, hedging or other speculative instrument.
3.22. Customer Claims. No written or oral claims for breach of contract or
---------------
otherwise by any customers (a "Customer Claim") has been made against the
Company since January 1, 1999 which could, individually or in the aggregate,
result in any Material Adverse
-20-
<PAGE>
Effect. The level of Customer Claims for the period since December 31, 1998
through the date hereof is consistent (plus or minus 5%) with past practices of
the Company for the comparable period in 1998.
3.23. Brokers. Except for The Geneva Companies, neither the Company, BSG
-------
Parent nor Stockholders have engaged, or caused to be incurred any liability to
any finder, broker, or sales agent in connection with the origin, negotiation,
execution, delivery, or performance of this Agreement or the Transactions.
3.24. Affiliated Transactions. No officer, director, Stockholder (including
-----------------------
the Stockholders and BSG Parent) or Affiliate of the Company or any individual
related by blood or marriage to any such Person, or any entity in which any such
Person owns any beneficial interest, is a party to any agreement, contract,
arrangement or commitment with the Company or engaged in any transaction with
the Company or has any interest in any property used by the Company. No officer,
director, or Stockholder of the Company or BSG Parent has any ownership interest
in any competitor, supplier, or customer of the Company (other than ownership of
securities of a publicly-held corporation or mutual fund of which such Person
owns, or has real or contingent rights to own, less than five percent of any
class of outstanding securities) or any property used in the operation of the
Business.
3.25. Funded Indebtedness; Letters of Credit; Undisclosed Liabilities.
---------------------------------------------------------------
(a) Funded Indebtedness. Other than any Funded Indebtedness which is
-------------------
to be repaid and discharged by Stockholders prior to Closing in accordance with
Section 7.1(d), the Company does not have any Funded Indebtedness.
- --------------
(b) Letters of Credit. Other than those listed on Exhibit R, the
----------------- ---------
Company has no letters of credit, performance bonds or similar instruments
issued on or for its account for the benefit of any of its vendors or otherwise.
(c) Undisclosed Liabilities. The Company does not have any Material
-----------------------
liabilities in the aggregate (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected on a corporate balance
sheet or in the notes thereto, except for such liabilities which are accrued or
reserved against in the Financial Statements or disclosed in the notes thereto,
including without limitation any accounts payable or service liabilities of the
Company incurred prior to the Closing Date.
3.26. Year 2000. All of the Material computer software, computer firmware,
---------
computer hardware (whether general or special purpose), and other similar or
related items of automated, computerized, and/or software system(s) that are
used or relied on by the Company in the conduct of its business will not
malfunction, will not cease to function, will not generate incorrect data, and
will not produce incorrect results when processing, providing, and/or receiving
(i) date-related data into and between the twentieth and twenty-first centuries
and (ii) date-related data in connection with any valid date in the twentieth
and twenty-first centuries, except for any malfunctions or generations of
incorrect data or results that would not individually
-21-
<PAGE>
or in the aggregate have a Material Adverse Effect. The Company has not been
engaged in any year 2000 correction consulting work for customers pertaining to
its work product and has received no claim or notice from any customer regarding
the failure of the Company to install computer software that is year 2000
compliant.
3.27. Information Furnished. The Company and Stockholders have made
---------------------
available to Thayer Holdings true and correct copies of all material corporate
records of the Company and all material agreements, documents, and other items
listed on the Schedules to this Agreement or referred to in Article III of this
-----------
Agreement, and neither this Agreement, the Schedules hereto, nor any written
information, instrument, or document delivered to Thayer Holdings pursuant to
this Agreement contains any untrue statement of a Material fact or omits any
Material fact necessary to make the statements herein or therein, as the case
may be, not misleading.
ARTICLE IV
THAYER HOLDINGS' REPRESENTATIONS AND WARRANTIES
Thayer Holdings represents and warrant to Stockholders, BSG Parent and the
Company as follows:
4.1. Due Organization of Thayer Holdings. Thayer Holdings is a limited
-----------------------------------
liability company duly organized, validly existing, and in good standing under
the laws of the State of Delaware and has full company power and authority to
execute, deliver and perform this Agreement and to carry out the Transactions.
4.2. Due Authorization. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary limited liability
company action by Thayer Holdings and the Agreement has been duly and validly
executed and delivered by Thayer Holdings and constitutes the valid and binding
obligation of Thayer Holdings, enforceable in accordance with its terms, except
for the Equitable Exceptions. The execution, delivery, and performance of this
Agreement and the Escrow Agreement (as well as all other instruments,
agreements, certificates or other documents contemplated hereby) by Thayer
Holdings shall not (a) violate any Requirements of Laws or Court Order of any
Governmental Body applicable to Thayer Holdings or its property, (b) violate or
conflict with, or permit the cancellation of, or constitute a default under any
agreement to which Thayer Holdings is a party or by which Thayer Holdings or its
property is bound, (c) permit the acceleration of the maturity of any
indebtedness of, or any indebtedness secured by the property of, Thayer
Holdings, (d) violate or conflict with any provision of the Certificate of
Limited Liability Company or Operating Agreement of Thayer Holdings, or (e)
except for filings or approvals under the HSR Act and such consents, approvals,
or registrations as may be required under applicable state securities laws,
require any consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any Governmental Body or other third party.
-22-
<PAGE>
4.3. No Brokers. Thayer Holdings has not engaged, or caused to be incurred
----------
any liability for which Stockholders or BSG Parent may be liable to any finder,
broker or sales agent in connection with the origin, negotiation, execution,
delivery, or performance of this Agreement or the Transactions.
4.4. Investment. Thayer Holdings will acquire the Purchased Shares for
----------
investment and for its own account and not with a view to the distribution
thereof.
4.5. Information Furnished. No written information,. instrument or document
---------------------
delivered to the Stockholders, the Company or BSG Parent pursuant to this
agreement contains any untrue statement of a material fact or omits any material
fact necessary to make the statements appearing in the aforementioned items, not
misleading.
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY, BSG PARENT, THAYER HOLDINGS
AND STOCKHOLDERS
5.1. Consents of Others. Prior to the Closing, the Company, BSG Parent and
------------------
Stockholders shall use their commercially reasonable best efforts to obtain and
to cause the Company to obtain all material authorizations, consents and permits
required of the Company, BSG Parent and Stockholders to permit them to
consummate the Transactions. To the extent required to consummate the
Transactions or to ensure that the Contracts shall not be terminated as a result
of the Closing, Stockholders shall have obtained the written consent or waiver
of any "change of control" type termination rights of any third party to any
Contract. As promptly as practicable after the date hereof, Thayer Holdings, the
Company and the Stockholders shall make, or shall cause to be made, such filings
as may be required pursuant to the HSR Act with respect to the consummation of
the Transactions.
5.2. Stockholders' Efforts. The Company and Stockholders shall use all
---------------------
commercially reasonable best efforts to cause all conditions for the Closing to
be met.
5.3. Powers of Attorney. The Company and Stockholders shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or tax matters
representation before the IRS or other Governmental Bodies.
5.4. Conduct of Business Pending Closing. From the date of this Agreement
-----------------------------------
to the Closing Date:
(a) Except as otherwise contemplated by this Agreement, or as Thayer
Holdings may otherwise consent to in writing, the Company and Stockholders shall
conduct the Business only in the ordinary course and shall not engage in any
Material transactions or enter
-23-
<PAGE>
into any Material transaction which would cause a breach of the representations
and warranties contained in Article III.
-----------
(b) Stockholders and the Company shall use their commercially
reasonable best efforts to cause the Business to preserve substantially intact
its current business organization and present relationships with its customers,
vendors, suppliers and employees and to maintain all of its insurance currently
in effect.
(c) Stockholders and the Company shall give prompt notice to Thayer
Holdings of any notice of any Material default received by the Company or the
Business subsequent to the date of this Agreement under any Contract or any
Material Adverse Change occurring prior to the Closing Date in the operation of
the Company or the Business.
(d) Neither the Company, BSG Parent nor the Stockholders, nor any of
their representatives, shall solicit, encourage or discuss any Acquisition
Proposal (as hereinafter defined) or supply any non-public information
concerning the Company or the Business or the Company's assets to any party
other than Thayer Holdings or its representatives. As used herein, "Acquisition
Proposal" means any proposal other than the Transactions, for (i) any merger or
other business combination involving the Company or the Business, (ii) the
acquisition of the Company or a material equity interest in the Company or a
material portion of its assets, or (iii) the dissolution or liquidation of the
Company.
5.5. Access Before Closing. Prior to the Closing Date, Stockholders and the
---------------------
Company agree that it will give, or cause to be given, to Thayer Holdings and
its representatives, during normal business hours and at Thayer Holdings'
expense, reasonable access to the Company's personnel, independent accountants,
officers, agents, employees, assets, properties, titles, contracts, corporate
minute and other books, records, files and documents of the Company with respect
to the Business (including financial, tax basis, budget projections,
accountants' work papers and other information as Thayer Holdings may reasonably
request) upon 24 hours prior notice. The Stockholders and Thayer shall mutually
agree on the timing and manner of contact with all third parties, including, but
not limited to, customers, vendors or suppliers, which contact shall not be
unreasonably withheld. Thayer shall not be given access to any information where
the provision of such information would violate a law or regulation applicable
to the Company.
ARTICLE VI
POST-CLOSING COVENANTS
6.1. General. In case at any time after the Closing any further action is
-------
legally necessary or reasonably desirable (as determined by Thayer Holdings and
Stockholders) 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 Article VIII below). The
------------
Stockholders acknowledge and agree that from and after the Closing, the Company
will be
-24-
<PAGE>
entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating to the Company, which shall be maintained at
the chief executive office of the Company; provided, however, that Stockholders
shall be entitled to reasonable access to and to make copies of such books and
records at their sole cost and expense and the Company will maintain all of the
same for a period of at least three (3) years after Closing. Thereafter, the
Company will offer such documentation to Stockholders before disposal thereof.
The Sellers further agree to convey all rights to any Intellectual Property
reasonably related to the Business to the Company.
6.2. Transition. For a period of four (4) years following Closing, the
----------
Stockholders will not take any action (or cause any such action to be taken by
another Person) that primarily has the effect of discouraging any vendor,
lessor, licensor, customer, contractor, subcontractor, supplier, or other
business associate of the Company from maintaining the same business relations
with the Company after the Closing as it maintained with the Company prior to
the Closing. For a period of four (4) years following Closing, the Stockholders
will refer all customer inquiries relating to the Business to the Company.
6.3. Confidentiality. The Stockholders will treat and hold in confidence
---------------
and not disclose all Confidential Information and refrain from using any of the
Confidential Information except in connection with this Agreement or otherwise
for the benefit of the Company or Thayer Holdings for a period of four (4) years
from the date of this Agreement, and deliver promptly to Thayer Holdings or
destroy, at the written request and option of Thayer Holdings, all tangible
embodiments (and all copies) of the Confidential Information which are in their
possession except as otherwise permitted herein. In the event that any
Stockholder is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, such Stockholder will notify the Company and Thayer Holdings
promptly of the request or requirement.
6.4. Covenant Not to Compete. For and in consideration of the allocation of
-----------------------
$10,000 of the Redemption Price paid to the BSG Parent by the Company, the
individual trustee of each Stockholder (which trustee is also a beneficiary of
such Stockholder), covenants and agrees, for a period of four (4) years from and
after the Closing Date, that he will not, directly or indirectly without the
prior written consent of the Company, for or on behalf of any entity, engage in
any of the activities prohibited by Section 6 of the Employment Agreement with
such Person in the Form of Exhibits F-1, F-2 or F-3 hereto.
------------ --- ---
6.5. Additional Matters.
------------------
(a) The Stockholders shall cause the Company and BSG Parent 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 the
Company and BSG Parent shall remit any Taxes (other than Taxes on income) due in
respect of such Tax Returns. In addition, BSG Parent and Stockholders shall
cause BT&C to prepare a short period tax return for the Company covering the
period January 1, 1999 through the Closing Date. The cost of preparation of such
short period tax return shall be paid for by Stockholders. The Stockholders
shall provide drafts
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of the completed tax returns for the Company to Thayer Holdings for its review a
reasonable time prior to the filing of such tax returns, and shall permit Thayer
Holdings to comment on such tax returns, and shall make such revisions as are
reasonably requested by Thayer Holdings prior to filing. Each of Thayer
Holdings, the Stockholders and BSG Parent hereby agree to treat the acquisition
of the capital stock of the Company as a "sale of substantially all of the
assets" of the Company.
(b) Thayer Holdings and 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 Thayer Holdings and/or the Company to
the extent such records and information pertain to events occurring on or prior
to the Closing Date; therefore, Thayer Holdings agrees to cause the Company to
---------
(A) use its commercially reasonable 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 each Stockholder and his 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.
(c) Subject to the procedures and limitations set forth in Article
-------
VIII hereof, including the thresholds, deductibles and caps set forth in Section
- ---- -------
8.6 hereof, the Stockholders and BSG Parent shall be liable for, and shall
- ---
indemnify and hold Thayer Holdings and the Company harmless against, (i) any
Taxes or other costs attributable solely to a failure on the part of any
Stockholder to take all actions required of him under Section 6.5(a) and (ii)
--------------
any failure of the Company to obtain any landlord consents to the transactions
contemplated hereby required under the terms of any leases of the Company's real
property.
(d) The Stockholders shall maintain BSG Parent in existence following
the Closing Date for a period of at least one year following the Closing;
provided, however, that at the Company's request, BSG Parent shall change its
name so that "BSG" is removed therefrom.
6.6. Litigation Support. In the event and for so long as any party is
------------------
actively contesting or defending against any claim, suit, action or charge,
complaint, or demand in connection with (i) any transaction contemplated under
this Agreement or (ii) any fact, circumstance, status, condition, activity,
practice, occurrence, event, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other parties will
cooperate and make reasonably available themselves or their personnel, as
applicable, and provide such reasonable testimony and access to their books and
records as shall be necessary in connection with the contest or defense.
6.7. Audits. Following the Closing, the Stockholders shall use their best
------
efforts to cause the Company, at the Company's expense, to deliver, or cause to
be delivered, to Thayer Holdings an unqualified and unmodified audit report of
Arthur Andersen, L.L.P. or other
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reputable independent accounting firm on the balance sheet of the Company as of
the Closing Date in connection with the preparation of the Audited Closing
Financial Statements and audited statements of operations and cash flows of the
Company with respect to the period January 1, 1999 through the Closing Date (and
for 1997, to the extent audited financials statements for fiscal year 1997 do
not exist), which report shall be without limitation as to the scope of the
audit. Stockholders, in their capacities as officers and directors of the
Company during such periods, shall provide all management letters, reports or
representations reasonably requested by such auditors in connection with such
audits.
6.8. Minimum Cash as of the Closing. At the Closing, the Company shall
------------------------------
maintain a level of cash and cash equivalents equal to at least $500,000. The
Redemption Price payable at Closing will be reduced by the amount by which the
Company's cash and cash equivalents are less than $500,000 at Closing (the
"Minimum Cash Deficit"). In determining the Net Working Capital Adjustment, the
amount of Minimum Cash Deficit shall be added to the aggregate amount of any
downward Net Working Capital Adjustment (i.e., Net Working Capital is less than
$3,000,000) at Closing for purposes of determining the final Net Working Capital
Adjustment; provided, however, that in no event will a Minimum Cash Deficit
result in any upward Net Working Capital Adjustment.
6.9. Stock Options. Following the Closing, the Company will commit to grant
-------------
stock options to certain employees of the Company mutually agreed upon by Thayer
Holdings and Sellers. 50% of such stock options shall be granted within a
reasonable period of time following the Closing Date and the remaining 50%
balance shall be reserved for future grants to employees of the Company. In the
aggregate, all of such stock options will be exercisable for an estimated
$2,000,000 of the Company's Common Stock valued as of the date of an initial
public offering of the Company or as of the time of a sale of the Company. The
exercise price for such stock options shall be set at a mutually agreed upon
discount to the initial public offering price or sales price of the Company in
the event of a sale of the Company; provided, however, that in no event will
such option exercise price be set (i) at a price that is less than the price per
share paid by Thayer Holdings for its shares of the Company's capital stock and
(ii) below the fair market value of the Company's Common Stock at the time such
exercise price is set (which date will be as of the Closing Date or after the
Closing Date, as the case may be, but prior to any initial public offering date
or sale date). The terms of such stock options shall generally be for ten years
from the date of grant, subject to customary four year annual vesting
requirements (i.e., 25% vesting per annum), and shall otherwise be on the same
terms and conditions applicable to all stock options granted to key executives
and employees of the Company.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING
7.1. Conditions to Thayer Holdings' Obligations. The obligation of Thayer
------------------------------------------
Holdings under this Agreement to consummate the Closing is subject to the
conditions that:
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<PAGE>
(a) Covenants, Representations and Warranties. The Company, BSG Parent
-----------------------------------------
and Stockholders shall have performed in all material respects all obligations
and agreements and complied in all material respects with all covenants
contained in this Agreement to be performed and complied with by each of them
prior to or at the Closing Date. The representations and warranties of the
Company, BSG Parent and Stockholders set forth in this Agreement shall be
accurate in all material respects at and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date.
(b) Consents. All statutory requirements for the valid consummation by
--------
the Company, BSG Parent and Stockholders of the Transactions shall have been
fulfilled and all authorizations, consents and approvals, including expiration
or early termination of all waiting periods under the HSR Act and those of all
federal, state, local and foreign governmental agencies and regulatory
authorities required to be obtained in order to permit the consummation of the
Transactions shall have been obtained in form and substance reasonably
satisfactory to Thayer Holdings unless such failure could not reasonably be
expected to have a Material Adverse Effect. All approvals of the Boards of
Directors and Stockholders of the Company and BSG Parent necessary for the
consummation of this Agreement and the Transactions shall have been obtained.
(c) Leases. Each of the Leases shall provide that the Company is the
------
lessee and if required under the terms of a given lease, any consent required in
connection with the transactions contemplated by this Agreement shall have been
obtained, and copies of such Leases (and any assignments pursuant to which any
of such Leases have been assigned to the Company prior to the Closing Date)
shall have been provided to Thayer Holdings.
(d) Discharge of Indebtedness and Liens; Stockholder Loans.
------------------------------------------------------
Stockholders and the Company shall have provided for the payment in full by the
Stockholders of all Funded Indebtedness of the Company at the Closing or the
Purchase Price and the Redemption Price will be reduced proportionately by the
amount of such Funded Indebtedness. Such Funded Indebtedness, if any, as of May
31, 1999, is listed on Exhibit S hereto. Stockholders shall have also provided
---------
for the termination of all Encumbrances of record on the properties of the
Company, except for Permitted Exceptions. All liens or UCC filings against the
Company or Affiliates of the Company which are engaged in the Business, shall
have been terminated as of the Closing. All outstanding loans or other amounts
owed by any Stockholder or BSG Parent to the Company shall have been repaid in
full on or prior to the Closing.
(e) Fee. In consideration of investment banking services provided by
---
Thayer Holdings' Affiliate, Thayer Management Partners LLC, in connection with
the Transactions, the Company shall pay to Thayer Management Partners LLC
immediately following the Closing a fee in the amount of $370,000.
(f) Transfer Taxes. Stockholders shall be responsible for all stock
--------------
transfer or gains taxes imposed on Stockholders or BSG Parent incurred in
connection with this Agreement.
-28-
<PAGE>
(g) Documents to be Delivered by Stockholders, BSG Parent and the
-------------------------------------------------------------
Company. The following documents shall be delivered at the Closing by
- -------
Stockholders, BSG Parent and the Company:
(i) Escrow Agreement. Stockholders, BSG Parent and the
----------------
Company shall have delivered to Thayer Holdings at the Closing the
duly executed Escrow Agreement in substantially the form attached
hereto as Exhibit B.
(ii) Opinion of Stockholders' Counsel. Thayer Holdings shall
--------------------------------
have received an opinion of counsel to the Company, BSG Parent and
Stockholders, dated the Closing Date, in substantially the same form
as the form of opinion that is Exhibit C hereto.
(iii) Certificates. Thayer Holdings shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated the Closing Date, in a form
mutually agreed upon by Thayer Holdings and BSG Parent.
(iv) Release. Stockholders and BSG Parent shall have
-------
furnished the Company with a general release of liabilities, excluding
compensation and employee benefits as well as obligations pursuant to
this Agreement, in the form attached as Exhibit E hereto.
(v) Employment Agreements. John R. McDougall, D. Marshall
---------------------
Nelson and Philip H. Duong shall each have duly executed and delivered
Employment Agreements in substantially the same form attached as
Exhibits F-1, F-2 and F-3 hereto, pursuant to which he will be
employed by the Company following the Closing.
(vi) Delivery of Purchased Shares. At the Closing, BSG
----------------------------
Parent shall deliver to Thayer Holdings the Purchased Shares duly
endorsed for transfer to Thayer Holdings and free and clear of all
Encumbrances, other than the restrictions imposed by federal and state
securities laws.
(vii) Redemption of Existing Common Stock. BSG Parent shall
-----------------------------------
have delivered the stock certificate(s) representing the Redemption
Shares duly endorsed for transfer to the Company and free and clear of
all Encumbrances, other than the restrictions imposed by federal and
state securities laws.
(viii) Resignation of Directors. The Company shall deliver
------------------------
the written resignations of all directors of the Company effective as
of the Closing.
(ix) Termination of Stockholder Agreements. The Company
-------------------------------------
shall have provided evidence satisfactory to Thayer Holdings of the
complete
-29-
<PAGE>
termination of all Stockholder agreements among the Stockholders, BSG
Parent and/or the Company with respect to the Company or the Existing
Shares.
(h) Company Equity Arrangements. The Equity Agreements shall have been
---------------------------
executed and delivered by the respective parties thereto.
(i) Restated Certificate of Incorporation. At the Closing immediately
-------------------------------------
following the Stock Purchase and the Redemption, the Company's Certificate of
Incorporation shall have been duly amended and restated to include substantially
all of the provisions set forth in Exhibit A attached hereto and shall not have
been further amended or modified.
(j) Financing. The Company shall have obtained the Financing Proceeds
---------
pursuant to the Financing.
7.2. Conditions to Stockholders', BSG Parent's and the Company's
-----------------------------------------------------------
Obligations. The obligation of Stockholders, BSG Parent and the Company under
- -----------
this Agreement to consummate the Closing is subject to the conditions that:
(a) Covenants, Representations and Warranties. Thayer Holdings shall
-----------------------------------------
have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Thayer Holdings prior to or at the Closing
and the representations and warranties of Thayer Holdings set forth in Article
-------
IV hereof shall be accurate in all material respects, at and as of the Closing
- --
Date, with the same force and effect as though made on and as of the Closing
Date.
(b) Consents. All statutory requirements for the valid consummation by
--------
Thayer Holdings of the Transactions shall have been fulfilled and all
authorizations, consents and approvals, including expiration or early
termination of all waiting periods under the HSR Act and those of all federal,
state, local and foreign governmental agencies and regulatory authorities
required to be obtained in order to permit the consummation by Thayer Holdings
of the Transactions shall have been obtained unless such failure shall not have
a Material Adverse Effect on the Business.
(c) Documents to be Delivered by Thayer Holdings. The following
--------------------------------------------
documents shall be delivered at the Closing by Thayer Holdings:
(i) Escrow Agreement. Thayer Holdings shall have delivered
----------------
to Stockholders and BSG Parent at the Closing the duly executed Escrow
Agreement.
(ii) Employment Agreements. Thayer Holdings shall have
---------------------
caused the Company to duly execute and deliver Employment Agreements
with each of John R. McDougall, D. Marshall Nelson and Philip H. Duong
in the same
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<PAGE>
form attached as Exhibits F-1, F-2 and F3 hereto, pursuant to which
------------ --- --
such Persons will be employed by the Company following the Closing.
(iii) Certificates. Thayer Holdings shall have delivered an
------------
officer's certificate and a secretary's certificate of Thayer Holdings
executed by officers of Thayer Holdings, dated the Closing Date, in a
form mutually agreed upon by Thayer Holdings and BSG Parent.
(iv) Legal Opinion. BSG Parent and the Stockholders shall
-------------
have received an opinion of counsel to Thayer Holdings in the Form of
Exhibit T hereto.
---------
(d) Company Equity Arrangements. The Equity Agreements shall have been
---------------------------
executed and delivered by the respective parties thereto.
(e) Payments to BSG Parent. BSG Parent shall have received (i) the
----------------------
Closing Redemption Price for the Redemption Shares and (ii) the portion of the
Purchase Price payable to BSG Parent at Closing for the Purchased Shares.
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification by BSG Parent and Stockholders. Except as provided in
----------------------------------------------
Section 8.6, Stockholders and BSG Parent agree to jointly and severally
indemnify and hold harmless Thayer Holdings and the Company and each officer,
director, and Affiliate of Thayer Holdings and the Company, including without
limitation any successor of the Company that is an Affiliate of Thayer Holdings
or any of the Company's lenders as provided in Section 10.5 hereof
------------
(collectively, the "Indemnified Parties") from and against any and all damages,
losses, claims, liabilities, demands, charges, suits, penalties, costs and
expenses (including court costs and reasonable attorneys' fees and expenses
incurred in investigating and preparing for any litigation or proceeding)
(collectively, the "Indemnifiable Costs"), which any of the Indemnified Parties
may sustain, or to which any of the Indemnified Parties may be subjected,
arising out of (A) any misrepresentation, breach or default by Stockholders, BSG
Parent or the Company of or under any of the representations, covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith; provided, however, that Indemnifiable Costs for
covenants with respect to the Company shall be with respect to pre-Closing
periods only; (B) any downward Net Working Capital Adjustment not paid to the
Company pursuant to a reduction of the Escrow Sum; and (C) the cost of any cash
to accrual liability, if any, borne by the Company and not by BSG Parent or
Stockholders. The determination of whether the Company, on the one hand, or
Thayer Holdings, on the other hand, is entitled to indemnification hereunder
shall be made by such parties in light of the economic impact or loss caused by
the matter which is the subject of the claim of indemnification. By way of
example, a claim of indemnification for breaches of the representation made in
Section 3.17 (Taxes) would impact the Company so that the Company would be
- -----------
entitled to indemnification. A
-31-
<PAGE>
claim of indemnification based on a breach of Section 3.1 (Capitalization) would
-----------
affect Thayer Holdings' investment in the Company directly (as opposed to
derivatively), so that Thayer Holdings would be entitled to indemnification.
8.2. Defense of Claims. If any legal proceeding shall be instituted, or any
-----------------
claim or demand made by a third Person, against any Indemnified Party in respect
of which Stockholders or BSG Parent may be liable hereunder, such Indemnified
Party shall give prompt written notice thereof to Stockholders and, except as
otherwise provided in Section 8.4 below, Stockholders shall have the right to
-----------
defend any litigation, action, suit, demand, or claim for which an Indemnified
Party may seek indemnifications, and such Indemnified Party shall extend
reasonable cooperation in connection with such defense, which shall be at
Stockholders' expense. In the event Stockholders fail or refuse to defend the
same within a reasonable length of time, the Indemnified Parties shall be
entitled to assume the defense thereof, and Stockholders and BSG Parent shall be
jointly and severally liable to repay the Indemnified Parties for all reasonably
incurred Indemnifiable Costs. If Stockholders shall not have the right to assume
the defense of any litigation, action, suit, demand, or claim in accordance with
the preceding sentence, the Indemnified Parties shall, at Stockholders' expense,
have the absolute right to control the defense of such litigation, action, suit,
demand, or claim, but Stockholders shall be entitled, at their own expense, to
participate in such litigation, action, suit, demand, or claim. The party
controlling any defense pursuant to this Section 8.2 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 any such litigation, action, suit, demand or
claim, and timely notice of any hearing or other court proceeding relating to
such litigation, action, suit, demand or claim. Notwithstanding the forgoing, in
no event will the party controlling any defense pursuant to this Section 3.2
-----------
settle any litigation, action, suit, demand or claim without the prior written
consent of the non-controlling party, unless such settlement provides for the
unqualified, absolute and complete release of all claims against the
non-controlling party and results in no monetary or equitable liability to the
non-controlling party.
8.3. Escrow Claim. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
------------
Escrow Period, such Indemnified Party shall first apply to the Escrow Agent
provided in Section 2.7 of this Agreement for reimbursement of such claim in
-----------
accordance with the provisions of the Escrow Agreement provided, however, the
Escrow Sum is not intended to be an exclusive remedy in the event Thayer
Holdings or the Company has indemnification claims hereunder which exceed such
amount.
8.4. Tax Audits, Etc. In the event of an audit of a Tax Return of the
----------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, the Stockholders and the Company
------------
shall jointly control any and all such audits which may result in the assessment
of additional Taxes against the Company and any and all subsequent proceedings
in connection therewith, including appeals. Stockholders and Thayer Holdings
shall cooperate fully in all matters relating to any such audit or other Tax
proceeding (including according access to all records pertaining thereto), and
will execute and file any and
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<PAGE>
all consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by the
Company as a result of any such audit or other proceeding, Stockholders shall be
severally responsible for and shall promptly pay all Taxes, interest, and
penalties for which any of the Indemnified Parties shall be entitled to
indemnification.
8.5. Indemnification of Stockholders, BSG Parent and the Company. Thayer
-----------------------------------------------------------
Holdings agrees to indemnify and hold harmless Stockholders, BSG Parent and the
Company and each officer, director, Stockholder or Affiliate of the Company,
from and against any Indemnifiable Costs arising out of any misrepresentation,
breach or default by Thayer Holdings of or under any of the representations,
covenants, agreements or other provisions of this Agreement or any agreement or
document executed in connection herewith.
8.6. Limits on Indemnification. All Indemnifiable Costs sought by any party
-------------------------
hereunder shall be net of any insurance proceeds received by such Person with
respect to such claim (less the present value of any premium increases occurring
as a result of such claim). Except for any claims for breach of the
representations, warranties and covenants of BSG Parent and the Stockholders
under Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.17 or Article VI hereof (the
------------ --- --- --- --- ---- ----------
indemnification for which shall expire on the expiration of the applicable
statute of limitations or, in the case of covenants in Article VI which have a
----------
specific expiration date, as of such date, and if so made, such claims, and all
Indemnifiable Costs incurred thereafter, shall continue after such date until
finally resolved), the right to make claims for indemnification provided under
this Article VIII shall expire on March 31, 2001 following the Closing Date
------------
(except for any claims for Indemnifiable Costs made prior to such date which
claims shall continue after such date until finally resolved). The Stockholders
and BSG Parent shall not be obligated to pay any amounts for indemnification
under this Article VIII until the aggregate indemnification obligation sought by
------------
Thayer Holdings hereunder exceeds $500,000, whereupon Stockholders and BSG
Parent shall be liable for all amounts for which indemnification may be sought
in excess of the first $200,000 in claims. Notwithstanding the foregoing, in no
event shall the aggregate liability of Stockholders and BSG Parent to Thayer
Holdings for breach of representations and warranties exceed the sum of the
Purchase Price and the Redemption Price, as adjusted pursuant to the terms
hereof; provided, however, that such limitation shall not include and shall not
limit any claims for the breaching of the representations and warranties of the
Stockholders and BSG Parent under Sections 3.1, 3.2, 3.3, 3.4, and 3.6. However
------------ --- --- --- ---
nothing in this Article VIII shall limit Thayer Holdings or Stockholders in
------------
exercising or securing any remedies provided by applicable statutory or common
law with respect to the fraudulent conduct of Stockholders, BSG Parent or Thayer
Holdings in connection with this Agreement or in the amount of damages that it
can recover from the other in the event that Thayer Holdings or Stockholders
successfully prove intentional fraud or intentional fraudulent conduct in
connection with this Agreement. Other than as set forth in the preceding
sentence, the indemnification provided for in this Section VIII is intended to
------------
be the exclusive monetary remedy of Thayer Holdings or Stockholders with regard
to the transactions contemplated by this Agreement.
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<PAGE>
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated at any time prior to the
-----------
Closing:
(a) by the mutual written consent of all parties hereto;
(b) in writing by Thayer Holdings, if the Company, BSG Parent or any
of the Stockholders has breached in any material respect any representation,
warranty or covenant contained in this Agreement, and in each case such breach
has not been remedied within ten (10) business days after receipt of written
notice specifying such breach and demanding such breach to be remedied; or
(c) in writing by the Stockholders and the Company, if Thayer Holdings
has breached in any material respect any representation, warranty or covenant
contained in this Agreement, and in each case such breach has not been remedied
within ten (10) business days after receipt of written notice specifying such
breach and demanding such breach to be remedied; or
(d) in writing by either the Company and the Stockholders, on the one
hand, or Thayer Holdings, on the other hand, in the event the Closing has not
occurred on or before August 31, 1999, unless the failure of such consummation
or the failure to satisfy such condition, as applicable, shall be due to a
breach of any representation or warranty made by the party or parties seeking to
terminate this Agreement or the failure of such party or parties to comply in
all material respects with the agreements and covenants contained herein to be
performed by such party or parties.
9.2. Effect of Termination. If the Transactions are terminated pursuant to
---------------------
Section 9.1 by notice in writing to the non-terminating party or parties, this
- -----------
Agreement shall become void and of no further force and effect, except that (a)
such termination shall not relieve (i) any party from its covenants in respect
of confidentiality contained in Section 6.3 and (ii) any party then in breach of
-----------
any representation, warranty, covenant or agreement contained in this Agreement
from liability in respect of such breach and (b) Sections 10.4 and 10.7 shall
------------- ----
survive termination of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1. Modifications. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or
-34-
<PAGE>
privilege. No waiver of any default on any one occasion shall constitute a
waiver of any subsequent or other default. No single or partial exercise of any
such right, power or privilege shall preclude the further or full exercise
thereof.
10.2. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given when personally delivered,
or 48 hours after deposited in the United States mail, first-class, postage
prepaid, or by facsimile addressed to the respective parties hereto as follows:
Thayer Holdings:
---------------
c/o Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, NW
Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Fax No.: (202) 371-0391
Tel No.: (202) 371-0150
With a copy to:
--------------
Empyrean Group
800 Boone Blvd.
Suite 250
Vienna, VA 22182
Attention: Thomas B. Modly
Jason H. Levine
Fax No.: (703) 790-9033
Tel No.: (703) 790-9008
and to:
Hogan & Hartson L.L.P.
Columbia Square
Thirteenth Street, NW
Washington, DC 20004-1109
Attention: Christopher J. Hagan, Esq.
Fax No.: (202) 637-5910
Tel No.: (202) 637-5600
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<PAGE>
The Company, BSG Parent or Stockholders:
---------------------------------------
c/o Business Solutions Group, Inc.
284 S. Main Street
Suite 700
Alpharetta, Georgia 30004
Attention: John R. McDougall
D. Marshall Nelson, Esq.
Philip H. Duong
Fax No.: (770) 360-5520
Tel No.: (770) 360-5423
With a copy to:
--------------
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Richard Green, Esq.
Fax No.: (404) 572-6999
Tel No.: (404) 572-6600
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
10.3. Counterparts; Facsimile Transmission. This Agreement may be executed
------------------------------------
in several counterparts, each of which shall be deemed an original but all of
which counterparts collectively shall constitute one instrument, and in making
proof of this Agreement, it shall never be necessary to produce or account for
more than one such counterpart. Signatures of a party to this Agreement or other
documents executed in connection herewith which are sent to the other parties by
facsimile transmission shall be binding as evidence of acceptance of the terms
hereof or thereof by such signatory party, with originals to be circulated to
the other parties in due course.
10.4. Expenses. Each of the parties hereto will bear all costs, charges and
--------
expenses incurred by such party in connection with this Agreement and the
consummation of the Transactions, provided, however, that Stockholders shall
bear all costs and expenses of (i) any broker involved in this transaction on
behalf of Stockholders, BSG Parent or the Company and (ii) all legal and other
expenses of Stockholders, BSG Parent or the Company with respect to this
Agreement and the Transactions. All costs of Thayer Holdings shall be borne by
the Company.
10.5. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Company, BSG Parent, Thayer Holdings and
Stockholders, their heirs, representatives, successors, and permitted assigns,
in accordance with the terms hereof. This Agreement shall not be assignable by
the Company, BSG Parent or Stockholders without the prior written consent of
Thayer Holdings. This Agreement shall be assignable by Thayer
-36-
<PAGE>
Holdings and/or the Company to either (a) any lender providing financing to
Thayer Holdings or the Company (but only with respect to Thayer Holdings' rights
under Article II and Article VIII hereof) or (b) any Affiliate of Thayer
Holdings, provided Thayer Holdings remain liable, in each case without the prior
written consent of Stockholders. In addition, following the Closing, Thayer
Holdings or the Company may assign any or all of its rights hereunder, without
the consent of the Stockholders, in connection with any sale of all or
substantially all of the assets, capital stock, partnership interests or
business of the Company or Thayer Holdings (whether effected by sale, exchange,
merger, consolidation or other transaction) and provided the acquiring party
shall assume all of Thayer Holdings' or the Company's obligations hereunder.
10.6. Entire and Sole Agreement. This Agreement and the other schedules and
-------------------------
agreements referred to herein, constitute the entire agreement between the
parties hereto and supersede all prior agreements, representations, warranties,
statements, promises, information, arrangements and understandings, whether oral
or written, express or implied, with respect to the subject matter hereof.
10.7. Governing Law. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Delaware, without giving effect to the principles of conflicts of laws
thereof.
10.8. Survival of Representations, Warranties and Covenants. Regardless of
-----------------------------------------------------
any investigation at any time made by or on behalf of any party hereto or of any
information any party may have in respect thereof, all covenants, agreements,
representations, and warranties and the related indemnities made hereunder or
pursuant hereto or in connection with the Transactions shall survive the Closing
for a period ending on March 31, 2001, provided (a) the representations and
warranties contained in Section 3.17 of this Agreement, and the related
------------
indemnities, shall survive the Closing until the expiration of the applicable
statutes of limitations for determining or contesting Tax liabilities including
any extension of such periods plus sixty (60) days, (b) the representations,
warranties and covenants contained in Sections 3.1, 3.2, 3.3, 3.4, 3.6 and
------------ --- --- --- ---
6.5(c) of this Agreement, and the related indemnities, shall survive the Closing
- ------
indefinitely and not expire, (c) all covenants in this Agreement which have an
expiration date contained therein shall expire as of such date and (d) all other
covenants in this Agreement which do not have an expiration date shall expire
upon the expiration of the applicable statutes of limitations.
10.9. Invalid Provisions. If any provision of this Agreement is deemed or
------------------
held to be illegal, invalid or unenforceable, this Agreement shall be considered
divisible and inoperative as to such provision to the extent it is deemed to be
illegal, invalid or unenforceable, and in all other respects this Agreement
shall remain in full force and effect; provided, however, that if any provision
of this Agreement is deemed or held to be illegal, invalid or unenforceable
there shall be added hereto automatically a provision as similar as possible to
such illegal, invalid or unenforceable provision and be legal, valid and
enforceable. Further, should any provision contained in this Agreement ever be
reformed or rewritten by any judicial body of competent jurisdiction, such
provision as so reformed or rewritten shall be binding upon all parties hereto.
-37-
<PAGE>
10.10. Public Announcements. Neither Stockholders, BSG Parent nor the
--------------------
Company (pre-Closing) shall make any public announcement of the Transactions
without the prior written consent of Thayer Holdings, which consent shall not be
unreasonably withheld.
10.11. Remedies Cumulative. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
10.12. Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
10.13. No Strict Construction. The parties hereto have participated jointly
----------------------
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
10.14. Disclosure Schedule. An item disclosed in any part of the Disclosure
-------------------
Schedule attached hereto shall be deemed disclosed in response to other
applicable Disclosure Schedule cross-referenced therein.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-38-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date and year first above written.
THE COMPANY:
-----------
BUSINESS SOLUTIONS GROUP, INC.
By: /s/ John R. McDougall
----------------------------------------
John R. McDougall
President
BSG PARENT:
----------
BSG HOLDINGS, INC.
By: /s/ John R. McDougall
----------------------------------------
John R. McDougall
President
STOCKHOLDERS:
/s/ John R. McDougall
--------------------------------------------
John R. McDougall, as Trustee as trustee of
the John R. McDougall and Louise A. McDougall
Trust dated July 24, 1998 and as trustee of
the Louise A. and John R. McDougall Trust
dated July 24, 1998
/s/ D. Marshall Nelson
---------------------------------------------
D. Marshall Nelson, as Trustee of the Nelson
Family Trust dated May 22, 1995
/s/ Philip H. Duong
---------------------------------------------
Philip H. Duong, as Trustee of the Duong
Family Trust dated November 28, 1998
-39-
<PAGE>
THAYER HOLDINGS:
THAYER ITECH HOLDINGS, L.L.C.
By: TC Equity Partners, L.L.C.
Its: Managing Member
By: /s/ Robert E. Michalik
-----------------------------------
Name: Robert E. Michalik
Title: President
The Exhibits and Schedules to this Recapitalization Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
-40-
<PAGE>
Exhibit 10.16
========================================================================
BUSINESS LOAN AND SECURITY AGREEMENT
dated as of August 12 1999,
by and among
EMPYREAN GROUP HOLDINGS, INC.,
BSG SOLUTIONS, INC.
and other Borrower parties hereto from time to time,
as the Borrowers,
FIRST UNION COMMERCIAL CORPORATION,
BANK OF AMERICA, N.A.,
and other Lender parties hereto from time to time,
as the Lenders,
FIRST UNION NATIONAL BANK,
as the Agent
and
BANK OF AMERICA, N.A.,
as Co-Lead Arranger
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 COMMITMENT.................................................9
Section 1.1 Maximum Loan Amount........................................9
Section 1.2 Use of Proceeds...........................................10
Section 1.3 Maximum Advances; Borrowing Deficiency....................10
Section 1.4 Advances..................................................11
Section 1.5 Additional Mandatory Payments; Reduction of Commitment....12
Section 1.6 Field Audits..............................................12
Section 1.7 Fees......................................................12
Section 1.8 Termination of Advances; Reduction of the Revolving
Facility Commitment Amount................................13
Section 1.9 Appointment of Empyrean...................................14
Section 1.10 Joinder of New Subsidiaries and Affiliates................14
ARTICLE 2 LETTERS OF CREDIT.........................................14
Section 2.1 Issuance..................................................14
Section 2.2 Amounts Advanced Pursuant to Letters of Credit............15
Section 2.3 Letter of Credit Fees.....................................15
ARTICLE 3 SECURITY..................................................16
Section 3.1 Security Generally........................................16
Section 3.2 No Preference or Priority.................................17
Section 3.3 Release of Security Interest..............................17
ARTICLE 4 CONDITIONS TO THE OBLIGATIONS OF THE LENDER(S)............18
Section 4.1 Satisfaction of Commitment Letter Conditions;
Compliance with Agreements................................18
Section 4.2 No Default................................................19
Section 4.3 Documentation.............................................19
ARTICLE 5 REPRESENTATIONS AND WARRANTIES............................20
Section 5.1 Corporate Existence and Qualification.....................20
Section 5.2 Corporate Authority; Noncontravention.....................20
Section 5.3 Financial Position........................................20
Section 5.4 Payment of Taxes..........................................20
Section 5.5 Accuracy of Submitted Information; Omissions..............21
Section 5.6 Intentionally Omitted.....................................21
Section 5.7 No Defaults or Liabilities................................21
Section 5.8 No Violations of Law......................................21
Section 5.9 Litigation and Proceedings................................21
Section 5.10 Security Interest in the Collateral.......................21
Section 5.11 Principal Place of Business; Location of Books and
Records; No Inventory.....................................22
Section 5.12 Fiscal Year...............................................22
Section 5.13 Pension Plans.............................................22
Section 5.14 O.S.H.A., ADA and Environmental Compliance................22
Section 5.15 Intellectual Property.....................................23
Section 5.16 Existing or Pending Defaults; Material Contracts..........24
i
<PAGE>
Section 5.17 Leases and Real Property..................................24
Section 5.18 Labor Relations...........................................24
Section 5.19 Empyrean..................................................24
Section 5.20 Ownership Interests.......................................25
Section 5.21 Contribution Agreement....................................25
Section 5.22 Solvency..................................................25
Section 5.23 Year 2000 Compliance......................................25
Section 5.24 Joint and Several Liability...............................25
Section 5.25 Survival of Representations and Warranties................25
ARTICLE 6 AFFIRMATIVE COVENANTS.....................................25
Section 6.1 Payment of Loan Obligations...............................26
Section 6.2 Payment of Taxes..........................................26
Section 6.3 Delivery of Financial and Other Statements................26
Section 6.4 Maintenance of Records; Review by the Lenders.............27
Section 6.5 Maintenance of Insurance Coverage.........................28
Section 6.6 Maintenance of Property/Collateral; Performance of
Contracts.................................................28
Section 6.7 Maintenance of Corporate Existence........................28
Section 6.8 Maintenance of Certain Accounts with Lender...............28
Section 6.9 Maintenance of Management.................................28
Section 6.10 Disclosure of Defaults, Etc...............................29
Section 6.11 Security Perfection; Payment of Costs.....................29
Section 6.12 Defense of Title to Collateral............................29
Section 6.13 Compliance with Law.......................................29
Section 6.14 Further Assurances; Additional Requested Information......29
Section 6.15 Financial Covenants.......................................30
Section 6.16 Year 2000 Compliance......................................31
Section 6.17 Landlord Waivers; Subordination...........................32
Section 6.18 Substitute Notes..........................................32
Section 6.19 Interest Rate Contracts...................................32
Section 6.20 Joint and Several Liability...............................32
ARTICLE 7 NEGATIVE COVENANTS........................................32
Section 7.1 Change of Control; Disposition of Assets; Merger..........33
Section 7.2 Margin Stocks.............................................34
Section 7.3 Change of Operations......................................34
Section 7.4 Judgments; Attachments....................................35
Section 7.5 Further Assignments; Performance and Modification of
Contracts; etc............................................35
Section 7.6 Affect Rights of the Agent or Lender(s)...................35
Section 7.7 Indebtedness; Granting of Security Interests..............35
Section 7.8 Dividends; Loans; Advances; Investments and Certain
Other Events..............................................36
Section 7.9 Lease Obligations.........................................36
Section 7.10 Capital Expenditures......................................36
Section 7.11 Lockbox Deposits..........................................36
Section 7.12 Shareholders Agreement; Recapitalization Agreement; Etc...36
Section 7.13 Sprint Master Services Agreement..........................37
Section 7.14 Transactions With Affiliates..............................37
Section 7.15 Joint and Several Liability...............................37
ARTICLE 8 COLLATERAL ACCOUNT........................................37
ii
<PAGE>
ARTICLE 9 DEFAULT AND REMEDIES......................................38
Section 9.1 Events of Default.........................................38
Section 9.2 Remedies..................................................39
ARTICLE 10 THE AGENT; AGENCY.........................................41
Section 10.1 Appointment...............................................41
Section 10.2 General Nature of the Agent's Duties......................42
Section 10.3 Exercise of Powers........................................42
Section 10.4 General Exculpatory Provisions............................45
Section 10.5 Administration by the Agent...............................45
Section 10.6 Lenders Not Relying on the Agent or Other Lenders.........46
Section 10.7 Indemnification...........................................47
Section 10.8 The Agent in its Individual Capacity......................47
Section 10.9 Holders of Notes..........................................47
Section 10.10 Successor Agent...........................................47
Section 10.11 Additional Agents.........................................48
Section 10.12 Calculations..............................................48
Section 10.13 Funding by Agent..........................................48
Section 10.14 Benefit of Article........................................50
ARTICLE 11 CERTAIN ADDITIONAL RIGHTS AND OBLIGATIONS
REGARDING THE COLLATERAL..................................50
Section 11.1 Power of Attorney.........................................50
Section 11.2 Lockbox...................................................51
Section 11.3 Other Agreements..........................................52
ARTICLE 12 MISCELLANEOUS.............................................52
Section 12.1 Remedies Cumulative.......................................52
Section 12.2 Waiver....................................................52
Section 12.3 Notices...................................................53
Section 12.4 Entire Agreement..........................................53
Section 12.5 Relationship of the Parties...............................54
Section 12.6 Waiver of Jury Trial; Punative Damages....................54
Section 12.7 Submission to Jurisdiction; Service of Process; Venue.....54
Section 12.8 Changes in Capital Requirements...........................55
Section 12.9 Captions..................................................55
Section 12.10 Modification and Waiver...................................55
Section 12.11 Transferability...........................................55
Section 12.12 Governing Law; Binding Effect.............................56
Section 12.13 Gender; Number............................................56
Section 12.14 Materiality...............................................56
Section 12.15 Counterparts..............................................56
LIST OF EXHIBITS:
EXHIBIT 1 - Request for Advance
EXHIBIT 1(a) - Request for Swing Line Loan
EXHIBIT 2 - LIBOR Election Form and Certification
EXHIBIT 3 LIBOR Interest Election Procedure and Requirements
iii
<PAGE>
EXHIBIT 4 - Non-Default Certificate
EXHIBIT 5 - Quarterly Covenant Compliance/Non-Default Certificate
EXHIBIT 6 Form of Joinder Agreement
EXHIBIT 7 Pricing Grid
EXHIBIT 8 Form of Payment Direction Letter
EXHIBIT 9 Form of Assignment and Acceptance Agreement
SCHEDULES
SCHEDULE 1 - EBITDA Adjustments
SCHEDULE 2 - Percentage
SCHEDULE 5.7 - Defaults
SCHEDULE 5.9 - Litigation and Proceedings
SCHEDULE 5.11 - Business Locations
SCHEDULE 5.13 - Pension Plan Matters
SCHEDULE 5.15 - Intellectual Property Royalty Arrangements
SCHEDULE 5.16(a) - Material Contracts
SCHEDULE 5.16(b) - Material Contract Litigation
SCHEDULE 5.17 - Leasehold Interest
SCHEDULE 5.18 - Term Employment Agreements
SCHEDULE 5.20 - Empyrean Stockholders
SCHEDULE 7.1(b) - Employee Incentive Compensation Plans
SCHEDULE 7.7 - Indebtedness Secured by Liens
SCHEDULE 7.8(b) - Loans, Salary Advances and Other Payments
iv
<PAGE>
BUSINESS LOAN AND SECURITY AGREEMENT
------------------------------------
THIS BUSINESS LOAN AND SECURITY AGREEMENT, dated as of August 12, 1999,
is by and among (i) FIRST UNION COMMERCIAL CORPORATION, a North Carolina
corporation, acting in its capacity as a Lender, and having offices at 1970
Chain Bridge Road, 9th Floor, McLean, Virginia 22102; (ii) BANK OF AMERICA,
N.A., a national banking association, acting in its capacity as a Co-Lead
Arranger and a Lender, and having offices at 6610 Rockledge Drive, 3rd Floor,
Bethesda, Maryland 20817; (iii) each other person or entity who is now or
hereafter becomes a "Lender" pursuant to this Agreement; (iv) FIRST UNION
NATIONAL BANK, a North Carolina corporation, acting in its capacity as Agent for
the Lenders, having offices at 1970 Chain Bridge Road, 9th Floor, McLean,
Virginia 22102; (v) EMPYREAN GROUP HOLDINGS, INC., a Delaware corporation
("Empyrean"), BSG SOLUTIONS, INC., a Georgia corporation ("BSGI"), each having
offices at 8300 Boone Boulevard, Suite 250, Vienna, Virginia 22182; and (vi)
each other person or entity hereafter becoming a "Borrower" by executing, among
other things, a "Joinder Agreement" pursuant to this Agreement.
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
In consideration of the mutual covenants and agreements herein contained,
Ten Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree,
represent and warrant as follows:
CERTAIN DEFINITIONS
-------------------
For the purposes of this Business Loan and Security Agreement, the terms
set forth below shall have the following definitions:
"Account Debtor" shall mean any person or entity who is (i) unrelated and
unaffiliated with any Borrower, and (ii) indebted to any Borrower for the
payment of any Receivable.
"Additional Base Rate Interest Margin" shall have the meaning assigned to
such term in the Notes and in Exhibit 7 attached to this Agreement.
---------
"Additional Libor Interest Rate Margin" shall have the meaning assigned
to such term in the Notes and in Exhibit 7 attached to this Agreement.
---------
"Adjusted EBITDA" shall mean, as of the date of any determination, the
Borrowers' net income (or loss), plus interest expense, plus all charges against
income for foreign, federal, state and local income taxes, plus depreciation
expense, plus amortization expense, and plus adjustments set forth on Schedule 1
----------
hereto and future adjustments approved by the Agent in its sole discretion, all
as determined on a consolidated basis in accordance with GAAP.
"Affected Lender" shall have the meaning attributed to such term in
Section 10.3(a) of this Agreement.
<PAGE>
"Agent" shall mean First Union National Bank, a North Carolina
corporation, acting in its capacity as agent for the Lenders, or any successor
Agent appointed pursuant to Section 10.10 of this Agreement.
"Agreement" or "Loan Agreement" shall mean this Business Loan and
Security Agreement, together with all exhibits and schedules attached hereto and
any and all amendments or modifications of any of the foregoing made in
accordance with Section 12.10 of this Agreement.
"Applicable Interest Rate" shall mean either the (i) LIBOR or (ii) Base
Rate, as set forth in the Notes.
"Applicable Laws" shall mean any federal, state or local law, ordinance,
rule or regulation to which any Borrower or the property of any Borrower is
subject, whether domestic or international.
"Bank of America" shall mean Bank of America, N.A., a national banking
association.
"Base Rate" shall mean the higher of the (i) Federal Funds Rate, plus
one-half of one percent (.50%) or (ii) Prime Rate.
"Blocking Lender" shall have the meaning attributed to such term in
Section 10.3(a) of this Agreement.
"Borrower" or "Borrowers" shall mean Empyrean, BSGI, and/or each other
person or entity hereafter executing a Joinder Agreement pursuant to Section
1.10 of this Agreement, individually or collectively, as the context may
require.
"BSGI" shall have the meaning attributed to such term in the Preamble of
this Agreement.
"Business Day" shall mean any day other than (i) a Saturday, Sunday, or
public holiday under the laws of the Commonwealth of Virginia; (ii) any other
day on which banking institutions are authorized or obligated to close in the
city in which the Agent's office is located; or (iii) with respect to all
notices and determinations in connection with, and payments of principal and
interest on, any Loan bearing interest on a LIBOR basis, any day on which banks
are not open for trading in Dollar deposits in the London interbank market.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et
seq.).
"Closing" shall mean the settlement of the transactions contemplated
hereby.
"Closing Date" shall mean the date on which Closing occurs.
"Collateral" shall have the meaning assigned to such term in Section 3.1
of this Agreement.
2
<PAGE>
"Collateral Account" shall have the meaning assigned to such term in
Article 8 of this Agreement.
"Commitment Amount" shall mean the Revolving Facility Commitment Amount.
"Commitment Fee" shall have the meaning assigned to such term in Section
1.7(a) of this Agreement.
"Commitment Letter" shall mean that certain commitment letter dated July
27, 1999 issued by First Union, Bank of America and First Union Capital Markets
to Thayer Capital Partners.
"Contribution Agreement" shall mean that certain Contribution Agreement
of even date herewith, executed and delivered by and among the Borrowers
immediately prior to the Closing, as amended from time to time pursuant to the
terms thereof.
"Default Rate" shall mean the Applicable Interest Rate, plus the
applicable Additional Base Rate Interest Margin and/or the applicable Additional
Libor Interest Rate Margin (as the case may be), plus two percent (2%).
"Eligible Assignee" shall mean any Lender, an affiliate of any Lender, a
Federal Reserve Bank or any other "Qualified Institutional Buyer", as such term
is defined under Rule 144(A), promulgated under the Securities Act of 1933, as
amended.
"Empyrean" shall have the meaning attributed to such term in the Preamble
of this Agreement.
"Event of Default" shall have the meaning assigned to such term in
Section 9.1 of this Agreement.
"Facility" or "Facilities" shall mean the Revolving Facility and/or Swing
Line Facility, individually or collectively, as the context may require.
"Federal Funds Rate" for any day shall mean the rate per annum (rounded
upward to the nearest 1/8 of 1%) determined by the Agent to be the rate per
annum announced by the Federal Reserve Bank of New York (or any successor) on
such day as being the weighted average of the rates on overnight Federal Funds
transactions arranged by Federal Funds brokers on the previous trading day, as
computed and announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the "Federal Funds Effective
Rate" as of the date of this Agreement; provided that if such Federal Reserve
Bank (or its successor) does not announce such rate on any day, the "Federal
Funds Effective Rate" for such day shall be the Federal Funds Rate for the last
day on which such rate was announced.
"First Union" shall mean First Union Commercial Corporation, a North
Carolina corporation, acting individually, together with its successors and
assigns.
"Fixed Charge Coverage Ratio" shall have the meaning assigned to such
term in Section 6.15(b) of this Agreement.
3
<PAGE>
"GAAP" shall mean domestic generally accepted accounting principles,
consistently applied.
"Government" shall mean the United States government or any department,
instrumentality or agency thereof, and any state government or any department,
instrumentality or agency thereof.
"Hazardous Substance" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances,
pollutants or contaminants as defined in CERCLA, HMTA, RCRA or any other
applicable environmental law, rule, order or regulation.
"Hazardous Wastes" shall mean, without limitation, all waste materials
subject to regulation under CERCLA, RCRA or analogous state law, and/or any
other applicable Federal and/or state law now in force or hereafter enacted
relating to hazardous waste treatment or disposal.
"HMTA" shall mean the Hazardous Materials Transportation Act, as amended
(49 U.S.C. Sections 1801 et seq.)
"Indebtedness" shall have the meaning attributed to "Total Debt" set
forth in this Agreement.
"Intellectual Property Security Agreement" shall mean that certain
Intellectual Property Security Agreement of even date herewith, made by the
Borrowers in favor of the Agent for the ratable benefit of the Lenders, together
with any and all modifications and/or amendments thereto.
"Interest Expense" shall mean, as of the date of any determination, the
Borrowers' aggregate cash interest expense for borrowed money, plus the amount
of all other interest due (whether paid or not paid) on any indebtedness of the
Borrowers for the applicable measurement period, all as determined on a
consolidated basis in accordance with GAAP.
"Interest Period" means as to any Loan proceeds for which LIBOR based
interest has been elected in accordance with this Agreement, the period
commencing on and including the date such LIBOR election is effective (or the
effective date of the election to convert any portion of the Loan to a LIBOR
interest basis in accordance with the provisions of this Agreement) and ending
on and including the day which is 30, 60, 90 or 180 days thereafter, as
available, and as selected in accordance with the provisions of this Agreement;
provided, however, that: (i) the first day of any Interest Period shall be a
Business Day; (ii) if any Interest Period would end on a day that would not be a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day; and (iii) no Interest Period shall extend beyond the Revolving
Facility Maturity Date.
"Joinder Agreement" shall have the meaning assigned to such term in
Section 1.10 of this Agreement.
4
<PAGE>
"Lender" and/or "Lenders" shall mean, individually or collectively as the
context may require, First Union Commercial Corporation, a North Carolina
corporation, Bank of America, N.A., a national banking association, and any and
all other banking or financial institutions which have (i) extended credit to
the Borrowers pursuant to this Agreement, and (ii) agreed to be bound by the
terms and provisions of this Agreement.
"Letter of Credit" and "Letters of Credit" shall mean, respectively, each
and all of the trade and standby letters of credit issued pursuant to this
Agreement, if any.
"Letter of Credit Application" shall have the meaning assigned to such
term in Section 2.1 of this Agreement.
"Letter of Credit Administration Fee" shall have the meaning assigned to
such term in Section 2.3 of this Agreement.
"Letter of Credit Fee" shall have the meaning assigned to such term in
Section 2.3 of this Agreement.
"LIBOR" shall mean for any Interest Period with respect to any Loan
proceeds for which a LIBOR election has been made and is effective, the per
annum interest rate (rounded upward, if necessary, to the nearest next 1/8 of
1%) set forth on Telerate Page 3750, on an immediately available funds basis, at
or about 11:00 a.m. (London time) on the date that is two (2) Business Days
prior to the first day of such Interest Period, for the offering by leading
banks in the London Interbank Eurodollar market of Dollar deposits for a period
comparable in time to the duration of such Interest Period and in amounts
comparable to the amounts for which LIBOR is to be determined, adjusted for
reserve requirements, if any. If the Agent shall be unable to obtain LIBOR
quotes on Telerate Page 3750, LIBOR shall be the average of those rates quoted
on the REUTERS "LIBO" page for a period comparable to the applicable Interest
Period (rounded upward, if necessary, to the nearest next 1/8 of 1%).
"LIBOR Election Form and Certification" shall mean that certain LIBOR
Election Form and Certification attached as Exhibit 2 hereto.
---------
"Loan" and "Loans" shall mean, individually or collectively as the
context may require, the loan or loans made by the Lender(s) to the Borrowers in
the aggregate maximum principal amount of Forty Million and No/100 Dollars
($40,000,000.00), or so much thereof as shall be advanced or readvanced from
time to time, which are represented by the Facilities, and which shall be
evidenced by, bear interest and be payable in accordance with the terms and
provisions of the Notes and this Agreement.
"Loan Document" and "Loan Documents" shall mean, respectively, each and
all of this Agreement, the Notes, the Stock Security Agreement, the Intellectual
Property Security Agreement and each and every other document, instrument or
certificate now or hereafter executed and/or delivered by any Borrower in
connection with the Loan.
"Mandatory Payments" shall mean the mandatory payments required to be
made on the Loan pursuant to Section 1.5 of this Agreement.
5
<PAGE>
"Material Contract" shall mean (i) the Sprint Master Services Agreement;
and (ii) any and all other contracts or agreements to which a Borrower is a
party and pursuant to which such Borrower is or may be (a) entitled to receive
payments in excess of Five Hundred Thousand and No/100 Dollars ($500,000.00), in
the aggregate, per annum, or (b) obligated to make payments or have any other
obligation or liability thereunder (direct or contingent) in excess of Five
Hundred Thousand and No/100 Dollars ($500,000.00), in the aggregate, per annum.
"Non-Default Certificate" shall mean a certificate in the form of Exhibit
-------
4 hereto.
- -
"Note" and "Notes" shall mean, individually or collectively as the
context may require, the Revolving Facility Note(s), the Swing Line Note and/or
any other promissory notes executed pursuant to this Agreement, together with
all extensions, renewals, modifications, replacements and substitutions thereof
and therefor.
"Obligation" and "Obligations" shall mean, respectively, any and all
obligations or liabilities of any Borrower to any Lender(s) and/or the Agent
arising under this Agreement or any other Loan Document, or otherwise incurred
in connection with the Loan, whether now existing or hereafter created or
arising, direct or indirect, matured or unmatured, and whether absolute or
contingent, joint, several or joint and several, and no matter how the same may
be evidenced or shall arise (including, without limitation, any and all interest
rate protection agreements, overdraft protection contracts and foreign exchange
contracts).
"Original Lenders" shall have the meaning attributed to such term in
Section 10.3(a) of this Agreement.
"Payment Default" shall have the meaning attributed to such term in
Section 9.2(c) of this Agreement.
"Percentage" shall mean with respect to each Lender, the percentage set
forth next to such Lender's name on Schedule 2 to this Agreement, as the same
----------
may be amended from time to time.
"Permitted Liens" shall mean: (a) liens for taxes which are not yet due
and payable or which are being contested in good faith and by appropriate
proceedings, which (i) the Borrower has the financial ability to pay, including
penalties and interest, and (ii) the non-payment thereof will not result in the
execution of any such tax lien or otherwise adversely affect the interests of
the Agent in any part of the Collateral; (b) deposits or pledges to secure
obligations under workers' compensation, social security or similar laws,
incurred in the ordinary course of business; (c) liens securing indebtedness of
the Borrowers permitted by Section 7.7 of this Agreement; (d) cash deposits
pledged to secure the performance of bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations, surety and
appeal bonds and other obligations of like nature made in the ordinary course of
business; (e) mechanics', workmen's, repairmen's, warehousemen's, vendors' or
carriers' liens or other similar liens; provided that such liens arise in the
ordinary course of the Borrower's business and secure sums which are not past
due, or which secure sums which are past due so long as such liens are being
diligently contested in good faith by appropriate proceedings, are not in
jeopardy of being executed upon by legal process and have been separately
secured by cash deposits made to or pledges with the Agent in an amount adequate
to obtain the release of such liens; (f) except
6
<PAGE>
as otherwise provided in this Agreement, statutory or contractual landlord's
liens on the Borrower's tangible personal property located in the demised
premises; (g) zoning or other similar and customary land use restrictions, which
do not materially impair the use or value of the subject property; (h) judgment
liens which are not prohibited by Section 7.4 of this Agreement; (i) other liens
expressly permitted by the terms and provisions of this Agreement; and (j) liens
in favor of the Agent.
"Prepayment Fee" shall have the meaning attributed to such term in
Exhibit 3 to this Agreement.
- ---------
"Prime Rate" shall mean the rate of interest from time to time
established and publicly announced by First Union as its prime rate, in First
Union's sole discretion, which rate of interest may be greater or less than
other interest rates charged by First Union to other borrowers and is not solely
based or dependent upon the interest rate which First Union may charge any
particular borrower or class of borrowers.
"Quarterly Covenant Compliance Certificate" shall have the meaning
attributed to such term in Section 6.3(c) of this Agreement.
"RCRA" shall mean the Resource Conservation and Recovery Act, as amended
(42 U.S.C. Sections 6901 et. seq.).
"Recapitalization" shall mean the transactions contemplated by the
Recapitalization Agreement.
"Recapitalization Agreement" shall mean that certain Recapitalization
Agreement dated August 12, 1999, Thayer Itech Holdings, L.L.C., a Delaware
limited liability company, BSG Solutions, Inc., a Delaware corporation and BSG
Holdings, Inc., a Georgia corporation, and John R. McDougall, as trustee of the
John R. McDougall, Louise A. McDougall Trust dated July 24, 1998 and the Louise
D. McDougall Trust dated July 24, 1998, D. Marshall Nelson, as trustee of the
Nelson Family Trust dated May 22, 1995 and Philip Duong, as trustee of the Duong
Family Trust dated November 28, 1998.
"Receivables" shall mean all of the Borrowers' present and future
accounts, contracts, contract rights, chattel paper, general intangibles, notes,
drafts, acceptances, chattel mortgages, conditional sale contracts, bailment
leases, security agreements, contribution rights and other forms of obligations
now or hereafter arising out of or acquired in the course of or in connection
with any business the Borrowers conduct, together with all liens, guaranties,
securities, rights, remedies and privileges pertaining to any of the foregoing,
whether now existing or hereafter created or arising, and all rights with
respect to returned and repossessed items of inventory.
"Reduction/Termination Date" shall mean the date on which, in accordance
with Section 1.8 of this Agreement, the Borrowers shall have terminated the
obligation of the Lender(s) to make additional advances under the Loan, or
irrevocably reduced the Revolving Facility Commitment Amount.
7
<PAGE>
"Request for Advance and Certification" shall mean the form Request for
Advance and Certification attached as Exhibit 1 hereto.
---------
"Required Lenders" shall mean, on any date of determination, (i) if only
two (2) Lenders shall be parties to this Agreement, then both Lenders; or (ii)
if more than two (2) Lenders shall be parties to this Agreement, then all of the
Lenders who, at any given time (a) are not in default under or in breach of any
of the terms and conditions of this Agreement applicable to such Lender, and (b)
hold Notes or participation interests representing, in the aggregate, at least
sixty-six and two-thirds percent (66 2/3%) of the aggregate Commitment Amount
(excluding the Swing Line Commitment Amount).
"Revolving Facility" shall mean the revolving credit facility being
extended pursuant to this Agreement, in the original maximum principal amount of
Forty Million and No/100 Dollars ($40,000,000.00).
"Revolving Facility Commitment Amount" shall mean Forty Million and
No/100 Dollars ($40,000,000.00), or if the Revolving Facility Commitment Amount
shall be permanently reduced pursuant to Section 1.8 of this Agreement, such
lesser amount.
"Revolving Facility Lender" shall mean each Lender who, as of any date of
determination, owns and holds a Percentage of the Revolving Facility Commitment
Amount.
"Revolving Facility Maturity Date" shall mean August 12, 2004.
"Revolving Facility Note" and "Revolving Facility Notes" shall mean each
and all of the Revolving Facility Promissory Notes of even date herewith, made
by the Borrowers and payable to the order of certain Lenders, in the aggregate
maximum principal amount of Forty Million and No/100 Dollars ($40,000,000.00),
together with all extensions, renewals, modifications, replacements and
substitutions thereof or therefor.
"Shareholders Agreement" shall mean that certain Shareholders Agreement
of even date herewith, by and among Empyrean, Thayer ITech Holdings, LLC and the
other shareholder parties thereto.
"Sprint Master Services Agreement" shall mean that certain Master
Services Agreement between Spring/United Management Company and BSGI, having an
effective date of January 1, 1996, as amended from time to time in accordance
with the terms of this Agreement, together with all contract orders issued from
time to time thereunder.
"Stock Security Agreement" shall mean that certain Stock Security
Agreement of even date herewith, by and between Empyrean and the Agent, made for
the benefit of the Lender(s), together with any and all amendments and/or
modifications thereof.
"Swing Line Commitment" shall mean the Swing Line Lender's obligation to
make Swing Line Loans to the Borrowers in an aggregate principal amount not to
exceed Five Million and No/100 Dollars ($5,000,000.00).
"Swing Line Commitment Amount" shall mean Five Million and No/100 Dollars
($5,000,000.00).
8
<PAGE>
"Swing Line Commitment Period" shall mean the period commencing on the
Closing Date and ending on the Swing Line Termination Date.
"Swing Line Facility" shall mean the swing line credit facility being
extended pursuant to this Agreement, in the original maximum principal amount
equal to the Swing Line Commitment Amount.
"Swing Line Lender" shall mean First Union Commercial Corporation, a
North Carolina corporation.
"Swing Line Loan" or "Swing Line Loans" shall have the meaning attributed
to such term in Section 1.1(b) of this Agreement.
"Swing Line Note" shall mean that certain Swing Line Promissory Note of
even date herewith, made by the Borrowers and payable to the order of the Swing
Line Lender, in the aggregate maximum principal amount of Five Million and
No/100 Dollars ($5,000,000.00) or so much thereof as shall be advanced, together
with all extensions, renewals, modifications and substitutions thereof or
therefor.
"Swing Line Outstandings" shall mean, as of any date of determination,
the aggregate principal amount of all Swing Line Loans then outstanding.
"Swing Line Termination Date" shall mean the fifth (5th) Business Day
prior to the Revolving Facility Maturity Date, or such earlier date on which the
Revolving Facility shall terminate, as provided herein.
"Total Debt" or "Indebtedness" shall mean, as of the date of
determination, the actual amount of borrowed money (including, without
limitation, subordinated debt, capital leases and synthetic leases, that remain
unpaid or outstanding as of the date of any determination), plus the aggregate
amount of any and all financial guarantees, contingent obligations and the face
amount of any and all outstanding letters of credit; it being understood and
agreed that trade debt incurred in the ordinary course of the Borrowers'
business shall not be included in the computation of Total Debt or Indebtedness.
"Total Debt to EBITDA Ratio" shall have the meaning attributed to such
term in Section 6.15 of this Agreement.
"Working Capital Purposes" shall mean the use of Loan proceeds for
purposes other than permitted acquisitions and/or mergers.
ARTICLE 1
---------
COMMITMENT
Section 1.1 Maximum Loan Amount.
- ----------- -------------------
(a) Subject to the terms and conditions of this Agreement, (i) each Lender
severally agrees to make the Loan to the Borrowers (except for the Swing Line
Loan, which shall be extended only by the Swing Line Lender), with the maximum
amount of each Lender's
9
<PAGE>
obligation being equal to the Lender's Percentage of the Revolving Facility
Commitment Amount; and (ii) as more fully set forth in Section 1.1(b) below, the
Swing Line Lender shall make the Swing Line Loan to the Borrowers. The Loan,
including the Swing Line Loan, shall bear interest and be payable in accordance
with the terms and provisions of the Notes, each of which shall be payable to
the order of a Lender and all of which together (excluding the Swing Line Note)
shall equal the Commitment Amount. The Notes shall be executed and delivered to
the Agent on the Closing Date, and may be substituted and/or replaced from time
to time upon the Agent's request if the number of Lender parties to this
Agreement shall change.
(b) Subject to the terms and conditions of this Agreement, the Swing Line
Lender shall make swing line loans (each, a "Swing Line Loan" and collectively,
the "Swing Line Loans") to the Borrowers from time to time during the Swing Line
Loan Commitment Period, in the aggregate principal amount at any one time
outstanding not to exceed Five Million and No/100 Dollars ($5,000,000.00);
provided, however, that at no time may the aggregate outstanding principal
amount of the Swing Line Loans, plus the aggregate principal amount of the
Revolving Facility (including the aggregate face amount of all Letters of Credit
outstanding), exceed the Revolving Facility Commitment Amount. During the Swing
Line Commitment Period, the Borrowers may use the Swing Line Commitment by
borrowing, repaying Swing Line Loans in whole or in part, and reborrowing, all
in accordance with the terms of this Agreement. At the request of the Swing Line
Lender, the Agent may, at any time, on behalf of the Borrowers (which hereby
irrevocably direct the Agent to act on their behalf) request each Lender having
a Percentage of the Revolving Facility, including the Swing Line Lender, to
make, and each such Lender, including the Swing Line Lender, shall make an
advance under the Revolving Facility, in an amount equal to such Lender's
Percentage of the Revolving Facility, of the amount of the Swing Line
Outstandings as of the date such request is made. In such event, each such
Lender shall make the requested proceeds available to the Agent for the account
of the Swing Line Lender in accordance with the funding provisions set forth in
this Agreement. The proceeds of the Revolving Facility advanced pursuant to this
Section 1.1(b) shall be immediately applied to repay the Swing Line
Outstandings.
Section 1.2 Use of Proceeds. The Loan shall be used by the Borrowers only
---------------
for the following purposes: (i) to refinance certain existing indebtedness of
the Borrowers; (ii) to finance certain costs and expenses incurred by the
Borrowers in connection with the Closing; (iii) to finance the Recapitalization
and certain costs and expenses incurred by the Borrowers in connection with the
Recapitalization; (iv) to finance acquisitions permitted pursuant to Section 7.1
of this Agreement; and (v) for working capital and general corporate needs.
Notwithstanding the foregoing, Swing Line Loans made pursuant to this Agreement
shall be used solely for general working capital purposes. The Borrowers agree
that the Loan proceeds (including, without limitation, Swing Line Loan proceeds)
shall not be used for any other purpose without the Agent's prior written
consent.
Section 1.3 Maximum Advances; Borrowing Deficiency.
--------------------------------------
(a) Notwithstanding any term or provision of this Agreement or any other
Loan Document to the contrary, it is understood and agreed that in no event
whatsoever shall the Agent or any Lender be obligated to advance any amount
under the Revolving Facility or Swing Line Facility, or issue any Letter(s) of
Credit hereunder, if such advance or the issuance of such Letter(s) of Credit
would cause the aggregate amount of the outstanding Loans under the
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<PAGE>
Revolving Facility, the face amount of all outstanding Letters of Credit, and
the Swing Line Outstandings (collectively, the "Loan Outstandings") to exceed
(i) the Revolving Facility Commitment Amount; or (ii) if (both prior to and
after giving effect to the requested advance or Letter of Credit) all such Loan
Outstandings shall have been used for Working Capital Purposes, Ten Million and
No/100 Dollars ($10,000,000.00).
(b) If at any time the Loan Outstandings exceed the Revolving Facility
Commitment Amount or if at any time the Loan Outstandings used for Working
Capital Purposes exceeds $10,000,000.00 (such excess being referred to herein as
a "Borrowing Deficiency"), the Borrowers shall immediately make a principal
payment in the amount of the Borrowing Deficiency.
Section 1.4 Advances.
--------
(a) Agreement to Advance and Readvance; Procedure. So long as no Event of
---------------------------------------------
Default shall have occurred and be continuing, and no act, event or condition
shall have occurred and be continuing which with notice or the lapse of time, or
both, shall constitute an Event of Default, and subject to the terms and
provisions of this Agreement, the Lender(s) shall advance and readvance the
proceeds of the Revolving Facility and the Swing Line Facility from time to time
in accordance with this Agreement. Requests for advances of Loan proceeds with
respect to the Revolving Facility shall be in the form of Exhibit 1 hereto, and
---------
requests for advances of Swing Line Loan proceeds shall be in the form of
Exhibit 1(a) hereto; it being understood and agreed that in each case such
- ------------
requests may be made via facsimile on a Business Day if the Borrower provides
the Agent, in advance, with a written list of the names of the specific officers
authorized to request disbursements by facsimile. Upon request by the Agent, the
Borrower shall confirm in an original writing each facsimile request for advance
made by the Borrower. Notwithstanding the foregoing, (a) the Lender(s) shall
have no obligation to make any advance with respect to the Revolving Facility
after the Revolving Facility Maturity Date; and (b) the Swing Line Lender shall
have no obligation to make any advance with respect to the Swing Line Facility
after the Swing Line Termination Date.
(b) Interest Rate Election; Certain Advance Procedures and Limits. Amounts
-------------------------------------------------------------
advanced in connection with the Loan shall bear interest on a Base Rate basis or
LIBOR basis as more fully set forth in the Notes, except that Swing Line Loans
shall only be made available to the Borrowers on a Base Rate basis. The
Borrowers' right to request LIBOR based interest, as well as the terms,
conditions and requirements relating thereto, are set forth in the Notes and/or
on Exhibit 3 of this Agreement, and the parties expressly acknowledge and
---------
consent to such terms, conditions and requirements. Advances bearing interest on
a Base Rate basis shall be in minimum and incremental amounts of One Hundred
Thousand and No/100 Dollars ($100,000.00), and shall be made available on a
same-day basis, if requested by 12:00 Noon Washington, D.C. time on a Business
Day. Advances bearing interest on a LIBOR basis shall be in a minimum amount of
Five Hundred Thousand and No/100 Dollars ($500,000.00) and in incremental
amounts of One Hundred Thousand and No/100 Dollars ($100,000.00), and shall be
made available three (3) Business Days after request therefor, subject to the
terms of the Loan Documents. It is expressly understood and agreed that the
Borrowers shall have the right, subject to the foregoing terms, conditions and
requirements, to elect that amounts previously advanced and outstanding under
the Facilities bear interest on a LIBOR basis following the
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<PAGE>
Agent's receipt of a LIBOR Election Form and Certification, in the form attached
as Exhibit 2 to this Agreement.
---------
Section 1.5 Additional Mandatory Payments; Reduction of Commitment. In
------------------------------------------------------
addition to all other sums payable by the Borrowers pursuant to any of the
Notes, this Agreement or any other Loan Document, the Borrowers shall also make
mandatory payments on the Notes (applied to the Facilities as provided
hereinbelow), in the amount of one hundred percent (100%) of the cash proceeds
(net of reasonable and customary costs paid to unrelated and unaffiliated third
parties in connection with the particular transaction) arising from (i) any sale
or disposition of any of the assets of any Borrower which results in cash
proceeds in excess of Five Hundred Thousand and No/100 Dollars ($500,000.00),
individually or in the aggregate, and which is (a) not in the ordinary course of
business; or (b) prohibited by the terms of this Agreement; (ii) the receipt by
or on behalf of any Borrower of insurance proceeds (other than recoveries due to
damage to tangible property, which recoveries are promptly applied toward repair
or replacement of the damaged property); (iii) the reversion of any pension plan
assets; (iv) the issuance by any Borrower of subordinated debt securities or
other debt obligations (other than in connection with debt expressly permitted
pursuant to Section 7.7 of this Agreement); (v) the issuance by any Borrower of
any equity interests in such Borrower (other than (A) equity issuances not
otherwise prohibited by the terms of this Agreement which have been made as
consideration for an acquisition or merger, (B) equity issuances not otherwise
prohibited by the terms of this Agreement which have been made to any of the
persons or entities set forth on Schedule 5.20 attached hereto, (C) equity
-------------
issuances made pursuant to an Agent-approved stock option program), and (D)
equity issuances otherwise approved by the Agent in writing; and/or (vi) the
receipt by or on behalf of the Borrower of any net working capital adjustment
payable pursuant to Section 10 of the Recapitalization Agreement. Such mandatory
payments shall be due and payable in full upon the occurrence of any of the
events described in clauses (i) though (iv) above, and shall be accompanied by
the applicable Prepayment Fee, if any, payable pursuant to Exhibit 3 of this
---------
Agreement. Such mandatory payments shall be applied first to the Swing Line
Outstandings (if any), and then to principal outstanding under the Revolving
Facility; it being understood and agreed that if any mandatory payments shall be
applied to principal outstanding under the Revolving Facility in accordance with
this Section 1.5, the Revolving Facility Commitment Amount shall be permanently
reduced by the amount of such payment(s).
Section 1.6 Field Audits. The Agent will schedule and conduct such field
------------
audits with respect to the Collateral and the Borrowers' accounts receivable,
inventory, business and operations, as the Agent deems necessary or appropriate,
in its sole discretion. All field audits shall be at the cost and expense of the
Borrowers; provided, however that the cost and expense to the Borrowers of field
audits shall be limited to the cost and expense of no more than two (2) field
audits conducted during any twelve (12) month period (the "Field Audit Cost
Limitation"), except that any field audit conducted during an Event of Default
or with respect to the joinder of a new Borrower pursuant to Section 1.10 of
this Agreement shall not be subject to, nor count toward, the Field Audit Cost
Limitation.
Section 1.7 Fees.
----
(a) Commitment Fee. In addition to principal, interest and other sums
--------------
payable under the Notes, so long as any amounts remain outstanding in connection
with the Revolving Facility, or any Lender has any obligation to make any
advance in connection
12
<PAGE>
therewith, the Borrowers agree to pay to the Agent, for the benefit of the
Lender(s), pro-rata based on each Lender's Percentage of the Revolving Facility
Commitment Amount, a quarter-annual commitment fee (the "Commitment Fee"), at
the annual rate corresponding to the Borrower's Total Debt to EBITDA Ratio
reported as of the immediately preceding quarter, as set forth on Exhibit 7
---------
hereto, and calculated on the difference between (i) the Revolving Facility
Commitment Amount, and (ii) the sum of the average daily outstanding principal
balance of the Revolving Facility and the Swing Line Facility during the
applicable quarter, plus the aggregate face amount of all Letters of Credit
issued and/or outstanding during the applicable quarter. The Commitment Fee
shall be calculated on the basis of the actual number of days elapsed and a
three hundred sixty (360) day year, shall be due for any quarter in which the
Revolving Facility is available to the Borrower or outstanding (for all or any
portion of such quarter), and shall be payable in arrears, commencing on
September 30, 1999, and continuing on the last Business Day of every third (3rd)
calendar month thereafter so long as this Agreement remains in effect.
(b) Out-of-Pocket Fees and Expenses. The Borrowers shall timely pay all
-------------------------------
reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees and expenses of counsel for the Agent and each Lender, and of other special
and local counsel and other experts, if any, engaged by the Agent and each
Lender) from time to time incurred by the Agent and/or each Lender in connection
with the Agent's and/or each Lender's administration of, preservation of rights
in and enforcement of this Agreement, the other Loan Documents and the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, the Borrowers shall be liable for all reasonable out-of-pocket
costs and expenses associated with fixed asset appraisals and environmental
reports deemed necessary or appropriate by the Agent, in its reasonable
discretion, as well as any and all amendments, waivers and/or consents relating
to any of the Facilities. Furthermore, following the occurrence of an Event of
Default which has continued unremedied beyond any applicable notice and/or grace
period, the Borrowers shall be liable for all reasonable attorneys' fees and
expenses incurred by the Agent and/or each Lender in connection with the Agent's
or such Lender's preservation of rights in and enforcement of this Agreement,
the other Loan Documents and the transactions contemplated by this Agreement.
(c) Letter of Credit Fees. The Borrowers shall also pay all fees and
---------------------
expenses related to Letters of Credit, as set forth in Article 2 below.
Section 1.8 Termination of Advances; Reduction of the Revolving Facility
------------------------------------------------------------
Commitment Amount. The Borrowers may (a) terminate the obligation of the
- -----------------
Lender(s) to make additional advances under the Revolving Facility, or (b)
irrevocably reduce the Revolving Facility Commitment Amount in whole or in part;
provided that, in each case, (i) the Borrowers shall have provided written
notice thereof to the Agent at least five (5) Business Days prior to the
Reduction/Termination Date; (ii) any reduction of the Revolving Facility
Commitment Amount shall be in minimum and incremental amounts of One Million and
No/100 Dollars ($1,000,000.00); (iii) simultaneously with any such reduction or
termination of the Revolving Facility Commitment Amount, the Borrowers shall
have paid to the Agent, for the benefit of the Lender(s), pro-rata based on each
Lender's Percentage of the Revolving Facility Commitment Amount, the applicable
Prepayment Fee, if any; and (iv) no Event of Default exists hereunder and no
act, event or condition shall have occurred or be continuing which with notice
or the passage of time, or both, would constitute an Event of Default.
13
<PAGE>
Section 1.9 Appointment of Empyrean. Each Borrower acknowledges that (i)
-----------------------
the Lenders have agreed to extend credit to each of the Borrowers on an
integrated basis for the purposes herein set forth; (ii) it is receiving direct
and/or indirect benefits from each such extension of credit; and (iii) the
obligations of the "Borrower" or "Borrowers" under this Agreement are the joint
and several obligations of each Borrower. To facilitate the administration of
the Loan, each Borrower hereby irrevocably appoints Empyrean as its true and
lawful agent and attorney-in-fact with full power and authority to execute,
deliver and acknowledge on such Borrower's behalf, each Request for Advance and
Certification, Non-Default Certificate and all other Loan Documents or other
materials provided or to be provided to the Agent or Lenders pursuant to this
Agreement or in connection with the Loan. This power-of-attorney is coupled with
an interest and cannot be revoked, modified or amended without the prior written
consent of the Agent. Upon request of the Agent, each Borrower shall execute,
acknowledge and deliver to the Agent a form Power of Attorney confirming and
restating the power-of-attorney granted herein.
Section 1.10 Joinder of New Subsidiaries and Affiliates. Any present or
------------------------------------------
future subsidiary of any Borrower in which such Borrower now or hereafter owns,
directly or indirectly, an ownership interest of greater than fifty percent
(50%) shall, at the Agent's option, execute and deliver to the Agent (a) a
Joinder Agreement in the form attached hereto as Exhibit 6 (a "Joinder
---------
Agreement"), pursuant to which such subsidiary shall (i) join in and become a
party to this Agreement and the other Loan Documents; (ii) agree to comply with
and be bound by the terms and conditions of this Agreement and all of the other
Loan Documents; and (iii) become a "Borrower" and thereafter be jointly and
severally liable for the performance of all the past, present and future
obligations and liabilities of the Borrowers hereunder and under the Loan
Documents; and (b) such other documents, instruments and agreements as may be
reasonably required by the Agent in connection therewith (including, without
limitation, an opinion of counsel), in form and substance acceptable to the
Agent in all respects. The Borrowers acknowledge and agree that the Agent shall
perform a field audit of the accounts receivable, inventory, business and
operations of any present or future subsidiary proposed to be joined as a
"Borrower" hereunder, if requested by the Required Lenders, and without limiting
any other terms and provisions of this Agreement, the results of such field
audit must be reasonably satisfactory to the Agent.
ARTICLE 2
---------
LETTERS OF CREDIT
Section 2.1 Issuance. The Borrowers and Lenders acknowledge that from time
--------
to time the Borrowers may request that First Union issue or amend Letter(s) of
Credit. Subject to the terms and conditions of this Agreement, and any other
reasonable requirements for letters of credit normally and customarily imposed
by First Union from time to time, First Union agrees to issue such requested
letters of credit, provided that (a) such requested letters of credit are used
solely for purposes consistent with the permitted uses of Loan proceeds set
forth in Section 1.2 of this Agreement; and (b) no Event of Default has occurred
and is continuing, and no act, event or condition which with notice or the
passage of time, or both, would constitute an Event of Default has occurred and
is continuing. If any such Letter(s) of Credit are issued by First Union, each
Revolving Facility Lender shall purchase from First Union a risk participation
with respect to such Letter(s) of Credit in an amount equal to such Lender's
Percentage of such Letter(s) of
14
<PAGE>
Credit. First Union shall have no obligation to issue any Letter of Credit which
has an expiration date beyond the Revolving Facility Maturity Date, unless the
Borrowers shall have deposited with the Agent, concurrent with the issuance of
any such Letter of Credit, cash security therefor in an amount equal to the face
amount of the Letter of Credit. Any request for a Letter of Credit shall be made
by the Borrowers submitting to the Agent an Application and Agreement for Letter
of Credit or Amendment to Letter of Credit (each being herein referred to as a
"Letter of Credit Application") on First Union's standard form, at least three
(3) Business Days prior to the date on which the issuance or amendment of the
Letter of Credit shall be required, which Letter of Credit Application shall be
executed by an authorized officer of the Borrower, and be accompanied by such
other supporting documentation and information as the Agent may from time to
time reasonably request. Each Letter of Credit Application shall be deemed to
govern the terms of issuance of the subject Letter of Credit, except to the
extent inconsistent with the terms of this Agreement. It is understood and
agreed that Letters of Credit shall not be issued for durations of longer than
one (1) year. Any outstanding Letter of Credit may be renewed from time to time;
provided that (i) at least sixty (60) days' prior written notice thereof shall
have been given by the Borrowers to the Agent; and (ii) as of the date of
application for such renewal, and as of the date of issuance of such renewal, no
Event of Default exists under the terms and provisions of the particular Letter
of Credit or this Agreement, and no act, event or condition has occurred which
with notice or the passage of time, or both, would constitute an Event of
Default under the terms and provisions of the particular Letter of Credit or
this Agreement.
Section 2.2 Amounts Advanced Pursuant to Letters of Credit. Upon the
----------------------------------------------
issuance of any Letter(s) of Credit (i) any amounts drawn under any Letter of
Credit shall be deemed advanced ratably under the Revolving Facility Notes,
shall bear interest and be payable in accordance with the terms of the Revolving
Facility Notes and shall be secured by the Collateral (in the same manner as all
other sums advanced under the Revolving Facility Notes); and (ii) each Revolving
Facility Lender shall purchase from First Union such risk participations in the
Letter(s) of Credit as shall be necessary to cause each such Lender to share the
funding obligations with respect thereto ratably in accordance with its
particular Percentage. It is expressly understood and agreed that all
obligations and liabilities of the Borrowers to First Union in connection with
any such Letter(s) of Credit shall be deemed to be "Obligations," and the Agent
shall not be required to release its security interest in the Collateral until
(i) all Notes and all other sums due to the Lender(s) in connection with the
Loan have been paid and satisfied in full, (ii) all Letters of Credit have been
canceled or expired, and (iii) no Lender has any further obligation or
responsibility to make additional Loan advances or issue additional Letters of
Credit. Furthermore, in no event whatsoever shall First Union have any
obligation to issue any Letter of Credit which would cause the face amount of
all then outstanding Letters of Credit issued for the benefit of the Borrower,
in the aggregate, to exceed Five Million Dollars ($5,000,000.00).
Section 2.3 Letter of Credit Fees. In connection with each Letter of Credit
---------------------
issued, amended or renewed pursuant to this Agreement, the Borrowers shall pay:
(i) to the Revolving Facility Lender(s) ratably, in advance, a per annum fee
(the "Letter of Credit Fee") at the annual rate corresponding to the Borrower's
Total Debt to EBITDA Ratio reported as of the immediately preceding quarter, as
set forth on Exhibit 7 hereto, which shall be calculated on the face amount of
---------
each Letter of Credit as of the date of issuance (or the anniversary or
amendment date, as applicable), and shall be calculated on the basis of the
actual number of days elapsed and a three hundred sixty (360) day year; and (ii)
to First Union, customary issuance and
15
<PAGE>
administrative charges in an amount equal to one-eighth of one percent (.125%)
of the face amount of each Letter of Credit issued and/or outstanding (the
"Letter of Credit Administration Fee"). The Letter of Credit Administration Fee
shall be due and payable in full, in advance, on the date the Letter of Credit
is issued, amended or renewed.
