Exhibit 2
ASSET PURCHASE AGREEMENT
By and Among
PERITUS SOFTWARE SERVICES, INC.
and
TWOQUAY, INC.
AND
AMERICAN PREMIER UNDERWRITERS, INC.
and
MILLENNIUM DYNAMICS, INC.
TABLE OF CONTENTS
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Section Page
1. Merger of MDI and the Seller; Sale and Delivery of the Assets.... 1
1.1 Merger of MDI and the Seller.............................. 1
1.2 Delivery of the Assets.................................... 1
1.3 Further Assurances........................................ 3
1.4 Purchase Price............................................ 3
1.5 Assumption of Liabilities; Etc............................ 4
1.6 [Intentionally omitted]................................... 5
1.7 The Closing............................................... 5
1.8 Apportionment............................................. 5
2. Representations of the Seller Entities........................... 6
2.1 Organization.............................................. 6
2.2 Ownership of MDI.......................................... 6
2.3 Authorization............................................. 6
2.4 Ownership of the Assets................................... 7
2.5 Financial Statements...................................... 7
2.6 Absence of Undisclosed Liabilities........................ 8
2.7 Litigation................................................ 8
2.8 Insurance................................................. 8
2.9 Inventory................................................. 9
2.10 Fixed Assets.............................................. 9
2.11 Leases.................................................... 9
2.12 Change in Financial Condition and Assets.................. 10
2.13 Tax Matters............................................... 10
2.14 Accounts Receivable....................................... 11
2.15 Books and Records......................................... 11
2.16 Contracts and Commitments................................. 11
2.17 Compliance with Agreements and Laws....................... 14
2.18 Employee Relations........................................ 14
2.19 Absence of Certain Changes or Events...................... 15
2.20 Customers................................................. 16
2.21 [Intentionally omitted]................................... 16
2.22 [Intentionally omitted]................................... 16
2.23 Prepayments and Deposits.................................. 16
2.24 Intellectual Property..................................... 16
2.25 Employee Benefit Plans.................................... 20
2.26 Real Estate............................................... 20
2.27 Acquired Assets Complete.................................. 20
2.28 Regulatory Approvals...................................... 20
2.29 Indebtedness to and from Officers, Directors
and Shareholders.......................................... 20
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2.30 Powers of Attorney and Suretyships........................ 21
2.31 Investment Representation................................. 21
2.32 Disclosure................................................ 21
3. Representations of the Buyer Entities............................ 21
3.1 Organization and Authority................................ 21
3.2 Capitalization of Peritus................................. 22
3.3 Authorization............................................. 22
3.4 Reports and Financial Statements.......................... 23
3.5 Disclosure................................................ 23
3.6 No Material Adverse Change................................ 23
3.7 Nasdaq.................................................... 24
3.8 Litigation................................................ 24
3.9 Intellectual Property Rights.............................. 24
3.10 All Necessary Permits, etc................................ 24
3.11 Title to Properties....................................... 24
3.12 Tax Law Compliance........................................ 25
3.13 Peritus Not an "Investment Company."...................... 25
3.14 Insurance................................................. 25
4. Access to Information; Public Announcements...................... 25
4.1 Access to Management, Properties and Records.............. 25
4.2 Confidentiality........................................... 26
4.3 Public Announcements...................................... 26
5. Pre-Closing Covenants of the Seller.............................. 26
5.1 Conduct of Business....................................... 26
5.2 Absence of Material Changes............................... 26
5.3 Taxes..................................................... 28
5.4 Communication with Customers and Suppliers................ 29
5.5 Compliance with Laws...................................... 29
5.6 Continued Truth of Representations and Warranties
of the Seller Entities.................................... 29
5.7 Continuing Obligation to Inform........................... 29
5.8 Exclusive Dealing......................................... 29
5.9 Collection of Receivables and Borrowings Under
APU Credit Agreement...................................... 29
5.10 Merger of MDI and Seller.................................. 30
6. Best Efforts to Obtain Satisfaction of Conditions................ 30
6.1 Satisfaction of Conditions................................ 30
6.2 Xxxx-Xxxxx-Xxxxxx-Act..................................... 30
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7. Conditions to Obligations of the Buyer Entities.................. 30
7.1 Continued Truth of Representations and Warranties
of the Seller Entities; Compliance with Covenants
and Obligations........................................... 31
7.2 Corporate Proceedings..................................... 31
7.3 Governmental Approvals.................................... 31
7.4 Consents of Lenders, Lessors and Other Third Parties...... 31
7.5 Adverse Proceedings....................................... 31
7.6 Opinion of Counsel........................................ 31
7.7 [Intentionally omitted]................................... 32
7.8 The Assets................................................ 32
7.9 Update.................................................... 32
7.10 Assignment of Insurance Policies.......................... 32
7.11 [Intentionally omitted]................................... 32
7.12 Trade Payables............................................ 32
7.13 Registration Rights Waivers............................... 32
7.14 [Intentionally omitted]................................... 33
7.15 Closing Deliveries........................................ 33
7.16 Financial Statements...................................... 34
7.17 Offer of Employment by Seller Entities.................... 34
8. Conditions to Obligations of the Seller Entities................. 34
8.1 Continued Truth of Representations and Warranties
of the Buyer Entities; Compliance with Covenants
and Obligations........................................... 34
8.2 Corporate Proceedings..................................... 35
8.3 Governmental Approvals.................................... 35
8.4 Consents of Lenders, Lessors and Other Third Parties...... 35
8.5 Adverse Proceedings....................................... 35
8.6 Opinion of Counsel........................................ 35
8.7 Closing Deliveries........................................ 35
8.8 Update.................................................... 36
8.9 Selection of Director..................................... 36
8.10 Offer of Employment by Buyer Entities..................... 36
9. Indemnification.................................................. 36
9.1 By the Buyer Entities and the Seller Entities............. 36
9.2 By the Seller Entities.................................... 37
9.3 By the Buyer Entities..................................... 37
9.4 Claims for Indemnification................................ 38
9.5 Defense by Indemnifying Party............................. 38
9.6 Payment of Indemnification Obligation..................... 38
9.7 Survival of Representations; Claims for Indemnification... 39
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10. Restricted Stock........................................ 39
10.1 Restricted Shares....................................... 39
10.2 Share Legend............................................ 39
11. Post-Closing Agreements................................. 40
11.1 Proprietary Information................................. 40
11.2 No Solicitation or Hiring of Certain Employees.......... 40
11.3 Non-Competition and Non-Solicitation.................... 40
11.4 Sharing of Data......................................... 42
11.5 Use of Name............................................. 42
11.6 Cooperation in Litigation............................... 42
11.7 Repurchase of Accounts Receivable....................... 43
11.8 License................................................. 45
11.9 Affiliated Leases....................................... 45
11.10 Computer Access........................................ 45
11.11 Benefit Plan Payments.................................. 46
11.12 Bonus Payments......................................... 46
12. Election of Seller Director............................. 46
13. Termination of Agreement................................ 46
13.1 Termination by Lapse of Time............................ 46
13.2 Termination by Agreement of the Parties................. 46
13.3 Termination by Reason of Breach......................... 46
14. Transfer and Sales Tax.................................. 47
15. Brokers................................................. 47
15.1 For the Seller.......................................... 47
15.2 For the Buyer........................................... 47
16. Notices................................................. 47
17. Successors and Assigns.................................. 49
18. Entire Agreement; Amendments; Attachments............... 49
19. Expenses................................................ 49
20. Severance and Termination Payments...................... 49
21. Governing Law........................................... 50
22. Section Headings........................................ 50
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23. Severability............................................ 50
24. Counterparts............................................ 50
Schedules to be provided by the Seller
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1.2(b) - Excluded Assets
1.5 - Assumed Liabilities
2.3 - Third-Party Consents
2.4(i) - Encumbrances
2.4(ii) - Permitted Encumbrances
2.6 - Undisclosed Liabilities
2.7 - Litigation
2.8 - Insurance
2.10 - Fixed Assets
2.11 - Leases
2.12 - Changes in Financial Condition
2.13 - Tax Matters
2.14 - Accounts Receivable
2.16 - Contracts
2.17 - Permits
2.18 - Employee Relations
2.19 - Certain Changes or Events
2.20 - Customer List
2.23 - Prepayments and Deposits
2.24 - Intellectual Property
2.28 - Regulatory Approvals
2.29 - Affiliated Indebtedness
2.30 - Powers of Attorney and Suretyships
7.17 - Offer of Employment by Seller Entities
20 - Severance and Termination Payments
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Schedules to be provided by the Buyer
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1.4 - Purchase Price
3.3 - Third-Party Consents
3.6 - Material Adverse Change
3.8 - Litigation
6.1 - Material Required Consents
8.10 - Offer of Employment by Buyer Entities
Exhibits
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A - Instrument of Assumption of Liabilities
B - Xxxx of Sale
C - Registration Rights Agreement
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ASSET PURCHASE AGREEMENT
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This Asset Purchase Agreement (this "AGREEMENT") is entered into as of
October 22, 1997 by and among Peritus Software Services, Inc., a Massachusetts
corporation ("PERITUS"), and Twoquay, Inc., a Delaware corporation and a wholly
owned subsidiary of Peritus (the "BUYER" and, together with Peritus, the "BUYER
ENTITIES"), and American Premier Underwriters, Inc., a Pennsylvania corporation
("APU" or the "SELLER"), and Millennium Dynamics, Inc., an Ohio corporation and
a wholly owned subsidiary of APU ("MDI" and, together with APU, the "SELLER
ENTITIES"). The Buyer Entities and the Seller Entities are collectively
referred to herein as the "PARTIES," and are sometimes individually referred to
herein as a "PARTY").
Preliminary Statement
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The Buyer desires to purchase, and Peritus desires to cause the Buyer to
purchase, and the Seller desires to sell, substantially all of the assets and
business of MDI, for the consideration set forth below and the assumption of
certain of the Seller's liabilities set forth below, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Parties hereby agree as follows:
1. Merger of MDI and the Seller; Sale and Delivery of the Assets
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1.1 Merger of MDI and the Seller. As described in Section 5.10 hereof,
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prior to the closing of the transactions contemplated by this Agreement (the
"CLOSING"), MDI shall be merged with and into the Seller (the "MERGER"), and by
operation of law, all of MDI's assets and liabilities, and all other rights of
any kind or nature associated with MDI's business (collectively, the "MDI
BUSINESS") shall be transferred to the Seller.
1.2 Delivery of the Assets.
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(a) Subject to and upon the terms and conditions of this Agreement, at the
Closing, the Seller shall sell, transfer, convey, assign and deliver to the
Buyer, and the Buyer shall purchase from the Seller, the following properties,
assets and other claims, rights and interests:
(i) all office supplies, maintenance supplies, packaging materials, spare
parts and similar items of the MDI Business (collectively, the "OFFICE
SUPPLIES") which exist on the Closing Date (as defined below);
(ii) all accounts, accounts receivable, notes and notes receivable relating
to the MDI Business existing on the Closing Date which are
payable to the Seller, including any security held by the Seller for the payment
thereof (the accounts, accounts receivable, notes and notes receivable,
including any related security therein, to be transferred to the Buyer pursuant
hereto are collectively referred to herein as the "ACCOUNTS RECEIVABLE");
(iii) all prepaid expenses of the Seller relating to the MDI Business
existing on the Closing Date and any cash balances relating to the MDI Business
remaining on the Closing Date after satisfying the conditions set forth in
subsection 5.9;
(iv) all rights of the Seller under the contracts, agreements, leases,
licenses and other instruments relating to the MDI Business all as set forth on
Schedule 2.16 attached hereto, except for those under the Credit Agreement
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between the Seller and MDI and the Agreement of Allocation of Payment of Federal
Income Tax (the "TAX SHARING AGREEMENT") between the Seller Entities and certain
of their Affiliates (as defined below) (collectively, the "CONTRACT RIGHTS");
(v) all books, records and accounts, correspondence, production records,
technical, accounting, manufacturing and procedural manuals, customer lists,
employment records, studies, reports or summaries relating to any environmental
conditions or consequences of any operation relating to the MDI Business,
present or former, as well as all studies, reports or summaries relating to any
environmental aspect or the general condition of the Assets (as defined below),
and any confidential information which has been reduced to writing relating to
or arising solely out of the MDI Business;
(vi) all rights of the Seller under express or implied warranties from the
suppliers of the MDI Business;
(vii) all of the machinery, computer and other equipment, tools, software,
hardware, maintenance machinery and equipment and furniture relating to the MDI
Business owned by the Seller on the Closing Date, whether or not reflected as
capital assets in the accounting records of the Seller relating to the MDI
Business (collectively, the "FIXED ASSETS");
(viii) all of the Seller's right, title and interest in and to all
Intellectual Property, as defined in Subsection 2.24(f);
(ix) all copies of and media containing all source code, object code, flow
charts, program descriptions, program listings, libraries, tools, utilities,
databases, data, diagrams, diagnostics, alpha and beta versions and all related
documentation and commentaries, owned, licensed or used by the Seller Entities
in the conduct of the MDI Business (the "SOFTWARE"); and
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(x) except as specifically provided in Subsection 1.2(b) hereof, all other
assets, properties, claims, rights and interests of the Seller relating to the
MDI Business which exist on the Closing Date, of every kind and nature and
description, whether tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of paragraph (a) above, the assets to be
transferred to the Buyer under this Agreement shall not include those assets
listed on Schedule 1.2(b) attached hereto or any tax rights or benefits arising
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or in any way related to the Tax Sharing Agreement (the "EXCLUDED ASSETS").
(c) The Office Supplies, Accounts Receivable, Contract Rights, Fixed Assets,
Intellectual Property, Software and other properties, assets and business of the
Seller relating to the MDI Business described in paragraph (a) above, other than
the Excluded Assets, shall be referred to collectively as the "ASSETS."
1.3 Further Assurances. At any time and from time to time after the
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Closing, at the reasonable request of either or both of the Buyer Entities and
without further consideration, the Seller or Seller Entities promptly shall
execute and deliver such instruments of sale, transfer, conveyance, assignment
and confirmation, and take such other action, as either or both of the Buyer
Entities may reasonably request to more effectively transfer, convey and assign
to the Buyer, and to confirm the Buyer's title to, all of the Assets, to put the
Buyer in actual possession and operating control thereof, to assist the Buyer in
exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement. At any time and from time to time after the Closing,
at the request of either or both of the Seller Entities and without further
consideration, the Buyer or Buyer Entities promptly shall execute and deliver
such instruments of assumption and confirmation, and take such other action, as
either or both of the Seller Entities may reasonably request to more effectively
confirm the Buyer's assumption of the Assumed Liabilities (as defined below).