ARTICLE 3
---------
SECURITY
Section 3.1 Security Generally. As collateral security for the Loan and all
------------------
other Obligations, the Borrowers hereby grant and convey to the Agent, for the
ratable benefit of the Lender(s), a security interest in all of the following
(collectively, the "Collateral"):
Receivables. All of each Borrower's present and future accounts,
-----------
contracts (including, without limitation, the Recapitalization
Agreement and the Sprint Master Services Agreement), contract
rights, chattel paper, general intangibles, notes, drafts,
acceptances, chattel mortgages, conditional sale contracts, bailment
leases, security agreements and other forms of obligations now or
hereafter arising out of or acquired in the course of or in
connection with any business any Borrower conducts, together with
all liens, guaranties, securities, rights, remedies and privileges
pertaining to any of the foregoing, whether now existing or
hereafter created or arising, and all rights with respect to
returned and repossessed items of inventory;
Inventory. All of each Borrower's inventory and goods (as defined
---------
in the Uniform Commercial Code in effect in the Commonwealth of
Virginia) now or hereafter owned by each Borrower, whenever acquired
and wherever located, and whether held for sale or lease or
furnished or to be furnished under contracts of service, and all raw
materials, work in process and materials now or hereafter owned by
any Borrower, wherever located, and used or consumed in its
business, including all returned and repossessed items; and all
other property now or hereafter constituting inventory (as defined
in the Uniform Commercial Code in effect in the Commonwealth of
Virginia);
Other Collateral. All of each Borrower's present and future
----------------
furniture, fixtures, equipment, machinery, supplies and other assets
and personal property of every type or nature whatsoever, including
without limitation, all of each Borrower's present and future
investment property (as defined in the Uniform Commercial Code in
effect in the Commonwealth of Virginia), instruments, documents,
inventions, designs, patents, patent applications, trademarks,
trademark applications, trade names, trade secrets, goodwill,
registrations, copyrights, licenses, franchises, customer
16
<PAGE>
lists, tax refunds, tax refund claims, rights of claims against
carriers and shippers, leases and rights to indemnification;
Leases. All of each Borrower's present and future right, title and
------
interest in and to any and all leases, occupancy agreements,
subleases, contracts, licenses, agreements and other understandings
of or relating to the use, enjoyment and occupancy of real property
or any improvements thereon;
Stock. All of Empyrean's right, title and interest in and to all of
-----
the issued and outstanding capital stock of the Borrowers (other
than Empyrean), whether common and/or preferred, and whether now or
hereafter issued or outstanding and whether now or hereafter
acquired by Empyrean, together with all voting or other rights
appurtenant thereto, including, without limitation, the right to
receive all dividends and/or distributions, and all proceeds
thereof, pursuant to the terms and conditions of the Stock Security
Agreement; together with all right, title and interest of any
Borrower in and to all of the issued and outstanding capital stock
or other ownership interests of any entity, whether now or hereafter
issued or outstanding and whether now or hereafter acquired by such
Borrower, together with all voting or other rights appurtenant
thereto, including, without limitation, the right to receive all
dividends and/or distributions, and all proceeds thereof;
Accounts. All of each Borrower's bank accounts, cash from time to
--------
time on deposit therein and all interest from time to time earned
thereon, pursuant to the Pledge of Accounts;
Records. All of each Borrower's records, documents and files, in
-------
whatever form, pertaining to the foregoing or any part thereof; and
Proceeds, Etc. Any and all cash and non-cash proceeds, increases,
--------------
substitutions, replacements and/or additions to any or all of the
foregoing.
Section 3.2 No Preference or Priority. It is expressly understood and
-------------------------
agreed that each of the Notes shall be secured without preference or priority;
it being the intention of the parties that the Notes shall be co-equal and
coordinate in right of payment of principal, interest, late charges and other
sums due thereunder, except as may otherwise be expressly set forth herein.
Section 3.3 Release of Security Interest. At such time as (i) the Notes and
----------------------------
all other sums due to the Lender(s) pursuant to all of the Loan Documents and/or
in connection with the Loan have been paid and satisfied in full, (ii) all
Letters of Credit and interest rate protection agreements have been cancelled,
terminated or expired, and (iii) no Lender has any further obligation or
responsibility hereunder to make additional Loan advances or issue additional
Letters of Credit, the Agent shall, upon request of the Borrower and at no cost
to the Agent or
17
<PAGE>
any Lender, execute and deliver such documentation as the Borrower may
reasonably request to release the Collateral from the Agent's lien, terminate
this Agreement and mark the Notes paid and satisfied in full.
ARTICLE 4
---------
CONDITIONS TO THE OBLIGATIONS OF THE LENDER(S)
The obligation of the Lender(s) to proceed to Closing shall be subject to
the following conditions:
Section 4.1 Satisfaction of Commitment Letter Conditions; Compliance with
-------------------------------------------------------------
Agreements. The Borrowers shall have satisfied all conditions precedent to
- ----------
Closing set forth in the Commitment Letter, including without limitation, each
of the following items:
(a) Execution and delivery of Loan Documents, as well as other ancillary
documentation, in each case satisfactory to the Agent and the Lenders in all
respects.
(b) The Agent's and each Lender's review of and satisfaction with the (a)
organizational structure of the Borrowers, (b) the Loan structure, and (c) tax,
ownership, capital and legal structure of the Borrowers.
(c) The Agent shall have a perfected first lien security interest in all
Collateral described herein, with such exceptions as shall be satisfactory to
the Agent and each Lender.
(d) The Agent's and each Lender's review and satisfaction with the final
terms and conditions of, and all documentation relating to, the Recapitalization
(including all representations, warranties and indemnities contained in the
Recapitalization Agreement and related documents, as well as arrangements for
the transition of management, termination of employees and non-compete matters,
if applicable).
(e) The Agent's and each Lender's review and satisfaction with evidence
provided by the Borrowers that all conditions to closing the Recapitalization
have been satisfied or waived (including, without limitation, evidence
satisfactory to the Agent and each Lender in all respects that the
Recapitalization has been financed in accordance with the Sources and Uses
exhibit attached to the Commitment Letter).
(f) Receipt of legal opinion(s) from counsel to the Borrowers, in form and
substance acceptable to the Agent and each Lender in all respects.
(g) Evidence of each Borrower's solvency (i.e., a consolidated balance
sheet dated as of the Closing Date), in form and substance satisfactory to the
Agent and each Lender in all respects.
(h) The Agent's and each Lender's satisfaction that the Loan shall be in
full compliance with all legal requirements, including without limitation, that
the Borrowers have obtained all necessary regulatory and third party consents
and approvals.
18
<PAGE>
(i) Evidence satisfactory to the Agent and each Lender that the Borrowers
are in full compliance with all financial covenants set forth in this Agreement
as of the Closing Date.
(j) Evidence satisfactory to the Agent and each Lender of the repayment in
full of all outstanding indebtedness of the Borrowers, both direct and
contingent, other than trade payables incurred in the ordinary course of
business, operating leases and/or other indebtedness permitted pursuant to the
terms and provisions of this Agreement.
(k) No litigation by any entity (private or governmental) shall be pending
or threatened against any Borrower at Closing (i) with respect to the Loan, Loan
Documents or transactions contemplated thereby; or (ii) which in the Agent's and
each Lender's good faith judgment could reasonably be expected to have a
materially adverse effect on the business, property, assets, liabilities,
condition (financial or otherwise), or results of operations of the Borrowers
going forward.
(l) The Borrowers' compliance in all material respects with all applicable
federal, state, local and foreign laws and regulations, including all applicable
labor and environmental laws and regulations.
(m) The Agent's and each Lender's satisfaction with the terms, conditions
and existence of insurance coverage appropriate to the conduct of the Borrowers'
business.
(n) No material adverse change in the business, assets, properties,
prospects or condition (financial, proforma financial or otherwise) of Empyrean
or BSGI shall have occurred since the date of the most recent financial
statements delivered to the Agent and each Lender, and the Agent and each Lender
shall be satisfied with the business, assets, properties, prospects and
condition (financial, proforma financial and otherwise) of Empyrean and BSGI.
(o) All costs, fees and expenses (including, without limitation, reasonable
legal fees and expenses) of closing the transactions hereunder shall have been
paid in full, to the extent due.
Section 4.2 No Default. There shall exist no Event of Default, and no act,
----------
event or condition shall have occurred which with notice or the lapse of time,
or both, would constitute an Event of Default; and the Borrowers shall have
performed all agreements theretofore to be performed by the Borrowers pursuant
to the Commitment Letter, except for such non-compliance which is not reasonably
likely to have a material adverse effect on any Borrower's assets, businesses,
operations or prospects or on any Borrower's ability to fully and faithfully
perform its obligations under this Agreement and the other Loan Documents.
Section 4.3 Documentation. The Agent shall have received such certificates
-------------
of good standing, corporate resolutions, opinions and certifications, in such
form and content and from such parties, as the Agent and the Lenders shall
require. All documentation relating to the Recapitalization, the Loan and all
related transactions must be satisfactory in all respects to the Agent, each
Lender and their respective counsel.
19
<PAGE>
ARTICLE 5
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender(s) to enter into this Agreement, each Borrower
jointly and severally represents, warrants, covenants and agrees as follows:
Section 5.1 Corporate Existence and Qualification. Each Borrower is a
-------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, with all corporate power and authority and all
necessary licenses and permits to own, operate and lease its properties and
carry on its business as now being conducted. Each Borrower is duly qualified
and authorized to do business and is in good standing in each jurisdiction in
which the nature of its activities or the character of its properties makes
qualification necessary.
Section 5.2 Corporate Authority; Noncontravention. The execution, delivery
-------------------------------------
and performance by each Borrower of its obligations set forth in this Agreement,
the Notes and the other Loan Documents (i) have been duly authorized by all
necessary corporate and/or stockholder action; (ii) do not require the consent
of any governmental body, agency or authority; (iii) will not violate or result
in (and with notice or the lapse of time will not violate or result in) the
breach of any provision of the Articles of Incorporation/Certificate of
Incorporation or By-laws of such Borrower, or any Material Contract, or any
order or regulation of any governmental authority or arbitration board or
tribunal; and (iv) except as expressly permitted by the terms and provisions of
this Agreement, result in the creation of a lien, charge or encumbrance of any
nature upon any of the properties or assets of any Borrower. When the Loan
Documents are executed and delivered, they will constitute legal, valid and
binding obligations of the Borrowers, enforceable against the Borrowers in
accordance with their respective terms, except as such enforceability may be
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and subject to
the effect of general principals of equity (whether considered in a proceeding
in equity or at law).
Section 5.3 Financial Position. The financial statements dated December 31,
------------------
1998 and April 30, 1999, copies of which have been delivered to the Agent,
present fairly the financial condition of the Borrowers as of the date thereof
and the results of the Borrowers' operations for the periods indicated therein,
were prepared in accordance with GAAP, are true and accurate in all material
respects, and with respect to the Borrowers, are not misleading in any material
respect. All liabilities, fixed or contingent, are fully shown or provided for
on the referenced financial statements or the notes thereto as of the dates
thereof. There has been no material adverse change in the business, property or
condition (financial or otherwise) of any Borrower since the date of the most
recent financial statement dated April 30, 1999, and all other financial
statements and information delivered to the Lenders prior to the Closing Date
are true and accurate in all material respects, and are not misleading in any
material respect.
Section 5.4 Payment of Taxes. Each Borrower has filed all tax returns and
----------------
reports required to be filed by it with the United States Government and/or with
all state and local governments, and has paid in full or made adequate provision
on its books for the payment of all taxes, interest, penalties, assessments or
deficiencies shown to be due or claimed to be due
20
<PAGE>
on or in respect of such tax returns and reports, except to the extent that the
validity or amount thereof is being contested in good faith by appropriate
proceedings and the non-payment thereof pending such contest will not result in
the execution of any tax lien or otherwise adversely affect the Agent's
interests in any part of the Collateral.
Section 5.5 Accuracy of Submitted Information; Omissions. All documents,
--------------------------------------------
certificates, information, materials and financial statements (other than
projections) furnished or to be furnished to the Agent or any Lender pursuant to
this Agreement or otherwise in connection with the Loan, as of the date
furnished, (i) are and will be true and correct in all material respects; (ii)
do not and will not contain any untrue statement of a material fact; and (iii)
do not and will not omit any material fact necessary to make the statements
contained therein or herein not misleading. No Borrower is aware of any fact
which has not been disclosed to the Agent in writing which materially adversely
affects, or so far as any Borrower can now reasonably foresee, could reasonably
be expected to materially adversely affect, the properties, business, profit or
condition (financial or otherwise) of any Borrower or the ability of any
Borrower to perform its obligations under this Agreement or any other Loan
Document.
Section 5.6 Intentionally Omitted.
---------------------
Section 5.7 No Defaults or Liabilities. Except as set forth on Schedule 5.7
-------------------------- ------------
hereto, no Borrower is (a) in default in the performance of any obligation,
covenant or condition contained in any Material Contract; or (b) aware of any
condition, act, event or occurrence, including, without limitation, any pending
or threatened litigation, legal or administrative proceeding or investigation,
not disclosed to the Agent in writing which could prejudice the Agent's or any
Lender's rights under any Loan Document in any respect.
Section 5.8 No Violations of Law. Except for such non-compliance which is
--------------------
not reasonably likely to have a material adverse effect on any Borrower's
assets, businesses, operations or prospects or on any Borrower's ability to
fully and faithfully perform its obligations under this Agreement and the other
Loan Documents, no Borrower is in violation of any Applicable Laws and each
Borrower has conducted its business and operations in full compliance with all
Applicable Laws NoBorrower has failed to obtain any license, permit, franchise
or other governmental authorization necessary to the ownership of its properties
or to the conduct of its business.
Section 5.9 Litigation and Proceedings. Except as set forth on Schedule 5.9
-------------------------- ------------
hereto, no action, suit or proceeding against or affecting any Borrower is
presently pending, or to the knowledge of any Borrower, threatened, in any
court, before any governmental agency or department, or before any arbitration
board or tribunal, which could reasonably be expected to result in any judgment
or liability against any Borrower in excess of Two Hundred Fifty Thousand and
No/100 Dollars ($250,000.00) and which is not fully covered by insurance. No
Borrower is aware of any existing basis that is reasonably likely to result in
any such action, suit or proceeding. No Borrower is in default in any material
respect of any applicable order, writ, injunction or decree of any court,
governmental authority or arbitration board or tribunal.
Section 5.10 Security Interest in the Collateral. Each Borrower is the sole
-----------------------------------
legal and beneficial owner of the Collateral owned or purported to be owned by
it, free and clear of all liens, claims and encumbrances of any nature, except
for the Permitted Liens. Each Borrower
21
<PAGE>
has provided or will provide to the Agent upon request written landlord waivers
from each lessor/landlord of any premises at which such Borrower's tangible
personal property (having an aggregate value in excess of $100,000.00) is
located. Each such landlord waiver subordinates or will subordinate any
statutory, contractual or other lien the lessor/landlord may have in any of the
Collateral to the lien, operation and effect of the lien being granted to the
Agent pursuant to this Agreement.
Section 5.11 Principal Place of Business; Location of Books and Records; No
--------------------------------------------------------------
Inventory. Each Borrower maintains its principal place of business and the
- ---------
office where it keeps its books and records with respect to accounts and
contracts rights at Empyrean's offices located at the address set forth in the
preamble of this Agreement. Set forth on Schedule 5.11 hereto is a list of each
-------------
Borrower's business locations as of the Closing Date, and all places where
Collateral having a value in excess of One Hundred Thousand and No/100 Dollars
($100,000.00), in the aggregate, is located. Except as expressly set forth
above, the Borrowers agree to notify the Agent in writing at least ten (10) days
prior to any change in any Borrower's principal place of business, or any change
in the location of the office where the Borrowers keep their books and records
with respect to accounts and contract rights, or any change of or addition to
the locations where any Collateral having a value in excess of One Hundred
Thousand and No/100 Dollars ($100,000.00), in the aggregate, is located.
Section 5.12 Fiscal Year. Each Borrower's fiscal year ends on December 31.
-----------
Section 5.13 Pension Plans. Except as set forth on Schedule 5.13 attached
------------- -------------
hereto,
(a) the present value of all benefits vested under all "employee pension
benefit plans", as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), from time to time maintained
by each Borrower (individually, a "Pension Plan" and collectively, the "Pension
Plans") did not, as of December 31, 1998, exceed the value of the assets of the
Pension Plans allocable to such vested benefits;
(b) no Pension Plan, trust created thereunder or other person dealing with
any Pension Plan has engaged in a non-exempt transaction proscribed by Section
406 of ERISA or a non-exempt "prohibited transaction", as such term is defined
in Section 4975 of the Internal Revenue Code;
(c) no Pension Plan or trust created thereunder has been terminated within
the last three (3) years (except pursuant to a "standard termination", within
the meaning of Section 4041(B) of ERISA), and there have been no material
"reportable events" (as such term is defined in Section 4043 of ERISA and the
regulations thereunder) with respect to any pension plan or trust created
thereunder after the effective date of ERISA; and
(d) no Pension Plan or trust created thereunder has incurred any
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA or Section 412 of the Internal Revenue Code) as of the end of any plan
year, whether or not waived, since the effective date of ERISA.
Section 5.14 O.S.H.A., ADA and Environmental Compliance.
------------------------------------------
22
<PAGE>
(a) To the best of each Borrower's knowledge, each Borrower is in
compliance with, and its facilities, business assets, property, leaseholds and
equipment are in compliance with, the provisions of the Federal Occupational
Safety and Health Act ("O.S.H.A."), the Americans with Disabilities Act ("ADA"),
the Environmental Protection Act, RCRA and all other applicable environmental
and handicapped access laws; and there have been no citations, notices,
notifications or orders of any such non- compliance issued to any Borrower or
relating to its business, assets, property, leaseholds or equipment under any
such laws, rules or regulations;
(b) each Borrower has been issued all required federal, state and local
licenses, certificates and permits necessary or appropriate in the operation of
its facilities, businesses, assets, property, leaseholds and equipment; and
(c) (i) there are no visible signs of releases, spills, discharges, leaks
or disposal (collectively referred to herein as "Releases") of Hazardous
Substances at, upon, under or within any real property owned, or premises
leased, by any Borrower; (ii) to the knowledge of each Borrower, there are no
underground storage tanks or polychlorinated biphenyls on any real property
owned, or premises leased, by any Borrower; (iii) to the knowledge of each
Borrower, no real property owned, or premises leased, by any Borrower has ever
been used by any Borrower or any other person as a treatment, storage or
disposal facility for Hazardous Waste; and (iv) to the knowledge of each
Borrower, no Hazardous Substances are present on any real property owned, or
premises leased, by any Borrower, except for such quantities of Hazardous
Substances as are handled in accordance with all applicable manufacturer's
instructions and governmental regulations, and as are necessary or appropriate
for the operation of the business of such Borrower. Each Borrower, for itself
and its successors and assigns, hereby covenants and agrees to indemnify, defend
and hold harmless the Agent and each Lender from and against any and all
liabilities, losses, claims, damages, suits, penalties, costs and expenses of
every kind or nature, including, without limitation, reasonable attorneys' fees
arising from or in connection with (i) the presence or alleged presence of any
Hazardous Substance or Hazardous Waste on, under or about any property of any
Borrower (including, without limitation, any property or premises now or
hereafter owned or leased by any Borrower), or which is caused by or results
from, directly or indirectly, any act or omission to act by any Borrower; and
(ii) any Borrower's violation of the ADA or any environmental statute,
ordinance, order, rule or regulation of any governmental entity or agency
thereof (including, without limitation, any liability arising under CERCLA,
RCRA, HMTA or any Applicable Laws).
Section 5.15 Intellectual Property. All registered patents, patent
applications, registered trademarks, trademark applications, registered
copyrights, copyright applications, registered tradenames, trade secrets and
licenses necessary for the conduct of the business of each Borrower, if any, are
and shall remain (i) owned or utilized by such Borrower, (ii) domestic property
of such Borrower; and (iii) valid and, except with respect to licenses and trade
secrets, have been duly registered or filed with all appropriate governmental
authorities; there is no objection or, to the knowledge of any Borrower, pending
challenge to the validity of any such patent, trademark, copyright, tradename,
trade secret or license, and no Borrower is aware of any grounds for any such
challenge or objection thereto. Except as set forth on Schedule 5.15 attached
-------------
hereto, no Borrower pays any royalty to anyone in connection with any patent,
trademark, copyright, tradename, trade secret or license; and no Borrower has
assigned and each Borrower has the right to bring any legal action for the
infringement of any such patent,
23
<PAGE>
trademark, copyright, tradename, trade secret or license that is owned by such
Borrower in accordance with Applicable Laws.
Section 5.16 Existing or Pending Defaults; Material Contracts. All Material
------------------------------------------------
Contracts are listed on Schedule 5.16(a) hereto. Except as set forth on Schedule
---------------- --------
5.16(b) attached hereto, no Borrower is aware of any pending or threatened
- -------
litigation, or any other legal or administrative proceeding or investigation
pending or threatened, against any Borrower arising from or related to any
Material Contract.
Section 5.17 Leases and Real Property. All leases and other agreements
------------------------
under which each Borrower occupies real property comprised of 2,000 square feet
or more are in full force and effect and constitute legal, valid and binding
obligations of, and are legally enforceable against, each Borrower, and to the
best of each Borrower's knowledge, are the binding obligations of and legally
enforceable against, the other parties thereto. All necessary governmental
approvals required to have been obtained by each Borrower, if any, have been
obtained for each such lease or agreement, and to each Borrower's knowledge
there have been no threatened cancellations thereof, and there are no
outstanding disputes with respect thereto. No Borrower owns any interest in real
property (other than the leasehold interests listed on Schedule 5.17
-------------
hereto).
Section 5.18 Labor Relations. There are no strikes, work stoppages,
---------------
grievance proceedings, union organization efforts or other labor controversies
pending, or to any Borrower's knowledge, threatened or reasonably anticipated,
between any Borrower and (i) any current or former employee of any Borrower, or
(ii) any union or other collective bargaining unit representing any such
employee. Except for such non-compliance which is not reasonably likely to have
a material adverse effect on any Borrower's assets, businesses, operations or
prospects or on any Borrower's ability to fully and faithfully perform its
obligations under this Agreement and the other Loan Documents, each Borrower is
in compliance with all Applicable Laws relating to employment or the workplace,
including, without limitation, provisions relating to wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
immigration, withholding, unemployment compensation, employee privacy and right
to know. Except as set forth on Schedule 5.18, there are no collective
-------------
bargaining agreements, employment agreements between any Borrower and any of its
employees, or professional service agreements not terminable at will relating to
the businesses or assets of any Borrower. The consummation of the transactions
contemplated hereby will not cause any Borrower to incur or suffer any liability
relating to, or obligation to pay, severance, termination or other similar
payments to any person or entity.
Section 5.19 Empyrean. The sole asset of Empyrean is all of the issued and
--------
outstanding capital stock of BSGI and other Borrowers, and the sole indebtedness
and liability of Empyrean is the indebtedness incurred pursuant to the
Recapitalization Agreement, this Agreement and the other Loan Documents.
Empyrean conducts no activities (other than its ownership of BSGI and other
Borrowers, fully appropriate shareholder action to authorize activities of BSGI
and other Borrowers, as necessary, and reasonably related administrative
activities); it maintains separate books, records and accounts, does not
commingle its funds with BSGI or any other Borrowers, any other Borrower or any
other person or entity, and maintains its existence as a separate and distinct
corporate entity. All assets owned and held by Empyrean prior to the
Recapitalization have been transferred to, and are now owned by, BSGI.
24
<PAGE>
Section 5.20 Ownership Interests. All of the issued and outstanding capital
-------------------
stock of Empyrean is wholly owned and controlled by the persons and/or entities
set forth on Schedule 5.20 hereto. All of the issued and outstanding capital
stock of the Borrowers (other than Empyrean) is wholly owned and controlled by
Empyrean, free and clear of all liens, claims and encumbrances (other than the
security interest in favor of the Agent). As of the date hereof (and except as
described above), no Borrower has any subsidiaries or owns any interest in any
other entity or venture.
Section 5.21 Contribution Agreement. The Contribution Agreement is in full
----------------------
force and effect, has not been modified, altered or amended in any respect
(other than to add a new Borrower party thereto from time to time), and no
Borrower is in default thereunder.
Section 5.22 Solvency. Both immediately prior to and after giving effect to
--------
the transactions contemplated by the terms and provisions of this Agreement,
each Borrower (i) owned and owns property whose fair salable value is greater
than the amount required to pay all of such Borrower's Indebtedness (including
contingent debts), (ii) was and is able to pay all of its Indebtedness as such
Indebtedness matures, and (iii) had and has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage. For purpose hereof, "Indebtedness" means, without duplication (a) all
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Borrower,
as of the date on which Indebtedness is to be determined, (b) all obligations of
any other person or entity which such Borrower has guaranteed, (c) reimbursement
obligations in connection with letters of credit issued for the benefit of such
Borrower, and (d) the Obligations.
Section 5.23 Year 2000 Compliance. Each Borrower has reviewed the areas
--------------------
within its business and operations which could be adversely affected by, and has
developed or is developing a program to address on a timely basis, the "Year
2000 Problem" (that is, the risk that computer based systems and applications
used by such Borrower may be unable to recognize and perform properly date-
sensitive functions involving certain dates prior to and any date on or after
December 31, 1999), and have made related appropriate inquiry of material
suppliers and vendors. Based on such review and program, each Borrower believes
that the "Year 2000 Problem" will not have a material adverse affect on its
business administration or operations.
Section 5.24 Joint and Several Liability. Each and all of the
---------------------------
representations and warranties made or remade to the Agent and each Lender
pursuant to this Article 5 are hereby made and shall be remade by each Borrower
severally and on a joint and several basis.
Section 5.25 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made herein shall survive the making of the Loan,
and shall be deemed remade and redated as of the date of each request for an
advance or readvance of any Loan proceeds.
ARTICLE 6
---------
AFFIRMATIVE COVENANTS
---------------------
So long as any Obligation remains outstanding or this Agreement remains in
effect, each Borrower jointly and severally covenants and agrees with the Agent
and each Lender that:
25
<PAGE>
Section 6.1 Payment of Loan Obligations. Each Borrower will duly and
---------------------------
punctually pay all sums to be paid to the Agent and/or any Lender in accordance
with the terms and conditions of the Loan Documents, and will comply with,
perform and observe all of the terms thereof.
Section 6.2 Payment of Taxes. Each Borrower will promptly pay and discharge
----------------
when due all federal, state and other governmental taxes, assessments, fees and
charges imposed upon each Borrower, or upon any of its properties or assets,
except to the extent that validity or amount thereof is being contested in good
faith by appropriate proceedings and the non-payment thereof will not result in
the execution of any tax lien or otherwise jeopardize the Agent's interest in
any part of the Collateral.
Section 6.3 Delivery of Financial and Other Statements. The Borrowers shall
------------------------------------------
deliver to the Agent and each Lender financial and other statements, each of
which shall, unless otherwise expressly provided to the contrary, be prepared in
accordance with GAAP consistently applied, as follows:
(a) on or before the one hundred twentieth (120th) day following the close
of each fiscal year, the Borrowers will submit to the Agent and each Lender (i)
annual audited and unqualified consolidated and consolidating financial
statements of the Borrowers, which shall be accompanied by schedules and
management letters (if issued) and certified by an independent certified public
accountant acceptable to the Agent, (ii) an annual budget for the Borrowers for
the then current year and projections for the remainder of the Loan term, in
form reasonably satisfactory to the Agent, certified by the Borrower's Chief
Financial Officer or another duly authorized executive officer of the Borrowers,
and (iii) a true, correct and complete copy of the Sprint Master Services
Agreement then in effect;
(b) on or before the forty-fifth (45th) day following the close of each
calendar month, the Borrowers will submit to the Agent and each Lender (i)
internally prepared financial statements of the Borrowers, including a balance
sheet, income statement, cash flow statement and statement of stockholders'
equity, reporting the Borrowers' current financial position and the results of
their respective operations for the month then ended and year-to-date, in form
reasonably satisfactory to the Agent, certified by the Borrower's Chief
Financial Officer or another duly authorized executive officer of the Borrowers;
and (ii) a Non-Default Certificate in the form of Exhibit 4 hereto, accompanied
---------
by a current accounts receivable agings report, an unbilled agings report and an
accounts payable listing, each of which shall be certified by an authorized
executive officer of the Borrowers;
(c) on or before the forty-fifth (45th) day following the close of each
calendar quarter, the Borrowers will submit to the Agent and each Lender a
current accounts receivable agings report, an unbilled agings report, an
accounts payable listing and a Quarterly Covenant Compliance/Non-Default
Certificate in the form of Exhibit 5 hereto (the "Quarterly Covenant Compliance
---------
Certificate"), each of which shall be certified by the Borrower's Chief
Financial Officer or another duly authorized executive officer of the Borrowers;
(d) the Borrowers will submit to the Agent and each Lender, promptly upon
issuance or receipt, copies of all notices, demands, written statements and
other documents, instruments and agreements which any Borrower issues or
receives in connection with, related to
26
<PAGE>
or under the Sprint Master Services Agreement and which involves or relates to
(i) any reductions of amounts paid or payable under the Sprint Master Services
Agreement exceeding One Million and No/100 Dollars ($1,000,000.00), individually
or in the aggregate per annum (excluding normal and customary pre-billing and
post- billing adjustments), or any other reductions of amounts paid or payable
under the Sprint Master Services Agreement which are reasonably likely to have a
material adverse effect on any Borrower's assets, businesses, operations or
prospects or on any Borrower's ability to fully and faithfully perform its
obligations under this Agreement and the other Loan Documents, or (ii) the term
of the Sprint Master Services Agreement or the time period for performance
thereunder, or (iii) the scope of work performed or to be performed under the
Sprint Master Services Agreement, or (iv) any default or breach or alleged
default or breach under the Sprint Master Services Agreement or any failure to
comply or alleged failure to comply with any term, covenant or provision of the
Sprint Master Services Agreement; and
(e) the Borrowers will submit to the Agent and each Lender copies of all
public filings, disclosure statements and/or registration statements which any
Borrower issues to, distributes to or files with the Securities and Exchange
Commission or any state agency or department regulating securities (or any other
person or entity, pursuant to the rules and/or regulations of the Securities and
Exchange Commission or any state agency or department regulating securities).
Each such public filing, disclosure statement and/or registration statement
shall be submitted by the Borrowers to the Agent and each Lender not later than
five (5) days prior to the issuance, distribution or filing thereof (as
applicable), except in circumstances in which it is not practicable to make any
such submission to the Agent and each Lender on an earlier date, in which case
such public filing, disclosure statement and/or registration statement shall be
submitted by the Borrower to the Agent and each Lender concurrent with the
issuance, distribution or filing thereof (as applicable).
(f) promptly upon the request of the Agent, the Borrowers will provide to
the Agent and each Lender such other information and/or reports relating to the
business, operations, properties or prospects of the Borrowers as the Agent may
from time to time reasonably request.
The Borrowers acknowledge and agree that, except as otherwise set forth in this
Section 6.3 above, any and all financial statements, schedules and other
financial information required to be delivered to the Agent and each Lender
pursuant to this Section 6.3 shall be prepared on a consolidated basis.
Section 6.4 Maintenance of Records; Review by the Lenders. Each Borrower
---------------------------------------------
will maintain at all times proper books of record and account in accordance with
GAAP, consistently applied, and will permit the Agent's officers or any of the
Agent's authorized representatives or accountants to visit and inspect the
offices and properties of each Borrower, examine its respective books of account
and other records, and discuss their respective affairs, finances and accounts
with the officers of each Borrower, all at such reasonable times during normal
business hours, and as often as the Agent may desire. Each Borrower acknowledges
and agrees that, following the occurrence of an Event of Default which has
continued unremedied beyond any applicable notice and/or grace period or so long
as only two (2) Lenders shall be Lender parties hereto, each Lender shall have
the right to accompany the Agent in the exercise of the Agent's rights set forth
in this Section 6.4.
27
<PAGE>
Section 6.5 Maintenance of Insurance Coverage. Each Borrower will maintain
---------------------------------
in effect fire and extended coverage insurance on any and all the tangible
personal property comprising the Collateral, public liability insurance and
workmen's compensation insurance, with responsible insurance companies, in such
amounts and against such risks as are customary for similar businesses, required
by governmental authorities, if any, having jurisdiction over all or part of its
operations, or otherwise reasonably required by the Agent, and will furnish to
the Agent certificates evidencing such continuing insurance. The Agent shall be
named as loss payee on all hazard and casualty insurance policies by means of a
standard noncontributory mortgagee clause and as an additional insured on all
liability insurance policies. All insurance policies shall also provide for (i)
not less than thirty (30) days written notice to the Agent prior to expiration,
cancellation or material change; and (ii) waiver of subrogation.
Section 6.6 Maintenance of Property/Collateral; Performance of Contracts.
------------------------------------------------------------
Each Borrower will at all times maintain the Collateral and its tangible
property material to the operation of its business, both real and personal, in
good order and repair (subject to ordinary wear and tear), and will permit the
Agent's officers or authorized representatives to visit and inspect all or any
part of the Collateral at such reasonable times during normal business hours, as
and when the Agent deems necessary or appropriate. Each Borrower shall perform
all obligations under all contracts to which it is a party (including, without
limitation, all obligations of such Borrower as a contractor under any Material
Contract), including all exhibits and other attachments to such contracts, all
modifications thereto and all documents and instruments delivered pursuant
thereto, and will comply in all respects with all laws, rules and regulations
governing the execution, delivery and performance thereof.
Section 6.7 Maintenance of Corporate Existence. Except as otherwise
----------------------------------
expressly permitted pursuant to this Agreement, each Borrower will maintain its
corporate existence and will provide the Agent with evidence of the same from
time to time upon the Agent's request.
Section 6.8 Maintenance of Certain Accounts with Lender. Each Borrower will
-------------------------------------------
maintain its primary operating accounts, including all depository accounts (time
and demand), disbursement accounts and collection accounts with the Agent, Bank
of America or any other financial institution reasonably satisfactory to the
Agent (an "Outside Banking Institution"); it being understood and agreed,
however, that no accounts shall be maintained with an Outside Banking
Institution unless such institution shall have acknowledged in writing the
Agent's priority security interest in and to such accounts, and the Agent,
acting in good faith, and the Outside Banking Institution shall have entered
into a mutually acceptable bank agency or intercreditor agreement.
Section 6.9 Maintenance of Management. During the period from the date of
-------------------------
this Agreement until the earlier to occur of (a) the date on which not more than
fifty percent (50%) of the Borrowers' trailing twelve (12) month consolidated
revenues arise from the Sprint Master Services Agreement, or (b) the date which
is twelve months from the date of this Agreement, each Borrower will at all
times maintain management reasonably satisfactory to the Agent. At all times
during the term of this Agreement, each Borrower shall notify the Agent in
writing of the change of any corporate officer or director of any Borrower,
within ten (10) days of the date of any such change.
28
<PAGE>
Section 6.10 Disclosure of Defaults, Etc. Promptly upon the occurrence
---------------------------
thereof, the Borrowers will provide the Agent with written notice of any Event
of Default, or any act, event or occurrence that upon the giving of any required
notice or the lapse of time, or both, could or would constitute an Event of
Default. In addition, the Borrowers will promptly advise the Agent in writing of
any condition, act, event or occurrence which comes to any Borrower's attention
that would or could reasonably be expected to prejudice the Agent's rights in
connection with any Material Contract, the Collateral, this Agreement, any Note
or any other Loan Document, including, without limitation, the details of any
pending or threatened governmental action or proceeding, any pending or
threatened litigation, and any other legal or administrative proceeding or
investigation pending or threatened against any Borrower, including the entry of
any judgment or lien (other than a Permitted Lien) against such Borrower, its
assets or property.
Section 6.11 Security Perfection; Payment of Costs. Each Borrower will
-------------------------------------
execute and deliver and pay the costs of recording and filing financing
statements, continuation statements, termination statements, assignments and
other documents, as the Agent may from time to time deem necessary or
appropriate for the perfection of any liens granted to the Agent pursuant hereto
or pursuant to any other Loan Document. All costs and expenses incurred in
connection with the foregoing shall be borne solely by the Borrowers.
Additionally, the Borrowers will pay any and all costs of Closing hereunder, as
well as any and all taxes (other than the Agent's and each Lender's income and
franchise taxes), which may be payable as a result of the execution of this
Agreement or any agreement supplemental hereto, or as a result of the execution
and/or delivery of any Note or other Loan Document.
Section 6.12 Defense of Title to Collateral. Each Borrower will at all
------------------------------
times defend the Agent's and each Borrower's rights in the Collateral, subject
to the Permitted Liens, against all persons and all claims and demands
whatsoever, and will, upon request of the Agent (i) furnish such further
assurances of title as may be reasonably required by the Agent, and (ii) do any
other acts necessary to effectuate the purposes and provisions of this
Agreement, or as required by law or otherwise in order to perfect, preserve,
maintain or continue the security interests of the Agent in the Collateral.
Section 6.13 Compliance with Law. Except for such non-compliance which is
-------------------
not reasonably likely to have a material adverse effect on any Borrower's
assets, businesses, operations or prospects or on any Borrower's ability to
fully and faithfully perform its obligations under this Agreement and the other
Loan Documents, each Borrower will conduct its businesses and operations in full
compliance with (i) all Applicable Laws and requirements of all federal, state
and local regulatory authorities having jurisdiction, (ii) the provisions of its
charter documents and by-laws, (iii) all agreements and instruments by which it
or any of its properties may be bound, and (iv) all applicable decrees, orders
and judgments.
Section 6.14 Further Assurances; Additional Requested Information. Each
----------------------------------------------------
Borrower will provide to the Agent such further assurances and additional
documents regarding the Collateral and the Agent's security interest therein as
the Agent may from time to time reasonably request, and each Borrower will
promptly provide the Agent with such additional information, reports and
statements respecting the business, operations, properties and financial
condition of the Borrowers, and respecting their respective affiliated
businesses and investments, as the Agent may from time to time reasonably
request.
29
<PAGE>
Section 6.15 Financial Covenants. So long as any Obligation remains
-------------------
outstanding or this Agreement remains in effect, the Borrowers will comply with
each of the financial covenants set forth below:
(a) Minimum Adjusted EBITDA. The Borrowers will at all times
-----------------------
maintain, on a consolidated basis, during the periods
specified below, an Adjusted EBITDA of not less than the
following:
--------------------------------------------------------
Adjusted EBITDA
For the Calendar
Quarter Ending On: Minimum
--------------------------------------------------------
June 30, 1999 $4,100,000.00
--------------------------------------------------------
September 30, 1999 $3,250,000.00
--------------------------------------------------------
December 31, 1999 $3,450,000.00
--------------------------------------------------------
March 31, 2000 $3,850,000.00
--------------------------------------------------------
June 30, 2000 $4,350,000.00
--------------------------------------------------------
September 30, 2000 $5,000,000.00
--------------------------------------------------------
December 31, 2000 $5,250,000.00
--------------------------------------------------------
March 31, 2001 $5,200,000.00
--------------------------------------------------------
June 30, 2001 $5,150,000.00
--------------------------------------------------------
September 30, 2001 $5,100,000.00
--------------------------------------------------------
December 31, 2001 $5,050,000.00
--------------------------------------------------------
March 31, 2002 $5,150,000.00
--------------------------------------------------------
June 30, 2002 $5,300,000.00
--------------------------------------------------------
September 30, 2002 $5,400,000.00
--------------------------------------------------------
December 31, 2002 $5,500,000.00
--------------------------------------------------------
March 31, 2003 $5,650,000.00
--------------------------------------------------------
June 30, 2003 $5,800,000.00
--------------------------------------------------------
September 30, 2003 $5,950,000.00
--------------------------------------------------------
December 31, 2003 and for
each calendar quarter ending
thereafter $6,050,000.00
--------------------------------------------------------
It is understood and agreed that the dollar amounts set forth in
this Section 6.15(a) above may, in the Agent's sole discretion
(but subject to the agreement of the Borrowers), be amended in
writing as a result of certain acquisitions and/or mergers
hereafter made by any Borrower. Minimum Adjusted EBITDA shall be
measured on the last day of each fiscal quarter, and at the end
of each of the Borrowers' fiscal years, throughout the term of
the Loan on a four (4) quarter trailing basis.
(b) Fixed Charge Coverage Ratio. The Borrowers will at all times
---------------------------
maintain, on a consolidated basis, a Fixed Charge Coverage Ratio
of not less than 2.00 to 1.00. For purposes of
30
<PAGE>
the foregoing, "Fixed Charge Coverage Ratio" shall mean the
Borrowers' Adjusted EBITDA, minus capital expenditures, divided
by the sum of Interest Expense, plus cash taxes paid, plus
principal payments on the Facilities, plus payments for current
capital lease obligations and plus any cash payments for
earn-outs that have not already been reflected in the income
statement of the Borrowers. The Fixed Charge Coverage Ratio shall
be measured on the last day of each fiscal quarter, and at the
end of each of the Borrowers' fiscal years, throughout the term
of the Loan on a four (4) quarter trailing basis.
(c) Total Debt to EBITDA Ratio. The Borrowers will at all times
--------------------------
maintain, on a consolidated basis, a Total Debt to EBITDA Ratio
of not more than 2.75 to 1.00. For purposes hereof, the "Total
Debt to EBITDA Ratio" shall mean the ratio of Total Debt to
Adjusted EBITDA (a) calculated and tested using (i) the
Borrower's twelve (12) month trailing Adjusted EBITDA results and
(ii) Total Debt as of the date of calculation, and (b) measured
on the last day of each fiscal quarter, throughout the term of
the Loan.
(d) Total Debt to Capitalization. The Borrowers will at all times
----------------------------
maintain, on a consolidated basis, a Total Debt to Capitalization
Ratio of not more than 0.50 to 1.00. For purposes hereof, the
"Total Debt to Capitalization Ratio" shall mean Total Debt,
divided by the sum of Total Debt, plus cash equity contributed.
The Total Debt to Capitalization Ratio shall be measured on the
last day of each fiscal quarter, and at the end of each of the
Borrowers' fiscal years, throughout the term of the Loan on a
four (4) quarter trailing basis.
The financial covenants referenced above shall be calculated and tested on a
four (4) quarter trailing basis, and shall include the corresponding four (4)
quarter trailing results of any entity acquired and consolidated into the
Borrowers' financial statements within the last four (4) quarter period
immediately preceding the applicable covenant calculation date. Unless
otherwise defined, all financial terms used in this Section 6.15 shall have the
meanings attributed to such terms in accordance with GAAP.
Section 6.16 Year 2000 Compliance. Each Borrower shall take all reasonable
--------------------
action necessary to assure that its computer systems are capable of effectively
processing data and information, including dates on and after January 1, 2000,
and that all such systems (i) shall not cease to perform or provide (and shall
not cause any software and/or system which is material to the operations of such
Borrower or any interface therewith to provide) invalid or incorrect results as
a consequence of date functionality and/or data; (ii) shall not experience any
degradation of performance or functionality arising from or relating to date
functionality and/or data which is material to the operations of such Borrower
or any interface therewith and which
31
<PAGE>
represents or references different centuries, more than one century or leap
years; (iii) shall effectively and accurately manage and manipulate data derived
from, involving or relating in any way to dates, including single century
formulas and multi-century or leap year formulas; and (iv) shall not cause an
abnormal ending scenario within such business computer related systems or in any
software and/or system with which such systems interface (or generate incorrect
values or invalid results involving such dates). Each Borrower will, promptly
upon the Agent's request, provide evidence to the Agent of such compatibility.
Section 6.17 Landlord Waivers; Subordination. Each Borrower shall provide
-------------------------------
landlord waivers to the Agent prior to any Borrower storing, keeping or locating
tangible personal property having an aggregate value in excess of One Hundred
Thousand and No/100 Dollars ($100,000.00) on any particular lessor's/landlord's
premises. Each landlord waiver shall subordinate any statutory, contractual or
other lien the lessor/landlord may have in any Collateral to the lien, operation
and effect of the lien granted to the Agent pursuant to this Agreement, and
shall be in form and substance reasonably acceptable to the Agent.
Section 6.18 Substitute Notes. Upon request of the Agent, each Borrower
----------------
shall execute and deliver to the Agent substitute promissory notes, in form and
substance satisfactory to the Agent in all respects, payable to the order of
such person or entity as may be designated by the Agent; it being understood and
agreed, however, that the aggregate principal amount of all outstanding
promissory notes shall not exceed the Commitment Amount as of the date any such
substitute note is issued. All costs and expenses incurred by the Agent in
connection with the foregoing shall be borne by the Borrowers.
Section 6.19 Interest Rate Contracts. If required by the Agent, the
-----------------------
Borrowers shall have in effect at all times interest rate protection agreements
for the Facilities ("Interest Rate Contracts") reasonably satisfactory to the
Agent. Any such Interest Rate Contract must be purchased from a Lender, an
affiliate of a Lender or another financial institution reasonably acceptable to
the Agent. The Borrowers' obligations under any Interest Rate Contract purchased
from a Lender or an affiliate of a Lender shall be secured by the Collateral on
a pari passu basis, pursuant to documentation acceptable to the Agent in all
respects. All other Interest Rate Contracts shall be unsecured in all respects.
The Borrowers shall determine to their own satisfaction whether any such
Interest Rate Contract is sufficient to meet the Borrowers' needs for interest
rate protection, and neither the Agent nor any Lender shall have any obligation
or liability with respect thereto, nor any obligation to propose, quote or enter
into any Interest Rate Contract, unless such Interest Rate Contract shall be on
terms and conditions satisfactory to the applicable Lender in all respects.
Section 6.20 Joint and Several Liability. Each Borrower acknowledges and
---------------------------
agrees that each Borrower shall be severally and jointly and severally liable
for each and every affirmative covenant set forth in this Article 6.
ARTICLE 7
---------
NEGATIVE COVENANTS
------------------
32
<PAGE>
So long as any Obligation remains outstanding or this Agreement remains
in effect, each Borrower jointly and severally covenants and agrees that,
without the prior written consent of the Agent, no Borrower will:
Section 7.1 Change of Control; Disposition of Assets; Merger.
------------------------------------------------
(a) Permit majority ownership of any Borrower or control of any Borrower's
business or operations to be sold, assigned or otherwise transferred, legally or
equitably, to any person or entity; or
(b) suffer or permit the issuance of any capital stock of any Borrower
(except for (i) any securities issued pursuant to a stock option plan approved
by the Agent in writing, or pursuant to any other equity-based employee
incentive compensation plan approved by the Agent in writing and/or listed in
Schedule 7.1(b) hereto; and (ii) issuances of any capital stock of Empyrean
- ---------------
which do not, individually or in the aggregate, cause or result in a default of
any other provision of this Agreement); or
(c) sell, assign, loan, deliver, lease, transfer or otherwise dispose of
property or assets of any Borrower (except in the ordinary course of business),
in excess of One Hundred Thousand and No/100 Dollars ($100,000.00), in the
aggregate, per annum; or
(d) merge or consolidate with any company or enterprise, or acquire or
purchase any company or enterprise; it being understood and agreed, however,
that the Agent, on behalf of the Required Lenders, will agree to grant its
consent in connection with mergers and/or acquisitions pursuant to the terms of
a consent letter issued by the Agent and accepted in writing by the Borrowers so
long as (i) the aggregate cost/purchase price/consideration (i.e., the value of
cash paid (or to be paid) and cash on hand, stock exchanged, Indebtedness
incurred, earn-outs paid (or to be paid), and other actual consideration paid)
for any single acquisition or merger does not exceed Fifteen Million and No/100
Dollars ($15,000,000.00) and for all such acquisitions or mergers does not
exceed Thirty Million and No/100 Dollars ($30,000,000.00), in the aggregate, per
annum; (ii) without limiting the criteria set forth in clause (i) above, the
aggregate amount of cash paid, plus Indebtedness incurred, minus cash equity
contributed for any single acquisition or merger does not exceed Five Million
and No/100 Dollars ($5,000,000.00) and for all such acquisitions or mergers does
not exceed Ten Million and No/100 Dollars ($10,000,000.00), in the aggregate,
per annum; (iii) the pro forma financials of the Borrowers, after taking into
effect the particular merger and/or acquisition, are not projected to cause the
Borrowers to fail to comply with the financial covenants set forth in Section
6.15 of this Agreement, nor result in a Total Debt to EBITDA Ratio greater than
2.5 to 1.0 (which ratio shall also be calculated as of the closing date of the
particular acquisition or merger on a four (4) quarter trailing basis); and (iv)
the following parameters/conditions are satisfied:
(i the entity to be acquired or merged is a going concern;
(ii) the entity to be acquired or merged is in a similar
line of business to the Borrowers;
(iii) the entity to be acquired or merged has positive
Adjusted EBITDA for the preceding twelve (12) month
period;
33
<PAGE>
(iv) there is no assumption of indebtedness, other than
trade liabilities incurred in the ordinary course of
business and/or other debt expressly consented to by
the Agent and expressly subordinated to the Loan;
(v in the case of a merger, a Borrower is the surviving,
controlling entity, and in the case of an acquisition,
such acquisition is not hostile;
(vi) no Event of Default exists, no act, event or condition
has occurred or exists which with notice or the lapse
of time, or both, would constitute an Event of Default,
and such acquisition and/or merger would not, in the
Agent's reasonable judgment, cause the Borrowers to be
in default or fail to comply with any of the covenants
set forth in this Agreement or any other Loan Document;
(vii) the entity to be acquired or merged is not, in the
Agent's reasonable judgment, subject to material
pending litigation, material contingent liabilities or
other conditions not reasonably satisfactory to the
Agent; and
(viii) the Agent shall have received all documents,
instruments and agreements reasonably requested by the
Agent in connection with such acquisition or merger.
In the event a written request for the Agent's consent to a particular
acquisition is made by a Borrower pursuant to this Section, such Borrower shall
submit to the Agent and each Lender (a) a written certification that the
proposed acquisition meets the criteria described in this Section 7.1, (b) the
Pro Forma financials described above, together with (i) a Pro Forma calculation
of the financial covenants set forth in Section 6.15 of this Agreement, after
taking into effect such acquisition, and (ii) the most recent financial
statements of the entity to be acquired by a Borrower (for the preceding twelve
(12) month period), and if requested by the Agent, consolidating financial
statements in the form required pursuant to Section 6.3 of this Agreement, and
(c) such other information as may be reasonably required by the Agent. The
Borrowers acknowledge and agree that in preparing the Pro Forma statements
required to be submitted hereunder, actual prior expenses shall not be adjusted
except to reflect changes in owner/executive compensation and other expenses
that qualify as Pro Forma adjustments, as determined by the Agent in its sole
discretion.
Section 7.2 Margin Stocks. Use all or any part of the proceeds of any
-------------
advance made hereunder to purchase or carry, or to reduce or retire any loan
incurred to purchase or carry, any margin stocks (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing or carrying any such
margin stocks.
Section 7.3 Change of Operations. Suffer or permit any change in the
--------------------
general character of any Borrower's business as conducted on the Closing Date,
or suffer or permit any
34
<PAGE>
Borrower to engage in any type of business not reasonably related to or
compatible with such business as presently and normally conducted.
Section 7.4 Judgments; Attachments. Suffer or permit any judgment in excess
----------------------
of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) against any
Borrower or any attachment against any Borrower's property (for an amount not
fully covered by insurance) to remain unpaid, undischarged or undismissed for a
period of thirty (30) days, unless enforcement thereof shall be effectively
stayed or bonded.
Section 7.5 Further Assignments; Performance and Modification of Contracts;
---------------------------------------------------------------
etc. Except as may be expressly permitted by the Loan Documents (i) make any
- ----
further assignment, pledge or disposition of the Collateral or any part thereof
(other than dispositions of inventory or equipment in the ordinary course of
business or the sale of obsolete equipment or other equipment not material to
the operation of such Borrower's business); (ii) permit any set-off or
reduction, delay the timing of any payment under, or otherwise modify any
Material Contract (other than the Sprint Master Services Agreement) which is
reasonably likely to have a material adverse effect on any Borrower's assets,
businesses, operations or prospects or on any Borrower's ability to fully and
faithfully perform its obligations under this Agreement and the other Loan
Documents, (iii) permit any set-off or reduction, delay the timing of any
payment under, or otherwise modify the Sprint Master Services Agreement; (iv)
create, incur or permit to exist any lien or encumbrance (other than Permitted
Liens) on any real or personal property now or hereafter owned by any Borrower;
or (v) do or permit to be done anything to impair the Agent's or any Lender's
security in any Collateral or the payments due to any Borrower thereunder.
Section 7.6 Affect Rights of the Agent or Lender(s). At any time do or
---------------------------------------
perform any act or permit any act to be performed which would or reasonably
could materially adversely affect the interests or rights of the Agent or any
Lender under any Loan Document.
Section 7.7 Indebtedness; Granting of Security Interests. Suffer or permit
--------------------------------------------
any Borrower to incur any new indebtedness, except for (i) trade debt and
operating leases incurred in the ordinary course of business; (ii) indebtedness
secured by liens listed on Schedule 7.7 hereto, or other indebtedness secured by
------------
Permitted Liens; and (iii) indebtedness incurred to finance (by purchase or
lease) equipment constituting capital expenditures, provided that the aggregate
amount outstanding under all capital leases permitted hereby does not exceed Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00). Except as otherwise
expressly permitted herein, no Borrower shall mortgage, assign, pledge,
hypothecate or otherwise encumber or permit any lien, security interest or other
encumbrance, including purchase money liens, whether under conditional or
installment sales arrangements or otherwise, to affect the Collateral or any
other assets or properties of any Borrower (except for Permitted Liens), nor
shall any Borrower guarantee or otherwise become obligated for any indebtedness
of others. Furthermore, each Borrower agrees that it will not enter into any
agreement or understanding with any person or entity pursuant to which such
Borrower agrees to be bound by a covenant not to encumber all or any part of its
property or assets, unless such agreement or understanding is entered into in
connection with the granting of purchase money security interests permitted
pursuant to the terms and provisions this Agreement (and relates to solely to
the property subject to such purchase money security interests).
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Section 7.8 Dividends; Loans; Advances; Investments and Certain Other Events.
-----------------------------------------------------------------
(a) suffer or permit any dividend to be declared or paid on any Borrower's
capital stock of any class (other than dividends payable solely to another
Borrower and/or dividends payable in the form of additional preferred stock of
Empyrean), suffer or permit any alteration or amendment to any Borrower's
capital structure (other than equity issuances expressly permitted pursuant to
this Agreement), or suffer or permit any Borrower to purchase, redeem or
otherwise retire any shares of such Borrower's capital stock (other than stock
repurchases by Empyrean to accommodate capital stock issuances to new executives
of a Borrower so long as such repurchases result in a $0.00 effect on Empyrean),
or suffer or permit any voluntary prepayment, acquisition or anticipation of any
sinking fund requirement of any indebtedness of any Borrower, or suffer or
permit any distributions to be made in cash or assets to any shareholders of any
Borrower (other than to another Borrower); or
(b) suffer or permit any loans, salary advances or other payments to be
made by any Borrower to (i) any shareholders of any Borrower (other than to
another Borrower); (ii) any corporation or other enterprise directly or
indirectly owned in whole or in part by any shareholder of any Borrower (other
than another Borrower); or (iii) any other person or entity; it being understood
and agreed that this negative covenant shall not be deemed violated by (A)
normal and customary operating expenses and trade credit extended to customers
of the Borrowers, in each case made in the ordinary course of business; (B)
regularly scheduled salary payments and commercially reasonable bonuses
disclosed to the Agent and each Lender in writing in advance of such payments,
in each case to shareholders of any Borrower who are also salaried employees of
such Borrower; (C) travel and expense reimbursement payments to salaried
employees in an amount not to exceed One Hundred Thousand and No/100 Dollars
($100,000.00), in the aggregate; (D) payments for net working capital
adjustments payable pursuant to Section 2.10 of the Recapitalization Agreement
(if applicable) and payments for other net working capital adjustments arising
from any permitted acquisition or merger; (E) loans or other payments by and
between Borrowers; and (E) the loans, salary advances or other payments made or
to be made by any Borrower and described more fully on Schedule 7.8(b) attached
---------------
hereto.
Section 7.9 Lease Obligations. Enter into any new lease of real or personal
-----------------
property, except in the ordinary course of business.
Section 7.10 Capital Expenditures. Make any capital expenditure, including,
--------------------
but not limited to, expenditures for leasehold improvements and capitalized
costs, in excess of Two Million and No/100 Dollars ($2,000,000.00), in the
aggregate, per annum.
Section 7.11 Lockbox Deposits. Permit or cause any and all payments
----------------
required to be made directly to the Agent or any Lender pursuant to Section 11.2
of this Agreement to be made or directed to any other person or entity, without
the prior approval of the Agent.
Section 7.12 Shareholders Agreement; Recapitalization Agreement; Etc..
--------------------------------------------------------
Suffer or permit any modification or amendment to the Shareholders Agreement or
the Recapitalization Agreement.
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Section 7.13 Sprint Master Services Agreement. Suffer or permit any
--------------------------------
modification or amendment to the Sprint Master Services Agreement without
providing to the Agent and each Lender not less than five (5) Business Days
prior written notice thereof, together with a copy of the proposed modification
or amendment; it being understood and agreed that, for purposes of this covenant
only, normal and customary contract orders and task orders issued in the
ordinary course of business shall not constitute modifications or amendments to
the Sprint Master Services Agreement.
Section 7.14 Transactions With Affiliates. Enter into or otherwise bind any
----------------------------
Borrower to any contract, agreement or other understanding with any person or
entity directly or indirectly related to, affiliated with or under common
control or ownership with any Borrower or any stockholder of any Borrower (other
than another Borrower), except upon fair and reasonable terms which are at least
as favorable to such Borrower as would be the case in a comparable, arm's-length
transaction with an unaffiliated and unrelated entity or person.
Section 7.15 Joint and Several Liability. Each Borrower acknowledges and
---------------------------
agrees that each Borrower shall be severally and jointly and severally liable
for each and every negative covenant set forth in this Article 7.
ARTICLE 8
---------
COLLATERAL ACCOUNT
------------------
The Borrowers will deposit or cause to be deposited into a collateral
account (the "Collateral Account") designated by the Agent, all checks, drafts,
cash and other remittances received by each Borrower, and the Borrowers shall
deposit such items for credit to the Collateral Account within one (1) Business
Day of the receipt thereof and in precisely the form received. Pending such
deposit, no Borrower will commingle any such items of payment with any of its
other funds or property, but will hold them separate and apart.
The Borrowers hereby covenant and agree that the Collateral Account shall
secure the Obligations and hereby grant, assign and transfer to the Agent, for
the ratable benefit of the Lenders, a continuing security interest in all of
each Borrower's right, title and interest in and to the Collateral Account.
Notwithstanding anything to the contrary under applicable state law, the Agent
may apply funds in the Collateral Account to any of the Obligations, including,
without limitation, any principal, interest or other payment(s) not made when
due, whether arising under this Loan Agreement and/or any other Loan Document,
or any other Obligation of any Borrower, without notice to the Borrowers,
without regard to the origin of the deposits in the account, the beneficial
ownership of the funds therein or whether such Obligations are owed jointly with
another or severally; the order and method of such application to be in the sole
discretion of the Agent. The Agent's right to deduct sums due under the Loan
Documents from the account(s) of the Borrowers shall not relieve any Borrower
from its obligation to make all payments required by the Loan Documents as and
when required by the Loan Documents, and the Agent shall not have any obligation
to make any such deductions or any liability whatsoever for any failure to do
so.
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ARTICLE 9
---------
DEFAULT AND REMEDIES
--------------------
Section 9.1 Events of Default. Any one of the following events shall be
-----------------
considered an "Event of Default":
(a) if any Borrower shall fail to pay any principal, interest or other sum
owing on any of the Notes or any other Obligation when the same shall become due
and payable, whether by reason of acceleration or otherwise;
(b) if at any time the outstanding principal balance of the Revolving
Facility shall exceed the Revolving Facility Commitment Amount and the Borrowers
shall fail, immediately upon the happening of any such occurrence, without
notice or demand therefor, to make a payment to the Agent, for the benefit of
the Lender(s), in an amount equal to or greater than the Borrowing Deficiency;
(c) if any Borrower shall fail to pay and satisfy in full, within thirty
(30) days of the rendering thereof, any judgment against such Borrower in excess
of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) which is not, to
the reasonable satisfaction of the Agent, fully bonded, stayed, covered by
insurance or covered by appropriate reserves;
(d) with respect to any warranty or representation expressly qualified by a
"materiality" standard set forth herein or in any other Loan Document and made
by any Borrower or any other person or entity on behalf of any Borrower, if such
warranty or representation shall be untrue in any respect when made, including,
without limitation, any information contained in any financial statement,
application, schedule, report or other document given by any Borrower or any
other person or entity on behalf of any Borrower in connection with any of the
Obligations or Loan Documents; and/or with respect to any warranty or
representation not expressly qualified with a "materiality" standard set forth
herein or in any other Loan Document and made by any Borrower or any other
person or entity on behalf of any Borrower, if such warranty or representation
shall be untrue in any material respect when made, including, without
limitation, any information contained in any financial statement, application,
schedule, report or other document given by any Borrower or any other person or
entity on behalf of any Borrower in connection with any of the Obligations or
Loan Documents;
(e) if there shall be non-compliance with or a breach of any of the
Affirmative Covenants or Negative Covenants contained in this Agreement, or any
other covenants or agreements of any Borrower, in any of the Notes or in any
other Loan Document;
(f) if (i) without the prior written consent of the Agent, any Borrower
shall be liquidated or dissolved or shall discontinue its business; (ii) a
trustee or receiver is appointed for any Borrower or for all or a substantial
part of its assets; (iii) any Borrower makes a general assignment for the
benefit of creditors; (iv) any Borrower files or is the subject of any
insolvency proceeding or petition in bankruptcy, which in the case of an
involuntary bankruptcy, remains undismissed for sixty (60) days; (v) any
Borrower shall become insolvent or at any time fail generally to pay its debts
as such debts become due; or (vi) any governmental agency or
38
<PAGE>
bankruptcy court or other court of competent jurisdiction shall assume custody
or control of the whole or any material part of the assets of any Borrower;
(g) if any property or assets of any Borrower (including, without
limitation, any deposit accounts) having a value, individually or in the
aggregate, in excess of Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) are levied upon, attached or subject to any other enforcement
proceeding, which is not fully bonded or stayed within thirty (30) days of such
levy, attachment or other enforcement proceeding;
(h) if, except as otherwise expressly permitted pursuant to this Agreement,
any Borrower shall dissolve, merge or consolidate with another entity, or
reorganize, in each case without the prior written consent of the Agent;
(i) if any obligation of any Borrower for the payment of borrowed money,
which involves amounts in excess of Fifty Thousand and No/100 Dollars
($50,000.00), whether now existing or hereafter created, incurred or arising,
becomes or is declared to be due and payable prior to the expressed maturity
thereof, whether such obligation is owed to the Agent, any Lender or any other
person or entity;
(j) if a Borrower shall be in default under any Material Contract (other
than the Sprint Master Services Agreement) and such default remains uncured
beyond (x) the expiration of the time period available to the Borrower pursuant
to such Material Contract to cure the noticed default, or (y) the date on which
the other contracting party is entitled to exercise its rights and remedies
under the Material Contract as a consequence of such default;
(k) if a Borrower shall be in default under the Sprint Master Services
Agreement (regardless of whether any applicable notice and/or cure period shall
have lapsed), or if the Master Services Agreement shall be cancelled, terminated
or modified in any material respect without the prior written consent of the
Agent, or if the Sprint Master Services Agreement shall not be renewed in
accordance with the terms thereof;
(l) intentionally omitted;
(m) intentionally omitted;
(n) if either the Agent or the Required Lenders believe in good faith there
is a material adverse change in the business, assets, properties, prospects,
condition (financial or otherwise) of any Borrower; and/or
(o) if, except as otherwise expressly permitted pursuant to this Agreement,
any change in majority ownership or control of any Borrower's business or
operations shall occur.
Section 9.2 Remedies. Upon the occurrence of any Event of Default, the
--------
Agent, acting on behalf of the Lender(s), may exercise any or all of the
following remedies:
(a) Withhold disbursement of all or any part of the Loan proceeds until
such time that such Event of Default is cured to the satisfaction of the Agent
and no other Event of Default exists;
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<PAGE>
(b) Subject to the expiration of the applicable notice and cure period set
forth in subsection (c) below, terminate the obligation of the Lender(s) to make
further disbursements of the Loan proceeds;
(c) Declare all principal, interest and other sums owing on the Obligations
to be immediately due and payable without demand, protest, notice of protest,
notice of default, presentment for payment or further notice of any kind;
provided, however, that payments of amounts hereunder shall not be accelerated
by reason of (i) a default in the payment of any sum due and payable hereunder
or pursuant to any other Loan Document (a "Payment Default"), unless such
Payment Default remains uncured for five (5) days (with no notice of default
being required); and (ii) a default other than a Payment Default (a "Non-Payment
Default"), unless such Non-Payment Default remains uncured for twenty (20) days
following notice thereof from the Agent to the Borrower. Notwithstanding the
foregoing, no notice of a Non- Payment Default or grace period therefor shall be
required prior to acceleration or prior to the Agent or any Lender exercising
any other right or remedy under this Agreement or any other Loan Document, if
(i) the Agent in good faith believes that any such delay would adversely affect
the Agent's security or the Agent's lien priority, (ii) the default is a
violation of, or failure to observe or comply with, Section 6.7 or Section 6.15
of this Agreement or (iii) the default is a violation of, or failure to observe
or comply with, any of the covenants set forth in Article 7 of this Agreement;
(d) Without notice, offset and apply against all or any part of the
Obligations then owing by any Borrower to the Agent or any Lender, any and all
money, credits, stocks, bonds or other securities or property of any Borrower of
any kind or nature whatsoever on deposit with, held by or in the possession of
the Agent or any Lender in any capacity whatsoever, including, without
limitation, any deposits with the Agent or any Lender or any of its affiliates,
to the credit of or for the account of any Borrower. Notwithstanding any
applicable state law to the contrary (and without limiting the Agent's right,
for the convenience of the Borrowers, to charge any Borrower's account(s) for
any principal, interest or other sums payable pursuant to this Agreement, the
Notes or any other Loan Document when due), the Agent and/or any Lender is
authorized at any time to charge the Obligations against any Borrower's
account(s), without regard to the origin of deposits to the account or
beneficial ownership of the funds;
(e) Exercise all rights, powers and remedies of a secured party under the
Uniform Commercial Code in effect in the Commonwealth of Virginia, any other
jurisdiction in which the Collateral is located and/or any other applicable
law(s), including, without limitation, the right to (i) require the Borrowers to
assemble the Collateral (to the extent that it is movable) and make it available
to the Agent at a place to be designated by the Agent, and (ii) enter upon any
Borrower's premises, peaceably by the Agent's own means or with legal process,
and take possession of, render unusable or dispose of the Collateral on such
premises; each Borrower hereby agreeing not to resist or interfere with any such
action. The Agent agrees to give the Borrower written notice of the time and
place of any public sale of the Collateral or any part thereof, and the time
after which any private sale or any other intended disposition of the Collateral
is to be made, and such notice will be mailed, postage prepaid, to the principal
place of business of the Borrower, at least ten (10) days before the time of any
such sale or disposition, unless any Applicable Law permits a shorter notice
period. Each Borrower acknowledges and agrees that the ten (10) day notice
period (or shorter notice period permitted by Applicable Law) is commercially
reasonable. Each Borrower hereby authorizes and appoints the Agent and its
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successors and assigns to (x) sell the Collateral, and (y) declare that such
Borrower assents to the passage of a decree by a court of proper jurisdiction
for the sale of the Collateral. Any such sale pursuant to (x) or (y) above is to
be made in accordance with the applicable provisions of the laws and rules of
procedure of the Commonwealth of Virginia or other applicable law; and/or
(f) Proceed to enforce such other and additional rights and remedies as the
Agent and/or any Lender may have hereunder, and/or under any of the other Loan
Documents, or as may be provided by applicable law.
It is expressly understood and agreed that the Agent and/or any Lender may
exercise its respective rights under this Agreement or under any other Loan
Document without exercising the rights or affecting the security afforded by any
other Loan Document, and it is further understood and agreed that the Agent may
proceed against all or any portion of the Collateral in such order and at such
times as the Agent, in its sole discretion, sees fit; and each Borrower hereby
expressly waives, to the extent permitted by law, all benefit of valuation,
appraisement, marshaling of assets and all exemptions under the laws of the
Commonwealth of Virginia and/or any other state, district or territory of the
United States. Furthermore, if any Borrower shall default in the performance
when due of any of the provisions of this Agreement, the Agent, without notice
to or demand upon the Borrower (and without any grace or cure period) and
without waiving or releasing any of the Obligations or any default hereunder,
under the Notes or under any other Loan Document, may (but shall be under no
obligation to) perform the same for such Borrower's account, and any monies
expended in so doing shall be chargeable to the Borrowers with interest, at the
Default Rate, until the Event of Default is cured, and added to the indebtedness
secured by the Collateral.
All sums paid or advanced by the Agent or any Lender in connection with the
foregoing or otherwise in connection with the Loan, and all court costs and
expenses of collection, including without limitation, reasonable attorneys' fees
and expenses (and fees and expenses resulting from the taking, holding or
disposition of the Collateral) incurred in connection therewith shall be paid by
the Borrowers upon demand and shall become a part of the Obligations secured by
the Collateral. The Borrowers agree to bear the expense of each lien search,
property and judgment report or other form of Collateral ownership investigation
as the Agent in its discretion, shall deem necessary or desirable to assure or
further assure to the Agent its interests in the Collateral.
Notwithstanding anything to the contrary set forth in this Agreement or any
other Loan Document, in the event that any Collateral proceeds shall have been
received by the Agent to pay any of the Obligations, such proceeds shall be
applied first to the Obligations relating to, arising from or incurred in
connection with the transactions contemplated by this Agreement in accordance
with the terms and provisions of this Agreement, and then to any other
Obligations of any Borrower.
ARTICLE 10
----------
THE AGENT; AGENCY
-----------------
Section 10.1 Appointment. Each Lender hereby irrevocably appoints First
------------
Union National Bank to act as the Agent for each such Lender pursuant to the
provisions of this
41
<PAGE>
Agreement and the other Loan Documents, and irrevocably authorizes the Agent to
take such action, and exercise such powers and perform such duties as are
expressly delegated to or required of the Agent by the terms hereof or thereof,
or are reasonably incidental thereto, including without limitation, executing
documents on behalf of the Lender(s), as agent. First Union National Bank agrees
to act as Agent on behalf of the Lender(s) on the terms and conditions set forth
in this Agreement and the other Loan Documents, subject to its right to resign
as provided in Section 10.10 of this Agreement. Each Lender agrees that the
rights and remedies granted to the Agent under this Agreement and the other Loan
Documents shall be exercised exclusively by the Agent, and that no Lender shall
have the right individually to exercise any such right or remedy, except to the
extent expressly provided herein or therein.
Section 10.2 General Nature of the Agent's Duties. Notwithstanding anything
------------------------------------
to the contrary elsewhere in this Agreement or any other Loan Document:
(a) The Agent shall have no duties or responsibilities other than those
expressly set forth in this Agreement and the other Loan Documents, and no
implied duties or responsibilities on the part of the Agent shall be read into
this Agreement or any other Loan Document or shall otherwise exist.
(b) The duties and responsibilities of the Agent under this Agreement and
the other Loan Documents shall be mechanical and administrative in nature, and
the Agent shall not have a fiduciary relationship in respect of any Lender,
except with respect to funds or collateral it receives on behalf of any Lender.
(c) The Agent is and shall be solely the agent of the Lender(s). The Agent
does not assume, and shall not at any time be deemed to have, any relationship
of agency or trust with or for, or any other duty or responsibility to, any
Borrower or any other person.
(d) The Agent shall be under no obligation to take any action hereunder or
under any other Loan Document if the Agent believes in good faith that taking
such action may conflict with any applicable law, or any provision of this
Agreement or any other Loan Document, or may require the Agent to qualify to do
business in any jurisdiction where it is not then so qualified.
Section 10.3 Exercise of Powers.
------------------
(a) During any period in which First Union and Bank of America (each, an
"Original Lender" and collectively, the "Original Lenders") are the only
"Lender" parties to this Agreement (the "Original Lender Period"), the Agent
shall not have the authority to take any action of the type specified in this
Agreement or any other Loan Document as being within the Agent's rights, powers
or discretion, unless (i) such action shall have been authorized by both of the
Original Lenders; or (ii) such action is otherwise permitted pursuant to
subsection (1) below. In furtherance of the foregoing, it is expressly
understood and agreed that, except as otherwise provided in subsection (1)
below, during the Original Lender Period, the Agent shall not amend, modify,
grant any consent or waive any term or provision of this Agreement or any other
Loan Document, acknowledge satisfaction of any requirement set forth in this
Agreement or in any other Loan Document, declare an Event of Default, provide
formal written notice of an Event of Default to the Borrowers or exercise any
rights or remedies against any Borrower, or do or
42
<PAGE>
refrain from doing any other act as the Agent for the Lenders, unless such
action or refraining from acting shall have been authorized by both of the
Original Lenders.
(1) Notwithstanding the foregoing, if during the Original Lender Period (A)
either of the Original Lenders authorizes and directs the Agent to request and
obtain documents, instruments or information from any Borrower or all of the
Borrowers, the Agent shall undertake such action, whether or not both of the
Original Lenders have requested or consented to such action; and/or (B) the
Original Lenders fail to agree (such disagreement being hereinafter referred to
as a "Dispute") on whether to take or pursue any specific action (other than
enforcement action as provided below), then the Original Lenders shall, upon the
demand of either of the Original Lenders, submit the Dispute to arbitration in
accordance with the rules, regulations and procedures of the American
Arbitration Association (sitting in Washington, D.C.) on an expedited basis, and
the decision of the American Arbitration Association shall be binding on the
Original Lenders.
(2) Notwithstanding the foregoing requirement to submit the Dispute to
arbitration as provided in subsection (1) above, if the Dispute involves a
disagreement regarding whether to enforce (or the manner or timing of
enforcement of) any rights or remedies that the Agent may be entitled to
exercise against any Borrower and/or any Collateral pursuant to this Agreement,
any other Loan Document or applicable law, then the Original Lender who does not
agree to authorize the Agent to take all available enforcement action (the
"Blocking Lender") shall have the right to require the other Original Lender
(the "Affected Lender") to sell and assign to the Blocking Lender (or to such
other person or entity as the Blocking Lender may designate), all of such
Affected Lender's rights and obligations under this Agreement, in accordance
with Section 12.11 of this Agreement, and for a price payable in immediately
available funds concurrently with the execution and delivery of the sale and
assignment, in an amount equal to all amounts owed to the Affected Lender
hereunder or under any other Loan Document, including amounts funded by the
Affected Lender ratably in accordance with the Affected Lender's Percentage of
the aggregate outstanding principal amount of the Loans which remain due and
owing to such Lender, together with accrued interest thereon through the date of
such assignment. Any such sale and assignment shall be made pursuant to
assignment documentation, in the form attached as Exhibit 9 hereto (the
---------
"Assignment"), and shall be executed and delivered by the Affected Lender within
five (5) Business Days after written demand for such sale and assignment made in
accordance with this provision. If the Affected Lender fails or refuses to
execute and deliver the same within five (5) Business Days after the date of
such demand, provided the Affected Lender does not deliver to the Agent written
notice of the existence of a bona fide dispute as to amounts due and owing
hereunder between the Affected Lender, the Agent and/or the Borrowers, which
notice sets forth with particularity the nature of such dispute, the Affected
Lender shall be liable for all direct, indirect and consequential damages
incurred by the Blocking Lender as a result of the Affected Lender's failure to
execute and deliver the Assignment (including, without limitation, any costs,
claims, expenses, damages and liabilities arising from the impairment (if
applicable) of the Blocking Lender's rights and remedies set forth in this
Agreement or the impairment of its ability to exercise any such rights and
remedies). Upon the replacement of any Affected Lender pursuant to this Section
10.3(a), such Affected Lender shall cease to have any participation in,
entitlement to, or other right to share in the Loan or the security interests
granted in favor of the Agent in any Collateral, and such Affected Lender shall
have no further liability to the Agent or any other Lender under any of the Loan
Documents (except as otherwise provided hereinabove or as
43
<PAGE>
otherwise provided in Section 12.11(a) of this Agreement as to events or
transactions which occurred prior to the replacement of such Affected Lender).
In the event that First Union becomes an Affected Lender pursuant to this
Section 10.3(a), the Blocking Lender shall have the right to remove First Union
National Bank as the Agent under this Agreement, such removal to occur
concurrently with the Assignment by the Affected Lender.
(b) If, as of any applicable date of determination, the Original Lenders
are no longer the only "Lender" parties to this Agreement, the Agent shall have
the authority to take any action of the type specified in this Agreement or any
other Loan Document as being within the Agent's rights, powers or discretion, as
it determines in its sole discretion, except as provided in subsection (c)
below, and except as provided in any other Loan Document which expressly
requires the direction or consent of (i) the Required Lenders; or (ii) all of
the Lenders, in either of which circumstances the Agent shall not take such
action absent such direction or consent. Any action or inaction pursuant to such
direction or consent shall be binding on all of the Lenders.
(c) Except as otherwise expressly provided in this Agreement, without the
consent or approval of the Required Lenders, the Agent shall not, in any
material respect, amend, modify, grant consents or waive terms or provisions of
this Agreement or any other Loan Document (each, an "Amendment and collectively,
"Amendments"), or declare an Event of Default, provide formal written notice of
an Event of Default to the Borrowers or exercise any rights or remedies against
any Borrower. Each Lender agrees that its decision to consent to or reject any
request by the Agent for any Amendment or for permission to declare an Event of
Default, provide formal notice thereof to the Borrowers and/or exercise any
rights or remedies arising by virtue of such default, shall be made as soon as
reasonably practicable after the Agent has provided all information reasonably
necessary to act on any such request, but in all events within five (5) Business
Days of the receipt of such information; provided, however, that in an emergency
situation, the Agent may require the Lenders to respond within such shorter time
period as may be specified by the Agent in writing, but in no event less than
two (2) Business Days from the receipt of such information. Unless otherwise
provided herein, the Agent shall exercise any and all rights and
responsibilities on behalf of the Lenders in connection with an Event of
Default. Additionally, the consent or approval of all of the Lenders shall be
required for the Agent to (a) extend the final maturity of the Loan or any Note,
reduce the interest rate payable on or extend the time of payment for any
installment of principal, interest or fees payable in connection with the Loan,
or issue Letters of Credit (i) having an expiration date beyond the Revolving
Facility Maturity Date, except as otherwise expressly provided in this
Agreement, or (ii) causing the aggregate outstanding amount of all such Letters
of Credit issued to exceed Five Million Dollars ($5,000,000); (b) change the
Percentage or the Commitment Amount of any Lender, (c) release all or a
substantial portion of the Collateral, except in accordance with the provisions
of any applicable Loan Document, (d) amend the definition of the Required
Lenders, (e) consent to the assignment or transfer by any Borrower of any of its
rights or obligations hereunder, (f) amend, modify or waive any provisions of
this Section 10.3, (g) change the manner of application by the Agent of payments
made under the Loan Documents, or (h) change the method of calculation used in
connection with the computation of interest, commissions or fees. Each Lender
agrees that its decision to approve or reject any request for an amendment or
waiver with respect to this Agreement shall be made as soon as reasonably
practicable after the Lender has received all information deemed by the Agent to
be necessary to act on any such request.
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Section 10.4 General Exculpatory Provisions. Notwithstanding anything to
------------------------------
the contrary elsewhere in this Agreement or any other Loan Document:
(a) The Agent, in its capacity as Agent (but not as a Lender), shall not be
liable for any action taken or omitted to be taken by it under or in connection
with this Agreement or any other Loan Document, unless the same constitutes
gross negligence or willful misconduct, as finally determined by a court of
competent jurisdiction.
(b) The Agent, in its capacity as the Agent (but not a Lender), shall not
be responsible for (i) the execution, delivery, effectiveness, enforceability,
genuineness, validity or adequacy of this Agreement or any other Loan Document,
(ii) any recital, representation, warranty, document, certificate, report or
statement in this Agreement or any other Loan Document, (iii) any failure of any
Borrower or any Lender to perform any of their respective obligations under this
Agreement or any other Loan Document, (iv) the existence, validity,
enforceability, perfection, recordation, priority, adequacy or value, now or
hereafter, of any lien or encumbrance or other direct or indirect security
afforded or purported to be afforded by any of the Loan Documents, or otherwise
from time to time, or (v) caring for, protecting, insuring or paying any taxes,
charges or assessments with respect to any Collateral.
(c) The Agent shall be under no obligation to ascertain, inquire or give
any notice relating to (i) the performance or observance of any of the terms or
conditions of this Agreement or any other Loan Document on the part of any
Borrower, (ii) the business, operations, condition (financial or otherwise) or
prospects of any Borrower, or (iii) except to the extent as may be set forth in
Section 10.5(f) of this Agreement, the existence of any Event of Default.
(d) The Agent shall be under no obligation, either initially or on a
continuing basis, to provide any Lender with any notices, reports or information
of any nature, whether in its possession presently or hereafter, except for such
notices, reports and other information expressly required by this Agreement or
any other Loan Document to be furnished by the Agent to such Lender; it being
understood and agreed that the Agent shall promptly deliver to each Lender
copies of any and all notices, documents, instruments and agreements deemed by
the Agent, in its reasonable discretion, to be material to the transactions
contemplated by this Agreement (including, without limitation, copies of any and
all field audit results and requests for the issuance of any Letter(s) of
Credit).
Section 10.5 Administration by the Agent.
---------------------------
(a) The Agent may rely upon any notice or other communication of any nature
(written or oral, including telephone conversations, whether or not such notice
or other communication is made in a manner permitted or required by this
Agreement or any other Loan Document) purportedly made by or on behalf of the
proper party or parties, and the Agent shall have no duty to verify the identity
or authority of any person giving such notice or other communication.
(b) The Agent may consult with legal counsel (including in-house counsel
for the Agent), independent public accountants and any other experts selected by
the Agent from
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time to time, and the Agent shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts.
(c) The Agent may conclusively rely upon the truth of the statements and
the correctness of the opinions expressed in any certificates or opinions
furnished to the Agent in accordance with the requirements of this Agreement or
any other Loan Document. Whenever the Agent shall deem it necessary or desirable
that a matter be proved or established with respect to any Borrower or any
Lender, such matter may (in the Agent's discretion) be established by a
certificate of such Borrower or such Lender, as the case may be, and the Agent
may conclusively rely upon such certificate.
(d) The Agent may fail or refuse to take any action unless it shall be
indemnified to its reasonable satisfaction from time to time against any and all
amounts, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of every kind and nature
which may be imposed on, incurred by or asserted against the Agent by reason of
taking or continuing to take any such action; provided that no Lender shall be
obligated to indemnify the Agent for any portion of such amounts, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements resulting solely from the gross negligence or willful
misconduct of the Agent, as finally determined by a court of competent
jurisdiction.
(e) The Agent may perform any of its duties under this Agreement or any
other Loan Document by or through agents or attorneys-in-fact. The Agent shall
not be responsible for the gross negligence or willful misconduct of any agents
or attorneys-in-fact selected by it with reasonable care.
(f) In the event that any Lender becomes aware (other than by written
notice from the Agent) that an Event of Default exists, such Lender shall
promptly provide written notice thereof to the Agent, as provided hereinbelow.
The Agent shall not be deemed to have any knowledge or notice of the occurrence
of any Event of Default (other than a default in the payment of regularly
scheduled principal or interest), unless the Agent has received from a Lender or
any Borrower a written notice referring to this Agreement, describing the Event
of Default, and stating that such notice is a "notice of default". If the Agent
receives such a notice from any Lender or Borrower, the Agent shall give prompt
notice thereof to each Lender.
(g) Except in emergency situations requiring immediate audits, as
determined by the Agent, the Agent shall provide three (3) Business Days prior
notice to the Lender(s) of any field audit scheduled to be performed by the
Agent pursuant to Section 1.6 of this Agreement. The Lender(s) shall be entitled
to (i) receive copies of field audits performed by the Agent, and (ii) accompany
the Agent to any field audit, provided that the Agent may, in its discretion,
limit the number of Lenders attending any such field audit.
Section 10.6 Lenders Not Relying on the Agent or Other Lenders. Each Lender
-------------------------------------------------
acknowledges as follows:
(a) Neither the Agent nor any other Lender has made any representations or
warranties to it, and no act taken hereafter by the Agent or any other Lender
shall be deemed to constitute any representation or warranty by the Agent or
such other Lender to it.
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(b) It has, independently and without reliance upon the Agent or any other
Lender, and based upon such documents and information as it has deemed
appropriate, made its own credit and legal analysis and decision to enter into
this Agreement and the other Loan Documents.
(c) It will, independently and without reliance upon the Agent or any other
Lender, and based upon such documents and information as it shall deem
appropriate at the time, make its own decisions to authorize the Agent to take
or not take action under or in connection with this Agreement and the other Loan
Documents.
Section 10.7 Indemnification. Each Lender agrees to reimburse and indemnify
---------------
the Agent and the Agent's directors, officers, employees and agents (to the
extent not reimbursed by any Borrower, and without limitation of the obligation
of the Borrowers to do so), ratably in accordance with each Lender's Percentage,
from and against any and all amounts, losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs and
disbursements of every kind or nature (including the reasonable fees and
disbursements of counsel for the Agent or such other person in connection with
any investigative, administrative or judicial proceeding commenced or
threatened, whether or not the Agent or such other person shall be designated a
party thereto) that may at any time be imposed on, reasonably incurred by or
asserted against the Agent or such other person as a result of this Agreement,
any other Loan Document, any transaction from time to time contemplated hereby
or thereby, or any transaction financed in whole or in part, directly or
indirectly, with the proceeds of the Loan; provided that no Lender shall be
obligated to indemnify the Agent or such other person for any portion of such
amounts, losses, liabilities, claims, damages, expenses, obligations, penalties,
actions, judgments, suits, costs or disbursements resulting solely from the
gross negligence or willful misconduct of the person seeking indemnity, as
finally determined by a court of competent jurisdiction.
Section 10.8 The Agent in its Individual Capacity. With respect to its
------------------------------------
commitments and the Obligations owing to it, First Union shall have the same
rights and powers under this Agreement and each other Loan Document as any other
Lender, and may exercise the same as though it was not the Agent. The terms
"Lender," "holders of Notes" and like terms shall include First Union in its
individual capacity. First Union and its affiliates may make loans to, accept
deposits from, acquire debt or equity interests in, act as trustee under
indentures of and engage in any other business with any Borrower and any
stockholder, subsidiary or affiliate of any Borrower, as though First Union was
not the Agent hereunder, and without liability to account to any other Lender
with respect to the same.
Section 10.9 Holders of Notes. The Agent may deem and treat any Lender
----------------
which is the payee of a Note as the owner and holder of such Note for all
purposes hereof unless and until written notice evidencing such transfer shall
have been filed with the Agent; it being understood and agreed that any such
transfer must comply with the requirements of Section 12.10(b) of this
Agreement,. Any authority, direction or consent of any person who at the time of
giving such authority, direction or consent was a Lender shall be conclusive and
binding on each present and subsequent holder, transferee or assignee of any
Note or Notes payable to such Lender or issued in exchange therefor.
Section 10.10 Successor Agent. The Agent may resign at any time by giving
---------------
fifteen (15) days prior written notice thereof to the Lender(s) and the
Borrower, subject to appointment
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of a successor Agent (and such appointees acceptance of appointment) as below
provided in this Section 10.10. Upon any such resignation, the Required Lenders
shall appoint another Lender as the successor Agent; provided that such Lender
is a commercial bank or trust company organized under the laws of the United
States of America or any State thereof and has a combined capital and surplus of
at least $1,000,000,000. In such event, the Agent's resignation shall not be
effective until the successor Agent shall have accepted its appointment. Upon
the acceptance by a successor Agent of its appointment as Agent hereunder, such
successor Agent shall thereupon succeed to and become vested with all of the
properties, rights, powers, privileges and duties of the former Agent, without
further act, deed or conveyance. Upon the effective date of resignation of a
retiring Agent, such Agent shall be discharged from its duties under this
Agreement and the other Loan Documents, but the provisions of this Agreement
shall continue to inure to its benefit as to any actions taken or omitted by it
while it was Agent under this Agreement. If for any reason, at any time, there
is no Agent hereunder, then during such period, the Required Lenders shall have
the right to exercise the Agent's rights and perform its duties hereunder,
except that (i) all notices or other communications required or permitted to be
given to the Agent shall be given to each Lender, and (ii) with respect to the
absence of the Agent, all payments to be made to the Agent shall be made
directly to the Lender for whose account such payment is made (or to the
Borrowers, if applicable).
Section 10.11 Additional Agents. If the Agent shall from time to time deem
-----------------
it necessary or advisable to engage other agents for its own protection in the
performance of its duties hereunder or in the interests of the Lenders, then the
Agent and the Borrowers shall execute and deliver a supplemental agreement and
all other instruments and agreements necessary or advisable, in the opinion of
the Agent, to constitute another commercial bank or trust company, or one or
more other persons approved by the Agent, to act as co-Agent or a separate agent
with respect to any part of the Collateral, with such powers as may be provided
in such supplemental agreement, and with the power to vest in such bank, trust
company or other person (as such co-Agent or separate agent, as the case may
be), any properties, rights, powers, privileges and duties of such Agent under
this Agreement or any other Loan Document.
Section 10.12 Calculations. The Agent shall not be liable for any
------------
calculation, apportionment or distribution of payments made by it in good faith.
If such calculation, apportionment or distribution is subsequently determined to
have been made in error, the sole recourse of any Lender to whom payment was due
but not made shall be to recover from the Lenders any payment in excess of the
amount to which they are determined to be entitled, with interest thereon at the
Federal Funds Rate, or, if the amount due was not paid by the Borrowers, to
recover such amount from the Borrowers, with interest thereon at the rate
provided in the applicable Note.
Section 10.13 Funding by Agent.
----------------
(a) Except as otherwise expressly provided in this Agreement, the Agent
alone shall be entitled to make all advances in connection with the Loan and
shall receive all payments and other receipts relating to the Loan; it being
understood, however, that the Agent has reserved the right not to advance any
amounts to the Borrowers which the Agent has not received from the Lender(s).
The Agent will notify each Lender of the date and amount of any requested
advance, and if such notification is received by 1:00 p.m. Washington, D.C. time
on any given Business Day, the Lender(s) shall provide the required funds to the
Agent no later than
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the close of business on such Business Day. Once per week, or within such
shorter time frame as may be requested by the Agent, the Agent and each Lender
shall pay to each other such amounts (the "Equalization Payments") as may be
necessary to cause each Lender to own its applicable Percentage of the Loan and
otherwise implement the terms and provisions of this Agreement; it being
understood that (i) each Lender shall be entitled to receive interest on amounts
advanced by it only from the date of such Lender's advance of funds; (ii)
payments made by the Borrowers and received by the Agent shall be promptly
distributed to the Lenders in accordance with the terms of this Agreement; and
(iii) LIBOR advances and payments of amounts outstanding on a LIBOR basis shall
be made by and between the Agent and the applicable Lenders on a same day basis,
provided that the applicable Request for Advance, LIBOR Election Form and
Certification and/or payment of amounts outstanding on a LIBOR basis shall have
been received by the Agent on or before 1:00 p.m. Washington, D.C. time on any
given Business Day. The obligation of the Agent and each Lender to make
Equalization Payments shall not be affected by a bankruptcy filing by any
Borrower, the occurrence of any Event of Default or any other act, occurrence or
event whatsoever, whether the same occurs, before, on or after the date on which
an Equalization Payment is required to be made. All Equalization Payments shall
be made by 1:00 p.m. Washington, D.C. time on the date such payment is required.
(b) Unless the Agent shall have been notified in writing by any Lender no
later than the close of business on the Business Day before the Business Day on
which an advance requested by the Borrowers is to be made, that such Lender will
not make its ratable share of such advance, the Agent may assume that such
Lender will make its ratable share of the advance, and in reliance upon such
assumption the Agent may (but in no circumstances shall be required to) make
available to the Borrowers a corresponding amount. If and to the extent that any
Lender fails to make such payment to the Agent when required, such Lender shall
pay such amount on demand (or, if such Lender fails to pay such amount on
demand, the Borrowers shall arrange for the repayment of such amount to the
Agent), together with interest for the Agent's own account for each day from and
including the date of the Agent's payment, to and including the date of
repayment to the Agent (before and after judgment). Interest (a) if paid by such
Lender (i) for each day from and including the date of the Agent's payment to
and including the second Business Day thereafter, shall accrue at the Federal
Funds Rate for such day, and (ii) for each day thereafter, shall accrue at the
rate or rates per annum payable under the Notes; and (b) if paid by the
Borrowers, shall accrue at the rate or rates per annum payable under the Notes.