1.4 Purchase Price.
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(a) The purchase price to be paid to the Seller by the Buyer for the Assets
shall be (i) the cash sum of $30,000,000 (the "CASH PORTION OF THE PURCHASE
PRICE") and (ii) the number of shares (the "STOCK PORTION OF THE PURCHASE PRICE"
or the "SHARES") of the common stock, $.01 par value per share, of Peritus (the
"PERITUS COMMON STOCK") determined as set forth in the following sentence. If
(a) the Average Share Price (as defined below) is $25.00 or less, the Stock
Portion of the Purchase Price shall be 2,222,000 shares of Peritus Common Stock;
(b) the Average Share Price is between $25.00 and $30.00, the Stock Portion of
the Purchase Price shall be determined as set forth in Schedule 1.4; or (c) the
Average Share Price is greater than $30.00, the Stock Portion of the Purchase
Price shall be determined by dividing (x) $60,000,000 by (y) the Average Share
Price (rounded down to the nearest whole share). The "AVERAGE SHARE PRICE" is
the average of the closing sale price of the
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Peritus Common Stock on the Nasdaq National Market for the five trading days
beginning on the second trading day immediately preceding the date hereof and
ending on the second trading day immediately following the date hereof. The
Cash Portion of the Purchase Price and the Stock Portion of the Purchase Price
are collectively referred to herein as the "PURCHASE PRICE." The Purchase Price
shall be payable in the manner described in paragraph (b) of this Subsection
1.4.
(b) At the Closing, the Buyer shall deliver to the Seller (i) the Cash
Portion of the Purchase Price by wire transfer of immediately available funds to
an account designated by the Seller, and (ii) a stock certificate registered in
the name of the Seller representing the Stock Portion of the Purchase Price.
1.5 Assumption of Liabilities; Etc.
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(a) At the Closing, the Buyer shall execute and deliver an Instrument of
Assumption of Liabilities (the "INSTRUMENT OF ASSUMPTION") substantially in the
form attached hereto as Exhibit A, pursuant to which it shall assume and agree
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to perform, pay and discharge the following liabilities, obligations and
commitments of the Seller relating to the MDI Business (the "ASSUMED
LIABILITIES"):
(i) all trade accounts payable and accrued expenses reflected on the balance
sheet of MDI as of September 30, 1997 previously delivered to the Buyer (the
"CURRENT BALANCE SHEET"), less any payments made from September 30, 1997 (the
"BALANCE SHEET DATE") to the Closing Date and excluding any liability under the
Credit Agreement between MDI and APU;
(ii) all trade accounts payable and accrued expenses of the Seller relating
to the MDI Business incurred in the ordinary course of business from the Balance
Sheet Date to the Closing Date, other than liabilities and liens for Taxes (as
defined below) or deferred Taxes, liabilities under the Tax Sharing Agreement,
liabilities under the Credit Agreement between MDI and APU, accounts payable
which are outstanding for more than three months as of the Closing Date and
accounts payable that are contingent or are not fixed in amount as of the
Closing Date;
(iii) all obligations of the Seller relating to the MDI Business continuing
after the Closing under the leases and contracts set forth on Schedule 1.5
------------
attached hereto which become due and payable after the Closing Date; and
(iv) all other liabilities and obligations of the Seller specifically set
forth in Schedule 1.5 attached hereto.
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(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
other than the Assumed Liabilities.
(c) Notwithstanding any provision herein to the contrary, the Buyer shall be
solely liable for the prompt and full discharge of the Assumed Liabilities and
also for any liability arising from, or in connection with the Assets acquired
by the Buyer after the consummation of the transactions contemplated hereby,
including, without limitation, any such liabilities arising by reason of any
violation or claimed violation by the Buyer, by acts or events or omissions
arising or occurring after the Closing, of any federal, state or local law,
rule, regulation, ordinance or any requirement of any government authority.
1.6 [Intentionally omitted].
1.7 The Closing. The Closing shall take place at the offices of Xxxx and
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Xxxx LLP, 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx at 9:00 a.m., Boston time, on
the third business day after the conditions set forth in Section 6 have been
satisfied, or at such other place, time or date as may be mutually agreed upon
in writing by the parties hereto. The transfer of the Assets by the Seller to
the Buyer shall be deemed to occur at the open of business on the date of the
Closing (the "CLOSING DATE").
1.8 Apportionment.
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(a) Prepaid premiums on insurance if assigned as herein provided, water and
sewer use charges, transfer taxes and recording fees, if any, incurred in
connection with the transfer of the Assets contemplated hereby, and real
property taxes for the then current tax period, shall be apportioned and
adjusted as of the Closing Date and the net amount thereof shall be added to or
deducted from, as the case may be, the Cash Portion of the Purchase Price.
(b) If the amount of such real property taxes has not been determined at the
Closing Date, they shall be apportioned on the basis of such taxes assessed for
the preceding year, with a reapportionment as soon as the new tax rate and
valuation can be ascertained; and, if the taxes which are to be apportioned
shall thereafter be reduced by abatement, the amount of such abatement, less the
reasonable cost of obtaining the same, shall be apportioned between the Buyer
and the Seller, provided that no Party shall be obligated to institute or
prosecute proceedings for an abatement unless otherwise agreed. If such
proceedings are commenced, the Party commencing the same shall give the other
Party notice thereof and shall prosecute such proceedings and not discontinue
the same without first giving the other Party notice of its intention so to do
and reasonable opportunity to
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be substituted in such proceedings; and the other Party agrees to cooperate in
such proceedings without being obligated to incur any expense in connection
therewith.
(c) If the amounts of any common area charges under real property leases
transferred to the Buyer have not been determined at the Closing Date, they
shall be apportioned on the basis of such charges assessed for the preceding
year, with a reapportionment upon and in the event of any new apportionment or
valuation method or scheme; and if such charges which are to be apportioned
shall thereafter be reduced, the amount of such reduction shall be apportioned
between the Buyer and the Seller.
2. Representations of the Seller Entities
--------------------------------------
The Seller Entities each jointly and severally represents and warrants to the
Buyer Entities as follows:
2.1 Organization. Each of the Seller Entities is a corporation duly
------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite power and authority (corporate and
other) to own its properties, to carry on its business as now being conducted,
to execute and deliver this Agreement and the agreements contemplated herein,
and to consummate the transactions contemplated hereby (it being understood and
agreed that, for purposes of this Agreement, the "transactions contemplated
hereby" shall include, without limitation, the Merger). MDI has no subsidiaries
and does not own or control, directly or indirectly, any shares of capital stock
of any other corporation or any interest in any partnership, joint venture,
limited liability company or other non-corporate enterprise. Each of the Seller
Entities is duly qualified to conduct business and is in good standing in all
jurisdictions in which its ownership of property or the character of its
business requires such qualification, except where the failure to qualify would
not have a material adverse effect on the business, properties, assets or
condition (financial or otherwise) of such Seller Entity. Certified copies of
the Articles of Incorporation and Code of Regulations of the Seller Entities,
each as amended to date, have been previously delivered to the Buyer, are
complete and correct, and no amendments have been made thereto or have been
authorized since the date thereof.
2.2 Ownership of MDI. APU is the sole beneficial and record owner of all of
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the outstanding securities of MDI.
2.3 Authorization. The execution and delivery by each of the Seller
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Entities of this Agreement, and the agreements provided for herein, and the
consummation by each of the Seller Entities of all transactions contemplated
hereby, have been duly authorized by all requisite corporate and shareholder
action. This Agreement and all such other agreements and obligations entered
into and
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undertaken in connection with the transactions contemplated hereby to which each
Seller Entity is a party, assuming the due execution and delivery by the Buyer,
constitute the valid and legally binding obligations of the respective Seller
Entity, enforceable against the respective Seller Entity in accordance with
their respective terms. The execution, delivery and performance by the Seller
Entities of this Agreement and the agreements provided for herein, and the
consummation by each Seller Entity of the transactions contemplated hereby and
thereby, will not, with or without the giving of notice or the passage of time
or both, (a) violate the provisions of any law, rule or regulation applicable to
such Seller Entity; (b) violate the provisions of the Articles of Incorporation
or Code of Regulations of such Seller Entity; (c) violate any judgment, decree,
order or award of any court, governmental body or arbitrator applicable to such
Seller Entity; or (d) except as set forth on Schedule 2.3 attached hereto,
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conflict with or result in the breach or termination of any term or provision
of, or constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of
such Seller Entity pursuant to, any indenture, mortgage, deed of trust or other
instrument or agreement to which such Seller Entity is a party or by which it or
any of its properties is or may be bound. Schedule 2.3 attached hereto sets
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forth a true, correct and complete list of all consents and approvals of third
parties that are required in connection with the consummation by the Seller
Entities of the transactions contemplated by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets forth a
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true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "ENCUMBRANCES"). As of the date hereof, MDI is, and at the
Closing the Seller will be, the true and lawful owner of the Assets, and the
Seller will have the right to sell and transfer to the Buyer good, clear, record
and marketable title to the Assets, free and clear of all Encumbrances of any
kind, except as set forth on Schedule 2.4(ii) attached hereto (the "PERMITTED
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ENCUMBRANCES"). The delivery to the Buyer of the instruments of transfer of
ownership contemplated by this Agreement will vest good and marketable title to
the Assets in the Buyer, free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and claims of
any kind or nature whatsoever, except for the Permitted Encumbrances. There are
no liens on any Assets that arose in connection with any failure (or alleged
failure) to pay any Tax.
2.5 Financial Statements.
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(a) The Seller Entities have previously delivered to the Buyer MDI's audited
balance sheets as of December 31, 1995 and 1996 and June 30, 1997 (the "AUDITED
BALANCE SHEETS") and the related statements of operations, shareholder's equity
and cash flows of MDI for the fiscal years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997 (collectively, including the Audited Balance
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Sheets, the "AUDITED FINANCIAL STATEMENTS"). The Seller Entities have also
previously delivered to the Buyer MDI's Current Balance Sheet and the related
statements of operations, shareholder's equity and cash flows of MDI for the
three and nine-month periods ended September 30, 1997 (collectively, the
"CURRENT FINANCIAL STATEMENTS"). The Audited Financial Statements and the notes
thereto and the Current Financial Statements (collectively, the "FINANCIAL
STATEMENTS") have been prepared in accordance with generally accepted accounting
principles ("GAAP") and are certified without qualification by MDI's independent
public accountants, in the case of the Audited Financial Statements, and have
been certified by MDI's chief financial officer, in the case of the Current
Financial Statements.
(b) The Financial Statements fairly present, as of their respective dates, in
all material respects, the financial condition, retained earnings, assets and
liabilities of MDI and the results of operations and cash flows of the MDI
Business for the periods indicated; and the amounts shown as accrued for current
and deferred income and other taxes, if any, in the Financial Statements are
sufficient for the payment of all accrued and unpaid federal, state and local
income taxes, interest, penalties, assessments or deficiencies applicable to MDI
or the MDI Business, whether disputed or not, for the applicable period then
ended and periods prior thereto.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
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reflected and reserved against in the Current Balance Sheet, (b) set forth on
Schedule 2.6 attached hereto or (c) incurred in the ordinary course of business
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after the date of the Current Balance Sheet and not material in amount, either
individually or in the aggregate, neither the Seller nor MDI has incurred any
liability or obligation, secured or unsecured, whether accrued, absolute,
contingent, unasserted or otherwise, affecting the Assets. For purposes of this
Subsection 2.6, "MATERIAL" means any amount in excess of $10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, MDI is
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not a party to, or to the knowledge of the Seller Entities threatened with, and
none of the Assets are subject to, any litigation, suit, action, investigation,
proceeding or controversy before any court, administrative agency or other
governmental authority relating to or affecting the Assets or the business or
condition (financial or otherwise) of MDI. Neither of the Seller Entities is in
violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
authority or any regulation of any administrative agency or governmental
authority relating to the MDI Business.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true, correct and
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complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or the
MDI Business and of all life insurance policies maintained for any of the
employees engaged in the MDI Business,
-8-
specifying the type of coverage, the amount of coverage, the premium, the
insurer and the expiration date of each such policy (collectively, the
"INSURANCE POLICIES") and all claims made under such Insurance Policies since
December 31, 1995. True, correct and complete summaries of all of the Insurance
Policies have been previously delivered by the Seller Entities to the Buyer.
The Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the MDI Business. All premiums due
on the Insurance Policies or renewals thereof have been paid and there is no
default under any of the Insurance Policies. Except as set forth on Schedule
--------
2.8 attached hereto, neither of the Seller Entities has received any notice or
---
other communication from any issuer of the Insurance Policies since December 31,
1995 cancelling or materially amending any of the Insurance Policies, materially
increasing any deductibles or retained amounts thereunder, or materially
increasing the annual or other premiums payable thereunder, and, to the
knowledge of the Seller Entities, no such cancellation, amendment or increase of
deductibles, retainages or premiums is threatened.
2.9 Inventory. There is no inventory of raw materials or goods to be sold
---------
or licensed to third parties relating to the MDI Business.
2.10 Fixed Assets. Schedule 2.10 attached hereto sets forth a true, correct
------------ -------------
and complete list of all Fixed Assets as of the date hereof, including a
description and the book value thereof. Schedule 2.10, as updated pursuant to
-------------
Subsection 7.9 hereof, shall set forth a true, correct and complete list of all
Fixed Assets as of the date three business days prior to the Closing Date (the
"SCHEDULE DATE"), including a description and valuation thereof. All of the
Fixed Assets, taken as a whole, are in good operating condition and repair,
normal wear and tear excepted, are currently used by MDI in the ordinary course
of business and in the production of products of and provision of services by
MDI, and normal maintenance has been consistently performed with respect to such
Fixed Assets. As of the Closing Date, all of the Fixed Assets shall be in good
operating condition and repair, normal wear and tear excepted.
2.11 Leases. Schedule 2.11 attached hereto sets forth a true, correct and
------ -------------
complete list as of the date hereof of all leases of real property, identifying
separately each ground lease, relating to the MDI Business (the "LEASES").
True, correct and complete copies of the Leases, and all amendments,
modifications and supplemental agreements thereto, have previously been
delivered by the Seller Entities to the Buyer. The Leases are in full force and
effect, are binding and enforceable against MDI, and as of the Closing Date,
shall be binding and enforceable against the Seller, in accordance with their
respective terms and, except as set forth on Schedule 2.11 attached hereto, have
-------------
not been modified or amended since the date of delivery to the Buyer. No party
to any Lease has sent written notice to the other claiming that such party is in
default thereunder, which remains uncured. Except as set forth on Schedule 2.11
-------------
attached hereto, there has not occurred any event by either
-9-
Seller Entity which would constitute a breach of or default in the performance
of any material covenant, agreement or condition required to be performed by
either Seller Entity contained in any Lease, nor has there occurred any event
which with the passage of time or the giving of notice or both would constitute
such a material breach or material default. Neither Seller Entity is obligated
to pay any leasing or brokerage commission relating to any Lease and, except as
set forth on Schedule 2.11 attached hereto, will not have any enforceable
-------------
obligation to pay any leasing or brokerage commission upon the renewal of any
Lease. Except as set forth on Schedule 2.11 attached hereto, no material
-------------
construction, alteration or other leasehold improvement work with respect to any
of the Leases remains to be paid for or to be performed by either Seller Entity.
The Financial Statements contain adequate reserves to provide for the
restoration of the properties subject to the Leases at the end of the respective
Lease terms, to the extent required by the Leases.