All payments to the Agent under this Section shall be made to the Agent at its
office set forth in the preamble of this Agreement (or as otherwise directed by
the Agent), in dollars, in immediately available funds, without set-off,
withholding, counterclaim or other deduction of any nature.
(c) All borrowings under this Agreement shall be incurred from the Lenders
pro rata on the basis of their respective Percentages of the Revolving Facility
(except to the extent advanced (i) as a Swing Line Loan, or (ii) by the Agent on
behalf of any Lender as provided in subsection (a) or (b) above). It is
understood that no Lender shall be responsible for any other Lender's failure to
meet its obligation to make advances hereunder, and that each Lender shall be
obligated to make advances required to be made by it hereunder regardless of the
failure of any other Lender to make its advances hereunder.
(d) Each payment and prepayment received by the Agent for the account of
the Lenders shall be distributed first to the Swing Line Lender for application
to any Swing Line Outstandings, and then to each Lender entitled to share in
such payment, ratably in accordance
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with each Lender's Percentage; provided, however, that any Lender who shall be
in default of its obligations set forth in this Agreement or any other Loan
Document or who has failed to fund its Percentage of any advance under the Loan
shall not be entitled to share in any such payment(s) until such time as such
default has been cured or such failure to fund, together with interest thereon
(as provided in subsection (b) above), has been paid to the Agent in accordance
with the terms and conditions of this Agreement or cured (as the case may be).
Payments from the Agent to the Lenders shall be made by wire transfer in
accordance with written instructions provided to the Agent by the Lenders from
time to time. Unless the Agent shall have received notice from the Borrowers
prior to the date on which any payment is due to the Lenders hereunder that the
Borrowers will not make such payment in full, the Agent may assume that the
Borrowers have made such payment in full on such date and the Agent, in reliance
upon such assumption, may cause to be distributed to each Lender on such due
date an amount equal to the amount then due such Lender. If and to the extent
the Borrowers shall not have made such payment in full to the Agent, each Lender
shall repay to the Agent upon its demand therefor such amount distributed to
such Lender, together with interest thereon at the overnight Federal Funds Rate
for each day from the date such amount is distributed to such Lender until the
date such Lender repays such amount to the Agent.
(e) If any Lender shall obtain any payment (whether voluntary, involuntary,
through the exercise of any right of setoff, or otherwise) in excess of such
Lender's Percentage of payments, such Lender shall forthwith purchase from the
other Lender(s) such participations in the Loans made by them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of the other Lender(s); provided, however, if all or any portion of
such excess payment is thereafter recovered from such purchasing Lender, such
purchase from the other Lender(s) shall be rescinded and each other Lender shall
repay to the purchasing Lender the purchase price to the extent of such
recovery, together with an amount equal to such Lender's ratable share
(according to the proportion of (1) the amount of such Lender's required
repayment, to (2) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount recovered. The Borrowers agree that any Lender purchasing a
participation from another Lender pursuant to this Section 10.13(e), to the
fullest extent permitted by law, may exercise all of its rights of payment with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrowers in the amount of such participation.
Section 10.14 Benefit of Article. The provisions of this Article 10 are solely
------------------
for the benefit of the Lenders. The Borrowers shall have no rights under (or
rights to require any Lender's compliance with) any of the provisions of this
Article 10; it being understood that the provisions of this Article 10 are not
in limitation of any right, power, duty, obligation or liability which the Agent
would have to or against any Borrower.
ARTICLE 11
----------
CERTAIN ADDITIONAL RIGHTS AND
OBLIGATIONS REGARDING THE COLLATERAL
------------------------------------
Section 11.1 Power of Attorney. Each Borrower hereby irrevocably appoints
-----------------
the Agent as its agent and attorney-in-fact, with power of substitution, having
full power and authority, in its own name, in the name of any Borrower or
otherwise (but at the cost and
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expense of the Borrowers and without notice to the Borrowers), to (i) notify
Account Debtors obligated on any of the Receivables to make payments thereon
directly to the lockbox referenced in Section 11.2, and to take control of the
cash and non-cash proceeds of any such Receivables, which right the Agent may
exercise at any time whether or not any Borrower is then in default hereunder or
was theretofore making collections thereon; (ii) charge against any bank account
of any Borrower any item of payment credited to the Collateral Account which is
dishonored by the drawee or the maker thereof; (iii) upon an Event of Default,
compromise, extend or renew any of the Collateral constituting Receivables or
deal with any of the Collateral as the Agent may deem advisable; (iv) upon an
Event of Default, release its interest in, make exchanges or substitutions for
and/or surrender, all or any part of any Borrower's interest in all or any part
of the Collateral; (v) upon an Event of Default, remove from any Borrower's
place(s) of business all books, records, ledger sheets, correspondence, invoices
and documents relating to or evidencing any of the Collateral, or without cost
or expense to the Agent or any Lender, make such use of any Borrower's place(s)
of business as may be reasonably necessary to administer, control and/or collect
the Collateral; (vi) upon an Event of Default, repair, alter or supply goods, if
any, necessary to fulfill in whole or in part the purchase order of any Account
Debtor; (vii) demand, collect receipt for and upon an Event of Default, give
renewals, extensions, discharges and releases of all or any part of the
Collateral; (viii) upon an Event of Default, institute and prosecute legal and
equitable proceedings to enforce collection of, or realize upon, all or any part
of the Collateral; (ix) upon an Event of Default, settle, renew, extend,
compromise, compound, exchange or adjust claims with respect to all or any part
of the Collateral or any legal proceedings brought with respect thereto; and (x)
receive and open all mail addressed to any Borrower, and if an Event of Default
exists hereunder, notify the Post Office authorities to change the address for
the delivery of mail to any Borrower to such address as the Agent may designate;
it being understood that the rights granted to the Agent in this clause (x),
which are operative on the occurrence of an Event of Default, shall not in any
way limit or impair the other rights provided to the Agent or any Lender in this
Agreement or any other Loan Document, including, without limitation, their
rights with respect to the Collateral Account and the below-referenced lockbox.
Furthermore, each Borrower hereby irrevocably appoints the Agent as its agent
and attorney-in-fact, with power of substitution, having full power and
authority, in its own name, in the name of the Agent, in the name of such
Borrower or otherwise (but at the cost and expense of the Borrowers and without
notice to the Borrowers) and regardless of whether an Event of Default has
occurred or any act, event or condition which with notice or the lapse of time,
or both, would constitute an Event of Default has occurred, to (a) file
financing statements and continuation statements covering the Collateral and
execute the same on behalf of any Borrower; (b) charge against any banking
account of any Borrower any item of payment credited to any Borrower's account
which is dishonored by the drawee or maker thereof; and/or (iii) endorse the
name of any Borrower upon any items of payment relating to the Collateral or
upon any proof of claim in bankruptcy against any Account Debtor.
Section 11.2 Lockbox. The Borrowers shall establish and continually
-------
maintain on terms and conditions reasonably satisfactory to the Agent, one or
more lockboxes (and, if required by the Agent, one or more blocked accounts) for
the collection of Receivables. Each Borrower hereby authorizes the Agent to
receive and collect any amount or amounts due or to become due on account of any
Receivables following the occurrence of an Event of Default and, at its
discretion, to apply the same to the repayment of the Notes. Except as otherwise
may be approved by the Agent in writing, any checks or other remittances
received by any Borrower in payment of the Receivables shall be held in trust by
such Borrower for the Agent and Lender(s).
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Each Borrower shall, in writing, within thirty (30) days from the date of this
Agreement, direct all of its customers (other than certain customers as may be
approved by the Agent in writing) to make payments directly to the Agent
pursuant to the form of Payment Direction Letter attached as Exhibit 8 hereto,
---------
and shall include on all of its invoices, a direction to its customer to make
all payments directly to the lockbox designated by the Agent in writing.
Section 11.3 Other Agreements. Except as may otherwise be expressly
----------------
permitted by the terms of this Agreement, and without limiting any other
restrictions or provisions of this Agreement, each Borrower will (i) on demand,
subject to any confidentiality and secrecy requirements imposed by any
Government agency, make available in form reasonably acceptable to the Agent,
shipping documents and delivery receipts evidencing the shipment of goods which
gave rise to the sale or lease of inventory or of an account, contract right or
chattel paper, completion certificates or other proof of the satisfactory
performance of services which gave rise to the sale or lease of inventory or of
an account, contract right or chattel paper, and each Borrower's copy of any
written contract or order from which a sale or lease of inventory, an account,
contract right or chattel paper arose; and (ii) when requested, advise the Agent
when an Account Debtor returns or refuses to retain any goods, the sale or lease
of which gave rise to an account, contract right or chattel paper, and of any
delay in delivery or performance, or claims made in regard to any sale or lease
of inventory, account, contract right or chattel paper. Upon reasonable notice,
all such records will be available for examination by authorized agents of the
Agent.
It is expressly understood and agreed, however, that neither the Agent nor
any Lender shall be required or obligated in any manner to make any inquiries as
to the nature or sufficiency of any payment received by it or to present or file
any claims or take any other action to collect or enforce a payment of any
amounts which may have been assigned to it or to which it may be entitled
hereunder at any time or times.
ARTICLE 12
----------
MISCELLANEOUS
-------------
Section 12.1 Remedies Cumulative. Each right, power and remedy of the Agent
-------------------
and/or Lender(s) provided for in this Agreement or in any other Loan Document or
now or hereafter existing at law or in equity, by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other right, power
or remedy provided for in this Agreement or in any other Loan Document, or now
or hereafter existing at law or in equity, by statute or otherwise, and the
exercise or beginning of the exercise by the Agent and/or any Lender of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by the Agent and/or any Lender of any or all such other
rights, powers or remedies.
Section 12.2 Waiver. No failure or delay by the Agent or any Lender to
------
insist upon the strict performance of any term, condition, covenant or agreement
set forth in this Agreement or any other Loan Document, or to exercise any
right, power or remedy consequent upon a breach thereof, shall constitute a
waiver of such term, condition, covenant or agreement or of any such breach, or
preclude the Agent or any Lender from exercising any such right, power or remedy
at any later time or times. By accepting payment after the due date of any of
the Obligations, neither the Agent nor any Lender shall be deemed to have waived
either the right to
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require prompt payment when due of all other Obligations, or the right to
declare a default for failure to make payment of any such other Obligations.
Section 12.3 Notices. Notices to any party shall be in writing and shall be
-------
delivered personally or by first-class mail or nationally-recognized overnight
delivery service addressed to the parties at the addresses set forth below or
otherwise designated in writing:
If to the Borrowers: c/o Empyrean Holdings
8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
Attention: Graham Perkins
Chief Financial Officer
If to the Agent: First Union National Bank
1970 Chain Bridge Road, 9th Floor
McLean, Virginia 22102
Attention: Mr. Jeffrey McGrath
Director
If to the Lender(s): First Union Commercial Corporation
1970 Chain Bridge Road, 9th Floor
McLean, Virginia 22102
Attention: Mr. Jeffrey McGrath
Director
Bank of America, N.A.
6610 Rockledge Drive, 3rd Floor
Bethesda, Maryland 20817
Attention: Ms. Barbara Levy
Senior Vice President
and to the other Lender parties hereto from
time to time
with a copy of all notices
to the Agent and/or
Lender to: Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attention: Matthew S. Bergman, Esq.
with a copy of all notices
to the Borrowers to: Hogan & Hartson
Columbia Square
555 13th Street, N.W.
Washington, D.C. 20004
Attention: Chris Hagan, Esq.
Section 12.4 Entire Agreement. This Agreement and the other Loan Documents
----------------
constitute the entire agreement of the parties with respect to the Loan and
supersede all prior
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agreements and understandings (except for the Commitment Letter, which shall
survive the execution and delivery of this Agreement). This Agreement and the
other Loan Documents shall continue in full force and effect for so long as any
Borrower shall be indebted hereunder or under any Note, and thereafter until the
Agent shall have actually received written notice of the termination hereof from
the Borrowers and all Obligations incurred or contracted before receipt of such
notice shall have been fully paid.
Section 12.5 Relationship of the Parties. This Agreement provides for the
---------------------------
extension of financial accommodations by the Lender(s), in their capacity as
lender, to each Borrower, in its capacity as a borrower, and for the payment of
interest and repayment of the Obligations by the Borrowers. Certain provisions
herein, such as those relating to compliance with the financial covenants,
delivery to the Agent and/or Lender(s) of financial statements, and compliance
with other affirmative and negative covenants are for the benefit of the
Lender(s) to protect the interests of the Lender(s) in assuring repayment of the
Obligations. Nothing contained in this Agreement shall be construed as
permitting or obligating the Agent or any Lender to act as a financial or
business advisor or consultant to any Borrower, as permitting or obligating the
Agent or any Lender to control any Borrower or to conduct any Borrower's
operations, as creating any fiduciary obligation on the part of the Agent or any
Lender to any Borrower, or as creating any joint venture, agency or other
relationship between the parties other than as explicitly and specifically
stated in this Agreement. Each Borrower acknowledges that it has had the
opportunity to obtain the advice of experienced counsel of its own choosing in
connection with the negotiation and execution of this Agreement and to obtain
the advice of such counsel with respect to all matters contained herein,
including, without limitation, the provision in this Agreement for waiver of
trial by jury. Each Borrower further acknowledges that it is have experienced
with respect to financial and credit matters and has made its own independent
decision to request the Obligations and execute and deliver this Agreement.
Section 12.6 Waiver of Jury Trial; Punative Damages. Each Borrower hereby
--------------------------------------
(a) covenants and agrees not to elect a trial by jury of any issue triable by a
jury, and (b) waives any right to trial by jury and any right to claim punitive
damages, in each case, fully to the extent that any such right shall now or
hereafter exist. This waiver of right to trial by jury and right to claim
punitive damages is separately given by each Borrower, knowingly and
voluntarily, and this waiver is intended to encompass individually each instance
and each issue as to which the right to a jury trial or any claim of punitive
damages would otherwise accrue. The Agent or any Lender is hereby authorized and
requested to submit this Agreement to any court having jurisdiction over the
subject matter and the parties hereto, so as to serve as conclusive evidence of
the Borrower's herein contained waiver of the right to jury trial and any right
to claim punitive damages. Further, each Borrower hereby certifies that no
representative or agent of the Agent or any Lender (including counsel for the
Agent and/or and Lender) has represented, expressly or otherwise, to the
undersigned that the Agent or any Lender will not seek to enforce this provision
waiving the right to a trial by jury or any right to claim punitive damages.
Section 12.7 Submission to Jurisdiction; Service of Process; Venue. Any
-----------------------------------------------------
judicial proceeding brought against any Borrower with respect to this Agreement
or any other Loan Document may be brought in any court of competent jurisdiction
in the Commonwealth of Virginia, and by execution and delivery of this
Agreement, each party accepts for themselves and in connection with their
properties, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid court, and irrevocably agree to be bound by any judgment rendered by
such
54
<PAGE>
court in connection with this Agreement. Each Borrower irrevocably designates
and appoints Graham Perkins, whose address is c/o Empyrean Group Holdings, Inc.,
8300 Boone Boulevard, Suite 250, Vienna, Virginia 22182, as its agent to receive
on its behalf service of all process in any such proceeding in any court in the
Commonwealth of Virginia, such service being hereby acknowledged by each
Borrower to be effective and binding on it in every respect. A copy of any such
process so served shall be mailed by registered or certified mail to the
Borrowers at the address to which notices are to be addressed in accordance with
this Agreement, except that any failure to mail such copy shall not affect the
validity of service of process. Each Borrower shall at all times maintain an
agent for service of process pursuant to this provision. If any Borrower fails
to appoint such an agent, or if such agent refuses to accept service, such
Borrower hereby agrees that service upon it by mail shall constitute sufficient
notice. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of the Agent or any Lender to
bring proceedings against any Borrower in the courts of any other jurisdiction.
Section 12.8 Changes in Capital Requirements. If after the date of this
-------------------------------
Agreement any Lender shall determine that the adoption of any applicable law,
rule or regulation regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof, or compliance by such
Lender with any request or directive regarding capital adequacy of any
authority, central bank or comparable agency, which adoption, change or
compliance has or would have the effect of reducing the rate of return on such
Lender's capital as a consequence of such Lender's obligations hereunder to a
level below that which such Lender could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's policies with
respect to capital adequacy), then the interest rate on the Notes shall be
increased to a rate which shall retain such Lender's original rate of return on
such Lender's capital.
Section 12.9 Captions. The paragraph headings of this Agreement are for
--------
convenience of reference only, and in no way define, limit or describe the scope
of this Agreement or the intent of any provision hereof.
Section 12.10 Modification and Waiver. Neither this Agreement nor any term,
-----------------------
condition, covenant or agreement hereof may be changed, waived, discharged or
terminated orally, but that may be accomplished only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
Section 12.11 Transferability.
---------------
(a) No Borrower shall sell, assign or otherwise transfer any of its rights,
interests or Obligations under this Agreement.
(b) No Lender shall sell, assign or otherwise transfer its interests under
this Agreement to any person or entity (other than an Eligible Assignee),
without the prior written consent of the Agent, which consent shall not be
unreasonably withheld, delayed or conditioned. Furthermore, no sale, assignment
or transfer shall be made by any Lender (other than First Union) unless (i) if
the proposed assignee of the transferring Lender is not an affiliate of the
transferring Lender, at least thirty (30) days' prior written notice of such
sale, assignment or transfer shall have been issued by such transferring Lender
to the Agent and the Borrowers, and
55
<PAGE>
such notice identifies the proposed assignee; (ii) if the proposed assignee of
the transferring Lender is an affiliate of the transferring Lender, written
notice of such sale, assignment or transfer shall have been issued by such
transferring Lender to the Agent and the Borrowers simultaneously with such
sale, assignment or transfer, and such notice identifies the proposed assignee;
(iii) the dollar equivalent of the Percentage of the transferring Lender being
assigned equals or exceeds Five Million and No/100 Dollars ($5,000,000.00); (iv)
the Agent shall have received a duly executed Assignment and Acceptance
agreement, in the form attached as Exhibit 9 hereto; and (v) if the proposed
assignee of the transferring Lender is not an affiliate of the transferring
Lender, an assignment fee in the amount of Five Thousand and No/100 Dollars
($5,000.00) shall have been paid to the Agent.
Section 12.12 Governing Law; Binding Effect. This Agreement shall be
-----------------------------
governed by the laws of the Commonwealth of Virginia and be binding upon the
Borrower and inure to the benefit of the parties hereto and their respective
personal representatives, successors and assigns.
Section 12.13 Gender; Number. As used herein, the singular number shall
--------------
include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may require.
Section 12.14 Materiality. Unless the context clearly indicates to the
-----------
contrary, determinations regarding the materiality of any act, event, condition
or circumstance shall be in the reasonable judgment of the Agent.
Section 12.15 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
[Remainder of page intentionally left blank]
56
<PAGE>
This Agreement is signed, sealed and delivered as of the date first
above-written.
ATTEST: Borrowers:
----------
[Corporate Seal] EMPYREAN GROUP HOLDINGS, INC., a
Delaware corporation
By: /s/ Jason J. Levine By: /s/ Graham Perkins
------------------- -----------------------
Name: Jason H. Levine Name: Graham Perkins
-------------------
Title: Vice President Title: Chief Financial Officer
-------------------
ATTEST:
[Corporate Seal] BSG SOLUTIONS, INC.,
a Georgia corporation
By: Jason H. Levine By: /s/ Graham Perkins
------------------- ----------------------
Name: Jason H. Levine Name: Graham Perkins
-------------------
Title: Vice President Title: Chief Financial Officer
-------------------
Agent:
-----
FIRST UNION NATIONAL BANK
By: /s/ Mary Dolan
--------------
Name: Mary Dolan
Title: Vice President
Lenders:
-------
FIRST UNION COMMERCIAL CORPORATION
By: /s/ Mary Dolan
--------------
Name: Mary Dolan
Title: Vice President
BANK OF AMERICA, N.A.
By: /s/ Barbara P. Levy
-------------------
Name: Barbara Levy
Title: Senior Vice President
The Exhibits and Schedules to this Business Loan and Security Agreement are not
included with this Registration Statement on Form S-1. The Registrant will
provide these Exhibits and Schedules upon request of the Securities and Exchange
Commission.
57
<PAGE>
Exhibit 10.17
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and among
EMPYREAN GROUP HOLDINGS, INC.
("Empyrean Holdings")
ICONIXGROUP, INC.
(the "Company")
THE INVISIONS GROUP, LTD.
("Invisions Group")
and
THE STOCKHOLDERS OF THE INVISIONS GROUP, LTD.
(the "Stockholders")
Dated October 29, 1999
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS..............................................................................2
1.1 Definitions...........................................................................2
ARTICLE II STOCK PURCHASE...........................................................................7
2.1 Stock Purchase........................................................................7
2.2 Payment of Purchase Price.............................................................7
2.3 Funded Indebtedness Adjustment.......................................................8
2.4 Exercise of Options and Purchase of Option Shares....................................8
2.5 Financial Condition...................................................................9
2.6 Closing...............................................................................9
2.7 Escrow Arrangements...................................................................9
2.8 Closing Audit.........................................................................10
2.9 Post-Closing Net Working Capital Adjustment...........................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY, INVISIONS GROUP AND STOCKHOLDERS.........11
3.1 Capitalization........................................................................11
3.2 No Liens on Shares....................................................................11
3.3 Subsidiaries..........................................................................12
3.4 Other Rights to Acquire Capital Stock.................................................12
3.5 Due Organization......................................................................12
3.6 Due Authorization.....................................................................12
3.7 Financial Statements..................................................................13
3.8 Certain Actions.......................................................................14
3.9 Properties............................................................................14
3.10 Licenses and Permits..................................................................15
3.11 Intellectual Property.................................................................15
3.12 Compliance with Laws..................................................................16
3.13 Insurance.............................................................................17
3.14 Employee Benefit Plans................................................................17
3.15 Contracts and Agreements..............................................................18
3.16 Claims and Proceedings................................................................19
3.17 Taxes.................................................................................19
3.18 Personnel.............................................................................20
3.19 Business Relations....................................................................21
3.20 Accounts Receivable; Accounts Payable; Customer Deposits, Customer Revenues
and Deferred Revenues.................................................................21
3.21 Bank Accounts; Investments............................................................22
3.22 Customer Claims.......................................................................22
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
3.23 Brokers...............................................................................22
3.24 Affiliated Transactions...............................................................22
3.25 Funded Indebtedness; Letters of Credit; Undisclosed Liabilities.......................23
3.26 Year 2000.............................................................................23
3.27 Information Furnished.................................................................23
ARTICLE IV EMPYREAN HOLDINGS' REPRESENTATIONS AND WARRANTIES.........................................24
4.1 Due Organization of Empyrean Holdings.................................................24
4.2 Due Authorization.....................................................................24
4.3 No Brokers............................................................................24
4.4 Investment............................................................................25
4.5 Information Furnished................................................................25
4.6 Capital Stock and Related Matters....................................................25
4.7 Subsidiaries; Investments.............................................................25
4.8 Authorization of the Stock...........................................................25
4.9 Financing.............................................................................26
4.10 Sprint Contract......................................................................26
4.11 Financial Statements..................................................................26
4.12 Compliance with Laws..................................................................26
4.13 Claims and Proceedings................................................................26
4.14 Taxes.................................................................................27
4.15 Information Furnished.................................................................27
ARTICLE V PRE-CLOSING COVENANTS OF THE COMPANY, INVISIONS GROUP, EMPYREAN HOLDINGS AND STOCKHOLDERS..27
5.1 Consents of Others....................................................................27
5.2 Stockholders' Efforts.................................................................28
5.3 Powers of Attorney....................................................................28
5.4 Conduct of Business Pending Closing...................................................28
5.5 Access Before Closing.................................................................28
ARTICLE VI POST-CLOSING COVENANTS...................................................................29
6.1 General...............................................................................29
6.2 Transition............................................................................29
6.3 Confidentiality.......................................................................29
6.4 [Intentionally Left Blank]............................................................30
6.5 Additional Matters....................................................................30
6.6 Litigation Support....................................................................32
6.7 Audits................................................................................32
6.8 Minimum Cash as of the Closing........................................................32
6.9 Stock Options.........................................................................32
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING.............................33
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C> <C>
7.1 Conditions to Empyrean Holdings' Obligations..........................................33
7.2 Conditions to Stockholders', Invisions Group's and the Company's Obligations..........36
ARTICLE VIII INDEMNIFICATION.......................................................................37
8.1 Indemnification by Stockholders.......................................................37
8.2 Defense of Claims.....................................................................38
8.3 Escrow Claim..........................................................................38
8.4 Tax Audits, Etc.......................................................................39
8.5 Indemnification of Stockholders.......................................................39
8.6 Limits on Indemnification.............................................................39
8.7 Arbitration of Claims.................................................................39
ARTICLE IX TERMINATION.............................................................................41
9.1 Termination...........................................................................41
9.2 Effect of Termination.................................................................42
ARTICLE X MISCELLANEOUS............................................................................42
10.1 Modifications.........................................................................42
10.2 Notices...............................................................................42
10.3 Counterparts; Facsimile Transmission..................................................44
10.4 Expenses..............................................................................44
10.5 Binding Effect; Assignment............................................................44
10.6 Entire and Sole Agreement.............................................................44
10.7 Governing Law.........................................................................44
10.8 Survival of Covenants.................................................................45
10.9 Invalid Provisions....................................................................45
10.10 Stockholder's Investment Representations..............................................45
10.10 Public Announcements..................................................................45
10.11 Remedies Cumulative...................................................................45
10.12 Third Parties.........................................................................45
10.13 No Strict Construction................................................................46
10.14 Disclosure Schedule...................................................................46
</TABLE>
-iii-
<PAGE>
<TABLE>
LIST OF EXHIBITS
<S> <C>
Exhibit A Form of Seller Note
Exhibit B Form of Escrow Agreement
Exhibit C Opinion of Stockholders' Counsel
Exhibit D Key Employees of the Company
Exhibit E Form of Stockholder Release
Exhibit F-1 Form of Leo Mullen Employment Agreement
Exhibit F-2 Form of Noncompete/Nonsolicitation Agreement
Exhibit G Stockholders Accounts and Wire Transfer Instructions((S) 2.4)
Exhibit H Ownership of Shares ((S) 3.1)
Exhibit I-1 Articles of Incorporation of Invisions Group ((S) 3.5)
Exhibit I-2 Bylaws of Invisions Group ((S) 3.5)
Exhibit I-3 Articles of Incorporation of the Company ((S) 3.5)
Exhibit I-4 Bylaws of the Company ((S) 3.5)
Exhibit J List of Properties ((S) 3.9)
Exhibit K List of Licenses and Permits ((S) 3.10)
Exhibit L List of Intellectual Property ((S) 3.11)
Exhibit M List of Insurance ((S) 3.13)
Exhibit N List of Contracts ((S) 3.15)
Exhibit O List of Personnel ((S) 3.18)
Exhibit P List of Deferred Revenues ((S) 3.20)
Exhibit Q List of Bank Accounts and Investments ((S) 3.21)
Exhibit R List of Letters of Credit ((S) 3.25(b))
Exhibit S List of Indebtedness ((S) 7.1(d))
Exhibit T Opinion of Empyrean Holdings' Counsel
Exhibit U Stockholder Subscription Agreement
Exhibit V List of Optionees and Cashless Exercise Amounts
Exhibit W Form of Option Share Purchase Agreement
Exhibit Y Empyrean Holdings' Certificate of Incorporation
LIST OF SCHEDULES
Disclosure Schedule
Financial Statements
Empyrean Capitalization Schedule
</TABLE>
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered
into as of October 29, 1999, by and among EMPYREAN GROUP HOLDINGS, INC., a
Delaware corporation ("Empyrean Holdings"), ICONIXGROUP, INC., a Maryland
corporation (the "Company"); THE INVISIONS GROUP, LTD., a Maryland corporation
("Invisions Group"), and Leo C. Mullen, Helene Patterson, Sidney E. Barcelona,
Gretchen Frederick and Mark A. Smith (collectively, the "Stockholders").
Recitals
--------
Pursuant to this Agreement, the Company, which is engaged in
the business of providing information technology consulting, web-site design and
graphic and printing design services in the United States (the "Business"), will
be acquired by Empyrean Holdings pursuant to an acquisition of all of the
capital stock of Invisions Group owned by the Stockholders (the "Acquisition").
A. THE CURRENT CAPITALIZATION OF INVISIONS GROUP AND
THE COMPANY
On the date of this Agreement, the Company's capitalization
consists of 1,000 shares of common stock, $.01 par value per share. Invisions
Group is the owner of 100 shares of the common stock of the Company (the
"Company Shares"), which stock represents all of the issued and outstanding
capital stock of the Company. On the date of this Agreement, Invisions Group's
capitalization consists of 1,500,000 shares of common stock, $.01 par value per
share (the "Invisions Stock"). The Stockholders are the owners of 831,250 shares
of Invisions Stock, which stock represents all of the issued and outstanding
stock of Invisions Group (the "Existing Shares").
B. THE STOCK PURCHASE
Empyrean Holdings desires to purchase from the Stockholders
and the Stockholders desire to sell to Empyrean Holdings all of the Existing
Shares for a purchase price of $25,600,000, subject to adjustment as provided
herein.
Agreement
---------
NOW, THEREFORE, in consideration of the mutual premises and
covenants contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Agreement, the following terms have
-----------
the meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AA" shall mean Arthur Andersen, L.L.P. and its successors.
"Acquisition" has the meaning specified in the beginning of
the recitals of this Agreement.
"Affiliate" means, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by or is under
common control with such Person.
"Audited Closing Financial Statements" has the meaning
specified in Section 2.8.
-----------
"BSG" has the meaning specified in Section 4.10.
------------
"Business" has the meaning specified in the first recital of
the Agreement.
"Cash Purchase Price" shall have the meaning assigned to such
term in Section 2.2(a).
--------------
"Closing" means the closing of the Acquisition.
"Closing Date" has the meaning specified in Section 2.6.
-----------
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per
share, of Empyrean Holdings.
"Company" has the meaning specified in the first paragraph of
this Agreement.
"Company Shares" has the meaning specified in Recital A of the
---------
Agreement.
"Confidential Information" means (i) the terms and provisions
of this Agreement and the Acquisition and (ii) all confidential information (for
purposes of this Agreement, confidential information shall refer to all
information which is the subject of reasonable efforts by the Company to
maintain its non-public character or to otherwise prevent such information from
becoming widely known) and trade secrets of the Company or its Affiliates
including, without limitation, any of the same comprising the identity, lists or
descriptions of any customers, referral
-2-
<PAGE>
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. Confidential Information shall not include any information (a) which is
disclosed pursuant to subpoena or other legal process, (b) which has been
publicly disclosed, or (c) which is disclosed to any third party not in breach
of a confidentiality agreement.
"Contracts" has the meaning specified in Section 3.15.
------------
"Court Order" means any judgment, order, award or decree of
any foreign, federal, state, local or other court or tribunal and any award in
any arbitration proceeding.
"Disclosure Schedule" means the Disclosure Schedule attached
to this Agreement pursuant to which exceptions to Invisions Group's, the
Stockholders' and the Company's specific representations and warranties set
forth in Article III (and listed on a Section-by-Section basis) are disclosed to
-----------
Empyrean Holdings pursuant to said Article III.
-----------
"Employee Welfare Benefit Plan" means "employee welfare
benefit plan" as such term is defined in Section 3(1) of ERISA.
"Empyrean Holdings" has the meaning specified in the first
paragraph of this Agreement.
"Encumbrance" means any lien, claim, charge, security
interest, mortgage, pledge, easement, conditional sale or other title retention
agreement, defect in title or restrictive covenant.
"Environmental and OSHA Obligations" has the meaning specified
in Section 3.12.
------------
"Equitable Exceptions" shall have the meaning specified in
Section 3.6.
- -----------
"Equity Agreements" means (i) the Stockholders Agreement dated
August 12, 1999 between Empyrean Holdings and its stockholders and (ii) the
Registration Rights Agreement dated August 12, 1999 between Empyrean Holdings
and its stockholders.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means First Union National Bank, N.A.
"Escrow Agreement" means the Escrow Agreement to be executed
by and among the Stockholders, Empyrean Holdings and the Escrow Agent in the
form of Exhibit B.
---------
"Escrow Period" has the meaning specified in Section 2.7.
-----------
"Escrow Sum" has the meaning specified in Section 2.7.
-----------
-3-
<PAGE>
"Existing Shares" has the meaning specified in Recital A of
---------
the Agreement.
"Financial Statements" has the meaning specified in Section
-------
3.7.
- ---
"Force Majeure" shall mean any failure or delay caused by acts
of god, flood, fire, war or terrorism or any failure or delay caused by a
governmental blockage of all currency transactions between a foreign
Governmental Body and the United States of America.
"Funded Indebtedness" means all (i) indebtedness of the
Company for borrowed money, including borrowings under the Company's revolving
credit facility with Riggs Bank, N.A; (ii) other interest-bearing indebtedness;
(iii) capital lease obligations of the Company; (iv) obligations of the Company
to pay the deferred purchase or acquisition price for goods or services, other
than trade accounts payable in the ordinary course of business; (v) indebtedness
of others guaranteed by the Company or secured by an Encumbrance on the
Company's property; and (vi) indebtedness of the Company under extended credit
terms of more than 60 days from vendors provided to the Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Body" means any foreign, federal, state, local
or other governmental authority or regulatory body having jurisdiction over the
Company, Invisions Group and/or the Stockholders.
"Governmental Permits" has the meaning specified in Section
-------
3.10.
- ----
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended and the rules and regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"Indemnifiable Costs" has the meaning specified in Section
-------
8.1.
- ---
"Indemnified Parties" has the meaning specified in Section
-------
8.1.
- ---
"Invisions Group" has the meaning specified in the first
paragraph of this Agreement.
"Invisions Stock" has the meaning specified in Recital A of
---------
the Agreement.
"Intellectual Property" shall mean all of the following as
they are related primarily to the Business: (i) patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); (ii) trademarks, service marks, trade dress, trade names,
corporate names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations, applications and renewals for any of
the foregoing; (v) trade secrets, confidential information and know-how
(including but not limited to ideas,
-4-
<PAGE>
formulae, compositions, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs,
business and marketing plans, and customer and supplier lists and related
information); and (vi) computer software (including but not limited to data,
data bases and documentation).
"Knowledge of the Company" (whether or not capitalized) shall
mean actual knowledge, after reasonable inquiry within the Company to employees
with responsibility for the subject matter in question, of the Stockholders and
the officers and key employees of the Company. "Knowledge of the Stockholders"
(whether or not capitalized) shall mean actual knowledge of the Stockholders.
"Leases" shall mean the real property leases set forth on
Exhibit J.
- ---------
"Majority Sellers" or "Majority Stockholders" shall mean Leo
Mullen and Helene Patterson.
"Material" (whether or not capitalized) shall, where
appropriate in context of its use in making the representations and warranties
set forth in Article III, be deemed to mean an amount of money greater than
-----------
$50,000 individually or $100,000 in the aggregate.
"Material Adverse Change" or "Material Adverse Effect" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "Material Adverse
Change" or "Material Adverse Effect" has occurred in the context of the use of
such terms in the Company's, Invisions Group's and Stockholders' representations
and warranties set forth in Article III, such terms shall refer to the
-----------
occurrence of any single event, or any series of related events, or set of
related circumstances, which results or likely will result in a loss to the
Company, in excess of $50,000 per occurrence or $100,000 in the aggregate.
"Minimum Cash Deficit" has the meaning specified in Section
-------
6.8.
- ---
"Net Working Capital" shall equal the Company's total current
assets (including cash and cash equivalents) minus its total current liabilities
(other than liabilities associated with the lease and occupancy of new office
space by the Company in Bethesda, Maryland) including, without limitation,
borrowings under the Company's revolving credit facility with Riggs National
Bank, N.A., any cash to accrual liability borne by the Company and any change in
control payments due to employees, subcontractors, vendors or customers as a
result of the Acquisition contemplated hereby, each as calculated in accordance
with GAAP. For purposes of computing Net Working Capital, current liabilities
shall not include (i) liabilities associated with the lease, tenant improvements
and occupancy of new office space by the Company in Bethesda, Maryland, (ii)
liabilities incurred in connection with the Company's rebranding efforts on
behalf of Empyrean Holdings, (iii) employee income tax withholding amounts to
the extent reflected in the Company's accrued payroll liabilities; (iv) the
employees' share of employment taxes resulting from the exercise of Options
pursuant to Section 2.4 or (v) the employer's share of employment taxes
-----------
resulting from the exercise of Options pursuant to Section 2.4 to the extent,
based on reasonable
-5-
<PAGE>
projections made as of the Closing Date of the compensation to be received from
the Company or its successor assuming continued employment by each optionee
through the end of calendar year 1999, the exercise of the Options results in an
acceleration of liability for the employer's share of employment taxes that the
Company would have incurred for calendar year 1999 even if such Option exercises
had not occurred. Current assets shall not include any offsetting current
receivables from the employees for such amounts of income and employment tax
withholding related to the exercise of Options.
"Net Working Capital Adjustment" has the meaning specified in
Section 2.9.
- -----------
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"Option Plan" has the meaning specified in Section 2.4 of the
-----------
Agreement.
"Option Shares" has the meaning specified in Section 2.4 of
-----------
the Agreement.
"Options" has the meaning specified in Section 2.4 of the
-----------
Agreement.
"Other Arrangement" means a benefit program or practice
providing for bonuses, incentive compensation, vacation pay, severance pay,
insurance, restricted stock, stock options, employee discounts, company cars,
tuition reimbursement or any other perquisite or benefit (including, without
limitation, any fringe benefit under Section 132 of the Code) to employees,
officers or independent contractors that is not an Employee Benefit Plan within
the meaning of Section 3(3) of ERISA.
"Permitted Exception" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) purchase money security interest liens solely
on the property acquired pursuant to such credit purchase, (d) leases for
personal property not reflected as owned on the Financial Statements or (e)
other liens or imperfections on property which are not material in amount or do
not materially detract from the value or the existing use of the property
affected by such lien or imperfection.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"Preferred Stock" means the Convertible Class A Preferred
Stock, par value $.01 per share of Empyrean Holdings.
"Projected Net Working Capital" means $1,000,000.
"Purchase Price" has the meaning specified in Section 2.1.
-----------
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<PAGE>
"Recapitalization Agreement" means that certain
Recapitalization Agreement dated August 11, 1999 by and among BSG Holdings,
Inc., the stockholders of BSG Holdings, Inc., Thayer Itech Holdings, LLC and
Empyrean Holdings.
"Requirements of Laws" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"Seller Notes" has the meaning specified in Section 2.2(b).
"Stockholders" has the meaning set forth in the first
paragraph of this Agreement.
"Tax" or "Taxes" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amounts imposed thereon by any
Governmental Body.
"Tax Authority" means any Governmental Body for which any Tax
Returns are filed or any Taxes are paid.
"Tax Return" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
ARTICLE II
STOCK PURCHASE
2.1. Stock Purchase. On the Closing Date and subject to the
--------------
terms and conditions set forth in this Agreement, the Stockholders shall sell
and deliver to Empyrean Holdings all of the Existing Shares, free and clear of
all Encumbrances, other than Permitted Exceptions and the restrictions imposed
by federal and state securities laws. The total purchase price for the Existing
Shares (the "Purchase Price") shall be equal to $25,600,000, subject to any
adjustment required to be made pursuant to Sections 2.3, 2.4, 2.5, 2.8 and 2.9
--------------------------- ---
below.
2.2. Payment of Purchase Price. On the Closing Date and
-------------------------
subject to the terms and conditions set forth in this Agreement, Empyrean
Holdings shall pay the Purchase Price for the Existing Shares to the
Stockholders. The Purchase Price shall be payable as follows:
(a) an aggregate of $18,300,000 shall be paid at Closing
by wire transfer of immediately available funds to the Stockholders' accounts as
specified in Exhibit G
---------
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<PAGE>
hereto (the "Cash Purchase Price"), subject to adjustment as provided in
Sections 2.3, 2.4 and 2.5;
- ----------------- ---
(b) $2,650,000 shall be paid in the form of Seller Notes
to the Stockholders in the form of Exhibit A hereto (the "Seller Notes"), which
---------
shall be delivered by Empyrean Holdings to the Escrow Agent at Closing pursuant
to Section 2.7 below to serve as a portion of the Escrow Sum (as defined below);
-----------
(c) $1,000,000 shall be paid in cash to the Escrow Agent
at Closing pursuant to Section 2.7 below to serve as a portion of the Escrow Sum
-----------
(as defined below); and
(d) $3,650,000 shall be paid in the form of 1,825,000
shares of Common Stock and 3,467.5 shares of Preferred Stock to all Stockholders
who execute a Stockholder Subscription Agreement in form of Exhibit U hereto,
---------
with such Common Stock and Preferred Stock to be allocated among the
Stockholders in the amounts specified in Exhibit G hereto.
---------
2.3. Funded Indebtedness Adjustment. The Cash Purchase Price
------------------------------
will be adjusted downward by the amount, if any, by which the Company's Funded
Indebtedness exceeds $425,000 as of the Closing Date.
2.4. Exercise of Options and Purchase of Option Shares.
-------------------------------------------------
(a) Prior to the Closing, Invisions Group shall amend
The Invisions Group, Ltd. Stock Option Plan (the "Option Plan") and all options
that are outstanding under the Plan immediately prior to the Closing (the
"Options") to provide (i) that a "Change of Control" pursuant to the Option Plan
shall be deemed to occur immediately prior to the Closing and (ii) that upon the
occurrence of such a "Change of Control" (which shall have been designated by
Leo Mullen in a letter prior to Closing) the sole method of exercising an Option
is by means of withholding shares of Invisions Stock with an aggregate fair
market value equal to the aggregate exercise price of the Options exercised
(i.e., a "cashless" exercise), Invisions Group and the Stockholders shall use
commercially reasonable efforts to ensure that at or prior to the Closing all
holders of Options outstanding immediately prior to the Closing exercise all of
their Options by means of the "cashless" exercise feature. As of the date of
this Agreement, the holders of all Options, the number of Options held by each,
the strike price of each Option, and the number of Invisions Shares (the "Option
Shares") each holder of Options would receive upon the "cashless" exercise
thereof are set forth on Exhibit V.
---------
(b) On or prior to the Closing Date, Invisions Group, the
Stockholders and Empyrean Holdings shall use commercially reasonable efforts to
cause each holder of Options to enter into an Option Share Purchase Agreement
with Empyrean Holdings, in the form of Exhibit W, pursuant to which agreements
---------
Empyrean Holdings will purchase from the Option holders, at the Closing by wire
transfer to the Company, which will act as the holders' designated agent, which
will then pay the holders by check as specified in the respective Option Share
Purchase Agreements, all Option Shares held by such holders for a purchase price
of $27.07 per
-8-
<PAGE>
Option Share. The Option Share Purchase Agreements shall provide for the
remittance of a portion of the purchase price due to a former holder of Options
directly to the Company to pay any withholding taxes due by such former holder
upon the exercise of his or her Options.
(c) The Cash Purchase Price will be reduced by the sum of
(x) the aggregate amount of payments made by Empyrean Holdings pursuant to all
Option Share Purchase Agreements and (y) the aggregate amount that would have
been paid to all holders of Options who do not enter into Option Share Purchase
Agreements had all such persons entered into Option Share Purchase Agreements.
In addition, the Cash Purchase Price will be reduced, on a dollar-for-dollar
basis, by the amount, if any, by which the cost of the payments required by the
preceding sentence would be less than $2,000,000, but in no event shall such
adjustment exceed $600,000.
2.5. Financial Condition. The Company's Net Working Capital at
-------------------
the Closing (as determined based on the Company's preliminary closing balance
sheet prepared not more than five days prior to the Closing Date) shall not be
less than Projected Net Working Capital and the Company shall continue to have
at least $100,000 in cash and cash equivalents on hand at the Closing or the
Cash Purchase Price payable at Closing will be reduced by the amount of such
deficit(s).
2.6. Closing. The Closing of the Acquisition shall take place
-------
at 10:00 a.m., Eastern Time, at the offices of Hogan & Hartson L.L.P., 555 13th
Street, N.W. in Washington, D.C. on November 3, 1999, or on a date mutually
agreed to by the parties (which date shall be as soon as practicable following
the date on which all of the conditions to Closing set forth in Sections 7.1 and
------------
7.2 have been satisfied) (the "Closing Date").
- ---
2.7. Escrow Arrangements. Pursuant to the Escrow Agreement to
-------------------
be entered into among Stockholders, Empyrean Holdings and the Escrow Agent, the
Seller Notes and $1,000,000 of the Purchase Price shall be delivered by Empyrean
Holdings to the Escrow Agent at Closing (such Seller Notes and the monies paid,
together with all interest accrued thereon, is hereinafter referred to as the
"Escrow Sum"). The Escrow Sum shall be held pursuant to the terms of the Escrow
Agreement for payment from such Escrow Sum of the amounts, if any, owing by
Stockholders to Empyrean Holdings or the Company pursuant to the provisions of
the Net Working Capital Adjustment or for indemnification claims pursuant to
Article VIII hereof. The Escrow Sum shall be reduced to an amount equal to the
- ------------
aggregate amount of the Seller Notes then outstanding (plus any good faith
indemnification or Net Working Capital Adjustment claims then pending against
the cash portion of the Escrow Sum) within five days after the 120th day
following the Closing Date. The payments made to the Stockholders to effect such
reduction shall be made in cash to the Stockholders at their accounts set forth
in Exhibit G as updated from time to time. To the extent claims against the
---------
Escrow Sum are determined in favor of the Stockholders, all amounts reserved
against the Escrow Sum in connection with such claims shall be remitted to the
Stockholders as soon as practicable following any such determination. On the
first anniversary of the Closing Date (such one-year period being referred to
herein as the "Escrow Period"), such remaining portion of the Escrow Sum not
theretofore claimed by or paid to Empyrean Holdings in accordance with the terms
of the Escrow Agreement and this
-9-
<PAGE>
Agreement (together with any interest on such remaining portion of the Escrow
Sum) shall be disbursed to the Stockholders. All disbursements at the expiration
of the Escrow Period shall be paid in cash or pursuant to the Seller Notes, as
applicable, to the Stockholders at their accounts set forth in Exhibit G as
---------
updated from time to time. Stockholders and Empyrean Holdings agree that each
will execute and deliver such reasonable instruments and documents as are
furnished by any other party to enable such furnishing party to receive those
portions of the Escrow Sum to which the furnishing party is entitled under the
provisions of the Escrow Agreement and this Agreement.
2.8. Closing Audit. Within 120 days following the Closing
-------------
Date, there shall be delivered to Empyrean Holdings and to Stockholders an audit
of the Company's balance sheet as of the Closing Date (the "Audited Closing
Financial Statements"). The Audited Closing Financial Statements shall be
audited by AA in accordance with GAAP. The Majority Stockholders shall be
afforded a reasonable opportunity to review the audit results (including any
work papers prepared in connection therewith). The cost of preparing the Audited
Closing Financial Statements shall be paid by Empyrean Holdings. In the event
that the Majority Stockholders or Empyrean Holdings disputes an item in the
Audited Closing Financial Statements, the Company shall select and retain an
independent "Big Five" accounting firm (the "Independent Accountants") to review
the disputed matter(s) on the Audited Closing Financial Statements. In
conducting such review, AA shall provide the Independent Accountants with
customary access to the work papers of AA utilized in preparing the Audited
Closing Financial Statements. The final determination of such disputed matter(s)
by the Independent Accountants shall be utilized to determine all adjustments
described in Section 2.9 below and shall be final and binding on the parties
-----------
solely for such purposes. The cost of retaining the Independent Accountants
shall be borne equally by Persons disputing the Audited Closing Financial
Statements and the Company. If there is no such dispute, the Audited Closing
Financial Statements shall be utilized to determine all such adjustments and
shall be likewise final and binding.
2.9. Post-Closing Net Working Capital Adjustment. The Purchase
-------------------------------------------
Price will be adjusted upward or downward, on a dollar-for-dollar basis, to
reflect the increase or decrease, if any, in Net Working Capital as reflected on
the Audited Closing Financial Statements from the Projected Net Working Capital
(the "Net Working Capital Adjustment"). The Net Working Capital Adjustment shall
be determined by referring to the Audited Closing Financial Statements. In the
event that the Net Working Capital Adjustment results in an increase in the
Purchase Price, then Empyrean Holdings shall pay such amount to the Stockholders
in immediately available funds within 15 days of delivery of the Audited Closing
Financial Statements as finally determined in accordance with Section 2.8 above.
-----------
In the event that the Net Working Capital Adjustment results in a decrease in
the Purchase Price, then the amount of any such decrease shall be payable to
Empyrean Holdings (i) first, from the Escrow Sum in immediately available funds
within 15 days of the final determination of the Net Working Capital Adjustment
up to the aggregate cash portion of the Escrow Sum and (ii) second, the balance,
if any, by the Stockholders in immediately available funds within 15 days of the
final determination of the Net Working Capital Adjustment. All payments required
to be paid by
-10-
<PAGE>
Stockholders or the Escrow Agent pursuant to this Section 2.9 shall be deemed to
-----------
be a downward adjustment to the Purchase Price and shall not be controlled or
limited by any provision contained in Article VIII hereof.
------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY, INVISIONS GROUP AND STOCKHOLDERS
Except as set forth on the Disclosure Schedule attached hereto (which
Disclosure Schedule identifies the exception and references the applicable
representation so qualified), the Company, Invisions Group and Stockholders
jointly and severally represent and warrant to Empyrean Holdings that:
3.1. Capitalization. The authorized capital stock of Invisions
--------------
Group immediately prior to Closing consists of 1,500,000 shares of Invisions
Stock, 831,250 of which being the Existing Shares, are issued and outstanding,
and 97,992 of which, being the Option Shares, will be issued and outstanding
immediately prior to the Closing, assuming exercise of all Options pursuant to
Section 2.4. All of the Existing Shares are, and all of the Option Shares,
- -----------
assuming exercise of all Options pursuant to Section 2.4 immediately prior to
-----------
the Closing, will be, duly authorized, validly issued, fully paid, and
nonassessable. All of the Existing Shares are owned of record and beneficially
by the Stockholders in the amounts set forth on Exhibit H hereto. All of the
---------
Option Shares, assuming exercise of all Options pursuant to Section 2.4
-----------
immediately prior to the Closing, will be owned of record and beneficially by
the persons and in the amounts set forth on Exhibit V. None of the Existing
---------
Shares was issued, and none of the Option Shares will be issued, in violation of
any preemptive, right of first offer or refusal or preferential rights of any
Person. The authorized capital stock of the Company consists of 1,000 shares of
common stock, 100 of which being the Company Shares are issued and outstanding.
All of the Company Shares are duly authorized, validly issued, fully paid, and
nonassessable. All of the Company Shares are owned of record and beneficially by
Invisions Group. None of the Company Shares was issued in violation of any
preemptive, right of first offer or refusal or preferential rights of any
Person.
3.2. No Liens on Shares. Invisions Group owns the Company
------------------
Shares and the Stockholders own all of the Existing Shares, free and clear of
any Encumbrances other than the rights and obligations arising under this
Agreement and Permitted Exceptions, and none of the Existing Shares or the
Company Shares is subject to any outstanding option, warrant, call, or similar
right of any other Person to acquire the same, and none of the Existing Shares
or the Company Shares is subject to any restriction on transfer thereof except
for restrictions imposed by applicable federal and state securities laws. At
Closing pursuant to the Acquisition, the Stockholders will each have full power
and authority to convey good and marketable title to the Existing Shares, free
and clear of any Encumbrances other than the restrictions imposed by federal and
state securities laws.
-11-
<PAGE>
3.3. Subsidiaries. The Company does not own, directly or
------------
indirectly, any capital stock or ownership interests in any Person. The
Stockholders do not own any capital stock or ownership interests in any other
Person engaged in the Business other than Existing Shares in Invisions Group
(other than ownership of a publicly-held corporation of which the Stockholders,
or any of them, own, or has real or contingent rights to own, less than five
percent of any class of outstanding securities). Invisions Group does not own
any capital stock or ownership interests in any other Person other than the
Company.
3.4. Other Rights to Acquire Capital Stock. Except as set
-------------------------------------
forth in this Agreement in respect of Empyrean Holdings' rights to acquire the
Existing Shares and the Options, there are no authorized or outstanding
warrants, options, or rights of any kind to acquire from either Invisions Group
or the Company any equity or debt securities of the Invisions Group or the
Company, or securities convertible into or exchangeable for equity or debt
securities of Invisions Group or the Company, and there are no shares of capital
stock of Invisions Group or the Company reserved for issuance for any purpose
nor any contracts, commitments, understandings or arrangements which require
Invisions Group or the Company to issue, sell or deliver any additional shares
of its capital stock.
3.5. Due Organization. The Company is a corporation duly
----------------
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full corporate power and authority to own and lease its
properties and assets and to carry on the Business as now conducted. Invisions
Group is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Maryland and has full corporate power and
authority to own and lease its properties and assets and to carry on the
Business as now conducted. Complete and correct copies of the Articles of
Incorporation and Bylaws of the Company and the Articles of Incorporation and
Bylaws of Invisions Group, and all amendments thereto, have been delivered to
Empyrean Holdings and are attached hereto as Exhibits I-1, I-2, I-3 and I-4,
------------ --- --- ---
respectively. There is no other jurisdiction in which the nature of the Business
or the ownership of its properties requires qualification to do business except
where the failure to be so qualified does not and could not reasonably be
expected to have a Material Adverse Effect. The Company has a representative
office in Paris, France.
3.6. Due Authorization. The Company, Invisions Group and the
-----------------
Stockholders each have full power and authority to execute, deliver and perform
this Agreement and to carry out the Acquisition. The execution, delivery, and
performance of this Agreement and the Acquisition have been duly and validly
authorized by all necessary corporate action of the Company and Invisions Group.
This Agreement has been duly and validly executed and delivered by the Company,
Invisions Group and Stockholders and constitutes the valid and binding
obligations of the Company, Invisions Group and Stockholders, enforceable in
accordance with its terms, except to the extent that enforceability may be
limited by laws affecting creditors' rights and debtors' obligations generally,
and legal limitations relating to remedies of specific performance and
injunctive and other forms of equitable relief (the "Equitable Exceptions"). The
execution, delivery, and performance of this Agreement and the Acquisition (as
well as all other instruments, agreements, certificates, or other documents
contemplated hereby) by the Company, Invisions Group and Stockholders, do not
(a) violate any
-12-
<PAGE>
Requirements of Laws or any Court Order of any Governmental Body applicable to
the Company, Invisions Group or Stockholders, or their respective property, (b)
violate or conflict with, or permit the cancellation of, or constitute a default
under, any Contract to which the Company, Invisions Group or Stockholders are a
party, or by which any of them or any of their respective property is bound, (c)
permit the acceleration of the maturity of any Material indebtedness of, or
indebtedness secured by the property of, the Company, Invisions Group or
Stockholders, (d) violate or conflict with any provision of the charter or
bylaws of the Company or Invisions Group, or (e) except for filings or approvals
under the HSR Act and such consents, approvals, or registrations as may be
required under applicable state securities laws, require any material consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any Governmental Body or other third party.
3.7. Financial Statements. The following financial statements
--------------------
of Invisions Group and the Company have been delivered to Empyrean Holdings by
the Company: a consolidated unaudited balance sheet of Invisions Group as of
September 30, 1999 and an audited consolidated balance sheet of Invisions Group
as of June 30, 1999; audited consolidated statements of operations and cash
flows of Invisions Group for the year ended June 30, 1999; and unaudited
consolidated statements of operations and cash flows of Invisions Group for the
three months ended September 30, 1999 (collectively, the "Financial
Statements"). Copies of the Financial Statements are included in the Disclosure
----------
Schedule hereto. Other than the Financial Statements as of and for the three
- --------
months ended September 30, 1999 (the "Most Recent Financial Statements"), the
Financial Statements have been prepared in accordance with GAAP and the Most
Recent Financial Statements to the Company's Knowledge have been prepared in
accordance with GAAP except as set forth in Section 3.7 of the Disclosure
Schedule. The audited Financial Statements and the Most Recent Financial
Statements (including the notes thereto) have been prepared on a consistent
basis throughout the periods indicated and fairly present the financial
position, results of operations and changes in financial position of Invisions
Group and the Company as of the indicated dates and for the indicated periods
and are consistent with the books and records of Invisions Group and the Company
(which books and records are correct and complete in all material respects).
Since the date of the last of such Financial Statements, the Company has
incurred no Material liabilities required by GAAP to be reflected on the
Company's balance sheet or notes thereto nor any other obligations (whether
absolute, contingent, or otherwise) which are (individually or in the aggregate)
Material (in amount or to the conduct of the Business); and neither the Company
nor Stockholders have Knowledge of any basis for the assertion of any such
Material liability or obligation. Since June 30, 1999, the Company has not
experienced any Material Adverse Change.
3.8. Certain Actions. Since June 30, 1999, neither Invisions
---------------
Group nor the Company has, except as disclosed on any of the Financial
Statements or notes thereto: (a) paid or declared any dividends or
distributions, or purchased, redeemed, acquired, or retired any stock or
indebtedness of any Stockholder; (b) made or agreed to make any loans or
advances or guaranteed or agreed to guarantee any loans or advances to any party
whatsoever in excess of $10,000 in the aggregate; (c) suffered or permitted any
Encumbrance to arise or be granted or created against or upon any of its assets,
real or personal, tangible or intangible; (d) canceled,
-13-
<PAGE>
waived, or released or agreed to cancel, waive, or release any of its debts,
rights, or claims against third parties in excess of $10,000 individually or
$50,000 in the aggregate; (e) sold, assigned, pledged, mortgaged, or otherwise
transferred, or suffered any Material damage, destruction, or loss (whether or
not covered by insurance) to, any assets (except in the ordinary course of the
Business); (f) amended its articles of incorporation or bylaws; (g) outside the
ordinary course of business, paid or made a commitment to pay any severance or
termination payment to any employee or consultant; (h) made any Material change
in its method of management operation, accounting or reporting of income or
deductions for tax purposes or any change outside the ordinary course of the
Business in the Company's working capital; (i) made any Material acquisitions,
made any Material capital expenditures, including, without limitation,
replacements of equipment in the ordinary course of the Business, or entered
into commitments therefor, except for capital expenditures or commitments
therefor which do not, in the aggregate, exceed $50,000; (j) made any investment
or commitment therefor in any Person; (k) made any payment or contracted for the
payment of any bonus or other compensation or personal expenses, other than (A)
wages and salaries and business expenses paid in the ordinary course of the
Business, and (B) wage and salary adjustments made in the ordinary course of the
Business for employees who are not officers, directors, or Stockholders of
Invisions Group or the Company; (l) made, amended or entered into any written
employment contract with any officers or key employees of the Company listed on
Exhibit D hereto or created or made any Material change in any bonus, stock
- ---------
option, pension, retirement, profit sharing or other employee benefit plan or
arrangement; (m) made or entered into any Contract greater than the smallest of
the Contracts scheduled in accordance with Section 3.15 of the Disclosure
Schedule; (n) made or entered into any agreement granting any Person any
registration or offer rights in respect of the Invisions Group or the Company's
capital stock; (o) entered into any non-competition agreement restricting the
Company from engaging in the Business; (p) made or entered into any employment
agreement or other agreement or other arrangement with any officer, director,
Stockholder or Affiliate of Invisions Group or the Company; or (q) amended,
experienced a termination or received notice of actual or threatened termination
or non-renewal of any Material contract, agreement, lease, franchise or license
to which the Company is a party that could reasonably be expected to have a
Material Adverse Effect.
3.9. Properties. Attached hereto as Exhibit J is a list
---------- ---------
containing a description of each interest in real property (including, without
limitation, leasehold interests) and each item of personal property utilized by
the Company in the conduct of the Business having a book or fair market value in
excess of $10,000 as of the date hereof. Except for Permitted Exceptions, such
real and personal properties are free and clear of Encumbrances. Stockholders
and the Company have delivered to Empyrean Holdings copies of all real property
leases and a lien search obtained from the counties where the Company conducts
business and the Maryland State Department of Assessments and Taxation of all
UCC liens of record against the Company's personal property in the State of
Maryland. All of the properties and assets necessary for continued operation of
the Business as currently conducted (including, without limitation, all books,
records, computers and computer software and data processing systems) are owned,
leased or licensed by the Company and are reasonably suitable for the purposes
for which they are currently being used. With the exception of used equipment
and inventory valued at no more
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<PAGE>
than $10,000 in the aggregate on the Company's Financial Statements, the
physical properties of the Company, including the real properties leased by the
Company, are in good operating condition. Except for Permitted Exceptions, the
Company has title to all such properties and assets that are owned by the
Company. The operation of the properties and Business of the Company in the
manner in which they are now and have been operated does not violate any zoning
ordinances, municipal regulations, or other Requirements of Laws, except for any
such violations which would not, individually or in the aggregate, have a
Material Adverse Effect. Except for Permitted Exceptions, no restrictive
covenants, easements, rights-of-way, or regulations of record impair the uses of
the properties of the Company for the purposes for which they are now operated.
All leases of real or personal property by the Company are legal, valid,
binding, enforceable and in full force and effect and will not be terminated on
or after the Closing Date as a result of the failure to obtain any consents to
the Acquisition contemplated hereby, except for the Equitable Exceptions. All
facilities leased by the Company have received all material approvals from any
Governmental Body (including Governmental Permits) required to be obtained by
the Company in connection with the operation of the Business and have been
operated and maintained in accordance with all material Requirements of Laws
applicable to the Company as a lessee thereof. The Company owns no real
property.
3.10. Licenses and Permits. Attached hereto as Exhibit K is a
-------------------- ---------
list of all material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "Governmental Permits"). The
Company has complied in all material respects with the terms and conditions of
all such Governmental Permits, and the Company has not received notification
from any Governmental Body of violation of any such Governmental Permit or the
Requirements of Laws governing the issuance or continued validity thereof. All
of such Governmental Permits are valid and in full force and effect. No
additional Governmental Permits are required from any Governmental Body thereof
in connection with the conduct of the Business which Governmental Permits, if
not obtained, would individually or in the aggregate have a Material Adverse
Effect.
3.11. Intellectual Property. Attached hereto as Exhibit L is a
--------------------- ---------
list and a brief description of all material Intellectual Property owned or
utilized by the Company. The Company has furnished Empyrean Holdings with copies
of all material license agreements (including software licensing agreements) to
which the Company is a party, either as licensor or licensee, with respect to
any Intellectual Property. The Company has legal title to or the right to use
all the Intellectual Property and all inventions, processes, designs, formulae,
trade secrets and know-how utilized in the conduct of the Business as presently
conducted and as currently proposed to be conducted by the Company's current
management, without the payment of any royalty or similar payment, and the
Company is not infringing on any Intellectual Property right of others and
neither the Company nor Stockholders have Knowledge of any infringement by
others of any such rights owned by the Company. The Company has not received
notice of any charge, claim, demand, complaint, action, suit, hearing,
proceeding or investigation which challenges the Company's ownership or
licensing of any Intellectual Property, the Company's current uses or the
Company's compliance with the terms and conditions of any contracts,
-15-
<PAGE>
licenses, agreements or Court Orders involving the Intellectual Property.
Exhibit L contains a complete list of filings made with any Governmental Bodies
- ---------
with regard to the Intellectual Property. All licenses set forth on Exhibit L
---------
are valid and binding obligations of the Company, and, to the Knowledge of the
Company, the other parties thereto, enforceable against the Company, and, to the
Knowledge of the Company, the other parties thereto, in accordance with their
respective terms, except for the Equitable Exceptions. The Company owns and
possesses all right, title and interest in and to, or has the right to use
pursuant to a valid license, all Intellectual Property necessary for the
operation of the Business of the Company as presently conducted. The Company's
use of each item of the Intellectual Property owned or licensed by Company (i)
will not be terminated as a result of the Acquisition contemplated hereby; (ii)
does not interfere with the rights of any other Person based on the Company's
current use of such items; (iii) are in compliance with the material terms and
conditions of all license or other agreements relating to such items; and (iv)
does not violate any material Requirements of Laws or Courts Orders applicable
to the Company or, to the Company's Knowledge, any other party to any material
license or other agreement relating to such Intellectual Property. The Company
is not in default (whether or not after the giving of notice or the lapse of
time or both) under any material license, contract or other agreement relating
to any Intellectual Property.
3.12. Compliance with Laws. The Company has (i) complied in
--------------------
all material respects with all Requirements of Laws, Governmental Permits and
Court Orders applicable to the Business and has filed with the proper
Governmental Bodies all material statements and reports required by all
Requirements of Laws, Governmental Permits and Court Orders to which the Company
or any of its employees (because of their activities on behalf of the Company)
are subject and (ii) conducted the Business and is in compliance in all material
respects with all federal, state and local energy, public utility, health,
safety and environmental Requirements of Laws, Governmental Permits and Court
Orders including the Clean Air Act, the Clean Water Act, the Solid Waste Act,
the Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Safe Drinking Water Act, OSHA, the
Toxic Substances Control Act and any similar state, local or foreign laws
(collectively "Environmental and OSHA Obligations") and all other Governmental
Body requirements, except where any such failure to comply or file would not, in
the aggregate, have a Material Adverse Effect. No claim has been made by any
Governmental Body (and, to the Knowledge of the Company and Stockholders, no
such claim is reasonably anticipated) to the effect that the Business fails to
comply, in any respect, with any Requirements of Laws, Governmental Permit or
Environmental and OSHA Obligation or that a Governmental Permit or Court Order
is necessary in respect thereto.
3.13. Insurance. Attached hereto as Exhibit M is a list of all
--------- ---------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Empyrean Holdings. The insurance
maintained by the Company is customary and reasonably adequate for companies
engaged in the Business. To the best of the Company's and Stockholders'
Knowledge, no event relating to the Company has occurred which will result in
(i) cancellation of any such insurance coverages; (ii) a retroactive upward
adjustment of premiums under any such insurance
-16-
<PAGE>
coverages; or (iii) any prospective upward adjustment in such premiums. All of
such insurance coverages will not be terminated on or after the Closing Date as
a result of the failure to obtain any consents to the Acquisition contemplated
hereby. The Company is not in default under any such insurance policies.
3.14. Employee Benefit Plans.
----------------------
(a) Employee Welfare Benefit Plans and Other
----------------------------------------
Arrangements. Except as disclosed on Section 3.14(a) of the Disclosure
------------ ---------------
Schedule, the Company does not maintain or contribute to any Employee
Welfare Benefit Plan or Other Arrangement (each a "plan"). With respect to
each such plan: (i) the plan is in compliance with, and, except as set
forth on Schedule 3.14, the Company does not have any liability under
-------------
ERISA, the Code or any Requirements of Law; (ii) the plan has been
administered in accordance with its governing documents; (iii) neither the
plan, nor any fiduciary with respect to the plan, has engaged in any
"prohibited transaction" as defined in Section 406 of ERISA other than any
transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of
administration, there is no litigation, arbitration or disputed claim
outstanding; and (v) all premiums due on any insurance contract through
which the plan is funded have been paid. All Employee Welfare Benefit Plans
and the related trusts that are subject to Section 4980B(f) of the Code and
Sections 601 through 607 of ERISA comply with and have been administered in
compliance with the health care continuation-coverage requirements for
tax-favored status under Section 4980B(f) of the Code (formerly Section
162(k) of the Code), Sections 601 through 607 of ERISA. All Employee
Welfare Benefit Plans comply with and have been administered in compliance
with the requirements of the (i) Health Insurance Portability and
Accountability Act of 1996, to the extent applicable, and applicable
proposed or final regulations, and (ii) Mental Health Parity Act of 1996,
to the extent applicable.
(b) Employee Pension Benefit Plans. Except as set forth
------------------------------
in Section 3.14(b) of the Disclosure Schedule, the Company does not
---------------
maintain or contribute to any arrangement that is or may be an "employee
pension benefit plan" relating to employees, as such term is defined in
Section 3(2) of ERISA. With respect to each such plan: (i) the plan is
qualified under Section 401(a) of the Code, and any trust through which the
plan is funded meets the requirements to be exempt from federal income tax
under Section 501(a) of the Code; (ii) the plan is in compliance with ERISA
and all other applicable Requirements of Laws; (iii) the plan has been
administered in accordance with its governing documents as modified by
applicable law; (iv) the plan has not suffered an "accumulated funding
deficiency" as defined in Section 412(a) of the Code; (v) the plan has not
engaged in, nor has any fiduciary with respect to the plan engaged in, any
"prohibited transaction" as defined in Section 406 of ERISA or Section 4975
of the Code other than a transaction subject to statutory or administrative
exemption; (vi) the plan has not been subject to a "reportable event" (as
defined in Section 4043(b) of ERISA), the reporting of which has not been
waived by regulation of the Pension Benefit Guaranty Corporation; (vii) no
termination or partial termination of the plan has occurred within the
meaning of Section 411(d)(3) of the Code; (viii) all contributions required
to be made to the plan have been made to or on behalf of the
-17-
<PAGE>
plan or accrued in accordance with GAAP; (ix) there is no litigation,
arbitration or disputed claim outstanding; (x) all applicable premiums due
to the Pension Benefit Guaranty Corporation for plan termination insurance
have been paid in full on a timely basis; and (xi) a favorable
determination letter from the IRS has been received by the Company with
respect to such plan stating that such plan is so qualified; and there are
no circumstances which would cause such plan to lose such qualified status.
(c) Employment and Non-Tax Qualified Deferred
-----------------------------------------
Compensation Arrangements. Except as set forth on Section 3.14(c) of the
------------------------- ---------------
Disclosure Schedule, the Company does not maintain or contribute to any
retirement or deferred or incentive compensation or stock purchase, stock
grant or stock option arrangement entered into between the Company and any
current or former officer, consultant, director or employee of the Company
that is not intended to be and that is not a tax qualified arrangement
under Section 401(a) of the Code.
3.15. Contracts and Agreements. Exhibit N hereto contains a
------------------------ ---------
list of all customer contracts that provide for payments to the Company in
excess of $100,000 in the aggregate during any 12 month period beginning July 1,
1998, all employment contracts involving annual salaries greater than $60,000
and all employment contracts with general managers or officers of the Company.
Exhibit N also contains a list of the 30 largest contracts (in terms of
- ---------
aggregate payments made or received with respect thereto since July 1, 1998) to
which the Company is a party or by which the Company or its properties are
bound, a list of any real estate or office building leases involving the Company
and a list of any contract or agreements, if any, prohibiting the Company from
freely engaging in the Business anywhere in the world (collectively, the
"Contracts"). The Company is not and, to the Knowledge of Stockholders and the
Company, no other party thereto is in default (and no event has occurred which,
with the passage of time or the giving of notice, or both, would constitute a
default by the Company) under any of the Contracts, and the Company has not
waived any Material right under any of the Contracts. All of the Contracts to
which the Company is a party are legal, valid, binding, enforceable and in full
force and effect and will not be terminated on or after the Closing Date as a
result of the failure to obtain any consents to the Acquisition contemplated
hereby, except for the Equitable Exceptions. The Company has not guaranteed any
obligations of any other Person. The Company has no present expectation or
intention of not fully performing all of its obligations under any Contract, the
Company has no Knowledge of any breach or anticipated breach by the other
parties to any Contract and the Company has not received notice of actual or
threatened termination or non-renewal of any Contract.
3.16. Claims and Proceedings. There are no claims, actions,
----------------------
suits, proceedings, or investigations pending or, to the Knowledge of the
Stockholders or the Company, threatened against or affecting the Company or any
of its properties or assets, at law or in equity, before or by any court,
municipality or other Governmental Body. To the extent any are disclosed on the
Disclosure Schedule, none of such claims, actions, suits, proceedings, or
investigations, if adversely determined, will individually or in the aggregate
result in any Material Adverse Effect to the Company. The Company has not been,
and the Company is not now, subject to any Court Order, stipulation, or consent
of or with any court or Governmental
-18-
<PAGE>
Body. No inquiry, action or proceeding has been instituted or, to the Knowledge
of the Stockholders or the Company, threatened or asserted against the
Stockholders, Invisions Group or the Company to restrain or prohibit the
carrying out of the Acquisition or to challenge the validity of the Acquisition
or any part thereof or seeking damages on account thereof. To the Knowledge of
the Company and Stockholders there is no basis for any such valid claim or
action.
3.17. Taxes.
-----
(a) All Federal, foreign, state, county and local and other
Taxes due from Invisions Group or the Company on or before the Closing have been
paid and all Tax Returns which are required to be filed by Invisions Group or
the Company on or before the date hereof have been filed within the time and in
the manner provided by all Requirements of Laws or extensions were timely filed,
and all such Tax Returns are true and correct and accurately reflect the Tax
liabilities of Invisions Group and the Company in substantially all respects. No
Tax Returns of the Company or Invisions Group are presently subject to an
extension of the time to file. All Taxes, assessments, penalties, and interest
of Invisions Group or the Company which have become due pursuant to such Tax
Returns or any assessments received have been paid or adequately accrued on the
Financial Statements. The provisions for Taxes reflected on the balance sheets
contained in the Financial Statements are adequate to cover all of Invisions
Group and the Company's Tax liabilities for the respective periods then ended
and all prior periods. Neither Invisions Group or the Company has executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and, to the Knowledge of the Stockholders
or the Company, there are no pending or threatened claims, assessments, notices,
proposals to assess, deficiencies, or audits with respect to any such Taxes. For
Governmental Bodies with respect to which neither Invisions Group nor the
Company files Tax Returns, no such Governmental Body has given Invisions Group
or the Company written notification that such corporation is or may be subject
to taxation by that Governmental Body. Invisions Group and the Company have
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, Stockholder, creditor,
independent contractor or other party. Invisions Group and the Company have each
properly reflected for tax purposes in accordance with all Requirements of Laws
the status of all independent contractors, consultants and subcontractors. There
are no Tax liens on any of the property or assets of Invisions Group or the
Company.
(b) Neither the Company, Invisions Group nor any other
corporation has filed an election under Section 341(f) of the Code that is
applicable to Invisions Group, the Company or any assets held by the Company.
Neither Invisions Group nor the Company has made any payments, is obligated to
make any payments, or is 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. Neither Invisions Group nor the Company has 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).
Neither Invisions Group or the Company is a party to any Tax allocation or
sharing agreement. During the past seven years, each of Invisions Group and the
Company has not and has never been (nor does Invisions Group or the Company
-19-
<PAGE>
have any liability for unpaid Taxes because it once was) a member of an
affiliated group during any part of which return year any corporation other than
Invisions Group or the Company also was a member of the affiliated group.
(c) No transaction contemplated by this Agreement is subject
to withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the sale of the
Existing Shares pursuant to this Agreement.
(d) The Company and Invisions Group have each never made a
valid election under Section 1362 of the Code and any corresponding state or
local provisions to be an S corporation within the meaning of Section 1361 of
the Code for all taxable years (or portions thereof) since inception. Neither
Invisions Group nor the Company has, in the past ten (10) years, (i) acquired
assets from another corporation in a transaction in which the Company's Tax
basis for the acquired assets was determined in whole or in part by reference to
the Tax basis of the acquired assets (or any other property) in the hands of the
transferor or (ii) acquired the stock of any other corporation that is a
qualified subchapter S subsidiary.
(e) Neither Invisions Group nor the Company will be required
to include any amount in taxable income or exclude any item of deduction or loss
from taxable income for any taxable period (or portion thereof) ending after the
Closing Date (i) as a result of a change in method of accounting for a taxable
period ending on or prior to the Closing Date: (ii) as a result of the
Acquisition contemplated hereby, (iii) as a result of any "closing agreement,"
as described in Code (S) 7121 (or any corresponding provision of state, local or
foreign income Tax law) entered into on or prior to the Closing Date, (iv) as a
result of any sale reported on the installment method where such sale occurred
on or prior to the Closing Date, or (v) as a result of any prepaid amount
received on or prior to the Closing Date.
3.18. Personnel. Empyrean Holdings has been provided with a list
---------
of the names and annual rates of compensation of the directors and executive
officers of the Company, and of the employees of the Company whose annual base
salary as of October 15, 1999 exceeds $60,000 and the employment agreements, if
any, pertaining to such employees. Exhibit O also summarizes the bonus, profit
---------
sharing, percentage compensation, company automobile, club membership, and other
like benefits, if any, paid or payable to such directors, officers, and
employees during the Company's fiscal year ended June 30, 1999 and to the date
hereof. The employee relations of the Company are generally good, there has been
no unusual level of employee departures and there is no pending or, to the
Knowledge of Stockholders or the Company, threatened labor dispute or union
organization campaign. None of the employees of the Company is covered by a
collective bargaining agreement. The Company is in compliance in all material
respects with all Requirements of Laws respecting employment and employment
practices, including, without limitation, the Fair Labor Standards Act of 1938,
immigration hiring, terms and conditions of employment, and wages and hours, and
is not engaged in any unfair labor practices. Neither the Company or
Stockholders has Knowledge that any Person listed on Exhibit D hereto will not
---------
agree to remain employed by the Company after the consummation of the
Acquisition. There is no unfair labor practice claim against the Company before
the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage
-20-
<PAGE>
pending or, to the Knowledge of the Company and Stockholders, threatened against
or involving the Company, and none has previously occurred.
3.19. Business Relations. Neither the Company nor Stockholders has
------------------
Knowledge that any customer, supplier or licensor engaged in doing business with
the Company will cease to do business with the Company after the consummation of
the Acquisition as previously conducted with the Company except for any
terminations which will not, in the aggregate, result in a Material Adverse
Change. Since June 30, 1999, neither the Stockholders nor the Company has
received any notice of cancellation of any Material business arrangement between
any Person and the Company nor do the Company or Stockholders have Knowledge
that the Business will be subject to cancellation of any such business
arrangement.
3.20. Accounts Receivable; Accounts Payable; Customer Deposits;
---------------------------------------------------------------
Customer Revenues and Deferred Revenues.
- ----------------------------------------
(a) Accounts Receivable. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company in the Financial
Statements are bona fide and represent amounts validly due for goods sold or
services rendered and, except for amounts reserved for as doubtful accounts in
the Financial Statements, all such amounts that have been billed will be
collected in full prior to March 31, 2000. With respect to such accounts, notes,
and loans receivable: (i) all are free and clear of any Encumbrances; (ii) no
claims of offset have been asserted in writing against any of such accounts,
notes, or loans receivable; and (iii) none of the obligors thereto has given
written notice that it will or may refuse to pay the full amount or any portion
thereof. Lists of the Company's accounts receivable as of September 30, 1999
(including any reconciliation to the accounts receivable entry on the balance
sheet included in the Most Recent Financial Statements) have been attached to
the Disclosure Schedule. Since September 30, 1999, no Material Adverse Change
has occurred in the payment or collection of accounts receivable of the Company.
(b) Accounts Payable. The aggregate amount of accounts payable
----------------
reflected on the Most Recent Financial Statements are prepared in accordance
with GAAP and reflect the accounts payable of the Company as of September 30,
1999.
(c) Customer Revenues and Deferred Revenues. Exhibit P sets
--------------------------------------- ---------
forth, as of the date specified therein all deferred revenues as of such date on
an aggregate basis. For the period since June 30, 1999 through September 30,
1999, the Company's revenues from customer contracts are not less than the
Company's revenues from customer contracts for the period June 30, 1998 through
September 30, 1998.
3.21. Bank Accounts; Investments. Attached hereto as Exhibit Q is a
-------------------------- ---------
list of all banks or other financial institutions with which the Company has an
account or maintains a safe deposit box, showing the type and account number of
each such account and safe deposit box and the names of the persons authorized
as signatories thereon or to act or deal in connection therewith. Exhibit Q also
---------
contains a list of all Material investments by the Company in any funds,
accounts, securities, certificates of deposit or instruments of any Person. All
of such
-21-
<PAGE>
investments are customary in form and amount for reasonably prudent treasury
investments of comparable businesses, none of which involve any type of
derivative, option, hedging or other speculative instrument.
3.22. Customer Claims. No written or oral claims for breach of
---------------
contract or otherwise by any customers (a "Customer Claim") has been made
against the Company since July 1, 1999 which could, individually or in the
aggregate, result in any Material Adverse Effect. The level of Customer Claims
for the period since June 30, 1999 through the date hereof is consistent (plus
or minus 5%) with past practices of the Company for the comparable period in the
fiscal year ended June 30, 1999.
3.23. Brokers. Except for Friedman, Billings, Ramsey & Co., Inc.,
-------
neither the Company, Invisions Group nor Stockholders have engaged, or caused to
be incurred any liability to any finder, broker, or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the Acquisition.
3.24. Affiliated Transactions. No officer, director, Stockholder
-----------------------
(including the Stockholders and Invisions Group) or Affiliate of the Company or
any individual related by blood or marriage to any such Person, or any entity in
which any such Person owns any beneficial interest, is a party to any agreement,
contract, arrangement or commitment with the Company or engaged in any
transaction with the Company or has any interest in any property used by the
Company. No officer, director, or Stockholder of the Company or Invisions Group
has any ownership interest in any competitor, supplier, or customer of the
Company (other than ownership of securities of a publicly-held corporation or
mutual fund of which such Person owns, or has real or contingent rights to own,
less than five percent of any class of outstanding securities) or any property
used in the operation of the Business.
3.25. Funded Indebtedness; Letters of Credit; Undisclosed
---------------------------------------------------
Liabilities.
- -----------
(a) Funded Indebtedness. Other than any Funded Indebtedness
-------------------
which is to be repaid and discharged by Stockholders prior to Closing or will be
assumed or repaid by Empyrean Holdings at or subsequent to the Closing in
accordance with Section 7.1(d), the Company does not have any Funded
--------------
Indebtedness.
(b) Letters of Credit. Other than those listed on Exhibit R,
----------------- ---------
the Company has no letters of credit, performance bonds or similar instruments
issued on or for its account for the benefit of any of its vendors or otherwise.
(c) Undisclosed Liabilities. Except for normal accounts
-----------------------
payable and other accrued liabilities that are incurred in the ordinary course
of Business since September 30, 1999, consistent with past practice, the Company
does not have any Material liabilities in the aggregate (whether absolute,
accrued, contingent or otherwise) of a nature required by GAAP to be reflected
on a corporate balance sheet or in the notes thereto, except for such
liabilities which are accrued or reserved against in the Financial Statements or
disclosed in the notes thereto,
-22-
<PAGE>
including without limitation any accounts payable or service liabilities of the
Company incurred prior to the Closing Date.
3.26. Year 2000. All of the Material computer software, computer
---------
firmware, computer hardware (whether general or special purpose), and other
similar or related items of automated, computerized, and/or software system(s)
that are used or relied on by the Company in the conduct of its business will
not malfunction, will not cease to function, will not generate incorrect data,
and will not produce incorrect results when processing, providing, and/or
receiving (i) date-related data into and between the twentieth and twenty-first
centuries and (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries, except for any malfunctions or generations
of incorrect data or results that would not individually or in the aggregate
have a Material Adverse Effect. The Company has not been engaged in any year
2000 correction consulting work for customers pertaining to its work product and
has received no claim or notice from any customer regarding the failure of the
Company to install computer software that is year 2000 compliant.
3.27. Information Furnished. The Company and Stockholders have made
---------------------
available to Empyrean Holdings true and correct copies of all material corporate
records of the Company and all material agreements, documents, and other items
listed on the Exhibits and Disclosure Schedules to this Agreement or referred to
in Article III of this Agreement, and neither this Agreement, the Exhibits
hereto, the Disclosure Schedule, nor any written information, instrument, or
document delivered to Empyrean Holdings pursuant to this Agreement contains any
untrue statement of a Material fact or omits any Material fact necessary to make
the statements herein or therein, as the case may be, not misleading.
All references to the Company contained in Sections 3.8 through Section 3.28 of
------------ ------------
this Article III shall also be deemed to refer to Invisions Group.
-----------
ARTICLE IV
EMPYREAN HOLDINGS' REPRESENTATIONS AND WARRANTIES
Empyrean Holdings represents and warrants to Stockholders, Invisions
Group and the Company as follows:
4.1. Due Organization of Empyrean Holdings. Empyrean Holdings is a
-------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
execute, deliver and perform this Agreement and to carry out the Acquisition.
4.2. Due Authorization. The execution, delivery and performance of
-----------------
this Agreement, the Escrow Agreement, the Seller Notes, the Stockholder
Subscription Agreement and the Equity Agreements (including the joinder of the
Stockholders thereto) has been duly authorized by all necessary corporate action
by Empyrean Holdings and the Agreement has been duly and validly executed and
delivered by Empyrean Holdings and this Agreement, and, upon execution
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<PAGE>
thereof, the Escrow Agreement, the Seller Notes, the Stockholder Subscription
Agreement and the Equity Agreements, each constitutes the valid and binding
obligation of Empyrean Holdings, enforceable in accordance with its terms,
except for the Equitable Exceptions. The execution, delivery, and performance of
this Agreement, the Seller Notes, the Stockholder Subscription Agreement and the
Escrow Agreement (as well as all other instruments, agreements, certificates or
other documents contemplated hereby) by Empyrean Holdings shall not (a) violate
any Requirements of Laws or Court Order of any Governmental Body applicable to
Empyrean Holdings or its property, (b) violate or conflict with, or permit the
cancellation of, or constitute a default under any agreement to which Empyrean
Holdings is a party or by which Empyrean Holdings or its property is bound, (c)
permit the acceleration of the maturity of any indebtedness of, or any
indebtedness secured by the property of, Empyrean Holdings, (d) violate or
conflict with any provision of the Certificate of Incorporation or Bylaws of
Empyrean Holdings, or (e) except for filings or approvals under the HSR Act and
such consents, approvals, or registrations as may be required under applicable
state securities laws, require any consent, approval or authorization of, or
notice to, or declaration, filing or registration with, any Governmental Body or
other third party.
4.3. No Brokers. Except for Steve Hurley, Empyrean Holdings has not
----------
engaged, or caused to be incurred any liability for which Stockholders or
Invisions Group may be liable to any finder, broker or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the Acquisition.
4.4. Investment. Empyrean Holdings will acquire the Existing Shares
----------
and Option Shares for investment and for its own account and not with a view to
the distribution thereof.
4.5. Information Furnished. No written information,. instrument or
---------------------
document delivered to the Stockholders, the Company or Invisions Group pursuant
to this agreement contains any untrue statement of a material fact or omits any
material fact necessary to make the statements appearing in the aforementioned
items, not misleading.
4.6. Capital Stock and Related Matters.
---------------------------------
(a) As of the Closing and immediately thereafter, the
authorized capital stock of Empyrean Holdings shall consist of 100,000,000
shares of stock, of which (i) 150,000 shares shall be designated as Preferred
and (ii) 99,850,000 shares shall be designated as Common Stock. The ownership of
the issued and outstanding Preferred Stock and the Common Stock are as set forth
on Empyrean Capitalization Schedule hereto. As of the Closing, Empyrean Holdings
--------------------------------
will not be subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except pursuant to this
Agreement and the Management Agreement dated August 12, 1999 and pursuant to the
Empyrean Holdings' certificate of incorporation with respect to the Preferred
Stock. As of the Closing, all of the outstanding shares of Empyrean Holdings'
capital stock shall be validly issued, fully paid and nonassessable.
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<PAGE>
(b) Based in part on the investment representations of (i)
each subscribing Stockholder in Section 10.10 hereof and in the Stockholder
-------------
Subscription Agreement, Empyrean Holdings has not violated in any material
respect any applicable federal or state securities laws in connection with the
offer, sale or issuance of any of the Common Stock and Preferred Stock, and the
offer, sale and issuance of the Common Stock and Preferred Stock hereunder and
pursuant to Section 2.3 hereof do not and will not require registration under
-----------
the Securities Act or any applicable state securities laws, except for any
notice filings required to be made with the State of Maryland, the Commonwealth
of Virginia or the United States Securities and Exchange Commission. As of the
Closing, all of the shares of Common Stock and Preferred Stock to be issued to
the Stockholders shall be validly issued, fully paid and nonassessable.
4.7. Subsidiaries; Investments. Except as set forth in the Empyrean
------------------------- --------
Capitalization Schedule, Empyrean Holdings does not own or hold any shares of
- -----------------------
stock or any other security or interest in any other Person.
4.8. Authorization of the Stock and the Seller Notes. Empyrean
----------------------------------------------
Holdings has authorized the issuance and sale to the Stockholders of up to an
aggregate of 3,467.5 shares of Preferred Stock and an aggregate of 1,825,000
shares of Common Stock, each having the rights and preferences set forth in the
Empyrean Holdings' Certificate of Incorporation attached hereto as Exhibit Y.
---------
Empyrean Holdings has authorized the issuance and sale to the Stockholders of
the Seller Notes having the rights set forth in the form of Seller Note attached
as Exhibit A hereto.
---------
4.9. Financing. Empyrean Holdings has obtained the approval of its
---------
senior lenders, including without limitation, First Union Commercial
Corporation, Bank of America, N.A. and First Union National Bank, as agent, to
the Acquisition.
4.10. Sprint Contract. The services contract ("Sprint Contract")
---------------
between BSG Solutions, Inc., a wholly-owned subsidiary of Empyrean Holdings
("BSG"), and Sprint, Inc. ("Sprint") (which contract was attached as a schedule
to the Recapitalization Agreement) is in full force and effect. Empyrean
Holdings has no knowledge of any pending or anticipated termination of the
Sprint Contract by Sprint.
4.11. Financial Statements. The following financial statements of
--------------------
Empyrean Holdings have been delivered to the Stockholders by Empyrean Holdings:
an unaudited consolidating balance sheet of Empyrean Holdings as of September
30, 1999 and unaudited consolidating statement of operations of Empyrean
Holdings for the nine months ended September 30, 1999 (collectively, the
"Empyrean Financial Statements"). To the Knowledge of Empyrean Holdings, the
Empyrean Financial Statements have been prepared in accordance with GAAP except
for normal year-end adjustments and the absence of footnotes. The Empyrean
Financial Statements fairly present the financial position and results of
operations of Empyrean Holdings as of the indicated dates and for the indicated
periods and are consistent with the books and records of Empyrean Holdings
(which books and records are correct and complete in all material respects).
Since September 30, 1999, Empyrean Holdings has not experienced any Material
Adverse Change.
-25-
<PAGE>
4.12. Compliance with Laws. Empyrean Holdings has (i) complied in
--------------------
all material respects with all Requirements of Laws, Governmental Permits and
Court Orders applicable to its business and has filed with the proper
Governmental Bodies all material statements and reports required by all
Requirements of Laws, Governmental Permits and Court Orders to which Empyrean
Holdings or any of its employees (because of their activities on behalf of
Empyrean Holdings) are subject and (ii) conducted its business and is in
compliance in all material respects with all federal, state and local energy,
public utility, health, safety and environmental Requirements of Laws,
Governmental Permits and Court Orders including the Environmental and OSHA
Obligations and all other Governmental Body requirements, except where any such
failure to comply or file would not, in the aggregate, have a material adverse
effect on Empyrean Holdings. No claim has been made by any Governmental Body
(and, to the knowledge of Empyrean Holdings, no such claim is reasonably
anticipated) to the effect that its business fails to comply, in any material
respect, with any Requirements of Laws, Governmental Permit or Environmental and
OSHA Obligation or that a Governmental Permit or Court Order is necessary in
respect thereto.
4.13. Claims and Proceedings. There are no material claims, actions,
----------------------
suits, proceedings, or investigations pending or, to the knowledge of Empyrean
Holdings, threatened against or affecting Empyrean Holdings or any of its
properties or assets, at law or in equity, before or by any court, municipality
or other Governmental Body. Empyrean Holdings is not currently subject to any
Court Order, stipulation, or consent of or with any court or Governmental Body.
No inquiry, action or proceeding has been instituted or, to the knowledge of the
Empyrean Holdings, threatened or asserted against BSG or Empyrean Holdings to
restrain or prohibit the carrying out of the Acquisition or to challenge the
validity of the Acquisition or any part thereof or seeking damages on account
thereof. To the knowledge of Empyrean Holdings there is no basis for any such
valid claim or action.
4.14. Taxes. All Federal, foreign, state, county and local and other
-----
Taxes due by Empyrean Holdings on or before the Closing have been paid and all
Tax Returns which are required to be filed by Empyrean Holdings on or before the
date hereof have been filed within the time and in the manner provided by all
Requirements of Laws or extensions were timely filed, and all such Tax Returns
are true and correct and accurately reflect the Tax liabilities of Empyrean
Holdings in substantially all respects. For Governmental Bodies with respect to
which neither BSG nor Empyrean Holdings files Tax Returns, no such Governmental
Body has given BSG or Empyrean Holdings written notification that such
corporation is or may be subject to taxation by that Governmental Body. There
are no Tax liens on any of the property or assets of BSG or Empyrean Holdings.
4.15. Information Furnished. Empyrean Holdings has made available to
---------------------
the Stockholders true and correct copies of all material corporate records of
Empyrean Holdings and all other items referred to in Article IV of this
----------
Agreement, and neither this Agreement, the Exhibits hereto, nor any written
information, instrument, or document delivered to the Stockholders pursuant to
this Agreement contains any untrue statement of a material fact or omits any
material fact necessary to make the statements herein or therein, as the case
may be, not misleading.
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<PAGE>
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY, INVISIONS GROUP, EMPYREAN
HOLDINGS AND STOCKHOLDERS
5.1. Consents of Others. Prior to the Closing, the Company,
------------------
Invisions Group and Stockholders shall use their commercially reasonable best
efforts to obtain and to cause the Company to obtain all material
authorizations, consents and permits required of the Company, Invisions Group
and Stockholders to permit them to consummate the Acquisition. To the extent
required to consummate the Acquisition or to ensure that the Contracts shall not
be terminated as a result of the Closing, Stockholders shall have obtained the
written consent or waiver of any "change of control" type termination rights of
any third party to any Contract. As promptly as practicable after the date
hereof, Empyrean Holdings, the Company and the Stockholders shall make, or shall
cause to be made, such filings as may be required pursuant to the HSR Act with
respect to the consummation of the Acquisition.
5.2. Stockholders' Efforts. The Company and Stockholders shall use
---------------------
all commercially reasonable best efforts to cause all conditions for the Closing
to be met.
5.3. Powers of Attorney. The Company and Stockholders shall cause
------------------
the Company to terminate at or prior to Closing all powers of attorney granted
by the Company, other than those relating to (i) service of process,
qualification or pursuant to governmental regulatory or licensing agreements, or
(ii) tax matters representation before the IRS or other Governmental Bodies.
5.4. Conduct of Business Pending Closing. From the date of this
-----------------------------------
Agreement to the Closing Date:
(a) Except as otherwise contemplated by this Agreement, or as
Empyrean Holdings may otherwise consent to in writing, the Company and
Stockholders shall conduct the Business only in the ordinary course and shall
not engage in any Material transactions or enter into any Material transaction
which would cause a breach of the representations and warranties contained in
Article III.
- -----------
(b) Stockholders and the Company shall use their commercially
reasonable best efforts to cause the Business to preserve substantially intact
its current business organization and present relationships with its customers,
vendors, suppliers and employees and to maintain all of its insurance currently
in effect.
(c) Stockholders and the Company shall give prompt notice to
Empyrean Holdings of any notice of any Material default received by the Company
or the Business subsequent to the date of this Agreement under any Contract or
any Material Adverse Change occurring prior to the Closing Date in the operation
of the Company or the Business.
-27-
<PAGE>
(d) Neither the Company, Invisions Group nor the Stockholders,
nor any of their representatives, shall solicit, encourage or discuss any
Acquisition Proposal (as hereinafter defined) or supply any non-public
information concerning the Company or the Business or the Company's assets to
any party other than Empyrean Holdings or its representatives. As used herein,
"Acquisition Proposal" means any proposal other than the Acquisition, for (i)
any merger or other business combination involving Invisions Group, the Company
or the Business, (ii) the acquisition of the Company or Invisions Group or a
material equity interest in the Company or Invisions Group or a material portion
of its assets, or (iii) the dissolution or liquidation of the Company or
Invisions Group.
5.5. Access Before Closing. Prior to the Closing Date, Stockholders
---------------------
and the Company agree that it will give, or cause to be given, to Empyrean
Holdings and its representatives, during normal business hours and at Empyrean
Holdings' expense, reasonable access to the Company's personnel, independent
accountants, officers, agents, employees, assets, properties, titles, contracts,
corporate minute and other books, records, files and documents of the Company
with respect to the Business (including financial, tax basis, budget
projections, accountants' work papers and other information as Empyrean Holdings
may reasonably request) upon 24 hours prior notice. The Stockholders and
Empyrean Holdings shall mutually agree on the timing and manner of contact with
all third parties, including, but not limited to, customers, vendors or
suppliers, which contact shall not be unreasonably withheld. Empyrean Holdings
shall not be given access to any information where the provision of such
information would violate a law or regulation applicable to the Company.
ARTICLE VI
POST-CLOSING COVENANTS
6.1. General. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Empyrean
Holdings and Stockholders) 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 Article VIII
below). The Stockholders acknowledge and agree that from and after the Closing,
the Company will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to the Company, which shall
be maintained at the chief executive office of the Company; provided, however,
that Stockholders shall be entitled to reasonable access to and to make copies
of such books and records at their sole cost and expense and the Company will
maintain all of the same for a period of at least three (3) years after Closing.
Thereafter, the Company will offer such documentation to Stockholders before
disposal thereof. By execution of this Agreement, the Stockholders hereby convey
all of their rights to any Intellectual Property reasonably related to the
Business to the Company and such Stockholders will, upon reasonable request,
agree to execute and deliver any other documents or instruments necessary to
effect such conveyance to the Company.
-28-
<PAGE>
6.2. Transition. For a period of four (4) years following Closing,
----------
the Majority Sellers will not take any action (or cause any such action to be
taken by another Person) that primarily has the effect of discouraging any
vendor, lessor, licensor, customer, contractor, subcontractor, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing. For a period of four (4) years following Closing, the
Majority Sellers will refer all customer inquiries relating to the Business to
the Company.
6.3. Confidentiality. The Stockholders will treat and hold in
---------------
confidence and not disclose all Confidential Information and refrain from using
any of the Confidential Information except in connection with this Agreement or
otherwise for the benefit of the Company or Empyrean Holdings for a period of
four (4) years from the date of this Agreement, and deliver promptly to Empyrean
Holdings or destroy, at the written request and option of Empyrean Holdings, all
tangible embodiments (and all copies) of the Confidential Information which are
in their possession except as otherwise permitted herein. In the event that any
Stockholder is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, such Stockholder will notify the Company and Empyrean Holdings
promptly of the request or requirement.
6.4. [Intentionally Left Blank].
--------------------------
6.5. Additional Matters.
------------------
(a) Tax Returns for Periods Ending on or Before the Closing
-------------------------------------------------------
Date. The Company and Invisions Group, in consultation with and at the direction
- ----
of the Majority Sellers, shall cause AA to prepare and file with the appropriate
governmental authorities, in a manner consistent with governing law, all Tax
Returns required to be filed by the Company or Invisions Group for any taxable
period ending on or prior to the Closing Date and the Company and Invisions
Group shall remit to the appropriate governmental authorities any Taxes due with
respect to such periods (which Taxes, to the extent incurred on or prior to
September 30, 1999, shall have been provided for on the Financial Statements of
the Company and Invisions Group as set forth in Section 3.7 of this Agreement).
In addition, at any time and from time to time the Company and Invisions Group,
in consultation with and at the direction of the Majority Sellers, and in a
manner consistent with governing law, shall cause AA to prepare and file such
Tax Returns for the Company and/or Invisions Group, including without limitation
any amended return or claim for refund, with respect to any taxable period or
periods ending on or prior to the Closing Date. All refunds or payments due to
the Company and/or Invisions Group from such Tax Returns, including without
limitation any amended return or claim for refund, shall promptly be paid to the
Stockholders (in the proportions provided for in Exhibit G hereto) as additional
consideration for Empyrean Group's acquisition of the Existing Shares. The cost
of preparation for all such Tax Returns shall be paid by the Company. The
Majority Sellers shall provide drafts prepared by AA of the completed Tax
Returns for the Company and Invisions Group for the taxable periods ending on or
prior to the Closing Date to Empyrean Holdings for its review a reasonable time
prior to the filing of such Tax Returns, and shall permit Empyrean Holdings to
-29-
<PAGE>
comment on such Tax Returns, and in consultation with AA shall make such
revisions as are reasonably requested by Empyrean Holdings prior to filing
(provided, with respect to such Tax Returns, that any revision requested by
Empyrean Holdings must be consistent with governing law). Empyrean Holdings, the
Company, Invisions Group and the Majority Sellers (a) have not made, and agree
not to make, any election under Section 172(b)(3) with respect to the Company
NOL (as defined below) and (b) agree to use commercially reasonable efforts,
consistent with governing law, to ensure that the Stockholders receive the
maximum possible refunds or other payments under this Section 6.5(a).
(b) Tax Benefits from Company NOL Used in Periods Ending After
----------------------------------------------------------
the Closing Date. The Majority Sellers and Empyrean Holdings shall direct AA to
- ----------------
determine any net operating loss carryforward or tax credit carryforward of the
Company and Invisions Group (a) from the issuance of the Option Shares or (b)
arising in the periods ending on or prior to the Closing Date (collectively, the
"Company NOL") that is not used by the Company or Invisions Group in any taxable
period ending on or prior to the Closing Date. Empyrean Holdings shall cause AA
to prepare and file with the appropriate governmental authorities, in a manner
consistent with governing law, all Tax Returns required to be filed by Empyrean
Holdings, the Company or Invisions Group for all taxable periods ending after
the Closing Date and Empyrean Holdings shall remit to the appropriate
governmental authorities any Taxes due with respect to such periods. To the
extent that all or any portion of the Company NOL is used by any of Empyrean
Holdings, the Company, Invisions Group, or any other member of the affiliated
group in which any of them is a member, to reduce taxable income for any taxable
period(s) ending after the Closing Date, Empyrean Holdings shall promptly pay to
the Stockholders (in the proportions provided for in Exhibit G hereto), as
---------
additional consideration for Empyrean Group's acquisition of the Existing
Shares, an amount equal to the Tax Benefit arising from or attributable to such
use of all or any portion (as the case may be) of the Company NOL for such
period(s). For so long as any portion of the Company NOL remains unused,
Empyrean Group shall provide drafts of the completed Tax Returns for the taxable
periods ending after the Closing Date to the Majority Sellers for their review a
reasonable time prior to the filing of such Tax Returns, and shall permit the
Majority Sellers to comment on such Tax Returns, and in consultation with AA
shall make such revisions as are reasonably requested by the Majority Sellers
prior to filing (provided, with respect to such Tax Returns, that any revision
requested by the Majority Sellers must be consistent with governing law). In the
event the Tax Benefit arising from or attributable to the use of the Company NOL
is subsequently reduced by virtue of the action of a Taxing Authority, so that
Empyrean Holdings, the Company or the Invisions Group is required to pay a
portion of said Tax Benefit to the Taxing Authority, the Stockholders (in the
proportions provided for in Exhibit G hereto) shall pay to Empyrean Holdings an
amount equal to the portion of said Tax Benefit paid to said Taxing Authority,
together with any interest thereon that was paid to said Taxing Authority. The
Stockholders shall make such payment to Empyrean Holdings within thirty (30)
days after Empyrean Holdings has notified them in writing of such payment to a
Taxing Authority.
"Tax Benefit" means, with respect to any taxable period ending after
the Closing Date, an amount equal to the actual reduction in state and federal
income taxes realized by
-30-
<PAGE>
Empyrean Holdings, the Company or Invisions Group, or any Affiliates of Empyrean
Holdings, the Company or Invisions Group, by virtue of the use, in the
calculation of taxable income for such taxable period, of all or any portion of
the Company NOL.
(c) Access and Retention of Records. Empyrean Holdings and
-------------------------------
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 Empyrean Holdings and/or the Company to the extent such records and
information pertain to events occurring on or prior to the Closing Date;
therefore, Empyrean Holdings agrees to cause the Company to (A) use its
- ---------
commercially reasonable 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 each
Stockholder and his 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.
6.6. Litigation Support. In the event and for so long as any party
------------------
is actively contesting or defending against any claim, suit, action or charge,
complaint, or demand in connection with (i) any transaction contemplated under
this Agreement or (ii) any fact, circumstance, status, condition, activity,
practice, occurrence, event, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other parties will
cooperate and make reasonably available themselves or their personnel, as
applicable, and provide such reasonable testimony and access to their books and
records as shall be necessary in connection with the contest or defense.
6.7. Audits. Following the Closing, pursuant to Section 2.8, the
------ -----------
Company's balance sheet as of the Closing Date will be prepared by the Company
and audited by AA at Empyrean Holdings' expense. To the extent that audited
financial statements of the Company for the fiscal years ended June 30, 1997 and
June 30, 1998 do not exist as of the Closing Date, Empyrean Holdings may, at its
expense, engage AA or another reputable independent accounting firm to audit
such financial statements. Stockholders, in their capacities as officers and
directors of the Company during such periods, shall provide all management
letters, reports or representations reasonably requested by such auditors in
connection with such audits and shall use their reasonable best efforts to
provide all necessary records in their possession to AA.
6.8. Minimum Cash as of the Closing. At the Closing, the Company
------------------------------
shall maintain a level of cash and cash equivalents equal to at least $100,000.
The Purchase Price payable at Closing will be reduced by the amount by which the
Company's cash and cash equivalents are less than $100,000 at Closing (the
"Minimum Cash Deficit"). In determining the Net Working Capital Adjustment, the
amount of Minimum Cash Deficit shall be added to the aggregate amount of any
downward Net Working Capital Adjustment (i.e., Net Working Capital is less than
$1,000,000) at Closing for purposes of determining the final Net Working Capital
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<PAGE>
Adjustment; provided, however, that in no event will a Minimum Cash Deficit
result in any upward Net Working Capital Adjustment.
6.9. Empyrean Holdings' Stock Options. Not later than 30 days
--------------------------------
following the Closing Date, Empyrean Holdings will grant stock options to (i)
such persons who are employees of the Company as of the Closing Date and (ii)
persons to whom the Company has made (or makes within such 30-day period) an
offer of employment, as are mutually agreed upon by Empyrean Holdings and the
Majority Sellers. In the aggregate, all of such stock options will be
exercisable for an estimated 635,600 shares of Common Stock, with options for
approximately 600,000 shares reserved for employees of the Company as of the
Closing Date with the remainder to be granted to persons whose employment with
the Company commences following the Closing Date. The exercise price for such
stock options shall be at $.25 per share unless Majority Sellers and Buyer
mutually agree that such grants for such options shall be priced as incentive
stock options. The terms of such stock options shall generally be for ten years
from the date of grant, subject to customary four year annual vesting
requirements (i.e., 25% vesting per annum), and shall otherwise be on the same
terms and conditions applicable to all stock options granted to key executives
and employees of Empyrean Holdings and its subsidiaries.
6.10. Replacement of Majority Sellers' Guaranties. At or promptly
-------------------------------------------
following the Closing, Empyrean Holdings will use its reasonable best efforts to
cause the Majority Sellers to be released as guarantors under all indebtedness,
letters of credit and leases of Invisions Group or the Company. Empyrean
Holdings will indemnify and hold harmless the Majority Sellers from the payment
of any guaranties on any indebtedness, letters of credit, leases or other
contractual obligations that the Majority Sellers had incurred prior to the
Closing Date provided that such indebtedness or obligations are related to the
Business and have been disclosed to Empyrean Holdings in writing prior to the
date hereof.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING
7.1. Conditions to Empyrean Holdings' Obligations. The obligation of
--------------------------------------------
Empyrean Holdings under this Agreement to consummate the Closing is subject to
the conditions that:
(a) Covenants, Representations and Warranties. The Company,
-----------------------------------------
Invisions Group and Stockholders shall have performed in all material respects
all obligations and agreements and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by each
of them prior to or at the Closing Date. The representations and warranties of
the Company, Invisions Group and Stockholders set forth in this Agreement shall
be accurate in all material respects at and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date.
(b) Consents. All statutory requirements for the valid
--------
consummation by the Company, Invisions Group and Stockholders of the Acquisition
shall have been fulfilled
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<PAGE>
and all authorizations, consents and approvals, including expiration or early
termination of all waiting periods under the HSR Act and those of all federal,
state, local and foreign governmental agencies and regulatory authorities
required to be obtained in order to permit the consummation of the Acquisition
shall have been obtained in form and substance reasonably satisfactory to
Empyrean Holdings unless such failure could not reasonably be expected to have a
Material Adverse Effect. All approvals of the Boards of Directors and
Stockholders of the Company and Invisions Group necessary for the consummation
of this Agreement and the Acquisition shall have been obtained.
(c) Leases. Each of the Leases shall provide that the Company
------
or Invisions Group is the lessee and if required under the terms of a given
lease, any consent required in connection with the Acquisition contemplated by
this Agreement shall have been obtained, and copies of such Leases shall have
been provided to Empyrean Holdings.
(d) Discharge of Indebtedness and Liens; Stockholder Loans.
------------------------------------------------------
Stockholders and the Company shall have provided for the payment in full by the
Stockholders of all Funded Indebtedness of the Company at the Closing or the
Purchase Price will be reduced proportionately by the amount that such Funded
Indebtedness exceeds $425,000 as of the Closing Date. Such Funded Indebtedness,
if any, as of September 30, 1999, is listed on Exhibit S hereto. Stockholders
shall have also provided for the termination of all Encumbrances of record on
the properties of the Company, except for Permitted Exceptions. All non-purchase
money security interest or non-lease liens or UCC filings against Invisions
Group or the Company shall have been terminated as of the Closing. All
outstanding loans or other amounts owed by any Stockholder to Invisions Group or
the Company shall have been repaid in full on or prior to the Closing.
(e) Transfer Taxes. Stockholders shall be responsible for all
--------------
stock transfer or gains taxes imposed on Stockholders incurred in connection
with this Agreement.
(f) Documents to be Delivered by Stockholders, Invisions Group
----------------------------------------------------------
and the Company. The following documents shall be delivered at the Closing by
- ---------------
Stockholders, Invisions Group and the Company:
(i) Escrow Agreement. Stockholders shall have delivered
----------------
to Empyrean Holdings at the Closing the duly executed Escrow
Agreement in substantially the form attached hereto as Exhibit B.
---------
(ii) Opinion of Stockholders' Counsel. Empyrean Holdings
--------------------------------
shall have received an opinion of counsel to the Company, Invisions
Group and Stockholders, dated the Closing Date, in substantially the
same form as the form of opinion that is Exhibit C hereto.
---------
(iii) Certificates. Empyrean Holdings shall have
------------
received an officer's certificate and a secretary's certificate of
the Company and Invisions Group executed by officers of each of the
Company and Invisions Group, dated
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<PAGE>
the Closing Date, in a form mutually agreed upon by Empyrean
Holdings and Invisions Group.
(iv) Release. Stockholders shall have furnished the
-------
Company with a general release of liabilities, excluding
compensation and employee benefits as well as obligations pursuant
to this Agreement, in the form attached as Exhibit E hereto.
---------
(v) Employment Agreements. Leo Mullen shall have duly
---------------------
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit F-1 hereto, pursuant to which he will
-----------
be employed by the Company following the Closing. Mark A. Smith
shall also have entered into an employment agreement with the
Company on terms reasonably acceptable to Empyrean Holdings. William
Stephens shall have executed a joinder to the Empyrean Holdings'
senior management agreement dated August 12, 1999 on terms
reasonably acceptable to Empyrean Holdings. In addition, Helene
Patterson, Gretchen Frederick and Sidney Barcelona shall have
executed and delivered to the Company and Empyrean Holdings a
noncompete/nonsolicitation agreement in the form of Exhibit F-2
-----------
hereto; provided, however, that the term of the noncompete
agreements for Frederick and Barcelona shall be limited to a period
expiring on the first anniversary of the Closing Date.
(vi) Delivery of Existing Shares. At the Closing, the
---------------------------
Stockholders shall deliver to Empyrean Holdings the Existing Shares
duly endorsed for transfer to Empyrean Holdings and free and clear
of all Encumbrances, other than the restrictions imposed by federal
and state securities laws.
(vii) Delivery of Options Shares; Unexercised Options.
-----------------------------------------------
At the Closing, each of the Option holders who has entered into an
Option Share Purchase Agreement shall deliver to Empyrean Holdings
all of such person's Option Shares duly endorsed for transfer to
Empyrean Holdings and free and clear of all Encumbrances, other than
the restrictions imposed by federal and state securities laws. Upon
delivery to Empyrean Holdings at the Closing of the Existing Shares
and all Option Shares held by persons who have entered into Option
Share Purchase Agreements, Empyrean Holdings shall own more than
ninety-five percent (95%) of the shares of Invisions Stock on a
fully diluted basis, taking into account all Options that remain
unexercised as of the Closing.
(viii) Resignation of Directors. The Company shall
------------------------
deliver the written resignations of all directors of the Company and
Invisions Group effective as of the Closing.
(ix) Termination of Stockholder Agreements. The Company
-------------------------------------
shall have provided evidence satisfactory to Empyrean Holdings of
the complete
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<PAGE>
termination of all Stockholder agreements among the Stockholders,
Invisions Group and/or the Company with respect to the Company,
Invisions Group or the Existing Shares.
(g) Company Equity Arrangements. The Stockholder Subscription
---------------------------
Agreement and the Joinders to the Equity Agreements shall have been executed and
delivered by the Stockholders.
7.2. Conditions to Stockholders', Invisions Group's and the
------------------------------------------------------
Company's Obligations. The obligation of Stockholders, Invisions Group and the
- ---------------------
Company under this Agreement to consummate the Closing is subject to the
conditions that:
(a) Covenants, Representations and Warranties. Empyrean
-----------------------------------------
Holdings shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by Empyrean Holdings prior to
or at the Closing and the representations and warranties of Empyrean Holdings
set forth in Article IV hereof shall be accurate in all material respects, at
----------
and as of the Closing Date, with the same force and effect as though made on and
as of the Closing Date.
(b) Consents. All statutory requirements for the valid
--------
consummation by Empyrean Holdings of the Acquisition shall have been fulfilled
and all authorizations, consents and approvals, including expiration or early
termination of all waiting periods under the HSR Act and those of all federal,
state, local and foreign governmental agencies and regulatory authorities
required to be obtained in order to permit the consummation by Empyrean Holdings
of the Acquisition shall have been obtained unless such failure shall not have a
Material Adverse Effect on the Business.
(c) Documents to be Delivered by Empyrean Holdings. The
----------------------------------------------
following documents shall be delivered at the Closing by Empyrean Holdings:
(i) Escrow Agreement. Empyrean Holdings shall have
----------------
delivered to Stockholders at the Closing the duly executed Escrow
Agreement.
(ii) Employment Agreement. Empyrean Holdings shall have
--------------------
caused the Company to duly execute and deliver an Employment
Agreement with Leo Mullen in the same form attached as Exhibit F-1
-----------
hereto, pursuant to which Mr. Mullen will be employed by the Company
following the Closing. The Employment Agreement with Leo Mullen will
provide that he will be a member of Empyrean Holdings' Chairman's
Advisory Board, will be a senior executive officer of Empyrean
Holdings and will be chair of the task force responsible for
providing branding strategy for Empyrean Holdings.
(iii) Certificates. Empyrean Holdings shall have
------------
delivered an officer's certificate and a secretary's certificate of
Empyrean Holdings executed
-35-
<PAGE>
by officers of Empyrean Holdings, dated the Closing Date, in a form
mutually agreed upon by Empyrean Holdings and Invisions Group.
(iv) Legal Opinion. The Stockholders shall have received
-------------
an opinion of counsel to Empyrean Holdings in the Form of Exhibit T
hereto. ---------
(d) Company Equity Arrangements. The Stockholder Subscription
---------------------------
Agreement and the Joinders to the Equity Agreements shall have been executed and
delivered by the respective parties thereto.
(e) Payments to Stockholders. Each Stockholder shall have
------------------------
received its allocable portion of the Cash Purchase Price and Common Stock and
Preferred Stock, as provided in Sections 2.2(a) and (d), and Empyrean Holdings
--------------- ---
shall have delivered the Seller Notes and cash to the Escrow Agent, as provided
in Sections 2.2(b) and (c).
--------------- ---
(f) Payments to Option Holders. Each Option holder who enters
--------------------------
into an Option Share Purchase Agreement shall have received payment for its
Option Shares.
(g) Thayer Letter. Thayer Itech Holdings, LLC shall have
-------------
delivered a letter to the Company and the Stockholders at Closing as provided in
Section 8.5 hereof.
- -----------
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification by Stockholders. Except as provided in Section
------------------------------- -------
8.6, Stockholders agree to jointly and severally indemnify and hold harmless
- ---
Empyrean Holdings and the Company and each officer, director, and Affiliate of
Empyrean Holdings and the Company, including without limitation any successor of
the Company that is an Affiliate of Empyrean Holdings and any of the Company's
or Emyrean Holdings' lenders as provided in Section 10.5 hereof (collectively,
------------
the "Indemnified Parties") from and against any and all damages, losses, claims,
liabilities, demands, charges, suits, penalties, costs and expenses (including
court costs and reasonable attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding) (collectively, the
"Indemnifiable Costs"), which any of the Indemnified Parties may sustain, or to
which any of the Indemnified Parties may be subjected, arising out of (A) any
misrepresentation, breach or default by Stockholders (as such, but severally and
not jointly in any other role, e.g., as an employee under any employment
agreement after the date hereof), Invisions Group or the Company of or under any
of the representations, covenants, agreements or other provisions of this
Agreement or any agreement or document executed in connection herewith;
provided, however, that Indemnifiable Costs for covenants with respect to the
Company shall be with respect to pre-Closing periods only; (B) any downward Net
Working Capital Adjustment not paid to the Company pursuant to a reduction of
the Escrow Sum; (C) cost of any brokerage or other transaction fees liability,
if any, borne by the Company and Invisions Group and not by Stockholders except
as provided in Section 10.4 hereof; (D) any customer claims involving
------------
pre-Closing services or products of the Company for breach of
-36-
<PAGE>
warranty, product liability or customer service remediation, including claims
for consequential damages, to the extent not reserved for in the Company's
Financial Statements and (E) any failure of the Company to obtain any landlord
consents to the Acquisition contemplated hereby required under the terms of any
leases of the Company's real property.
8.2. Defense of Claims. If any legal proceeding shall be instituted,
-----------------
or any claim or demand made by a third Person, against any Indemnified Party in
respect of which Stockholders or Invisions Group may be liable hereunder, such
Indemnified Party shall give prompt written notice thereof to Stockholders and,
except as otherwise provided in Section 8.4 below, Stockholders shall have the
right to defend any litigation, action, suit, demand, or claim for which an
Indemnified Party may seek indemnifications, and such Indemnified Party shall
extend reasonable cooperation in connection with such defense, which shall be at
Stockholders' expense. In the event Stockholders fail or refuse to defend the
same within a reasonable length of time, the Indemnified Parties shall be
entitled to assume the defense thereof, and Stockholders shall be jointly and
severally liable to repay the Indemnified Parties for all reasonably incurred
Indemnifiable Costs. If Stockholders shall not have the right to assume the
defense of any litigation, action, suit, demand, or claim in accordance with the
preceding sentence, the Indemnified Parties shall, at Stockholders' expense,
have the absolute right to control the defense of such litigation, action, suit,
demand, or claim, but Stockholders shall be entitled, at their own expense, to
participate in such litigation, action, suit, demand, or claim. The party
controlling any defense pursuant to this Section 8.2 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 any such litigation, action, suit, demand or
claim, and timely notice of any hearing or other court proceeding relating to
such litigation, action, suit, demand or claim. Notwithstanding the forgoing, in
no event will the party controlling any defense pursuant to this Section 8.2
-----------
settle any litigation, action, suit, demand or claim without the prior written
consent of the non-controlling party, unless such settlement provides for the
unqualified, absolute and complete release of all claims against the
non-controlling party and results in no monetary or equitable liability to the
non-controlling party.
8.3. Escrow Claim. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
------------
Escrow Period, such Indemnified Party shall first apply to the Escrow Agent
provided in Section 2.7 of this Agreement for reimbursement of such claim in
accordance with the provisions of the Escrow Agreement provided, however, to the
extent set forth in Section 8.6, the Escrow Sum is not intended to be an
-----------
exclusive remedy in the event Empyrean Holdings or the Company has
indemnification claims hereunder which exceed such amount. Upon expiration of
the Escrow Period, all claims by Empyrean Holdings shall first be made against
the Seller Notes on a pro rata basis among all Stockholders. Empyrean Holdings,
in good faith, may elect to reduce the principal amount of the Seller Notes by
the amount of any Indemnifiable Costs or any other payments to which Empyrean
Holdings or such Indemnified Parties may become entitled by reason of the
provisions of this Agreement. In the event that such reductions by Empyrean
Holdings are greater than the amount of any Indemnifiable Costs (as finally
determined),
-37-
<PAGE>
Empyrean Holdings shall be responsible to the Stockholders for such principal
amount that should not have been reduced, together with interest at the rate of
10% per annum.
8.4. Tax Audits, Etc. In the event of an audit of a Tax Return of
---------------
the Company or Invisions Group with respect to which an Indemnified Party might
be entitled to indemnification pursuant to this Article VIII, the Stockholders
------------
and the Company shall jointly control any and all such audits which may result
in the assessment of additional Taxes against the Company or Invisions Group and
any and all subsequent proceedings in connection therewith, including appeals.
Stockholders and Empyrean Holdings shall cooperate fully in all matters relating
to any such audit or other Tax proceeding (including according access to all
records pertaining thereto), and will execute and file any and all consents,
powers of attorney, and other documents as shall be reasonably necessary in
connection therewith. If additional Taxes are payable by the Company or
Invisions Group as a result of any such audit or other proceeding, Stockholders
shall be severally responsible for and shall promptly pay all Taxes, interest,
and penalties for which any of the Indemnified Parties shall be entitled to
indemnification.
8.5. Indemnification of Stockholders. Empyrean Holdings agrees to
-------------------------------
indemnify and hold harmless Stockholders, Invisions Group and the Company and
each officer, director, Stockholder or Affiliate of the Company, from and
against any Indemnifiable Costs arising out of any misrepresentation, breach or
default by Empyrean Holdings of or under any of the representations, covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith. Notwithstanding the foregoing, the liability of
Empyrean Holdings for any breaches of its representations and warranties
contained in Sections 4.10 through 4.15 of Article IV hereof shall be limited
------------- ---- ----------
to, in the case of breaches of such representations involving periods prior to
August 12, 1999, a proportionate share of any amounts paid to Thayer Itech
Holdings, LLC as a result of any similar breach of a corresponding
representation or warranty of BSG Holdings, Inc. and its shareholders pursuant
to the Recapitalization Agreement (and Thayer Itech Holdings, LLC shall have
provided a side letter to the Stockholders prior to the Closing that it will
assign a proportionate share of all such indemnification claim amounts to the
Stockholders). In addition, in determining the Indemnifiable Costs of
Stockholders for breaches by Empyrean Holdings for which indemnification is to
be provided by this Section 8.5, all losses shall be determined based on the
-----------
relative economic harm suffered by the Stockholders for such breach in
accordance with their relative economic ownership of Empyrean Holdings.
8.6. Limits on Indemnification. All Indemnifiable Costs sought by
-------------------------
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim. Except for any claims for breach of the
representations, warranties and covenants of the Company, Invisions Group and
the Stockholders under Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.12 (with respect to
------------ --- --- --- --- ----
Environmental and OSHA Obligations only), 3.17, Article VI, 8.1(B) or 8.1(C)
---- ---------- ------ ------
hereof (the indemnification for which shall expire on the expiration of the
applicable statute of limitations or, in the case of covenants in Article VI
----------
which have a specific expiration date, as of such date, and if so made, such
claims, and all Indemnifiable Costs incurred thereafter, shall continue after
such date until finally resolved), the right of any party to make claims for
-38-
<PAGE>
indemnification provided under this Article VIII shall expire on June 30, 2001
------------
(except for any claims for Indemnifiable Costs made prior to such date which
claims shall continue after such date until finally resolved). Empyrean Holdings
shall not be obligated to pay any amounts for indemnification under this Article
-------
VIII until the aggregate indemnification obligation sought by Stockholders
- ----
hereunder exceeds $100,000, whereupon Empyrean Holdings shall be liable for all
amounts for which indemnification may be sought. Notwithstanding the foregoing,
in no event shall the aggregate liability of Empyrean Holdings to Stockholders
for breach of representations and warranties exceed $3,650,000. The Stockholders
shall not be obligated to pay any amounts for indemnification under this Article
-------
VIII until the aggregate indemnification obligation sought by Empyrean Holdings
- ----
hereunder exceeds $100,000, whereupon Stockholders shall be liable for all
amounts for which indemnification may be sought. Notwithstanding the foregoing,
in no event shall the aggregate liability of Stockholders to Empyrean Holdings
for breach of representations and warranties exceed $3,650,000; provided,
however, that the aggregate liability of Stockholders to Empyrean Holdings or
Empyrean Holdings to Stockholders for claims for (A) the breaching of the
representations and warranties of the Stockholders under Sections 3.1, 3.2, 3.3,
------------ --- ---
3.4, 3.12 (to the extent such claims are for Environmental and OSHA Obligations)
- --- ----
and 3.17, or (B) any breach of Sections 8.1(B) or (C), or (C) any claim with
---- --------------- ---
respect to the fraudulent conduct of Stockholders or Empyrean Holdings with
respect to this Agreement in the event that Empyrean Holdings or Stockholders
successfully prove intentional fraud or intentional fraudulent conduct in
connection with this Agreement, shall not exceed the Purchase Price. In no event
shall any non-Majority Stockholder's liability for any individual
indemnification claim exceed an amount equal to the product of (i) the amount of
such indemnification claim and (ii) such Stockholder's pro rata share of the
Purchase Price paid to the Stockholders. The indemnification provided for in
this Article VIII is intended to be the exclusive monetary remedy of Empyrean
------------
Holdings or Stockholders with regard to the Acquisition contemplated by this
Agreement.
8.7. Arbitration of Claims. If any claim for indemnification is made
---------------------
by an Indemnified Party or Stockholders pursuant to this Article VIII prior to
------------
the expiration of the indemnification period as set forth in Section 8.6, the
-----------
parties hereto shall first meet in good faith in order to attempt to resolve
such claim. In the event that the parties are unable to resolve such
indemnification claim within 30 days after written notice of such claim, 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 VIII. 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
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
-39-
<PAGE>
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 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; provided, however, that
in the event the parties cannot agree, the AAA shall appoint an arbitrator.
Unless otherwise agreed by the parties, the arbitration hearing shall take place
in the Washington, D.C. metropolitan area, at a place designated by the AAA. All
arbitration procedures hereunder shall be confidential. Each party shall be
responsible for its costs incurred in any arbitration, and the arbitrator shall
not have authority to include all or any portion of said costs in an award
regardless of which party prevails. The arbitrator may include equitable relief.
The decision of the arbitrator shall be rendered not later than 30 days
following the hearing. 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. Any determination of
the arbitrator shall be binding upon the parties. Either party may apply to any
court having jurisdiction for judicial confirmation of any determination by the
arbitrator and for an order of enforcement of such decision.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated at any time prior
-----------
to the Closing:
(a) by the mutual written consent of all parties hereto;
(b) in writing by Empyrean Holdings, if the Company, Invisions
Group or any of the Stockholders has breached in any material respect any
representation, warranty or covenant contained in this Agreement, and in each
case such breach has not been remedied within ten (10) business days after
receipt of written notice specifying such breach and demanding such breach to be
remedied; or
(c) in writing by the Stockholders, if Empyrean Holdings has
breached in any material respect any representation, warranty or covenant
contained in this Agreement, and in each case such breach has not been remedied
within ten (10) business days after receipt of written notice specifying such
breach and demanding such breach to be remedied; or
(d) in writing by the Stockholders, on the one hand, or
Empyrean Holdings, on the other hand, in the event the Closing has not occurred
on or before November 10, 1999, unless the failure of such consummation or the
failure to satisfy such condition, as applicable, shall be due to a breach of
any representation or warranty made by the party or parties seeking to terminate
this Agreement or the failure of such party or parties to
-40-
<PAGE>
comply in all material respects with the agreements and covenants contained
herein to be performed by such party or parties.
9.2. Effect of Termination. If the Acquisition is terminated
---------------------
pursuant to Section 9.1 by notice in writing to the non-terminating party or
-----------
parties, this Agreement shall become void and of no further force and effect,
except that (a) such termination shall not relieve (i) any party from its
covenants in respect of confidentiality contained in Section 6.3 and (ii) any
-----------
party then in breach of any representation, warranty, covenant or agreement
contained in this Agreement from liability in respect of such breach and (b)
Sections 10.4 and 10.7 shall survive termination of this Agreement.
- ------------- ----
ARTICLE X
MISCELLANEOUS
10.1. Modifications. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
10.2. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited with a recognized overnight commercial
carrier, or by facsimile addressed to the respective parties hereto as follows:
Empyrean Holdings:
-----------------
Empyrean Group Holdings, Inc.
8300 Boone Blvd.
Suite 250
Vienna, VA 22182
Attention: Graham B. Perkins
Jason H. Levine, Esq.
Fax No.: (703) 790-9033
Tel No.: (703) 790-9008
With a copy to:
--------------
Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, NW
Suite 350
Washington, D.C. 20004
-41-
<PAGE>
Attention: Robert Michalik
Fax No.: (202) 371-0391
Tel No.: (202) 371-0150
and to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Attention: Christopher J. Hagan, Esq.
Fax No.: (202) 637-5910
Tel No.: (202) 637-5600
The Company, Invisions Group or Stockholders:
--------------------------------------------
c/o IconixGroup, Inc.
4927 Auburn Avenue
Bethesda, Maryland 20814
Attention: Leo Mullen
Helene Patterson
Fax No.: (301) 718-6230
Tel No.: (301) 718-3450
With copies to:
--------------
Shaw Pittman
2300 N Street, N.W.
Washington, D.C. 20037
Attention: Thomas J. Plotz, Esq.
Fax No.: (202) 663-8007
Tel No.: (202) 663-8544
Shaw Pittman
1676 International Drive
McLean, Virginia 22102-4835
Attention: Richard C. Donaldson, Esq.
Fax No.: (703) 790-7901
Tel No.: (703) 790-7959
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
-42-
<PAGE>
10.3. Counterparts; Facsimile Transmission. This Agreement may be
------------------------------------
executed in several counterparts, each of which shall be deemed an original but
all of which counterparts collectively shall constitute one instrument, and in
making proof of this Agreement, it shall never be necessary to produce or
account for more than one such counterpart. Signatures of a party to this
Agreement or other documents executed in connection herewith which are sent to
the other parties by facsimile transmission shall be binding as evidence of
acceptance of the terms hereof or thereof by such signatory party, with
originals to be circulated to the other parties in due course.
10.4. Expenses. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the Acquisition, provided, however, that Stockholders
shall bear all costs and expenses of (i) any broker involved in this transaction
on behalf of Stockholders, Invisions Group or the Company and (ii) all legal and
other expenses of Stockholders, Invisions Group or the Company with respect to
this Agreement and the Acquisition. Notwithstanding the foregoing, in the event
that the Acquisition is consummated, Empyrean Holdings' will assume and pay up
to $250,000 of the Company's and Stockholders' transactions expenses and
brokerage fees, including without limitation reasonable legal, accounting and
financial advisory fees incurred in connection with the Acquisition.
10.5. Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Invisions Group, Empyrean Holdings
and Stockholders, their heirs, representatives, successors, and permitted
assigns, in accordance with the terms hereof. This Agreement shall not be
assignable by the Company, Invisions Group or Stockholders without the prior
written consent of Empyrean Holdings. This Agreement shall be assignable by
Empyrean Holdings and/or the Company to either (a) any lender providing
financing to Empyrean Holdings or the Company (but only with respect to Empyrean
Holdings' rights under Article II and Article VIII hereof) or (b) any Affiliate
---------- ------------
of Empyrean Holdings, provided Empyrean Holdings remain liable, in each case
without the prior written consent of Stockholders. In addition, following the
Closing, Empyrean Holdings or the Company may assign any or all of its rights
hereunder, without the consent of the Stockholders, in connection with any sale
of all or substantially all of the assets, capital stock, partnership interests
or business of the Company or Empyrean Holdings (whether effected by sale,
exchange, merger, consolidation or other transaction) and provided the acquiring
party shall assume all of Empyrean Holdings' or the Company's obligations
hereunder.
10.6. Entire and Sole Agreement. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
10.7. Governing Law. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Delaware, without giving effect to the principles of conflicts of laws
thereof.
-43-
<PAGE>
10.8. Survival of Covenants. Regardless of any investigation at any
---------------------
time made by or on behalf of any party hereto or of any information any party
may have in respect thereof, all covenants made hereunder or pursuant hereto or
in connection with the Acquisition shall survive the Closing for a period ending
on June 30, 2001, provided (a) all covenants in this Agreement which have an
expiration date contained therein shall expire as of such date and (b) the
covenants contained in Sections 6.1, 6.5, 6.6 and 6.7 hereof shall expire upon
------------ --- --- ---
the expiration of the applicable statutes of limitations.
10.9. Invalid Provisions. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this Agreement
ever be reformed or rewritten by any judicial body of competent jurisdiction,
such provision as so reformed or rewritten shall be binding upon all parties
hereto.
10.10. Stockholder's Investment Representations. Each Stockholder
----------------------------------------
(i) that is acquiring the Common Stock, Preferred Stock or Seller Notes
purchased hereunder or acquired pursuant hereto is doing so for its own account
with the present intention of holding such securities for purposes of investment
and (ii) has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained herein shall prevent such Stockholders and
subsequent holders of Common Stock, Preferred Stock or Seller Notes from
transferring such securities in compliance with the provisions of the
Stockholder Subscription Agreement. Each certificate for Common Stock, Preferred
Stock or Seller Notes shall be imprinted with a customary securities legend in a
form provided by Empyrean Holdings' counsel.
10.11. Public Announcements. Neither Stockholders, Invisions Group
--------------------
nor the Company (pre-Closing) shall make any public announcement of the
Acquisition without the prior written consent of Empyrean Holdings, which
consent shall not be unreasonably withheld.
10.12. Remedies Cumulative. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
10.13. Third Parties. Except as specifically set forth or referred
--------------------
to herein, nothing herein expressed or implied is intended or shall be construed
to confer upon or give to any Person, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
10.14. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto,
-44-
<PAGE>
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.
10.15. Disclosure Schedule. An item disclosed in any part of the
-------------------
Disclosure Schedule attached hereto shall be deemed disclosed in response to any
other applicable part of the Disclosure Schedule but only to the extent that
such disclosure would, in the minds of a reasonable buyer, reasonably be
expected to relate to such other part of the Disclosure Schedule.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-45-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
THE COMPANY:
-----------
ICONIXGROUP, INC.
By: /s/ Leo C. Mullen
---------------------------------
Leo C. Mullen
President
INVISIONS GROUP:
---------------
THE INVISIONS GROUP, LTD.
By: /s/ Leo C. Mullen
---------------------------------
Leo C. Mullen
President
STOCKHOLDERS:
/s/ Leo C. Mullen
------------------------------------------
Leo C. Mullen
/s/ Helene Patterson
------------------------------------------
Helene Patterson
/s/ Sidney E. Barcelona
------------------------------------------
Sidney E. Barcelona
/s/ Gretchen Frederick
------------------------------------------
Gretchen Frederick
/s/ Mark A. Smith
------------------------------------------
Mark A. Smith
-46-
<PAGE>
EMPYREAN HOLDINGS:
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
------------------------------------------
Name: Stuart C. Johnson
Title: Chairman, President and CEO
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
<PAGE>
Exhibit 10.18
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and among
ICONIXX CORPORATION
("Iconixx")
LEAD DOG DESIGN, INC.
(the "Company")
and
THE STOCKHOLDERS OF THE LEAD DOG DESIGN, INC.
(the "Stockholders")
Dated February 23, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Recitals............................................................................1
ARTICLE I DEFINITIONS...............................................................1
1.1. Definitions..........................................................1
-----------
ARTICLE II STOCK PURCHASE...........................................................6
2.1. Stock Purchase.......................................................6
--------------
2.2 Payment of Purchase Price............................................6
2.3 Funded Indebtedness Adjustment.......................................7
2.4 Intentionally Left Blank.............................................7
2.5 Financial Condition..................................................7
2.6 Closing..............................................................7
2.7 Escrow Arrangements..................................................7
2.8 Closing Audit........................................................8
2.9 Post-Closing Net Working Capital Adjustment..........................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS..................................................9
3.1. Capitalization.......................................................9
--------------
3.2. No Liens on Shares...................................................9
------------------
3.3. Subsidiaries.........................................................9
------------
3.4. Other Rights to Acquire Capital Stock................................9
-------------------------------------
3.5. Due Organization.....................................................9
----------------
3.6. Due Authorization....................................................10
-----------------
3.7. Financial Statements.................................................10
--------------------
3.8. Certain Actions......................................................11
---------------
3.9. Properties...........................................................12
----------
3.10. Licenses and Permits.................................................13
--------------------
3.11. Intellectual Property................................................13
---------------------
3.12. Compliance with Laws.................................................14
--------------------
3.13. Insurance............................................................14
---------
3.14. Employee Benefit Plans...............................................14
----------------------
3.15. Contracts and Agreements.............................................15
------------------------
3.16. Claims and Proceedings...............................................16
----------------------
3.17. Taxes................................................................16
-----
3.18. Personnel............................................................18
---------
3.19. Business Relations...................................................18
------------------
3.20. Accounts Receivable; Accounts Payable; Customer Deposits;
---------------------------------------------------------
Customer Revenues and Deferred Revenues..............................18
---------------------------------------
3.21. Bank Accounts; Investments...........................................19
--------------------------
3.22. Customer Claims......................................................19
---------------
3.23. Brokers..............................................................19
-------
3.24. Affiliated Transactions..............................................19
-----------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C> <C>
3.25. Funded Indebtedness; Letters of Credit; Undisclosed Liabilities......21
---------------------------------------------------------------
3.26. Year 2000............................................................21
---------
3.27. Information Furnished................................................21
---------------------
ARTICLE IV ICONIXX'S REPRESENTATIONS AND WARRANTIES.................................22
4.1. Due Organization of Iconixx..........................................22
---------------------------
4.2. Due Authorization....................................................22
-----------------
4.3. No Brokers...........................................................22
----------
4.4. Investment...........................................................22
----------
4.5. Information Furnished................................................22
---------------------
4.6. Capital Stock and Related Matters....................................22
---------------------------------
4.7. Authorization of the Stock...........................................23
--------------------------
4.8 Financial Statements.................................................23
--------------------
4.9 Compliance with Laws.................................................23
--------------------
4.10 Claims and Proceedings...............................................23
----------------------
ARTICLE V PRE-CLOSING COVENANTS OF THE COMPANY, ICONIXX
AND THE STOCKHOLDERS..........................................................24
5.1. Consents of Others...................................................24
------------------
5.2. Stockholders' Efforts................................................24
---------------------
5.3. Powers of Attorney...................................................24
------------------
5.4. Conduct of Business by the Company Pending Closing...................24
--------------------------------------------------
5.5. Conduct of Business by Iconixx Pending Closing.......................25
----------------------------------------------
5.6. Access by Iconixx Before Closing.....................................25
--------------------------------
5.7. Access by the Stockholders Before Closing............................25
-----------------------------------------
ARTICLE VI POST-CLOSING COVENANTS...................................................26
6.1. General..............................................................26
-------
6.2. Transition...........................................................26
----------
6.3. Confidentiality......................................................26
---------------
6.4. Covenant Not to Compete..............................................27
-----------------------
6.5. Additional Matters...................................................27
------------------
6.6. Litigation Support...................................................29
------------------
6.7. Audits...............................................................29
------
6.8. Minimum Cash as of the Closing.......................................29
------------------------------
6.9. Iconixx's Stock Options..............................................29
-----------------------
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING..............30
7.1. Conditions to Iconixx's Obligations..................................30
-----------------------------------
7.2. Conditions to the Stockholders' and the Company's Obligations........32
-------------------------------------------------------------
ARTICLE VIII INDEMNIFICATION........................................................33
8.1. Indemnification by the Stockholders..................................33
-----------------------------------
8.2. Defense of Claims....................................................33
-----------------
8.3. Escrow Claim.........................................................34
------------
8.4. Tax Audits, Etc......................................................34
---------------
8.5. Indemnification of Stockholders......................................34
-------------------------------
8.6. Limits on Indemnification............................................35
-------------------------
ARTICLE IX TERMINATION..............................................................36
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C> <C>
9.1. Termination..........................................................36
-----------
9.2. Effect of Termination................................................36
---------------------
ARTICLE X MISCELLANEOUS.............................................................36
10.1. Modifications........................................................36
-------------
10.2. Notices..............................................................37
-------
10.3. Counterparts; Facsimile Transmission.................................38
------------------------------------
10.4. Expenses.............................................................38
--------
10.5. Binding Effect; Assignment...........................................38
--------------------------
10.6. Entire and Sole Agreement............................................39
-------------------------
10.7. Governing Law........................................................39
-------------
10.8. Survival of Representations, Warranties and Covenants................39
-----------------------------------------------------
10.9. Invalid Provisions...................................................39
------------------
10.10. Public Announcements.................................................39
--------------------
10.11. Remedies Cumulative..................................................40
-------------------
10.12. Third Parties........................................................40
-------------
10.13. No Strict Construction...............................................40
----------------------
10.14. Disclosure Schedules.................................................40
--------------------
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Stockholders Accounts and Wire Transfer Instructions((S) 2.4)
Exhibit C-1 Certificate of Incorporation of the Company
Exhibit C-2 Bylaws of the Company
Exhibit C-3 Qualified Jurisdictions
Exhibit D Certificate of Incorporation of Iconixx
Exhibit E-1 Form of Stockholder Employment Agreement
Exhibit E-2 Form of Noncompete/Nonsolicitation Agreement
Exhibit F-1 Opinion of Stockholders' Counsel
Exhibit F-2 Opinion of Iconixx's Counsel
Exhibit G Form of Stockholder Release
DISCLOSURE SCHEDULES
ICONIXX CAPITALIZATION SCHEDULE
OPTIONS SCHEDULE
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
February 23, 2000, by and among ICONIXX CORPORATION, a Delaware corporation
("Iconixx"), LEAD DOG DESIGN, INC., a New York corporation (the "Company"); and
Ronald P. Heffernan, Mike Matteo, Lucia Chang Heffernan, Monica Hsu, The Kelly
A. Heffernan Trust, The Tracy Heffernan Cipully Trust and David Musicant
(collectively, the "Stockholders").
Recitals
--------
Pursuant to this Agreement, the Company, which is engaged in the business
of providing information technology consulting, web-site design and graphic and
printing design services in the United States (the "Business"), will be acquired
by Iconixx pursuant to an acquisition of substantially all of the capital stock
of the Company (the "Acquisition"). The Acquisition will occur in the following
steps:
A. THE CURRENT CAPITALIZATION OF THE COMPANY
On the date of this Agreement, the Company's capitalization consists of 200
shares of common stock, no par value per share. The Stockholders are the owners
of 200 shares of the common stock of the Company (the "Company Shares"), which
stock represents all of the issued and outstanding capital stock of the Company.
B. THE STOCK PURCHASE
Iconixx desires to purchase from the Stockholders and the Stockholders
desire to sell to Iconixx all of the Company Shares for an aggregate purchase
price of $68,750 per share (an aggregate purchase price of $13,750,000), subject
to adjustment as provided herein.
Agreement
---------
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Agreement, the following terms have the meanings
-----------
specified or referred to in this Section 1.1 and shall be equally applicable to
-----------
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended,
<PAGE>
supplemented and modified from time to time to the extent permitted by the
applicable provisions thereof and by this Agreement.
"Acquisition" has the meaning specified in the beginning of the
recitals of this Agreement.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Audited Closing Financial Statements" has the meaning specified in
Section 2.8.
- -----------
"Business" has the meaning specified in the first recital of the
Agreement.
"Cash Purchase Price" shall have the meaning assigned to such term in
Section 2.2(a).
- --------------
"Closing" means the closing of the Acquisition.
"Closing Date" has the meaning specified in Section 2.6.
-----------
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per share, of
Iconixx.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Company Shares" has the meaning specified in Recital A of the
---------
Agreement.
"Confidential Information" means (i) the terms and provisions of this
Agreement and the Acquisition and (ii) all confidential information (for
purposes of this Agreement, confidential information shall refer to all
information which is the subject of reasonable efforts by the Company to
maintain its non-public character or to otherwise prevent such information from
becoming widely known) and trade secrets of the Company or its Affiliates
including, without limitation, any of the same comprising 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. Confidential Information shall
not include any information (a) which is disclosed pursuant to subpoena or other
legal process, (b) which has been publicly disclosed, or (c) which is
subsequently disclosed to any third party not in breach of a confidentiality
agreement.
"Contracts" has the meaning specified in Section 3.15.
------------
"Court Order" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
-2-
<PAGE>
"Disclosure Schedules" shall mean the Disclosure Schedules attached to
this Agreement pursuant to which exceptions to the Stockholders' and the
Company's specific representations and warranties set forth in Article III (and
-----------
listed on a Section-by-Section basis) are disclosed to Iconixx pursuant to said
Article III, and pursuant to which exceptions to Iconixx's specific
- -----------
representations and warranties set forth in Article IV (and listed on a Section-
----------
by-Section basis) are disclosed to he Stockholders and the Company pursuant to
Article IV
- ----------
"Encumbrance" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title or restrictive covenant.
"Environmental and OSHA Obligations" has the meaning specified in
Section 3.12.
- ------------
"Equitable Exceptions" shall have the meaning specified in Section
-------
3.6.
- ---
"Equity Agreements" means (i) the Stockholders Agreement dated August
12, 1999 between Iconixx and its stockholders and (ii) the Registration Rights
Agreement dated August 12, 1999 between Iconixx and its stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means First Union National Bank, N.A.
"Escrow Agreement" means the Escrow Agreement to be executed by and
among the Stockholders, Iconixx and the Escrow Agent in the form of Exhibit A.
---------
"Escrow Period" has the meaning specified in Section 2.7.
-----------
"Escrow Sum" has the meaning specified in Section 2.7.
-----------
"Financial Statements" has the meaning specified in Section 3.7.
-----------
"Force Majeure" shall mean any failure or delay caused by acts of god,
flood, fire, war or terrorism or any failure or delay caused by a governmental
blockage of all currency transactions between a foreign Governmental Body and
the United States of America.
"Funded Indebtedness" means all (i) indebtedness of the Company for
borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable in the ordinary course of business; (iv) indebtedness of others for
borrowed money guaranteed by the Company or secured by an Encumbrance on the
Company's property; (v) letters of credit or similar obligations; and (vi)
indebtedness of the Company under extended credit terms of more than 90 days
from vendors provided to the Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
-3-
<PAGE>
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body having jurisdiction over the Company
and/or the Stockholders.
"Governmental Permits" has the meaning specified in Section 3.10.
------------
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and the rules and regulations promulgated thereunder.
"Iconixx" has the meaning specified in the first paragraph of this
Agreement.
"IRS" means the Internal Revenue Service.
"Indemnifiable Costs" has the meaning specified in Section 8.1.
-----------
"Indemnified Parties" has the meaning specified in Section 8.1.
-----------
"Intellectual Property" shall mean all of the following as they are
related primarily to the Business: (i) patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not reduced
to practice); (ii) trademarks, service marks, trade dress, trade names,
corporate names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations, applications and renewals for any of
the foregoing; (v) trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, business and marketing plans, and customer
and supplier lists and related information); and (vi) computer software
(including but not limited to data, data bases and documentation).
"Knowledge of the Company" (whether or not capitalized) shall mean
actual knowledge, after reasonable inquiry within the Company to employees with
responsibility for the subject matter in question, of the Stockholders and the
officers and key employees of the Company. "Knowledge of the Stockholders"
(whether or not capitalized) shall mean actual knowledge of the Stockholders.
"Leases" shall mean the leases set forth on the Schedule 3.9.
------------
"Material" (whether or not capitalized) shall, where appropriate in
context of its use in making the representations and warranties set forth in
Article III, be deemed to mean an amount of money greater than $25,000
- -----------
individually or $50,000 in the aggregate.
"Material Adverse Change" or "Material Adverse Effect" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "Material Adverse
Change" or "Material Adverse Effect" has occurred in the context of the use of
such terms in the Company's and the Stockholders' representations and warranties
set forth in
-4-
<PAGE>
Article III, such terms shall refer to the occurrence of any single event, or
- -----------
any series of related events, or set of related circumstances, which results or
likely will result in a loss to the Company, in excess of $25,000 per occurrence
or $50,000 in the aggregate.
"Net Working Capital" shall equal the Company's total current assets
(including cash and cash equivalents but excluding Permitted Distributions)
minus its total current liabilities including, without limitation, any cash to
accrual liability borne by the Company and any change in control payments due to
employees, subcontractors, vendors or customers as a result of the Acquisition
contemplated hereby, but excluding any construction costs associated with the
Company's real property leases or any legal fees incurred in connection with the
transactions contemplated hereby, each as calculated in accordance with GAAP
consistent with past practices to the extent in accordance with GAAP.
"Net Working Capital Adjustment" has the meaning specified in Section
-------
2.9.
- ---
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. (S)(S)
651 et seq., any amendment thereto, and any regulations promulgated thereunder.
-- ---
"Other Arrangement" means a benefit program or practice providing for
bonuses, incentive compensation, vacation pay, severance pay, insurance,
restricted stock, stock options, employee discounts, company cars, tuition
reimbursement or any other perquisite or benefit (including, without limitation,
any fringe benefit under Section 132 of the Code) to employees, officers or
independent contractors that is not an Employee Benefit Plan within the meaning
of Section 3(3) of ERISA.
"Permitted Distributions" has the meaning specified in Section 3.8.
-----------
"Permitted Exception" means (a) liens for Taxes and other governmental
charges and assessments which are not yet due and payable, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet due
and payable, (c) purchase money security interest liens solely on the property
acquired pursuant to such credit purchase, or (d) other liens or imperfections
on property which are not material in amount or do not materially detract from
the value or the existing use of the property affected by such lien or
imperfection.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"Preferred Stock" means the Convertible Class A Preferred Stock, par
value $.01 per share of Iconixx.
"Projected Net Working Capital" means $850,000.
"Purchase Price" has the meaning specified in Section 2.1.
-----------
-5-
<PAGE>
"Requirements of Laws" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Tax" or "Taxes" means any federal, state, local or foreign income,
alternative or add-on minimum, gross income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding or minimum tax, transfer, goods and services,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amounts imposed thereon by any Governmental Body.
"Tax Return" means any return, report or similar statement required to be
filed with respect to any Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
ARTICLE II
STOCK PURCHASE
2.1. Stock Purchase. On the Closing Date and subject to the terms and
--------------
conditions set forth in this Agreement, the Stockholders shall sell and deliver
to Iconixx all of the Company Shares, free and clear of all Funded Indebtedness
and all Encumbrances, other than Permitted Exceptions and the restrictions
imposed by federal and state securities laws. The total purchase price for the
Company Shares (the "Purchase Price") shall be equal to $13,750,000, subject to
any adjustment required to be made pursuant to Sections 2.3 and 2.5 below.
------------ ---
2.2. Payment of Purchase Price. On the Closing Date and subject to the
-------------------------
terms and conditions set forth in this Agreement, Iconixx shall pay the Purchase
Price for the Company Shares to the Stockholders. The Purchase Price shall be
payable as follows:
(a) an aggregate of $8,750,000 shall be paid at Closing by wire
transfer of immediately available funds to the Stockholders' accounts as
specified in Exhibit B hereto (the "Cash Purchase Price");
---------
(b) $1,000,000 shall be paid in cash to the Escrow Agent at Closing
pursuant to Section 2.7 below to serve as a portion of the Escrow Sum (as
-----------
defined below); and
(c) $4,000,000 shall be paid at Closing in the form of 1,000,000
shares of Common Stock (valued at $1.00 per share) and 3,000 shares of Preferred
Stock (valued at $1,000 per share), to be allocated among the Stockholders in
the amounts specified in Exhibit B hereto.
---------
-6-
<PAGE>
2.3. Funded Indebtedness Adjustment. The Cash Purchase Price will be
------------------------------
adjusted downward by the amount, if any, by which the Company's Funded
Indebtedness exceeds $0 as of the Closing Date.
2.4. Intentionally Left Blank.
------------------------
2.5. Financial Condition. The Company's Net Working Capital at the
-------------------
Closing shall be not less than Projected Net Working Capital (as determined
based on the Company's preliminary closing balance sheet prepared not more than
five days prior to the Closing Date) or the Cash Purchase Price payable at
Closing will be reduced by the amount of such deficit.
2.6. Closing. The Closing of the Acquisition shall take place at
-------
10:00 a.m., Eastern Time, at the offices of Hogan & Hartson L.L.P., 555 13th
Street, N.W. in Washington, D.C. on March 10, 2000, or on a date mutually agreed
to by the parties (which date shall be as soon as practicable following the date
on which all of the conditions to Closing set forth in Sections 7.1 and 7.2 have
------------ ---
been satisfied) (the "Closing Date"), with an Effective Date as of March 1,
2000.
2.7. Escrow Arrangements. Pursuant to the Escrow Agreement to be
-------------------
entered into among Stockholders, Iconixx and the Escrow Agent, $1,000,000 of the
Purchase Price shall be delivered to the Escrow Agent at Closing (such monies
paid, together with all interest accrued thereon, is hereinafter referred to as
the "Escrow Sum"). The Escrow Sum shall be held pursuant to the terms of the
Escrow Agreement for payment from such Escrow Sum of the amounts, if any, owing
by Stockholders to Iconixx or the Company pursuant to the provisions of the Net
Working Capital Adjustment or for indemnification claims pursuant to Article
-------
VIII hereof. To the extent claims against the Escrow Sum are determined in
- ----
favor of the Stockholders, all amounts reserved against the Escrow Sum in
connection with such claims shall be remitted to the Stockholders as soon as
practicable following any such determination. On the six month anniversary of
the Closing Date, the Escrow Sum shall be reduced to an amount equal to the sum
of $500,000 plus the amount of claims then pending against the Escrow Sum, with
such reduction amount to be remitted to the Stockholders. On December 31, 2000
(such ten-month period being referred to herein as the "Escrow Period"), such
remaining portion of the Escrow Sum not theretofore claimed by or paid to
Iconixx in accordance with the terms of the Escrow Agreement and this Agreement
(together with any interest on such remaining portion of the Escrow Sum) shall
be disbursed to the Stockholders. All disbursements at the expiration of the
Escrow Period shall be paid in cash to the Stockholders at their accounts set
forth in Exhibit B as updated from time to time. The Stockholders and Iconixx
---------
agree that each will execute and deliver such reasonable instruments and
documents as are furnished by any other party to enable such furnishing party to
receive those portions of the Escrow Sum to which the furnishing party is
entitled under the provisions of the Escrow Agreement and this Agreement.
2.8. Closing Audit. Within 180 days following the Closing Date,
-------------
there shall be delivered to Iconixx and to Stockholders an audit of the
Company's balance sheet as of the Closing Date (the "Audited Closing Financial
-7-
<PAGE>
Statements"). The Audited Closing Financial Statements shall be audited by
Arthur Andersen, L.L.P. in accordance with GAAP. The cost of preparing the
Audited Closing Financial Statements shall be paid by Iconixx. The Stockholders
shall be afforded a reasonable opportunity to review the audit results
(including any work papers prepared in connection therewith). In the event that
Stockholders provide written notice within 20 days after receipt of the Audited
Closing Financial Statements that they dispute any item(s) contained in the
Audited Closing Financial Statements, then Stockholders and Iconixx shall
jointly select and retain an independent "Big Five" accounting firm (the
"Independent Accountants") to review the disputed item(s) in the Audited Closing
Financial Statements. In conducting such review, Arthur Andersen, L.L.P. shall
provide the Independent Accountants with customary access to the work papers of
Arthur Andersen, L.L.P. utilized in preparing the Audited Closing Financial
Statements. The final determination of such disputed item(s) by the Independent
Accountants shall be utilized to determine all adjustments described in Section
-------
2.9 below and shall be final and binding on the parties solely for such
- ---
purposes. The cost of retaining the Independent Accountants shall be borne
equally by the Stockholders and Iconixx.
2.9. Post-Closing Net Working Capital Adjustment. The Purchase
-------------------------------------------
Price will be adjusted upward or downward, on a dollar-for-dollar basis, to
reflect the increase or decrease, if any, in Net Working Capital as reflected on
the Audited Closing Financial Statements from the Projected Net Working Capital
(the "Net Working Capital Adjustment"). The Net Working Capital Adjustment shall
be determined by referring to the Audited Closing Financial Statements. In the
event that the Net Working Capital Adjustment results in an increase in the
Purchase Price, then Iconixx shall pay such amount to the Stockholders in
immediately available funds within 15 days of delivery of the Audited Closing
Financial Statements as finally determined in accordance with Section 2.8 above.
-----------
In the event that the Net Working Capital Adjustment results in a decrease in
the Purchase Price, then the amount of any such decrease shall be payable to
Iconixx (i) first, from the Escrow Sum in immediately available funds within 15
days of the final determination of the Net Working Capital Adjustment up to the
aggregate cash portion of the Escrow Sum and (ii) second, the balance, if any,
by the Stockholders in immediately available funds within 15 days of the final
determination of the Net Working Capital Adjustment; provided, however, that no
Stockholder shall be liable for more than its proportionate share of any Net
Working Capital Adjustment (based on each Stockholder's pro rata share of the
Purchase Price). All payments required to be paid by Stockholders or the Escrow
Agent pursuant to this Section 2.9 shall be deemed to be a downward adjustment
-----------
to the Purchase Price and shall not be controlled or limited by any provision
contained in Article VIII hereof.
------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
Except as set forth on the Disclosure Schedules attached hereto (which
Disclosure Schedules identify the exception and reference the applicable
representation so qualified), the Company and the Stockholders jointly and
severally represent and warrant to Iconixx that:
-8-
<PAGE>
3.1. Capitalization. The authorized capital stock of the Company
--------------
consists of 200 shares of common stock, 200 of which being the Company Shares
are issued and outstanding and are owned in the amounts set forth on Schedule
--------
3.1. All of the Company Shares are duly authorized, validly issued, fully paid,
- ---
and nonassessable. All of the Company Shares are owned of record and
beneficially by the Stockholders. None of the Company Shares was issued in
violation of any preemptive, right of first offer or refusal or preferential
rights of any Person.
3.2. No Liens on Shares. The Stockholders own all of the Company
------------------
Shares, free and clear of any Encumbrances other than the rights and obligations
arising under this Agreement, and none of the Company Shares is subject to any
outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Company Shares is subject to any restriction
on transfer thereof except for restrictions imposed by applicable federal and
state securities laws. At Closing pursuant to the Acquisition, the Stockholders
will each have full power and authority to convey good and marketable title to
the Company Shares, free and clear of any Encumbrances other than the
restrictions imposed by federal and state securities laws.
3.3. Subsidiaries. Except as set forth on Schedule 3.3, the
------------ ------------
Company does not own, directly or indirectly, any capital stock or ownership
interests in any Person. The Stockholders do not own any capital stock or
ownership interests in any other Person engaged in the Business other than the
Company Shares (other than ownership of a publicly-held corporation of which the
Stockholders; or any of them own, or has real or contingent rights to own less
than five percent of any class of outstanding securities).
3.4. Other Rights to Acquire Capital Stock. Except as set forth in
-------------------------------------
this Agreement in respect of Iconixx's rights to acquire the Company Shares,
there are no authorized or outstanding warrants, options, or rights of any kind
to acquire from either the Stockholders or the Company any equity or debt
securities of the Company, or securities convertible into or exchangeable for
equity or debt securities of the Company, and there are no shares of capital
stock of the Company reserved for issuance for any purpose nor any contracts,
commitments, understandings or arrangements which requires the Company to issue,
sell or deliver any additional shares of its capital stock.
3.5. Due Organization. The Company is a corporation duly
----------------
organized, validly existing, and in good standing under the laws of the State of
New York and has full corporate power and authority to own and lease its
properties and assets and to carry on the Business as now conducted. Complete
and correct copies of the Articles of Incorporation and Bylaws of the Company,
and all amendments thereto, have been delivered to Iconixx and are attached
hereto as Exhibits C-1 and C-2, respectively. Except as set forth on Schedule
------------ --- --------
3.5, the Company is qualified to do business in each jurisdiction in which the
- ---
nature of the Business or the ownership of its properties requires such
qualification except where the failure to be so qualified does not and could not
reasonably be expected to have a Material Adverse Effect. The jurisdictions in
which the Company is so qualified are listed on Exhibit C-3 attached hereto.
-----------
-9-
<PAGE>
3.6. Due Authorization. The Company and the Stockholders each have
-----------------
full power and authority to execute, deliver and perform this Agreement and to
carry out the Acquisition. The execution, delivery, and performance of this
Agreement and the Acquisition have been duly and validly authorized by all
necessary corporate action of the Company. This Agreement has been duly and
validly executed and delivered by the Company and the Stockholders and
constitutes the valid and binding obligations of the Company and the
Stockholders, enforceable in accordance with its terms, except to the extent
that enforceability may be limited by laws affecting creditors' rights and
debtors' obligations generally, and legal limitations relating to remedies of
specific performance and injunctive and other forms of equitable relief (the
"Equitable Exceptions"). The execution, delivery, and performance of this
Agreement and the Acquisition (as well as all other instruments, agreements,
certificates, or other documents contemplated hereby) by the Company and the
Stockholders, do not (a) violate any Requirements of Laws or any Court Order of
any Governmental Body applicable to the Company or the Stockholders, or their
respective property, (b) violate or conflict with, or permit the cancellation
of, or constitute a default under, any Material agreement to which the Company
or the Stockholders are a party, or by which any of them or any of their
respective property is bound, (c) permit the acceleration of the maturity of any
Material indebtedness of, or indebtedness secured by the property of, the
Company or the Stockholders, (d) violate or conflict with any provision of the
charter or bylaws of the Company, or (e) except for filings or approvals under
the HSR Act and such consents, approvals, or registrations as may be required
under applicable state securities laws, require any material consent, approval
or authorization of, or notice to, or declaration, filing or registration with,
any Governmental Body or other third party.
3.7. Financial Statements. The following financial statements of
--------------------
the Company have been delivered to Iconixx by the Company: unaudited balance
sheets for the years ended December 31, 1997 and December 31, 1999 and audited
balance sheet for the year ended December 31, 1998; unaudited statements of
operation for the years ended December 31, 1997 and December 31, 1999; and
audited balance sheet and statements of operation for the year ended December
31, 1998 (collectively, the "Financial Statements"). Copies of the Financial
Statements are included in Schedule 3.7. Other than the Financial Statements as
------------
of and for the year ended December 31, 1999 (the "Most Recent Financial
Statements"), the Financial Statements have been prepared in accordance with
GAAP and the Most Recent Financial Statements to the Company's Knowledge have
been prepared in accordance with GAAP except as set forth in Schedule 3.7. The
------------
Financial Statements (including the notes thereto) have been prepared on a
consistent basis throughout the periods indicated and fairly present the
financial position, results of operations and changes in financial position of
the Company as of the indicated dates and for the indicated periods and are
consistent with the books and records of the Company (which books and records
are correct and complete in all material respects). Since the date of the last
of such Financial Statements, the Company has incurred no Material liabilities
required by GAAP to be reflected on the Company's balance sheet or notes thereto
nor any other obligations (whether absolute, contingent, or otherwise) which are
(individually or in the aggregate) Material (in amount or to the conduct of the
Business); and neither the Company nor Stockholders have Knowledge of any basis
for the assertion of any such Material liability or
-10-
<PAGE>
obligation. Since December 31, 1999, the Company has not experienced any
Material Adverse Change.
3.8. Certain Actions. Since December 31, 1999, the Company has
---------------
not, except as disclosed on any of the Financial Statements or notes thereto:
(a) paid or declared any dividends or distributions, or purchased, redeemed,
acquired, or retired any stock or indebtedness or any Stockholder (other than
distributions (i) of certain assets mutually agreed upon by the Company and
Iconixx that have been delivered to the Company by its customers in lieu of a
cash payment for services as listed on Section 3.8 of the Disclosure Schedule
----------- -------------------
and (ii) for income taxes for tax periods ending on or prior to closing with
respect to the Company or its Stockholders (excluding tax subject to
reimbursement pursuant to Section 6.5(c)) and expenses incurred in connection
with the transactions contemplated hereby so long as no Net Working Capital
Adjustment will occur as of the Closing Date (collectively the "Permitted
Distributions")); (b) made or agreed to make any loans or advances or guaranteed
or agreed to guarantee any loans or advances to any party whatsoever; (c)
suffered or permitted any Encumbrance to arise or be granted or created against
or upon any of its assets, real or personal, tangible or intangible; (d)
canceled, waived, or released or agreed to cancel, waive, or release any of its
debts, rights, or claims against third parties in excess of $10,000 individually
or $50,000 in the aggregate; (e) sold, assigned, pledged, mortgaged, or
otherwise transferred, or suffered any Material damage, destruction, or loss
(whether or not covered by insurance) to, any assets (except in the ordinary
course of the Business); (f) amended its certificate of incorporation or bylaws;
(g) outside the ordinary course of business, paid or made a commitment to pay
any severance or termination payment to any employee or consultant; (h) made any
Material change in its method of management operation, accounting or reporting
of income or deductions for tax purposes or any change outside the ordinary
course of the Business in the Company's working capital other than Permitted
Distributions; (i) made any Material acquisitions, made any Material capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $50,000; (j) made any investment or commitment therefor in any Person;
(k) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, or Stockholders of the Company; (l) made, amended
or entered into any written employment contract with any officers or key
employees of the Company listed on Schedule 3.8 hereto or created or made any
------------
Material change in any bonus, stock option, pension, retirement, profit sharing
or other employee benefit plan or arrangement; (m) made or entered into any
Contract greater than the smallest of the Contracts scheduled in accordance with
Schedule 3.15; (n) made or entered into any agreement granting any Person any
- -------------
registration or offer rights in respect of the Company's capital stock; (o)
entered into any non-competition agreement restricting the Company from engaging
in the Business; (p) made or entered into any employment agreement or other
agreement or other arrangement with any officer, director, Stockholder or
Affiliate of the Company; or (q) amended, experienced a termination or received
notice of actual or threatened termination or non-renewal of any Material
contract, agreement,
-11-
<PAGE>
lease, franchise or license to which the Company is a party that would or could
reasonably be expected to have a Material Adverse Effect.
3.9. Properties. Schedule 3.9 lists and briefly describes each
---------- ------------
interest in real property (including, without limitation, leasehold interests)
and each item of personal property utilized by the Company in the conduct of the
Business having a book or fair market value in excess of $10,000 as of the date
hereof. Except for Permitted Exceptions and as set forth on Schedule 3.9(a),
---------------
such real and personal properties are free and clear of Encumbrances. The
Stockholders and the Company have delivered to Iconixx copies of all real
property leases and a lien search obtained from the counties where the Company
conducts business and the New York Secretary of State office of all UCC liens of
record against the Company's personal property in the State of New York. All of
the properties and assets necessary for continued operation of the Business as
currently conducted (including, without limitation, all books, records,
computers and computer software and data processing systems) are owned, leased
or licensed by the Company and are reasonably suitable for the purposes for
which they are currently being used. With the exception of used equipment and
inventory valued at no more than $10,000 in the aggregate on the Company's
Financial Statements, the physical properties of the Company, including the real
properties leased by the Company, are in operating condition sufficient for the
conduct of the Company's business as currently conducted or proposed to be
conducted. Except for Permitted Exceptions, the Company has title to all such
properties and assets. The operation of the properties and Business of the
Company in the manner in which they are now and have been operated does not
violate any zoning ordinances, municipal regulations, or other Requirements of
Laws, except for any such violations which would not, individually or in the
aggregate, have a Material Adverse Effect. Except for Permitted Exceptions, no
restrictive covenants, easements, rights-of-way, or regulations of record impair
the uses of the properties of the Company for the purposes for which they are
now operated. All leases of real or personal property by the Company are
legal, valid, binding, enforceable and in full force and effect and will not be
terminated on or after the Closing Date as a result of the failure to obtain any
consents to the Acquisition contemplated hereby, except for the Equitable
Exceptions. All facilities leased by the Company have received all material
approvals from any Governmental Body (including Governmental Permits) required
to be obtained by the Company in connection with the operation of the Business
and have been operated and maintained in accordance with all material
Requirements of Laws applicable to the Company as a lessee thereof. The Company
owns no real property.
3.10. Licenses and Permits. Schedule 3.10 lists all material
-------------------- -------------
licenses, certificates, privileges, immunities, approvals, franchises,
authorizations and permits held or applied for by the Company from any
Governmental Body (herein collectively called "Governmental Permits"). The
Company has complied in all material respects with the terms and conditions of
all such Governmental Permits, and the Company has not received notification
from any Governmental Body of violation of any such Governmental Permit or the
Requirements of Laws governing the issuance or continued validity thereof. All
of such Governmental Permits are valid and in full force and effect. No
additional Governmental Permits are required from any
-12-
<PAGE>
Governmental Body thereof in connection with the conduct of the Business which
Governmental Permits, if not obtained, would individually or in the aggregate
have a Material Adverse Effect.
3.11. Intellectual Property. Schedule 3.11 lists and briefly
--------------------- -------------
describes all material Intellectual Property owned or utilized by the Company.
The Company has furnished Iconixx with copies of all material license agreements
(including software licensing agreements) to which the Company is a party,
either as licensor or licensee, with respect to any Intellectual Property. The
Company has legal title to or the right to use all the Intellectual Property and
all inventions, processes, designs, formulae, trade secrets and know-how
utilized in the conduct of the Business as presently conducted and, the Company
has sufficient rights in the Intellectual Property to permit diversification of
the Company's customer base as currently planned by the Company (the "Customer
Diversification") without material impediment, without the payment of any
royalty or similar payment, and to the Company's and the Stockholders'
Knowledge, the Company is not infringing on any Intellectual Property right of
others and neither the Company nor the Stockholders have Knowledge of any
infringement by others of any such rights owned by the Company. The Company has
not received notice of any charge, claim, demand, complaint, action, suit,
hearing, proceeding or investigation which challenges the Company's ownership or
licensing of any Intellectual Property, the Company's current uses or the
Company's compliance with the terms and conditions of any contracts, licenses,
agreements or Court Orders involving the Intellectual Property. Schedule 3.11
-------------
contains a complete list of filings made with any Governmental Bodies with
regard to the Intellectual Property. All licenses set forth on Schedule 3.11
-------------
are valid and binding obligations of the Company, and to the Knowledge of the
Company the other parties thereto, enforceable against the Company, and to the
Knowledge of the Company the other parties thereto in accordance with their
respective terms, except for the Equitable Exceptions. The Company owns and
possesses all right, title and interest in and to, or has the right to use
pursuant to a valid license, all Intellectual Property necessary for the
operation of the Business of the Company as presently conducted. The Company's
use of each item of the Intellectual Property owned or licensed by Company (i)
will not be terminated as a result of the Acquisition contemplated hereby; (ii)
does not interfere with the rights of any other Person based on the Company's
current use of such items or the Company's currently proposed use of such items
in order to permit the Customer Diversification without material impediment;
(iii) are in compliance with the material terms and conditions of all license or
other agreements relating to such items; and (iv) does not violate any material
Requirements of Laws or Courts Orders applicable to the Company or, to the
Company's Knowledge, any other party to any material license or other agreement
relating to such Intellectual Property. The Company is not in default (whether
or not after the giving of notice or the lapse of time or both) under any
material license, contract or other agreement relating to any Intellectual
Property.
3.12. Compliance with Laws. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all material statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and is in compliance in all material respects with
all
-13-
<PAGE>
federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, the Solid Waste Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Safe Drinking Water Act, OSHA, the
Toxic Substances Control Act and any similar state, local or foreign laws
(collectively "Environmental and OSHA Obligations") and all other Governmental
Body requirements, except where any such failure to comply or file would not, in
the aggregate, have a Material Adverse Effect. No claim has been made by any
Governmental Body (and, to the Knowledge of the Company and the Stockholders, no
such claim is reasonably anticipated) to the effect that the Business fails to
comply, in any respect, with any Requirements of Laws, Governmental Permit or
Environmental and OSHA Obligation or that a Governmental Permit or Court Order
is necessary in respect thereto.
3.13. Insurance. Schedule 3.13 lists all coverages for fire,
--------- -------------
liability, or other forms of insurance and all fidelity bonds held by or
applicable to the Company. Copies of the binder for all such insurance policies
have been delivered to Iconixx. The insurance maintained by the Company is
customary and reasonably adequate for companies engaged in the Business. No
event relating to the Company has occurred which will result in (i) cancellation
of any such insurance coverages; (ii) a retroactive upward adjustment of
premiums under any such insurance coverages; or (iii) any prospective upward
adjustment in such premiums. All of such insurance coverages will not be
terminated on or after the Closing Date as a result of the failure to obtain any
consents to the Acquisition contemplated hereby. The Company is not in default
under any such insurance policies.
3.14. Employee Benefit Plans.
----------------------
(a) Employee Welfare Benefit Plans and Other Arrangements.
-----------------------------------------------------
Except as disclosed on Schedule 3.14(a), the Company does not maintain or
----------------
contribute to any "employee welfare benefit plan" as such term is defined in
Section 3(1) of ERISA or Other Arrangement (each a "plan"). With respect to each
such plan: (i) the plan is in compliance with, and, except as set forth on
Schedule 3.14(a), the Company does not have any liability under ERISA, the Code
- ----------------
or any Requirements of Law; (ii) the plan has been administered in accordance
with its governing documents; (iii) neither the plan, nor any fiduciary with
respect to the plan, has engaged in any "prohibited transaction" as defined in
Section 406 of ERISA other than any transaction subject to a statutory or
administrative exemption; (iv) except for the processing of routine claims in
the ordinary course of administration, there is no litigation, arbitration or
disputed claim outstanding; and (v) all premiums due on any insurance contract
through which the plan is funded have been paid. All employee welfare benefit
plans and the related trusts that are subject to Section 4980B(f) of the Code
and Sections 601 through 607 of ERISA comply with and have been administered in
compliance with the health care continuation-coverage requirements for
tax-favored status under Section 4980B(f) of the Code (formerly Section 162(k)
of the Code), Sections 601 through 607 of ERISA. All employee welfare benefit
plans comply with and have been administered in compliance with the requirements
of the (i) Health Insurance Portability and Accountability Act of 1996, to the
extent applicable, and applicable proposed or final regulations, and (ii) Mental
Health Parity Act of 1996, to the extent applicable.
-14-
<PAGE>
(b) Employee Pension Benefit Plans. Except as set forth in
------------------------------
Schedule 3.14(b), the Company does not maintain or contribute to any arrangement
- ----------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
compliance with ERISA and all other applicable Requirements of Laws; (iii) the
plan has been administered in accordance with its governing documents as
modified by applicable law; (iv) the plan has not suffered an "accumulated
funding deficiency" as defined in Section 412(a) of the Code; (v) the plan has
not engaged in, nor has any fiduciary with respect to the plan engaged in, any
"prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of
the Code other than a transaction subject to statutory or administrative
exemption; (vi) the plan has not been subject to a "reportable event" (as
defined in Section 4043(b) of ERISA), the reporting of which has not been waived
by regulation of the Pension Benefit Guaranty Corporation; (vii) no termination
or partial termination of the plan has occurred within the meaning of Section
411(d)(3) of the Code; (viii) all contributions required to be made to the plan
have been made to or on behalf of the plan or accrued in accordance with GAAP;
(ix) there is no litigation, arbitration or disputed claim outstanding; (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis; and (xi) a
favorable determination letter from the IRS has been received by the Company
with respect to such plan stating that such plan is so qualified; and there are
no circumstances which would cause such plan to lose such qualified status.
(c) Employment and Non-Tax Qualified Deferred Compensation
------------------------------------------------------
Arrangements. Except as set forth on Schedule 3.14(c), the Company does not
- ------------ ----------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be and that is not a tax qualified
arrangement under Section 401(a) of the Code.
3.15. Contracts and Agreements. Schedule 3.15 hereto contains a
------------------------ -------------
list of all customer contracts, all employment contracts involving annual
salaries greater than $60,000 and all employment contracts with general managers
or officers of the Company. Schedule 3.15 also contains a list of the 30
-------------
largest contracts (in terms of annual payments made or received with respect
thereto) to which the Company is a party or by which the Company or its
properties are bound, a list of any real estate or office building leases
involving the Company and a list of any contract or agreements, if any,
prohibiting the Company from freely engaging in the Business anywhere in the
world (collectively, the "Contracts"). The Company is not and, to the Knowledge
of the Stockholders and the Company, no other party thereto is in default (and
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default by the Company) under any of the Contracts,
and the Company has not waived any right under any of the Contracts. All of the
Contracts to which the Company is a party are legal, valid, binding, enforceable
and in full force and effect and will not be terminated on or after the Closing
Date as a result of the failure to obtain any consents to the Acquisition
-15-
<PAGE>
contemplated hereby, except for the Equitable Exceptions. The Company has not
guaranteed any obligations of any other Person. The Company has no present
expectation or intention of not fully performing all of its obligations under
any Contract, the Company has no Knowledge of any breach or anticipated breach
by the other parties to any Contract and the Company has not received notice of
actual or threatened termination or non renewal of any Contract.
3.16. Claims and Proceedings. There are no claims, actions, suits,
----------------------
proceedings, or investigations pending or, to the Knowledge of the Stockholders
or the Company, threatened against or affecting the Company or any of its
properties or assets, at law or in equity, before or by any court, municipality
or other Governmental Body. To the extent any are disclosed on Schedule 3.16,
-------------
none of such claims, actions, suits, proceedings, or investigations, if
adversely determined, will individually or in the aggregate result in any
Material Adverse Effect to the Company. The Company has not been and the
Company is not now, subject to any Court Order, stipulation, or consent of or
with any court or Governmental Body. No inquiry, action or proceeding has been
instituted or, to the Knowledge of the Stockholders or the Company, threatened
or asserted against the Stockholders or the Company to restrain or prohibit the
carrying out of the Acquisition or to challenge the validity of the Acquisition
or any part thereof or seeking damages on account thereof. To the Knowledge of
the Company and the Stockholders there is no basis for any such valid claim or
action.
3.17. Taxes.
-----
(a) Except as set forth on Schedule 3.17(a), all Federal,
----------------
foreign, state, county and local and other Taxes due from the Company on or
before the Closing have been paid and all Tax Returns which are required to be
filed by the Company on or before the date hereof have been filed within the
time and in the manner provided by all Requirements of Laws or extensions were
timely filed, and all such Tax Returns are true and correct and accurately
reflect the Tax liabilities of the Company in all respects. No Tax Returns of
the Company are presently subject to an extension of the time to file. All
Taxes, assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Financial Statements. The provisions for Taxes
reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes of which any of the Stockholders or the Company are
aware. For Governmental Bodies with respect to which the Company files Tax
Returns, no such Governmental Body has given the Company written notification
that such corporation is or may be subject to taxation by that Governmental
Body. 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, Stockholder,
creditor, independent contractor or other party. The Company has each properly
reflected for tax purposes in accordance with all Requirements of Laws the
status of all independent contractors, consultants and subcontractors. There are
no Tax liens on any of the property or assets of the Company. The Company (and
any predecessor of the Company) has been a validly electing S
-16-
<PAGE>
corporation within the meanings of Sections 1361 and 1362 of the Code at all
times since the date of its incorporation, and the Company will be an S
corporation until and including the Closing Date.
(b) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code 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 is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group. No Stockholder (A) has been a
member of an affiliated group, as defined in Section 1504(a) of the Code, filing
a consolidated federal income Tax Return (other than a group the common parent
of which was any Stockholder) and (B) has 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.
(c) The Company would not be liable for any Tax under Section
1374 of the Code in connection with a deemed sale of such Company's assets
caused by an election under Section 338(h)(10) of Code. The Company has not (i)
acquired assets from another corporation in a transaction in which the Company's
Tax basis for the acquired assets was determined in whole or in part by
reference to the Tax basis of the acquired assets (or any other property) in the
hands of the transferor or (ii) acquired the stock of any other corporation that
is a qualified subchapter S subsidiary.
(d) Except as set forth on Schedule 3.17(d), the Company has
----------------
not had at any time during the Company's existence owned any subsidiaries
(including any "qualified subchapter S subsidiaries" within the meaning of
Section 1361(b)(3)(13) of the Code).
(e) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the sale of the
Company Shares pursuant to this Agreement.
3.18. Personnel. Schedule 3.15 sets forth the names and annual
--------- -------------
rates of compensation of the directors and executive officers of the Company,
and of the employees of the Company whose annual rates of compensation during
the calendar year ended December 31, 1999 (including base salary, bonus and
incentive pay) exceeded (or by December 31, 2000 are expected to exceed) $60,000
and the employment agreements, if any, pertaining to such employees. Schedule
--------
3.18 summarizes the bonus, profit sharing, percentage compensation, company
- ----
automobile, club membership, and other like benefits, if any, paid or payable to
such directors, officers, and employees during the Company's calendar year ended
December 31, 1999 and to the date hereof. The employee relations of the Company
are generally good, there has
-17-
<PAGE>
been no unusual level of employee departures and there is no pending or, to the
Knowledge of Stockholders or the Company, threatened labor dispute or union
organization campaign. None of the employees of the Company is covered by a
collective bargaining agreement. The Company is in compliance in all material
respects with all Requirements of Laws respecting employment and employment
practices, including, without limitation, the Fair Labor Standards Act of 1938,
immigration hiring, terms and conditions of employment, and wages and hours, and
is not engaged in any unfair labor practices. Neither the Company nor the
Stockholders have Knowledge that any Person listed on Schedule 3.15 hereto will
-------------
not agree to remain employed by the Company after the consummation of the
Acquisition. There is no unfair labor practice claim against the Company before
the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage pending or, to the Knowledge of the Company and the Stockholders,
threatened against or involving the Company, and none has previously occurred.
3.19. Business Relations. Neither the Company nor the Stockholders
------------------
have Knowledge that any customer, supplier or licensor engaged in doing business
with the Company will cease to do business with the Company after the
consummation of the Acquisition as previously conducted with the Company except
for any terminations which will not, in the aggregate, result in a Material
Adverse Change. Neither the Stockholders nor the Company has received any
notice of cancellation of any Material business arrangement between any Person
and the Company, and neither the Company nor the Stockholders have Knowledge
that the Business will be subject to cancellation of any such business
arrangement.
3.20. Accounts Receivable; Accounts Payable; Customer Deposits;
---------------------------------------------------------
Customer Revenues and Deferred Revenues.
- ---------------------------------------
(a) Accounts Receivable. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company in the Financial
Statements are bona fide and represent amounts validly due for goods sold or
services rendered and, to the Knowledge of the Company, except for amounts
reserved for as doubtful accounts in the Financial Statements, all such amounts
will be collected in full prior to August 31, 2000. With respect to such
accounts, notes, and loans receivable: (i) all are free and clear of any
Encumbrances; (ii) no claims of offset have been asserted in writing against any
of such accounts, notes, or loans receivable; and (iii) none of the obligors
thereto has given written notice that it will or may refuse to pay the full
amount or any portion thereof. Lists of the Company's accounts receivable as of
December 31, 1999 (including any reconciliation to the accounts receivable entry
on the balance sheet included in the Most Recent Financial Statements) have been
attached to Schedule 3.20(a).
----------------
(b) Accounts Payable. The aggregate amount of accounts payable
-----------------
reflected on the Most Recent Financial Statements are prepared in accordance
with GAAP except as adjusted for in the Net Working Capital Adjustment and,
after giving effect to such adjustment, reflect the accounts payable of the
Company as of December 31, 1999.
(c) Customer Deposits; Customer Revenues and Deferred Revenues.
----------------------------------------------------------
Schedule 3.20(c) sets forth, as of the date specified therein all deferred
- ----------------
revenues as of
-18-
<PAGE>
such date on an aggregate basis. For the year ending December 31, 1999, the
Company's actual deposits and revenues from customer contracts are not less than
the Company's deposits and revenues from customer contracts for the year ending
December 31, 1998.