2.12 Change in Financial Condition and Assets. Except as set forth on
----------------------------------------
Schedule 2.12 attached hereto, since the Balance Sheet Date, there has been no
-------------
change which materially and adversely affects the business, properties, assets
or condition (financial or otherwise) of MDI or the MDI Business. The Seller
Entities have no knowledge of any existing or threatened occurrence, event or
development which, as far as can be reasonably foreseen, could have a material
adverse effect on MDI or the business, properties, assets or condition
(financial or otherwise) of MDI or the MDI Business.
2.13 Tax Matters. Each of the Seller Entities has filed all Tax Returns
-----------
which are required to be filed and has paid all Taxes which have become due or
which have been claimed to be due. Each of the Seller Entities is current in
the payment of all Taxes. Except as set forth on Schedule 2.13 attached hereto,
-------------
no deficiencies have been asserted or assessed relating to the MDI Business as a
result of any audit by the Internal Revenue Service or any state or local taxing
authority and no such deficiency or audit has been proposed or threatened.
As used in this Agreement, the following terms shall have the following
respective meanings.
(i) "AFFILIATED GROUP" means an affiliated group as defined in Section 1504
of the Code (or any analogous combined, consolidated or unitary group defined
under state, local or foreign income Tax law) of which the Seller Entities are
or have been members.
(ii) "CODE" means the Internal Revenue Code of 1986, as amended.
(iii) "TAX" means any (A) federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum,
-10-
sales, use, transfer, registration, value added, excise, natural resources,
severance, stamp, occupation, premium, windfall profit, environmental, customs,
duties, real property, capital stock, social security, unemployment, disability,
payroll, license, employee or other withholding, or other tax, of any kind
whatsoever, whether disputed or not, including any interest, penalties or
additions to tax or additional amounts in respect of the foregoing; (B)
liability of either of the Seller Entities for the payment of any amounts of the
type described in clause (A) arising as a result of being (or ceasing to be) a
member of any Affiliated Group (or being included (or required to be included)
in any Tax Return relating thereto or as a party to any Tax allocation or Tax
sharing agreement or any other contractual obligation to indemnify any other
person with respect to Taxes); and (C) liability of either of the Seller
Entities for the payment of any amounts of the type described in clause (A) as a
transferee or successor, by contract (including as a result of any express or
implied obligation to indemnify or otherwise assume or succeed to the liability
of any other person), or otherwise.
(iv) "TAX RETURNS" means returns, declarations, reports, claims for refund,
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of Taxes of any
party or administration of any laws, regulations or administrative requirements
relating to any Taxes.
2.14 Accounts Receivable. Schedule 2.14 attached hereto sets forth a true,
------------------- -------------
correct and complete list of all Accounts Receivable, including an aging thereof
as of the Balance Sheet Date. Schedule 2.14, as updated pursuant to Subsection
-------------
7.9 hereof, shall set forth a true, correct and complete list of the Accounts
Receivable as of the Schedule Date, including an aging thereof. All Accounts
Receivable arose out of the sales or licenses, products or services in the
ordinary course of business and, to the knowledge of the Seller Entities, are
collectible in the face value thereof within 180 days of the date of invoice,
using normal collection procedures, net of the reserve for doubtful accounts as
set forth thereon, which reserve the Seller Entities reasonably believe is
adequate and was calculated in accordance with generally accepted accounting
principles consistently applied.
2.15 Books and Records. The general ledgers and books of account relating
-----------------
to the MDI Business, all federal, state and local income, franchise, property
and other Tax Returns relating to the MDI Business, and all other books and
records relating to the MDI Business are in all material respects complete and
correct and have been maintained in accordance with good business practice and
in accordance, in all material respects, with all applicable procedures required
by laws and regulations.
2.16 Contracts and Commitments.
-------------------------
-11-
(a) Schedule 2.16 attached hereto contains a true, complete and correct list
-------------
and description of the following contracts and agreements, whether written or
oral (except as set forth below) (collectively, the "CONTRACTS"):
(i) all loan agreements, indentures, mortgages and guaranties relating to the
MDI Business or by which MDI or any of the Assets are bound;
(ii) all pledges, conditional sale or title retention agreements, security
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which either Seller Entity is a
party;
(iii) all contracts, agreements, commitments, purchase orders or other
understandings or arrangements relating to the MDI Business which involve
payments or receipts by either Seller Entity of more than $10,000 in the case of
any single contract, agreement, commitment, understanding or arrangement under
which full performance (including payment) has not been rendered by all parties
thereto;
(iv) all collective bargaining agreements, written employment and consulting
agreements, severance or separation agreements, change-in-control agreements,
executive compensation plans, bonus plans, deferred compensation agreements,
pension plans, retirement plans, employee stock option or stock purchase plans
and group life, health and accident insurance and other employee benefit plans,
agreements, arrangements or commitments to which either Seller Entity is a party
or by which either Seller Entity or any of its property is bound that will be
assumed by the Buyer;
(v) all agency, distributor, sales representative and similar agreements
relating to the MDI Business to which either Seller Entity is a party;
(vi) all contracts, agreements or other understandings or arrangements
relating to the MDI Business between either Seller Entity and any stockholder or
affiliate (as such term is defined in the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder (the "SECURITIES ACT")) of
the Seller Entities ("AFFILIATE");
(vii) all leases relating to the MDI Business, whether operating, capital or
otherwise;
-12-
(viii) all contracts, agreements and other documents or information relating
to past disposal of waste (whether or not hazardous) with respect to the MDI
Business;
(ix) all contracts, agreements, licenses, commitments, purchase orders or
other understandings relating to the MDI Business to which either Seller Entity
is a party obligated to or pursuant to which either Seller Entity (A) is
otherwise obligated to perform maintenance services for (i) a period in excess
of one year subsequent to the Closing Date or (ii) nominal or no consideration
or (B) has licensed its products for nominal or no consideration; and
(x) any other material agreement or contract relating to the MDI Business
entered into by either Seller Entity.
(b) Except as set forth on Schedule 2.16(b) attached hereto:
----------------
(i) each Contract is a valid and binding agreement of the applicable Seller
Entity, enforceable against such Seller Entity in accordance with its terms, and
the Seller Entities do not have any knowledge that any Contract is not a valid
and binding agreement of the other parties thereto;
(ii) the applicable Seller Entity has fulfilled all material obligations
required pursuant to the Contracts to have been performed by such Seller Entity
on its part prior to the date hereof;
(iii) to the knowledge of the Seller Entities, neither Seller Entity is in
breach of or default under any Contract, and no event has occurred which with
the passage of time or giving of notice or both would constitute such a default,
result in a loss of rights or result in the creation of any lien, charge or
encumbrance, thereunder or pursuant thereto;
(iv) to the knowledge of the Seller Entities, there is no existing breach or
default by any other party to any Contract, and no event has occurred which with
the passage of time or giving of notice or both would constitute a default by
such other party, result in a loss of rights or result in the creation of any
lien, charge or encumbrance thereunder or pursuant thereto;
(v) Neither Seller Entity is restricted by any Contract from carrying on its
business anywhere in the world; and
(vi) Neither Seller Entity has received notice of any product liability or
product warranty claim under the Contracts, and neither Seller Entity is aware
of any threatened claims.
-13-
(c) Except as set forth on Schedule 2.3 or Schedule 2.16(c) attached hereto,
------------ ----------------
the continuation, validity and effectiveness of each Contract will not be
affected by the transfer thereof to Buyer under this Agreement and all such
Contracts are assignable to the Buyer without a consent.
(d) True, correct and complete copies of all Contracts have previously been
delivered by the Seller Entities to the Buyer.
2.17 Compliance with Agreements and Laws. Each Seller Entity has all
-----------------------------------
requisite licenses, permits and certificates, including environmental, health
and safety permits, from federal, state and local authorities necessary to
conduct the MDI Business and own and operate the Assets (collectively, the
"PERMITS"). Schedule 2.17 attached hereto sets forth a true, correct and
-------------
complete list of all material Permits, copies of which have previously been
delivered by the Seller to the Buyer. Neither of the Seller Entities is in
violation of any law, regulation or ordinance (including, without limitation,
laws, regulations or ordinances relating to building, zoning, environmental,
disposal of hazardous substances, land use or similar matters) relating to the
MDI Business, the violation of which could have a material adverse effect on
either Seller Entity or the MDI Business. The MDI Business does not violate, in
any material respect, any federal, state, local or foreign laws, regulations or
orders (including, but not limited to, any of the foregoing relating to
employment discrimination, occupational safety, environmental protection,
hazardous waste (as defined in the Resource Conservation and Recovery Act, as
amended, and the regulations adopted pursuant thereto), conservation, or corrupt
practices, the enforcement of which would have a material and adverse effect on
the results of operations, condition (financial or otherwise), assets or
properties of the MDI Business. Except as set forth on Schedule 2.17 attached
-------------
hereto, neither Seller Entity has since December 31, 1995 received any notice or
communication from any federal, state or local governmental or regulatory
authority or otherwise of any such violation or noncompliance relating to the
MDI Business.
2.18 Employee Relations.
------------------
(a) Each of the Seller Entities is in material compliance with all federal,
state and local laws relating to the MDI Business respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
and is not engaged in any unfair labor practice, and there are no arrears in the
payment of wages or social security taxes relating to the MDI Business.
(b) Except as set forth on Schedule 2.18(b) attached hereto:
----------------
(i) none of the employees engaged in the MDI Business is represented by any
labor union;
-14-
(ii) there is no unfair labor practice complaint relating to the MDI Business
pending before the National Labor Relations Board or any state or local agency;
(iii) there is no pending labor strike or other labor trouble relating to
the MDI Business (including, without limitation, any organizational drive);
(iv) there is no labor grievance pending relating to the MDI Business;
(v) there is no pending representation question respecting the employees
engaged in the MDI Business; and
(vi) there are no pending arbitration proceedings arising out of or under any
collective bargaining agreement relating to the MDI Business, or to the
knowledge of the Seller Entities, any basis for which a claim may be made under
any such collective bargaining agreement.
(c) The Seller Entities have made available to the Buyer a true, correct and
complete list of (a) the employee benefits provided by the Seller Entities to
the employees engaged in the MDI Business and all contracts or agreements
between the Seller Entities and such employees, and (b) the current payroll
relating to such employees, including the job descriptions and salary or wage
rates, showing separately for each such person who received an annual salary in
excess of $30,000 the amounts paid or payable as salary and bonus payments for
the year ended December 31, 1996 and for the nine months ended September 30,
1997.
(d) For purposes of this Subsection 2.18, the term "EMPLOYEE" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on the MDI Business.
2.19 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
2.19 attached hereto, since the Balance Sheet Date, neither Seller Entity has
----
entered into any transaction relating to the MDI Business which is not in the
usual and ordinary course of business, and, without limiting the generality of
the foregoing, with respect to the MDI Business has:
(a) incurred any material obligation or liability for borrowed money;
(b) discharged or satisfied any lien or encumbrance or paid any obligation or
liability other than current liabilities reflected in the Current Balance Sheet;
-15-
(c) mortgaged, pledged or subjected to lien, charge or other encumbrance any
of the Assets;
(d) sold or purchased, assigned or transferred any of its tangible assets or
cancelled any debts or claims, except for inventory sold, raw materials
purchased and obsolete assets disposed of in the ordinary course of business;
(e) made any amendment to or termination of any Contract or done any act or
omitted to do any act which would cause the material breach of any Contract;
(f) suffered any losses, whether insured or uninsured, and whether or not in
the control of such Seller Entity, in excess of $2,500 in the aggregate, or
waived any rights of any value;
(g) authorized or issued recall notices for any of its products or initiated
any safety investigations;
(h) received notice of any litigation, warranty claim or products liability
claims; or
(i) made any material change in the terms, status or funding condition of any
employee plan.
2.20 Customers. Schedule 2.20 attached hereto sets forth a true, correct
--------- -------------
and complete list of the names and addresses of all customers of the MDI
Business which accounted for more than 5% of MDI's total sales in the fiscal
year ended December 31, 1996 and the nine months ended September 30, 1997.
Except as set forth on Schedule 2.20 attached hereto, none of such customers has
-------------
notified either of the Seller Entities that it intends to discontinue its
current relationship with respect to the MDI Business.
2.21 [Intentionally omitted]
2.22 [Intentionally omitted]
2.23 Prepayments and Deposits. Schedule 2.23 attached hereto sets forth all
------------------------ -------------
prepayments or deposits with respect to the MDI Business from customers for
products to be shipped, or services to be performed, after the Closing Date
which have been received by either Seller Entity as of the date hereof.
2.24 Intellectual Property.
---------------------
-16-
(a) As of the date hereof, MDI owns or has the right to use, and as of the
Closing Date the Seller will own or have the right to use, all Intellectual
Property (as defined in Subsection 2.24(f)) used in the operation of the MDI
Business or necessary for the operation of the MDI Business as presently
conducted. Except as set forth on Schedule 2.24(a) attached hereto, each item
----------------
of Intellectual Property will be transferred to the Buyer at Closing, and each
such item of Intellectual Property available for use by either Seller Entity
will be available for use by the Buyer on identical terms and conditions
immediately following the Closing. Each Seller Entity has taken all reasonable
measures to protect the proprietary nature of each item of Intellectual
Property, and to maintain in confidence all trade secrets and confidential
information, that it owns or uses. Except as set forth on Schedule 2.24(a)
----------------
attached hereto, no other person or entity has any rights to any of the
Intellectual Property owned or used by either Seller Entity, and, to the
knowledge of the Seller Entities, no other person or entity is infringing,
violating or misappropriating any of the Intellectual Property.
(b) None of the Intellectual Property infringes, violates or constitutes a
misappropriation of (or in the past infringed, violated or constituted a
misappropriation of) any Intellectual Property rights of any other person or
entity. Neither Seller Entity has received any complaint, claim or notice
alleging any such infringement, violation or misappropriation, and to the
knowledge of the Seller Entities, there is no basis for any such complaint,
claim or notice.
(c) Schedule 2.24(c) attached hereto identifies, with respect to the MDI
----------------
Business, each (i) trademark, copyright and patent registration, (ii) pending
trademark, copyright and patent application, and (iii) license or other
agreement pursuant to which either Seller Entity has granted any rights to any
third party with respect to any of its Intellectual Property. The Seller
Entities have delivered to the Buyer correct and complete copies of all such
patent, trademark and copyright registrations and applications (as amended to
date) and such licenses and agreements (as amended to date) and have
specifically identified and made available to the Buyer correct and complete
copies of all other written documentation evidencing ownership of, and any
claims or disputes relating to, each such item. Except as set forth in Schedule
--------
2.24(c) attached hereto, with respect to each item of Intellectual Property that
-------
MDI owns as of the date hereof and that the Seller will own immediately
preceding the Closing:
(i) such Seller Entity possesses all right, title and interest in and to such
item;
(ii) such item is not subject to any outstanding judgment, order, decree,
stipulation or injunction; and
-17-
(iii) other than as set forth in the agreements referred to in Schedule 2.16
-------------
attached hereto, neither Seller Entity has agreed to indemnify any person or
entity for or against any infringement, misappropriation or other conflict with
respect to such item.