3.21. Bank Accounts; Investments. Schedule 3.21 lists all banks or
-------------------------- -------------
other financial institutions with which the Company has an account or maintains
a safe deposit box, showing the type and account number of each such account and
safe deposit box and the names of the persons authorized as signatories thereon
or to act or deal in connection therewith. Schedule 3.21 also lists all
-------------
Material investments by the Company in any funds, accounts, securities,
certificates of deposit or instruments of any Person. All of such investments
are customary in form and amount for reasonably prudent treasury investments of
comparable businesses, none of which involve any type of derivative, option,
hedging or other speculative instrument.
3.22. Customer Claims. No written or oral claims for breach of
---------------
contract or otherwise by any customers (a "Customer Claim") has been made
against the Company since January 1, 1999 which could, individually or in the
aggregate, result in any Material Adverse Effect. The level of Customer Claims
for the period since December 31, 1998 through the date hereof is consistent
(plus or minus 5%) with past practices of the Company for the comparable period
in 1998.
3.23. Brokers. Except for Friedman, Billings, Ramsey & Co., Inc.,
-------
neither the Company nor the Stockholders have engaged, or caused to be incurred
any liability to any finder, broker, or sales agent in connection with the
origin, negotiation, execution, delivery, or performance of this Agreement or
the Acquisition.
3.24. Affiliated Transactions. No officer, director, Stockholder
-----------------------
or Affiliate of the Company or any individual related by blood or marriage to
any such Person, or any entity in which any such Person owns any beneficial
interest, is a party to any agreement, contract, arrangement or commitment with
the Company or engaged in any transaction with the Company or has any interest
in any property used by the Company, it being understood that Lucia Chang
Heffernan and Ronald P. Heffernan are husband and wife. No officer, director or
Stockholder of the Company has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation or mutual fund of which such Person owns, or has real
or contingent rights to own, less than five percent of any class of outstanding
securities) or any property used in the operation of the Business.
-19-
<PAGE>
3.25. Funded Indebtedness; Letters of Credit; Undisclosed
---------------------------------------------------
Liabilities.
- -----------
(a) Funded Indebtedness. Other than any Funded Indebtedness
-------------------
which is to be repaid and discharged by Stockholders prior to Closing in
accordance with Section 7.1(d), the Company does not have any Funded
--------------
Indebtedness.
(b) Letters of Credit. Other than those listed on Schedule
----------------- --------
3.25, the Company has no letters of credit, performance bonds or similar
- ----
instruments issued on or for its account for the benefit of any of its vendors
or otherwise.
(c) Undisclosed Liabilities. The Company does not have any
-----------------------
Material liabilities in the aggregate (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected on a corporate balance
sheet or in the notes thereto, except for such liabilities which are accrued or
reserved against in the Financial Statements or disclosed in the notes thereto,
including without limitation any accounts payable or service liabilities of the
Company incurred prior to the Closing Date.
3.26. Year 2000. To the Company's Knowledge, all of the Material
---------
computer software, computer firmware, computer hardware (whether general or
special purpose), and other similar or related items of automated, computerized,
and/or software system(s) that are used or relied on by the Company in the
conduct of its business will not malfunction, will not cease to function, will
not generate incorrect data, and will not produce incorrect results when
processing, providing, and/or receiving (i) date-related data into and between
the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries,
except for any malfunctions or generations of incorrect data or results that
would not individually or in the aggregate have a Material Adverse Effect. The
Company has not been engaged in any year 2000 correction consulting work for
customers pertaining to its work product and has received no claim or notice
from any customer regarding the failure of the Company to install computer
software that is year 2000 compliant.
3.27. Information Furnished. The Company and the Stockholders have
---------------------
made available to Iconixx true and correct copies of all material corporate
records of the Company and all material agreements, documents, and other items
listed on the Disclosure Schedules to this Agreement or referred to in Article
-------
III of this Agreement, and neither this Agreement, the Disclosure Schedules
- ---
hereto, nor any written information, instrument, or document delivered to
Iconixx pursuant to this Agreement contains any untrue statement of a Material
fact or omits any Material fact necessary to make the statements herein or
therein, as the case may be, not misleading.
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<PAGE>
ARTICLE IV
ICONIXX'S REPRESENTATIONS AND WARRANTIES
Except as set forth on the Disclosure Schedules attached hereto (which
Disclosure Schedules identify the exception and references the applicable
representation so qualified), Iconixx represents and warrants to the
Stockholders and the Company as follows:
4.1. Due Organization of Iconixx. Iconixx is a corporation duly
---------------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full corporate power and authority to execute, deliver and
perform this Agreement and to carry out the Acquisition.
4.2. Due Authorization. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary corporate action by
Iconixx and the Agreement has been duly and validly executed and delivered by
Iconixx and constitutes the valid and binding obligation of Iconixx, enforceable
in accordance with its terms, except for the Equitable Exceptions. The
execution, delivery, and performance of this Agreement and the Escrow Agreement
(as well as all other instruments, agreements, certificates or other documents
contemplated hereby) by Iconixx shall not (a) violate any Requirements of Laws
or Court Order of any Governmental Body applicable to Iconixx or its property,
(b) violate or conflict with, or permit the cancellation of, or constitute a
default under any agreement to which Iconixx is a party or by which Iconixx or
its property is bound, (c) permit the acceleration of the maturity of any
indebtedness of, or any indebtedness secured by the property of, Iconixx, (d)
violate or conflict with any provision of the Certificate of Incorporation or
Bylaws of Iconixx, or (e) except for filings or approvals under the HSR Act and
such consents, approvals, or registrations as may be required under applicable
state securities laws, require any consent, approval or authorization of, or
notice to, or declaration, filing or registration with, any Governmental Body or
other third party.
4.3. No Brokers. Iconixx has not engaged, or caused to be incurred
----------
any liability for which the Stockholders may be liable to any finder, broker or
sales agent in connection with the origin, negotiation, execution, delivery, or
performance of this Agreement or the Acquisition.
4.4. Investment. Iconixx will acquire the Company Shares for
----------
investment and for its own account and not with a view to the distribution
thereof.
4.5. Information Furnished. No written information. instrument or
---------------------
document delivered to the Stockholders or the Company pursuant to this Agreement
contains any untrue statement of a material fact or omits any material fact
necessary to make the statements appearing in the aforementioned items, not
misleading.
4.6. Capital Stock and Related Matters. As of the Closing and
---------------------------------
immediately thereafter, the authorized capital stock of Iconixx shall consist of
100,000,000 shares of stock, of which (i) 150,000 shares shall be designated as
Preferred and (ii) 99,850,000 shares shall be designated as Common Stock. The
ownership of the issued and outstanding Preferred Stock and
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<PAGE>
the Common Stock are as set forth on the attached Iconixx Capitalization
Schedule. As of the Closing, all of the outstanding shares of Iconixx's capital
stock shall be validly issued, fully paid and nonassessable.
4.7. Authorization of the Stock. Iconixx has authorized the
--------------------------
issuance and sale to the Stockholders of up to an aggregate of 3,000 shares of
Preferred Stock and an aggregate of 1,000,000 shares of Common Stock, each
having the rights and preferences set forth in the Iconixx's Certificate of
Incorporation attached hereto as Exhibit D.
---------
4.8 Financial Statements. The following financial statements of
--------------------
Iconixx have been delivered to the Stockholders by Iconixx: an unaudited
consolidating balance sheet of Iconixx as of December 31, 1999 and unaudited
consolidating statement of operations of Iconixx for the three months ended
December 31, 1999 (collectively, the "Iconixx Financial Statements"). To the
Knowledge of Iconixx, the Iconixx Financial Statements have been prepared in
accordance with GAAP except for normal year-end adjustments and the absence of
footnotes. The Iconixx Financial Statements fairly present the financial
position and results of operations of Iconixx as of the indicated dates and for
the indicated periods and are consistent with the books and records of Iconixx
(which books and records are correct and complete in all material respects).
Since December 31, 1999, Iconixx has not experienced any material adverse
change.
4.9 Compliance with Laws. Iconixx has (i) complied in all material
--------------------
respects with all Requirements of Laws, Governmental Permits and Court Orders
applicable to its business and has filed with the proper Governmental Bodies all
material statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which Iconixx or any of its employees
(because of their activities on behalf of Iconixx) are subject and (ii)
conducted its business and is in compliance in all material respects with all
federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Environmental and OSHA Obligations and all other Governmental Body
requirements, except where any such failure to comply or file would not, in the
aggregate, have a material adverse effect on Iconixx. No claim has been made by
any Governmental Body (and, to the knowledge of Iconixx, no such claim is
reasonably anticipated) to the effect that its business fails to comply, in any
material respect, with any Requirements of Laws, Governmental Permit or
Environmental and OSHA Obligation or that a Governmental Permit or Court Order
is necessary in respect thereto.
4.10 Claims and Proceedings. There are no material claims, actions,
----------------------
suits, proceedings, or investigations pending or, to the knowledge of Iconixx,
threatened against or affecting Iconixx or any of its properties or assets, at
law or in equity, before or by any court, municipality or other Governmental
Body. Iconixx is not currently subject to any Court Order, stipulation, or
consent of or with any court or Governmental Body. No inquiry, action or
proceeding has been instituted or, to the knowledge of Iconixx, threatened or
asserted against Iconixx to restrain or prohibit the carrying out of the
Acquisition or to challenge the validity of the Acquisition or any part thereof
or seeking damages on account thereof. To the knowledge of Iconixx there is no
basis for any such valid claim or action.
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<PAGE>
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY, ICONIXX AND THE
STOCKHOLDERS
5.1. Consents of Others. Prior to the Closing, the Company and the
------------------
Stockholders shall use their commercially reasonable best efforts to obtain and
to cause the Company to obtain all material authorizations, consents and permits
required of the Company and the Stockholders to permit them to consummate the
Acquisition. Prior to the Closing, Iconixx shall use its commercially reasonable
best efforts to obtain all material authorizations, consents and permits
required of Iconixx to permit it to consummate the Acquisition. To the extent
required to consummate the Acquisition or to ensure that the Contracts shall not
be terminated as a result of the Closing, Stockholders shall have obtained the
written consent or waiver of any "change of control" type termination rights of
any third party to any Contract. As promptly as practicable after the date
hereof, Iconixx, the Company and the Stockholders shall make, or shall cause to
be made, such filings as may be required pursuant to the HSR Act with respect to
the consummation of the Acquisition.
5.2. Stockholders' Efforts. Iconixx, the Company and the
---------------------
Stockholders shall use all commercially reasonable best efforts to cause all
conditions for the Closing to be met.
5.3. Powers of Attorney. The Company and the Stockholders shall
------------------
cause the Company to terminate at or prior to Closing all powers of attorney
granted by the Company, other than those relating to service of process,
qualification or pursuant to governmental regulatory or licensing agreements, or
tax matters representation before the IRS or other Governmental Bodies.
5.4. Conduct of Business by the Company Pending Closing. From the
--------------------------------------------------
date of this Agreement to the Closing Date:
(a) Except as otherwise contemplated by this Agreement, or as
Iconixx may otherwise consent to in writing, the Company and the Stockholders
shall conduct the Business only in the ordinary course and shall not engage in
any Material transactions or enter into any Material transaction which would
cause a breach of the representations and warranties contained in Article III.
-----------
(b) The Stockholders and the Company shall use their
commercially reasonable best efforts to cause the Business to preserve
substantially intact its current business organization and present relationships
with its customers, vendors, suppliers and employees and to maintain all of its
insurance currently in effect.
(c) The Stockholders and the Company shall give prompt notice
to Iconixx of any notice of any Material default received by the Company or the
Business subsequent to the date of this Agreement under any Contract or any
Material Adverse Change occurring prior to the Closing Date in the operation of
the Company or the Business.
-23-
<PAGE>
(d) Neither the Company nor the Stockholders, nor any of their
representatives, shall solicit, encourage or discuss any Acquisition Proposal
(as hereinafter defined) or supply any non-public information concerning the
Company or the Business or the Company's assets to any party other than Iconixx
or its representatives. As used herein, "Acquisition Proposal" means any
proposal other than the Acquisition, for (i) any merger or other business
combination involving the Company or the Business, (ii) the acquisition of the
Company, a material equity interest in the Company or a material portion of its
assets, or (iii) the dissolution or liquidation of the Company.
5.5. Conduct of Business by Iconixx Pending Closing. From the date
----------------------------------------------
of this Agreement to the Closing Date:
(a) Iconixx shall use its commercially reasonably best efforts
to cause its business to preserve substantially intact its current business
organization and present relationships with its customers, vendors, suppliers
and employees and to maintain all of its insurance currently in effect.
5.6. Access by Iconixx Before Closing. Prior to the Closing Date,
--------------------------------
the Stockholders and the Company agree that it will give, or cause to be given,
to Iconixx and its representatives, during normal business hours and at
Iconixx's expense, reasonable access to the Company's personnel, independent
accountants, officers, agents, employees, assets, properties, titles, contracts,
corporate minute and other books, records, files and documents of the Company
with respect to the Business (including financial, tax basis, budget
projections, accountants' work papers and other information as Iconixx may
reasonably request) upon 24 hours prior notice. The Stockholders and Iconixx
shall mutually agree on the timing and manner of contact with all third parties,
including, but not limited to, customers, vendors or suppliers, which contact
shall not be unreasonably withheld. Iconixx shall not be given access to any
information where the provision of such information would violate a law or
regulation applicable to the Company.
5.7. Access by the Stockholders Before Closing. Prior to the Closing
-----------------------------------------
Date, Iconixx agrees that it will give, or cause to be given, to the
Stockholders and their representatives, during normal business hours and at such
Stockholder's expense, reasonable access to Iconixx's personnel, independent
accountants, officers, agents, employees, assets, properties, titles, contacts,
corporate minutes and other books, records, files and documents of Iconixx with
respect to the business of Iconixx (including financial, tax basis, budget
projections, accountants' work papers and other information as the Stockholders
may reasonably request) upon 24 hour prior notice. The Stockholders and Iconixx
shall mutually agree on the timing and manner of contact with all third parties,
including, but not limited to, customers, vendors or suppliers, which contact
shall not be unreasonably withheld. The Stockholders shall not be given access
to any information where the provisions of such information would violate a law
or regulation applicable to Iconixx.
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<PAGE>
ARTICLE VI
POST-CLOSING COVENANTS
6.1. General. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Iconixx
and the Stockholders) 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 Article VIII
------------
below). The Stockholders acknowledge and agree that from and after the Closing,
the Company will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to the Company, which shall
be maintained at the chief executive office of the Company; provided, however,
that the Stockholders shall be entitled to reasonable access to and to make
copies of such books and records at their sole cost and expense and the Company
will maintain all of the same for a period of at least five (5) years after
Closing. Thereafter, the Company will offer such documentation to the
Stockholders before disposal thereof. The Stockholders further agree to convey
all rights to any Intellectual Property reasonably related to the Business to
the Company. In the event that the Company and the Stockholders have been
unable, despite their reasonable best efforts, to obtain all material
authorizations, consents and permits required of the Company and the
Stockholders to permit them to consummate the Acquisition without default under
any contracts, agreements or permits or Requirements of Laws prior to the
Closing, then the Company and the Stockholders shall obtain all of such material
authorizations, consents or permits, including the consent of the Company's
landlords, if required, within 30 days following the Closing.
6.2. Transition. For a period of four (4) years following Closing,
----------
the Stockholders will not take any action (or cause any such action to be taken
by another Person) that primarily has the effect of discouraging any vendor,
lessor, licensor, customer, contractor, subcontractor, supplier, or other
business associate of the Company from maintaining the same business relations
with the Company after the Closing as it maintained with the Company prior to
the Closing. For a period of four (4) years following Closing, the Stockholders
will refer all customer inquiries relating to the Business to the Company.
6.3. Confidentiality. The Stockholders will treat and hold in
---------------
confidence and not disclose all Confidential Information and refrain from using
any of the Confidential Information except in connection with this Agreement or
otherwise for the benefit of the Company or Iconixx for a period of four (4)
years from the date of this Agreement, and deliver promptly to Iconixx or
destroy, at the written request and option of Iconixx, all tangible embodiments
(and all copies) of the Confidential Information which are in their possession
except as otherwise permitted herein. In the event that any Stockholder is
requested or required (by oral question or written request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar legal proceeding) to disclose any Confidential Information,
such Stockholder will notify the Company and Iconixx promptly of the request or
requirement.
-25-
<PAGE>
6.4. Covenant Not to Compete. For and in consideration of the
-----------------------
allocation of $10,000 of the Purchase Price paid to the Stockholders, each
Stockholder covenants and agrees, for a period of four (4) years from and after
the Closing Date, that he or she will not, directly or indirectly without the
prior written consent of the Company, for or on behalf of any entity, engage in
any of the activities prohibited by Section 6 of the Employment Agreement with
such Person in the form of Exhibit E-1 hereto or the Noncompete Agreement with
-----------
such Person in the form of Exhibit E-2 hereto.
-----------
6.5. Additional Matters.
------------------
(a) The Stockholders shall cause the Company 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 the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Iconixx and the
Stockholders shall cause Arthur Andersen LLP to prepare a short period tax
return for the Company covering the period January 1, 2000 through the Closing
Date, subject to the review and approval of Ronald Heffernan, which approval
shall not be unreasonably withheld. The cost of preparation of such short
period tax return and the 1999 return shall be paid for by Iconixx.
(b) Iconixx 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 Iconixx and/or the Company to
the extent such records and information pertain to events occurring on or prior
to the Closing Date; therefore, Iconixx agrees to cause the Company to (A) use
---------
its commercially reasonable 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 each
Stockholder and his 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.
(c) Section 338(h)(10) Election. The Stockholders and Iconixx
---------------------------
shall join in making a timely election (but in no event later than 180 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 (but not in New York City) which permit
corporations to make such elections, with respect to the sale and purchase of
the Shares pursuant to this Agreement, and each party shall provide the others
all necessary information to permit such elections to be made. The Company and
Iconixx 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 Iconixx 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 6.5(c) shall be the liability of the
Stockholders; provided, however, that (i) Iconixx shall make payments as an
increase to the Purchase Price after such election to reimburse the
-26-
<PAGE>
Stockholders for any additional Taxes and other costs solely as a result of such
election in the State of New York and with the United States; such payments to
be paid to Stockholders in installments in accordance with the Stockholders' tax
payments associated with such election, (ii) said reimbursements shall be
grossed up (based on the Stockholders' highest marginal tax brackets with
respect to the nature of the income giving rise to the Taxes) so that the
Stockholders will be made whole, after taxes, for the additional United States
and New York State Taxes to be paid, and (iii) the amount and the timing of the
one-time reimbursement payment shall be mutually determined as of the date of
the Closing Date by the Stockholders' and Iconixx's accountants. In connection
with such elections, within sixty (60) days following the Closing Date, Iconixx
and the Stockholders shall act together in good faith to determine and agree
upon the "deemed sales price" to be allocated to each asset of the Company in
accordance with Treasury Regulation Section 1.338(h)(10)-1(f) and the other
regulations under Section 338 of the Code. Iconixx and the Stockholders agree
that the "deemed sales price" shall be allocated to the monetary assets of the
Company at their fair market value as of the Closing Date as determined as part
of the determination of the working capital of the Company in accordance with
Section 2.8 hereof, $10,000 shall be allocated to the covenant not to compete
- -----------
contained in Section 6.4 hereof, and the balance of the "deemed sales price"
-----------
shall be allocated to the fixed assets, goodwill and other intangible assets of
the Company. Each of the Iconixx and the Stockholders 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 Iconixx and the
Stockholders are unable to agree as to such allocations, Iconixx's reasonable
positions with respect to such allocations shall control if, and only if, there
are no adverse tax consequences to the Stockholders, other than adverse tax
consequences resulting in additional tax subject to reimbursement pursuant to
this Section. The Stockholders shall be liable for, and shall indemnify and hold
Iconixx and the Company harmless against, any Taxes or other costs attributable
solely to (i) a failure on the part of any Stockholder to make the election
contemplated by this Section, execute any forms or prepare any filings necessary
to effect such election, and report the transactions in a manner consistent with
the election (and make allocations of Purchase Price made therewith); or (ii) a
failure on the part of the Company to qualify, at or prior to the Closing, as an
"S corporation" for federal and/or state income Tax purposes. In the event that
a taxing authority pursuant to an audit or otherwise assesses additional Tax
solely as a result of the allocation of Purchase Price among the assets pursuant
to the Section 338(h)(10) election (and in the case of New York City, as a
result of the making of the Section 338(h)(10) election in the State of New York
or with the United States), including without limitation, any local or city Tax,
Iconixx shall indemnify and reimburse the Stockholders (or as the case may be,
hold the Company harmless) for such additional Tax on a grossed up basis in
accordance with the terms of this Section 6.5(c).
--------------
6.6. Litigation Support. In the event and for so long as any party
------------------
is actively contesting or defending against any claim, suit, action or charge,
complaint, or demand in connection with (i) any transaction contemplated under
this Agreement or (ii) any fact, circumstance, status, condition, activity,
practice, occurrence, event, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other parties will
-27-
<PAGE>
cooperate and make reasonably available themselves or their personnel, as
applicable, and provide such reasonable testimony and access to their books and
records as shall be necessary in connection with the contest or defense.
6.7. Audits. Following the Closing, the Stockholders shall use
------
their best efforts to cause the Company, at the Company's expense, to deliver,
or cause to be delivered, to Iconixx an unqualified and unmodified audit report
of Arthur Andersen, L.L.P. or other reputable independent accounting firm on the
balance sheet of the Company as of the Closing Date in connection with the
preparation of the Audited Closing Financial Statements and audited statements
of operations and cash flows of the Company with respect to the periods January
1, 2000 through the Closing Date and for any prior fiscal years in 1999, 1998
and 1997, which reports shall be without limitation as to the scope of the
audit. The Stockholders, in their capacities as officers and directors of the
Company during such periods, shall provide all management letters, reports or
representations reasonably requested by such auditors in connection with such
audits.
6.8. Minimum Cash as of the Closing. At the Closing, the Company
------------------------------
shall maintain a level of cash and cash equivalents (net of outstanding checks)
equal to at least $0.
6.9. Iconixx's Stock Options. At or within 30 days following the
-----------------------
Closing, Iconixx will grant stock options for the purchase of Common Stock under
its stock option plan in the aggregate amount of 275,000 shares to certain
employees of the Company mutually agreed upon by Iconixx and the Stockholders
and as provided on the Options Schedule hereto; provided, however, that 50,000
----------------
of such 275,000 shares of Common Stock shall be reserved for future issuance to
key employees of the Company hired following the Closing Date. The Iconixx
stock options shall be exercisable at the fair market value per share of the
Common Stock on the date of grant as determined by Iconixx. The terms of such
stock options shall generally be for ten years from the date of grant, subject
to customary four year annual vesting requirements (i.e., 25% vesting per
annum), and shall otherwise be on the same terms and conditions applicable to
all stock options granted to key executives and employees of Iconixx and its
subsidiaries.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING
7.1. Conditions to Iconixx's Obligations. The obligation of Iconixx
-----------------------------------
under this Agreement to consummate the Closing is subject to the conditions
that:
(a) Covenants, Representations and Warranties. The Company and
-----------------------------------------
the Stockholders shall have performed in all material respects all obligations
and agreements and complied in all material respects with all covenants
contained in this Agreement to be performed and complied with by each of them
prior to or at the Closing Date. The representations and warranties of the
Company and the Stockholders set forth in this Agreement shall be accurate in
all material respects at and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date.
-28-
<PAGE>
(b) Consents. All statutory requirements for the valid
--------
consummation by the Company and the Stockholders of the Acquisition shall have
been fulfilled and all authorizations, consents and approvals, including
expiration or early termination of all waiting periods under the HSR Act and
those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation of the Acquisition shall have been obtained in form and substance
reasonably satisfactory to Iconixx unless such failure could not reasonably be
expected to have a Material Adverse Effect. All approvals of the Boards of
Directors and the Stockholders of the Company necessary for the consummation of
this Agreement and the Acquisition shall have been obtained.
(c) Leases. Each of the Leases shall provide that the Company is
------
the lessee and if required under the terms of a given lease, any consent
required in connection with the Acquisition contemplated by this Agreement shall
have been obtained, and copies of such Leases (and any assignments pursuant to
which any of such Leases have been assigned to the Company prior to the Closing
Date) shall have been provided to Iconixx.
(d) Discharge of Indebtedness and Liens; Stockholder Loans. The
------------------------------------------------------
Stockholders and the Company shall have provided for the payment in full by the
Stockholders of all Funded Indebtedness of the Company at the Closing or the
Purchase Price will be reduced proportionately by the amount that such Funded
Indebtedness exceeds $0 as of the Closing Date. Such Funded Indebtedness, if
any, as of December 31, 1999, is listed on Schedule 7.1(d) hereto. Stockholders
---------------
shall have also provided for the termination of all Encumbrances of record on
the properties of the Company, except for Permitted Exceptions. All liens or UCC
filings against the Company or Affiliates of the Company which are engaged in
the Business, shall have been terminated as of the Closing. All outstanding
loans or other amounts owed by any Stockholder to the Company shall have been
repaid in full on or prior to the Closing.
(e) Transfer Taxes. The Stockholders shall be responsible for
--------------
all stock transfer or gains taxes imposed on the Stockholders incurred in
connection with this Agreement.
(f) Documents to be Delivered by the Stockholders and the
-----------------------------------------------------
Company. The following documents shall be delivered at the Closing by the
- -------
Stockholders and the Company:
(i) Escrow Agreement. The Stockholders shall have delivered
----------------
to Iconixx at the Closing the duly executed Escrow Agreement in
substantially the form attached hereto as Exhibit B.
---------
(ii) Opinion of the Stockholders' Counsel. Iconixx shall
------------------------------------
have received an opinion of counsel to the Company and the
Stockholders, dated the Closing Date, in substantially the same form
as the form of opinion that is Exhibit F-1 hereto.
-----------
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<PAGE>
(iii) Certificates. Iconixx shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated the Closing Date, in a form
mutually agreed upon by Iconixx and the Stockholders.
(iv) Release. The Stockholders shall have furnished the
-------
Company with a general release of liabilities, excluding compensation
and employee benefits as well as obligations pursuant to this
Agreement, in the form attached as Exhibit G hereto and Richard Delin
---------
shall have provided the Company with a general release of all rights
to the Company's equity in a form reasonably satisfactory to Iconixx.
(v) Employment Agreements. Each of Ronald P. Heffernan,
---------------------
Lucia Chang Heffernan, Monica Hsu and Michael Matteo shall have duly
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit E-1 hereto, pursuant to which each of
-----------
the Stockholders will be employed by the Company following the
Closing.
(vi) Delivery of the Company Shares. At the Closing, the
------------------------------
Stockholders shall deliver to Iconixx the Company Shares duly endorsed
for transfer to Iconixx and free and clear of all Encumbrances, other
than the restrictions imposed by federal and state securities laws.
(vii) Resignation of Directors. The Company shall deliver
------------------------
the written resignations of all directors of the Company effective as
of the Closing.
(g) Company Equity Arrangements. Joinders to the Equity
---------------------------
Agreements shall have been executed and delivered by the Stockholders.
(h) Financing. Iconixx shall have obtained the approval of its
---------
senior lenders to the Acquisition.
7.2. Conditions to the Stockholders' and the Company's Obligations.
-------------------------------------------------------------
The obligation of the Stockholders and the Company under this Agreement to
consummate the Closing is subject to the conditions that:
(a) Covenants, Representations and Warranties. Iconixx shall
-----------------------------------------
have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Iconixx prior to or at the Closing and the
representations and warranties of Iconixx set forth in Article IV hereof shall
be accurate in all material respects, at and as of the Closing Date, with the
same force and effect as though made on and as of the Closing Date.
(b) Consents. All statutory requirements for the valid
--------
consummation by Iconixx of the Acquisition shall have been fulfilled and all
authorizations, consents and approvals, including expiration or early
termination of all waiting periods under the HSR Act and
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those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation by Iconixx of the Acquisition shall have been obtained unless such
failure shall not have a Material Adverse Effect on the Business.
(c) Documents to be Delivered by Iconixx. The following
------------------------------------
documents shall be delivered at the Closing by Iconixx:
(i) Escrow Agreement. Iconixx shall have delivered to
----------------
the Stockholders at the Closing the duly executed Escrow Agreement.
(ii) Employment Agreements. Iconixx shall have caused the
---------------------
Company to duly execute and deliver an Employment Agreement with each
of Ronald P. Heffernan, Lucia Chang Heffernan, Monica Hsu and Michael
Matteo in the same form attached as Exhibit E-1 hereto, pursuant to
-----------
which each of such Persons will be employed by the Company following
the Closing.
(iii) Opinion of Iconixx's Counsel. The Stockholders shall
----------------------------
have received an opinion of counsel to Iconixx, dated the Closing
Date, in substantially the form as the form of opinion that is Exhibit
-------
F-2 hereto.
---
(iv) Delivery of Iconixx's Shares. At the Closing,
----------------------------
Iconixx shall deliver to each of the Stockholders their proportionate
interest in the 1,000,000 shares of Common Stock and 3,000 shares of
Preferred Stock upon the Stockholders execution of the Equity
Agreements, duly endorsed for issuance to the Stockholders and free
and clear of all Encumbrances, other than the restrictions imposed by
Federal and state securities laws and the Equity Agreements.
(v) Certificates. Iconixx shall have delivered an
------------
officer's certificate and a secretary's certificate of Iconixx
executed by officers of Iconixx, dated the Closing Date, in a form
mutually agreed upon by Iconixx and the Stockholders.
(d) Company Equity Arrangements. The Equity Agreements shall
---------------------------
have been executed and delivered by the respective parties thereto.
(e) Payments to Stockholders. Each Stockholder shall have
------------------------
received its allocable portion of the Purchase Price payable to the Stockholders
at Closing for the Company Shares.
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification by the Stockholders. Except as provided in
-----------------------------------
Section 8.6, the Stockholders agree to jointly and severally indemnify and hold
- -----------
harmless Iconixx and the
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<PAGE>
Company and each officer, director, and Affiliate of Iconixx and the Company,
including without limitation any successor of the Company or Iconixx or any of
Iconixx's lenders as provided in Section 10.5 hereof (collectively, the
------------
"Indemnified Parties") from and against any and all damages, losses, claims,
liabilities, demands, charges, suits, penalties, costs and expenses (including
court costs and reasonable attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding) (collectively, the
"Indemnifiable Costs"), which any of the Indemnified Parties may sustain, or to
which any of the Indemnified Parties may be subjected, arising out of (A) any
misrepresentation, breach or default by the Stockholders or the Company of or
under any of the representations, covenants, agreements or other provisions of
this Agreement or any agreement or document executed in connection herewith;
provided, however, that Indemnifiable Costs for covenants with respect to the
Company shall be with respect to pre-Closing periods only; (B) any downward Net
Working Capital Adjustment not paid to the Company pursuant to a reduction of
the Escrow Sum; (C) cost of any brokerage or other transaction fees liability,
if any, borne by the Company and not by the Stockholders except as provided in
Section 10.4 hereof; and (D) any customer claims involving pre- Closing services
- ------------
or products of the Company for breach of warranty, product liability or customer
service remediation, including claims for consequential damages, to the extent
not reserved for in the Company's Financial Statements, but only to the extent
such customer claims are a result of the Company's gross negligence, willful
misconduct or fraud. The liability of any individual Stockholder pursuant to
this Section 8.1 shall be limited, for each claim or claims, to the amount of
-----------
such claim multiplied by a fraction the numerator of which shall be the
consideration received by such Stockholder as set forth on Exhibit B attached
---------
hereto and the denominator shall be $13,750,000.
8.2. Defense of Claims. If any legal proceeding shall be
-----------------
instituted, or any claim or demand made by a third Person, against any
Indemnified Party in respect of which the Stockholders or may be liable
hereunder, such Indemnified Party shall give prompt written notice thereof to
the Stockholders and, except as otherwise provided in Section 8.4 below, the
-----------
Stockholders shall have the right to defend any litigation, action, suit,
demand, or claim for which an Indemnified Party may seek indemnifications, and
such Indemnified Party shall extend reasonable cooperation in connection with
such defense, which shall be at the Stockholders' expense. In the event the
Stockholders fail or refuse to defend the same within a reasonable length of
time, the Indemnified Parties shall be entitled to assume the defense thereof,
and the Stockholders shall be jointly and severally liable to repay the
Indemnified Parties for all reasonably incurred Indemnifiable Costs. If the
Stockholders shall not have the right to assume the defense of any litigation,
action, suit, demand, or claim in accordance with the preceding sentence, the
Indemnified Parties shall, at the Stockholders' expense, have the absolute right
to control the defense of such litigation, action, suit, demand, or claim, but
the Stockholders shall be entitled, at their own expense, to participate in such
litigation, action, suit, demand, or claim. The party controlling any defense
pursuant to this Section 8.2 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 any such litigation, action, suit, demand or claim, and timely notice
of any hearing or other court proceeding relating to such litigation, action,
suit, demand or claim. Notwithstanding the
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<PAGE>
forgoing, in no event will the party controlling any defense pursuant to this
Section 8.2 settle any litigation, action, suit, demand or claim without the
- -----------
prior written consent of the non- controlling party, unless such settlement
provides for the unqualified, absolute and complete release of all claims
against the non-controlling party and results in no monetary or equitable
liability to the non-controlling party.
8.3. Escrow Claim. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
------------
Escrow Period, such Indemnified Party shall first apply to the Escrow Agent
provided in Section 2.7 of this Agreement for reimbursement of such claim in
-----------
accordance with the provisions of the Escrow Agreement (which Escrow Agreement
shall provide for any dispute resolutions involving such claims); provided,
however, the Escrow Sum is not intended to be an exclusive remedy in the event
Iconixx or the Company has indemnification claims hereunder which exceed such
amount.
8.4. Tax Audits, Etc. In the event of an audit of a Tax Return of
---------------
the Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, the Stockholders and the Company
------------
shall jointly control any and all such audits which may result in the assessment
of additional Taxes against the Company and any and all subsequent proceedings
in connection therewith, including appeals. The Stockholders and Iconixx shall
cooperate fully in all matters relating to any such audit or other Tax
proceeding (including according access to all records pertaining thereto), and
will execute and file any and all consents, powers of attorney, and other
documents as shall be reasonably necessary in connection therewith. If
additional Taxes are payable by the Company as a result of any such audit or
other proceeding, the Stockholders shall be severally responsible for and shall
promptly pay all Taxes, interest, and penalties for which any of the Indemnified
Parties shall be entitled to indemnification.
8.5. Indemnification of Stockholders. Iconixx agrees to indemnify
-------------------------------
and hold harmless the Stockholders and the Company and each officer, director,
Stockholder or Affiliate of the Company, from and against any Indemnifiable
Costs arising out of any misrepresentation, breach or default by Iconixx of or
under any of the representations, covenants, agreements or other provisions of
this Agreement or any agreement or document executed in connection herewith;
provided, however, that claims for breaches of representations and warranties of
Iconixx with respect to the operations, financial performance or otherwise of
its Subsidiaries shall be expressly limited to periods arising after the
acquisition of such Subsidiaries by Iconixx.
8.6. Limits on Indemnification. All Indemnifiable Costs sought by
-------------------------
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Except for any claims for
breach of the representations, warranties and covenants of the Stockholders
under Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.17 or Article VI hereof (the
------------ --- --- --- --- ---- ----------
indemnification for which shall expire on the expiration of the applicable
statute of limitations or, in the case of covenants in Article VI which have a
----------
specific expiration date, as of such date, and if so made, such claims, and all
Indemnifiable Costs incurred thereafter, shall continue after such date until
finally resolved), the right to make claims for indemnification provided under
this Article VIII
------------
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<PAGE>
shall expire on August 31, 2001 (except for any claims for Indemnifiable Costs
made prior to such date which claims shall continue after such date until
finally resolved). The Stockholders shall not be obligated to pay any amounts
for indemnification under this Article VIII until the aggregate indemnification
------------
obligation sought by Iconixx hereunder exceeds $50,000, whereupon the
Stockholders shall be liable for all amounts for which indemnification may be
sought. Notwithstanding the foregoing, in no event shall the aggregate liability
of the Stockholders to Iconixx under Article VIII exceed $2,500,000; provided,
------------
however, that such limitation shall not include and shall not limit any claims
for the breaching of the representations and warranties of the Stockholders
under Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.12 (to the extent such claims
------------ --- --- --- --- --- ----
relate to Environmental and OSHA Obligations) and 3.17 or any breach of Sections
---- --------
8.1(B) or (C), all of which claims together shall not exceed the Purchase Price.
- ------ ---
Iconixx shall not be obligated to pay any amounts for indemnification under this
Article VIII until the aggregate indemnification obligation sought by
- ------------
Stockholders hereunder exceeds $50,000, whereupon Iconixx shall be liable for
all amounts for which indemnification may be sought. Notwithstanding the
foregoing, in no event shall the aggregate liability of Iconixx to Stockholders
for claims for indemnification under this Article VIII exceed $2,500,000.
------------
However nothing in this Article VIII shall limit Iconixx or the Stockholders in
------------
exercising or securing any remedies provided by applicable statutory or common
law with respect to the fraudulent conduct of the Stockholders or Iconixx in
connection with this Agreement or in the amount of damages that it can recover
from the other in the event that Iconixx or the Stockholders successfully prove
intentional fraud or intentional fraudulent conduct in connection with this
Agreement. Other than as set forth in the preceding sentence, the
indemnification provided for in this Section VIII is intended to be the
------------
exclusive monetary remedy of Iconixx or the Stockholders with regard to the
Acquisition contemplated by this Agreement.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by the mutual written consent of all parties hereto;
(b) in writing by Iconixx, if the Company or any of the
Stockholders has breached in any material respect any representation, warranty
or covenant contained in this Agreement, and in each case such breach has not
been remedied within ten (10) business days after receipt of written notice
specifying such breach and demanding such breach to be remedied; or
(c) in writing by the Stockholders, if Iconixx has breached in
any material respect any representation, warranty or covenant contained in this
Agreement, and in each case such breach has not been remedied within ten (10)
business days after receipt of written notice specifying such breach and
demanding such breach to be remedied; or
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<PAGE>
(d) in writing by the Stockholders, on the one hand, or Iconixx,
on the other hand, in the event the Closing has not occurred on or before
February 29, 2000, unless the failure of such consummation or the failure to
satisfy such condition, as applicable, shall be due to a breach of any
representation or warranty made by the party or parties seeking to terminate
this Agreement or the failure of such party or parties to comply in all material
respects with the agreements and covenants contained herein to be performed by
such party or parties.
9.2. Effect of Termination. If the Acquisition is terminated
---------------------
pursuant to Section 9.1 by notice in writing to the non-terminating party or
-----------
parties, this Agreement shall become void and of no further force and effect,
except that (a) such termination shall not relieve (i) any party from its
covenants in respect of confidentiality contained in Section 6.3 and (ii) any
-----------
party then in breach of any representation, warranty, covenant or agreement
contained in this Agreement from liability in respect of such breach and (b)
Sections 10.4 and 10.7 shall survive termination of this Agreement.
- ------------- ----
ARTICLE X
MISCELLANEOUS
10.1. Modifications. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
10.2. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
Iconixx:
-------
Iconixx Corporation
8300 Boone Blvd.
Suite 250
Vienna, VA 22182
Attention: Thomas B. Modly
Jason H. Levine
Fax No.: (703) 790-9033
Tel No.: (703) 790-9008
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<PAGE>
With a copy to:
--------------
Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, NW
Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Fax No.: (202) 371-0391
Tel No.: (202) 371-0150
and to:
------
Hogan & Hartson L.L.P.
Columbia Square
Thirteenth Street, NW
Washington, DC 20004-1109
Attention: Christopher J. Hagan, Esq.
Fax No.: (202) 637-5910
Tel No.: (202) 637-5600
The Company or the Stockholders:
-------------------------------
c/o Lead Dog Design, Inc.
212 West 35th Street, 8th Floor
New York, NY 10001
Attention: Ronald Heffernan
Fax No.: (212) 564-6886
Tel No.: (212) 564-5070
With a copy to:
--------------
Olshan Grundman Frome Rosenzweig &
Wolosky LLP
505 Park Avenue
New York, NY 10022
Attention: Robert H. Friedman
Fax No.: (212) 935-1787
Tel No.: (212) 753-7200
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
10.3. Counterparts; Facsimile Transmission. This Agreement may be
------------------------------------
executed in several counterparts, each of which shall be deemed an original but
all of which counterparts collectively shall constitute one instrument, and in
making proof of this Agreement,
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<PAGE>
it shall never be necessary to produce or account for more than one such
counterpart. Signatures of a party to this Agreement or other documents executed
in connection herewith which are sent to the other parties by facsimile
transmission shall be binding as evidence of acceptance of the terms hereof or
thereof by such signatory party, with originals to be circulated to the other
parties in due course.
10.4. Expenses. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the Acquisition, provided, however, that the
Stockholders shall bear all costs and expenses of (i) any broker involved in
this transaction on behalf of the Stockholders or the Company and (ii) all legal
and other expenses of the Stockholders or the Company with respect to this
Agreement and the Acquisition; provided, however, that the Company may bear a
portion or all of such expenses so long as no Net Working Capital Adjustment
would occur. In addition, Iconixx shall pay up to $250,000 of the Company's
costs and expenses owed to Friedman, Billings, Ramsey & Co., Inc. in connection
with the transactions contemplated by this Agreement.
10.5. Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Iconixx and the Stockholders,
their heirs, representatives, successors, and permitted assigns, in accordance
with the terms hereof. This Agreement shall not be assignable by the Company or
the Stockholders without the prior written consent of Iconixx. This Agreement
shall be assignable by Iconixx and/or the Company to either (a) any lender
providing financing to Iconixx or the Company (but only with respect to
Iconixx's rights under Article II and Article VIII hereof) or (b) any
---------- ------------
Subsidiary of Iconixx, provided Iconixx remain liable, in each case without the
prior written consent of the Stockholders. In addition, following the Closing,
Iconixx or the Company may assign any or all of its rights hereunder, without
the consent of the Stockholders, in connection with any sale of all or
substantially all of the assets, capital stock, partnership interests or
business of the Company or Iconixx (whether effected by sale, exchange, merger,
consolidation or other transaction) and provided the acquiring party shall
assume all of Iconixx's or the Company's obligations hereunder.
10.6. Entire and Sole Agreement. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
10.7. Governing Law. This Agreement and its validity,
-------------
construction, enforcement, and interpretation shall be governed by the
substantive laws of the State of New York, without giving effect to the
principles of conflicts of laws thereof.
10.8. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
Acquisition shall survive the Closing for a period ending on August 31, 2001
provided (a) the
-37-
<PAGE>
representations and warranties contained in Section 3.17 of this Agreement, and
------------
the related indemnities, shall survive the Closing until the expiration of the
applicable statutes of limitations for determining or contesting Tax liabilities
including any extension of such periods plus sixty (60) days, (b) the
representations, warranties and covenants contained in Sections 3.1, 3.2, 3.3,
------------ --- ---
3.4, 3.5, 3.6 and 6.5(c) of this Agreement, and the related indemnities, shall
- --- --- --- ------
survive the Closing indefinitely and not expire, (c) all covenants in this
Agreement which have an expiration date contained therein shall expire as of
such date and (d) all other covenants in this Agreement which do not have an
expiration date shall expire upon the expiration of the applicable statutes of
limitation
10.9. Invalid Provisions. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
10.10. Public Announcements. Neither the Stockholders nor the
--------------------
Company (pre-Closing) shall make any public announcement of the Acquisition
without the prior written consent of Iconixx, which consent shall not be
unreasonably withheld.
10.11. Remedies Cumulative. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
10.12. Third Parties. Except as specifically set forth or referred
-------------
to herein, nothing herein expressed or implied is intended or shall be construed
to confer upon or give to any Person, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
10.13. No Strict Construction. The parties hereto have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
10.14. Disclosure Schedules. An item disclosed in any part of the
--------------------
Disclosure Schedules attached hereto shall be deemed disclosed in response to
other applicable Disclosure Schedules sections to the extent cross-referenced
therein.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
THE COMPANY:
-----------
LEAD DOG DESIGN, INC.
By: /s/ Ronald P. Heffernan
------------------------------------------------
Ronald P. Heffernan
President and Chief Executive Officer
STOCKHOLDERS:
------------
/s/ Ronald P. Heffernan
-----------------------------------------------------
Ronald P. Heffernan
/s/ Michael Matteo
-----------------------------------------------------
Michael Matteo
/s/ Lucia Chang Heffernan
-----------------------------------------------------
Lucia Chang Heffernan
/s/ Monica Hsu
-----------------------------------------------------
Monica Hsu
/s/ Robert Friedman as Attorney in Fact
-----------------------------------------------------
David Musicant
The Kelly A. Heffernan Trust
/s/ Ronald Heffernan
-----------------------------------------------------
By: Ronald Heffernan
Its: Attorney in Fact
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<PAGE>
The Tracy Heffernan Cipully Trust
/s/ Ronald Heffernan
-----------------------------------------------------
By: Ronald Heffernan
Its: Attorney in Fact
ICONIXX:
-------
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
-----------------------------------------------------
Name: Graham B. Perkins
Title: Vice President and Secretary
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
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<PAGE>
Exhibit 10.19
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
ICONIXX CORPORATION
("Iconixx")
ICONIXX - HOUSTON, INC.
("Buyer")
ENTERPRISEWORKS, LLC
(the "Company")
and
CERTAIN MEMBERS OF ENTERPRISEWORKS, LLC
(the "Majority Members")
Dated March 23, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS .....................................................................1
ARTICLE I DEFINITIONS ........................................................1
1.1. Definitions ........................................................1
ARTICLE II ASSET PURCHASE ....................................................7
2.1. Asset Purchase .....................................................7
(a) Cash, Cash Equivalents and Investments ........................7
(b) Customer Deposits and Accounts Receivable .....................7
(c) Real Property .................................................7
(d) Business, Equipment and Supplies ..............................7
(e) Contracts and Other Agreements Relating to the Business .......7
(f) Books, Records, Lists and Other Data ..........................8
(g) Employment Agreements and Employee Relationships ..............8
(h) Licenses, Permits .............................................8
(i) Prepayments ...................................................8
(j) Intellectual Property .........................................8
(k) General Intangibles ...........................................8
(l) Other Assets ..................................................8
2.2 Excluded Assets ....................................................8
2.3 Assumed Liabilities ................................................9
2.4 Excluded Liabilities ...............................................9
2.5 Title to the Purchased Assets: Documents of Conveyance ............10
2.6 Purchase Price; Allocation of Purchase Price ......................11
2.7 Payment of Purchase Price .........................................11
2.8 Funded Indebtedness Adjustment ....................................11
2.9 Financial Condition ...............................................11
2.10 Closing ...........................................................12
2.11 Escrow Arrangements ...............................................12
2.12 Closing Audit .....................................................12
2.13 Post-Closing Net Working Capital Adjustment .......................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE MAJORITY MEMBERS .......................................13
3.1. Capitalization ....................................................13
3.2. No Liens on Purchased Assets ......................................14
3.3. Subsidiaries ......................................................14
3.4. Brokers ...........................................................14
3.5. Due Organization ..................................................14
3.6. Due Authorization .................................................14
3.7. Financial Statements ..............................................15
3.8. Certain Actions ...................................................15
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3.9 Properties ........................................................16
3.10 Licenses and Permits ..............................................17
3.11 Intellectual Property .............................................17
3.12 Compliance with Laws ..............................................18
3.13 Insurance .........................................................19
3.14 Employee Benefit Plans ............................................19
3.15 Contracts and Agreements ..........................................20
3.16 Claims and Proceedings ............................................21
3.17 Taxes .............................................................21
3.18 Personnel .........................................................22
3.19 Business Relations ................................................23
3.20 Accounts Receivable; Accounts Payable; Customer Deposits;
Customer Revenues and Deferred Revenues ...........................23
3.21 Bank Accounts; Investments ........................................24
3.22 Customer Claims ...................................................24
3.23 Affiliated Transactions ...........................................24
3.24 Funded Indebtedness; Letters of Credit; Undisclosed Liabilities ...24
3.25 Year 2000 .........................................................25
3.26 Information Furnished .............................................25
ARTICLE IV BUYER'S AND ICONIXX'S REPRESENTATIONS AND
WARRANTIES .............................................................25
4.1 Due Organization of Iconixx and Buyer .............................25
4.2 Due Authorization .................................................26
4.3 No Brokers ........................................................26
4.4 Information Furnished .............................................26
4.5 Capital Stock and Related Matters .................................26
4.6 Authorization of the Stock ........................................26
4.7 Compliance with Laws ..............................................27
4.8 Taxes .............................................................27
4.9 Claims and Proceedings ............................................27
4.10 Intellectual Property .............................................27
4.11 Registration Rights ...............................................28
4.12 Financial Statements ..............................................28
ARTICLE V PRE-CLOSING COVENANTS OF THE COMPANY, ICONIXX,
BUYER AND THE MAJORITY MEMBERS .........................................28
5.1 Consents of Others ................................................28
5.2 Reasonable Efforts ................................................29
5.3 Powers of Attorney ................................................29
5.4 Conduct of Business Pending Closing ...............................31
5.5 Access Before Closing .............................................31
ARTICLE VI POST-CLOSING COVENANTS ...........................................32
6.1 General ...........................................................32
6.2 Transition ........................................................32
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<TABLE>
<S> <C> <C>
6.3. Covenants Not to Compete; Confidentiality; Non-Solicitation .......32
6.4. Access to Records After Closing ...................................32
6.5. Assignment of Contracts ...........................................33
6.6. Change of Name ....................................................33
6.7. Litigation Support ................................................33
6.8. Audits ............................................................34
6.9. 401(k) Plan .......................................................32
6.10. Iconixx's Stock Options ...........................................34
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARTIES TO
CONSUMMATE CLOSING .......................................................34
7.1. Conditions to Iconixx's and Buyer's Obligations ...................34
7.2. Conditions to the Majority Members' and the Company's Obligations .36
ARTICLE VIII INDEMNIFICATION...................................................38
8.1. Indemnification by the Majority Members ...........................38
8.2. Indemnification of the Majority Members and the Company ...........39
8.3. Defense of Claims .................................................39
8.4. Escrow Claim ......................................................40
8.5. Tax Audits, Etc ...................................................40
8.6. Limits on Indemnification .........................................40
ARTICLE IX TERMINATION ........................................................41
9.1. Termination .......................................................41
9.2. Effect of Termination .............................................42
ARTICLE X MISCELLANEOUS .......................................................42
10.1. Modifications .....................................................42
10.2. Notices ...........................................................42
10.3. Counterparts; Facsimile Transmission ..............................44
10.4. Expenses ..........................................................44
10.5 Binding Effect; Assignment ........................................44
10.6. Entire and Sole Agreement .........................................45
10.7. Governing Law .....................................................45
10.8. Survival of Representations, Warranties and Covenants .............45
10.9. Invalid Provisions ................................................45
10.10. Public Announcements ..............................................45
10.11. Remedies Cumulative ...............................................45
10.12. Third Parties .....................................................46
10.13. No Strict Construction ............................................46
10.14. Disclosure Schedules ..............................................46
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Bill of Sale, Assignment and Assumption Agreement
Exhibit C Majority Members Accounts and Wire Transfer
Instructions ((S) 2.4)
Exhibit D-1 Articles of Organization of the Company
Exhibit D-2 Regulations of the Company
Exhibit E Certificate of Incorporation of Iconixx
Exhibit F-1 Form of Deyhimi Employment Agreement
Exhibit F-2 Form of Key Employee Employment Agreement
Exhibit F-3 Form of A.B. Holdings/Hartzell Non-solicitation Agreement
Exhibit G Opinion of Company's Counsel
Exhibit G-1 Opinion of Iconixx's and Buyer's Counsel
Exhibit H Form of Employee Transition Services Agreement
Exhibit I Form of Assignment of Trademark Agreement
DISCLOSURE SCHEDULES
LEASES SCHEDULE
ICONIXX CAPITALIZATION SCHEDULE
EMPLOYEE SCHEDULE
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
March 23, 2000, by and among ICONIXX CORPORATION, a Delaware corporation
("Iconixx"), ICONIXX - HOUSTON, INC., a Delaware corporation ("Buyer"),
ENTERPRISEWORKS, LLC, a Texas limited liability company (the "Company" or
"Seller"); and DERRIK DEYHIMI, SCOTT HEATH, JEFF JAMISON, DAVID MOSLEY and AB
HOLDINGS, LLC, a Nevada limited liability company (collectively, the "Majority
Members").
Recitals
--------
A. Pursuant to this Agreement, the Company, which is engaged in the
business of providing information technology, enterprise resource and systems
integration consulting in the United States (the "Business"), will be acquired
by Buyer pursuant to an acquisition of substantially all of the assets of the
Company (the "Acquisition").
B. On the date of this Agreement, the Company's capitalization
consists of 9,975,000 units (the "Company Shares"), of which 9,325,000 are owned
by the Majority Members.
C. Buyer, a wholly-owned subsidiary of Iconixx, desires to purchase
from the Company and the Company desires to sell to Buyer, substantially all of
the Company's assets used in the operation of the Business on the terms and
subject to the conditions set forth in this Agreement.
D. In connection with its purchase of such assets from the Company,
Buyer desires to assume certain of the liabilities and obligations of the
Company relating to the Business (and no others), all as more specifically set
forth herein.
Agreement
---------
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended,
<PAGE>
supplemented and modified from time to time to the extent permitted by the
applicable provisions thereof and by this Agreement.
"Acquisition" has the meaning specified in Recital A of this
---------
Agreement.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Assumed Liabilities" has the meaning specified in Section 2.3.
-----------
"Audited Closing Financial Statements" has the meaning specified in
Section 2.12.
- ------------
"Business" has the meaning specified in Recital A of the Agreement.
---------
"Buyer" has the meaning specified in the first paragraph of this
Agreement.
"Cash Purchase Price" shall have the meaning assigned to such term in
Section 2.2(a).
- --------------
"Closing" means the closing of the Acquisition.
"Closing Date" has the meaning specified in Section 2.10.
------------
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, Section 4980B of the Code, Title I, Part 6 of ERISA, and any
regulations and proposed regulations thereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per share, of
Iconixx.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Company Shares" has the meaning specified in Recital B of the
---------
Agreement.
"Contracts" has the meaning specified in Section 3.15.
------------
"Court Order" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Disclosure Schedules" shall mean the Disclosure Schedules attached to
this Agreement pursuant to which exceptions to the Majority Members' and the
Company's specific representations and warranties set forth in Article III (and
-----------
listed on a Section-by-Section basis) are disclosed to Buyer and Iconixx
pursuant to said Article III, and pursuant to which exceptions to Buyer's and
-----------
Iconixx's specific representations and warranties set forth in Article IV
----------
(and listed on a
-2-
<PAGE>
Section-by-Section basis) are disclosed to the Majority Members and the Company
pursuant to Article IV.
----------
"Employee" has the meaning specified in Section 5.3.
-----------
"Encumbrance" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title or restrictive covenant.
"Environmental and OSHA Obligations" has the meaning specified in
Section 3.12.
- ------------
"Equipment" has the meaning specified in Section 2.1(d).
--------------
"Equitable Exceptions" shall have the meaning specified in Section
-------
3.6.
- ---
"Equity Agreements" means (i) the Stockholders Agreement dated August
12, 1999 between Iconixx and its Stockholders and (ii) the Registration Rights
Agreement dated August 12, 1999 between Iconixx and its Stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means First Union National Bank, N.A.
"Escrow Agreement" means the Escrow Agreement to be executed by and
among the Majority Members, Buyer, Iconixx and the Escrow Agent in the form of
Exhibit A.
- ---------
"Escrow Period" has the meaning specified in Section 2.11.
------------
"Escrow Sum" has the meaning specified in Section 2.11.
------------
"Excluded Assets" has the meaning specified in Section 2.2.
-----------
"Excluded Liabilities" has the meaning specified in Section 2.4.
-----------
"Financial Statements" has the meaning specified in Section 3.7.
-----------
"Force Majeure" shall mean any failure or delay caused by acts of god,
flood, fire, war or terrorism or any failure or delay caused by a governmental
blockage of all currency transactions between a foreign Governmental Body and
the United States of America.
"Funded Indebtedness" means all (i) indebtedness of the Company for
borrowed money or other interest-bearing indebtedness; (ii) obligations of the
Company to pay the deferred purchase or acquisition price for goods or services,
other than trade accounts payable in the ordinary course of business and the
deferred purchase or acquisition price specifically referenced in Item (i/m) of
Schedule 3.8; (iii) indebtedness of others guaranteed by the Company or secured
- ------------
by an Encumbrance on the Company's property; (iv) letters of credit or similar
obligations;
-3-
<PAGE>
and (v) indebtedness of the Company under extended credit terms of more than 60
days from vendors provided to the Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body having jurisdiction over the Company
and/or the Majority Members.
"Governmental Permits" has the meaning specified in Section 3.10.
------------
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and the rules and regulations promulgated thereunder.
"Iconixx" has the meaning specified in the first paragraph of this
Agreement.
"IRS" means the Internal Revenue Service.
"Indemnifiable Costs" has the meaning specified in Section 8.1.
-----------
"Indemnified Parties" has the meaning specified in Section 8.1.
-----------
"Intellectual Property" shall mean all of the following owned by or
licensed or sublicensed to the Company as they are related primarily to the
Business: (i) patents, patent applications, patent disclosures and inventions
(whether or not patentable and whether or not reduced to practice); (ii)
trademarks, service marks, trade dress, trade names, corporate or company names,
logos, slogans and Internet domain names, together with all goodwill associated
with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; (v) trade
secrets, confidential information and know-how (including but not limited to
ideas, formulae, compositions, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, business and marketing plans, and customer and supplier lists and
related information); and (vi) computer software (including but not limited to
data, data bases and documentation).
"Investments" means short-term investments in any funds, accounts,
securities, certificates of deposit or instruments of any Person which are (i)
included as short-term investments on a balance sheet in accordance with GAAP,
and (ii) marked to market as of any date of determination.
"Knowledge of the Company" (whether or not capitalized) shall mean
actual knowledge, after reasonable inquiry within the Company to senior
administrative managers with responsibility for the subject matter in question,
of the Majority Members and the officers of the Company. "Knowledge of the
Majority Members" (whether or not capitalized) shall mean actual knowledge of
the Majority Members. "Knowledge of Iconixx" (whether or not capitalized) shall
mean actual knowledge, after reasonable inquiry within Iconixx and its
-4-
<PAGE>
Affiliates to senior administrative managers with responsibility for the subject
matter in question, of the officers of Iconixx.
"Leases" shall mean the leases set forth on the Schedule 3.9.
------------
"Material" (whether or not capitalized) shall, where appropriate in
context of its use in making the representations and warranties set forth in
Article III, be deemed to mean an amount of money greater than $50,000
- -----------
individually or $75,000 in the aggregate.
"Material Adverse Change" or "Material Adverse Effect" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "Material Adverse
Change" or "Material Adverse Effect" has occurred in the context of the use of
such terms in the Company's and the Majority Members' representations and
warranties set forth in Article III, such terms shall refer to the occurrence of
-----------
any single event, or any series of related events, or set of related
circumstances, which results or likely will result in a loss to the Company or
Buyer, in excess of $50,000 per occurrence or $75,000 in the aggregate.
"Majority Members" has the meaning set forth in the first paragraph of
this Agreement.
"Minimum Cash" has the meaning specified in Section 2.9.
-----------
"Most Recent Financial Statements" has the meaning specified in
Section 3.7.
- -----------
"Net Working Capital" shall equal the Company's total current assets
(including cash and cash equivalents but excluding Permitted Distributions)
minus its total current liabilities including, without limitation, any: (i) cash
to accrual liability borne by the Company or Buyer; and (ii) change in control
payments due to employees, subcontractors, vendors or customers as a result of
the Acquisition contemplated hereby, each as calculated in accordance with GAAP.
"Net Working Capital Adjustment" has the meaning specified in Section
-------
2.13.
- ----
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. (S)(S)
651 et seq., any amendment thereto, and any regulations promulgated thereunder.
-- ---
"Other Arrangement" means a benefit program or practice providing for
bonuses, incentive compensation, vacation pay, severance pay, insurance,
restricted stock, stock options, employee discounts, company cars, tuition
reimbursement or any other perquisite or benefit (including, without limitation,
any fringe benefit under Section 132 of the Code) to employees, officers or
independent contractors that is not an Employee Benefit Plan within the meaning
of Section 3(3) of ERISA.
"Permitted Distributions" has the meaning specified in Section 3.8.
-----------
-5-
<PAGE>
"Permitted Exception" means (a) liens for Taxes and other governmental
charges and assessments which are not yet due and payable, (b) nondelinquent
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet past due, (c) purchase money security interest or equipment liens
on any Assumed Liabilities solely on the property acquired pursuant to such
credit purchase, or (d) other liens or imperfections on property which are not
material in amount or do not materially detract from the value or the existing
use of the property affected by such lien or imperfection.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"Preferred Stock" means the Convertible Class A Preferred Stock, par
value $.01 per share of Iconixx.
"Preliminary Closing Balance Sheet" has the meaning specified in
Section 2.9.
- -----------
"Projected Net Working Capital" means the amount of Net Working
Capital of the Company reflected on the Preliminary Closing Balance Sheet.
"Purchase Price" has the meaning specified in Section 2.6.
-----------
"Purchased Assets" means the assets of the Business specified in
Section 2.1.
- -----------
"Real Property" has the meaning specified in Section 2.1(c).
--------------
"Requirements of Laws" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"Seller" has the meaning specified in the first paragraph of this
Agreement.
"Tax" or "Taxes" means any federal, state, local or foreign income,
alternative or add-on minimum, gross income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding or minimum tax, transfer, goods and services,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amounts imposed thereon by any Governmental Body.
"Tax Return" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
"Transferred Employees" has the meaning specified in Section 5.3.
-----------
-6-
<PAGE>
ARTICLE II
ASSET PURCHASE
2.1. Asset Purchase. On the Closing Date (as hereinafter defined) and
--------------
subject to the terms and conditions set forth in this Agreement, the Company
shall sell and deliver to Buyer and Buyer agrees to purchase from the Company at
the Closing (as hereinafter defined), free and clear of all liens, claims and
Encumbrances except for the Permitted Exceptions, all of the Company's right,
title and interest in and to all assets of the Business included in the
Company's December 31, 1999 balance sheet for the Business, subject to changes:
(i) in the ordinary course of business (and consistent with the Company's
covenants in Section 5.4) from such date through the Closing Date that are not
-----------
in the aggregate Material; or (ii) set forth on Schedule 2.1, together with all
------------
other assets owned and used by the Company in the Business, other than the
Excluded Assets (collectively, the "Purchased Assets"). The Purchased Assets
include, without limitation, the following as they exist on the Closing Date:
(a) Cash, Cash Equivalents and Investments. Cash (other than the Cash
--------------------------------------
Purchase Price), cash equivalents and Investments.
(b) Customer Deposits and Accounts Receivable. All accounts receivable,
-----------------------------------------
customer deposits and other deposits (other than the Escrow Sum), advances and
suppliers' or vendors' rebates and all other receivables of the Business
existing on the Closing Date, in the ordinary course of the operation of the
Business.
(c) Real Property. All leases of real property and interests, options or
-------------
rights relating to real property with respect to the Business (collectively, the
"Real Property"). All Real Property is identified as leased and described on the
Leases Schedule attached hereto.
(d) Business, Equipment and Supplies. All tangible personal property,
--------------------------------
equipment, supplies, furniture, leasehold improvements, including but not
limited to, leases and subleases of personal property or equipment, all
automobiles and other vehicles, computers, software and peripherals and all
maintenance and other operating supplies and other miscellaneous tangible
personal property owned by Seller and used in the Business, whether or not
located at or on the Real Property at the Closing Date and whether or not
reflected on the Most Recent Financial Statements (collectively, the
"Equipment").
(e) Contracts and Other Agreements Relating to the Business. All rights of
-------------------------------------------------------
Seller (or of Seller's Affiliates to the extent such rights pertain exclusively
to the Business) as of the Closing Date under all (written or oral) customer
contracts or vendor contracts with software or other companies, marketing
agreements, consortia agreements, web-design or other agreements relating to the
Business, interface or similar agreements pertaining to licenses, leases,
purchase orders and all other contracts, agreements or arrangements relating to
the Business.
-7-
<PAGE>
(f) Books, Records, Lists and Other Data. All files, books, records,
------------------------------------
invoices, accounts, surveys, customer lists and records, vendor and supplier
lists, catalogs, price lists, marketing and advertising information, purchasing
histories, profiles and materials, technical bulletins, books and records of
account and other financial, vendor, customer and credit data, and all computer
programs, software, hardware, firmware, tapes and other materials used to store,
record or produce such data, owned or leased by the Company and used in the
Business (exclusive of the Company's company or unit records).
(g) Employment Agreements and Employee Relationships. All rights of Seller
------------------------------------------------
as of the Closing Date under all employment and non-compete agreements plus all
relationships of the Company with any of its employees to the extent any of the
foregoing are used in the Business.
(h) Licenses, Permits. To the extent assignable, all rights of Seller in
-----------------
and to all federal, state, local and other governmental licenses, permits,
approvals and authorizations that relate to the operation of the Business.
(i) Prepayments. All security, utility, lease or similar deposits or
-----------
prepaid expenses of the Company used in the Business but excluding any prepaid
insurance policies.
(j) Intellectual Property. All Intellectual Property of the Company.
---------------------
(k) General Intangibles. All general intangibles used by the Business
-------------------
including, without limitation, all goodwill as a going concern and any and all
causes of action or claims of Seller against any third party that arose or will
arise in connection with the Business prior to the Closing Date.
(l) Other Assets. All other assets of Seller used in the conduct of the
------------
Business, whether or not reflected on the books or records of Seller or the
Business, other than the Excluded Assets.
2.2. Excluded Assets. Notwithstanding anything to the contrary in this
---------------
Agreement, the Purchased Assets do not include, and Buyer is not purchasing or
assuming any liability therefor, the following: (i) company charter and unit
records of the Company; (ii) tax records of the Company; (iii) 401(k) plan in
which the Company's employees participate and other employee benefit plans; (iv)
the rights and obligations of the Company under that certain Management
Agreement dated December 31, 1997 between the Company and Valid Management,
L.L.C.; (v) the rights and obligations of N.F. Smith & Associates, L.P. under
that certain Professional Services Agreement dated January 1, 1998, between the
Company and N.F. Smith & Associates, L.P.; and (vi) this Agreement and the other
contracts entered into by the Company in connection herewith (the "Excluded
Assets"), ownership of which is retained by Seller.
-8-
<PAGE>
2.3. Assumed Liabilities. On the terms and subject to the conditions and
-------------------
exceptions contained herein, at Closing, Seller shall assign and delegate to
Buyer, and Buyer shall assume and undertake to pay, defend, discharge and
perform in full when due the liabilities and obligations of Seller (insofar as
such liabilities and obligations relate to the Business and the Purchased
Assets) included in Seller's December 31, 1999 balance sheet for the Business,
subject to changes and additional liabilities and obligations specifically
identified below in this Section 2.3 (the "Assumed Liabilities"), and no others,
-----------
pursuant to this Agreement and the General Assignment, Bill of Sale and
Assumption Agreement referred to in Section 2.5.
-----------
(a) the rights, liabilities and obligations of Seller to perform under
the agreements and contracts listed on Schedule 2.3(a) attached hereto together
---------------
with such other agreements and contracts entered into by Seller in the ordinary
course of business individually involving amounts less than $50,000
(collectively, the "Assumed Contracts"); provided, however, that Buyer shall not
assume any liabilities or obligations arising out of or in connection with
Seller's breach of such Assumed Contracts in excess of the amounts reserved
therefor in the balance sheet included as part of the Most Recent Financial
Statements;
(b) the rights, liabilities and obligations of Seller to perform under
the Leases from and after the Closing Date;
(c) the liabilities and obligations of Seller for accrued expenses for
utilities, professional fees (other than fees related to the Acquisition),
wages, commissions and bonuses, and accrued vacation benefits in each case to
the extent such accrued expenses are (i) reflected in Seller's December 31, 1999
balance sheet for the Business, or (ii) incurred in the ordinary course of
business between December 31, 1999 and the Closing Date; and
(d) all other liabilities and obligations of Seller (other than the
Excluded Liabilities defined in Section 2.4 below) which relate to the Business
-----------
and/or the Purchased Assets and are (i) reflected in Seller's December 31, 1999
balance sheet for the Business; (ii) incurred in the ordinary course of business
between December 31, 1999 and the Closing Date; or (iii) reflected in item (i/m)
of Schedule 3.8.
------------
2.4 Excluded Liabilities. Notwithstanding anything to the contrary
--------------------
contained in this Agreement, Buyer will not assume or be liable for and Seller
will retain and remain responsible for all of Seller's debts, liabilities and
obligations of any nature whatsoever, other than the Assumed Liabilities,
whether accrued, absolute or contingent, whether known or unknown, whether due
or to become due and whether related to the Business and the Purchased Assets or
otherwise, and regardless of when asserted (the "Excluded Liabilities"),
including, without limitation, the following liabilities or obligations of
Seller (none of which will constitute Assumed Liabilities):
(a) All of Seller's liabilities or obligations under this Agreement or
under any other agreement between Seller on the one hand and Buyer on the other
hand entered into on or after the date of this Agreement;
-9-
<PAGE>
(b) All liabilities and obligations of Seller for Taxes which are
imposed on or measured by income, for any period, and all of Seller's
liabilities or obligations with respect to any non-income Taxes except to the
extent specifically accrued on the balance sheet for the Business included in
the Most Recent Financial Statements or incurred in the ordinary course of
business between December 31, 1999 and the Closing Date.
(c) All of Seller's liabilities or obligations arising out of or in
connection with the breach of any contract or agreement included in the
Purchased Assets, other than for such amounts as are adequately and properly
reserved for in the balance sheet included as part of the Most Recent Financial
Statements;
(d) All of Seller's liabilities or obligations for expenses, Taxes or
fees incident to or arising out of the negotiation, preparation, approval, or
authorization of this Agreement or the consummation (or preparation for the
consummation) of the transactions contemplated hereby, including all attorneys'
and accountants' fees, brokerage fees, consultants' fees and finders' fees, and
sales, bulk sales and transfer taxes which are Seller's responsibility
hereunder;
(e) Seller's obligations and liabilities for the period up to and
including the Closing Date which relate to any employee plans (as described in
Section 3.14) (including unfunded pension plan liabilities and retiree health
- ------------
benefits);
(f) Any liability or obligation under COBRA to any person covered by
Seller's health plans or any Employee who ceases to be employed by Seller on or
before the Closing Date, or who is not employed by Buyer on the Closing Date,
and any liability or obligation under COBRA to any family member of such person
or Employee.
(g) Any liability or obligation for Funded Indebtedness or any other
liability or obligation of Seller that does not relate to, or arise from, the
Business and the Purchased Assets.
(h) Any liability or obligation pertaining to any discontinued
operation owned or operated by Seller and related to the Business as it was
operated by Seller prior to the Business.
(i) Any liability or obligation that relates to, or arises from, the
Excluded Assets.
2.5 Title to the Purchased Assets: Documents of Conveyance. At Closing,
-----------------------------
Seller shall convey all of its right, title and interest in and to the Business
and the Purchased Assets to Buyer free and clear of all liabilities,
obligations, liens and Encumbrances, excepting only the Assumed Liabilities and
the Permitted Exceptions. Title to the Purchased Assets shall be conveyed
pursuant to a General Assignment, Bill of Sale and Assumption Agreement
substantially in the form attached hereto as Exhibit B, and by such other
---------
documents as are reasonably acceptable to counsel for Seller and counsel for
Buyer in accordance with the terms
-10-
<PAGE>
hereof. Each of the parties hereto agrees to use its reasonable commercial
efforts to take or cause to be taken all action, and to do, or cause to be done,
all things reasonably necessary, proper or advisable, whether before or after
Closing, to ensure transfer of title to the Purchased Assets to Buyer occurs as
contemplated hereunder.
2.6 Purchase Price; Allocation of Purchase Price. The total purchase price
--------------------------------------------
for the Purchased Assets (the "Purchase Price") shall be equal to
$22,028,676.90, subject to any adjustment required to be made pursuant to
Sections 2.8, 2.9 and 2.13 below. The Purchase Price shall be allocated among
- ----------------- ----
the Purchased Assets as proposed by Buyer and approved by Seller, which approval
shall not be unreasonably withheld, which proposed allocation shall be delivered
to Seller within ten (10) days following the determination of the Audited
Closing Financial Statements.
2.7 Payment of Purchase Price. On the Closing Date and subject to the
-------------------------
terms and conditions set forth in this Agreement, Buyer shall pay the Purchase
Price for the Purchased Assets to the Company. The Purchase Price shall be
payable as follows:
(a) an aggregate of $16,000,000 shall be paid at Closing by wire
transfer of immediately available funds to the Company's account as specified in
Exhibit C hereto (the "Cash Purchase Price");
- ---------
(b) $1,000,000 shall be paid in cash to the Escrow Agent at Closing
pursuant to Section 2.7 below to serve as the Escrow Sum (as defined below); and
-----------
(c) $5,028,676.90 shall be paid to the Company in the form of
3,868,213 shares of Common Stock (valued at $1.30 per share) to be distributed
by the Company among the members of the Company who are either accredited
investors or senior executives of the Company in the amounts specified in
Exhibit C hereto.
- ---------
2.8 Funded Indebtedness Adjustment. The Cash Purchase Price will be
------------------------------
adjusted downward by the amount, if any, by which the Company's Funded
Indebtedness exceeds $0 as of the Closing Date.
2.9. Financial Condition. The Cash Purchase Price will be adjusted upward
--------------------
or downward at Closing, by the amount, if any, that the Company's Net Working
Capital at the Closing exceeds or is less than $1,600,000 (as determined based
on the Company's preliminary closing balance sheet prepared not more than five
days prior to the Closing Date (the "Preliminary Closing Balance Sheet"). The
Company shall have at least $100,000 in cash and cash equivalents on hand at the
Closing (the "Minimum Cash") or the Cash Purchase Price payable at Closing will
be reduced by the amount of such deficit(s).
2.10. Closing. The Closing of the Acquisition shall take place at 10:00
-------
a.m., Eastern Time, at the offices of Hogan & Hartson L.L.P., 555 13th Street,
N.W. in Washington, D.C. on March 23, 2000, or on a date mutually agreed to by
the parties (which date shall be as soon as practicable following the date on
which all of the conditions to Closing set forth in
-11-
<PAGE>
Sections 7.1 and 7.2 have been satisfied) (the "Closing Date"), with an
- ------------ ---
effective date as of March 31, 2000.
2.11. Escrow Arrangements. Pursuant to the Escrow Agreement to be entered
-------------------
into among the Company, Majority Members, Buyer, Iconixx and the Escrow Agent,
$1,000,000 of the Purchase Price shall be delivered to the Escrow Agent at
Closing (such monies paid, together with all interest accrued thereon, is
hereinafter referred to as the "Escrow Sum"). The Escrow Sum shall be held
pursuant to the terms of the Escrow Agreement for payment from such Escrow Sum
of the amounts, if any, owing by Majority Members or the Company to Iconixx or
Buyer pursuant to the provisions of the Net Working Capital Adjustment or for
indemnification claims pursuant to Article VIII hereof. To the extent claims
------------
against the Escrow Sum are determined in favor of the Company and/or Majority
Members, all amounts reserved against the Escrow Sum in connection with such
claims shall be remitted to the Company as soon as practicable following any
such determination. On the six month anniversary of the Closing Date, the
Escrow Sum shall be reduced to an amount equal to the sum of $500,000 plus the
amount of claims then pending against the Escrow Sum, with such reduction amount
to be remitted to the Company. On December 31, 2000 (such nine-month period
being referred to herein as the "Escrow Period"), such remaining portion of the
Escrow Sum not theretofore claimed by or paid to Iconixx or Buyer in accordance
with the terms of the Escrow Agreement and this Agreement (together with any
interest on such remaining portion of the Escrow Sum) shall be disbursed to the
Company. All disbursements at the expiration of the Escrow Period shall be paid
in cash to the Company at its account set forth in Exhibit C as updated from
---------
time to time. The Company, the Majority Members and Iconixx and Buyer agree
that each will execute and deliver such reasonable instruments and documents as
are furnished by any other party to enable such furnishing party to receive
those portions of the Escrow Sum to which the furnishing party is entitled under
the provisions of the Escrow Agreement and this Agreement.
2.12. Closing Audit. Within 180 days following the Closing Date, there
-------------
shall be delivered to Iconixx, Buyer, the Company and to Majority Members an
audit of the Company's balance sheet as of the Closing Date (the "Audited
Closing Financial Statements"). The Audited Closing Financial Statements shall
be audited by Arthur Andersen, L.L.P. in accordance with GAAP. The cost of
preparing the Audited Closing Financial Statements shall be paid by Iconixx. The
Company and the Majority Members shall be afforded a reasonable opportunity to
review the audit results (including any work papers prepared in connection
therewith). In the event that the Company provides written notice within 20 days
after receipt of the Audited Closing Financial Statements that it disputes any
item(s) contained in the Audited Closing Financial Statements, then the Company
and Iconixx shall jointly select and retain an independent "Big Five" accounting
firm (the "Independent Accountants") to review the disputed item(s) in the
Audited Closing Financial Statements. In conducting such review, Arthur
Andersen, L.L.P. shall provide the Independent Accountants with customary access
to the work papers of Arthur Andersen, L.L.P. utilized in preparing the Audited
Closing Financial Statements. The final determination of such disputed item(s)
by the Independent Accountants shall be utilized to determine all adjustments
described in Section 2.13 below and shall be final
------------
-12-
<PAGE>
and binding on the parties solely for such purposes. The cost of retaining the
Independent Accountants shall be paid by the Company and/or the Majority Members
as they may agree.
2.13. Post-Closing Net Working Capital Adjustment. The Purchase Price will
-------------------------------------------
be adjusted upward or downward, on a dollar-for-dollar basis, to reflect the
increase or decrease, if any, in Net Working Capital as reflected on the Audited
Closing Financial Statements from the Projected Net Working Capital (the "Net
Working Capital Adjustment"). The Net Working Capital Adjustment shall be
determined by referring to the Audited Closing Financial Statements. In the
event that the Net Working Capital Adjustment results in an increase in the
Purchase Price, then Buyer shall pay such amount to the Company in immediately
available funds within 15 days of delivery of the Audited Closing Financial
Statements as finally determined in accordance with Section 2.12 above. In the
------------
event that the Net Working Capital Adjustment results in a decrease in the
Purchase Price, then the amount of any such decrease shall be payable to Buyer
(i) first, from the Escrow Sum in immediately available funds within 15 days of
the final determination of the Net Working Capital Adjustment up to a maximum of
$500,000 and (ii) second, the balance, if any, by the Majority Members or the
Company in immediately available funds within 15 days of the final determination
of the Net Working Capital Adjustment. All payments required to be paid by
Iconixx, Buyer, the Company, the Majority Members or the Escrow Agent pursuant
to this Section 2.13 shall be deemed to be an adjustment to the Purchase Price
------------
and shall not be controlled or limited by any provision contained in Article
-------
VIII hereof.
- ----
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE MAJORITY MEMBERS
Except as set forth on the Disclosure Schedules attached hereto (which
Disclosure Schedules identify the exception and reference the applicable
representation so qualified), the Company and the Majority Members jointly and
severally represent and warrant to Buyer and Iconixx that:
3.1. Capitalization. The authorized membership units of the
--------------
Company consists of only the Company Shares, 9,975,000 of which are issued and
outstanding and are owned in the amounts set forth on Schedule 3.1. All of the
------------
Company Shares are duly authorized, validly issued, fully paid, and
nonassessable. All of the Company Shares are owned of record and, to the
Knowledge of the Majority Members, beneficially by the members identified on
Schedule 3.1. None of the Company Shares was issued in violation of any
- ------------
preemptive, right of first offer or refusal or preferential rights of any
Person.
3.2. No Liens on Purchased Assets. The Company owns or has valid
----------------------------
leasehold interest in or valid licenses to use all of the Purchased Assets, free
and clear of any Encumbrances other than the rights and obligations arising
under this Agreement, the Permitted Exceptions and those Encumbrances that will
be released on or prior to the Closing Date. Except as set forth on Schedule
--------
3.2, none of the Purchased Assets is subject to (i) any outstanding
- ---
-13-
<PAGE>
option, warrant, call, or similar right of any other Person to acquire the same
or (ii) any restriction on transfer thereof except for restrictions imposed by
applicable federal and state securities laws. At Closing pursuant to the
Acquisition, the Company will have full power and authority to convey good and
marketable title to the Purchased Assets owned by the Company to Buyer, free and
clear of any Encumbrances other than the restrictions imposed by federal and
state securities laws and Permitted Exceptions.
3.3. Subsidiaries. The Company does not own, directly or
------------
indirectly, any capital stock or ownership interests in any Person. Except as
set forth on Schedule 3.3, the Majority Members do not own any capital stock or
------------
ownership interests in any other Person engaged in the Business other than the
Company Shares (other than ownership of a publicly-held corporation of which the
Majority Members, or any of them, own, or have real or contingent rights to own
less than five percent of any class of outstanding securities).
3.4. Brokers. Except for Friedman, Billings, Ramsey & Co., Inc.,
-------
neither the Company nor the Majority Members have engaged, or caused to be
incurred any liability to any finder, broker, or sales agent in connection with
the origin, negotiation, execution, delivery, or performance of this Agreement
or the Acquisition.
3.5. Due Organization. The Company is a limited liability company
----------------
duly organized, validly existing, and in good standing under the laws of the
State of Texas and has full company power and authority to own and lease its
properties and assets and to carry on the Business as now conducted. Complete
and correct copies of the Articles of Organization and Regulations of the
Company, and all amendments thereto, have been delivered to Iconixx and are
attached hereto as Exhibits D-1 and D-2, respectively. The Company is not
------------ ---
qualified as a foreign company to do business in any other jurisdiction.
Neither the nature of the Business or the ownership of the Company's properties
requires such qualification except where the failure to be so qualified does not
and could not reasonably be expected to have a Material Adverse Effect.
3.6. Due Authorization. The Company and the Majority Members each
-----------------
have full power and authority to execute, deliver and perform this Agreement and
to carry out the Acquisition. The execution, delivery, and performance of this
Agreement and the Acquisition have been duly and validly authorized by all
necessary company action of the Company. This Agreement has been duly and
validly executed and delivered by the Company and the Majority Members and
constitutes the valid and binding obligations of the Company and the Majority
Members, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief (the "Equitable
Exceptions"). The execution, delivery, and performance of this Agreement and
the Acquisition (as well as all other instruments, agreements, certificates, or
other documents contemplated hereby) by the Company and the Majority Members, do
not (a) violate any Requirements of Laws or any Court Order of any Governmental
Body applicable to the Company or the Majority Members, or the Company's
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any Material agreement to which the Company is a
party, or by which the Company or any of its property is bound, (c) permit the
-14-
<PAGE>
acceleration of the maturity of any Material indebtedness of, or indebtedness
secured by the property of, the Company, (d) violate or conflict with any
provision of the Articles of Organization or Regulations of the Company, or (e)
except for filings or approvals under the HSR Act and such consents, approvals,
or registrations as may be required under applicable state securities laws,
require any material consent, approval or authorization of, or notice to, or
declaration, filing or registration with, any Governmental Body or other third
party; except (i) as set forth in Schedule 3.6, or (ii) for any such conflicts,
------------
breaches, violations or defaults that would not have a Material Adverse Effect.
3.7. Financial Statements. The following financial statements of
--------------------
the Company have been delivered to Iconixx by the Company: audited balance
sheets for the period ended December 31, 1997 and the years ended December 31,
1998 and December 31, 1999; audited statements of operation and cash flows for
the period ended December 31, 1997 and the years ended December 31, 1998 and
December 31, 1999 (collectively, the "Financial Statements"). Copies of the
Financial Statements are included in Schedule 3.7. Other than the Financial
------------
Statements as of and for the year ended December 31, 1999 (the "Most Recent
Financial Statements"), the Financial Statements have been prepared in
accordance with GAAP, except as set forth in Schedule 3.7. The Financial
------------
Statements (including the notes thereto) have been prepared on a consistent
basis throughout the periods indicated and fairly present, in all material
respects, the financial position, results of operations and changes in financial
position of the Company as of the indicated dates and for the indicated periods
and are consistent with the books and records of the Company (which books and
records are correct and complete in all material respects). Since December 31,
1999, the Company has not experienced any Material Adverse Change.
3.8. Certain Actions. Since December 31, 1999, the Company has
---------------
not, except as disclosed on any of the Financial Statements or notes thereto or
on Schedule 3.8: (a) paid or declared any dividends or distributions, or
------------
purchased, redeemed, acquired, or retired any stock or indebtedness of any
Member (other than (i) distributions of certain assets mutually agreed upon by
the Company and Iconixx that have been delivered to the Company by its customers
in lieu of a cash payment for services as listed on Schedule 3.8, (ii)
------------
distributions for income taxes and expenses incurred in connection with the
transactions contemplated hereby so long as no Net Working Capital Adjustment
will occur and so long as the Company retains at least the Minimum Cash as of
the Closing Date and (iii) the issuances and exchange of the unit appreciation
rights as described on Schedule 3.8 (collectively the "Permitted
------------
Distributions")); (b) made or agreed to make any loans or advances or guaranteed
or agreed to guarantee any loans or advances to any party whatsoever; (c)
suffered or permitted any Encumbrance (other than the Permitted Exceptions) to
arise or be granted or created against or upon any of its assets, real or
personal, tangible or intangible; (d) canceled, waived, or released or agreed to
cancel, waive, or release any of its debts, rights, or claims against third
parties in excess of $10,000 individually or $50,000 in the aggregate; (e) sold,
assigned, pledged, mortgaged, or otherwise transferred, or suffered any Material
damage, destruction, or loss (whether or not covered by insurance) to, any
assets (except in the ordinary course of the Business); (f) amended its Articles
of Organization or Regulations; (g) outside the ordinary course of business,
paid or made a commitment to pay any
-15-
<PAGE>
severance or termination payment to any employee or consultant; (h) made any
Material change in its method of management operation, accounting or reporting
of income or deductions for tax purposes or any change outside the ordinary
course of the Business in the Company's working capital other than Permitted
Distributions; (i) made any Material acquisitions, made any Material capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $50,000; (j) made any investment or commitment therefor in any Person;
(k) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses, other than (i) wages and salaries and
business expenses paid in the ordinary course of the Business, and (ii) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, managers, or members of the Company; (l) made, amended or
entered into any written employment contract with any officers or key employees
of the Company listed on Schedule 3.15 hereto or created or made any Material
-------------
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (m) made or entered into any Contract
greater than the smallest of the non-employee Contracts scheduled in accordance
with Schedule 3.15; (n) made or entered into any agreement granting any Person
-------------
any registration or offer rights in respect of the Company's units; (o) entered
into any non-competition agreement restricting the Company from engaging in the
Business; (p) made or entered into any employment agreement or other agreement
or other arrangement with any officer, manager, member or Affiliate of the
Company; or (q) amended, experienced a termination or received notice of actual
or threatened termination or non- renewal of any Material contract, agreement,
lease, franchise or license to which the Company is a party that would or could
reasonably be expected to have a Material Adverse Effect.
3.9. Properties. The Leases Schedule attached hereto as Schedule
---------- --------------- --------
3.9 lists and briefly describes each interest in real property (including,
- ---
without limitation, leasehold interests) and each item of personal property
owned or leased by the Company and utilized in the conduct of the Business
having a book or fair market value in excess of $10,000 as of February 29, 2000.
Except for Permitted Exceptions and the Encumbrances to be released on or before
the Closing Date, such real and personal properties owned by the Company are
free and clear of Encumbrances. The Company has delivered to Iconixx copies of
all real property leases and a lien search obtained from Harris County, Texas
and the Texas Secretary of State office of all UCC liens of record against the
Company's personal property in the State of Texas. Except as set forth in
Schedule 3.9, all of the material properties and assets necessary for continued
- ------------
operation of the Business as currently conducted (including, without limitation,
all books, records, computers and computer software and data processing systems)
are owned, leased or licensed by the Company and are reasonably suitable for the
purposes for which they are currently being used. With the exception of used
equipment and inventory valued at no more than $10,000 in the aggregate on the
Company's Financial Statements, the physical properties of the Company,
including the real properties leased by the Company, are in good operating
condition, reasonable wear and tear excepted. Except for Permitted Exceptions,
the Company has title to all such properties and assets owned by the Company.
The Company's operation of the properties and Business in the manner in which
they are now and have been operated does
-16-
<PAGE>
not violate any zoning ordinances, municipal regulations, or other Requirements
of Laws, except for any such violations which would not, individually or in the
aggregate, have a Material Adverse Effect. The real property leased by the
Company has free and uninterrupted access to and from a dedicated public
right-of-way by reason of the fact that such parcel either adjoins such
dedicated public right-of-way or connects to such right-of-way through a valid
and subsisting easement and, to the Knowledge of the Company, such access is
adequate for the use being made by the parcel being accessed. All leases of real
or personal property by the Company are in full force and effect and constitute
the legal, valid and binding obligations of the Company, subject to the
Equitable Exceptions, and except as set forth on Schedule 3.9, will not be
------------
terminated on or after the Closing Date as a result of the failure to obtain any
consents to the Acquisition contemplated hereby. All facilities leased by the
Company have received all material approvals from any Governmental Body
(including Governmental Permits) required to be obtained by the Company in
connection with the operation of the Business and have been operated and
maintained in accordance with all material Requirements of Laws applicable to
the Company as a lessee thereof. The Company owns no real property. The
Purchased Assets and all real and personal property leased by the Company, the
leases of which are included in the Purchased Assets, constitute all of the
Material assets reasonably necessary to operate the Business as currently
conducted.
3.10. Licenses and Permits. Schedule 3.10 lists all material
-------------------- -------------
licenses, certificates, privileges, immunities, approvals, franchises,
authorizations and permits held or applied for by the Company from any
Governmental Body (herein collectively called "Governmental Permits"). The
Company has complied in all material respects with the terms and conditions of
all such Governmental Permits, and the Company has not received notification
from any Governmental Body of violation of any such Governmental Permit or the
Requirements of Laws governing the issuance or continued validity thereof. All
of such Governmental Permits are valid and in full force and effect. No
additional Governmental Permits are required from any Governmental Body thereof
in connection with the conduct of the Business which Governmental Permits, if
not obtained, would individually or in the aggregate have a Material Adverse
Effect.
3.11. Intellectual Property. Schedule 3.11 lists and briefly
--------------------- -------------
describes all material Intellectual Property owned or licensed by the Company.
The Company has furnished Iconixx with copies of all material license agreements
(including software licensing agreements but excluding all shrinkwrap, clickwrap
or other similar end user license agreements) to which the Company is a party,
either as licensor or licensee, with respect to any Intellectual Property. The
Company has legal title to or the right to use all the Intellectual Property and
all inventions, processes, designs, formulae, trade secrets and know-how
utilized in the conduct of the Business as presently conducted and, the Company
has sufficient rights in the Intellectual Property to permit diversification of
the Company's customer base as currently planned by the Company immediately
prior to the Closing without material impediment, without the payment of any
royalty or similar payment other than those set forth on Schedule 3.11, and the
-------------
Company is not infringing on any intellectual property right of others in any
Material respect and neither the Company nor the Majority Members have Knowledge
of any infringement by others of any such rights owned by the Company; provided,
however, that the Company's representation that it is
-17-
<PAGE>
not infringing on the intellectual property rights of others is expressly
limited to the Company's Knowledge with respect to the infringement of any "off
the shelf" software licensed by the Company; provided, further, that the Company
has complied in all material respects with the terms of any software licenses
and has not unlawfully copied or pirated any "off the shelf" software licensed
by the Company. The Company has not received notice of any charge, claim,
demand, complaint, action, suit, hearing, proceeding or investigation which
challenges the Company's ownership or licensing of any Intellectual Property,
the Company's current uses or the Company's compliance with the terms and
conditions of any contracts, licenses, agreements or Court Orders involving the
Intellectual Property. Schedule 3.11 contains a complete list of filings made
-------------
with any Governmental Bodies with regard to the Intellectual Property owned by
the Company. All licenses set forth on Schedule 3.11 are valid and binding
-------------
obligations of the Company, and to the Knowledge of the Company the other
parties thereto, enforceable against the Company, and to the Knowledge of the
Company the other parties thereto in accordance with their respective terms,
except for the Equitable Exceptions. The Company owns and possesses all right,
title and interest in and to, or has the right to use pursuant to a valid
license, all Material Intellectual Property necessary for the operation of the
Business of the Company as presently conducted. Except as provided on Schedule
--------
3.11, the Company's use of each item of the Material Intellectual Property owned
- ----
or licensed by Company (i) will not be terminated as a result of the Acquisition
contemplated hereby; (ii) to the Company's knowledge, does not interfere with
the rights of any other Person based on the Company's current use of such items
or the Company's currently proposed use of such items; (iii) are in compliance
with the material terms and conditions of all license or other agreements
relating to such items; and (iv) does not violate any material Requirements of
Laws or Courts Orders applicable to the Company or, to the Company's Knowledge,
any other party to any material license or other agreement relating to such
Intellectual Property to which the Company is a party. The Company is not in
default (whether or not after the giving of notice or the lapse of time or both)
under any material license, contract or other agreement relating to any
Intellectual Property, except for any such default which does not and could not
reasonably be expected to have a Material Adverse Effect.