(d) Schedule 2.24(d) attached hereto identifies each item of Intellectual
----------------
Property used in the operation of the MDI Business at any time during the period
covered by the Financial Statements, or that either Seller Entity plans to use
in connection with the MDI Business in the future, that is owned by a party
other than a Seller Entity. The Seller Entities have supplied the Buyer with
correct and complete copies of all licenses, sublicenses or other agreements (as
amended to date) pursuant to which either Seller Entity uses such Intellectual
Property, all of which are listed on Schedule 2.16 and Schedule 2.24(d) attached
------------- ----------------
hereto. Except as set forth in Schedule 2.16 and Schedule 2.24(d) attached
------------- ----------------
hereto, with respect to each such item of Intellectual Property:
(i) the license, sublicense or other agreement covering such item is legal,
valid, binding, enforceable and in full force and effect;
(ii) such license, sublicense or other agreement will continue to be legal,
valid and binding, enforceable and in full force and effect upon and immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing;
(iii) neither of the Seller Entities, nor, to the knowledge of the Seller
Entities, any other party to such license, sublicense or other agreement, is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination, modification or
acceleration thereunder;
(iv) the underlying item of Intellectual Property is not subject to any
outstanding judgment, order, decree, stipulation or injunction;
(v) neither Seller Entity has agreed to indemnify any person or entity for or
against any interference, infringement, misappropriation or other conflict with
respect to such item; and
(vi) other than as set forth in the agreements referred to in Schedule 2.16
-------------
attached hereto, no license or other fee is payable upon any transfer or
assignment of such license, sublicense or other agreement.
(e) Schedule 2.24(e) attached hereto accurately identifies and describes in
----------------
summary fashion the functions of all Software (as defined in Subsection
1.1(a)(ix)) developed by MDI (the "SELLER SOFTWARE") and identifies the nature
of the
-18-
rights therein of MDI as of the date hereof and of the Seller immediately
preceding the Closing. Schedule 2.24(e) attached hereto identifies all computer
----------------
programs, libraries, databases or other software not owned by the Seller
Entities but embedded in or necessary for the use of the Seller Software (the
"THIRD PARTY SOFTWARE"). Except as set forth in Schedule 2.24(e) attached
----------------
hereto:
(i) The documentation, manuals, flow charts or other materials to be
transferred to the Buyer pursuant hereto document in reasonable detail all of
the functions of the Seller Software and Third Party Software and are sufficient
and adequate to provide for their use by end users skilled in the use of such
programs.
(ii) Other than as described on Schedule 2.24(e) attached hereto, neither
----------------
Seller Entity has disclosed the source code for any of the Seller Software or
other confidential or proprietary information constituting, embodied in or
pertaining to the Seller Software to any person and each has taken reasonable
measures to prevent such disclosure, other than disclosure of such source code
to employees or independent contractors engaged in the MDI Business, in each
case pursuant to valid and binding nondisclosure agreements with such persons or
entities which are in full force and effect. Other than as described on
Schedule 2.24(e) attached hereto, all of the Seller Software has been created by
----------------
regular employees of MDI within the scope of their employment by MDI or by
independent contractors of MDI who, in either case, have executed agreements
maintaining the confidentiality of the Seller Software and expressly assigning,
in the case of such regular employees and such independent contractors, all such
regular employees and such independent contractors' right, title and interest in
the Seller Software to MDI.
(iii) Except as disclosed on Schedule 2.24(e) attached hereto, neither
----------------
Seller Entity has distributed the Seller Software or Third Party Software except
pursuant to and in compliance with the Contracts. No licensees are permitted to
distribute the Seller Software except pursuant to a valid written sublicense
agreement, a form of which has been provided to the Buyer. Other than as
described on Schedule 2.24(e) attached hereto, no third party may legally use
----------------
the Seller Software except pursuant to a written license agreement, a form of
which has been provided to the Buyer or a sublicense agreement, as described
above.
(f) "Intellectual Property" means, with respect to the MDI Business, all (i)
patents, patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations, (ii) trademarks, service marks, trade dress,
logos, trade names and corporate names including, without limitation "Millennium
Dynamics, Inc." and registrations and applications for registration thereof,
(iii) copyrights and registrations and applications for registration thereof
(including moral rights), (iv) mask works and
-19-
registrations and applications for registration thereof, (v) computer software,
data and documentation, (vi) trade secrets and confidential business
information, whether patentable or unpatentable and whether or not reduced to
practice, know-how, manufacturing and production processes and techniques,
research and development information, copyrightable works, financial, marketing
and business data, pricing and cost information, business and marketing plans
and customer and supplier lists and information, (vii) other proprietary rights
relating to any of the foregoing, and (viii) copies and tangible embodiments
thereof.
2.25 Employee Benefit Plans. All of the pension, benefit, profit sharing,
----------------------
stock, retirement, deferred compensation, welfare, insurance, disability, bonus,
vacation pay, severance or separation pay, change in control or other similar
plans, programs and agreements, whether reduced to writing or not, relating to
the employees engaged in the MDI Business, or maintained at any time by either
Seller Entity with respect to such employees, are in compliance, in all material
respects, with the requirements prescribed by any and all statutes, orders or
governmental rules or regulations currently in effect, including, but not
limited to, ERISA and the Internal Revenue Code of 1986, as amended, applicable
to such employee plans.
2.26 Real Estate. Neither Seller Entity owns any real property relating to
-----------
the MDI Business.
2.27 Acquired Assets Complete. The Assets are, when utilized by a labor
------------------------
force substantially similar to that employed by MDI on the date hereof, adequate
to conduct the business operations conducted by MDI on the date hereof.
2.28 Regulatory Approvals. All consents, approvals, authorizations and
--------------------
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Seller Entities and which are necessary for the
execution and delivery by the Seller Entities of this Agreement and the
documents to be executed and delivered by the Seller Entities in connection
herewith are set forth on Schedule 2.28 attached hereto and have been, or will
-------------
be prior to the Closing Date, obtained and satisfied.
2.29 Indebtedness to and from Officers, Directors and Shareholders. Except
-------------------------------------------------------------
as set forth on Schedule 2.29 attached hereto, MDI is not, as of the date
-------------
hereof, and the Seller will not be, as of the Closing Date, indebted, directly
or indirectly, to any person who is an officer, director or shareholder of
either Seller Entity or any Affiliate of any such person in any amount
whatsoever other than for salaries for services rendered to the MDI Business or
reimbursable business expenses thereof, all of which have been reflected on the
Current Financial Statements, and no such officer, director, shareholder or
affiliate is indebted to MDI, as of the date hereof, or will be indebted to the
Seller, as of the Closing Date, except for advances
-20-
made to employees engaged in the MDI Business in the ordinary course of business
to meet reimbursable business expenses anticipated to be incurred by such
obligor.
2.30 Powers of Attorney and Suretyships. Except as set forth on Schedule
---------------------------------- --------
2.30 attached hereto, neither Seller Entity has any general or special powers of
----
attorney outstanding with respect to the MDI Business (whether as grantor or
grantee thereof) and, with respect to the MDI Business, has no obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-xxxxxx, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.31 Investment Representation. The Seller is acquiring the Shares from the
-------------------------
Buyer for its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof in violation of any federal, state or
local securities laws. The Seller is an "accredited investor," as such term is
defined in Rule 501 of Regulation D of the Securities Act.
2.32 Disclosure. No representation or warranty by the Seller Entities in
----------
this Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Seller
Entities have disclosed to the Buyer all material facts pertaining to the
transactions contemplated by this Agreement.
3. Representations of the Buyer Entities
-------------------------------------
The Buyer Entities each jointly and severally represents and warrants to
the Seller Entities as follows:
3.1 Organization and Authority.
--------------------------
(a) The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has requisite power
and authority (corporate and other) to own its properties and to carry on its
business as now being conducted. The Buyer has full power to execute and
deliver this Agreement and the agreements contemplated herein and to consummate
the transactions contemplated hereby and thereby.