3.12. Compliance with Laws. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all material statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and is in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, the Solid Waste Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Safe Drinking Water Act, OSHA, the
Toxic Substances Control Act and any similar state, local or foreign laws
(collectively "Environmental and OSHA Obligations") and all other Governmental
Body requirements, except where any such failure to comply or file would not, in
the aggregate, have a Material Adverse Effect. No claim has been made by any
Governmental Body (and, to the Knowledge of the Company and the Majority
Members, no such claim is reasonably anticipated)
-18-
<PAGE>
to the effect that the Business fails to comply, in any material respect, with
any Requirements of Laws, Governmental Permit or Environmental and OSHA
Obligation or that a Governmental Permit or Court Order is necessary in respect
thereto.
3.13. Insurance. Schedule 3.13 lists all coverages for fire,
--------- -------------
liability, or other forms of insurance and all fidelity bonds held by or
applicable to the Company. Copies of the binder for all such insurance policies
have been delivered to Iconixx. The insurance maintained by the Company is
customary and reasonably adequate for companies engaged in the Business. To the
Company's Knowledge, no event relating to the Company has occurred which will
result in cancellation of any such insurance coverages.
3.14. Employee Benefit Plans.
----------------------
(a) Employee Welfare Benefit Plans and Other Arrangements. Except as
-----------------------------------------------------
disclosed on Schedule 3.14(a), the Company does not maintain or contribute to
----------------
any "employee welfare benefit plan" as such term is defined in Section 3(1) of
ERISA or Other Arrangement (each a "plan"). With respect to each such plan: (i)
the plan is, in all material respects, in compliance with, and, except as set
forth on Schedule 3.14(a), the Company does not have any liability with respect
----------------
to any such plan under ERISA, the Code or any Requirements of Law; (ii) the plan
has been administered, in all material respects, in accordance with its
governing documents; (iii) neither the plan, nor any fiduciary with respect to
the plan, has engaged in any "prohibited transaction" as defined in Section 406
of ERISA other than any transaction subject to a statutory or administrative
exemption; (iv) except for the processing of routine claims in the ordinary
course of administration, there is no litigation, arbitration or disputed claim
outstanding which relates to any such plan; and (v) all premiums due on any
insurance contract through which the plan is funded have been paid. All
employee welfare benefit plans and the related trusts that are subject to
Section 4980B(f) of the Code and Sections 601 through 607 of ERISA comply with
and have been administered, in all material respects, in compliance with the
health care continuation-coverage requirements for tax-favored status under
Section 4980B(f) of the Code and Sections 601 through 607 of ERISA. All
employee welfare benefit plans currently comply with and have been administered,
in all material respects, in compliance with the requirements of the (i) Health
Insurance Portability and Accountability Act of 1996, to the extent applicable,
and applicable proposed or final regulations, and (ii) Mental Health Parity Act
of 1996, to the extent applicable.
(b) Employee Pension Benefit Plans. Except as set forth in Schedule
------------------------------ --------
3.14(b), the Company does not maintain or contribute to any arrangement that is
- -------
or may be an "employee pension benefit plan" relating to employees, as such term
is defined in Section 3(2) of ERISA. With respect to each such plan: (i) the
plan is qualified under Section 401(a) of the Code, and any trust through which
the plan is funded meets the requirements to be exempt from federal income tax
under Section 501(a) of the Code; (ii) the plan is, in all material respects, in
compliance with ERISA and all other applicable Requirements of Laws; (iii) the
plan has been administered, in all Material respects, in accordance with its
governing documents as modified by applicable law; (iv) the plan has not
suffered an "accumulated funding deficiency" as defined in Section 412(a) of the
Code; (v) the plan has not
-19-
<PAGE>
engaged in, nor has any fiduciary with respect to the plan engaged in, any
"prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of
the Code other than a transaction subject to statutory or administrative
exemption; (vi) the plan has not been subject to a "reportable event" (as
defined in Section 4043(b) of ERISA), the reporting of which has not been waived
by regulation of the Pension Benefit Guaranty Corporation; (vii) no termination
or partial termination of the plan has occurred within the meaning of Section
411(d)(3) of the Code; (viii) all contributions required to be made to the plan
have been made to or on behalf of the plan or accrued in accordance with GAAP;
(ix) there is no litigation, arbitration or disputed claim outstanding; (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis; and (xi) a
favorable determination letter from the IRS has been received by the Company
with respect to such plan stating that such plan is so qualified; and, to the
Company's Knowledge, there are no circumstances which would cause such plan to
lose such qualified status.
(c) Employment and Non-Tax Qualified Deferred Compensation
------------------------------------------------------
Arrangements. Except as set forth on Schedule 3.14(c), the Company does not
- ------------ ----------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, manager or employee
of the Company that is not intended to be and that is not a tax qualified
arrangement under Section 401(a) of the Code.
3.15. Contracts and Agreements. Schedule 3.15 hereto contains a
------------------------ -------------
list of all customer contracts that obligate the Company to sell or supply
products or perform services following the Closing Date that involve an amount
greater than $50,000, all employment contracts involving annual salaries greater
than $60,000 and all employment contracts with general managers or officers of
the Company. Schedule 3.15 also contains a list of the 30 largest contracts (in
-------------
terms of annual payments made or received with respect thereto) to which the
Company is a party or by which the Company or its properties are bound, a list
of any real estate or office building leases involving the Company and a list of
any contract or agreements, if any, prohibiting the Company from freely engaging
in the Business anywhere in the world (collectively, the "Contracts"). Except
as set forth in Schedule 3.15, the Company is not and, to the Knowledge of the
--------------
Majority Members and the Company, no other party thereto is in default in any
material respect (and no event has occurred which, with the passage of time or
the giving of notice, or both, would constitute such a default by the Company)
under any of the Contracts, and the Company has not waived any right under any
of the Contracts. All of the Contracts to which the Company is a party are in
full force and effect and constitute valid and binding obligations of the
Company, subject to the Equitable Exceptions. Except as set forth on Schedule
--------
3.15, all of the Contracts to which the Company is a party will not be
- ----
terminated on or after the Closing Date as a result of the failure to obtain any
consents to the Acquisition contemplated hereby, and will be assignable to
Buyer. Except as set forth on Schedule 3.15, the Company has not guaranteed any
-------------
obligations of any other Person. The Company has no present expectation or
intention of not fully performing all of its obligations under any Contract;
provided, however, that following the Closing and the assignment of the
Contracts to the Buyer, the Company has no intention of performing any further
obligations under the Contracts, except as provided in Section 6.5 hereof.
-----------
-20-
<PAGE>
A.B. Holdings has no Knowledge of any intention or desire of N.F. Smith &
Associates, L.P. to terminate the Company's contract with N.F. Smith &
Associates, L.P. after its assignment to the Buyer. Except as set forth on
Schedule 3.15, the Company has no Knowledge of any breach or anticipated breach
- -------------
by the other parties to any Contract and the Company has not received notice of
actual or threatened termination or non renewal of any Contract.
3.16. Claims and Proceedings. Except as set forth on Schedule
---------------------- --------
3.16, there are no claims, actions, suits, proceedings, or investigations
pending or, to the Knowledge of the Majority Members or the Company, threatened
against or affecting the Company or any of its properties or assets, at law or
in equity, before or by any court, municipality or other Governmental Body. To
the extent any are disclosed on Schedule 3.16, none of such claims, actions,
-------------
suits, proceedings, or investigations, if adversely determined, will
individually or in the aggregate result in any Material Adverse Effect to the
Company except as otherwise disclosed therein. The Company has not been and the
Company is not now, subject to any Court Order, stipulation, or consent of or
with any court or Governmental Body. No inquiry, action or proceeding has been
instituted or, to the Knowledge of the Majority Members or the Company,
threatened or asserted against the Majority Members or the Company to restrain
or prohibit the carrying out of the Acquisition or to challenge the validity of
the Acquisition or any part thereof or seeking damages on account thereof, and
to the Knowledge of the Company and the Majority Members, there is no basis for
any such valid claim or action.
3.17. Taxes.
-----
(a) All Federal, foreign, state, county and local and other Taxes due
from the Company on or before the Closing have been paid, or adequate provisions
for the payment thereof have been made, and except as set forth on Schedule
--------
3.17, all Tax Returns which are required to be filed by the Company on or before
the date hereof have been filed within the time and in the manner provided by
all Requirements of Laws or extensions were timely filed, and all such Tax
Returns are true and correct and accurately reflect the Tax liabilities of the
Company in all respects. No Tax Returns of the Company are presently subject to
an extension of the time to file. All Taxes, assessments, penalties, and
interest of the Company which have become due pursuant to such Tax Returns or
any assessments received have been paid or adequately accrued on the Financial
Statements. The provisions for Taxes reflected on the balance sheets contained
in the Financial Statements are adequate to cover all of the Company's Tax
liabilities for the respective periods then ended and all prior periods. The
Company has not executed any presently effective waiver or extension of any
statute of limitations against Material assessments and collection of Taxes, and
there are no pending or, to the Knowledge of the Company, threatened claims,
assessments, notices, proposals to assess, deficiencies, or audits with respect
to any such Taxes of which any of the Majority Members or the Company are aware.
For Governmental Bodies with respect to which the Company files Tax Returns, no
such Governmental Body has given the Company written notification within the
last two years that the Company is or may be subject to additional taxation by
that Governmental Body. Except as set forth on Schedule 3.17, 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, member, creditor,
independent contractor or other party. The Company has properly
-21-
<PAGE>
reflected for tax purposes in accordance with all Requirements of Laws the
status of all independent contractors, consultants and subcontractors. There are
no Tax liens on any of the property or assets of the Company except for the
Permitted Exceptions. The Company (and any predecessor of the Company) has been
validly electing to be taxed as a partnership within the meanings of applicable
sections of the Code at all times since the date of its formation.
(b) The Company has not made any payments, is not obligated to make
any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code 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 is not a
party to any Tax allocation or sharing agreement.
(c) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no transfer taxes, real estate
transfer taxes or similar taxes will be imposed upon the sale of the Purchased
Assets pursuant to this Agreement.
3.18. Personnel. Schedule 3.15 sets forth a list of the names and
--------- -------------
annual rates of compensation of the managers and executive officers of the
Company, and of the employees of the Company whose annual rates of compensation
during the calendar year ended December 31, 1999 (including base salary, bonus
and incentive pay) exceeded (or by December 31, 2000 are expected to exceed)
$60,000 and the employment agreements, if any, pertaining to such employees.
Schedule 3.18 summarizes the bonus, profit sharing, percentage compensation,
- -------------
company automobile, club membership, and other like benefits, if any, paid or
payable to such managers, officers, and employees during the Company's calendar
year ended December 31, 1999 and to the date hereof. Except as set forth on
Schedule 3.18, the employee relations of the Company are generally good, there
- -------------
has been no unusual level of employee departures and there is no pending or, to
the Knowledge of Majority Members or the Company, threatened labor dispute or
union organization campaign. None of the employees of the Company is covered by
a collective bargaining agreement. The Company is in compliance in all material
respects with all Requirements of Laws respecting employment and employment
practices, including, without limitation, the Fair Labor Standards Act of 1938,
immigration hiring, terms and conditions of employment, and wages and hours, and
is not engaged in any unfair labor practices. Neither the Company nor the
Majority Members have Knowledge that any Person listed on Schedule 3.15 hereto
-------------
will not agree to remain employed by Buyer after the consummation of the
Acquisition. There is no unfair labor practice claim against the Company before
the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage pending or, to the Knowledge of the Company and the Majority Members,
threatened against or involving the Company, and none has previously occurred.
3.19. Business Relations. Except as set forth on Schedule 3.19,
------------------ -------------
since December 31, 1999, neither the Company nor the Majority Members have
Knowledge that any customer, supplier or licensor engaged in doing business with
the Company will cease to do business with the Company as a result of the
consummation of the Acquisition except for any terminations which will not, in
the aggregate, result in a Material Adverse Change. Except as set
-22-
<PAGE>
forth on Schedule 3.19, neither the Majority Members nor the Company has
-------------
received any notice of cancellation of any Material business arrangement between
any Person and the Company, and neither the Company nor the Majority Members
have Knowledge that the Business will be subject to cancellation of any such
business arrangement.
3.20. Accounts Receivable; Accounts Payable; Customer Deposits;
---------------------------------------------------------
Customer Revenues and Deferred Revenues.
- ---------------------------------------
(a) Accounts Receivable. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company in the Financial
Statements are bona fide and represent amounts validly due for goods sold or
services rendered, except for amounts reserved for as doubtful accounts
consistent with the reserves in the Financial Statements and, to the Company's
Knowledge, all such amounts as of the Closing Date will be collected in full
prior to August 31, 2000. Except as set forth on Schedule 3.20(a), such
----------------
accounts, notes, and loans receivable: (i) all are free and clear of any
Encumbrances; (ii) no claims of offset have been asserted in writing against any
of such accounts, notes, or loans receivable; and (iii) none of the obligors
thereto has given written notice that it will or may refuse to pay the full
amount or any portion thereof. Lists of the Company's accounts receivable as of
December 31, 1999 (including any reconciliation to the accounts receivable entry
on the balance sheet included in the Most Recent Financial Statements) have been
attached to Schedule 3.20(a).
----------------
(b) Accounts Payable. The aggregate amount of accounts payable
-----------------
reflected on the Most Recent Financial Statements are prepared in accordance
with GAAP, and reflect the accounts payable of the Company as of December 31,
1999.
(c) Customer Deposits; Customer Revenues and Deferred Revenues.
----------------------------------------------------------
Schedule 3.20(c) sets forth, as of the date specified therein all deferred
- ----------------
revenues as of such date on an aggregate basis. For the year ending December
31, 1999, the Company's actual deposits and revenues from customer contracts are
not less than the Company's deposits and revenues from customer contracts for
the year ending December 31, 1998.
3.21. Bank Accounts; Investments. Schedule 3.21 lists all banks or
-------------------------- -------------
other financial institutions with which the Company has an account or maintains
a safe deposit box, showing the type and account number of each such account and
safe deposit box and the names of the persons authorized as signatories thereon
or to act or deal in connection therewith. Schedule 3.21 also lists all
-------------
Material investments by the Company in any funds, accounts, securities,
certificates of deposit or instruments of any Person. None of such investments
involve any type of derivative, option, hedging or other speculative instrument.
3.22. Customer Claims. Except as set forth in Schedule 3.22, no
--------------- -------------
written or oral claims for breach of contract or otherwise by any customers (a
"Customer Claim") has been made against the Company since January 1, 1999 which
could, individually or in the aggregate, result in any Material Adverse Effect.
The level of Customer Claims for the period
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<PAGE>
since December 31, 1998 through the date hereof is consistent (plus or minus 5%)
with past practices of the Company for the comparable period in 1998.
3.23. Affiliated Transactions. Except as set forth in Schedule
----------------------- --------
3.23, no officer, manager, member or Affiliate of the Company or any individual
- ----
related by blood or marriage to any such Person, or any entity in which any such
Person owns any beneficial interest, is a party to any agreement, contract,
arrangement or commitment with the Company or engaged in any transaction with
the Company or has any interest in any property used by the Company. Except as
set forth in Schedule 3.23, no officer, manager or member of the Company has any
-------------
ownership interest in any competitor, supplier, or customer of the Company
(other than ownership of securities of a publicly-held corporation or mutual
fund of which such Person owns, or has real or contingent rights to own, less
than five percent of any class of outstanding securities) or any property used
in the operation of the Business.
3.24. Funded Indebtedness; Letters of Credit; Undisclosed
---------------------------------------------------
Liabilities.
- -----------
(a) Funded Indebtedness. Other than any Funded Indebtedness which is
-------------------
to be repaid and discharged by the Company prior to Closing in accordance with
Section 7.1(d), the Company does not have any Funded Indebtedness.
- --------------
(b) Letters of Credit. Other than those listed on Schedule 3.24, the
----------------- -------------
Company has no letters of credit, performance bonds or similar instruments
issued on or for its account for the benefit of any of its vendors or otherwise.
(c) Undisclosed Liabilities. The Company does not have any Material
-----------------------
liabilities in the aggregate (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected on a company balance
sheet or in the notes thereto, except for (i) such liabilities which are accrued
or reserved against in the Financial Statements or disclosed in the notes
thereto, (ii) liabilities and obligations incurred since December 31, 1999 in
the ordinary course of business (including, without limitation, any accounts
payable or service liabilities of the Company incurred prior to the Closing
Date), and (iii) those disclosed on Schedule 3.24(c).
----------------
3.25. Year 2000. Except as set forth on Schedule 3.25, the Company
--------- -------------
has not been engaged in any year 2000 correction consulting work for customers
pertaining to its work product and has received no claim or notice from any
customer regarding the failure of the Company to install computer software that
is year 2000 compliant.
3.26. Information Furnished. The Company and the Majority Members
---------------------
have made available to Iconixx true and correct copies of all material company
or unit records of the Company and all material agreements, documents, and other
items listed on the Disclosure Schedules to this Agreement or referred to in
Article III of this Agreement, and neither this Agreement, the Disclosure
- -----------
Schedules hereto, nor any written information, instrument, or document delivered
to Buyer or Iconixx pursuant to this Agreement contains any untrue
-24-
<PAGE>
statement of a Material fact or omits any Material fact necessary to make the
statements herein or therein, as the case may be, not misleading.
ARTICLE IV
BUYER'S AND ICONIXX'S REPRESENTATIONS AND WARRANTIES
Except as set forth on the Disclosure Schedules attached hereto (which
Disclosure Schedules identify the exception and references the applicable
representation so qualified), Buyer and Iconixx jointly and severally represent
and warrant to the Majority Members and the Company as follows:
4.1. Due Organization of Iconixx and Buyer. Iconixx and Buyer are
-------------------------------------
each a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware and each has full corporate power and
authority to own and lease its properties and assets and to carry on its
business as now conducted or as contemplated. Each of Iconixx and Buyer are
qualified to do business in each jurisdiction in which the nature of their
business or the ownership of their properties require such qualification except
where the failure to be so qualified does not and could not reasonably be
expected to have a material adverse effect upon the business, condition,
operations, assets, liabilities or prospects of Buyer, Iconixx and its
subsidiaries, taken as a whole (hereinafter, an "Iconixx Material Adverse
Effect").
4.2. Due Authorization. Iconixx and Buyer each have full corporate
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the Acquisition. The execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate action by Iconixx and Buyer
and the Agreement has been duly and validly executed and delivered by Iconixx
and Buyer and constitutes the valid and binding obligation of each of Iconixx
and Buyer, enforceable in accordance with its terms, except for the Equitable
Exceptions. The execution, delivery, and performance of this Agreement and the
Escrow Agreement (as well as all other instruments, agreements, certificates or
other documents contemplated hereby) by Iconixx and Buyer shall not (a) violate
any Requirements of Laws or Court Order of any Governmental Body applicable to
Iconixx or Buyer their property, (b) violate or conflict with, or permit the
cancellation of, or constitute a default under any agreement to which Iconixx or
Buyer is a party or by which Iconixx or Buyer or their property is bound, (c)
permit the acceleration of the maturity of any indebtedness of, or any
indebtedness secured by the property of, Iconixx or Buyer, (d) violate or
conflict with any provision of the Certificate of Incorporation or Bylaws of
Iconixx or Buyer, or (e) except for filings or approvals under the HSR Act and
such consents, approvals, or registrations as may be required under applicable
state securities laws, require any consent, approval or authorization of, or
notice to, or declaration, filing or registration with, any Governmental Body or
other third party.
4.3. No Brokers. Except as set forth on Schedule 4.3 hereto,
---------- ------------
Iconixx has not engaged, or caused to be incurred any liability for which the
Majority Members may be liable to any finder, broker or sales agent in
connection with the origin, negotiation, execution, delivery, or performance of
this Agreement or the Acquisition.
-25-
<PAGE>
4.4. Information Furnished. No written information, instrument or
---------------------
document delivered to the Majority Members or the Company pursuant to this
Agreement contains any untrue statement of a material fact or omits any material
fact necessary to make the statements appearing in the aforementioned items, not
misleading.
4.5. Capital Stock and Related Matters. As of the Closing and
---------------------------------
immediately thereafter, the authorized capital stock of Iconixx shall consist of
100,000,000 shares of stock, of which (i) 150,000 shares shall be designated as
Preferred Stock and (ii) 99,850,000 shares shall be designated as Common Stock.
The ownership of the issued and outstanding Preferred Stock and Common Stock are
as set forth on the Iconixx Capitalization Schedule. As of the Closing, all of
-------------------------------
the outstanding shares of Iconixx's capital stock shall be validly issued, fully
paid and nonassessable and all such shares were offered, issued and sold in
compliance with all applicable state and federal securities laws. None of such
shares were issued in violation of any preemptive rights.
4.6. Authorization of the Stock. Iconixx has authorized the
--------------------------
issuance and sale to the Company of up to an aggregate of 3,867,728 shares of
Common Stock, each having the rights and preferences set forth in the Iconixx's
Certificate of Incorporation attached hereto as Exhibit E. Each share of Common
---------
Stock to be issued to the Company pursuant to this Agreement will be, when
issued in accordance with the terms hereof, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
4.7 Compliance with Laws. Each of Buyer, Iconixx and its
--------------------
subsidiaries has (i) complied in all material respects with all Requirements of
Laws, Governmental Permits and Court Orders applicable to the conduct of their
business and has filed with the proper Governmental Bodies all material
statements and reports required by all Requirements of Laws, Governmental
Permits and Court Orders to which they, or any of their employees (because of
their activities on behalf of Buyer, Iconixx or its subsidiaries) are subject
and (ii) conducted their respective business and is in compliance in all
material respects with all Environmental and OSHA Obligations and all other
Governmental Body requirements, except where any such failure to comply or file
would not, in the aggregate, have an Iconixx Material Adverse Effect. No claim
has been made by any Governmental Body (and, to the Knowledge of Iconixx, no
such claim is reasonably anticipated) to the effect that the business of Buyer,
Iconixx or its subsidiaries fails to comply, in any material respect, with any
Requirements of Laws, Governmental Permit or Environmental and OSHA Obligation
that would, in the aggregate, have an Iconixx Material Adverse Effect.
4.8 Taxes. All Federal, foreign, state, county and local and other
-----
Taxes due from Buyer, or Iconixx on or before the Closing have been paid, or
adequate provisions for the payment thereof have been made, and all Tax Returns
which are required to be filed by the such entities on or before the date hereof
have been filed within the time and in the manner provided by all Requirements
of Laws or extensions were timely filed, and all such Tax Returns are true and
correct and accurately reflect the Tax liabilities of such entities in all
respects. All Taxes, assessments, penalties, and interest of Buyer, Iconixx or
its subsidiaries which have become due pursuant to such Tax Returns or any
assessments received have been paid or adequately accrued
-26-
<PAGE>
on the Iconixx Financial Statements except for those which would not result in
an Iconixx Material Adverse Effect. There are no pending or, to the Knowledge of
Iconixx, threatened claims, assessments, notices, proposals to assess,
deficiencies, or audits with respect to any such Taxes which could result in an
Iconixx Material Adverse Effect.
4.9 Claims and Proceedings. There are no claims, actions, suits,
----------------------
proceedings or investigations pending, or to the Knowledge of Iconixx,
threatened against or affecting Buyer, Iconixx or any of its subsidiaries or
their properties or assets, at law or in equity, before any court, municipality,
or other Governmental Body, which, if adversely determined, would result in an
Iconixx Material Adverse Effect.
4.10 Intellectual Property. Iconixx and each of its subsidiaries
---------------------
has legal title to or the right to use all intellectual property and all
inventions, processes, designs, formulae, trade secrets and know-how which are
utilized in and material to, the conduct of their respective business as
presently conducted. To the Knowledge of Iconixx, neither Iconixx nor any of
its subsidiaries is infringing upon any intellectual property right of others
and Iconixx has no knowledge of any infringement by others of any such rights
owned by Iconixx or its subsidiaries. Neither Iconixx nor any subsidiary is in
default (whether or not after the giving of notice or the lapse of time or both)
under any material license, contract or other agreement relating to any material
intellectual property, except for any such default which does not and could not
reasonably be expected to result in an Iconixx Material Adverse Effect.
4.11 Registration Rights. Except for the registration rights set
-------------------
forth in the Registration Rights Agreement dated August 12, 1999 between Iconixx
and its stockholders, Iconixx has not granted registration rights to any other
Person.
4.12 Financial Statements. The following financial statements of
--------------------
Iconixx and its subsidiaries have been delivered to the Company: an unaudited
consolidating balance sheet of Iconixx as of December 31, 1999 and unaudited
consolidating statement of operations of Iconixx for the three months ended
December 31, 1999(collectively, "Iconixx Financial Statements"). Except as set
forth on Schedule 4.12 or otherwise noted on the Iconixx Financial Statements,
-------------
to the knowledge of Iconixx, such Iconixx Financial Statements have been
prepared in accordance with GAAP. The Iconixx Financial Statements (including
the notes thereto) have been prepared on a consistent basis throughout the
periods indicated and fairly present, in all material respects, the financial
position, results of operations and changes in financial condition of each
entity as of the indicated dates and for the indicated periods.
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY, ICONIXX, BUYER AND THE
MAJORITY MEMBERS
5.1. Consents of Others. Prior to the Closing, the Company and the
------------------
Majority Members shall use commercially reasonable efforts to obtain and to
cause the Company to obtain all material authorizations, consents and permits
required of the Company and the Majority
-27-
<PAGE>
Members to permit them to consummate the Acquisition. To the extent required to
consummate the Acquisition or to ensure that the Contracts shall not be
terminated as a result of the Closing, the Company shall have obtained the
written consent or waiver of any "assignment" type termination rights of any
third party to any Contract. As promptly as practicable after the date hereof,
Iconixx, Buyer, the Company and the Majority Members shall make, or shall cause
to be made, such filings as may be required pursuant to the HSR Act with respect
to the consummation of the Acquisition. Prior to Closing, the Company shall have
obtained the consent to the assignment, without substantial change, to Buyer of
each of its vendor contracts with Versata, pcOrder, Asera, Peregrine, Onyx and
Sensormatic.
5.2. Reasonable Efforts. The Company, the Majority Members,
------------------
Iconixx and Buyer shall use commercially reasonable efforts to cause all
conditions for the Closing to be met.
5.3. Employees.
---------
(a) Except as provided in Section 5.3(b) with respect to the
--------------
Retained Employees, the Company and the Majority Members shall cause the
Company to terminate at or prior to Closing all employees of the Company
(the "Employees") and Buyer (or an Affiliate thereof) shall offer
employment to all the Employees, which Employees shall be identified on an
"Employee Schedule" (the "Transferred Employees") to be delivered by the
Company to Buyer immediately upon execution of this Agreement, on terms and
conditions substantially similar to their employment by the Company and
assume all accrued obligations to such employees to the extent disclosed to
Iconixx and either reserved for on the Preliminary Closing Balance Sheet or
set forth on Schedule 5.3; provided that the terms of this Section 5.3
------------ -----------
shall not entitle any Employee to remain in the employment of the Company
or Buyer or affect the right of Buyer to terminate any Employee at any
time, or to establish, modify or terminate any employee benefit plan as
defined in Section (3)(3) of ERISA or any benefit under any such plan at
any time. The Company shall assume all obligations and liability under
Section 4980B of the Code with respect to the Company's current and former
employees and their qualified beneficiaries where such employees' or
qualified beneficiaries' initial qualifying event occurs on or prior to the
Closing Date. The Company shall be responsible for any notices or other
obligations required under Section 4980 of the Code in connection with the
Company's termination of any employees' employment hereunder.
(b) Notwithstanding anything in this Section 5.3 to the contrary,
-----------
the Company shall retain on its payroll the employees listed on Schedule
--------
5.3(b) (the "Retained Employees") pursuant to the terms of an Employee
------
Transition Services Agreement substantially in the form attached hereto as
Exhibit H until the earlier of (i) any required or recommended filings with
---------
respect to the Retained Employees' immigration status or petition for
permanent residence have been received to the reasonable satisfaction of
Buyer or (ii) December 31, 2000. The Company and Buyer shall cooperate in
the completion of any such filings and approvals. On or prior to the date
hereof, the Company shall have furnished to Buyer copies of all original I-
9 files, personnel files and immigration files for all Transferred
Employees.
-28-
<PAGE>
(c) Buyer shall take all action necessary and appropriate to
extend coverage, effective as of the Closing Date, under a 401(k) plan
and/or other qualified pension plan (the "Buyer's Retirement Plan") to the
Transferred Employees having account balances under the 401(k) plan of
which the Company is an adopting employer (the "Company 401(k) Plan") as of
the Closing Date. Such Transferred Employees shall be credited under the
Buyer's Retirement Plan, for eligibility and vesting purposes, with the
service credited under the terms of Company 401(k) Plan. The Company shall
provide Buyer with all such information as is necessary for Buyer to carry
out its obligations under the foregoing sentence. The Company shall cause
to be made any contributions that are required under the Company 401(k)
Plan for the period prior to the Closing Date, and Buyer shall have no
responsibility therefor. Buyer agrees to establish an arrangement under
which a Transferred Employee may provide for payroll withholding for the
purpose of repaying any loan that is outstanding under the Company 401(k)
Plan as of the Closing Date to such Transferred Employee.
(d) Buyer shall provide the Company with an opinion letter of
counsel acceptable to the Company that the Buyer's Retirement Plan
satisfies the requirements for qualification and exemption under Sections
401(a) and 501(a) of the Code, or deliver to the Company a favorable
determination letter issued by the IRS and acceptable to Seller that the
Buyer's Retirement Plan satisfies the requirements for qualification under
such Code sections. As soon as practicable after the expiration of 60 days
following the filing of Forms 5310 with the IRS, if required, the Company
shall cause the trustee of the Company 401(k) Plan to transfer to the trust
forming a part of the Buyer's Retirement Plan such assets (including cash
and participant notes) equal to the aggregate account balances (including
vested and unvested balances and loan balances) of the Transferred
Employees as of such transfer date. Buyer shall establish accounts in the
Buyer's Retirement Plan for the Transferred Employees equal to the
aggregate account balances transferred.
(e) Buyer agrees to assume the Company's group medical, dental
benefit, life, and disability plans listed on Schedule 5.3(e) (the
---------------
"Transferred Benefit Plans") as of the Closing Date and to provide coverage
to the Transferred Employees (effective as of the day following the Closing
Date) under the Transferred Benefit Plans on the same terms and conditions
as such coverage is generally maintained by Buyer or Iconixx for its
employees and their dependents under Buyer or Iconixx's medical and/or
dental benefit plans. Buyer shall honor any deductible and out of pocket
expenses incurred by Transferred Employees and their beneficiaries under
the Transferred Benefit Plans during the portion of the year 2000 prior to
the Closing Date. Notwithstanding the foregoing, nothing in this Section
-------
5.3(e) shall prevent Buyer from providing coverage to the Transferred
------
Employees under new or different benefit plans provided that such new or
different benefit plans provide coverage to the Transferred Employees that
is substantially similar to the coverage contemplated by this Section
-------
5.3(e).
------
(f) Buyer agrees that all accrued service credit of a Transferred
Employee with the Company (and any entity affiliated with Company under
Sections 414(b), (c), (m) or (o) of the Code) shall be recognized by Buyer
for all employee benefit purposes.
-29-
<PAGE>
(g) Buyer will permit Transferred Employees to schedule and take
unused vacation days with pay to the extent that such vacation days are
reflected on the Most Recent Financial Statements or have been accrued and
earned through the Closing Date, in accordance with the vacation policies
of the Company as of the Closing Date.
(h) The Company and Buyer shall cooperate with each other in all
respects relating to any actions to be taken pursuant to this Section 5.3.
-----------
5.4. Conduct of Business Pending Closing. From the date of this
-----------------------------------
Agreement to the Closing Date:
(a) Except as otherwise contemplated by this Agreement, or as
Iconixx may otherwise consent to in writing, the Company shall conduct the
Business only in the ordinary course and shall not engage in any Material
transactions or enter into any Material transaction which would cause a breach
of the representations and warranties contained in Article III.
-----------
(b) The Company shall use commercially reasonable efforts to, and
the Majority Members shall use commercially reasonable efforts to cause the
Company to, cause the Business to preserve substantially intact its current
business organization and present relationships with its customers, vendors,
suppliers and employees and to maintain all of its insurance currently in
effect.
(c) The Majority Members and the Company shall give prompt notice
to Iconixx of any notice of any Material default received by the Company or the
Business subsequent to the date of this Agreement under any Contract or any
Material Adverse Change occurring prior to the Closing Date in the operation of
the Company or the Business.
(d) Neither the Company nor the Majority Members, nor any of
their representatives, shall solicit, encourage or discuss any Acquisition
Proposal (as hereinafter defined) or supply any non-public information
concerning the Company or the Business or the Company's assets to any party
other than Iconixx or its representatives. As used herein, "Acquisition
Proposal" means any proposal other than the Acquisition, for (i) any merger or
other business combination involving the Company or the Business, (ii) the
acquisition of the Company, a material equity interest in the Company or a
material portion of its assets, or (iii) the dissolution or liquidation of the
Company.
5.5. Access Before Closing. Prior to the Closing Date, the Company
---------------------
agrees that it will give, or cause to be given, to Iconixx and its
representatives, during normal business hours and at Iconixx's expense,
reasonable access to the Company's personnel, independent accountants, officers,
agents, employees, assets, properties, titles, contracts, company or unit minute
and other books, records, files and documents of the Company with respect to the
Business (including financial, tax basis, budget projections, accountants' work
papers and other information as Iconixx may reasonably request) upon 24 hours
prior notice. The Majority Members and Iconixx shall mutually agree on the
timing and manner of contact with all third parties, including, but not limited
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to, customers, vendors or suppliers, which contact shall not be unreasonably
withheld. Iconixx shall not be given access to any information where the
provision of such information would violate a law or regulation applicable to
the Company or adversely affect the Company's attorney-client privilege relating
to any pending or threatened claim, proceeding or other action.
ARTICLE VI
POST-CLOSING COVENANTS
6.1. General. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Iconixx
and the Company) 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 Article VIII
------------
below). The Company acknowledges and agrees 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 (other than
tax or general company or unit records or other Excluded Assets), which shall be
maintained at the chief executive office of Buyer; provided, however, that the
Company and/or the Majority Members shall be entitled to reasonable access to
and to make copies of such books and records at their sole cost and expense and
Buyer will maintain all of the same for a period of at least three (3) years
after Closing. Thereafter, Buyer will offer such documentation to the Company
and/or the Majority Members before disposal thereof. Seller further agrees to
convey all rights to any Intellectual Property reasonably related to the
Business to Buyer (including, without limitation, assigning all right and title
to the trademark "EnterpriseWorks" to Buyer pursuant to an Assignment of
Trademark Agreement in substantially the form attached hereto as Exhibit I).
---------
6.2. Transition. [Intentionally Left Blank]
----------
6.3. Covenants Not to Compete; Confidentiality; Non-Solicitation.
-----------------------------------------------------------
For and in consideration of the allocation of $50,000 of the Purchase Price paid
to Seller and the Majority Members by Buyer, each of Seller and the Majority
Members and Matthew H. Hartzell have agreed to be bound, as applicable, by
certain covenants not to compete, confidentiality and non-solicitation
provisions contained in their respective employment or confidentiality and non-
solicitation agreements executed by each of those parties in connection with,
and as a condition to, this Agreement in substantially the forms attached hereto
as Exhibits F-1, F-2 and F-3.
------------ --- ---
6.4 Access to Records After Closing. After the Closing Date, Buyer
-------------------------------
on the one hand and Seller on the other agree that they will give, or cause to
be given, to the other party, its successors and its representatives, during
normal business hours and at the requesting party's expense, such reasonable
access to the properties, titles, contracts, books, records, files and documents
(but excluding attorney work product or other privileged communications) of
Buyer (to the extent Buyer's records are the records, materials and data
transferred to Buyer from Seller pursuant to this Agreement) or Seller, as the
case may be, as is reasonably necessary to allow the
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<PAGE>
requesting party to obtain information in the other party's possession with
respect to any claims, demands, audits, suits or matters of a similar nature
made by or against the requesting party as the previous or new owner and
operator of the Business, as the case may be, and to make copies of such
information to the extent reasonably necessary. Buyer agrees that it will not
dispose of or destroy any of such records for seven (7) years after the Closing
Date without first offering to turn over possession thereof to Seller and the
Majority Members by written notice to Seller and the Majority Members at least
30 days prior to the proposed date of any such disposition or destruction.
6.5 Assignment of Contracts. Anything in this Agreement to the
-----------------------
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign or otherwise transfer any Contract or any rights thereunder, if an
attempted assignment or transfer thereof would constitute a breach thereof,
would be ineffective or would violate any applicable law without the consent of
a third party to such assignment or transfer. Until such consent or waiver has
been obtained or waived by Buyer, Buyer shall make all reasonable efforts to
perform in Seller's name all of Seller's obligations under any such Contract for
which any such consent has not been obtained, including without limitation, any
failure of the Company to obtain the consent to the assignment, if required, of
the Company's lease of its office space. Seller shall cooperate with Buyer in
any reasonable arrangement designed to provide for Buyer all of the benefits,
and to have Buyer assume the burdens, liabilities, obligations and expenses
under all such Contracts. At Buyer's request, Seller shall, at Buyer's sole
cost and expense, take all reasonable efforts requested by Buyer to enforce, for
the benefit of Buyer, any and all rights of Seller under any such Contract not
otherwise transferred pursuant to the provisions of this Agreement including the
assignment of all vendor and customer contracts (including Trilogy and Sage) not
assigned prior to Closing (other than those vendor contracts specified in
Section 5.1 hereof for which Seller has specifically agreed that it will obtain
- -----------
such assignments prior to the Closing). Seller hereby authorizes Buyer to
perform and Buyer hereby agrees to perform all of Seller's obligations after the
Closing under all such Contracts. Seller agrees to remit promptly to Buyer all
collections or payments received by Seller in respect of all such Contracts, and
shall hold all such collections or payments for the benefit of, and promptly pay
the same over to, Buyer; provided, however, that nothing herein shall create or
provide any rights or benefits in or to third parties.
6.6 Change of Name. Seller agrees to promptly change its name
--------------
following the Closing to a name which does not contain the words
"EnterpriseWorks" or any variations thereof.
6.7. Litigation Support. In the event and for so long as any party
------------------
is actively contesting or defending against any claim, suit, action or charge,
complaint, or demand in connection with (i) any transaction contemplated under
this Agreement or (ii) any fact, circumstance, status, condition, activity,
practice, occurrence, event, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, Buyer or the Business, each of the
other parties will cooperate and make reasonably available themselves or their
personnel, as applicable, and provide such reasonable testimony and access to
their books and records as shall be necessary in connection with the contest or
defense.
-32-
<PAGE>
6.8. Audits. Following the Closing, the Company shall use its
------
commercially reasonable efforts to cause the Company, at Buyer's expense, to
deliver, or cause to be delivered, to Iconixx an unqualified and unmodified
audit report of Arthur Andersen, L.L.P. or other reputable independent
accounting firm on the balance sheet of the Company as of the Closing Date in
connection with the preparation of the Audited Closing Financial Statements and
audited statements of operations and cash flows of the Company with respect to
the periods January 1, 2000 through the Closing Date and for any prior fiscal
years in 1999, 1998 and 1997, which reports shall be without limitation as to
the scope of the audit. The Majority Members, in their capacities as officers
and managers of the Company during such periods, shall provide all management
letters, reports or representations reasonably requested by such auditors in
connection with such audits.
6.9. Iconixx's Stock Options. At or shortly following the
-----------------------
Closing, Iconixx will grant stock options for the purchase of Common Stock under
its stock option plan in the aggregate amount of 541,790 shares to the
Transferred Employees (consisting of both former UAR holders of the Company and
other current employees of the Company) who accept employment with Buyer and to
future employees of the Buyer employed in the Business. Such stock options
shall generally be for ten years from the date of grant, shall be exercisable at
the fair market value per share of the Common Stock on the date of grant, as
determined by Iconixx, and shall otherwise be on the same terms and conditions
applicable to all stock options granted to key executives and employees of
Iconixx and its subsidiaries. Stock options for the purchase of 241,790 shares
of Common Stock to be issued to former UAR holders of the Company, as set forth
on Schedule 6.9, shall vest on the first anniversary following the Closing Date.
------------
Stock options for the purchase of the remaining 300,000 shares of Common Stock
to the extent issuable to Transferred Employees shall generally be subject to
customary four year annual vesting requirements (i.e., 25% vesting per annum).
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING
7.1. Conditions to Iconixx's and Buyer's Obligations. The
-----------------------------------------------
obligation of Iconixx and Buyer under this Agreement to consummate the Closing
is subject to the conditions that:
(a) Covenants, Representations and Warranties. The Company and
-----------------------------------------
the Majority Members shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by each
of them prior to or at the Closing Date. The representations and warranties of
the Company and the Majority Members set forth in this Agreement shall be
accurate in all material respects at and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date.
(b) Consents. All statutory requirements for the valid
--------
consummation by the Company and the Majority Members of the Acquisition shall
have been fulfilled and all
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<PAGE>
authorizations, consents and approvals, including expiration or early
termination of all waiting periods under the HSR Act and those of all federal,
state, local and foreign governmental agencies and regulatory authorities
required to be obtained in order to permit the consummation of the Acquisition
shall have been obtained in form and substance reasonably satisfactory to
Iconixx unless such failure could not reasonably be expected to have a Material
Adverse Effect. All approvals of the Board of Managers, the members of the
Company, and the lenders of Iconixx necessary for the consummation of this
Agreement and the Acquisition shall have been obtained.
(c) Leases. Each of the Leases shall provide that the Company is the
------
lessee and if required under the terms of a given lease, any consent required in
connection with the Acquisition contemplated by this Agreement shall have been
obtained, and copies of such Leases (and any assignments pursuant to which any
of such Leases have been assigned to Buyer prior to the Closing Date) shall have
been provided to Iconixx.
(d) Discharge of Indebtedness and Liens. The Company shall have
-----------------------------------
provided for the payment in full of all Funded Indebtedness of the Company at
the Closing or the Purchase Price will be reduced proportionately by the amount
that such Funded Indebtedness exceeds $0 as of the Closing Date. Such Funded
Indebtedness, if any, as of December 31, 1999, is listed on Schedule 7.1(d)
---------------
hereto. The Company shall have also provided for the termination of all
Encumbrances of record on the properties of the Company or the Business, except
for Permitted Exceptions. All liens or UCC filings against the Company shall
have been terminated as of the Closing, except for those relating to Permitted
Exceptions.
(e) Transfer Taxes. The Company and Majority Members shall be
--------------
responsible for all transfer or gains taxes imposed on the Majority Members
incurred in connection with this Agreement.
(f) Documents to be Delivered by the Majority Members and the
---------------------------------------------------------
Company. The following documents shall be delivered at the Closing by the
- -------
Majority Members and the Company:
(i) Escrow Agreement. The Majority Members and the Company
----------------
shall have delivered to Iconixx and Buyer at the Closing the duly
executed Escrow Agreement in substantially the form attached hereto as
Exhibit A.
---------
(ii) Opinion of the Company's Counsel. Iconixx and Buyer
--------------------------------
shall have received an opinion of counsel to the Company, dated the
Closing Date, in substantially the same form as the form of opinion
that is Exhibit G-1 hereto or in a form reasonably acceptable to
-----------
Iconixx.
(iii) Certificates. Iconixx and Buyer shall have received
------------
an officer's certificate and a secretary's certificate of the Company
executed by
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<PAGE>
officers of the Company, dated the Closing Date, in a form mutually
agreed upon by Iconixx and the Company.
(iv) Conveyance Documents. Such instruments of sale,
--------------------
transfer, assignment, conveyance and delivery (including all vehicle
titles), in form and substance reasonably satisfactory to counsel for
Buyer (including, without limitation, the General Assignment, Bill of
Sale and Assumption Agreement in substantially the form attached
hereto as Exhibit B (the "Bill of Sale, Assignment and Assumption
---------
Agreement"), as are required in order to transfer to Buyer good and
marketable title to the Purchased Assets, free and clear of all liens,
charges, security interests and other encumbrances except as provided
herein.
(v) Resolutions. A certified copy of resolutions of
-----------
Seller's Board of Managers authorizing the execution, delivery and
consummation of this Agreement and the transactions contemplated
hereby.
(vi) UCC Matters. UCC termination statements and other
-----------
applicable documentation necessary to release any interest of any
third party in the Purchased Assets except as provided herein.
(vii) Employment Agreements; Confidentiality and Non-
----------------------------------------------
Solicitation Agreement. Derrik Deyhimi shall have duly executed and
----------------------
delivered an Employment Agreement in substantially the same form
attached as Exhibit F-1 hereto, pursuant to which he will be employed
-----------
by Buyer following the Closing. Each of the Messrs. Heath, Jamison and
Mosley shall have duly executed and delivered an Employment Agreement
in substantially the same form attached as Exhibit F-2 hereto,
-----------
pursuant to which each will be employed by Buyer following the
Closing. A.B. Holdings, LLC and Matthew H. Hartzell shall each have
duly executed and delivered a Confidentiality and Nonsolicitation
Agreement in substantially the form attached as Exhibit F-3 hereto.
-----------
(g) Iconixx Equity Arrangements. Joinders to the Equity Agreements
---------------------------
shall have been executed and delivered by the Majority Members and other Persons
receiving shares of Iconixx's Common Stock.
7.2. Conditions to the Majority Members' and the Company's
-----------------------------------------------------
Obligations. The obligation of the Majority Members and the Company under
- -----------
this Agreement to consummate the Closing is subject to the conditions that:
(a) Covenants, Representations and Warranties. Iconixx and Buyer
-----------------------------------------
shall have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Iconixx and/or Buyer prior to or at the
Closing and the representations and warranties of Iconixx and Buyer set forth in
Article IV hereof shall be accurate in all material
- ----------
-35-
<PAGE>
respects, at and as of the Closing Date, with the same force and effect as
though made on and as of the Closing Date.
(b) Consents. All statutory requirements for the valid consummation
--------
by Iconixx and Buyer of the Acquisition shall have been fulfilled and all
authorizations, consents and approvals, including expiration or early
termination of all waiting periods under the HSR Act and those of all federal,
state, local and foreign governmental agencies and regulatory authorities
required to be obtained in order to permit the consummation by Iconixx or Buyer
of the Acquisition shall have been obtained unless such failure shall not have a
Material Adverse Effect on the Business. Iconixx shall have consented and shall
have obtained all necessary consents and waivers from its stockholders under the
Stockholders Agreement dated August 12, 1999 for the Company's distribution of
the shares of Iconixx Common Stock to its members.
(c) Documents to be Delivered by Iconixx and Buyer. The following
----------------------------------------------
documents shall be delivered at the Closing by Iconixx and Buyer:
(i) Escrow Agreement. Iconixx and Buyer shall have
----------------
delivered to the Majority Members at the Closing the duly executed
Escrow Agreement.
(ii) Employment Agreements; Confidentiality and Non-
----------------------------------------------
Solicitation Agreement. Iconixx shall have caused Buyer to duly
----------------------
execute and deliver an Employment Agreement with Derrik Deyhimi in
substantially the same form attached as Exhibit F-1 hereto, pursuant
-----------
to which he will be employed by Buyer following the Closing. Iconixx
shall have caused Buyer to duly execute and deliver Employment
Agreements with Messrs. Heath, Jamison and Mosley in substantially the
same form attached as Exhibit F-2 hereto, pursuant to which each of
-----------
such Persons will be employed by Buyer following the Closing. Iconixx
shall have caused Buyer to duly execute and deliver a Confidentiality
and Non-Solicitation Agreement with each of A.B. Holdings, LLC and
Matthew H. Hartzell in substantially the same form attached as Exhibit
-------
F-3 hereto.
---
(iii) Certificates. Iconixx and Buyer shall have delivered
------------
an officer's certificate and a secretary's certificate of Iconixx and
Buyer executed by officers of Iconixx and Buyer, dated the Closing
Date, in a form mutually agreed upon by Iconixx and the Majority
Members.
(iv) Assumption Documents. Such instruments of assignment
--------------------
and assumption, in form and substance reasonably satisfactory to
counsel for the Company (including, without limitation, the Bill of
Sale, Assignment and Assumption Agreement) as are required for Buyer's
assumption of all Assumed Liabilities pursuant to the terms of this
Agreement.
(v) Opinion of Counsel. The Company and the Majority
------------------
Members shall have received an opinion of counsel to Iconixx and
Buyer, dated the
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<PAGE>
the Closing Date, in substantially the same form as the form of
opinion that is Exhibit G-2 hereto.
-----------
(vi) Resolutions. Certified copies of the resolutions of
-----------
Buyer's and Iconixx's respective boards of directors authorizing the
execution, delivery and consummation of this Agreement and the
transactions contemplated hereby.
(d) Company Equity Arrangements. The Equity Agreements shall
---------------------------
have been executed and delivered by the respective parties thereto.
(e) Payments to Seller. Seller shall have received the Purchase
------------------
Price payable at Closing for the Purchased Assets.
(f) Iconixx Material Adverse Effect. From and including the
-------------------------------
date hereof, there shall not have occurred any event and no circumstance shall
exist which, alone or together with any one or more other events or
circumstances has had, is having or would reasonably be expected to have a
Iconixx Material Effect.
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification by the Majority Members. Except as provided
---------------------------------------
in Section 8.6, the Company and the Majority Members agree to jointly and
-----------
severally indemnify and hold harmless Iconixx and Buyer and each officer,
director, and Affiliate of Iconixx and Buyer, including without limitation any
successor of Buyer or Iconixx (collectively, the "Buyer Indemnified Parties")
from and against any and all damages, losses, claims, liabilities, demands,
charges, suits, penalties, costs and expenses (including court costs and
reasonable attorneys' fees and expenses incurred in investigating and preparing
for any litigation or proceeding) (collectively, the "Indemnifiable Costs"),
which any of the Buyer Indemnified Parties may sustain, or to which any of the
Buyer Indemnified Parties may be subjected, arising out of (A) any
misrepresentation, breach or default by the Majority Members or the Company of
or under any of the representations, covenants, agreements or other provisions
of this Agreement or any agreement or document executed in connection herewith;
(B) any downward Net Working Capital Adjustment not paid to Buyer pursuant to a
reduction of the Escrow Sum; (C) the cost of any brokerage or other transaction
fees liability, if any, borne by Buyer and not by the Majority Members or the
Company except as provided in Section 10.4 hereof; (D) any customer claims
------------
involving pre-Closing services or products of the Company for breach of
warranty, product liability or customer service remediation, including claims
for consequential damages, to the extent not reserved for in the Company's
Financial Statements; (E) any Excluded Liabilities; and (F) any failure of the
Company to obtain, within 30 days after the Closing, any Material landlord,
customer or supplier consents to the Acquisition contemplated hereby required
under the terms of any leases of the Company's real property or any Contracts to
the extent the Company's failure to obtain such consent is not permanently
waived by Buyer and to the extent that the
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<PAGE>
Company is unable to perform the material benefits of such leases or Contracts
for the Buyer pursuant to Section 6.5.
-----------
8.2 Indemnification of Majority Members and the Company. Iconixx
---------------------------------------------------
and Buyer agree to jointly and severally indemnify and hold harmless the
Majority Members and the Company and each officer, manager, member or Affiliate
of the Company, their successors and assigns (collectively, the "Seller
Indemnified Parties"), from and against any Indemnifiable Costs arising out of
(A) any misrepresentation, breach or default by Iconixx or Buyer of or under any
of the representations, covenants, agreements or other provisions of this
Agreement or any agreement or document executed in connection herewith;
provided, however, that claims for breaches of representations and warranties of
Iconixx with respect to the operations, financial performance or otherwise of
its subsidiaries shall be expressly limited to periods arising after the
acquisition of such subsidiaries by Iconixx, (B) Buyer's operation and ownership
of the Business and Purchased Assets from and after the Closing Date, including,
without limitation, the Buyer's liabilities and obligations to the Seller and
with respect to Retained Employees of the Seller pursuant to that certain
Employee Transition Services Agreement to be effective as of March 31, 1999 and
(C) any Assumed Liability.
8.3. Defense of Claims. For purposes hereof, the Person claiming
-----------------
indemnification hereunder, whether a Buyer Indemnified Party or a Seller
Indemnified Party, is sometimes referred to as the "Indemnified Party" and the
party against whom such claims are asserted hereunder is sometimes referred to
as the "Indemnifying Party." If any legal proceeding shall be instituted, or
any claim or demand made by a third Person, against any Indemnified Party in
respect of which the Indemnifying Parties may be liable hereunder, such
Indemnified Party shall give prompt written notice thereof to the Indemnifying
Parties and, except as otherwise provided in Section 8.5 below, the Indemnifying
-----------
Parties shall have the right to defend any litigation, action, suit, demand, or
claim for which an Indemnified Party may seek indemnifications, and such
Indemnified Party shall extend reasonable cooperation in connection with such
defense, which shall be at the Indemnifying Parties' expense. In the event the
Indemnifying Parties fail or refuse to defend the same within a reasonable
length of time, the Indemnified Parties shall be entitled to assume the defense
thereof, and the Indemnifying Parties shall be jointly and severally liable to
repay the Indemnified Parties for all reasonably incurred Indemnifiable Costs.
If the Indemnifying Parties shall not have the right to assume the defense of
any litigation, action, suit, demand, or claim in accordance with the preceding
sentence, the Indemnified Parties shall, at the Indemnifying Parties' expense,
have the absolute right to control the defense of such litigation, action, suit,
demand, or claim, but the Indemnifying Parties shall be entitled, at their own
expense, to participate in such litigation, action, suit, demand, or claim. The
party controlling any defense pursuant to this Section 8.3 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 any such litigation, action, suit,
demand or claim, and timely notice of any hearing or other court proceeding
relating to such litigation, action, suit, demand or claim. Notwithstanding the
forgoing, in no event will the party controlling any defense pursuant to this
Section 8.3 settle any litigation, action, suit, demand or claim without the
- -----------
prior written consent of the non-controlling
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<PAGE>
party, unless such settlement provides for the unqualified, absolute and
complete release of all claims against the non-controlling party and results in
no monetary or equitable liability to the non-controlling party.
8.4. Escrow Claim. If any claim for indemnification is made by a
------------
Buyer Indemnified Party pursuant to this Article VIII prior to the expiration
------------
of the Escrow Period, such Buyer Indemnified Party shall first apply to the
Escrow Agent provided in Section 2.7 of this Agreement for reimbursement of such
-----------
claim in accordance with the provisions of the Escrow Agreement provided,
however, the Escrow Sum is not intended to be an exclusive remedy in the event
Iconixx or Buyer has indemnification claims hereunder which exceed such amount.
In the event that Iconixx offsets more than the amount of any Indemnifiable
Costs (as finally determined), Iconixx shall be responsible to the Company for
such sums which should not have been subject to an offset, together with
interest at the rate of 10% per annum.
8.5. Tax Audits, Etc. In the event of an audit of a Tax Return of
---------------
the Company with respect to which a Buyer Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, the Company shall control any and
------------
all such audits which may result in the assessment of additional Taxes against
the Company or Buyer and any and all subsequent proceedings in connection
therewith, including appeals. The Company, Buyer and Iconixx shall cooperate
fully in all matters relating to any such audit or other Tax proceeding
(including according access to all records pertaining thereto), and will execute
and file any and all consents, powers of attorney, and other documents as shall
be reasonably necessary in connection therewith. If additional Taxes are
payable by Buyer as a result of any such audit or other proceeding, the Company
and the Majority Members shall be jointly and severally responsible for and
shall promptly pay all Taxes, interest, and penalties for which any of the Buyer
Indemnified Parties shall be entitled to indemnification.
8.6. Limits on Indemnification. All Indemnifiable Costs sought by
-------------------------
any Indemnifying Party hereunder shall be net of any insurance proceeds received
by such Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Notwithstanding the provisions
of Section 8.1, the indemnity obligations hereunder relating to any breach of or
-----------
default under any covenants hereunder or in any agreement or document executed
in connection herewith relating to confidentiality, noncompetition, non-
solicitation or employment shall not be the joint indemnification obligations of
the Company and the Majority Members but shall be the sole and several
obligation of the respective party to such covenant or agreement. The right of
the Buyer Indemnified Parties to make claims for indemnification provided under
this Article VIII (other than claims for Excluded Liabilities or for claims for
------------
breaches of covenants to be performed by the Company following the Closing)
shall expire on September 30, 2001 (except for any claims for Indemnifiable
Costs made prior to such date which claims shall continue after such date until
finally resolved). The right of the Seller Indemnified Parties to make claims
for Indemnification provided under this Article VIII (other than claims arising
------------
under Section 8.2(B) or (C) or claims for breaches of covenants to be performed
---------------------
by Buyer or Iconixx following the Closing) shall expire on September 30, 2001
(except for any claims for which Indemnifiable Costs made prior to such date
which claims shall continue after such date until finally resolved). Neither
the Company nor the Majority Members
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<PAGE>
shall be obligated to pay any amounts for indemnification under this Article
-------
VIII until the aggregate indemnification obligation sought by Iconixx or Buyer
- ----
hereunder exceeds $50,000, whereupon the Company and the Majority Members shall
be liable for all amounts for which indemnification may be sought, provided,
--------
however, that such $50,000 threshold shall not apply to claims for payment of
- -------
Excluded Liabilities. The Company and the Majority Members shall, except as
otherwise provided hereby, be jointly and severally liable for all
indemnification claims of Iconixx or Buyer, provided, however, that the
Company's and the Majority Members' aggregate indemnification of Iconixx or
Buyer for all claims shall be limited to the Purchase Price and a Majority
Member's individual aggregate indemnification of Iconixx or Buyer shall be
limited to his, her or its proportionate share of the Purchase Price; provided,
further, that in the event of fraud by the Company or any Majority Member, the
aggregate indemnification obligation of such party shall not be so limited.
Neither Iconixx or Buyer shall be obligated to pay any amounts for
indemnification under this Article VIII until the aggregate indemnification
------------
obligation sought by the Majority Members and the Company hereunder exceeds
$50,000, whereupon Iconixx and Buyer shall be liable for all amounts for which
indemnification may be sought, provided, however, that such $50,000 threshold
-------- -------
shall not apply to claims for payment of Assumed Liabilities and to
indemnification claims under Section 8.2(B) with respect to Retained Employees.
--------------
Notwithstanding the foregoing, in no event shall the aggregate liability of (A)
Iconixx or Buyer to the Majority Members and the Company for breach of the
representations and warranties under Article IV exceed $5,000,000 and (B) the
----------
Majority Members and the Company to Iconixx for breach of representations and
warranties exceed $5,000,000; provided, however, that such limitation shall not
include and shall not limit any claims for (i) the breaching of the
representations and warranties of the Company and Majority Members under
Sections 3.2 (as to title and ownership of the Purchased Assets), 3.12 (to the
- ------------ ----
extent such claims relate to Environmental and OSHA Obligations) and 3.17 or any
----
breach of Sections 8.1(B) or (E), all of which claims together shall not exceed
--------------- ---
the Purchase Price, or (ii) any breach by Iconixx or Buyer of Sections 8.2(B) or
---------------
(C). However nothing in this Article VIII shall limit Iconixx, Buyer, the
- --- ------------
Company or the Majority Members in exercising or securing any remedies provided
by applicable statutory or common law with respect to the fraudulent conduct of
the Company, Majority Members, Buyer or Iconixx in connection with this
Agreement or in the amount of damages that it can recover from the defrauding
party in the event that Iconixx or the Majority Members successfully prove
intentional fraud or intentional fraudulent conduct in connection with this
Agreement. Other than as set forth in the preceding sentence, the
indemnification provided for in this Article VIII is intended to be the
------------
exclusive monetary remedy of Iconixx, Buyer, the Company or the Majority Members
with regard to the Acquisition contemplated by this Agreement.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by the mutual written consent of all parties hereto;
-40-
<PAGE>
(b) in writing by Iconixx and Buyer, if the Company or any of
the Majority Members has breached in any material respect any representation,
warranty or covenant contained in this Agreement, and in each case such breach
has not been remedied within ten (10) business days after receipt of written
notice specifying such breach and demanding such breach to be remedied; or
(c) in writing by the Majority Members and the Company, if
Iconixx or Buyer has breached in any material respect any representation,
warranty or covenant contained in this Agreement, and in each case such breach
has not been remedied within ten (10) business days after receipt of written
notice specifying such breach and demanding such breach to be remedied; or
(d) in writing by the Majority Members and the Company, on the
one hand, or Iconixx and Buyer, on the other hand, in the event the Closing has
not occurred on or before March 31, 2000, or such later date as the parties may
agree upon, unless the failure of such consummation or the failure to satisfy
such condition, as applicable, shall be due to a breach of any representation or
warranty made by the party or parties seeking to terminate this Agreement or the
failure of such party or parties to comply in all material respects with the
agreements and covenants contained herein to be performed by such party or
parties.
9.2. Effect of Termination. If the Acquisition is terminated
---------------------
pursuant to Section 9.1 by notice in writing to the non-terminating party or
-----------
parties, this Agreement shall become void and of no further force and effect,
except that (a) such termination shall not relieve (i) any party from its
covenants in respect of confidentiality set forth in any other agreement
executed by the parties hereto and (ii) any party then in breach of any
representation, warranty, covenant or agreement contained in this Agreement from
liability in respect of such breach and (b) Sections 10.4 and 10.7 shall survive
------------- ----
termination of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1. Modifications. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
10.2. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
-41-
<PAGE>
Iconixx or Buyer:
----------------
Iconixx Corporation
8300 Boone Boulevard
Suite 250
Vienna, VA 22182
Attention: Graham B. Perkins
Jason H. Levine
Fax No.: (703) 790-9033
Tel No.: (703) 790-9008
With a copy to:
--------------
Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Fax No.: (202) 371-0391
Tel No.: (202) 371-0150
and to:
------
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Attention: Christopher J. Hagan, Esq.
Fax No.: (202) 637-5910
Tel No.: (202) 637-5600
The Company or the Majority Members:
-----------------------------------
c/o EnterpriseWorks, LLC
5301 Hollister, Suite 400
Houston, TX 77040
Attention: Matthew H. Hartzell, Esq.
Fax No.: (713) 430-3079
Tel No.: (713) 430-3085
-42-
<PAGE>
With a copy to (which shall not constitute notice):
--------------
Andrews & Kurth, LLP
2170 Buckthorne Place, Suite 150
The Woodlands, TX 77381
Attention: William McDonald, Esq.
Fax No.: (713) 220-4815
Tel No.: (713) 220-4801
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
10.3. Counterparts; Facsimile Transmission. This Agreement may be
------------------------------------
executed in several counterparts, each of which shall be deemed an original but
all of which counterparts collectively shall constitute one instrument, and in
making proof of this Agreement, it shall never be necessary to produce or
account for more than one such counterpart. Signatures of a party to this
Agreement or other documents executed in connection herewith which are sent to
the other parties by facsimile transmission shall be binding as evidence of
acceptance of the terms hereof or thereof by such signatory party, with
originals to be circulated to the other parties in due course.
10.4. Expenses. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the Acquisition, provided, however, that the Majority
Members shall bear all costs and expenses of (i) any broker involved in this
transaction on behalf of the Majority Members or the Company and (ii) all legal
and other expenses of the Majority Members or the Company with respect to this
Agreement and the Acquisition; provided, however, that the Company may bear such
costs so long as no Net Working Capital Adjustment or Minimum Cash deficit would
occur.
10.5. Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Iconixx, Buyer and the Majority
Members, their heirs, representatives, successors, and permitted assigns, in
accordance with the terms hereof. This Agreement shall not be assignable by the
Company or the Majority Members without the prior written consent of Iconixx.
This Agreement shall be assignable by Iconixx and/or Buyer to either (a) any
lender providing financing to Iconixx or Buyer (but only with respect to
Iconixx's or Buyer's rights under Article II and Article VIII hereof) or (b) any
---------- ------------
Affiliate of Iconixx, provided Iconixx remains liable, in each case without the
prior written consent of the Majority Members. In addition, following the
Closing, Iconixx or Buyer may assign any or all of its rights hereunder, without
the consent of the Majority Members, in connection with any sale of all or
substantially all of the assets, capital stock, partnership interests or
business of Buyer or Iconixx (whether effected by sale, exchange, merger,
consolidation or other transaction) and provided the acquiring party shall
assume all of Iconixx's or Buyer's obligations hereunder.
10.6. Entire and Sole Agreement. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and
-43-
<PAGE>
supersede all prior agreements, representations, warranties, statements,
promises, information, arrangements and understandings, whether oral or written,
express or implied, with respect to the subject matter hereof.
10.7. Governing Law. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Delaware, without giving effect to the principles of conflicts of laws
thereof.
10.8. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
Acquisition shall survive the Closing for a period ending on September 30, 2001,
provided that any covenant relating to Indemnifiable Costs under Section 8.1(E)
--------------
and Sections 8.2(B) and (C) shall survive the Closing until the expiration of
--------------- ---
the applicable statutes of limitations, (c) all covenants in this Agreement
which have an expiration date contained therein shall expire as of such date and
(d) all other covenants in this Agreement requiring performance of a party
following the Closing Date which do not have an expiration date shall expire
upon the expiration of the applicable statutes of limitation.
10.9. Invalid Provisions. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
10.10. Public Announcements. Neither the Majority Members nor the
--------------------
Company (pre-Closing) shall make any public announcement of the Acquisition
without the prior written consent of Iconixx, which consent shall not be
unreasonably withheld.
10.11. Remedies Cumulative. Except for the indemnification
-------------------
provided in Article VIII which shall be the sole and exclusive monetary remedy
------------
of the parties thereto (other than for fraud), the remedies of the parties under
this Agreement are cumulative and shall not exclude any other equitable remedies
to which any party may be lawfully entitled.
10.12. Third Parties. Except as specifically set forth or referred
-------------
to herein, nothing herein expressed or implied is intended or shall be construed
to confer upon or give to any Person, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
-44-
<PAGE>
10.13. No Strict Construction. The parties hereto have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
10.14. Disclosure Schedules. An item disclosed in any part of the
--------------------
Disclosure Schedules attached hereto shall be deemed disclosed in response to
other applicable Disclosure Schedules sections to the extent expressly cross-
referenced therein.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-45-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date and year first above written.
THE COMPANY:
-----------
ENTERPRISEWORKS LLC
By: /s/ Derrik Deyhimi
---------------------------------------------
Derrik Deyhimi
President and Chief Executive Officer
MAJORITY MEMBERS:
----------------
/s/ Derrik Deyhimi
--------------------------------------------------
Derrik Deyhimi
AB HOLDINGS, LLC
By: /s/ Robert G. Ackerley
---------------------------------------------
Name: Robert G. Ackerley
Title:
/s/ Jeff Jamison
--------------------------------------------------
Jeff Jamison
/s/ Scott Heath
--------------------------------------------------
Scott Heath
/s/ David Mosley
--------------------------------------------------
David Mosley
-46-
<PAGE>
BUYER:
-----
ICONIXX - HOUSTON, INC.
By: /s/ Graham B. Perkins
---------------------------------------------
Name: Graham B. Perkins
Title: Vice President and Secretary
ICONIXX:
-------
ICONIXX CORPORATION
By: /s/ Jason H. Levine
-----------------------------------------------
Name: Jason H. Levine
Title: Vice President
The Exhibits and Schedules to this Asset Purchase Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
-47-
<PAGE>
Exhibit 10.20
PROFESSIONAL SERVICES AGREEMENT
-------------------------------
THIS AGREEMENT ("Agreement") is dated as of August 12, 1999, by and between
TC Management Partners IV, L.L.C., a Delaware limited liability company ("TMP"),
and Empyrean Group Holdings, Inc., a Delaware corporation f/k/a Business
Solutions Group, Inc. (the "Company").
Recitals
--------
A. Thayer Equity Investors IV, L.P., a Delaware limited partnership
("Purchaser"), of which TMP is the managing agent, has, pursuant to an indirect
investment in Thayer ITECH Holdings, L.L.C. ("Thayer"), acquired (the
"Investment") a portion of the Company's common stock, par value $.01 per share
(the "Common Stock"), and Class A preferred stock, par value $.01 per share (the
"Class A Preferred" and together with the Common Stock, the "Stock") pursuant to
that certain Recapitalization Agreement (the "Recapitalization Agreement") dated
August 12, 1999 among Thayer, the Company, BSG Holdings, Inc., a Georgia
corporation, and the shareholders of BSG Holdings, Inc. named therein.
B. The Company desires to receive financial and management consulting
services from TMP, and obtain the benefit of TMP's experience in business and
financial management generally and the benefit of TMP's knowledge of the Company
and the Company's financial affairs in particular.
C. In connection with the Investment, TMP is willing to provide financial
and management consulting services to the Company and the compensation
arrangements set forth in this Agreement are designed to compensate TMP for such
services.
Agreement
---------
In consideration of the foregoing premises and the respective agreements
hereinafter set forth and the mutual benefits to be derived herefrom, TMP and
the Company hereby agree as follows:
1. Engagement. The Company hereby engages TMP as a financial and management
----------
consultant, and TMP hereby agrees to provide financial and management consulting
services to the Company, all on the terms and subject to the conditions set
forth below.
2. Services of TMP. TMP hereby agrees during the term of this engagement to
---------------
consult with the Company's board of directors (the "Board") and the management
of the
<PAGE>
Company and its subsidiaries in such manner and on such business and financial
matters as may be reasonably requested from time to time by the Board, including
but not limited to:
(i) corporate strategy;
(ii) budgeting of future corporate investments;
(iii) acquisition and divestiture strategies; and
(iv) debt and equity financings.
3. Personnel. TMP shall provide and devote to the performance of this
---------
Agreement such members, officers, employees and agents of TMP as TMP shall deem
appropriate for the furnishing of the services required hereby.
4. Investment Fee. The Company shall pay to TMP an investment fee of
--------------
$370,000 upon the closing of the Recapitalization Agreement. After the
Recapitalization Agreement, at the time of (a) the purchase of Stock by Thayer
of additional shares of Common Stock or Preferred pursuant to an equity purchase
agreement between the Company and Thayer, or (b) the consummation of any other
debt or equity financing of the Company after the date hereof, the Company shall
pay to TMP an investment fee in immediately available funds equal to one percent
(1%) of the amount paid to the Company or other consideration paid by or
received by the Company in connection with such purchase or financing
("Investment Fee"); provided, however, that such Investment Fees with respect to
debt financing arranged after the date hereof shall apply only to additional
incremental financing received by the Company and not to the refinancing of
existing amounts of indebtedness.
5. Management Fee. During the term of this Agreement, the Company shall pay
--------------
TMP a quarterly management fee of $50,000 per fiscal quarter ("Management Fee");
provided that such fee shall be pro rated for the quarter ending September 30,
1999 (i.e., such fee shall equal $25,000). Each quarterly management fee shall
be payable in cash upfront in advance on the first business day of each fiscal
quarter commencing with the Company's fiscal quarter beginning August 15, 1999
(with the first quarter fee due and payable prior to August 15, 1999).
6. Expenses. The Company shall promptly reimburse TMP for such reasonable
--------
travel expenses and other out-of-pocket fees and expenses as have been or may be
incurred by TMP, its members, officers, employees and agents in connection with
the Closing (as defined in the Recapitalization Agreement) and in connection
with the rendering of any services hereunder (including, without limitation,
fees and expenses incurred in attending Company-related meetings).
7. Term. This Agreement will continue from the date hereof until the
----
earlier of (i) the date that Thayer ceases to own at least 15% of each of the
Common Stock and the Class A Preferred and (ii) the effective date of an initial
public offering of the Company's common stock with net proceeds to the Company
and the selling stockholders prior to any redemption of preferred stock of not
less than $30 million. No termination of this Agreement, whether pursuant
-2-
<PAGE>
to this Section 7 or otherwise, shall affect the Company's obligations with
---------
respect to the fees, costs and expenses incurred by TMP in rendering services
hereunder and not reimbursed by the Company as of the effective date of such
termination. Fees, costs and expenses payable hereunder by the Company shall be
deferred at any time when payment thereof would be prohibited under the terms of
the Company's senior credit facilities.
8. 15% of Investment Fees to Empyrean. TMP shall assign 15% of all
----------------------------------
Investment Fees received hereunder to the Company on behalf of the then current
executives of the Company listed on Exhibit A hereto, which list shall be
---------
updated from time to time to (i) include additional executives employed by the
Company after the date hereof and (ii) exclude any executives no longer employed
by the Company (collectively, the "Empyrean Executives").
9. Liability. Neither TMP nor any of its affiliates, members, officers,
---------
employees or agents shall be liable to the Company or any of its subsidiaries or
affiliates for any loss, liability, damage or expense arising out of or in
connection with the performance of services contemplated by this Agreement,
unless such loss, liability, damage or expense shall be proven to result
directly from the gross negligence or willful misconduct of TMP.
10. Indemnification. The Company agrees to indemnify and hold harmless TMP,
---------------
its affiliates, members, officers, employees or agents from and against any and
all loss, liability, suits, claims, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees) arising from their performance
hereunder, except as a result of their gross negligence or willful misconduct.
11. TMP an Independent Contractor. TMP and the Company agree that TMP shall
-----------------------------
perform services hereunder as an independent contractor, retaining control over
and responsibility for its own operations and personnel. Neither TMP nor its
members, officers, employees or agents shall be considered employees or agents
of the Company as a result of this Agreement nor shall any of them have
authority to contract in the name of the Company or bind the Company, except as
expressly agreed to in writing by the Company.
12. Notices. Any notice, report or payment required or permitted to be
-------
given or made under this Agreement by one party to the other shall be deemed to
have been duly given or made if personally delivered or, if mailed, when mailed
by registered or certified mail, postage prepaid, to the other party at the
following addresses (or at such other address as shall be given in writing by
one party to the other):
-3-
<PAGE>
If to TMP:
---------
Thayer Management Partners, L.L.C.
1455 Pennsylvania Avenue, NW
Suite 350
Washington, DC 20004
Attention: Robert Michalik
Tel: (202) 371-0150
Fax: (202) 371-0391
with a copy to:
--------------
Hogan & Hartson, LLP
13th Street, N.W.
Washington, DC 20004
Attention: Christopher J. Hagan
Tel: (202) 637-5771
Fax: (202) 637-5910
If to the Company:
-----------------
8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
Attention: Jason H. Levine
Graham B. Perkins
Tel: (703) 790-9276
Fax: (703) 790-9033
12. Entire Agreement: Modification. This Agreement (a) contains the
------------------------------
complete and entire understanding and agreement of TMP and the Company with
respect to the subject matter hereof; and (b) supersedes all prior and
contemporaneous understandings, conditions and agreements, oral or written,
express or implied, respecting the engagement of TMP in connection with the
subject matter hereof
13. Waiver of Breach. The waiver by either party of a breach of any
----------------
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of that provision or any other provision
hereof.
14. Assignment. Neither TMP nor the Company may assign its rights or
----------
obligations under this Agreement without the express written consent of the
other.
15. Successors and Assigns. This Agreement and all the obligations and
----------------------
benefits hereunder shall inure to the successors and permitted assigns of the
parties.
-4-
<PAGE>
16. Counterparts; Facsimile Transmission. This Agreement may be executed
------------------------------------
and delivered by each party hereto in separate counterparts, each of which when
so executed and delivered shall be deemed an original and both of which taken
together shall constitute one and the same agreement. Each party to this
Agreement agrees that it will be bound by its own telecopied signature and that
it accepts the telecopied signature of the other party to this Agreement.
17. Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, TMP and the Company have caused this Professional
Services Agreement to be duly executed and delivered on the date and year first
above written.
EMPYREAN GROUP HOLDINGS, INC.
By: /s/ Stuart C. Johnson
----------------------------------------
Name: Stuart C. Johnson
Title: President and CEO
TC MANAGEMENT PARTNERS IV, L.L.C.
By: /s/ Robert E. Michalik
----------------------------------------
Robert E. Michalik
Member
-6-
<PAGE>
Exhibit A
---------
Empyrean Executive
- ------------------
Stuart C. Johnson
Graham B. Perkins
Bruce H. Allan
Thomas B. Modly
Jason H. Levine
David T. Fu
Matthew B. Walker
Patricia A. Withers
-7-
<PAGE>
Exhibit 10.21
-------------
SUBLEASE AGREEMENT
------------------
7735 Old Georgetown Road
Bethesda, Maryland 20814
CHEVY CHASE BANK, F.S.B.
Sublandlord
and
ICONIXX CORPORATION
Subtenant
1
<PAGE>
SUBLEASE
--------
This sublease (this "Sublease") is made and entered into as of the 24th
day of April, 2000, by and between Chevy Chase Bank, F.S.B., a federally
chartered depository institution qualified to do business in the State of
Maryland (the "Sublandlord"), and Iconixx, a Delaware corporation (the
"Subtenant").
Recitals
--------
WHEREAS, Sublandlord is the tenant under a certain office lease dated
May 9, 1997, by and between Commonwealth Fairmont Corporation ("Prime Landlord",
which term includes all successors and assigns of the Prime Landlord) and
Sublandlord for premises described therein, comprising sixty thousand six
hundred eighteen (60,618) square feet and identified as the fourth (4th), sixth
(6th), seventh (7th), eighth (8th), ninth (9th) and tenth (10th) floors of the
office building known as the Fairmont Building, located at 7735 Old Georgetown
Road, Bethesda, Maryland 20814 (such premises being herein referred to
collectively as the "Prime Premises", such building, in which the Prime Premises
is located, being the "Building", and said office lease being the "Prime Lease
Agreement");
WHEREAS, the Sublandlord and the Prime Landlord entered into an
addendum to the Prime Lease Agreement, also dated May 9, 1997 (such addendum
being the "Prime Addendum");
WHEREAS, the Sublandlord and Prime Landlord confirmed certain terms of
the Prime Lease Agreement in a document dated January 14, 1998 and entitled
"Exhibit C Certificate of Commencement" (such document being the "Commencement
Certificate", and the Prime Lease Agreement, together with the Prime Addendum
and the Commencement Certificate being, collectively, the "Prime Lease"); and
WHEREAS, Sublandlord desires to sublease to Subtenant, and Subtenant
desires to sublease from Sublandlord, the entire Prime Premises, subject to and
in accordance with the terms of this Sublease;
IT IS, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, hereby agreed by and between the
parties hereto as follows:
1. Subleased Premises; Reserved Premises.
-------------------------------------
Sublandlord hereby leases to Subtenant, and Subtenant hereby leases
from Sublandlord, the entire Prime Premises (which entire Prime Premises is
sometimes hereinafter also referred to as the "Subleased Premises"), as follows:
(a) First Space.
------------
2
<PAGE>
The portion of the Subleased Premises which is located on the
fourth (4th) floor of the Building shall be herein referred to as the "First
Space".
(b) Second Space.
-------------
The portion of the Subleased Premises which is located on the
sixth (6th), seventh (7th), eighth (8th), ninth (9th) and tenth (10th) floors of
the Building shall be herein referred to as the "Second Space".
(c) Subleased Premises.
------------------
The First Space and the Second Space comprise the entire
Subleased Premises. Except as herein expressly provided, for all purposes
hereof: the First Space shall be deemed to contain ten thousand (10,000) square
feet; the Second Space shall be deemed to contain fifty thousand six hundred
eighteen (50,618) square feet; and the Subleased Premises shall be deemed to
contain sixty thousand six hundred eighteen (60,618) square feet.
(d) Parking.
-------
This Sublease includes the right of Subtenant to use
"Subtenant's Proportionate Share" (as hereinbelow defined) of Sublandlord's
rights to use the Building's parking facilities as set forth in Section 14(d) of
the Prime Lease Agreement (i.e., during the "Initial Term" (as hereinbelow
defined), 16.50% of the parking spaces granted to Sublandlord under the sixth
sentence of such section, and, during the "Second Space Term" (as hereinbelow
defined), 100% of such spaces), all in accordance with the terms set forth in
said Section 14(d) of the Prime Lease Agreement. Notwithstanding the foregoing,
such Subtenant's rights to such parking spaces shall only be effective to the
extent permitted by the Prime Lease and to the extent consented to by the Prime
Landlord (as provided for in Paragraph 7(b) hereinbelow) and Sublandlord makes
no warranty or agreement with respect to Subtenant actually receiving the right
to use such parking facilities.
2. Delivery.
---------
Sublandlord shall deliver to Subtenant, and Subtenant shall accept from
Sublandlord delivery of, the Subleased Premises, vacant and unencumbered by any
rights to possession other than those vested in Subtenant hereunder, and
otherwise in accordance with this Paragraph 2.
(a) First Space.
-----------
Delivery of the First Space shall be tendered by Sublandlord
to Subtenant on or before the later to occur of: (i) thirty (30) business days
following the "Execution Date" (as hereinafter defined), or (ii) ten (10) days
after Sublandlord's receipt of the Prime Landlord's consent to this Sublease (as
provided for in Paragraph 7(b) below); the actual date of such tender being the
"First Space Commencement Date". Sublandlord shall provide Subtenant with a
least five (5) business days advance written notice of the First Space
Commencement Date. The
3
<PAGE>
"Execution Date" shall be the date upon which the Sublandlord executes this
Sublease (which date shall be inserted by Sublandlord in the introductory
paragraph of this Sublease); it being agreed that Subtenant shall first execute
this Sublease and that Sublandlord shall deliver an original, executed
counterpart of this Sublease to Subtenant within three (3) business days after
Sublandlord's execution hereof.
(b) Second Space.
-------------
Delivery of the Second Space shall be tendered by Sublandlord
to Subtenant between October 1, 2001, and January 1, 2002 upon no less than
thirty (30) days advance written notice to Subtenant; the actual date of such
tender being the "Second Space Commencement Date". Throughout calendar year
2001, Sublandlord shall provide to Subtenant, promptly following Subtenant's
written request (which request shall be made no more frequently than once per
month), Sublandlord's good faith estimate of the Second Space Commencement Date.
(c) Subleased Premises.
------------------
Tender of delivery of the First Space and Second Space may be
accomplished by Sublandlord's delivery to Subtenant of keys and/or access cards
(as applicable) to the applicable portion of the Subleased Premises. Each of the
First Space and Second Space are to be tendered by Sublandlord to Subtenant in
its then current, "as is" condition as of the date of each respective tender,
excepting only that Sublandlord shall remove all of Sublandlord's personal
property, and may remove Sublandlord's security system, from the Subleased
Premises prior to each respective tender. SUBLANDLORD HEREBY DISCLAIMS ANY AND
ALL WARRANTIES, EXPRESS OR IMPLIED, WHETHER OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE, OR OTHERWISE, WITH RESPECT TO THE SUBLEASED
PREMISES. In making and executing this Sublease, Subtenant has relied solely on
such investigations, examinations and inspections as Subtenant has chosen to
make or has made with regard to the Subleased Premises and the Building.
Subtenant acknowledges that Subtenant has been afforded the opportunity for full
and complete investigations, examinations and inspections of the Subleased
Premises and the Building.
3. Term.
-----
The term of this Sublease shall commence upon the First Space
Commencement Date and shall expire (unless this Sublease is sooner terminated in
accordance with any applicable provision hereof) on October 30, 2007 (such term
being the "Sublease Term"). For the convenience of the parties, the time period
from the First Space Commencement Date to the Second Space Commencement Date is
sometimes herein referred to as the "Initial Term", and the time period from the
Second Space Commencement Date until the expiration of the Sublease Term (or
sooner termination of this Sublease in accordance with any applicable provision
hereof) is sometimes herein referred to as the "Second Space Term".
4. Minimum Annual Rent.
-------------------
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Subtenant shall pay to Sublandlord the "Minimum Annual Rent" as
follows:
(a) First Space.
------------
Throughout the Sublease Term, commencing on the First Space
Commencement Date, Subtenant shall pay to Sublandlord an annual base rent with
respect to the First Space equal to Two Hundred Forty Thousand Dollars
($240,000.00) per year, payable in equal monthly installments of Twenty Thousand
Dollars ($20,000.00), subject to increase as hereinafter provided (such annual
base rent being the "First Space Base Rent"), subject only to the abatement of
First Space Base Rent provided for in this Paragraph 4(a). Provided Subtenant
shall not be in breach of any provision of this Sublease, the First Space Base
Rent payable for the sixty (60) day period commencing on the First Space
Commencement Date shall be waived and abated. On each January 1st throughout the
Sublease Term, commencing on January 1, 2001, the First Space Base Rent (and
monthly installments thereof) shall be increased by an amount equal to two and
one-half percent (2.50%) of the First Space Base Rent then in effect (for
example, the First Space Base Rent shall increase to Two Hundred Forty-Six
Thousand Dollars ($246,000.00) effective January 1, 2001).
(b) Second Space.
------------
Throughout the Second Space Term, commencing on the Second
Space Commencement Date, Subtenant shall pay to Sublandlord an annual base rent
with respect to the Second Space equal to One Million Two Hundred Fourteen
Thousand Eight Hundred Thirty-Two Dollars ($1,214,832.00) per year, payable in
equal monthly installments of One Hundred One Thousand Two Hundred Thirty-Six
Dollars ($101,236.00), subject to increase as hereinafter provided (such annual
base rent being the "Second Space Base Rent"). On each January 1st throughout
the Second Space Term, commencing on January 1, 2003, the Second Space Base Rent
(and monthly installments thereof) shall be increased by an amount equal to two
and one-half percent (2.50%) of the Second Space Base Rent then in effect (for
example, the Second Space Base Rent shall increase to One Million Two Hundred
Forty-Five Thousand Two Hundred Two and 80/100 Dollars ($1,245,202.80) effective
January 1, 2003).
(c) Subleased Premises.
------------------
As hereinabove provided, the "Minimum Annual Rent" shall mean,
during the Initial Term, the First Space Base Rent and, during the Second Space
Term, both the First Space Base Rent and the Second Space Base Rent. The Minimum
Annual Rent shall be payable, in equal monthly installments, on or before the
first day of each month (during the Sublease Term with respect to the First
Space Base Rent and during the Second Space Term with respect to the Second
Space Base Rent), except that the payment of First Space Base Rent for the first
full calendar month of the Sublease Term (following expiration of the sixty (60)
day abatement period provided for in Paragraph 4(a) above) shall be made upon
Subtenant's signing of this Sublease and the payment of the Second Space Base
Rent for the first full calendar month of the Second Space Term shall be made on
or before October 1, 2001. Notwithstanding the foregoing, the parties hereby
confirm and agree that Subtenant shall be liable for, among other things, the
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entire amount of the Minimum Annual Rent due to Sublandlord under this Sublease
with respect to the entire Subleased Premises (i.e., both the First Space and
the Second Space) for the entire Sublease Term in the event of a default
(following notice and a five (5) day cure period (in the case of a monetary
default) and/or a fifteen (15) day cure period (in the case of a non-monetary
default; provided, however, that if such default is not reasonably capable of
being cured within such fifteen (15) day period, then so long as Subtenant has
commenced curative action within such period and thereafter continues to pursue
diligently such curative action, such fifteen (15) day period shall be extended
for the period necessary to cure such default, but not more than thirty (30)
days, inclusive of the original 15-day period) of Subtenant's obligations under
this Sublease during the Initial Term and/or at any time prior to Subtenant
taking possession to the Second Space. Except as herein expressly set forth, the
Minimum Annual Rent (and all other payments to be made by Subtenant to
Sublandlord in accordance with this Sublease) shall be payable without notice or
other demand, and without recoupment, counterclaim, set-off or other deduction,
at Sublandlord's address set forth in Paragraph 13 hereinbelow, or at such other
place as Sublandlord may designate from time to time by notice to Subtenant.
(d) Rent Abatement Under Prime Lease Agreement.
------------------------------------------
In the event, to the extent and for so long as any of the
"Minimum Annual Rent" (as defined in the Prime Lease and sometimes hereinafter
referred to as the "Prime Minimum Annual Rent") and/or "Tenant's Proportionate
Share" (as defined in the Prime Lease) of any increase in the "Basic Operating
Expenses" (as defined in the Prime Lease and such Tenant's Proportionate Share
of such increases in the Basic Operating Expenses being sometimes hereinafter
referred to as "Prime Operating Expense Increases") is abated under the Prime
Lease (whether by reason of interruption or reduction of services, condemnation,
casualty or otherwise), then a corresponding amount of the Minimum Annual Rent
and/or "Operating Expense Increases" (as defined in Paragraph 5 hereinbelow)
hereunder shall be abated hereunder in the same proportion as Prime Minimum
Annual Rent and/or Prime Operating Expense Increases are abated under the Prime
Lease.
5. Operating Expenses.
------------------
Subtenant shall pay "Operating Expense Increases" (as hereinafter
defined), as follows:
(a) Subtenant's Proportionate Share.
-------------------------------
As hereinbelow provided for, the parties hereby confirm and
agree that the "Proportionate Share", as such term is defined and provided for
in the Prime Lease Agreement (also referred to as "Tenant's Proportionate Share"
in the Prime Lease Agreement), is forty-eight and 70/100 percent (48.70%), as of
the date hereof; the First Space comprises sixteen and one-half percent (16.50%)
of the Prime Premises; and the Second Space comprises eighty-three and one-half
percent (83.50%) of the Prime Premises. "Subtenant's Proportionate Share" means:
(i) with respect to the First Space, eight and 04/100 percent [which is sixteen
and one-half percent (16.50%) of forty-eight and 70/100 percent (48.70%), i.e.,
16.50% X 48.70%] (such 8.04% being referred to herein as the "First Space
Share"); and, (ii) with respect to the Second Space, forty
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and 66/100 percent (40.66%) [which is eighty-three and one-half percent (83.50%)
of forty-eight and 70/100 percent (48.70%), i.e., 83.50% X 48.70%] (such 40.66%
being referred to herein as the "Second Space Share").
(b) First Space Operating Expense Increase.
--------------------------------------
Commencing effective as of January 1, 2001, and thereafter
throughout the Sublease Term, for each calendar year (and each partial calendar
year) in the Sublease Term, Subtenant shall pay to Sublandlord an amount (pro
rated for any partial calendar year) equal to the First Space Share of the
increase, if any, of the "Basic Operating Expenses" (as defined and provided for
in the Prime Lease) for such calendar year over the Basic Operating Expenses
incurred during calendar year 2000. The First Space Share of each such full or
partial calendar year's increase is hereinafter referred to as such year's
"First Space Operating Expense Increase". For example, if the Basic Operating
Expenses for 2001 are One Hundred Ten Thousand Dollars ($110,000.00) and the
Basic Operating Expenses for 2000 are One Hundred Thousand Dollars
($100,000.00), then the First Space Operating Expense Increase for calendar year
2001 shall be Eight Hundred Four Dollars ($804.00) (i.e., $110,000.00 -
$100,000.00 = $10,000.00; 8.04% of $10,000.00 = $804.00)
(c) Second Space Operating Expense Increase.
---------------------------------------
Commencing effective as of January 1, 2003, and thereafter
throughout the Sublease Term, for each calendar year (and each partial calendar
year) in the Sublease Term, Subtenant shall pay to Sublandlord, in addition to
and together with the First Space Operating Expense Increase for such full or
partial calendar year, an amount (pro rated for any partial calendar year) equal
to the Second Space Share of the increase, if any, of the Basic Operating
Expenses for such full or partial calendar year over the Basic Operating
Expenses incurred during the calendar year 2002. The Second Space Share of each
such full or partial calendar year's increase is hereinafter referred to as such
year's "Second Space Operating Expense Increase".
(d) Operating Expense Increases.
---------------------------
The term "Operating Expense Increases" shall mean, during the
Initial Term, the First Space Operating Expense Increase and, during the Second
Space Term, both the First Space Operating Expense Increase and the Second Space
Operating Expense Increase. Prime Landlord's estimates, statements, and other
determinations of Basic Operating Expenses, pursuant to Section 5(d) of the
Prime Lease Agreement (including, but not limited to, Sections 5(d) (v) and
(vi)), shall be binding upon Subtenant, and Subtenant shall have no right to
dispute the accuracy of any such estimate, statement or other determination
except only as expressly provided as follows in this Paragraph 5(d). Commencing
on the Second Space Commencement Date and thereafter throughout the Sublease
Term, upon Subtenant's request Sublandlord shall request a detailed statement of
Basic Operating Expenses prepared by the Prime Landlord and a copy of Real
Estate Tax bills. Provided that Subtenant is not then in default under this
Sublease and has paid to Sublandlord all Operating Expense Increases (including
those Operating Expense
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Increases then being disputed), Sublandlord, upon Subtenant's request, shall use
reasonable efforts to contest such detailed statement in accordance with, and to
the extent provided under, Section 5(d) of the Prime Lease Agreement. Subtenant
hereby agrees to reimburse Sublandlord, and hereby agrees to indemnify and hold
harmless Sublandlord, for and on account of all of the costs and expenses
(including, but not limited to, actual attorney's fees) Sublandlord incurs in
connection with any such contest and any increase in the Basic Operating
Expenses (and/or Tenant's Proportionate Share thereof) as a result of and/or in
connection with any such contest. In addition, Subtenant shall pay (to
Sublandlord), during the Initial Term, the First Space Share of, and, during the
Second Space Term, the First Space Share and the Second Space Share of, all
estimates (as the same may be revised by Sublandlord) and actual increases (as
determined by the Prime Landlord) in Basic Operating Expenses, as hereinbelow
provided for in Paragraph 5(e).
(e) Payment of Estimated and Actual Operating Expenses.
--------------------------------------------------
(i) Estimated Payments.
------------------
In order to provide for current monthly payments
of Operating Expense Increases (commencing effective as of January 1, 2001),
Sublandlord may submit to Subtenant, from time to time each calendar year during
the Sublease Term, a written statement based on the Prime Landlord's estimate of
the amount of the increases in Basic Operating Expenses, together with the
amount of the Operating Expense Increases estimated (by Sublandlord and/or Prime
Landlord) to result from such increases. Subtenant shall pay each month (during
the Sublease Term) one-twelfth (1/12) of the Operating Expense Increases so
estimated for such calendar year and Subtenant shall also pay, within fifteen
(15) days of receipt of such statement, the amount, if any, of such estimated
Operating Expense Increases accruing prior to the date of such statement.
Subtenant shall, in all cases, continue to make monthly payments of Operating
Expense Increases based on the last estimate received from Sublandlord until
Subtenant receives a revised estimate.
(ii) Actual Payments.
---------------
After the end of each calendar year during the
Sublease Term (and after the partial calendar year at the end of the Sublease
Term), commencing with the end of calendar year 2001, Sublandlord shall, as soon
as practicable (after receiving Prime Landlord's statement for same), submit to
Subtenant the Prime Landlord's statement of actual increases in Basic Operating
Expenses for the preceding calendar year over the Basic Operating Expenses for
the applicable Sublease Base Year(s). Subtenant shall pay to Sublandlord, within
twenty (20) days of Subtenant's receipt of such statement, the excess, if any,
of the actual Operating Expense Increases (as determined by reference to Prime
Landlord's statements for same) over the amount of Operating Expense Increases
theretofore paid by Subtenant during the previous year (as Subtenant's payment
of the estimated amounts for the Operating Expense Increases). If the amount of
Operating Expense Increases paid by Subtenant during the previous year exceeded
the actual Operating Expense Increases (as determined by reference to Prime
Landlord's statements for same), the excess shall be credited toward payment of
the next installment of Minimum
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Annual Rent to be paid by Subtenant after Subtenant receives said statement. If
the amount of Operating Expense Increases paid by Subtenant with respect to the
last calendar year of the Sublease Term exceeds the actual Operating Expense
Increases (as determined by reference to Prime Landlord's statements for same)
payable by Subtenant for such year, Sublandlord shall pay to Subtenant the
excess amount within thirty (30) days after Sublandlord's submission to
Subtenant of the aforesaid statement of Operating Expense Increases for such
calendar year.
(iii) Pro Rata Payments.
-----------------
In addition, the Operating Expense Increases for
the partial calendar year during which the Sublease Term expires (i.e., January
1, 2007, to October 30, 2007) shall be prorated in the same manner as the Base
Operating Expenses are prorated under the Prime Lease Agreement.
(f) Additional Service Charges. In addition to the foregoing, Subtenant
--------------------------
agrees to pay Sublandlord, as additional rent hereunder, all charges payable by
Sublandlord under the Prime Lease Agreement for any additional services provided
to Subtenant by Prime Landlord, including, without limitation, any charges and
fees for alterations or after-hours heating and air conditioning services (all
such services being hereinafter referred to as the "Additional Services" and all
such charges being hereinafter referred to as the "Additional Service Charges").
At the request of Sublandlord and with the consent of the Prime Landlord,
Subtenant shall pay any such additional service charge amounts directly to or as
otherwise directed by Prime Landlord.
6. Rent.
-----
All sums (including, but not limited to, Minimum Annual Rent, Operating
Expense Increases, Additional Service Charges, late charges, interest and
attorney's fees) payable by Subtenant to Sublandlord shall be deemed rent, and
shall be payable to Sublandlord without notice (except as expressly provided for
herein) or other demand, and without recoupment, counterclaim, set-off or other
deduction (except only as herein expressly provided for) (all such sums being
herein sometimes collectively referred to as "Rent"). In the event that any
amount of Rent payable by Subtenant is not paid within three (3) days after the
date such payment is due (which due date, with respect to any non-scheduled
payments of Rent shall be the fifth (5th) day after Subtenant is invoiced
therefor if Subtenant is required to be invoiced under this Sublease for such
payment and if provision for another payment date is not provided for in this
Sublease), Subtenant shall pay to Sublandlord (upon request) a late charge equal
to five percent (5%) of the amount not so paid when due, as liquidated damages
for the additional charges incurred by Sublandlord as a result of such late
payment. In addition, if any portion of Rent is not paid within ten (10) days
after the same is due, Subtenant shall also pay to Sublandlord interest on such
unpaid amount, at the rate of five percent (5%) over the Prime Rate in the Money
Rate Section of the Wall Street Journal (or a comparable alternative index
-------------------
selected by Sublandlord in the event that for any reason the Wall Street Journal
-------------------
discontinues publication of the Prime Rate) (such rate being the "Stipulated
Rate") from the date such Rent is due until the date such Rent is received by
Sublandlord. No payment by Subtenant or receipt by Sublandlord of lesser amounts
of Rent than those herein provided for shall be deemed to be other than on
account of the earliest
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unpaid Rent. No endorsement or statement on any check or any letter accompanying
any check or payment of Rent shall be deemed an accord and satisfaction, and
Sublandlord may accept any such check or other payment without prejudice to
Sublandlord's right to recover the balance of such Rent or pursue any other
remedy provided for in this Sublease or under applicable law. If Sublandlord
receives from Subtenant two (2) or more returned or "bounced" checks in any
twelve (12) month period, Sublandlord may require all future Rent payments to be
made by certified check. Except as hereinabove expressly provided, Rent for any
partial calendar month and/or calendar year during the Sublease Term shall be
prorated on a per diem basis.
7. Prime Lease.
-----------
(a) Prime Lease.
-----------
The Prime Lease, which consists of the Prime Lease Agreement,
the Prime Addendum, and the Commencement Certificate, is attached hereto as
Exhibit A, although certain economic terms of the Prime Lease have been
redacted. Notwithstanding anything to the contrary, this Sublease is subject and
subordinate to the Prime Lease and all provisions of the Prime Lease. Except as
otherwise provided for herein, all capitalized terms used in this Sublease which
are defined in the Prime Lease shall have the meaning provided in the Prime
Lease.
(b) Consent of Prime Landlord.
-------------------------
This Sublease shall be contingent upon receipt of the consent
of the Prime Landlord, as follows: Sublandlord agrees that Sublandlord shall
request the consent of the Prime Landlord to this Sublease promptly after the
Execution Date and Sublandlord and Subtenant shall each cooperate in endeavoring
to obtain the consent of the Prime Landlord to this Sublease. In the event that
such consent of the Prime Landlord shall not be obtained by Sublandlord within
thirty (30) days after the Execution Date, this Sublease shall be null and void
and of no further force and effect (without the obligation to provide notice),
whereupon there shall be no further rights and duties of either party to the
other hereunder, except that Sublandlord shall promptly refund to Subtenant any
advance payments of Rent theretofore made by Subtenant to Sublandlord and the
"Security Deposit" (as defined below) previously deposited with Sublandlord by
Subtenant.
(c) Incorporation of Prime Lease Provisions.
---------------------------------------
(i) Incorporation of Prime Lease Agreement Provisions.
-------------------------------------------------
The following provisions of the Prime Lease
Agreement are hereby incorporated into this Sublease in the manner provided as
follows. Except to the extent that the following provisions of the Prime Lease
Agreement are hereby made inapplicable and/or are modified by the provisions of
this Sublease (for the purpose of incorporation herein), the following listed
provisions of the Prime Lease Agreement are incorporated into this Sublease by
reference so that each and every such provision of the Prime Lease Agreement
binding upon, or inuring to the benefit of, the Prime Landlord shall, with
respect to this Sublease, bind upon, or
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inure to the benefit of, Sublandlord; and each and every such provision of the
Prime Lease Agreement binding upon, or inuring to the benefit of, Tenant shall,
with respect to this Sublease, bind upon, or inure to the benefit of, Subtenant;
and, as so incorporated herein, Sublandlord agrees to perform and observe the
terms, covenants and conditions of the Landlord under the Prime Lease Agreement
to the extent incorporated herein (except as hereinafter modified); and, as so
incorporated herein, Subtenant agrees to perform and observe the terms,
covenants and conditions of the Tenant under the Prime Lease Agreement to the
extent incorporated herein; each and all with the same force and effect as if
the terms, covenants and condition of the following provisions of the Prime
Lease Agreement were completely set forth in this Sublease:
1. At Section 1(a), subsections 2, 4, 12, 16
and 17.
2. Section 1(b).
3. Section 1(c).
4. At Section 3, the definition of
"Lease Year", except that, for the purpose of incorporation herein, the first
Lease Year shall commence on the First Space Commencement Date.
5. Section 4(b).
6. Section 4(c), except that the following
words are deleted from the beginning thereof: "Subject to the provisions of
Section 4(d) of this Lease".
7. At Section 5(c)(ii), the definition of
"Basic Operating Expenses" (and the procedures applicable to the Prime
Landlord's determination of same) to the extent necessary to effectuate the
determination and payment of the Operating Expense Increases as hereinabove
provided for at Paragraph 5.
8 Section 7, in its entirety.
9. Section 8, in its entirety.
10. Section 9, in its entirety, together
with Exhibit F to the Prime Lease Agreement (entitled "RULES AND REGULATIONS"),
except that modifications of the Rules and Regulations shall only be made by the
Prime Landlord.
11. Section 10, in its entirety, except that
Sublandlord shall have the right to request that Subtenant deposit with
Sublandlord, and Subtenant shall make such deposit with Sublandlord upon
Sublandlord's request, reasonable security for the charges that will be due and
payable to the Prime Landlord in connection with any Additional Services.
12. Section 11, in its entirety.
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13. Section 12, in its entirety.
14. Section 13, in its entirety, except that
any alterations and/or improvements requiring the consent of Sublandlord (by
incorporation of such Section 13 herein) shall also require the consent (and
satisfaction of the requirements) of the Prime Landlord, which consent of the
Prime Landlord the Sublandlord shall use reasonable efforts to procure, upon
Subtenant's written request from time to time.
15. Section 14, in its entirety.
16. Section 15, in its entirety, except that
upon the expiration of the Sublease Term, or sooner termination of this
Sublease, Subtenant shall quit and surrender the Subleased Premises in the
condition in which the Tenant is required to quit and surrender the Prime
Premises under the Prime Lease.
17. Section 16, in its entirety, except that
the words "one hundred fifty percent (150%)" in the fourth (4th) line thereof
shall be deleted and substituted with the words "two hundred percent (200%)".
18. Section 17, in its entirety, except
Subtenant shall, in no event, mortgage or encumber this Sublease (or any right
or interest thereunder) or permit the Subleased Premises to be used by others
(other than with respect to any permitted assignment or sublease in accordance
with the terms of this Sublease). Furthermore, any proposed sublease or
assignment requiring the consent of Sublandlord (by incorporation of such
Section 17 herein) shall also require the consent (and satisfaction of the
requirements) of the Prime Landlord, which consent of the Prime Landlord the
Sublandlord shall use reasonable efforts to procure, upon Subtenant's written
request from time to time, and which consent of Sublandlord shall be governed by
the standards of reasonableness set forth in such Section 17. Notwithstanding
the foregoing, any right of the Subtenant (incorporated herein from the Prime
Lease, as the same may also be modified herein) to assign Subtenant's interest
in this Sublease and/or to Sublet the Subleased Premises shall be further
restricted by and subject to the provisions of Paragraph 11 hereinbelow.
19. Section 18, in its entirety.
20. Section 19, in its entirety, except that in
the third line of Section 19(b) the words "in violation of Section 17" are
deleted and substituted with the words "in violation of this Lease" (i.e., in
violation of this Sublease).
21. Section 20, in its entirety.
22. Section 21, in its entirety.
23. Section 22, in its entirety.
24. Section 23, in its entirety, except that:
with regard to the first (1st)
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sentence of Section 23(a) and Subtenant's insurance and payment obligations
arising by virtue of Section 23(c), Subtenant's restoration, insurance and
payment obligations shall include the obligation to restore, insure, and pay for
all leasehold improvements installed in the Subleased Premises by or at the
request of Subtenant and/or Sublandlord (as well as Subtenant's furniture,
furnishings, trade fixtures and equipment); references in Section 23(a) to rent
loss insurance shall mean and refer only to rent loss insurance procured by the
Prime Landlord; references in Sections 23(b) and (d) to "Landlord" shall mean
and refer to the Prime Landlord and/or the Sublandlord (it being agreed that
Sublandlord shall promptly provide to Subtenant a copy of any election or other
notice of Prime Landlord under Section 23(b) of the Prime Lease Agreement; and
Subtenant shall have the right to terminate the Sublease (and Sublandlord shall
terminate the Prime Lease) under or in connection with the provisions of Section
23(b) of the Prime Lease Agreement only during the first (1st) one-half (1/2) of
the Second Space Term (i.e., during the time period from the Second Space
Commencement Date to the date which is half-way between the commencement and
expiration of the Second Space Term)); it being agreed that Sublandlord shall
solely control any such termination prior to the Second Space Commencement Date
and during the second (2nd) one-half (1/2) of the Second Space Term.
25. Section 24, in its entirety, except that
references in Section 24 to "Landlord" shall mean and refer to the Prime
Landlord and/or the Sublandlord (it being agreed that Sublandlord shall promptly
provide to Subtenant a copy of any election or other notice of Prime Landlord
under Section 24 of the Prime Lease Agreement).
26. Section 25, in its entirety.
27. Section 26, in its entirety, except that
Section 26(d) is hereby deleted for the purpose of incorporation of Section 26
herein.
28. Section 27, in its entirety, except that
references to "Landlord" in Section 27(a) and in the second (2nd) and third
(3rd) sentences of Section 27(b) shall mean and refer to the Prime Landlord and
the Sublandlord, and during the Initial Term, the insurance coverage
requirements set forth in clause (a)(i) shall be maintained by Sublandlord, with
respect to the Second Space, and by Subtenant, with respect to the First Space.
29. Section 28, in its entirety.
30. Section 29, in its entirety.
31. Section 30, in its entirety, except that
Sublandlord shall not be required to provide any listings or signs, although
Sublandlord shall use reasonable efforts to procure a new listing and signs for
Subtenant from the Prime Landlord, all at Subtenant's expense and upon
Subtenant's request.
32. Section 32, in its entirety.
33. Section 33, in its entirety, except that
notwithstanding anything to
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the contrary, no performance of any act required of Subtenant shall be excused
to the extent that the delay in performance of such act would result in the
breach of any obligation under the Prime Lease by Sublandlord as Tenant under
the Prime Lease.
34. Section 35, in its entirety.
35. Section 36, in its entirety.
36. Section 37, in its entirety.
37. Section 40, except that Sections 40(d) and
(i) are not incorporated herein.
38. Section 41, in its entirety.
39. Section 42, in its entirety.
(ii) Incorporation of Exhibits.
-------------------------
In addition, Exhibits A and B to the Prime Lease
Agreement are incorporated herein to the extent applicable to the Subleased
Premises.
(iii) Incorporation of Commencement Certificate Provisions;
-----------------------------------------------------
Size Adjustments.
----------------
Further, the Commencement Certificate is hereby
incorporated into this Sublease for the purpose of establishing and confirming
the following provisions of the Prime Lease (which are hereby incorporated
herein): the Rentable Floor Space of Prime Premises is sixty-eight thousand six
hundred eighteen (60,618) square feet; and the Proportionate Share (also known
as Tenant's Proportionate Share) is forty-eight and 70/100 percent (48.70%). In
addition, the parties hereby agree that in the event that the Rentable Floor
Space of Prime Premises, the Gross Leaseable Area (of the Building) and/or the
Proportionate Share (and/or words and provisions of similar import) are
modified, in accordance with the Prime Lease, after the date of this Sublease,
then proportionate adjustments shall be made in the Minimum Annual Rent,
Subtenant's Proportionate Share, and other components of Rent (if any) which
vary with the size of the Subleased Premises and/or the relation of the size of
the Subleased Premises to the size of the Building, all as reasonably determined
by Sublandlord (except that any determination in connection with same which is
binding upon Sublandlord as Tenant under the Prime Lease shall also bind
Subtenant under applicable provisions of this Sublease). Further, Sublandlord
and Subtenant each hereby agree both not to take any action which violates the
Prime Lease and not to fail to take any action required of such party to comply
with the Prime Lease (as the same may be incorporated herein); it being agreed
that the Sublandlord shall not be so responsible for the acts or omissions of
the Subtenant. If any of the provisions of this Sublease (exclusive of the
provisions of the Prime Lease incorporated herein) conflict with the provisions
of the Prime
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<PAGE>
Lease incorporated herein, such conflict shall be resolved in each instance in
favor of the provisions of this Sublease (exclusive of the provisions of the
Prime Lease incorporated herein).
(iv) Incorporation Generally.
-----------------------
Except as herein expressly provided for, to the
extent incorporated herein from the provisions of the Prime Lease, the words
"Landlord" and "Tenant", and words of similar import, whenever the same appear
in the Prime Lease, shall be construed to mean, respectively, Sublandlord and
Subtenant in this Sublease; the words "Leased Premises" and words of similar
import, whenever the same appear in the Prime Lease, shall be construed to mean
the Subleased Premises in this Sublease; the word "Lease", and words of similar
import, whenever the same appear in the Prime Lease, shall be construed to mean
this Sublease in this Sublease; the words "Lease Term" and words of similar
import, whenever the same appear in the Prime Lease, shall be construed to mean
the Sublease Term in this Sublease; and the words "Additional Rent" , "Rent" and
"rent", and words of similar import, whenever the same appear in the Prime
Lease, shall be construed to mean the Rent in this Sublease.
(v) Satisfaction of Incorporated Obligations.
----------------------------------------
Notwithstanding anything to the contrary, whenever
any provision of the Prime Lease which has been incorporated herein imposes on
the Sublandlord any obligation of the Landlord to the Tenant under the Prime
Lease (and, consequently, any obligation of the Sublandlord to the Subtenant
under this Sublease), Sublandlord may satisfy such obligation by using
reasonable efforts (in Sublandlord's capacity as Tenant under the Prime Lease)
to procure the Prime Landlord's satisfaction of such obligation and Sublandlord
shall have no further obligation or other liability whatsoever in connection
with the provisions of the Prime Lease which are incorporated herein; it being
agreed that such obligations of Sublandlord shall only be initiated by
Subtenant's written request to Sublandlord. Further, the Subtenant agrees that,
with Sublandlord's approval, the Prime Landlord may exercise any of the rights
of the Sublandlord under this Sublease. In addition, and notwithstanding
anything to the contrary, the time limits in the provisions of the Prime Lease
(incorporated herein) for the provision of notices, making of demands or
performing any act, condition or covenant on the part of the Tenant (and,
consequently, on the part of the Subtenant hereunder), and for the exercise by
the Tenant (and, consequently, the Subtenant) of any right, remedy, or option,
are changed for the purpose of incorporation herein by shortening the same in
each instance by four (4) business days, so that in each instance Subtenant
shall have four (4) business days less time to observe and/or perform under this
Sublease than the Sublandlord has as Tenant under the Prime Lease.
(d) Grant of Certain Rights of "Tenant" under the Prime Lease
----------------------------------------------------------
Agreement.
----------
Sublandlord shall use reasonable efforts, upon Subtenant's
request, to procure listings for Subtenant in the directory of tenants for the
Building; it being agreed that Subtenant shall reimburse Sublandlord for any and
all costs incurred by Sublandlord and/or payable to the Prime Landlord in
connection therewith.
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<PAGE>
(e) Certain Terms of Prime Lease not Incorporated Herein.
----------------------------------------------------
Provided that Subtenant shall not be in default under this
Sublease (after the expiration of any applicable notice and cure periods),
Sublandlord hereby agrees that Sublandlord shall pay the "Minimum Annual Rent"
and "Additional Rent" to Prime Landlord set forth under Section 5 of the Prime
Lease Agreement and, except to the extent that the Subtenant shall be obligated
to perform such obligations, Sublandlord shall also perform all of Sublandlord's
obligations (i.e., the obligations of the Tenant under the Prime Lease)
throughout the Sublease Term (all of such continuing monetary and non-monetary
obligations of the Sublandlord being the "Continuing Sublandlord Obligations").
8. Casualty, Condemnation.
----------------------
In the event a casualty or condemnation event affecting the Building or
the Subleased Premises occurs during the Sublease Term, then (i) in the event,
for so long as and to the extent Prime Minimum Annual Rent and Prime Operating
Expense Increases, respectively, are abated under the Prime Lease, then the
Minimum Annual Rent and Operating Expense Increases hereunder, respectively,
shall be proportionately abated, (ii) in the event and in the manner the
configuration, location or square footage of the Prime Premises is altered under
the Prime Lease, the Subleased Premises shall be altered hereunder, and (iii) in
the event the Prime Lease is terminated as a result of such event, this Sublease
shall also terminate. In the event all or any portion of the Subleased Premises
is taken by condemnation during the Sublease Term, Subtenant shall have,
together with Sublandlord during the Initial Term and exclusively thereafter,
any and all rights of tenant under the Prime Lease to assert claims to the
condemning authority for compensation for tangible personal property and
fixtures.
9. Sublandlord Performance under Prime Lease.
-----------------------------------------
Sublandlord hereby warrants and represents that Sublandlord has not
received any written notice of a "Tenant" default existing under the Prime Lease
as of the date hereof, and further warrants that it shall continue to observe
and perform all of its obligations under the Prime Lease until the Sublease
Commencement Date so that no "Tenant" default exists under the Prime Lease as of
such date. From and after the Sublease Commencement Date and for so long as
Subtenant is not in default hereunder, Sublandlord shall continue to perform the
Continuing Sublandlord Obligations (as such obligations differ between the
Initial Term and the Second Space Term) in order to prevent any default
thereunder or breach thereof during the Sublease Term. Provided, further, that
Sublandlord will not, at any time during the Sublease Term, exercise
Sublandlord's rights to expand the Prime Premises pursuant to the terms of
Section 4 of the Prime Addendum. Subtenant shall pay Sublandlord any and all
fees, costs (including actual attorneys' fees), liabilities, claims, demands,
damages and expenses incurred by or otherwise affecting the "Tenant" under the
terms of the Prime Lease by reason of and/or in connection with any such
exercise promptly upon Sublandlord's request. Sublandlord shall indemnify,
defend and hold Subtenant harmless from and against all claims, demands, actual
damages (but not punitive, consequential or other damages, all of which are
hereby expressly waived as a condition of this
16
<PAGE>
Sublease), liabilities and expenses (including, without limitation, reasonable
attorneys' fees) of any kind whatsoever by reason of any breach by Sublandlord
of this Sublease (including, without limitation, default by Sublandlord in the
timely performance of the Continuing Sublandlord Obligations). The foregoing
indemnification obligation (as well as all other obligations of either party
accruing prior to any termination hereof) of Sublandlord shall survive the
termination of the Prime Lease and of this Sublease.
10. No Subtenant Default.
--------------------
Subtenant shall not cause or permit anything to be done which would
constitute a default or breach of Sublandlord's obligations as "Tenant" under
the Prime Lease assumed by and/or binding upon Subtenant hereunder, including,
without limitation, any breach or default which would cause the Prime Lease to
be terminated or forfeited by reason of any right of termination or forfeiture
reserved or vested in the Landlord under the Prime Lease. In the event of any
default or breach by Subtenant in the performance of the covenants and
agreements contained herein (including those incorporated herein), Sublandlord
shall have all of the rights as against Subtenant that the Landlord under the
Prime Lease has against the Sublandlord for a default under the Prime Lease.
Sublandlord shall promptly forward to Subtenant any notice of default received
by Sublandlord under the Prime Lease. Subtenant shall indemnify, defend and hold
Sublandlord harmless from and against all claims, demands, damages, liabilities
and expenses (including, without limitation, reasonable attorneys' fees) of any
kind whatsoever by reason of any breach or default on the part of Subtenant
hereunder or for any other damages, liabilities, costs, expenses (including,
without limitation, reasonable attorneys' fees), claims, demands or charges
suffered or which may be suffered by Sublandlord in connection with or arising
from this Sublease or the Subleased Premises. The foregoing indemnification
obligation (as well as all other obligations of either party accruing prior to
any termination hereof) of Subtenant shall survive the termination of the Prime
Lease and of this Sublease.
11. Assignment and Subletting.
-------------------------
(a) Assignment and Subletting.
-------------------------
The parties hereby confirm and agree that Subtenant shall not
assign, mortgage or encumber this Sublease, or any right or interest hereunder,
and shall not sublet the Subleased Premises, or any part thereof, and shall not
permit the Subleased Premises to be used by others, except only as hereinabove
expressly provided by the incorporation herein and modification of Section 17 of
the Prime Lease. However, and notwithstanding anything to the contrary, prior to
Subtenant attempting to assign Subtenant's interest in this Sublease and/or
subletting the Subleased Premises, or any part thereof, Subtenant shall first
comply with, and Subtenant's rights shall be subject to, the following
provisions of this Paragraph 11 of this Sublease. Furthermore, notwithstanding
anything to the contrary, any consent of Sublandlord (to any assignment or
subletting by Subtenant) shall be subject to the exercise by Sublandlord of the
"Recapture Option" (as hereinafter defined), and if Sublandlord shall not
exercise such Recapture Option such consent shall be expressly conditioned upon
compliance by Subtenant with all of the provisions of this Sublease (including
the provisions of the Prime Lease as modified and
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<PAGE>
incorporated herein), and any attempt by Subtenant to do otherwise shall be
absolutely and unconditionally null and void and of no force and effect
whatsoever.
(b) Notice.
------
If Subtenant desires to undertake any assignment of
Subtenant's interest in this Sublease and/or any sublease of the Subleased
Premises (or any part thereof) (any such desired assignment and subletting being
a "Proposed Transaction"), Subtenant shall provide Sublandlord with prior
written notice of such desire, specifying the consideration for, and all other
terms and conditions of, the Proposed Transaction and identifying the proposed
assignee or subtenant with respect thereto (the "Proposed Party"), which notice
shall be accompanied by a certified financial statement setting forth the
financial condition of the Proposed Party in sufficient detail so as to permit
Sublandlord's comprehensive assessment thereof.
(c) Recapture Option.
----------------
Sublandlord shall have the right (herein called the "Recapture
Option"), at Sublandlord's sole option, (i) in the event of a proposed
assignment of this Sublease or subletting of all of the Subleased Premises, to
terminate this Sublease in its entirety as of the "Effective Termination Date"
(as such term is hereinafter defined), or (ii) in the event of a proposed
subletting of part (but not all) of the Subleased Premises, to terminate this
Sublease only as to that portion of the Subleased Premises which Subtenant has
proposed to sublet, in which event Subtenant's obligations as to the Minimum
Annual Rent and Operating Expense Increases hereunder shall be reduced, as of
the Effective Termination Date, in the same proportion as the proportion of the
rentable area of the portion of the Subleased Premises so proposed to be sublet
bears to the total rentable area of the Subleased Premises. If Sublandlord
elects to exercise the Recapture Option to terminate this Sublease in whole or
in part, Sublandlord shall do so by the giving of written notice thereof to
Subtenant within thirty (30) days after Sublandlord's receipt of Subtenant's
notice described in Paragraph 11(b) hereinabove, which notice from Sublandlord
(the "Recapture Notice") shall specify the date (herein called the "Effective
Termination Date") on which such termination shall become effective; provided,
however, that such date shall in no event be more than sixty (60) nor less than
twenty (20) days after the date of the giving of such Recapture Notice; but,
provided further, however, that if Subtenant notifies Sublandlord within three
(3) business days after receipt of such Recapture Notice that it is withdrawing
its request to sublet such portion of the Subleased Premises or to assign this
Sublease, Landlord's Recapture Notice shall be of no force and effect. If
Sublandlord fails to timely exercise the Recapture Option in accordance with the
provisions of the preceding sentence, Subtenant may thereafter, subject to the
giving of Sublandlord's and the Prime Landlord's prior written consent (as
herein provided for), proceed with the Proposed Transaction contemplated by the
notice furnished to Sublandlord by Subtenant pursuant to the provisions of
Paragraph 11(b) hereinabove on the same terms and conditions as set forth in
said notice, provided, however, that any such consent by Sublandlord shall be
expressly conditioned upon Subtenant's compliance with the provisions of
Paragraph 11(d) hereinbelow.
(d) Assignment/Sublease Amendment.
-----------------------------
18
<PAGE>
Notwithstanding anything to the contrary, any Proposed
Transaction shall be subject to the requirement that Subtenant and the Proposed
Party agree (which agreement shall be confirmed upon Sublandlord's request) to
pay to Sublandlord (as and when received by Subtenant) one hundred percent
(100%) of the following amounts in respect of the making of any Proposed
Transaction in excess of the reasonable costs actually incurred by Subtenant in
connection with such sublease or assignment for brokerage commissions,
advertising fees, attorneys' fees and tenant improvements: (i) in the case of a
sublease, any "Proposed Transaction Rent Profit" (as hereinafter defined),
and/or (ii) any other economic consideration in the form of money or property
payable to Subtenant or to any affiliate or subsidiary of Subtenant, either in a
lump sum, periodic payment or other form of consideration, with such payment to
Sublandlord to be made upon the payment thereof to Subtenant. "Proposed
Transaction Rent Profit" means the amount by which the "Proposed Transaction
Rent" (as hereinafter defined) exceeds the Rent payable pursuant to this
Sublease from and after the effective date of the applicable Proposed
Transaction. "Proposed Transaction Rent" means any and all rent and additional
rent paid to Subtenant on account of the applicable Proposed Transaction.
However, notwithstanding the foregoing, in the event of a partial subletting of
the Subleased Premises, the amount of the Proposed Transaction Rent Profit shall
the amount by which the Proposed Transaction Rent payable in respect of such
partial subletting exceeds the prorated amount (calculated on a proportionate
square footage basis) of Rent payable under this Sublease for that portion of
the Subleased Premises which is to be so sublet or occupied
(e) Miscellaneous.
-------------
Notwithstanding any other provision of this Paragraph 11 to
the contrary, in connection with any Proposed Transaction, (i) Subtenant shall
reimburse Sublandlord upon demand, for all expenses, including reasonable
attorneys' fees, incurred in connection with any such Proposed Transaction and
(ii) Subtenant and any Proposed Party shall, within ten (10) days after notice
from Sublandlord, provide such additional information, execute and deliver to
Sublandlord such documents and take such further action as Sublandlord may
reasonably require to effect such Proposed Transaction or to protect
Sublandlord's rights in respect of this Sublease. Neither the consent of
Sublandlord to an assignment or subletting nor the references in this Sublease
to assignees or subtenants shall in any way be construed to relieve Subtenant of
the requirement of obtaining the consent of Sublandlord to any further
assignment or subletting or to the making of any assignment or subletting for
all or any part of the Subleased Premises. In the event Sublandlord consents to
any assignment of this Sublease, the assignee shall execute and deliver to
Sublandlord an agreement in form and substance satisfactory to Sublandlord
whereby the assignee shall assume all of Subtenant's obligations under this
Sublease. Notwithstanding any assignment or subletting, including, without
limitation, any assignment or subletting permitted or consented to, the original
Subtenant named herein and any other person(s) who at any time was or were
Subtenant shall remain fully liable on this Sublease, and if this Sublease shall
be amended, modified, extended or renewed, the original Subtenant named herein
and any other person(s) who at any time was or were Subtenant shall remain fully
liable on this Sublease as so amended, modified, extended or renewed. If this
Sublease shall be assigned or if the Subleased Premises, or any part thereof,
shall be sublet by any person or persons other than the
19
<PAGE>
original Subtenant named herein, then, at such time and for so long as Subtenant
is in default hereunder, Sublandlord may collect rent for any such assignee
and/or any subtenants, and apply the net amounts collected to the Rent, but no
such assignment, subletting or collection shall be deemed a waiver of any of the
provisions of this Paragraph 11, or the acceptance of the assignee or subtenant
as Subtenant, or a release of any person from the further performance by such
person of the obligations of Subtenant under this Sublease.
(f) No Violation of Prime Lease.
---------------------------
Anything to the contrary contained in this Paragraph 11
notwithstanding, it is expressly understood and agreed that no such subletting
or assignment shall be permitted which shall violate any applicable provisions
or requirements of the Prime Lease in respect thereto.
12. Security.
--------
(a) Security Deposit.
----------------
As security for Subtenant's performance of Subtenant's
obligations under this Sublease, Subtenant shall, on the Execution Date, deposit
with Sublandlord a cash deposit in an amount equal to Five Hundred Twenty-Five
Thousand Dollars ($525,000.00) (such amount being sometimes hereinafter referred
to as the "Collateral Amount" and such deposit being the "Security Deposit").
During the Sublease Term, Sublandlord shall retain the Security Deposit as
security for Subtenant's performance of Subtenant's obligations hereunder.
Interest shall accrue on the then current amount of the Security Deposit from
the fifth (5th) business day after the date on which Sublandlord actually
receives the Security Deposit through the fifth (5th) business day before the
date on which the Security Deposit is actually returned to Subtenant (and/or
applied by Sublandlord in accordance herewith) at the same rate Sublandlord is
paying to Sublandlord's customers holding "passbook" savings accounts with
Sublandlord (such interest on the Security Deposit being the "Interest"). The
Security Deposit shall be returned to Subtenant, together with the Interest,
within forty-five (45) days after the expiration of the Sublease Term, if and to
the extent Sublandlord has not applied the Security Deposit (and/or the
Interest) by reason of a breach by Subtenant of Subtenant's obligations
hereunder as set forth in the following sentence. Sublandlord may, from time to
time, in Sublandlord's sole discretion, apply the Security Deposit to cure
and/or compensate for any breach of any provisions of this Sublease by
Subtenant. Notwithstanding the foregoing, but only provided that Subtenant is
not in default under this Sublease (beyond any applicable notice and cure
periods), the Collateral Amount shall be reduced to Two Hundred Fifty Thousand
Dollars ($250,000.00) (and any excess of the Security Deposit over the then
current Collateral Amount shall be promptly returned to Subtenant, together with
any unapplied portion of the Interest previously accruing on such excess amount)
on the date upon which Subtenant has occupied for six (6) consecutive months
(and has paid all Rent for six (6) consecutive months payable for) both the
First Space and the Second Space.
(b) Letter of Credit.
----------------
Notwithstanding the foregoing, Subtenant may, at any time, and
in lieu of
20
<PAGE>
providing the Security Deposit in the form of cash, as provided for above,
secure Subtenant's obligations to Sublandlord pursuant to this Sublease by
delivering to Sublandlord an irrevocable sight draft letter of credit in an
amount equal to the Collateral Amount and otherwise in such form, and issued by
a bank, reasonably approved by Sublandlord, and having an expiration date no
earlier than the date of expiration of the Sublease Term (it being agreed that
such letter of credit may be renewed on an annual basis, at least thirty (30)
days prior to the expiration of the then current letter of credit) (such letter
of credit being the "Letter of Credit"). In the event of any breach by Subtenant
of Subtenant's obligations under this Sublease, Sublandlord may, from time to
time, draw upon and apply such amount of the Letter of Credit as may be
necessary to cure and/or compensate for such a breach. In the event that
Subtenant so delivers the Letter of Credit in the then current Collateral
Amount, then the Security Deposit (if previously provided) shall be returned to
Subtenant, together with Interest thereon, no later than the date that is
forty-five (45) days after Sublandlord's receipt of the Letter of Credit.
Likewise, in the event that Subtenant has previously provided the Letter of
Credit, Subtenant may, at any time, deposit with Sublandlord the applicable
Collateral Amount of the Security Deposit (which shall be treated, and shall be
in an amount, as described in Paragraph 12(a) above), in which event Subtenant
shall no longer be required to maintain the Letter of Credit and the Security
Deposit shall be treated as provided for above (except that Interest thereon
shall be payable only on the Collateral Amount of the Security Deposit that the
Sublandlord actually has in Sublandlord's possession and only with respect to
the time period five (5) business days after Sublandlord actually is in
possession of the Security Deposit to the date five (5) business days before
Landlord returns the Security Deposit). Notwithstanding anything to the
contrary, in no event shall Sublandlord be required to pay to Subtenant any
Interest with respect to the Letter of Credit, and Subtenant must maintain the
Security Deposit or Letter of Credit, in the then current Collateral Amount,
throughout the Sublease Term (as hereinabove provided for).
(c) Generally.
---------
In the event of any use of the Security Deposit and/or Letter
of Credit in the manner hereinabove provided, Subtenant shall, within ten (10)
days of Sublandlord's request, restore the Security Deposit and/or Letter of
Credit, as applicable, to the amount originally provided for hereinabove.
13. Brokers.
-------
Sublandlord hereby represents that Sublandlord has had no dealings with
any real estate broker in connection with this Sublease, except for Cushman
Realty Corporation ("Sublandlord's Broker") and Tenant Partners ("Subtenant's
Broker"). Subtenant hereby represents that Subtenant has had no dealings with
any real estate broker in connection with this Sublease, except for
Sublandlord's Broker and Subtenant's Broker. Sublandlord hereby agrees to pay
all compensation due to Sublandlord's Broker in connection with this Sublease,
pursuant to a separate agreement, and to pay a portion of the compensation
payable to Subtenant's Broker, also pursuant to a separate agreement. Subtenant
hereby agrees to pay all sums due to Subtenant's Broker in connection with this
Sublease, pursuant to a separate agreement, except to the extent agreed to be
paid by Sublandlord pursuant to the separate agreement between Sublandlord and
21
<PAGE>
Subtenant's Broker. Further, each party hereby agrees to indemnify and hold
harmless the other party from and against all claims, costs, damages and other
liabilities (including, but not limited to, attorneys fees) whatsoever in
connection with any breach of such party's representation hereinabove set forth
in this Paragraph 13.
14. Waiver of Jury Trial, Counterclaim, and Redemption.
--------------------------------------------------
Subtenant and Sublandlord hereby waive all right to trial by jury in
any summary or other action, proceeding or counterclaim arising out of or in any
way connected with this Sublease, the relationship of Sublandlord, Subtenant
and/or Prime Landlord, the Subleased Premises, and the use and occupancy
thereof, and any claim of injury or damages. Subtenant also hereby waives all
right to assert or interpose a counterclaim in any summary proceeding or other
action or proceeding to recover or obtain possession of the Subleased Premises.
Further, Subtenant waives all rights of redemption granted by law such that,
once Subtenant has committed a default and failed to cure that default within
any cure period provided by this Sublease, Subtenant waives all rights under law
to later cure the default and reclaim Subtenant's interest in this Sublease
and/or the Subleased Premises.
15. Costs Associated with Breach.
----------------------------
In addition to Sublandlord's other rights and remedies hereunder and/or
under applicable law, in the event of any breach of any provision of this
Sublease by Subtenant, Subtenant shall be obligated to pay to Sublandlord, upon
Sublandlord's request, all costs, damages and expenses incurred by Sublandlord
as a result of such breach, including, but not limited to, attorneys' and other
professional service fees, investigation costs, court costs, and all other
damages incurred and/or recoverable by Sublandlord under this Sublease or under
applicable law.
16. Notices.
-------
All notices, confirmations, documentation, and communications which may
or are to be required or permitted to be given hereunder shall be in writing,
either hand-delivered, sent by national overnight delivery service (e.g., FedEx
overnight delivery) specifying next business day delivery, or mailed by U.S.
certified mail, return receipt requested, postage prepaid, to the following
respective addresses.
To Sublandlord:
Chevy Chase F.S.B
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
Attn: Leasing Department
With a copy to:
Jack Garson, Esquire
22
<PAGE>
Garson & Associates, LLC
7735 Old Georgetown Road
Suite 550
Bethesda, Maryland 20814
To Subtenant:
Prior to the First Space Commencement Date:
Iconixx Corporation
8300 Boone Boulevard
Suite 250
Vienna, Virginia 22182
After the First Space Commencement Date:
Iconixx Corporation
7735 Old Georgetown Road
Suite _________
Bethesda, Maryland 20814
To Prime Landlord:
Prentiss Properties
3141 Fairview Park Drive
Suite 200
Falls Church, Virginia 22042
Attn: Mr. Robert K. Wiberg
All notices, confirmation, documentation and communications sent in
accordance with this Paragraph 16 shall be deemed effective upon the earliest to
occur of delivery, refusal of delivery, or inability to deliver in accordance
with this Paragraph 16. Sublandlord, Subtenant and/or Prime Landlord may change
the address(es) for receipt of such notices, confirmation, documentation and
communications by notice to the others in accordance with this Paragraph 16.
17. Further Assurances.
------------------
The parties shall execute and deliver such further and additional
instruments, agreements and other documents as may reasonably be necessary to
carry out the provisions of this Sublease.
18. Merger.
------
All prior understandings and agreements between the parties are merged
in this Sublease; this Sublease (including the provisions of the Prime Lease
incorporated herein) alone fully and
23
<PAGE>
completely sets forth the understanding of the parties regarding the subject
matter hereof; and this Sublease may not be changed or terminated orally or in
any manner other than by an agreement in writing, signed by an authorized
officer of the party against whom enforcement of the change or termination is
sought.
19. Miscellaneous.
-------------
The terms "herein", "hereinafter", "hereof" and words of similar
import, shall mean and refer to this Sublease (including the provision of the
Prime Lease incorporated into this Sublease). This Sublease may be executed in
several counterparts, each of which shall be binding upon the party executing
same, but all of which shall constitute one and the same legal agreement. Any
liability of the parties to each other existing hereunder at the expiration or
earlier termination of this Sublease shall survive such expiration or earlier
termination.
24
<PAGE>
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this
Sublease, under seal, as of the date first set forth herein above, intending
this Sublease to be legal binding and an instrument under seal.
WITNESS: SUBLANDLORD:
Chevy Chase F.S.B.
/s/ By: /s/ Paul Jackman (SEAL)
- --------------------------------------- --------------------------
Print Name: Paul Jackman
Title: Senior Vice President
ATTEST: SUBTENANT:
Iconixx Corporation
By: /s/ Patricia A. Withers By: /s/ Jason H. Levine (SEAL)
---------------------------------- -----------------------
Print Name: Patricia A. Withers Print Name: Jason H. Levine
Title: Assistant Secretary Title: Vice President
[CORPORATE SEAL]
The Exhibit to this Sublease Agreement is not included with this Registration
Statement on Form S-1. The Registrant will provide this Exhibit upon the request
of the Securities and Exchange Commission.
25
<PAGE>
Exhibit 10.22
WEB SITE DEVELOPMENT AGREEMENT
This Web Site Development Agreement (the "Agreement"), dated as of this
2nd day of November 1999, is by and between Bear, Stearns & Co. Inc., a Delaware
corporation, having its principal offices at 245 Park Avenue, New York, NY 10167
and other direct and indirect subsidiaries at the relevant time of its ultimate
corporate parent, on the one hand, (collectively, "Bear Stearns"), and Lead Dog
Design, Inc., having offices at 212 W. 35th Street, 8th Floor, New York, New
York, on the other hand ("Developer").
This agreement is intended to cover the development and design by Developer
for Bear Stearns of a new navigational system and engaging and intuitive
interface for various pages comprising the Bear Stearns' existing "Client
Toolkit" site (collectively, the "Site", and along with the design of or to be
available at such site, all software, artwork, graphics, animations, audio,
video or other works of authorship underlying or constituting such site and any
modifications, updates and other versions delivered hereunder, in any language,
format or medium, the "Content"). It is the intent of the parties that the
development and design of the Site will focus on presenting the same information
as does the existing Bear Stearns' "Client Toolkit" site.
As used in this Agreement, the term "Programmer Documentation" shall mean
at all times the latest versions (including, without limitation, drafts and
other work in progress) of all specifications, flow charts, outlines, file
definitions, programmer notes and commentary, and to the extent Developer
creates any source code or object code as part of Content implementation and
design, such object and source code, source files, header files, instructions on
how to compile, decompile and link the code, and other materials, content or
works of authorship constituting the Content; and the term "Deliverables" shall
mean Programmer Documentation along with the Content itself and any other
software on which Developer works for Bear Stearns.
Bear Stearns and Developer hereby agree as follows:
Section 1: SERVICES AND DELIVERABLES
1.1. Promptly after execution by Developer of this Agreement, Developer shall
commence the development of the Site, which development shall be carried
out by Developer in the following steps:
(I) Developer shall gather information regarding the existing Bear
Stearns' "Client Toolkit" site and Bear Stearns' purposes, goals and
requirements for the Site by interviewing Bear Stearns personnel
designated by the appropriate Bear Stearns manager or management
person.
(II) Based on the gathered information and its own input and analyses,
Developer shall develop and deliver to Bear Stearns a written project
plan and proposal for the development of the Site (the "Project
Plan"), which shall include the following:
(A) Detailed user requirements analyses for developing the Site.
(B) Detailed specifications for the Site (as finally agreed to by
Bear Stearns, the "Specifications"), including but not limited
to, (1) layout of the homepage and other pages of the Site
designated as "main pages" by Bear Stearns, (2) full outline of
the Site navigation flow, look and feel and (3) samples of the
graphics and presentation models to be included in the Site.
(C) A detailed timetable for developing and designing the Site and
the Content thereof, including, among other things, the schedule
containing the phases and milestones for delivery of each page
of the Site and its Content, full completion of the Site, and
the date of completion of Developer's performance under the
Project Plan ("Completion Date").
(D) The resources that will be made available by Developer for the
implementation of the Project Plan, including, name of the
Developer's employee that will serve as project leader for the
services to be performed in connection with this Project Plan
(include position, level of experience, and contact
information).
(III) During a period of ten business days following the delivery of the
Project Plan, Developer shall make its personnel available as is
reasonably necessary to answer Bear Stearns questions and to discuss
Bear Stearns proposed modifications and/or additions to the Project
Plan. If Bear Stearns desires to go ahead with the Project Plan and
Developer and Bear Stearns can agree upon a final version of the
Project Plan, as evidenced by the execution of the same by both
parties, Developer shall be entitled to payment as provided in
Section 1.4.(ii) of this Agreement.
<PAGE>
(IV) Upon completion by Developer of each page of the Site pursuant to the
schedule contained in the final version of the Project Plan,
Developer shall deliver each page of the Site and the Content thereof
to Bear Stearns by placing each such page online at
http://www.ldd.com/clients/bearstearns and notifying Bear Stearns of
--------------------------------------
such delivery. After such notification, Bear Stearns will have two
business days to review and test the Content with the cooperation and
assistance of Developer. In the event of rejection, Developer shall
correct any deficiencies and shall resubmit such Deliverables for
further reviewing by Bear Stearns.
(V) Upon completion by Developer of the final page of the Site pursuant
to the schedule contained in the final version of the Project Plan,
and, in any case, upon request by Bear Stearns, Developer shall
delivery to Bear Stearns the latest version of the Site Content,
Programmer Documentation and the Deliverables. Bear Stearns will have
[two weeks] to review and test the Content and the Programmer
Documentation with the cooperation and assistance of Developer
("Acceptance Test"). In the event of rejection, Developer shall
correct any deficiencies and shall resubmit such Deliverables for
further Acceptance Testing. If Bear Stearns does not reject the
Content and the Programmer Documentation within that time, Bear
Stearns will send Developer promptly, within its normal accounts
payable payment cycle, the payment required under Section 1.4. of
this Agreement.
1.2. Bear Stearns shall have the right to request in writing (including by e-
mail) addressed to Developer's project leader designated in the Project
Plan and two other Developer's employees, whose contact information is
listed below, changes to the agreed upon Project Plan. Developer shall
respond in writing (including by e-mail) as expeditiously as possible, but
in any case within two business days. In the event that Developer does not
respond within such time period or if Developer's response does not
indicate that the changes would result in additional cost to Bear Stearns
due to extension of the Project Plan, the requested changes shall be
considered effective and thereby incorporated into the existing Project
Plan. In the event of Developer's timely response that the requested
changes would result in an extension of the Project Plan and additional
cost to Bear Stearns, the parties will discuss in good faith the most
effective, efficient and expeditious means of implementing the requested
changes and Developer shall provide to Bear Stearns a written proposal
describing complete details thereof. If Bear Stearns agrees in writing
(including by e- mail) to Developer's proposal, the requested changes, as
supplemented by Developer's written proposal, shall be considered effective
and thereby incorporated into the existing Project Plan.
Contact information for Developer's employees mentioned above:
Name: Name:
-------------------- -----------------------
E-mail address: E-mail address:
-------------------- -----------------------
Phone number: Phone number:
--------------------- -----------------------
Address:
-----------------------
-----------------------
-----------------------
-----------------------
1.3. Developer shall ensure that all of Developer's work under this Agreement
shall be performed in a competent, professional and workman like manner,
consistent with level of services of a software developer skilled in the
art, and that all such work and the Specifications and the Content shall
conform with the Developer Guidelines annexed hereto.
1.4. As used in this Agreement the term "Project Plan Fees" shall mean a
guaranteed cost of development and design of the Site pursuant to the
Project Plan executed by the parties. The Project Plan Fees shall be equal
to $95,000 exclusive of applicable excise, sales or use taxes or duties.
The payment of the Project Plan Fees, shall be due as follows:
(i) 25% of the Project Plan Fees upon execution of the Agreement;
(ii) 25% of the Project Plan Fees upon execution of the Project Plan
pursuant to Section 1.1.(III) of this Agreement; and
(iii) 50% of the Project Plan Fees upon satisfaction of the applicable
Acceptance Test and acceptance by Bear Stearns of the applicable
Deliverables pursuant to Section 1.1.(V) of this Agreement.
1.5. To the extent that any future work relating to the Content (not
contemplated at the time of this Agreement or at the time the Project Plan
is approved) or other internet site or content ("Services") are to be
performed and/or Deliverables are to be developed on a time and materials
------------------
basis, Developer shall adhere to the following guidelines:
-----
(a) No work may be commenced unless and until authorized in writing (may
be by e-mail) by the appropriate Bear Stearns project manager or
management person or his/her written designee.
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<PAGE>
(b) No estimate may be exceeded without authorization in writing (may be
by e-mail) by the appropriate Bear Stearns project manager or
management person or his/her written designee.
(c) In absence of an estimate or cap for work agreed to in writing by Bear
Stearns or contained in an authorization by Bear Stearns to commence
work as provided in paragraph (a) above, $10,000 or such other amount
as may be set forth in the Project Plan shall be deemed to be the cap
beyond which Bear Stearns shall not be responsible without further
authorization in writing (may be by e-mail) by the appropriate Bear
Stearns project manager or management person or his/her written
designee.
(d) Developer shall deliver to the appropriate Bear Stearns project
manager or his/her written designee a weekly, clear and comprehensive
accounting (for the period ending not more than one day prior to the
date such accounting is received by Bear Stearns) of all Services
and/or Deliverables performed and/or developed during that week, with
a project by project and programmer by programmer breakdown of the
work performed and all amounts accrued and incurred.
Section 2: PROPRIETARY RIGHTS IN DELIVERABLES, ETC.
2.1. Developer agrees that (i) any and all Deliverables, including, without
limitation, all artwork, files, drawings, video, audio, animations,
graphics, programmer documentation and object and source code (in all
languages, formats and mediums), (ii) any and all original other works of
authorship, including, but not limited to all, user documentation, papers,
documents, drawings, databases and other compilations and software
(including, without limitation, all programs, object code, source code,
outlines, routines, subroutines, revisions, supplements, modules, and
upgrades, in each case, in any language, format or medium) which may be
created, compiled or produced by Developer or any of its subcontractors,
consultants or employees in the course of performing Services or producing
Deliverables for Bear Stearns (along with the items described in (i) above,
collectively, "Works of Authorship"), and (iii) any and all copyrights and
other proprietary rights and all foreign and domestic, registered and
unregistered, copyrights, applications for registrations therefor and other
proprietary rights related to any Works of Authorship (collectively,
"Copyrights"), shall be deemed to be works made for hire for and the
exclusive property of Bear Stearns. Except to the extent expressly and
specifically agreed in the Project Plan, to the extent that Developer has
or obtains any right, title or interest in or to any Work of Authorship,
Copyright or Other Technical Information and Inventions (as defined in
Section 2.2 below), Developer hereby assigns and agrees to assign to Bear
Stearns all of such right, title and interest therein and thereto, and to
the extent that any employee, agent or sub- contractor of Developer has or
obtains any right, title or interest in or to any Work of Authorship,
Copyright or Other Technical Information and Inventions, Developer shall
cause such employee, agent or sub-contractor to assign to Bear Stearns all
of such right, title and interest therein and thereto.
2.2. To the extent that any Deliverables or Services embody, contain or disclose
any ideas, concepts, know-how, inventions, formulas, techniques, processes,
ideas, algorithms, discoveries, designs, developments, improvements,
techniques or expertise (collectively, "Technical Information and
Inventions") that were known by Developer prior to Developer's work for
Bear Stearns or is developed by Developer during the course of Developer's
work for Bear Stearns relating generally to software development and
computer networks (but not the works of authorship expressing the same or
copyrights therein) of Developer ("Developer Technical Information and
Inventions"), Developer shall retain ownership such Technical Information
and Inventions, provided that Bear Stearns shall have (a) the full,
unrestricted and non- exclusive right to use, disclose, prepare works of
authorship based upon any Developer Technical Information and Inventions
embodied by, contained in or disclosed by the Deliverables or Services and
to copy, display and distribute any such works of authorship, and (b)
ownership of any other Technical Information and Inventions embodied by,
contained in or disclosed by the Deliverables or Services ("Other Technical
Information and Inventions").
2.3. Nothing herein shall prevent Developer from providing services
substantially similar to those contemplated herein, whether for a
competitor of Bear Stearns or otherwise, and the parties expressly agree
that in providing such services, or in developing its general, commercially
available software products, Developer may directly or indirectly utilize
residual know-how in its area of expertise resulting from the performance
of the services contemplated herein so long as such know-how is not
specific to Bear Stearns and is not Other Technical Information and
Inventions
2.4 To the extent that Developer or any author of any of the Deliverables have
any moral rights in or to any of the Deliverables, Developer hereby waives
any such rights and shall ensure that any such author waives any such
rights.
2.5. Developer shall be responsible for obtaining for Bear Stearns (i) any
required consents to use the likeness of any person reflected in the
Content who is not a Bear Stearns employee or officer, and (ii) agreements
approved by Bear Stearns with any third party site with which the Site
would deep-link or frame. The cost of obtaining the foregoing, if
applicable, shall not be included within the fees agreed to be payable to
Developer under this Agreement.
2.6. Upon the request of Bear Stearns, Developer shall at Bear Stearns'
reasonable out-of-pocket cost and expense do all acts and
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<PAGE>
things, including, but not limited to, making and executing documents,
applications, deeds, license agreements, assignments, transfers,
conveyances, powers of attorney and instruments, using its best efforts to
obtain the cooperation of and bringing claims and actions against its
employees, ex-employees, agents, ex- agents and independent contractors and
giving information and testimony, in each case, requested at any time and
from time to time by Bear Stearns, in its good faith discretion, to vest,
secure, defend, protect and/or evidence the right, title and ownership of
Bear Stearns in and to any and all Works of Authorship, Copyrights and
Other Technical Information and Inventions and the waiver of any moral
rights in or to any Deliverable. Developer hereby appoints Bear Stearns and
its successors and assigns as Developer's attorney- in-fact, with full
power of substitution, in the name and stead of Developer or Bear Stearns,
for the benefit of Bear Stearns and its successors and assigns, to from
time to time do any and all such acts and things which Developer is
obligated to do under this paragraph. Developer declares that the
appointment made and the powers granted hereby are coupled with an interest
and are irrevocable.
Section 3: PERSONNEL
3.1 Developer is an independent contractor. Neither Developer nor Developer's
or any of Developer agent's or subcontractor's employees are or shall be
deemed for any purpose to be employees of Bear Stearns. Bear Stearns shall
not be responsible for, and Developer shall indemnify and hold Bear Stearns
harmless against, any cost, expense, liability, claim, damages, action, or
proceeding relating to any payroll-related taxes for any person who
performs any Services, produces any Deliverables, or provides maintenance,
support or training to be performed, produced or provided by Developer
hereunder or any claim arising out of or relating to the employment or
application for employment of any such person.
3.2 Except as may be otherwise agreed in writing by Bear Stearns, all personnel
assigned to supply the Deliverables, perform the Services or provide
maintenance, support or training shall be full-time employees of Developer,
shall be fully qualified to perform the tasks assigned to them.
Section 4: WARRANTIES
Developer represents, warrants and covenants to Bear Stearns as the date hereof
and of Acceptance as follows:
4.1. To the best of its knowledge and belief, Developer owns or otherwise has
the valid right by contract or otherwise to deliver and assign to Bear
Stearns the Deliverables, the Programmer Documentation, all other Works of
Authorship and the Copyrights without violating any applicable law, rule or
regulation or the proprietary rights of any third party, including without
limitation, patents, copyrights, trade secrets, or any license or
sublicense, covenant or contract with any third party.
4.2. To the best of its knowledge, Bear Stearns may use the Deliverables, the
Programmer Documentation, all other Works of Authorship and the Copyrights
and otherwise fully exploit the rights thereto set forth herein without
infringement of any such proprietary rights of third parties, and there is
currently no actual or threatened suit by any such third party based upon
an alleged violation by Developer of any such proprietary rights.
THE LIMITED WARRANTIES SET FORTH IN THIS AGREEMENT ARE THE ONLY WARRANTIES MADE
BY DEVELOPER. DEVELOPER MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS.
Section 5: LIMITATIONS OF LIABILITY
5.1. EXCEPT AS STATED HEREIN, NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, INDIRECT AND/OR CONSEQUENTIAL DAMAGES OF ANY KIND, RESULTING
FROM EITHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM PURSUANT TO THE TERMS
OF THIS AGREEMENT OR ANY OF THE ATTACHMENTS OR EXHIBITS HERETO.
5.2. Notwithstanding anything set forth in this Agreement, no limitation of
liability or exculpation of either party hereto shall apply to: (a) any
liability arising out of or in connection with acts or omissions that
constitute bad faith, willful misconduct, gross negligence, or intentional
breach of this Agreement; or (b) any liability, loss or claim arising out
of a breach by such party of Section 2, 3, 4 or 6 hereof.
Section 6: NON-DISCLOSURE
6.1. Developer acknowledges that in the course of performing its obligations
hereunder, Developer and its agents, representatives, employees and sub-
contractors may have access to information relating to Bear Stearns, its
business, customers, correspondents, finances, activities, securities or
future positions, software, systems, strategies or plans that is
non-public, proprietary or
4
<PAGE>
confidential in nature (all the foregoing, along with the Deliverables, the
Specifications and the Other Technical Information and Inventions,
collectively, "Bear Stearns Information"). Developer shall and shall cause
its subcontractors and affiliates and Developer's and its subcontractors'
and affiliates' agents, representatives, and employees (collectively,
"Representatives") to (i) keep all Bear Stearns Information confidential;
(ii) not disclose any Bear Stearns Information or any part thereof, in any
manner whatsoever, without Bear Stearns' prior written consent, and (iii)
not use any Bear Stearns Information or any part thereof, other than to
enable Developer to perform its obligations under this Agreement. Moreover,
Developer shall and shall cause its Representatives to reveal Bear Stearns
Information only to its agents, representatives and employees who need to
know such Information in connection with this Agreement, who are informed
by Developer of the confidential nature of such Bear Stearns Information
and who shall agree (in writing) to act in accordance with the terms and
conditions of this provision. All media on which any Bear Stearns
Information may be recorded or located, including, without limitation,
documents, papers, outlines, samples, photocopies, photographs, films,
drawings, descriptions, reproductions, cards, tapes, discs and other
storage facilities (collectively, "Bear Stearns Documentation") made by
Developer or any of its Representatives in the course of performing
Services or producing Deliverables for Bear Stearns, or that come into the
possession of Developer or any of its employees, agents representatives, or
sub-contractors in the course of performing Services or producing
Deliverables for Bear Stearns, are the property of Bear Stearns and shall
be returned to Bear Stearns by Developer upon the earlier of request by
Bear Stearns or termination of Developer's engagement by Bear Stearns.
Developer shall not, and shall cause any of its Representatives who obtain
or have obtained possession of or develop or have developed any Bear
Stearns Documentation not to, deliver, copy, or in any way allow any Bear
Stearns Documentation to be delivered to or used, examined or copied by any
third party without the written direction or consent of Bear Stearns.
Developer shall, and shall cause its Representatives to, place an
appropriate emblem or other annotation on any and all Bear Stearns
Documentation evidencing Bear Stearns's ownership of such Bear Stearns
Documentation. Developer acknowledges that the use or disclosure of any
Bear Stearns Information or Bear Stearns Documentation in a manner
inconsistent with this Agreement may cause Bear Stearns irreparable damage,
and that Bear Stearns shall have the right to seek injunctive relief to
prevent such unauthorized use or disclosure, and to such damages as are
occasioned by such unauthorized use or disclosure.
6.2. Notwithstanding anything set forth in this Agreement, the confidentiality
provisions of this Agreement, including, but not limited to the above shall
not apply to: (a) information which (A) is already in the possession of the
party subject to the confidentiality obligations, (B) is or become
generally available to the public other than as a result of an improper
disclosure by the party subject to the confidentiality obligations or its
agents, representatives or employees, (C) is independently developed by the
party subject to the confidentiality obligations, or (D) become available
to the party subject to the confidentiality obligations on a
non-confidential basis from a source which, to the best of such party's
knowledge, is not prohibited from disclosing such information to the party
subject to the confidentiality obligations by a legal, contractual or
fiduciary obligation to the party subject to the confidentiality
obligations, or (b) disclosures required by applicable law, rule,
regulation or order or to legal counsel or auditors of the party who are
subject to an obligation of confidentiality.
Section 7: MISCELLANEOUS
7.1. If any provision of this Agreement is declared or found to be invalid,
illegal, unenforceable or void, then both parties shall be relieved of all
obligations arising under such provision, but only to the extent that such
provision is invalid, illegal, unenforceable or void, it being the intent
and agreement of the parties that this Agreement shall be deemed amended by
modifying such provision to the extent necessary to make it valid, legal
and enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is valid, legal and
enforceable and achieves the same objective. Each party agrees that it will
perform its obligations hereunder in accordance with all applicable laws,
rules and regulations now or hereafter in effect.
7.2. Developer shall submit to Bear Stearns a fully and accurately completed and
signed Internal Revenue Service Form W-9 (Request for Taxpayer
Identification Number and Certification) prior to any payment under this
Agreement being due to Developer. Developer further understands and agrees
that, notwithstanding anything set forth in this Agreement, no payment to
Developer shall be made unless and until the requirement of this Section
7.2 is satisfied.
7.3. Headings are for reference purposes only.
7.4. Any notices required or permitted to be sent hereunder shall be served
personally or by registered or certified mail, return receipt requested,
reputable overnight delivery services such as Federal Express, Airborne
Express or DHL, or by facsimile with confirmation of receipt; to the
addresses listed above.
7.5. This Agreement shall be interpreted and construed in accordance with the
Copyright laws of the United States and the internal law of State of New
York, without regard to the conflicts of law principles thereof, and any
action brought in relation to this Agreement shall be brought in a Federal
or state court in the City of New York and Bear Stearns and Developer
hereby
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irrevocably consent to the jurisdiction of such Courts, and both parties
hereby waiving any claim or defense that such forum is not convenient or
proper. Each party hereby consents to service of process by any means
authorized by New York law (other than by publication). Each party waives
any right to trial by jury with respect to any dispute, suit, action or
proceeding arising our of or relating to this Agreement or otherwise
relating to the relationship of the parties, whether in contract, tort or
otherwise.
7.6. This Agreement may not be modified or altered except by a written
instrument executed by both parties. The failure of either party to
exercise in any respect any right provided for herein shall not be deemed a
waiver of any rights. This Agreement, together with each Project Plan
hereunder, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes and merges all prior
proposals, understandings and all other agreements, oral and written
between the parties relating to such subject matter. The rights and
remedies of Bear Stearns under this Agreement and any Project Plan are
cumulative.
7.7. Neither party may assign this Agreement or any Project Plan or delegate any
obligations hereunder or thereunder, except that Developer may sub-
contract some or all of its performance under the Agreement only with the
written consent of Bear Stearns.
7.8. Developer shall not use Bear Stearns's or any of its affiliates' name or
trademarks or service marks without Bear Stearns's written consent
(including by e-mail by an authorized Bear Stearns management person) or
use in the Site.
7.9. Notwithstanding anything set forth in this Agreement, the terms and
provisions of Sections 2 and 4 through 7 shall survive the expiration or
termination of the Agreement, regardless of the cause.
IN WITNESS WHEREOF, the parties, by their duly authorized representatives,
hereto have executed this Agreement as of the date noted above.
BEAR, STEARNS & CO. INC. LEAD DOG DESIGN INC.
- --------------------------------- ---------------------------------
By: /s/ By: /s/
- --------------------------------- ---------------------------------
Signature Signature
- --------------------------------- ---------------------------------
Print or Type Name and Title Print or Type Name and Title
6
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DEVELOPER GUIDELINES:
9/99
Development of Specifications
To the extent that the Services and/or Deliverables include the development of
Specifications or consultation regarding the development of Specifications,
Developer shall adhere to the following guidelines:
(a) Developer shall elicit from Bear Stearns the (i) business rules, (ii)
process assumptions and (iii) user and administrative functions desired by
Bear Stearns to be implemented in the Content to be developed.
(b) Developer shall ensure that, when completed, such Specifications shall
contain a clear and comprehensive description of the Content to be
developed and a clear and comprehensive description of the following:
(i) the functions desired by Bear Stearns to be accomplished by the
Content;
(ii) the business rules, process assumptions and business and marketing
goals desired by Bear Stearns or required by the desired
functionality to be implemented by the Content;
(iii) the computer language and format (e.g. HTML or DHTML) in which each
portion of the Content will be written;
(iv) the software tools to be used to write the Content;
(v) the recommended hardware and software environment in which the
Content will reside; and
(vi) any Developer or third party works of authorship to be incorporated
into the Content.
Content Development
Developer shall adhere to the following guidelines:
(a) The Content shall fully implement the applicable Specifications.
(b) The Content shall operate without unnecessary delay or use of system
resources and without more than usual and customary glitches, bugs,
malfunctions or crashes.
(c) To the extent that Developer creates source code as part of Content
implementation and design, any such source code shall be fully annotated,
with clear and comprehensive annotations of the structure, purpose, all
functions, and how they are implemented so that another programmer who is
skilled in the art could without undue difficulty understand the structure,
purpose, all functions and how they are implemented and maintained and/or
change the applicable software.
(d) The Content shall be designed and implemented using state of the art web
page creation techniques and practices.
(e) Before linking with or framing any other party's site or content, Developer
shall obtain the written consent of (i) Bear Stearns and (ii) in the case
of framing, the owner of such site or content.
(f) Except as otherwise agreed in writing by Bear Stearns, any links to framing
of another party's site or content will be carried out in a manner
calculated to call to the attention to the visitor that Bear Stearns is not
responsible for the other party site or content.
(g) Developer shall use all reasonable efforts to ensure that any Content or
customization of third party Content developed by Developer and provided to
Bear Stearns hereunder shall not contain computer viruses or other
contaminants or any codes or instructions that may be used to access,
modify, delete or damage such software or any other software used as part
of or with the Deliverables, without Bear Stearns' authorization, any data
files created by other computer programs used in connection with the
Deliverables or any other software used as part of or with the
Deliverables.
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(h) Any software or customization of third party software developed by
Developer and provided to Bear Stearns hereunder (i) is designed to be used
prior to, during, and after the calendar year 2000 A.D.; (ii) will operate
during each such time period without any error or interruption relating to,
or the product of, data or input which includes an indication of or
reference to a date which represents or references different centuries or
more than one century; (iii) will, under normal use and service, record,
store, process and present calendar dates falling on or after September 9,
1999, January 1, 2000 and February 29, 2000, in the same manner, and with
the same functionality, data integrity and performance, as the Content
records, stores, processes and presents calendar dates on or before
September 8, 1999, December 1, 1999 and February 29, 1996; and (iv)
recognizes the year 2000 as a leap year. Notwithstanding the foregoing, in
respect to the third party software provided by Developer to Bear Stearns,
Developer's sole obligation under this paragraph shall be to use reasonable
due diligence in inquiring into and obtaining reasonably appropriate year
2000 representations from such third parties.
(i) At the request of Bear Stearns, Developer shall promptly provide Bear
Stearns with evidence sufficient to demonstrate adequate testing to meet
the foregoing requirements. Developer shall cooperate with any year 2000
problem identification and/or testing procedure carried out by Bear Stearns
and/or securities industry groups, without charge to Bear Stearns.
Notwithstanding anything else in this or any other agreement, Developer
consents to Bear Stearns releasing information regarding any such procedure
or the results thereof.
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Exhibit 10.23
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
ICONIXX CORPORATION
("Iconixx")
ICONIXX WEB DEVELOPMENT, INC.
("Buyer")
INTERNET INFORMATION SERVICES, INC.
(the "Company")
and
THE MAJORITY SHAREHOLDERS OF INTERNET
INFORMATION SERVICES, INC.
(the "Majority Shareholders")
Dated March 23, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS......................................................................1
ARTICLE I DEFINITIONS.........................................................2
1.1. Definitions....................................................2
ARTICLE II ASSET PURCHASE.....................................................7
2.1. Asset Purchase.................................................7
(a) Cash, Cash Equivalents and Investments....................7
(b) Customer Deposits and Accounts Receivable.................7
(c) Real Property.............................................7
(d) Business, Equipment and Supplies..........................8
(e) Contracts and Other Agreements Relating to the Business...8
(f) Books, Records, Lists and Other Data......................8
(g) Employment Agreements and Employee Relationships..........8
(h) Licenses, Permits.........................................8
(i) Prepayments...............................................8
(j) Intellectual Property.....................................8
(k) General Intangibles.......................................8
(l) Insurance.................................................9
(m) Other Assets..............................................9
2.2 Excluded Assets................................................9
2.3 Assumed Liabilities............................................9
2.4 Excluded Liabilities...........................................9
2.5 Title to the Purchased Assets: Documents of Conveyance........11
2.6 Purchase Price; Allocation of Purchase Price...................11
2.7 Payment of Purchase Price......................................11
2.8 Funded Indebtedness Adjustment.................................12
2.9 Adjustment in Cash Purchase Price..............................12
2.10 Closing........................................................12
2.11 Escrow Arrangements............................................12
2.12 Closing Audit..................................................13
2.13 Post-Closing Net Working Capital Adjustment....................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE MAJORITY SHAREHOLDERS........................................14
3.1. Capitalization.................................................14
3.2. No Liens on Purchased Assets...................................14
3.3. Subsidiaries...................................................14
3.4. Brokers........................................................15
3.5. Due Organization...............................................15
3.6. Due Authorization..............................................15
3.7. Financial Statements...........................................15
3.8. Certain Actions................................................16
-i-
<PAGE>
3.9. Properties.....................................................17
3.10. Licenses and Permits...........................................18
3.11. Intellectual Property..........................................18
3.12. Compliance with Laws...........................................19
3.13. Insurance......................................................19
3.14. Employee Benefit Plans.........................................19
3.15. Contracts and Agreements.......................................21
3.16. Claims and Proceedings.........................................21
3.17. Taxes..........................................................21
3.18. Personnel......................................................23
3.19. Business Relations.............................................23
3.20. Accounts Receivable; Accounts Payable; Customer Deposits;
Customer Revenues and Deferred Revenues........................24
3.21. Bank Accounts; Investments.....................................24
3.22. Customer Claims................................................24
3.23. Affiliated Transactions........................................25
3.24. Funded Indebtedness; Letters of Credit; Undisclosed
Liabilities...................................................25
3.25. Year 2000......................................................25
3.26. Information Furnished..........................................26
ARTICLE IV BUYER'S AND ICONIXX'S REPRESENTATIONS AND WARRANTIES...............26
4.1. Due Organization of Iconixx and Buyer..........................26
4.2. Due Authorization..............................................26
4.3. No Brokers.....................................................27
4.4. Iconixx Financial Statements...................................27
4.5. Capital Stock and Related Matters..............................27
4.6. Authorization of the Stock.....................................27
4.7. Stock Option Plan..............................................27
4.8. Claims and Proceedings.........................................28
4.9. Taxes..........................................................28
ARTICLE V PRE-CLOSING COVENANTS OF THE COMPANY, ICONIXX,
BUYER AND THE MAJORITY SHAREHOLDERS..........................................29
5.1. Consents of Others.............................................29
5.2. Stockholders' Efforts..........................................29
5.3. Powers of Attorney.............................................29
5.4. Conduct of Business Pending Closing............................30
5.5. Access Before Closing..........................................30
ARTICLE VI POST-CLOSING COVENANTS.............................................31
6.1. General........................................................31
6.2. Transition.....................................................31
6.3. Confidentiality................................................31
6.4. Timothy Meinhardt Not to Compete...............................31
6.5 Christopher Clark Employment and Covenant Not to Compete.......32
6.6 Access to Records After Closing................................32
6.7 Assignment of Contracts........................................33
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6.8 Change of Name.................................................33
6.9. Litigation Support.............................................33
6.10. Audits.........................................................34
6.11. Minimum Cash as of the Closing.................................34
6.12. Iconixx's Stock Options........................................34
6.13. Disposition of Company Benefit Plans...........................34
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING........35
7.1. Conditions to Iconixx's and Buyer's Obligations................35
7.2. Conditions to the Stockholders' and the Company's Obligations..37
ARTICLE VIII INDEMNIFICATION..................................................38
8.1. Indemnification by the Stockholders............................38
8.2. Defense of Claims..............................................38
8.3. Escrow Claim...................................................39
8.4. Tax Audits, Etc................................................39
8.5. Indemnification of Stockholders................................39
8.6. Limits on Indemnification......................................40
ARTICLE IX TERMINATION........................................................41
9.1. Termination....................................................41
9.2. Effect of Termination..........................................41
ARTICLE X MISCELLANEOUS.......................................................42
10.1. Modifications..................................................42
10.2. Notices........................................................42
10.3. Counterparts; Facsimile Transmission...........................44
10.4. Expenses.......................................................44
10.5. Binding Effect; Assignment.....................................44
10.6. Entire and Sole Agreement......................................44
10.7. Governing Law..................................................44
10.8. Survival of Representations, Warranties and Covenants..........45
10.9. Invalid Provisions.............................................45
10.10. Public Announcements...........................................45
10.11. Remedies Cumulative............................................45
10.12. Third Parties..................................................45
10.13. No Strict Construction.........................................45
10.14. Disclosure Schedules...........................................46
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<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Bill of Sale, Assignment and Assumption Agreement
Exhibit C Company's Account and Wire Transfer Instructions (ss.2.4)
Exhibit D-1 Articles of Incorporation of the Company
Exhibit D-2 Bylaws of the Company
Exhibit D-3 Qualified Jurisdictions
Exhibit E Certificate of Incorporation of Iconixx
Exhibit F-1 Form of Clark Employment Agreement
Exhibit F-2 Form of Noncompete/Nonsolicitation Agreement
Exhibit G Opinion of Shareholders' Counsel
Exhibit H Opinion of Counsel for Iconixx and Buyer
Exhibit I Form of Side Letter Agreement between Buyer and the Company
DISCLOSURE SCHEDULES
LEASES SCHEDULE
ICONIXX CAPITALIZATION SCHEDULE
EMPLOYEE SCHEDULE
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
March 23, 2000, by and among ICONIXX CORPORATION, a Delaware corporation
("Iconixx"), ICONIXX WEB DEVELOPMENT, INC., a Maryland corporation ("Buyer"),
INTERNET INFORMATION SERVICES, INC., a Maryland corporation (the "Company" or
"Seller"); and CHRISTOPHER CLARK and TIMOTHY I. MEINHARDT (collectively, the
"Majority Shareholders").
Recitals
--------
A. Pursuant to this Agreement, the Company, which is engaged in the
business of providing information technology and enterprise resource consulting,
web-site design and software services in the United States to third parties (the
"Business"), will be acquired by Buyer pursuant to an acquisition of
substantially all of the assets of the Company (the "Acquisition"), which assets
do not include those used in and owned by the Company's former subsidiary IIS
Systems, Inc. (the "Hardware/Software Business"), certain domain names, and the
Office Lease (as defined herein and which is the subject of the Side Letter
Agreement in substantially the form attached hereto as Exhibit I).
---------
B. On the date of this Agreement, the Company's capitalization consists of
4,000,000 shares of common stock, $.01 par value, 3,200,000 of which are
outstanding (the "Company Shares"), 2,850,000 of which are owned by the Majority
Shareholders.
C. Buyer, a wholly-owned subsidiary of Iconixx, desires to purchase from
the Company and the Company desires to sell to Buyer, substantially all of the
Company's assets used in the operation of the Business on the terms and subject
to the conditions set forth in this Agreement.
D. In connection with its purchase of assets from the Company, Buyer
desires to assume certain of the liabilities and obligations of the Company
relating to the Business (and no others), all as more specifically set forth
herein.
Agreement
---------
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Agreement, the following terms have the meanings
-----------
specified or referred to in this Section 1.1 and shall be equally applicable to
-----------
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"Acquisition" has the meaning specified in Recital A of this Agreement.
---------
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such first Person.
"Assumed Liabilities" has the meaning specified in Section 2.3.
-----------
"Audited Closing Financial Statements" has the meaning specified in Section
2.12.
- ----
"Business" has the meaning specified in Recital A of the Agreement.
---------
"Buyer" has the meaning specified in the first paragraph of this Agreement.
"Cash Purchase Price" shall have the meaning assigned to such term in
Section 2.2(a).
- --------------
"Closing" means the closing of the Acquisition.
"Closing Date" has the meaning specified in Section 2.10.
------------
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended, Section 4980B of the Code, Title I, Part 6 of ERISA, and any
regulations and proposed regulations thereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per share, of
Iconixx.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Company Office Lease" has the meaning specified in Section 2.2.
-----------
"Company Shares" has the meaning specified in Recital B of the Agreement.
---------
"Confidential Information" means (i) the terms and provisions of this
Agreement and the Acquisition and (ii) all confidential information (for
purposes of this Agreement, confidential information shall refer to all
information which is the subject of reasonable efforts by
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<PAGE>
the Company to maintain its non-public character or to otherwise prevent such
information from becoming widely known) and trade secrets of the Company or its
Affiliates including, without limitation, any of the same comprising 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. Confidential Information shall not include any information (a) which is
disclosed pursuant to subpoena or other legal process, (b) which has been
publicly disclosed, or (c) which is subsequently disclosed to any third party
not in breach of a confidentiality agreement.
"Contracts" has the meaning specified in Section 3.15.
------------
"Court Order" means any judgment, order, award or decree of any foreign,
federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Disclosure Schedules" shall mean the Disclosure Schedules attached to this
Agreement pursuant to which exceptions to the Majority Shareholders' and the
Company's specific representations and warranties set forth in Article III (and
-----------
listed on a Section-by-Section basis) are disclosed to Buyer and Iconixx
pursuant to said Article III, and pursuant to which exceptions to Buyer's and
-----------
Iconixx's specific representations and warranties set forth in Article IV (and
----------
listed on a Section-by-Section basis) are disclosed to the Majority Shareholders
and the Company pursuant to Article IV.
----------
"Effective Date" means the close of business on March 31, 2000.
"Employee" has the meaning specified in Section 5.3.
-----------
"Encumbrance" means any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in
title or restrictive covenant.
"Environmental and OSHA Obligations" has the meaning specified in
Section 3.12.
- ------------
"Equipment" has the meaning specified in Section 2.1(d).
--------------
"Equitable Exceptions" shall have the meaning specified in Section 3.6.
-----------
"Equity Agreements" means (i) the Stockholders Agreement dated August 12,
1999 between Iconixx and its Stockholders and (ii) the Registration Rights
Agreement dated August 12, 1999 between Iconixx and its Stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means First Union National Bank, N.A.
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<PAGE>
"Escrow Agreement" means the Escrow Agreement to be executed by and among
the Majority Shareholders, Buyer, Iconixx and the Escrow Agent in the form of
Exhibit A.
- ---------
"Escrow Period" has the meaning specified in Section 2.11.
------------
"Escrow Sum" has the meaning specified in Section 2.11.
------------
"Excluded Assets" has the meaning specified in Section 2.2.
-----------
"Excluded Liabilities" has the meaning specified in Section 2.4.
-----------
"Financial Statements" has the meaning specified in Section 3.7.
-----------
"Force Majeure" shall mean any failure or delay caused by acts of god,
flood, fire, war or terrorism or any failure or delay caused by a governmental
blockage of all currency transactions between a foreign Governmental Body and
the United States of America.
"Funded Indebtedness" means all (i) indebtedness of the Company for
borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable in the ordinary course of business; (iv) indebtedness of others
guaranteed by the Company or secured by an Encumbrance on the Company's
property; (v) letters of credit or similar obligations; and (vi) indebtedness of
the Company under extended credit terms of more than 60 days from vendors
provided to the Company.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body having jurisdiction over the Company
and/or the Majority Shareholders.
"Governmental Permits" has the meaning specified in Section 3.10.
------------
"Iconixx" has the meaning specified in the first paragraph of this
Agreement.
"Iconixx Material Adverse Change" has the meaning specified in Section 4.4.
-----------
"Iconixx Material Adverse Effect" has the meaning specified in Section 4.8.
-----------
"IRS" means the Internal Revenue Service.
"Indemnifiable Costs" has the meaning specified in Section 8.1.
-----------
"Indemnified Parties" has the meaning specified in Section 8.1.
-----------
"Intellectual Property" shall mean all of the following as they are related
primarily to the Business: (i) patents, patent applications, patent disclosures
and inventions
<PAGE>
(whether or not patentable and whether or not reduced to practice); (ii)
trademarks, service marks, trade dress, trade names, corporate or company names,
logos, slogans and Internet domain names, together with all goodwill associated
with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; (v) trade
secrets, confidential information and know-how (including but not limited to
ideas, formulae, compositions, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, business and marketing plans, and customer and supplier lists and
related information); and (vi) computer software (including but not limited to
data, data bases and documentation).
"Investments" means short-term investments in any funds, accounts,
securities, certificates of deposit or instruments of any Person which are (i)
included as short-term investments on a balance sheet in accordance with GAAP,
and (ii) marked to market as of any date of determination.
"Knowledge of the Company" (whether or not capitalized) shall mean actual
knowledge, after reasonable inquiry within the Company to employees with
responsibility for the subject matter in question, of the Majority Shareholders
and the officers and key employees of the Company. "Knowledge of the Majority
Shareholders" (whether or not capitalized) shall mean actual knowledge of the
Majority Shareholders.
"Leases" shall mean the leases set forth on the Schedule 3.9.
"Material" (whether or not capitalized) shall, where appropriate in context
of its use in making the representations and warranties set forth in Article
III, be deemed to mean an amount of money greater than $35,000 individually or
$75,000 in the aggregate.
"Material Adverse Change" or "Material Adverse Effect" means a material
adverse change or effect on the assets, properties, Business, operations,
liabilities or financial condition of the Company and its subsidiaries, taken as
a whole. In determining whether a "Material Adverse Change" or "Material Adverse
Effect" has occurred in the context of the use of such terms in the Company's
and the Majority Shareholders' representations and warranties set forth in
Article III, such terms shall refer to the occurrence of any single event, or
any series of related events, or set of related circumstances, which results or
likely will result in a loss to the Company or Buyer, in excess of $35,000 per
occurrence or $75,000 in the aggregate.
"Majority Shareholders" has the meaning set forth in the first paragraph of
this Agreement.
"Minimum Cash Deficit" has the meaning specified in Section 6.8.
-----------
"Most Recent Financial Statements" has the meaning specified in
Section 3.7.
- -----------
"Net Working Capital" shall equal the Company's total current assets
(including cash and cash equivalents, including customer deposits and accounts
receivable as defined in Section 2.1(b)), to the extent included in the
--------------
Purchased Assets minus its total current liabilities to
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<PAGE>
the extent included in the Purchased Assets (including, without limitation, (i)
any cash to accrual liability borne by the Company or Buyer, (ii) any change in
control payments due to employees, subcontractors, vendors or customers as a
result of the Acquisition contemplated hereby, each as calculated in accordance
with GAAP, and (iii) any Permitted Distributions made prior to or at Closing)).
"Net Working Capital Adjustment" has the meaning specified in Section 2.13.
------------
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. (S)(S)651 et
--
seq., any amendment thereto, and any regulations promulgated thereunder.
- ---
"Other Arrangement" means a benefit program or practice providing for
bonuses, incentive compensation, vacation pay, severance pay, insurance,
restricted stock, stock options, employee discounts, company cars, tuition
reimbursement or any other perquisite or benefit (including, without limitation,
any fringe benefit under Section 132 of the Code) to employees, officers or
independent contractors that is not an Employee Benefit Plan within the meaning
of Section 3(3) of ERISA.
"Permitted Distributions" has the meaning specified in Section 3.8.
-----------
"Permitted Exception" means (a) liens for Taxes and other governmental
charges and assessments which are not yet due and payable, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet due
and payable, (c) purchase money security interest liens solely on the property
acquired pursuant to such credit purchase, or (d) other liens or imperfections
on property which are not material in amount or do not materially detract from
the value or the existing use of the property affected by such lien or
imperfection.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"Preferred Stock" means the Convertible Class A Preferred Stock, par value
$.01 per share of Iconixx.
"Preliminary Closing Balance Sheet" has the meaning specified in
Section 2.9.
- -----------
"Projected Net Working Capital" means the amount of Net Working Capital of
the Company reflected on the Preliminary Closing Balance Sheet.
"Purchase Price" has the meaning specified in Section 2.6.
-----------
"Purchased Assets" means the assets of the Business specified in
Section 2.1.
- -----------
"Real Property" has the meaning specified in Section 2.1(c).
--------------
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<PAGE>
"Requirements of Laws" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"Seller" has the meaning specified in the first paragraph hereof.
"Tax" or "Taxes" means any federal, state, local or foreign income,
alternative or add-on minimum, gross income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding or minimum tax, transfer, goods and services,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amounts imposed thereon by any Governmental Body.
"Tax Return" means any return, report or similar statement required to be
filed with respect to any Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
ARTICLE II
ASSET PURCHASE
2.1. Asset Purchase. On the Closing Date and subject to the terms and
--------------
conditions set forth in this Agreement, the Company shall sell and deliver to
Buyer and Buyer agrees to purchase from the Company at the Closing and on the
Closing Date (each as hereinafter defined), free and clear of all liens, claims
and Encumbrances except for those permitted under Section 2.3 hereof, all of the
-----------
Company's right, title and interest in and to all assets of the Business
properly included in the Company's December 31, 1999 balance sheet for the
Business, subject to changes in the ordinary course of business (and consistent
with the Company's covenants in Section 5.4) from such date through the Closing
-----------
Date, together with all other assets owned by the Company and used in the
Business, other than the Excluded Assets (collectively, the "Purchased Assets").
The Purchased Assets include, without limitation, the following as they exist on
the Effective Date (as hereinafter defined):
(a) Cash, Cash Equivalents and Investments. Cash, cash equivalents and
--------------------------------------
Investments as of the Closing Date.
(b) Customer Deposits and Accounts Receivable. All accounts
-----------------------------------------
receivable, customer deposits and other deposits, advances and suppliers' or
vendors' rebates and all other receivables of the Business and existing on the
Closing Date (as hereinafter defined), in the ordinary course of the operation
of the Business.
(c) [Intentionally Left Blank]
--------------------------
(d) Business, Equipment and Supplies. All tangible personal property,
--------------------------------
equipment, supplies, furniture, leasehold improvements, including but not
limited to,
<PAGE>
leases and subleases of personal property or equipment, all automobiles and
other vehicles, computers, software and peripherals and all maintenance and
other operating supplies and other miscellaneous tangible personal property of
Seller used in the Business, whether or not located at or on the Real Property
at the Closing Date and whether or not reflected on the Most Recent Financial
Statements (collectively, the "Equipment").
(e) Contracts and Other Agreements Relating to the Business. All
-------------------------------------------------------
rights of Seller as of the Closing Date under all (written or oral) customer
contracts or vendor contracts with software or other companies, marketing
agreements, consortia agreements, web-design or other agreements relating to the
Business, interface or similar agreements pertaining to licenses, leases,
purchase orders and all other contracts, agreements or arrangements relating to
the Business.
(f) Books, Records, Lists and Other Data. All files, books, records,
------------------------------------
invoices, accounts, surveys, customer lists and records, vendor and supplier
lists, catalogs, price lists, marketing and advertising information, purchasing
histories, profiles and materials, technical bulletins, books and records of
account and other financial, vendor, customer and credit data, and all computer
programs, software, hardware, firmware, tapes and other materials used to store,
record or produce such data, owned or leased by the Company and used in the
Business (exclusive of the Company's corporate or stock records).
(g) Noncompete Agreements and Employee Relationships. All rights of
------------------------------------------------
Seller as of the Closing Date under all non-compete agreements with any of the
Company's employees to the extent any of the foregoing are used in the Business.
(h) Licenses, Permits. All federal, state, local and other
-----------------
governmental licenses, permits, approvals and authorizations that relate to the
operation of the Business.
(i) Prepayments. All security, utility, lease or similar deposits or
-----------
prepaid expenses of the Company used in the Business.
(j) Intellectual Property. All Intellectual Property of the Company
---------------------
excepting rights in the Excluded Assets referenced in Section 2.2 below.
-----------
(k) General Intangibles. All general intangibles used by the Business
-------------------
including, without limitation, all goodwill as a going concern and any and all
causes of action or claims of Seller against any third party that arose or will
arise in connection with the Business prior to the Closing Date.
(l) Insurance. All insurance policies insuring the Purchased Assets.
---------
(m) Other Assets. All other assets of Seller used in the conduct of
------------
the Business, whether or not reflected on the books or records of Seller or the
Business, other than the Excluded Assets.
-8-
<PAGE>
2.2. Excluded Assets. Notwithstanding anything to the contrary in this
---------------
Agreement, the Purchased Assets do not include, and Buyer is not purchasing or
assuming any liability therefore, the following: (i) company charter and stock
records of the Company; (ii) tax records of the Company; (iii) the Company's
401(k) plan and other employee benefit plans, provided, however, that Buyer
-------- -------
agrees to pay the fees and expenses incurred in connection with the termination
of the Company's 401(k) plan and health plan; (iv) all assets utilized
exclusively in the Hardware/Software Business; (v) the Company's internet domain
names "iis.com" and "iis.net"; (vi) all of the Company's leases or other
interests in real property (collectively, the "Real Property") (including,
without limitation, that certain office lease concerning the premises located at
7979 Old Georgetown Road, Second Floor, Bethesda, MD 20814 (the "Company Office
Lease")); and (vii) this Agreement and the other contracts entered into by the
Company in connection herewith (the "Excluded Assets"), ownership of which is
retained by Seller.
2.3. Assumed Liabilities. On the terms and subject to the conditions and
-------------------
exceptions contained herein, at Closing, Seller shall assign and delegate to
Buyer, and Buyer shall assume and undertake to pay, defend, discharge and
perform in full when due the liabilities of Seller (insofar as such liabilities
relate to the Business and the Purchased Assets) properly included in the
Seller's December 31, 1999 balance sheet for the Business, subject to changes in
the ordinary course of business from such date through the Closing Date and
other than any Excluded Liabilities (as defined in Section 2.4) (the "Assumed
-----------
Liabilities"), and no others, pursuant to this Agreement and the General
Assignment, Bill of Sale and Assumption Agreement referred to in Section 2.5.
-----------
2.4. Excluded Liabilities. Notwithstanding anything to the contrary
--------------------
contained in this Agreement, Buyer will not assume or be liable for and Seller
will retain and remain responsible for all of Seller's debts, liabilities and
obligations of any nature whatsoever, other than the Assumed Liabilities,
whether accrued, absolute or contingent, whether known or unknown, whether due
or to become due and whether related to the Business and the Purchased Assets or
otherwise, and regardless of when asserted (the "Excluded Liabilities"),
including, without limitation, the following liabilities or obligations of
Seller (none of which will constitute Assumed Liabilities):
(a) All of Seller's liabilities or obligations under this Agreement or
under any other agreement between Seller on the one hand and Buyer on the other
hand entered into on or after the date of this Agreement.
(b) All liabilities and obligations of Seller for Taxes which are
imposed on or measured by income, for any period, and all of Seller's
liabilities or obligations with respect to any non-income Taxes not specifically
accrued on the balance sheet for the Business included in the Most Recent
Financial Statements.
(c) All of Seller's liabilities or obligations arising out of or in
connection with the breach of any contract or agreement included in the
Purchased Assets, other than for such amounts as are adequately and properly
reserved for in the balance sheet included as part of the Most Recent Financial
Statements.
-9-
<PAGE>
(d) All of Seller's liabilities or obligations for expenses, Taxes or
fees incident to or arising out of the negotiation, preparation, approval, or
authorization of this Agreement or the consummation (or preparation for the
consummation) of the transactions contemplated hereby, including all attorneys'
and accountants' fees, brokerage fees, consultants' fees and finders' fees, and
sales, bulk sales and transfer taxes which are Seller's responsibility
hereunder.
(e) Seller's obligations and liabilities for the period up to and
including the Closing Date and thereafter which relate to any employee plans (as
described in Section 3.14) (including unfunded pension plan liabilities and
------------
retiree health benefits);
(f) All of Seller's liabilities or obligations against which Seller is
insured or otherwise contractually indemnified by a Person other than Buyer.
(g) Any liability or obligation under COBRA to any person covered by
Seller's health plans or any Employee who ceases to be employed by Seller on or
before the Closing Date, or who is not employed by Buyer on the Closing Date,
and any liability or obligation under COBRA to any family member of such person
or Employee.
(h) Any liability or obligation for Funded Indebtedness or any other
liability or obligation of Seller that does not relate to, or arise from, the
Business and the Purchased Assets.
(i) Any liability or obligation pertaining to any discontinued
operation owned or operated by the Seller and related to the Business as it was
operated by the Seller prior to the Business.
(j) Any liability or obligation that relates to, or arises from, the
Excluded Assets, including, without limitation, the Hardware/Software Business.
(k) All leases and interests, options or rights with respect to the
Real Property. All Real Property is identified as leased and described on the
Leases Schedule attached hereto. A separate Side Letter Agreement between the
- ---------------
Company and Buyer, in substantially the form attached hereto as Exhibit I, sets
---------
forth the disposition of rights to the Company Office Lease.
(l) Any liability or obligation for any litigation, claims or
proceedings pending or threatened in writing against the Seller or the Business
arising from the Seller's actions or conduct of the Business on or prior to the
Closing Date.
2.5. Title to the Purchased Assets: Documents of Conveyance. At Closing,
------------------------------------------------------
Seller shall convey all of its right, title and interest in and to the Business
and the Purchased Assets to Buyer free and clear of all liabilities,
obligations, liens and Encumbrances, excepting only the Assumed Liabilities (as
defined in Section 2.3). Title to the Purchased Assets shall be conveyed
-----------
pursuant to a General Assignment, Bill of Sale and Assumption Agreement
substantially in the form attached hereto as Exhibit B, and by such other
---------
documents as are reasonably acceptable to counsel for Seller and counsel for
Buyer in accordance with the terms hereof. Each of the parties
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<PAGE>
hereto agrees to use its reasonable commercial efforts to take or cause to be
taken all action, and to do, or cause to be done, all things reasonably
necessary, proper or advisable, whether before or after Closing, to ensure
transfer of title to the Purchased Assets to Buyer occurs as contemplated
hereunder.
2.6. Purchase Price; Allocation of Purchase Price The total purchase price
--------------------------------------------
for the Purchased Assets (the "Purchase Price") shall be equal to
$16,000,000.00, subject to any adjustment required to be made pursuant to
Sections 2.8, 2.9 and 2.13 below. Other than as expressly set forth in Sections
- ------------ --- ---- --------
6.4 and 6.5 below, the Purchase Price shall be allocated among the Purchased
- --- ---
Assets as determined by Buyer and approved by Seller which approval shall not be
unreasonably withheld, subject to any adjustment required to be consistent with
the Audited Closing Financial Statements.
2.7. Payment of Purchase Price. On the Closing Date and subject to the
-------------------------
terms and conditions set forth in this Agreement, Buyer shall pay the Purchase
Price for the Purchased Assets to the Company. The Purchase Price shall be
payable as follows:
(a) subject to adjustment in accordance with Section 2.9, an aggregate
-----------
of $12,000,000 shall be paid at Closing by wire transfer of immediately
available funds to the Company's account as specified in Exhibit C hereto,
---------
including the cost of any payments to holders of phantom shares, warrants or
stock options in the Company (the "Cash Purchase Price");
(b) $1,000,000 shall be paid in cash to the Escrow Agent at Closing
pursuant to Section 2.7 below to serve as the initial portion (before interest
-----------
accrues) of the Escrow Sum (as defined below); and
(c) $3,000,000 shall be paid in the form of (i) 600,000 shares of
Common Stock (valued at $1.30 per share) and (ii) 2,220 shares of Preferred
Stock (valued at $1,000 per share) to the Company, which shares shall be
immediately transferable to the Company's shareholders.
2.8. Funded Indebtedness Adjustment. The Cash Purchase Price will be
------------------------------
adjusted downward by the amount, if any, by which the Company's Funded
Indebtedness exceeds $0 as of the Closing Date, unless the balance of the Funded
Indebtedness is being paid and released simultaneously with Closing. Should
there be any downward adjustment of the Purchase Price under this Section 2.8,
-----------
Buyer, with the assistance of the Company, will be responsible for paying the
balance of the Funded Indebtedness in an amount equal to the amount of such
downward adjustment, including any interest accruing thereon.
2.9. Adjustment in Cash Purchase Price. The Cash Purchase Price will be:
---------------------------------
(i) if the Company's Net Working Capital as of the Effective Date is less than
$825,000, adjusted downward on a dollar-for-dollar basis at Closing by the
amount that the Company's Net Working Capital as of the Effective Date is less
than $900,000, or (ii) if the Company's Net Working Capital as of the Effective
Date is more than $975,000, adjusted upward on a dollar-
<PAGE>
for-dollar basis at Closing by the amount that the Company's Net Working Capital
as of the Effective Date is more than $900,000 (in each case, as determined
based on the Company's preliminary closing balance sheet prepared not more than
five days prior to the Effective Date (the "Preliminary Closing Balance
Sheet")). The Company shall continue to have at least $50,000 in cash and cash
equivalents on hand at the Closing or the Cash Purchase Price payable at Closing
will, in addition to any adjustments made pursuant to the preceding sentence, be
reduced by the amount of such deficit(s).
2.10. Closing. The Closing of the Acquisition shall take place at 10:00
-------
a.m., Eastern Time, at the offices of Hogan & Hartson L.L.P., 555 13th Street,
N.W. in Washington, D.C. on March 23, 2000, or on a date mutually agreed to by
the parties (which date shall be as soon as practicable following the date on
which all of the conditions to Closing set forth in Sections 7.1 and 7.2 have
------------ ---
been satisfied) (the "Closing Date"), with an Effective Date as of March 31,
2000.
2.11. Escrow Arrangements. Pursuant to the Escrow Agreement to be entered
-------------------
into among the Company, Buyer, Iconixx and the Escrow Agent, $1,000,000 of the
Purchase Price shall be delivered to the Escrow Agent at Closing (such monies
paid, together with all interest accrued thereon, is hereinafter referred to as
the "Escrow Sum"). The Escrow Sum shall be held pursuant to the terms of the
Escrow Agreement for payment from such Escrow Sum of the amounts, if any, owing
by the Company to Iconixx or the Buyer pursuant to the provisions of the Net
Working Capital Adjustment or for indemnification claims pursuant to Article
-------
VIII hereof. To the extent claims against the Escrow Sum are determined in favor
- ----
of the Company, then all amounts reserved against the Escrow Sum in connection
with such claims shall be remitted to the Company as soon as practicable
following any such determination, along with all accrued interest earned on the
Escrow Sum from the date of the original claim against the Escrow Sum until
paid. On the six month anniversary of the Closing Date, the Escrow Sum shall be
reduced to an amount equal to the sum of $500,000 plus the amount of claims then
pending against the Escrow Sum, with such reduction amount to be remitted to the
Company. On the first anniversary of the Closing Date (such 12 month period
being referred to herein as the "Escrow Period"), such remaining portion of the
Escrow Sum not theretofore claimed by or paid to Iconixx or Buyer in accordance
with the terms of the Escrow Agreement and this Agreement (together with any
interest on such remaining portion of the Escrow Sum) shall be disbursed to the
Company. All disbursements at the expiration of the Escrow Period shall be paid
in cash to the Company at its account set forth in Exhibit C as updated from
---------
time to time. The Company and Iconixx and Buyer agree that each will execute and
deliver such reasonable instruments and documents as are furnished by any other
party to enable such furnishing party to receive those portions of the Escrow
Sum to which the furnishing party is entitled under the provisions of the Escrow
Agreement and this Agreement.
2.12. Closing Audit. Within 180 days following the Closing Date, there
-------------
shall be delivered to Iconixx, Buyer and to the Majority Shareholders an audit
of the Company's balance sheet as of the Effective Date (the "Audited Closing
Financial Statements"). The Audited Closing Financial Statements shall be
audited by Arthur Andersen, L.L.P. in accordance with GAAP. The cost of
preparing the Audited Closing Financial Statements shall be paid by
-12-
<PAGE>
Iconixx. The Majority Shareholders shall be afforded a reasonable opportunity to
review the audit results (including any work papers prepared in connection
therewith). In the event that Majority Shareholders provide written notice
within 20 days after receipt of the Audited Closing Financial Statements that
they dispute any item(s) contained in the Audited Closing Financial Statements,
then Majority Shareholders and Iconixx shall jointly select and retain an
independent accounting firm (the "Independent Accountants") reasonably
acceptable to all parties hereto to review the disputed item(s) in the Audited
Closing Financial Statements. In conducting such review, Arthur Andersen, L.L.P.
shall provide the Independent Accountants with customary access to the work
papers of Arthur Andersen, L.L.P. utilized in preparing the Audited Closing
Financial Statements. The final determination of such disputed item(s) by the
Independent Accountants shall be utilized to determine all adjustments described
in Section 2.9 above and shall be final and binding on the parties solely for
-----------
such purposes. If the determination of disputed items by the Independent
Accountants results in either (i) an adjustment, described in Section 2.9, in
-----------
favor of Buyer; or (ii) an adjustment, described in Section 2.9, of less than
-----------
$15,000 in favor of the Majority Shareholders, then the cost of retaining the
Independent Accountants shall be borne solely by the Majority Shareholders.
However, if the determination of disputed items by the Independent Accountants
results in an adjustment, described in Section 2.9, of $15,000 or more in favor
-----------
of the Majority Shareholders, then the cost of retaining the Independent
Accountants shall be borne solely by Buyer.
2.13. Post-Closing Net Working Capital Adjustment. The Purchase Price will
-------------------------------------------
be adjusted upward or downward, on a dollar-for-dollar basis, to reflect the
increase or decrease, if any, in Net Working Capital as reflected on the Audited
Closing Financial Statements from the Projected Net Working Capital (the "Net
Working Capital Adjustment"). The Net Working Capital Adjustment shall be
determined by referring to the Audited Closing Financial Statements. In the
event that the Net Working Capital Adjustment results in an increase in the
Purchase Price, then Buyer shall pay such amount to the Company in immediately
available funds within 15 days of delivery of the Audited Closing Financial
Statements as finally determined in accordance with Section 2.12 above. In the
------------
event that the Net Working Capital Adjustment results in a decrease in the
Purchase Price, then the amount of any such decrease shall be payable to Buyer
(i) first, from the Escrow Sum in immediately available funds within 15 days of
the final determination of the Net Working Capital Adjustment up to a maximum of
$500,000 and (ii) second, the balance, if any, by the Majority Shareholders or
the Company in immediately available funds within 15 days of the final
determination of the Net Working Capital Adjustment. All payments required to be
paid by Majority Shareholders and the Company or the Escrow Agent pursuant to
this Section 2.13 shall be deemed to be a downward adjustment to the Purchase
------------
Price and shall not be controlled or limited by any provision contained in
Article VIII hereof.
- ------------
-13-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE MAJORITY SHAREHOLDERS
Except as set forth on the Disclosure Schedules attached hereto (which
Disclosure Schedules identify the exception and reference the applicable
representation so qualified), the Company and the Majority Shareholders jointly
and severally represent and warrant to Buyer and Iconixx that:
3.1. Capitalization. The authorized capital stock of the Company
--------------
consists of 4,000,000 shares of common stock, $.01 par value, 3,200,000 of
which, being the Company Shares, are issued and outstanding and are owned in the
amounts set forth on Schedule 3.1. All of the Company Shares are duly
authorized, validly issued, fully paid, and nonassessable. 2,850,000 of the
Company Shares are owned of record and beneficially by the Majority
Shareholders. None of the Company Shares was issued in violation of any
preemptive, right of first offer or refusal or preferential rights of any
Person.
3.2. No Liens on Purchased Assets. The Company owns all of the
----------------------------
Purchased Assets, free and clear of any Encumbrances other than the rights and
obligations arising under this Agreement, Permitted Exceptions or Encumbrances
that will be released on or prior to the Closing Date. None of the Purchased
Assets is subject to any outstanding option, warrant, call, or similar right of
any other Person to acquire the same, and none of the Purchased Assets is
subject to any restriction on transfer thereof except for restrictions imposed
by applicable federal and state securities laws. At Closing pursuant to the
Acquisition, the Company will have full power and authority to convey good and
marketable title to the Purchased Assets to Buyer, free and clear of any
Encumbrances other than the restrictions imposed by federal and state securities
laws and Permitted Exceptions.
3.3. Subsidiaries. The Company does not own, directly or indirectly,
------------
any capital stock or ownership interests in any Person. The Majority
Shareholders do not own any capital stock or ownership interests in any other
Person engaged in the Business other than the Company Shares and shares in the
Hardware/Software Business (other than less than five percent of any class of
outstanding securities of a publicly-held corporation of which the Majority
Shareholders; or any of them own, or has real or contingent rights to own such
securities).
3.4. Brokers. Except for Updata Capital, Inc., neither the Company nor
-------
the Majority Shareholders have engaged, or caused to be incurred any liability
to any finder, broker, or sales agent in connection with the origin,
negotiation, execution, delivery, or performance of this Agreement or the
Acquisition.
3.5. Due Organization. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Maryland
and has full company power and authority to own and lease its properties and
assets and to carry on the Business as now conducted. Complete and correct
copies of the Articles of Incorporation and Bylaws of the Company, and all
amendments thereto, have been delivered to Iconixx and are
-14-
<PAGE>
attached hereto as Exhibits D-1 and D-2, respectively. The Company is qualified
------------ ---
to be business in all jurisdictions in which the nature of the Business or the
ownership of the Company's properties requires such qualification, except where
the failure to so qualify would not have a Material Adverse Effect on the Buyer.
The jurisdictions in which the Company is qualified to do business are listed on
Exhibit D-3 attached hereto.
- -----------
3.6. Due Authorization. The Company and the Majority Shareholders each
-----------------
have full power and authority to execute, deliver and perform this Agreement and
to carry out and complete the Acquisition. The execution, delivery, and
performance of this Agreement and the Acquisition have been duly and validly
authorized by all necessary corporate actions of the Company. This Agreement has
been duly and validly executed and delivered by the Company and the Majority
Shareholders and constitutes the valid and binding obligations of the Company
and the Majority Shareholders, enforceable in accordance with its terms, except
to the extent that enforceability may be limited by laws affecting creditors'
rights and debtors' obligations generally, and legal limitations relating to
remedies of specific performance and injunctive and other forms of equitable
relief (the "Equitable Exceptions"). The execution, delivery, and performance of
this Agreement and the Acquisition (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by the Company
and the Majority Shareholders, do not (a) violate any Requirements of Laws or
any Court Order of any Governmental Body applicable to the Company or the
Majority Shareholders, or their respective property, (b) violate or conflict
with, or permit the cancellation of, or constitute a default under, any Material
agreement to which the Company or the Majority Shareholders are a party, or by
which any of them or any of their respective property is bound, (c) violate or
conflict with any provision of the articles of incorporation or bylaws of the
Company, or (d) except for such consents, approvals, or registrations as may be
required under applicable state securities laws, require any material consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any Governmental Body or other third party that would, if not
obtained, have a Material Adverse Effect on Buyer.
3.7. Financial Statements. The following financial statements of the
--------------------
Company have been delivered to Iconixx by the Company: unaudited balance sheet
for the year ended December 31, 1997 and audited balance sheets for the years
ended December 31, 1998 and December 31, 1999; unaudited statements of operation
and cash flows for year ended December 31, 1997 and audited statements of
operation and cash flows for the years ended December 31, 1998 and December 31,
1999; (collectively, the "Financial Statements"). Copies of the Financial
Statements are included in Schedule 3.7. Other than the Financial Statements as
------------
of and for the year ended December 31, 1999 (the "Most Recent Financial
Statements"), the Financial Statements have, to the Company's knowledge, been
prepared in accordance with GAAP, except as set forth in Schedule 3.7. The
------------
Financial Statements (including the notes thereto) have been prepared on a
consistent basis throughout the periods indicated and fairly present the
financial position, results of operations and changes in financial position of
the Company as of the indicated dates and for the indicated periods; and are
consistent with the books and records of the Company (which books and records
are correct and complete in all material respects). Since the date of the last
of such Financial Statements, the Company has incurred no Material liabilities
-15-
<PAGE>
required by GAAP to be reflected on the Company's balance sheet or notes thereto
nor any other obligations (whether absolute, contingent, or otherwise) which are
(individually or in the aggregate) Material (in amount or to the conduct of the
Business); and neither the Company nor Majority Shareholders have Knowledge of
any basis for the assertion of any such Material liability or obligation. Since
December 31, 1999, the Company has not experienced any Material Adverse Change.
3.8. Certain Actions. Since December 31, 1999, the Company has not,
---------------
except as disclosed on any of the Financial Statements or notes thereto: (a)
paid or declared any dividends or distributions, or purchased, redeemed,
acquired, or retired any stock or indebtedness of any Majority Shareholder
(other than distributions (i) for any amounts owed by the Company to the
Majority Shareholders for repayment of loans and for payment of performance
bonuses to employees of the Company in accordance with the past practices of the
Company and as set forth on Schedule 3.8 hereto, and (ii) for income taxes and
------------
expenses incurred in connection with the transactions contemplated hereby, in
each case so long as such payments and expenses are included in the calculation
of the Net Working Capital of the Company and so long as the Company retains at
least the Minimum Cash as of the Closing Date (collectively, the "Permitted
Distributions")); (b) made or agreed to make any loans or advances or guaranteed
or agreed to guarantee any loans or advances to any party whatsoever; (c)
suffered or permitted any Encumbrance to arise or be granted or created against
or upon any of its assets, real or personal, tangible or intangible; (d)
canceled, waived, or released or agreed to cancel, waive, or release any of its
debts, rights, or claims against third parties in excess of $15,000 individually
or $50,000 in the aggregate; (e) sold, assigned, pledged, mortgaged, or
otherwise transferred, or suffered any Material damage, destruction, or loss
(whether or not covered by insurance) to, any assets (except in the ordinary
course of the Business); (f) outside the ordinary course of business, paid or
made a commitment to pay any severance or termination payment to any employee or
consultant for which Buyer could be liable; (g) made any Material change in its
method of management operation, accounting or reporting of income or deductions
for tax purposes; (h) made any Material change outside the ordinary course of
the Business in the Company's working capital other than Permitted
Distributions; (i) made any Material acquisitions, made any Material capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $50,000; (j) made any investment or commitment therefor in any Person;
(k) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses for which Buyer could be liable, other than
(A) wages and salaries and business expenses paid in the ordinary course of the
Business, and (B) wage and salary adjustments made in the ordinary course of the
Business for employees who are not officers, directors, or Majority Shareholders
of the Company; (l) made, amended or entered into any written employment
contract with any officers or key employees of the Company listed on Schedule
--------
3.8 hereto for which Buyer could be liable or created or made any Material
- ---
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (m) except as set forth on Schedule 3.8
------------
hereto, made or entered into any Contract greater than the smallest of the
Contracts scheduled in accordance with Schedule 3.15; (n) made or entered into
-------------
any agreement granting any Person any offer rights in respect of
-16-
<PAGE>
the Company's shares; (o) entered into any non-competition agreement restricting
the Company from engaging in the Business; (p) except as set forth on Schedule
--------
3.8 hereto, made or entered into any employment agreement or other material
- ---
agreement or other arrangement with any officer, director, shareholder or
Affiliate of the Company; or (q) amended, experienced a termination or received
notice of actual or threatened termination or non-renewal of any Material
contract, agreement, lease, franchise or license to which the Company is a party
that would or could reasonably be expected to have a Material Adverse Effect.
3.9. Properties. The Leases Schedule lists and briefly describes each
---------- ---------------
interest in real property (including, without limitation, leasehold interests)
and each item of personal property utilized by the Company in the conduct of the
Business having a book or fair market value in excess of $15,000 as of the date
hereof. Except for Permitted Exceptions, such real and personal properties are
free and clear of Encumbrances. The Company has delivered to Iconixx copies of
all real property leases to which the Company is a party. All of the properties
and assets necessary for continued operation of the Business as currently
conducted (including, without limitation, all books, records, computers and
computer software and data processing systems) are owned, leased or licensed by
the Company and are reasonably suitable for the purposes for which they are
currently being used. With the exception of used equipment and inventory valued
at no more than $25,000 in the aggregate on the Company's Financial Statements,
the physical properties of the Company, including the real properties leased by
the Company, are in good operating condition. Except for Permitted Exceptions,
the Company has title to all such properties and assets. The operation of the
properties and Business of the Company in the manner in which they are now and
have been operated does not violate any zoning ordinances, municipal
regulations, or other Requirements of Laws, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except for Permitted Exceptions, no restrictive covenants, easements,
rights-of-way, or regulations of record impair the uses of the properties of the
Company for the purposes for which they are now operated. All leases of real or
personal property by the Company are legal, valid, binding, enforceable and in
full force and effect and will not be terminated on or after the Closing Date as
a result of the failure to obtain any consents to the Acquisition contemplated
hereby, except for the Equitable Exceptions. All facilities leased by the
Company have received all material approvals from any Governmental Body
(including Governmental Permits) required to be obtained by the Company in
connection with the operation of the Business and have been operated and
maintained in accordance with all material Requirements of Laws applicable to
the Company as a lessee thereof. The Company owns no real property.
3.10. Licenses and Permits. Schedule 3.10 lists all material licenses,
-------------------- -------------
certificates, privileges, immunities, approvals, franchises, authorizations and
permits held or applied for by the Company from any Governmental Body (herein
collectively called "Governmental Permits"). The Company has complied in all
material respects with the terms and conditions of all such Governmental
-17-
<PAGE>
Permits, and the Company has not received notification from any Governmental
Body of violation of any such Governmental Permit or the Requirements of Laws
governing the issuance or continued validity thereof. All of such Governmental
Permits are valid and in full force and effect. No additional Governmental
Permits are required from any Governmental Body thereof in connection with the
conduct of the Business which Governmental Permits, if not obtained, would
individually or in the aggregate have a Material Adverse Effect.
3.11. Intellectual Property. Schedule 3.11 lists and briefly describes all
--------------------- -------------
material Intellectual Property owned or utilized by the Company that is being
conveyed to Buyer. The Company has furnished Iconixx with copies of all material
license agreements (including software licensing agreements) to which the
Company is a party, either as licensor or licensee, with respect to any
Intellectual Property. Subject to the terms of such license agreements, the
Company has legal title to or the right to use all the Intellectual Property and
all inventions, processes, designs, formulae, trade secrets and know-how
utilized in the conduct of the Business as presently conducted and as currently
planned by the Company without material impediment, without the payment of any
royalty or similar payment. The Company is not infringing on any Intellectual
Property right of others and neither the Company nor the Majority Shareholders
have Knowledge of any infringement by others of any such rights owned by the
Company. The Company has not received notice of any charge, claim, demand,
complaint, action, suit, hearing, proceeding or investigation which challenges
the Company's ownership or licensing of any Intellectual Property, the Company's
current uses of its Intellectual Property or the Company's compliance with the
terms and conditions of any contracts, licenses, agreements or Court Orders
involving the Intellectual Property. Schedule 3.11 contains a complete list of
-------------
filings made with any Governmental Bodies with regard to the Intellectual
Property. All licenses set forth on Schedule 3.11 are valid and binding
-------------
obligations of the Company, and to the Knowledge of the Company the other
parties thereto, enforceable against the Company, and to the Knowledge of the
Company the other parties thereto in accordance with their respective terms,
except for the Equitable Exceptions. The Company owns and possesses all right,
title and interest in and to, or has the right to use pursuant to a valid
license, all Intellectual Property necessary for the operation of the Business
of the Company as presently conducted. Except as set forth on Schedule 3.11, the
-------------
Company's use of each item of the Intellectual Property owned or licensed by
Company (i) will not be terminated as a result of the Acquisition contemplated
hereby; (ii) does not infringe upon the rights of any other Person based on the
Company's current use of such items or the Company's currently proposed use of
such items without material impediment; (iii) is in compliance with the material
terms and conditions of all license or other agreements relating to such items;
and (iv) does not violate any material Requirements of Laws or Courts Orders
applicable to the Company or, to the Company's Knowledge, any other party to any
material license or other agreement relating to such Intellectual Property. The
Company is not in default (whether or not after the giving of notice or the
lapse of time or both) under any material license, contract or other agreement
relating to any Intellectual Property.
3.12. Compliance with Laws. The Company has (i) complied in all material
--------------------
respects with all Requirements of Laws, Governmental Permits and Court Orders
applicable to the Business and has filed with the proper Governmental Bodies all
material statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and is in compliance in all material respects with
all
-18-
<PAGE>
federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, the Solid Waste Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Safe Drinking Water Act, OSHA, the
Toxic Substances Control Act and any similar state, local or foreign laws
(collectively "Environmental and OSHA Obligations") and all other Governmental
Body requirements, except where any such failure to comply or file would not, in
the aggregate, have a Material Adverse Effect. No claim has been made by any
Governmental Body (and, to the Knowledge of the Company and the Majority
Shareholders, no such claim is reasonably anticipated) to the effect that the
Business fails to comply, in any respect, with any Requirements of Laws,
Governmental Permit or Environmental and OSHA Obligation or that a Governmental
Permit or Court Order is necessary in respect thereto, other than as
specifically disclosed herein.
3.13. Insurance. Schedule 3.13 lists all coverages for fire, liability, or
--------- -------------
other forms of insurance insuring the Purchased Assets and all fidelity bonds
held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Iconixx. The insurance maintained by
the Company is customary and reasonably adequate for companies engaged in the
Business. No event relating to the Company has occurred which will result in (i)
cancellation of any such insurance coverages; (ii) a retroactive upward
adjustment of premiums under any such insurance coverages; or (iii) any
prospective upward adjustment in such premiums. All of such insurance coverages
will not be terminated on or after the Closing Date as a result of the failure
to obtain any consents to the Acquisition contemplated hereby. The Company is
not in default under any such insurance policies.
3.14. Employee Benefit Plans.
----------------------
(a) Employee Welfare Benefit Plans and Other Arrangements. Except as
-----------------------------------------------------
disclosed on Schedule 3.14(a), the Company does not maintain or contribute to
----------------
any "employee welfare benefit plan" as such term is defined in Section 3(1) of
ERISA or Other Arrangement (each a "plan"). With respect to each such plan: (i)
the plan is in compliance with, and, except as set forth on Schedule 3.14(a),
----------------
the Company does not have any liability under ERISA, the Code or any
Requirements of Law; (ii) the plan has been administered in accordance with its
governing documents; (iii) neither the plan, nor any fiduciary with respect to
the plan, has engaged in any "prohibited transaction" as defined in Section 406
of ERISA other than any transaction subject to a statutory or administrative
exemption; (iv) except for the processing of routine claims in the ordinary
course of administration, there is no litigation, arbitration or disputed claim
outstanding; and (v) all premiums due on any insurance contract through which
the plan is funded have been paid. All employee welfare benefit plans and the
related trusts that are subject to Section 4980B(f) of the Code and Sections 601
through 607 of ERISA comply with and have been administered in compliance with
the health care continuation-coverage requirements for tax-favored status under
Section 4980B(f) of the Code (formerly Section 162(k) of the Code), Sections 601
through 607 of ERISA. All employee welfare benefit plans comply with and have
been administered in compliance with the requirements of the (i) Health
Insurance Portability and Accountability Act of 1996, to the extent applicable,
and applicable proposed or final regulations, and (ii) Mental Health Parity Act
of 1996, to the extent applicable.
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<PAGE>
(b) Employee Pension Benefit Plans. Except as set forth in Schedule
------------------------------ --------
3.14(b), the Company does not maintain or contribute to any arrangement that is
- -------
or may be an "employee pension benefit plan" relating to employees, as such term
is defined in Section 3(2) of ERISA. With respect to each such plan: (i) the
plan is qualified under Section 401(a) of the Code, and any trust through which
the plan is funded meets the requirements to be exempt from federal income tax
under Section 501(a) of the Code; (ii) the plan is in compliance with ERISA and
all other applicable Requirements of Laws; (iii) the plan has been administered
in accordance with its governing documents as modified by applicable law; (iv)
the plan has not suffered an "accumulated funding deficiency" as defined in
Section 412(a) of the Code; (v) the plan has not engaged in, nor has any
fiduciary with respect to the plan engaged in, any "prohibited transaction" as
defined in Section 406 of ERISA or Section 4975 of the Code other than a
transaction subject to statutory or administrative exemption; (vi) the plan has
not been subject to a "reportable event" (as defined in Section 4043(b) of
ERISA), the reporting of which has not been waived by regulation of the Pension
Benefit Guaranty Corporation; (vii) no termination or partial termination of the
plan has occurred within the meaning of Section 411(d)(3) of the Code; (viii)
all contributions required to be made to the plan have been made to or on behalf
of the plan or accrued in accordance with GAAP; (ix) there is no litigation,
arbitration or disputed claim outstanding; (x) all applicable premiums due to
the Pension Benefit Guaranty Corporation for plan termination insurance have
been paid in full on a timely basis; and (xi) a favorable determination letter
from the IRS has been received by the Company with respect to such plan stating
that such plan is so qualified; and there are no circumstances which would cause
such plan to lose such qualified status.
(c) Employment and Non-Tax Qualified Deferred Compensation
------------------------------------------------------
Arrangements. Except as set forth on Schedule 3.14(c), the Company does not
- ------------ ----------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be and that is not a tax qualified
arrangement under Section 401(a) of the Code.
3.15. Contracts and Agreements. Schedule 3.15 hereto contains a list of all
------------------------ -------------
customer contracts, all employment contracts involving annual salaries greater
than $60,000 and all employment contracts with directors, general managers or
officers of the Company. Schedule 3.15 also contains a list of the 9 largest
-------------
contracts (in terms of annual payments made or received with respect thereto) to
which the Company is a party or by which the Company or its properties are bound
and a list of any contract or agreements, if any, prohibiting the Company from
freely engaging in the Business anywhere in the world (collectively, the
"Contracts"). The Company is not and, to the Knowledge of the Majority
Shareholders and the Company, no other party thereto is in default (and no event
has occurred which, with the passage of time or the giving of notice, or both,
would constitute a default by the Company) under any of the Contracts, and the
Company has not waived any right under any of the Contracts. All of the
Contracts to which the Company is a party are legal, valid, binding, enforceable
and in full force and effect and will not be terminated on or after the Closing
Date as a result of the failure to obtain any consents to the Acquisition
contemplated hereby, except for the Equitable Exceptions and will be
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assignable to the Buyer. The Company has not guaranteed any obligations of any
other Person. The Company has no present expectation or intention of not fully
performing all of its obligations under any Contract, the Company has no
Knowledge of any breach or anticipated breach by the other parties to any
Contract and the Company has not received notice of actual or threatened
termination or non renewal of any Contract.[B
3.16. Claims and Proceedings. Except as set forth on Schedule 3.16, there
---------------------- -------------
are no claims, actions, suits, proceedings, or investigations pending or, to the
Knowledge of the Majority Shareholders or the Company, threatened against or
affecting the Company or any of its properties or assets, at law or in equity,
before or by any court, municipality or other Governmental Body. To the extent
any are disclosed on Schedule 3.16, the Company does not believe that any of
-------------
such claims, actions, suits, proceedings, or investigations, if adversely
determined, will individually or in the aggregate result in any Material Adverse
Effect to the Company. The Company has not been and the Company is not now,
subject to any Court Order, stipulation, or consent of or with any court or
Governmental Body. No inquiry, action or proceeding has been instituted or, to
the Knowledge of the Majority Shareholders or the Company, threatened or
asserted against the Majority Shareholders or the Company to restrain or
prohibit the carrying out of the Acquisition or to challenge the validity of the
Acquisition or any part thereof or seeking damages on account thereof. To the
Knowledge of the Company and the Majority Shareholders there is no basis for any
such valid claim or action.
3.17. Taxes.
-----
(a) All Federal, foreign, state, county and local and other Taxes due
from the Company on or before the Closing have been paid and all Tax Returns
which are required to be filed by the Company on or before the date hereof have
been filed within the time and in the manner provided by all Requirements of
Laws or extensions were timely filed, and all such Tax Returns are true and
correct and accurately reflect the Tax liabilities of the Company in all
respects. No Tax Returns of the Company are presently subject to an extension of
the time to file. All Taxes, assessments, penalties, and interest of the Company
which have become due pursuant to such Tax Returns or any assessments received
have been paid or adequately accrued on the Financial Statements. The provisions
for Taxes reflected on the balance sheets contained in the Financial Statements
are adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes of which any of the Majority Shareholders or the
Company are aware. For Governmental Bodies with respect to which the Company
files Tax Returns, no such Governmental Body has given the Company written
notification that such corporation is or may be subject to taxation by that
Governmental Body. 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,
shareholder, creditor, independent contractor or other party. The Company has
each properly reflected for tax purposes in accordance with all Requirements of
Laws the status of all independent contractors, consultants and subcontractors.
There are no Tax liens on any of the property or assets of the Company. The
-21-
<PAGE>
Company (and any predecessor of the Company) has been a validly electing S
corporation within the meanings of Sections 1361 and 1362 of the Code since
making an S corporation election on December 31, 1998, and the Company will be
an S corporation until and including the Closing Date.
(b) The Company has not made any payments, is not obligated to make
any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code 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 is not a
party to any Tax allocation or sharing agreement. The Company has not and has
never been (nor does the Company have any liability for unpaid Taxes because it
once was) a member of an affiliated group. No Stockholder (A) has been a member
of an affiliated group, as defined in Section 1504(a) of the Code, filing a
consolidated federal income Tax Return (other than a group the common parent of
which was any Stockholder) and (B) has 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.
(c) The Company has not (i) acquired assets from another corporation
in a transaction in which the Company's Tax basis for the acquired assets was
determined in whole or in part by reference to the Tax basis of the acquired
assets (or any other property) in the hands of the transferor or (ii) acquired
the stock of any other corporation that is a qualified subchapter S subsidiary.
(d) The Company has not had at any time during the Company's
existence owned any subsidiaries (including any "qualified subchapter S
subsidiaries" within the meaning of Section 1361(b)(3)(13) of the Code excepting
only for IIS Systems, Inc. which was, but not longer is, a subsidiary of the
Company.
(e) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no transfer taxes, real estate
transfer taxes or similar taxes will be imposed upon the sale of the Company
Shares pursuant to this Agreement.
3.18. Personnel. Schedule 3.15 sets forth a list of the names and annual
--------- -------------
rates of compensation of the directors and executive officers of the Company,
and of the employees of the Company whose annual rates of compensation during
the calendar year ended December 31, 1999 (including base salary, bonus and
incentive pay) exceeded (or by December 31, 2000 are expected to exceed) $60,000
and the employment agreements, if any, pertaining to such employees. Schedule
--------
3.18 summarizes the bonus, profit sharing, percentage compensation, company
- ----
automobile, club membership, and other like benefits, if any, paid or payable to
such directors, officers, and employees during the Company's calendar year ended
December 31, 1999 and to the date hereof. The employee relations of the Company
are generally good, there has been no unusual level of employee departures and
there is no pending or, to the Knowledge of Majority Shareholders or the
Company, threatened labor dispute or union organization campaign. None of the
employees of the Company is covered by a collective bargaining agreement. The
-22-
<PAGE>
Company is in compliance in all material respects with all Requirements of Laws
respecting employment and employment practices, including, without limitation,
the Fair Labor Standards Act of 1938, immigration hiring, terms and conditions
of employment, and wages and hours, and is not engaged in any unfair labor
practices. Except as specifically set forth on Schedule 3.18, neither the
-------------
Company nor the Majority Shareholders have Knowledge that any Person listed on
Schedule 3.15 hereto will not agree to be employed by Buyer after the
- -------------
consummation of the Acquisition. There is no unfair labor practice claim against
the Company before the National Labor Relations Board, or any strike, dispute,
slowdown, or stoppage pending or, to the Knowledge of the Company and the
Majority Shareholders, threatened against or involving the Company, and none has
previously occurred.
3.19. Business Relations. Neither the Company nor the Majority Shareholders
------------------
have Knowledge that any customer, supplier or licensor engaged in doing business
with the Company will cease to do business with the Company after the
consummation of the Acquisition as previously conducted with the Company except
for any terminations which will not, in the aggregate, result in a Material
Adverse Change. Neither the Majority Shareholders nor the Company has received
any notice of cancellation of any Material business arrangement between any
Person and the Company, and neither the Company nor the Majority Shareholders
have Knowledge that the Business will be subject to cancellation of any such
business arrangement.
3.20. Accounts Receivable; Accounts Payable; Customer Deposits; Customer
------------------------------------------------------------------
Revenues and Deferred Revenues.
- ------------------------------
(a) Accounts Receivable. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company in the Financial
Statements are bona fide and represent amounts validly due for goods sold or
services rendered and, except for amounts reserved for as doubtful accounts in
the Financial Statements, all such amounts as of the Closing Date will be
collected in full prior to September 30, 2000. With respect to such accounts,
notes, and loans receivable: (i) all are free and clear of any Encumbrances;
(ii) no claims of offset have been asserted in writing against any of such
accounts, notes, or loans receivable; and (iii) none of the obligors thereto has
given written notice that it will or may refuse to pay the full amount or any
portion thereof. Lists of the Company's accounts receivable as of December 31,
1999 (including any reconciliation to the accounts receivable entry on the
balance sheet included in the Most Recent Financial Statements) have been
attached to Schedule 3.20(a).
----------------
(b) Accounts Payable. The aggregate amount of accounts payable
----------------
reflected on the Most Recent Financial Statements are prepared in accordance
with GAAP and reflect the accounts payable of the Company as of December 31,
1999.
(c) Customer Deposits; Customer Revenues and Deferred Revenues.
----------------------------------------------------------
Schedule 3.20(c) sets forth, as of the date specified therein all deferred
- ----------------
revenues as of such date on an aggregate basis. For the year ending December 31,
1999, the Company's actual deposits and revenues from customer contracts are not
less than the Company's deposits and revenues from customer contracts for the
year ending December 31, 1998.
-23-
<PAGE>
3.21. Bank Accounts; Investments. Schedule 3.21 lists all banks or other
-------------------------- -------------
financial institutions with which the Company has an account or maintains a safe
deposit box, showing the type and account number of each such account and safe
deposit box and the names of the persons authorized as signatories thereon or to
act or deal in connection therewith. Schedule 3.21 also lists all Material
-------------
investments by the Company in any funds, accounts, securities, certificates of
deposit or instruments of any Person. All of such investments are customary in
form and amount for reasonably prudent treasury investments of comparable
businesses, none of which involve any type of derivative, option, hedging or
other speculative instrument.
3.22. Customer Claims. No written or oral claims for breach of contract or
---------------
otherwise by any customers (a "Customer Claim") has been made against the
Company since June 30, 1999 which could, individually or in the aggregate,
result in any Material Adverse Effect. The level of Customer Claims for the
period since December 31, 1998 through the date hereof is consistent (plus or
minus 5%) with past practices of the Company for the comparable period in 1998.
3.23. Affiliated Transactions. No officer, director, shareholder or
-----------------------
Affiliate of the Company or any individual related by blood or marriage to any
such Person, or any entity in which any such Person owns any beneficial
interest, is a party to any agreement, contract, arrangement or commitment with
the Company or is engaged in any transaction with the Company or has any
interest in any property used by the Company, except for the Majority
Shareholders in their capacity as officers, directors, employees and
shareholders of the Company. No officer, director or shareholder of the Company
has any ownership interest in any competitor, supplier, or customer of the
Company (other than (i) ownership of securities of a publicly-held corporation
or mutual fund of which such Person owns, or has real or contingent rights to
own, less than five percent of any class of outstanding securities and (ii)
Christopher Clark's controlling membership interest in Pizza.com, L.L.C.) or any
property used in the operation of the Business except for the Majority
Shareholders' ownership of and services as directors of IIS Systems, Inc. and
Timothy Meinhardt's anticipated continued employment with that company.
3.24. Funded Indebtedness; Letters of Credit; Undisclosed Liabilities.
---------------------------------------------------------------
(a) Funded Indebtedness. Other than any Funded Indebtedness which is
-------------------
to be repaid and discharged by the Company prior to or at the Closing in
accordance with Section 7.1(d), the Company does not have any Funded
--------------
Indebtedness, other than outstanding loans from the Majority Shareholders that
will remain the obligations of the Company after Closing.
(b) Letters of Credit. Other than those listed on Schedule 3.25, the
----------------- -------------
Company has no letters of credit, performance bonds or similar instruments
issued on or for its account for the benefit of any of its vendors or otherwise.
(c) Undisclosed Liabilities. The Company does not have any Material
-----------------------
liabilities in the aggregate (whether absolute, accrued, contingent or
otherwise) of a
-24-
<PAGE>
nature required by GAAP to be reflected on a company balance sheet or in the
notes thereto, except for such liabilities which are accrued or reserved against
in the Financial Statements or disclosed in the notes thereto, including without
limitation any accounts payable or service liabilities of the Company incurred
prior to the Closing Date.
3.25. Year 2000. All of the Material computer software, computer
---------
firmware, computer hardware (whether general or special purpose), and other
similar or related items of automated, computerized, and/or software system(s)
that are used or relied on by the Company in the conduct of its business will
not malfunction, will not cease to function, will not generate incorrect data,
and will not produce incorrect results when processing, providing, and/or
receiving (i) date-related data into and between the twentieth and twenty-first
centuries and (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries, except for any malfunctions or generations
of incorrect data or results that would not individually or in the aggregate
have a Material Adverse Effect. The Company has not been engaged in any year
2000 correction consulting work for its customers for which Buyer could have any
future liability.
3.26. Information Furnished. The Company and the Majority
---------------------
Shareholders have made available to Iconixx true and correct copies of all
material corporate or stock records of the Company and all material agreements,
documents, and other items listed on the Disclosure Schedules to this Agreement
or referred to in Article III of this Agreement, and neither this Agreement, the
-----------
Disclosure Schedules hereto, nor any written information, instrument, or
document delivered to Buyer or Iconixx pursuant to this Agreement contains any
untrue statement of a Material fact or omits any Material fact necessary to make
the statements herein or therein, as the case may be, not misleading.
ARTICLE IV
BUYER'S AND ICONIXX'S REPRESENTATIONS AND WARRANTIES
Except as set forth on the Disclosure Schedules attached hereto (which
Disclosure Schedules identify the exception and references the applicable
representation so qualified), Buyer and Iconixx jointly and severally represent
and warrant to the Majority Shareholders and the Company as follows:
4.1. Due Organization of Iconixx and Buyer. Iconixx and Buyer are
-------------------------------------
each a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware and each has full corporate power and
authority to execute, deliver and perform this Agreement and to carry out the
Acquisition.
4.2. Due Authorization. Iconixx and Buyer have full power and
-----------------
authority to execute, deliver and perform this Agreement and to carry out and
complete the Acquisition. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate action by Iconixx
-25-
<PAGE>
and Buyer and the Agreement has been duly and validly executed and delivered by
Iconixx and Buyer and constitutes the valid and binding obligation of each of
Iconixx and Buyer, enforceable in accordance with its terms, except for the
Equitable Exceptions. The execution, delivery, and performance of this Agreement
and the Escrow Agreement (as well as all other instruments, agreements,
certificates or other documents contemplated hereby) by Iconixx and Buyer shall
not (a) violate any Requirements of Laws or Court Order of any Governmental Body
applicable to Iconixx or Buyer their property, (b) violate or conflict with, or
permit the cancellation of, or constitute a default under any agreement to which
Iconixx or Buyer is a party or by which Iconixx or Buyer or their property is
bound, (c) permit the acceleration of the maturity of any indebtedness of, or
any indebtedness secured by the property of, Iconixx or Buyer, (d) violate or
conflict with any provision of the Certificate of Incorporation or Bylaws of
Iconixx or Buyer, or (e) except for such consents, approvals, or registrations
as may be required under applicable state securities laws, require any consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any Governmental Body or other third party.
4.3. No Brokers. Iconixx has engaged at its expense the services of
----------
Stanford Keene in connection with the Acquisition. Iconixx has not engaged, or
caused to be incurred any liability for which the Company or the Majority
Shareholders may be liable to any finder, broker or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the Acquisition.
4.4. Iconixx Financial Statements. The following financial statements
----------------------------
of Iconixx have been delivered to the Company: an unaudited consolidating
balance sheet of Iconixx as of December 31, 1999 and unaudited consolidating
statement of operations of Iconixx for the three months ended December 31, 1999
(collectively, the "Iconixx Financial Statements"). Copies of the Iconixx
Financial Statements are included in Schedule 4.4. To the Knowledge of Iconixx,
------------
the Iconixx Financial Statements have been prepared in accordance with GAAP
except for normal year-end adjustments and the absence of footnotes. The Iconixx
Financial Statements fairly present the financial position and results of
operations of Iconixx as of the indicated dates and for the indicated periods
and are consistent with the books and records of Iconixx (which books and
records are correct and complete in all material respects). Since December 31,
1999, Iconixx has not experienced any material adverse change to its assets,
properties, Business, operations, liabilities or financial condition (an
"Iconixx Material Adverse Change").
4.5. Capital Stock and Related Matters. As of the Closing and
---------------------------------
immediately thereafter, the authorized capital stock of Iconixx shall consist of
100,000,000 shares of stock, of which (i) 150,000 shares shall be designated as
Preferred and (ii) 99,850,000 shares shall be designated as Common Stock. The
ownership of the issued and outstanding Preferred Stock and the Common Stock are
as set forth on the Iconixx Capitalization Schedule provided herewith. As of the
-------------------------------
Closing, all of the outstanding shares of Iconixx's capital stock shall be
validly issued, fully paid and nonassessable. The Stockholders Agreement,
Registration Rights Agreement, Contribution Agreement, Stock Purchase Agreement
and similar agreements listed in Schedule 4.5 constitute all the material
------------
agreements, contracts, understandings or arrangements, other than the Iconixx
Stock Option Plan, which govern the ownership, transfer or voting rights of the
capital stock of Iconixx.
-26-
<PAGE>
4.6. Authorization of the Stock. Iconixx has authorized the issuance and
--------------------------
sale to the Company of an aggregate of 600,000 shares of Common Stock and 2,220
shares of Preferred Stock, each having the rights and preferences set forth in
Iconixx's Certificate of Incorporation attached hereto as Exhibit E.
---------
4.7. Stock Option Plan. Iconixx maintains a stock option plan ("plan"), by
-----------------
or through which the Majority Shareholders and the Company's employees may
become eligible to the extent they become employees of the Buyer to acquire,
obtain or receive options to receive, acquire, or obtain shares of Iconixx
Common Stock pursuant to this Agreement. Copies of the plan documents have been
provided to the Company. With respect to such plan: (i) the plan provides for
options which qualify as incentive stock options, as defined by Section 422 of
the Code, as well as options that do not so qualify; (ii) the plan is in
compliance with all material Requirements of Law; (iii) the plan has been
administered in accordance with its governing documents; (iv) neither the plan,
nor any fiduciary with respect to the plan, has engaged in any "prohibited
transaction" as defined by ERISA other than any transaction subject to a
statutory or administrative exemption and (v) there is no litigation,
arbitration or disputed claim outstanding with respect to the plan.
4.8. Claims and Proceedings. There are no claims, actions, suits,
----------------------
proceedings, or investigations pending, or, to the Knowledge of Iconixx or
Buyer, threatened against or affecting Iconixx or Buyer or any of their
properties or assets, at law or in equity, before or by any court, municipality
or other Governmental Body that would result in a material adverse effect on
Iconixx (an "Iconixx Material Adverse Effect"), other than as disclosed on
Schedule 4.8. To the extent any are disclosed on Schedule 4.8, none of such
- ------------ ------------
claims, actions, suits, proceedings, or investigations will individually or in
the aggregate result in an Iconixx Material Adverse Effect. Iconixx or Buyer
have not been and are not now, subject to any Court Order, stipulation, or
consent of or with any court or Governmental Body that could affect the
Acquisition. No inquiry, action or proceeding has been instituted or, to the
Knowledge of Iconixx or Buyer, threatened or asserted against Iconixx or Buyer
to restrain or prohibit the carrying out of the Acquisition or to challenge the
validity of the Acquisition or any part thereof or seeking damages on account
thereof. To the Knowledge of Iconixx and Buyer there is no basis for any such
valid claim or action.
4.9. Taxes.
-----
(a) All Federal, foreign, state, county and local and other Taxes due
from Iconixx or Buyer (or any subsidiary with which Iconixx or Buyer may, if
they elect, file a consolidated return) on or before the Closing have been paid
and all Tax Returns which are required to be filed by Iconixx or Buyer on or
before the date hereof have been filed within the time and in the manner
provided by all Requirements of Laws or extensions were timely filed, and all
such Tax Returns are true and correct and accurately reflect the Tax liabilities
of Iconixx and Buyer in all material respects. For Governmental Bodies with
respect to which Iconixx or Buyer file Tax Returns, no such Governmental Body
has given Iconixx or Buyer written notification that either such corporation is
may be subject to taxation by that Governmental Body
-27-
<PAGE>
that could result in an Iconixx Material Adverse Effect. There are no material
Tax liens on any of the property or assets of Iconixx or Buyer.
(b) Iconixx or Buyer have not made any payments, are not obligated to
make any payments, and are each 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. Iconixx or Buyer have each 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). Iconixx or Buyer
are each not a party to any Tax allocation or sharing agreement.
(c) No transaction contemplated by this Agreement is subject to
withholding under Code Section 1445 and no transfer taxes, real estate transfer
taxes or similar taxes will be imposed upon the sale of Iconixx Stock pursuant
to this Agreement.
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY, ICONIXX, BUYER AND THE
MAJORITY SHAREHOLDERS
5.1. Consents of Others. Prior to the Closing, the Company and the Majority
------------------
Shareholders shall use their commercially reasonable best efforts to obtain and
to cause the Company to obtain all material authorizations, consents and permits
required of the Company and the Majority Shareholders to permit them to
consummate the Acquisition. To the extent required to consummate the Acquisition
or to ensure that the Contracts shall not be terminated as a result of the
Closing, Majority Shareholders shall have obtained the written consent or waiver
of any "assignment" type termination rights of any third party to any Contract.
5.2. Majority Shareholders' Efforts. The Company and the Majority
------------------------------
Shareholders shall use all commercially reasonable best efforts to cause all
conditions for the Closing to be met.
5.3. Employees. The Company and the Majority Shareholders shall cause the
---------
Company to terminate at or prior to Closing all employees of the Company (the
"Employees") and the Buyer (or an Affiliate thereof) shall offer employment to
all the Employees, which Employees shall be identified on an "Employee Schedule"
-----------------
to be delivered by the Company to Buyer immediately upon execution of this
Agreement, on terms and conditions substantially similar to their employment by
the Company and assume all accrued obligations to such employees to the extent
disclosed to Iconixx and reserved for on the Preliminary Closing Balance Sheet;
provided that the terms of this Section 5.3 shall not entitle any Employee to
-----------
remain in the employment of the Company or the Buyer or affect the right of the
Buyer to terminate any Employee at any time, or to establish, modify or
terminate any employee benefit plan as defined in Section (3)(3) of ERISA or any
benefit under any such plan at any time. The Company shall assume all
obligations and liability under Section 4980B of the Code with respect to the
Company's current and former employees and their qualified beneficiaries where
such
-28-
<PAGE>
employees' or qualified beneficiaries' initial qualifying event occurs on
or prior to the Closing Date. The Company shall be responsible for any notices
or other obligations required in connection with the termination of any
employees' employment hereunder.
-29-
<PAGE>
5.4. Conduct of Business Pending Closing. From the date of this Agreement
-----------------------------------
to the Closing Date:
(a) Except as otherwise contemplated by this Agreement, or as Iconixx
may otherwise consent to in writing, the Company and the Majority Shareholders
shall conduct the Business only in the ordinary course and shall not engage in
any Material transactions or enter into any Material transaction which would
cause a breach of the representations and warranties contained in Article III.
-----------
(b) The Majority Shareholders and the Company shall use their
commercially reasonable best efforts to cause the Business to preserve
substantially intact its current business organization and present relationships
with its customers, vendors, suppliers and employees and to maintain all of its
insurance currently in effect.
(c) The Majority Shareholders and the Company shall give prompt notice
to Iconixx of any notice of any Material default received by the Company or the
Business subsequent to the date of this Agreement under any Contract or any
Material Adverse Change occurring prior to the Closing Date in the operation of
the Company or the Business.
(d) Neither the Company nor the Majority Shareholders, nor any of
their representatives, shall solicit, encourage or discuss any Acquisition
Proposal (as hereinafter defined) or supply any non-public information
concerning the Company or the Business or the Company's assets to any party
other than Iconixx or its representatives. As used herein, "Acquisition
Proposal" means any proposal other than the Acquisition, for (i) any merger or
other business combination involving the Company or the Business, (ii) the
acquisition of the Company, a material equity interest in the Company or a
material portion of its assets, or (iii) the dissolution or liquidation of the
Company.
5.5. Access Before Closing. Prior to the Closing Date, the Majority
---------------------
Shareholders and the Company agree that it will give, or cause to be given, to
Iconixx and its representatives, during normal business hours and at Iconixx's
expense, reasonable access to the Company's personnel, independent accountants,
officers, agents, employees, assets, properties, titles, contracts, corporate or
stock minute and other books, records, files and documents of the Company with
respect to the Business (including financial, tax basis, budget projections,
accountants' work papers and other information as Iconixx may reasonably
request) upon 24 hours prior notice. The Majority Shareholders and Iconixx shall
mutually agree on the timing and manner of contact with all third parties,
including, but not limited to, customers, vendors or suppliers, which contact
shall not be unreasonably withheld. Iconixx shall not be given access to any
information where the provision of such information would violate a law or
regulation applicable to the Company.
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<PAGE>
ARTICLE VI
POST-CLOSING COVENANTS
6.1. General. In case at any time after the Closing any further action is
-------
legally necessary or reasonably desirable (as determined by Iconixx and the
Majority Shareholders) 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 Article VIII
------------
below). The Majority Shareholders 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 the Company
(other than tax or general corporate or stock records or other Excluded Assets),
which shall be maintained at the chief executive office of the Buyer; provided,
however, that the Majority Shareholders shall be entitled to reasonable access
to and to make copies of such books and records at their sole cost and expense
and the Buyer will maintain all of the same for a period of at least three (3)
years after Closing. Thereafter, the Buyer will offer such documentation to the
Majority Shareholders before disposal thereof. The Sellers further agree to
convey all rights to any Intellectual Property reasonably related to the
Business to the Buyer.
6.2. Transition. For a period of three (3) years following Closing, the
----------
Majority Shareholders will not take any action (or cause any such action to be
taken by another Person) that primarily has the effect of discouraging any
vendor, lessor, licensor, customer, contractor, subcontractor, supplier, or
other business associate of the Company from maintaining the same business
relations with the Buyer after the Closing as it maintained with the Company
prior to the Closing. For a period of three (3) years following Closing, the
Majority Shareholders will refer all customer inquiries relating to the Business
to the Buyer.
6.3. Confidentiality. The Majority Shareholders will treat and hold in
---------------
confidence and not disclose all Confidential Information and refrain from using
any of the Confidential Information except in connection with this Agreement or
otherwise for the benefit of the Company, Buyer or Iconixx for a period of four
(4) years from the date of this Agreement, and deliver promptly to Iconixx or
destroy, at the written request and option of Iconixx, all tangible embodiments
(and all copies) of the Confidential Information which are in their possession
except as otherwise permitted herein. In the event that any Majority Shareholder
is requested or required (by oral question or written request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar legal proceeding) to disclose any Confidential Information,
such Majority Shareholder will notify the Buyer and Iconixx promptly of the
request or requirement.
6.4. Timothy Meinhardt Covenant Not to Compete. For and in consideration of
-----------------------------------------
the allocation of $25,000 of the Purchase Price paid to the Company, Timothy
Meinhardt covenants and agrees, for a period of 18 months from and after the
Closing Date, that he will not, directly or indirectly without the prior written
consent of the Buyer, for or on behalf of any entity, engage in any of the
activities prohibited by the Consulting and Non-Compete
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<PAGE>
Agreement in the form of Exhibit F-2 hereto; provided, however, that Timothy
-----------
Meinhardt may (i) own less than five percent (5%) of the outstanding stock of
any publicly-traded corporation and same shall not be deemed to be in a
violation of this Section 6.4 solely by reason thereof, or (ii) engage in those
-----------
activities permitted by his Consulting and Non-Compete Agreement.
6.5. Christopher Clark Employment and Covenant Not to Compete. For and in
--------------------------------------------------------
consideration of the allocation of $25,000 of the Purchase Price paid to Seller
by Buyer, Seller and Christopher Clark each covenants and agrees, for a period
of three (3) years from and after the Closing Date, that he will not, directly
or indirectly without the prior written consent of Buyer, for or on behalf of
any entity or Affiliate:
(a) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the Business in competition with Buyer or any of its
Affiliates, in respect of customers in the United States;
(b) enter into any agreement with, service, assist or solicit the
business of any customers of Buyer or any of its Affiliates for the purpose of
providing any services in the Business to such customers in competition with the
Business or similar businesses conducted by Buyer or such Affiliates in respect
of customers in the United States or to cause them to reduce or end their
business with Buyer;
(c) hire, retain, or solicit the employment or services of employees,
consultants or representatives of Buyer or any of its Affiliates for the purpose
of causing them to leave the employment of Buyer or such Affiliates; or
(d) take any action (or cause any such action to be taken by another
Person) that primarily is designed or intended to have the effect of
discouraging any vendor (including without limitation any software company),
lessor, licensor, customer, supplier, or other business associate of the
Business from maintaining the same business relations with Buyer after the
Closing as it maintained with Seller prior to the Closing;
provided, however, that Christopher Clark may own less than five percent
(5%) of the outstanding stock of any publicly-traded corporation and same shall
not be deemed to be in a violation of this Section 6.5 solely by reason thereof,
-----------
further provided that Christopher Clark may (i) own stock in, and serve as a
director of IIS Systems, Inc., and (ii) own a controlling membership interest in
Pizza.com, L.L.C., without breaching any obligation hereunder.
6.6. Access to Records After Closing. After the Closing Date, Buyer on the
-------------------------------
one hand and Seller and the Majority Shareholders on the other agree that they
will give, or cause to be given, to the other party, its successors and its
representatives, during normal business hours and at the requesting party's
expense, such reasonable access to the properties, titles, contracts, books,
records, files and documents (but excluding attorney work product or other
privileged
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<PAGE>
communications) of Buyer (to the extent Buyer's records are the records,
materials and data transferred to Buyer from Seller pursuant to this Agreement)
or Seller, as the case may be, as is reasonably necessary to allow the
requesting party to obtain information in the other party's possession with
respect to any claims, demands, audits, suits or matters of a similar nature
made by or against the requesting party as the previous or new owner and
operator of the Business, as the case may be, and to make copies of such
information to the extent reasonably necessary. Buyer agrees that it will not
dispose of or destroy any of such records for five (5) years after the Closing
Date without first offering to turn over possession thereof to Seller and
Majority Shareholder by written notice to Seller and Majority Shareholder at
least 30 days prior to the proposed date of any such disposition or destruction.
6.7. Assignment of Contracts. Anything in this Agreement to the contrary
-----------------------
notwithstanding, this Agreement shall not constitute an agreement to assign or
otherwise transfer any Contract or any rights thereunder, if an attempted
assignment or transfer thereof would constitute a breach thereof, would be
ineffective or would violate any applicable law without the consent of a third
party to such assignment or transfer. Until such consent or waiver has been
obtained, Buyer shall make all reasonable efforts to perform in Seller's name
all of Seller's obligations under any such Contract for which any such consent
has not been obtained. Seller shall cooperate with Buyer in any reasonable
arrangement designed to provide for Buyer all of the benefits, and to have Buyer
assume the burdens, liabilities, obligations and expenses under all such
Contracts. At Buyer's request, Seller shall, at Buyer's sole cost and expense,
take all reasonable efforts requested by Buyer to enforce, for the benefit of
Buyer, any and all rights of Seller under any such Contract not otherwise
transferred pursuant to the provisions of this Agreement. Seller hereby
authorizes Buyer to perform and Buyer hereby agrees to perform all of Seller's
obligations after the Closing under all such contracts. Seller agrees to remit
promptly to Buyer all collections or payments received by Seller in respect of
all such Contracts, and shall hold all such collections or payments for the
benefit of, and promptly pay the same over to, Buyer; provided, however, that
nothing herein shall create or provide any rights or benefits in or to third
parties.
6.8. Change of Name. Seller agrees to promptly change its name following
--------------
the Closing to a name which does not contain the words "Internet Information
Services" or any variations thereof.
6.9. Litigation Support. In the event and for so long as any party is
------------------
actively contesting or defending against any claim, suit, action or charge,
complaint, or demand in connection with (i) any transaction contemplated under
this Agreement or (ii) any fact, circumstance, status, condition, activity,
practice, occurrence, event, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, Buyer or the Business, each of the
other parties will cooperate and make reasonably available themselves or their
personnel, as applicable, and provide such reasonable testimony and access to
their books and records as shall be necessary in connection with the contest or
defense.
6.10. Audits. Following the Closing, the Majority Shareholders shall use
------
their best efforts to cause the Company, at the Buyer's expense, to deliver, or
cause to be delivered, to
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<PAGE>
Iconixx an unqualified and unmodified audit report of Arthur Andersen, L.L.P. or
other reputable independent accounting firm on the balance sheet of the Company
as of the Closing Date in connection with the preparation of the Audited Closing
Financial Statements and audited statements of operations and cash flows of the
Company with respect to the periods January 1, 2000 through the Closing Date and
for any prior fiscal years in 1999, 1998 and 1997, which reports shall be
without limitation as to the scope of the audit. The Majority Shareholders, in
their capacities as officers and directors of the Company during such periods,
shall provide all management letters, reports or representations reasonably
requested by such auditors in connection with such audits.
6.11. Minimum Cash as of the Closing. At the Closing, the Company shall
------------------------------
maintain a level of cash and cash equivalents equal to at least $50,000. The
Purchase Price payable at Closing will be reduced by the amount by which the
Company's cash and cash equivalents are less than $50,000 at Closing (the
"Minimum Cash Deficit"). The above adjustment is in addition to, and not
included in, any downward adjustment made at Closing pursuant to Section 2.9.
-----------
The parties agree that in no event will a Minimum Cash Deficit result in any
upward adjustment pursuant to Section 2.9.
-----------
6.12. Iconixx's Stock Options. At or shortly following the Closing, Iconixx
-----------------------
will grant stock options for the purchase of Common Stock under its stock option
plan in the aggregate amount of 300,000 shares to certain employees of the
Company who accept employment with the Buyer at Closing. The Iconixx stock
options shall be exercisable at the fair market value per share of the Common
Stock on the date of grant as reasonably determined by Iconixx. The terms of
such stock options shall generally be for ten years from the date of grant,
subject to Iconixx's customary four year annual vesting requirements, and shall
otherwise be on the same terms and conditions applicable to all stock options
granted to key executives and employees of Iconixx and its subsidiaries.
6.13. Disposition of Company Benefit Plans.
------------------------------------
(a) The Company's 401(k) plan shall be an Excluded Asset hereunder and
not assumed by Buyer.
(b) The Company's cafeteria plan that permits employees to pay health
insurance premiums and to pay medical expenses on a pre-tax basis shall be an
Excluded Asset hereunder and not assumed by Buyer.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING
7.1. Conditions to Iconixx's and Buyer's Obligations. The obligation of
-----------------------------------------------
Iconixx and Buyer under this Agreement to consummate the Closing is subject to
the conditions that:
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<PAGE>
(a) Covenants, Representations and Warranties. The Company and the
-----------------------------------------
Majority Shareholders shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by each
of them prior to or at the Closing Date. The representations and warranties of
the Company and the Majority Shareholders set forth in this Agreement shall be
accurate in all material respects at and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date.
(b) Consents. All statutory requirements for the valid consummation by
--------
the Company and the Majority Shareholders of the Acquisition shall have been
fulfilled and all required authorizations, consents and approvals, including
those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation of the Acquisition shall have been obtained in form and substance
reasonably satisfactory to Iconixx unless such failure could not reasonably be
expected to have a Material Adverse Effect. All approvals of the Board of
Directors and the Majority Shareholders of the Company necessary for the
consummation of this Agreement and the Acquisition shall have been obtained.
(c) Leases. Each of the material Leases shall provide that the Company
------
is the lessee and if required under the terms of a given lease, any consent
required in connection with the Acquisition contemplated by this Agreement shall
have been obtained, and copies of such Leases (and any assignments pursuant to
which any of such Leases have been assigned to the Buyer prior to the Closing
Date) shall have been provided to Iconixx.
(d) Discharge of Indebtedness and Liens; Majority Shareholder Loans.
---------------------------------------------------------------
The Majority Shareholders and the Company shall have provided for the payment in
full by the Company of all Funded Indebtedness of the Company at the Closing or
the Purchase Price will be reduced proportionately by the amount that such
Funded Indebtedness exceeds $0 as of the Closing Date. Such Funded Indebtedness,
if any, as of December 31, 1999, is listed on Schedule 7.1(d) hereto. The
---------------
Company shall have also provided for the termination of all Encumbrances of
record on the properties of the Company or the Business, except for Permitted
Exceptions. All liens or UCC filings against the Company or Affiliates of the
Company which are engaged in the Business, shall have been terminated as of the
Closing.
(e) Transfer Taxes. The Company and Majority Shareholders shall be
--------------
responsible for all transfer or gains taxes imposed on the shareholders incurred
in connection with this Agreement.
(f) Documents to be Delivered by the Majority Shareholders and the
--------------------------------------------------------------
Company. The following documents shall be delivered at the Closing by the
- -------
Majority Shareholders and the Company:
(i) Escrow Agreement. The Majority Shareholders and the Company
----------------
shall have delivered to Iconixx and Buyer at the Closing the duly
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<PAGE>
executed Escrow Agreement in substantially the form attached hereto as
Exhibit A.
---------
(ii) Opinion of the Company's and the Majority Shareholders'
-------------------------------------------------------
Counsel. Iconixx and Buyer shall have received an opinion of counsel
-------
to the Company and the Majority Shareholders, dated the Closing Date,
in substantially the same form as the form of opinion that is Exhibit
-------
G hereto.
-
(iii) Certificates. Iconixx and Buyer shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated the Closing Date, in a form
mutually agreed upon by Iconixx and the Majority Shareholders.
(iv) Conveyance Documents. Such instruments of sale, transfer,
--------------------
assignment, conveyance and delivery (including all vehicle titles), in
form and substance reasonably satisfactory to counsel for Buyer
(including, without limitation, the General Assignment, Bill of Sale
and Assumption Agreement in substantially the form attached hereto as
Exhibit B (the "Bill of Sale, Assignment and Assumption Agreement"),
---------
as are required in order to transfer to Buyer good and marketable
title to the Purchased Assets, free and clear of all liens, charges,
security interests and other encumbrances except as provided herein.
(v) Resolutions. A certified copy of resolutions of Seller's
-----------
Board of Directors authorizing the execution, delivery and
consummation of this Agreement and the transactions contemplated
hereby.
(vi) UCC Matters. UCC termination statements and other applicable
-----------
documentation necessary to release any interest of any third party in
the Purchased Assets.
(vii) Clark and Meinhardt Agreements. Christopher Clark shall have
------------------------------
duly executed and delivered the Employment Agreement in substantially
the same form attached as Exhibit F-1 hereto, pursuant to which he
-----------
will be employed by the Buyer following the Closing. Timothy Meinhardt
shall have duly executed and delivered the Noncompete Agreement in
substantially the form attached as Exhibit F-2 hereto.
-----------
(g) Iconixx Equity Arrangements. Joinders to the Equity Agreements
---------------------------
shall have been executed and delivered by the Company.
(h) Financing. Iconixx shall have obtained the approval of its senior
---------
lenders to the Acquisition.
7.2. Conditions to the Majority Shareholders' and the Company's
----------------------------------------------------------
Obligations. The obligation of the Majority Shareholders and the Company under
- -----------
this Agreement to consummate the Closing is subject to the conditions that:
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<PAGE>
(a) Covenants, Representations and Warranties. Iconixx and Buyer shall
-----------------------------------------
have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Iconixx and/or Buyer prior to or at the
Closing and the representations and warranties of Iconixx and Buyer set forth in
Article IV hereof shall be accurate in all material respects, at and as of the
- ----------
Closing Date, with the same force and effect as though made on and as of the
Closing Date.
(b) Consents. All statutory requirements for the valid consummation by
--------
Iconixx and Buyer of the Acquisition shall have been fulfilled and all required
authorizations, consents and approvals, including those of all federal, state,
local and foreign governmental agencies and regulatory authorities required to
be obtained in order to permit the consummation by Iconixx or Buyer of the
Acquisition shall have been obtained unless such failure shall not have a
Material Adverse Effect on the Business.
(c) Documents to be Delivered by Iconixx and Buyer. The following
----------------------------------------------
documents shall be delivered at the Closing by Iconixx and Buyer:
(i) Escrow Agreement. Iconixx and Buyer shall have delivered to
----------------
the Majority Shareholders at the Closing the duly executed Escrow
Agreement.
(ii) Employment Agreements. Iconixx shall have caused the Buyer
---------------------
to duly execute and deliver an Employment Agreement with Christopher Clark
in substantially the same form attached as Exhibit F-1 hereto, pursuant to
-----------
which Mr. Clark will be employed by the Buyer following the Closing.
(iii) Certificates. Iconixx and Buyer shall have delivered an
------------
officer's certificate and a secretary's certificate of Iconixx and Buyer
executed by officers of Iconixx and Buyer, dated the Closing Date, in a
form mutually agreed upon by Iconixx and the Majority Shareholders.
(d) Company Equity Arrangements. The Equity Agreements shall have been
---------------------------
executed and delivered by the respective parties thereto.
(e) Payments to the Seller. The Seller shall have received the
----------------------
Purchase Price payable at Closing for the Purchased Assets.
(f) Opinion of Counsel for Iconixx and Buyer. The Company and the
----------------------------------------
Majority Shareholders shall have received an opinion of counsel for Iconixx and
Buyer dated as of the Closing Date in substantially the same form as Exhibit H
hereto.
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<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification by the Majority Shareholders. Except as provided in
--------------------------------------------
Section 8.6, the Company and the Majority Shareholders agree to jointly and
- -----------
severally indemnify and hold harmless Iconixx and the Buyer and each officer,
director, and Affiliate of Iconixx and the Buyer, including, without limitation,
First Union Bank, N.A. and Bank of America, N.A. and their successors and
assigns, and any successor of the Buyer or Iconixx as provided in Section 10.5
------------
hereof (collectively, the "Indemnified Parties") from and against any and all
damages, losses, claims, liabilities, demands, charges, suits, penalties, costs
and expenses (including court costs and reasonable attorneys' fees and expenses
incurred in investigating and preparing for any litigation or proceeding)
(collectively, the "Indemnifiable Costs"), which any of the Indemnified Parties
may sustain, or to which any of the Indemnified Parties may be subjected,
arising out of (A) any misrepresentation, breach or default by the Majority
Shareholders or the Company of or under any of the representations, covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith; (B) any downward Net Working Capital Adjustment
not paid to the Buyer pursuant to a reduction of the Escrow Sum; (C) cost of any
brokerage or other transaction fees liability, if any, owed to the Updata
Capital, Inc.; (D) any customer claims involving pre-Closing services or
products of the Company for breach of warranty, product liability or customer
service remediation, including claims for consequential damages, to the extent
not reserved for in the Company's Financial Statements; (E) any Excluded
Liabilities (including, without limitation, any liability arising out of any
matter disclosed in Schedule 3.16 hereto); and (F) any failure of the Company to
-------------
obtain any landlord or customer or supplier consents to the Acquisition
contemplated hereby required under the terms of any leases of the Company's real
property or any Contracts.
8.2. Defense of Claims. If any legal proceeding shall be instituted, or any
-----------------
claim or demand made by a third Person, against any Indemnified Party in respect
of which the Majority Shareholders or the Company may be liable hereunder, such
Indemnified Party shall give prompt written notice thereof to the Company and
the Majority Shareholders and, except as otherwise provided in Section 8.4
-----------
below, the Majority Shareholders shall have the right to defend at their expense
any litigation, action, suit, demand, or claim for which an Indemnified Party
may seek indemnifications, and such Indemnified Party shall extend reasonable
cooperation in connection with such defense, and the Majority Shareholders shall
incur any actual out-of-pocket expenses of the Indemnified Party reasonably
incurred in connection with such cooperation. In the event the Majority
Shareholders fail or refuse to defend the same within a reasonable length of
time, the Indemnified Parties shall be entitled to assume the defense thereof,
and the Majority Shareholders shall be jointly and severally liable to repay the
Indemnified Parties for all reasonably incurred Indemnifiable Costs. If the
Majority Shareholders shall not have the right to assume the defense of any
litigation, action, suit, demand, or claim in accordance with the preceding
sentence, the Indemnified Parties shall, at the Majority Shareholders' expense,
have the absolute right to control the defense of such litigation,
action, suit, demand, or claim, but the Majority Shareholders shall be entitled,
at their own expense, to participate in such litigation,
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<PAGE>
action, suit, demand, or claim. The party controlling any defense pursuant to
this Section 8.2 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
any such litigation, action, suit, demand or claim, and timely notice of any
hearing or other court proceeding relating to such litigation, action, suit,
demand or claim. Notwithstanding the forgoing, in no event will the party
controlling any defense pursuant to this Section 8.2 settle any litigation,
-----------
action, suit, demand or claim without the prior written consent of the non-
controlling party, such consent not to be unreasonably withheld, conditioned, or
delayed unless such settlement provides for the unqualified, absolute and
complete release of all claims against the non-controlling party and results in
no monetary or equitable liability to the non-controlling party.
8.3. Escrow Claim. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
------------
Escrow Period, such Indemnified Party shall first apply to the Escrow Agent
provided in Section 2.7 of this Agreement for reimbursement of such claim in
-----------
accordance with the provisions of the Escrow Agreement provided, however, the
Escrow Sum is not intended to be an exclusive remedy in the event Iconixx or the
Buyer has indemnification claims hereunder which exceed such amount. In the
event that the Iconixx claims against the Escrow Sum exceed the amount of any
Indemnifiable Costs (as finally determined), Iconixx shall be responsible to the
Majority Shareholders for such sums which should not have been subject to such
claim, together with interest earned on the Escrow Sum, if any.
8.4. Tax Audits, Etc. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, the Majority Shareholders and the
------------
Company shall jointly control any and all such audits which may result in the
assessment of additional Taxes against the Company or Buyer and any and all
subsequent proceedings in connection therewith, including appeals. The Majority
Shareholders and Iconixx shall cooperate fully in all matters relating to any
such audit or other Tax proceeding (including according access to all records
pertaining thereto), and will execute and file any and all consents, powers of
attorney, and other documents as shall be reasonably necessary in connection
therewith. If additional Taxes are payable by Buyer for which it is entitled to
indemnification hereunder, as a result of any such audit or other proceeding,
the Majority Shareholders shall be severally responsible for and shall promptly
pay all Taxes, interest, and penalties for which any of the Indemnified Parties
shall be entitled to indemnification.
8.5. Indemnification of Majority Shareholders. Iconixx and Buyer agree to
----------------------------------------
jointly and severally indemnify and hold harmless the Majority Shareholders and
the Company and each officer, director, shareholder or Affiliate of the Company,
from and against any Indemnifiable Costs arising out of any misrepresentation,
breach or default by Iconixx or Buyer of or under any of the representations,
covenants, agreements or other provisions of this Agreement or any agreement or
document executed in connection herewith.
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<PAGE>
8.6. Limits on Indemnification. All Indemnifiable Costs sought by any party
-------------------------
hereunder shall be net of any insurance proceeds received by such Person with
respect to such claim (less the present value of any premium increases occurring
as a result of such claim). Except for any claims for breach of the
representations, warranties and covenants of the Company and the Majority
Shareholders under Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.14, 3.17 or Article VI
-------- --- --- --- --- --- ---- ---- ----------
hereof (the indemnification for which shall expire on the expiration of the
applicable statute of limitations or, in the case of covenants in Article VI
----------
which have a specific expiration date, as of such date, and if so made, such
claims, and all Indemnifiable Costs incurred thereafter, shall continue after
such date until finally resolved), the right to make claims for indemnification
provided under this Article VIII (other than claims for Excluded Liabilities or
------------
for claims for breaches of covenants) shall expire on the second anniversary of
the Closing Date (except for any claims for Indemnifiable Costs made prior to
such date which claims shall continue after such date until finally resolved).
The Majority Shareholders shall not be obligated to pay any amounts for
indemnification under this Article VIII until the aggregate indemnification
------------
obligation sought by Iconixx or Buyer hereunder exceeds $60,000, whereupon the
Majority Shareholders shall be liable for all amounts for which indemnification
may be sought. The Company and the Majority Shareholders shall be jointly and
severally liable for all indemnification claims of Iconixx or Buyer, provided,
however, that in the absence of fraud by a Majority Shareholder, such Majority
Shareholder's aggregate indemnification of Iconixx or Buyer shall be limited to
his, her or its proportionate share of the Purchase Price. Neither Iconixx nor
the Buyer shall be obligated to pay any amounts for indemnification under this
Article VIII until the aggregate indemnification obligation sought by the
- ------------
Majority Shareholders and the Company hereunder exceeds $60,000, whereupon
Iconixx and the Buyer shall be liable for all amounts for which indemnification
may be sought. Notwithstanding the foregoing, in no event shall the aggregate
liability of (A) Iconixx or Buyer to the Majority Shareholders and the Company
for breach of representations and warranties under Article IV exceed $3,000,000;
----------
and (B) the Majority Shareholders and the Company to Iconixx or Buyer for breach
of representations and warranties exceed $13,000,000; provided, however, that
such amount under this clause (B) shall be reduced to $6,500,000 for all claims
made on or after 60 days after the final completion of the audit of the Buyer's
financial statements for the fiscal year ending December 31, 2000.
Notwithstanding the foregoing, the indemnity limitations contained in the
preceding sentence shall not include and shall not limit any claims for the
breaching of the representations and warranties of the Company and Majority
Shareholders under Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.12 (to the extent
------------ --- --- --- --- --- ----
such claims relate to OSHA violations), 3.14 and 3.17 or any breach of Sections
---- ---- --------
8.1(B) or (E), all of which claims together shall not exceed the Purchase Price.
- ------ ---
However nothing in this Article VIII shall limit Iconixx, Buyer, the Company or
------------
the Majority Shareholders in exercising or securing any remedies provided by
applicable statutory or common law with respect to the fraudulent conduct of the
Company, Majority Shareholders, Buyer or Iconixx in connection with this
Agreement or in the amount of damages that it can recover from the other in the
event that Iconixx or the Majority Shareholders successfully prove intentional
fraud or intentional fraudulent conduct in connection with this Agreement. Other
than as set forth in the preceding sentence, the indemnification provided for in
this Section VIII is intended to be the exclusive monetary remedy of Iconixx,
------------
Buyer, the Company or the Majority Shareholders with regard to the Acquisition
contemplated by this Agreement.
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<PAGE>
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated at any time prior to the
-----------
Closing:
(a) by the mutual written consent of all parties hereto;
(b) in writing by Iconixx and the Buyer, if the Company or any of the
Majority Shareholders has breached in any material respect any representation,
warranty or covenant contained in this Agreement, and in each case such breach
has not been remedied within fifteen (15) business days after receipt of written
notice specifying such breach and demanding such breach to be remedied; or
(c) in writing by the Majority Shareholders and the Company, if
Iconixx or the buyer has breached in any material respect any representation,
warranty or covenant contained in this Agreement, and in each case such breach
has not been remedied within fifteen (15) business days after receipt of written
notice specifying such breach and demanding such breach to be remedied; or
(d) in writing by the Majority Shareholders and the Company, on the
one hand, or Iconixx and the Buyer, on the other hand, in the event the Closing
has not occurred on or before March 31, 2000, unless the failure of such
consummation or the failure to satisfy such condition, as applicable, shall be
due to a breach of any representation or warranty made by the party or parties
seeking to terminate this Agreement or the failure of such party or parties to
comply in all material respects with the agreements and covenants contained
herein to be performed by such party or parties.
9.2. Effect of Termination. If the Acquisition is terminated pursuant to
---------------------
Section 9.1 by notice in writing to the non-terminating party or parties, this
- -----------
Agreement shall become void and of no further force and effect, except that (a)
such termination shall not relieve (i) any party from its covenants in respect
of confidentiality contained in Section 6.3 and (ii) any party then in breach of
-----------
any representation, warranty, covenant or agreement contained in this Agreement
from liability in respect of such breach and (b) Sections 10.4 and 10.7 shall
------------- ----
survive termination of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1. Modifications. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any
-41-
<PAGE>
subsequent or other default. No single or partial exercise of any such right,
power or privilege shall preclude the further or full exercise thereof.
10.2. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given when personally delivered,
or 48 hours after deposited in the United States mail, first-class, postage
prepaid, or by facsimile addressed to the respective parties hereto as follows:
Iconixx or Buyer:
----------------
Iconixx Corporation
8300 Boone Boulevard
Suite 250
Vienna, VA 22182
Attention: Graham B. Perkins
Jason H. Levine
Fax No.: (703) 790-9033
Tel No.: (703) 790-9008
With a copy to:
--------------
Thayer Equity Investors IV, L.P.
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D.C. 20004
Attention: Robert Michalik
Fax No.: (202) 371-0391
Tel No.: (202) 371-0150
and to:
------
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Attention: Christopher J. Hagan, Esq.
Fax No.: (202) 637-5910
Tel No.: (202) 637-5600
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<PAGE>
The Company or the Majority Shareholders:
----------------------------------------
c/o Internet Information Services, Inc.
7979 Old Georgetown Road
Second Floor
Bethesda, MD 20814
Attention: Christopher Clark
Fax No.: (301) 718-2944
Tel No.: (301) 718-1770
With a copy to:
--------------
Simon, Turnbull & Martin
2000 Pennsylvania Avenue, N.W.
Suite 4600
Washington, D.C. 20006-1812
Attention: Jeffrey L. Squires, Esq.
Fax No.: (202) 785-2273
Tel No.: (202) 785-2202
and to:
------
Reed Smith Shaw & McClay
Suite 1100 East Tower
1301 K Street, N.W.
Washington, D.C. 20005
Attention: Douglas Spaulding, Esq.
Fax No.: (202) 414-9299
Tel No.: (202) 414-9200
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
10.3. Counterparts; Facsimile Transmission. This Agreement may be executed
------------------------------------
in several counterparts, each of which shall be deemed an original but all of
which counterparts collectively shall constitute one instrument, and in making
proof of this Agreement, it shall never be necessary to produce or account for
more than one such counterpart. Signatures of a party to this Agreement or other
documents executed in connection herewith which are sent to the other parties by
facsimile transmission shall be binding as evidence of acceptance of the terms
hereof or thereof by such signatory party, with originals to be circulated to
the other parties in due course.
10.4. Expenses. Each of the parties hereto will bear all costs, charges and
--------
expenses incurred by such party in connection with this Agreement and the
consummation of the
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<PAGE>
Acquisition, provided, however, that the Majority Shareholders shall bear
all costs and expenses of (i) any broker involved in this transaction on behalf
of the Majority Shareholders or the Company and (ii) all legal and other
expenses of the Majority Shareholders or the Company with respect to this
Agreement and the Acquisition; provided, however, that the Company may bear such
costs so long as no Net Working Capital Adjustment or Minimum Cash deficit would
occur.
10.5. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Company, Iconixx, Buyer and the Majority
Shareholders, their heirs, representatives, successors, and permitted assigns,
in accordance with the terms hereof. This Agreement shall not be assignable by
the Company or the Majority Shareholders without the prior written consent of
Iconixx. This Agreement shall be assignable by Iconixx and/or the Buyer to
either (a) any lender providing financing to Iconixx or the Buyer (but only with
respect to Iconixx's or Buyer's rights under Article II and Article VIII hereof)
---------- ------------
or (b) any Affiliate of Iconixx, provided Iconixx remains liable, in each case
without the prior written consent of the Majority Shareholders. In addition,
following the Closing, Iconixx or the Buyer may assign any or all of its rights
hereunder, without the consent of the Majority Shareholders, in connection with
any sale of all or substantially all of the assets, capital stock, partnership
interests or business of the Buyer or Iconixx (whether effected by sale,
exchange, merger, consolidation or other transaction) and provided the acquiring
party shall assume all of Iconixx's or the Buyer's obligations hereunder.
10.6. Entire and Sole Agreement. This Agreement and the other schedules and
-------------------------
agreements referred to herein, constitute the entire agreement between the
parties hereto and supersede all prior agreements, representations, warranties,
statements, promises, information, arrangements and understandings, whether oral
or written, express or implied, with respect to the subject matter hereof.
10.7. Governing Law. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Maryland, without giving effect to the principles of conflicts of laws
thereof.
10.8. Survival of Representations, Warranties and Covenants. Regardless of
-----------------------------------------------------
any investigation at any time made by or on behalf of any party hereto or of any
information any party may have in respect thereof, all covenants, agreements,
representations, and warranties and the related indemnities made hereunder or
pursuant hereto or in connection with the Acquisition shall survive the Closing
for a period ending on the second anniversary of the Closing Date, provided that
(a) the representations and warranties contained in Section 3.14 and Section
------------ -------
3.17 of this Agreement, and the related indemnities, shall survive the Closing
- ----
until the expiration of the applicable statutes of limitations for determining
or contesting Tax liabilities including any extension of such periods plus sixty
(60) days, (b) the representations, warranties and covenants contained in
Sections 3.1, 3.2, 3.3, 3.4, 3.5, and 3.6 and Sections 4.1, 4.2, 4.5 and 4.6 and
- ------------ --- --- --- --- --- -------- --- --- --- ---
the indemnities contained in Sections 8.1(C) and 8.1(E), and 8.5 of this
--------------- ------ ---
Agreement, and the related indemnities, shall survive the Closing indefinitely
and not expire, (c) all covenants in this Agreement which have an expiration
date contained therein shall expire as of such date and
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<PAGE>
(d) all other covenants in this Agreement which do not have an expiration date
shall expire upon the expiration of the applicable statutes of limitation.
10.9. Invalid Provisions. If any provision of this Agreement is deemed or
------------------
held to be illegal, invalid or unenforceable, this Agreement shall be considered
divisible and inoperative as to such provision to the extent it is deemed to be
illegal, invalid or unenforceable, and in all other respects this Agreement
shall remain in full force and effect; provided, however, that if any provision
of this Agreement is deemed or held to be illegal, invalid or unenforceable
there shall be added hereto automatically a provision as similar as possible to
such illegal, invalid or unenforceable provision and be legal, valid and
enforceable. Further, should any provision contained in this Agreement ever be
reformed or rewritten by any judicial body of competent jurisdiction, such
provision as so reformed or rewritten shall be binding upon all parties hereto.
10.10. Public Announcements. Neither the Majority Shareholders nor the
--------------------
Company (pre-Closing) shall make any public announcement of the Acquisition
without the prior written consent of Iconixx, which consent shall not be
unreasonably withheld.
10.11. Remedies Cumulative. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
10.12. Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
10.13. No Strict Construction. The parties hereto have participated jointly
----------------------
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
10.14. Disclosure Schedules. An item disclosed in any part of the
--------------------
Disclosure Schedules attached hereto shall be deemed disclosed in response to
other applicable Disclosure Schedules sections to the extent such disclosure is
either expressly cross-referenced therein or such disclosure is clearly evident
and, in the mind of a reasonable buyer, such disclosure would, based on the
description of such disclosure, clearly relate to such other section of the
Disclosure Schedule.
-45-
<PAGE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-46-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date and year first above written.
THE COMPANY:
-----------
INTERNET INFORMATION SERVICES, INC.
By: /s/ Christopher Clark
-----------------------------------------------
Christopher Clark
President and Chief Executive Officer
MAJORITY SHAREHOLDERS:
---------------------
/s/ Christopher Clark
-----------------------------------------------------
Christopher Clark
/s/ Timothy I. Meinhardt
-----------------------------------------------------
Timothy I. Meinhardt
BUYER:
-----
ICONIXX WEB DEVELOPMENT, INC.
By: /s/ Jason H. Levine
-----------------------------------------------
Name: Jason H. Levine
Title: Vice President and Assistant Secretary
ICONIXX:
-------
ICONIXX CORPORATION
By: /s/ Graham B. Perkins
-----------------------------------------------
Name: Graham B. Perkins
Title: Vice President and Secretary
-47-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Iconixx Corporate Services
Iconixx Systems Engineering, Inc.
Iconixx Web Development, Inc.
Iconixx - Houston, Inc.
Iconixx - New York, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Vienna, Virginia
May 11, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,639
<SECURITIES> 0
<RECEIVABLES> 11,019
<ALLOWANCES> (802)
<INVENTORY> 0
<CURRENT-ASSETS> 16,259
<PP&E> 3,975
<DEPRECIATION> 153
<TOTAL-ASSETS> 102,853
<CURRENT-LIABILITIES> 10,669
<BONDS> 0
92,846
0
<COMMON> 589
<OTHER-SE> (21,401)
<TOTAL-LIABILITY-AND-EQUITY> 102,853
<SALES> 14,026
<TOTAL-REVENUES> 14,026
<CGS> 0
<TOTAL-COSTS> 9,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256
<INCOME-PRETAX> (4,144)
<INCOME-TAX> (371)
<INCOME-CONTINUING> (3,773)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,773)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