(b) Peritus is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts, and has
-21-
requisite power and authority (corporate and other) to own its properties and to
carry on its business as now being conducted. Peritus has full power to execute
and deliver this Agreement and the agreements contemplated herein and to
consummate the transactions contemplated hereby and thereby.
(c) The Buyer and Peritus have delivered to the Seller Entities certified
copies of their respective Charters and Bylaws, each as amended to date, which
are complete and correct, and no amendments have been made thereto or have been
authorized since the date hereof.
3.2 Capitalization of Peritus. As of September 30, 1997, the
-------------------------
authorized capital stock of Peritus consisted of (i) 50,000,000 shares of
Peritus Common Stock, of which 13,162,242 shares were issued and outstanding,
and (ii) 5,000,000 shares of preferred stock, $.01 par value per share, of which
no shares were issued and outstanding. All of the outstanding shares of capital
stock of Peritus have been, and on the Closing Date will be, duly and validly
issued and are, or will be, fully paid and nonassessable. On the date hereof,
the authorized capital stock of the Buyer consists of 3,000 shares of common
stock, $.01 par value per share, of which 100 shares are issued and outstanding.
Peritus owns of record and beneficially all of the outstanding shares of common
stock of the Buyer.
3.3 Authorization. The execution and delivery of this Agreement by
-------------
each of the Buyer and Peritus, and the agreements provided for herein, and the
consummation by the Buyer and Peritus of all transactions contemplated hereby,
have been duly authorized by all requisite corporate action on the part of the
Buyer and Peritus. This Agreement and all such other agreements and written
obligations entered into and undertaken in connection with the transactions
contemplated hereby, assuming the due execution and delivery by the parties
other than the Buyer Entities, constitute the valid and legally binding
obligations of the Buyer and Peritus, enforceable against them in accordance
with their respective terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer and Peritus of the transactions contemplated hereby and thereby, will not,
with or without the giving of notice or the passage of time or both, (a) violate
the provisions of any law, rule or regulation applicable to the Buyer or
Peritus; (b) violate the provisions of the Charter or Bylaws of the Buyer or
Peritus; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator applicable to such Buyer Entity; or (d) conflict
with or result in the breach or termination of any term or provision of, or
constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Buyer or Peritus pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which it or its properties is a party or by which the
Buyer or Peritus respectively is or may be bound. Schedule 3.3 attached hereto
------------
sets forth a true, correct and complete list of all consents and approvals of
third parties that are required in connection with the
-22-
consummation by the Buyer Entities of the transactions contemplated by this
Agreement.
3.4 Reports and Financial Statements. Peritus has previously
--------------------------------
furnished to the Seller Entities complete and accurate copies, as amended or
supplemented, of its (a) Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997, as filed with the Securities and Exchange Commission (the
"COMMISSION") and (b) all other reports filed by Peritus under Section 13 of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), with the
Commission since July 2, 1997 (such reports are collectively referred to herein
as the "PERITUS REPORTS"). The Peritus Reports constitute all of the documents
required to be filed by Peritus under Section 13 of the Exchange Act with the
Commission since July 2, 1997. As of their respective dates, the Peritus
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated herein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Since the date of the latest filed Peritus Report, Peritus has had
no obligation to file a Current Report on Form 8-K under the Exchange Act. The
audited financial statements and unaudited interim financial statements of
Peritus included in the Peritus Reports (i) comply in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto, (ii) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the Exchange
Act), (iii) fairly present the consolidated financial condition, results of
operations and cash flows of Peritus as of the respective dates thereof and for
the periods referred to therein, and (iv) are consistent with the books and
records of Peritus.
3.5 Disclosure. No representation or warranty by either the Buyer or
----------
Peritus in this Agreement or in any Exhibit hereto, or in any list, statement,
document or information set forth in or attached to any Schedule delivered or to
be delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading. The Buyer Entities have disclosed to the Seller
Entities all material facts pertaining to the transactions contemplated by this
Agreement.
3.6 No Material Adverse Change. Since June 30, 1997, except as
--------------------------
disclosed in a Peritus Report or as otherwise disclosed in Schedule 3.6 attached
------------
hereto: (i) there has been no change which materially and adversely affects the
business, properties, assets or condition (financial or otherwise) of Peritus
(any such change is called a "MATERIAL ADVERSE CHANGE"); (ii) Peritus and its
subsidiaries, considered as one entity, have not incurred any material liability
or obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into
-23-
any material transaction or agreement not in the ordinary course of business;
and (iii) there has been no dividend or distribution of any kind declared, paid
or made by Peritus or, except for dividends paid to Peritus or any of its
subsidiaries on any class of capital stock or repurchase or redemption by
Peritus or any of its subsidiaries of any class of capital stock.
3.7 Nasdaq. The Shares shall have been approved for listing on the
------
Nasdaq National Market on or prior to the Closing Date, subject only to official
notice of issuance.
3.8 Litigation. Except as set forth on Schedule 3.8 attached hereto,
---------- ------------
Peritus is not a party to, or to the knowledge of Peritus threatened with, and
none of its assets are subject to, any litigation, suit, action, investigation,
proceeding or controversy before any court, administrative agency or other
governmental authority relating to or affecting its assets or the business or
condition (financial or otherwise) of Peritus. Peritus is not in violation of
or in default with respect to any judgment, order, writ, injunction, decree or
rule of any court, administrative agency or governmental authority or any
regulation of any administrative agency or governmental authority.
3.9 Intellectual Property Rights. Peritus and its subsidiaries own
----------------------------
or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"PERITUS INTELLECTUAL PROPERTY RIGHTS") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any of such Peritus
Intellectual Property Rights would not result in a Material Adverse Change.
Neither Peritus nor any of its subsidiaries has received any notice of
infringement or conflict with asserted intellectual property rights of others,
which infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.
3.10 All Necessary Permits, etc. Peritus and each subsidiary possess
--------------------------
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither Peritus nor any subsidiary has
received any notice of proceedings relating to the revocation or modification
of, or noncompliance with, any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, could result in a Material Adverse Change.
3.11 Title to Properties. Except as described in the Peritus Reports,
-------------------
Peritus and each of its subsidiaries has good and valid title to all the
properties and assets reflected as owned in the Peritus Reports, in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and
-24-
do not materially interfere with the use made or proposed to be made of such
property by Peritus or such subsidiary. The real property, improvements,
equipment and personal property held under lease by Peritus or any subsidiary
are held under valid and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by
Peritus, or such subsidiary.
3.12 Tax Law Compliance. Peritus and its consolidated subsidiaries
------------------
have filed all necessary federal, state and foreign income and franchise Tax
Returns and have paid all Taxes required to be paid by any of them and, if due
and payable, any related or similar assessment, fine or penalty levied against
any of them, except for assessments, fines or penalties contested in good faith
for which adequate reserves have been provided to the extent required by
generally accepted accounting principles. Peritus has made adequate charges,
accruals and reserves reasonably determined by Peritus in the applicable
financial statements in the Peritus Reports in respect of all federal, state and
foreign income and franchise Taxes for all periods as to which the Tax liability
of Peritus or any of its consolidated subsidiaries has not been finally
determined.
3.13 Peritus Not an "Investment Company." Peritus is not, and after
-----------------------------------
consummation of the transactions contemplated hereby will not be, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended
(the "INVESTMENT COMPANY ACT"), and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
3.14 Insurance. Each of Peritus and its subsidiaries is insured by
---------
financially sound and reputable institutions with policies in such amounts and
with such deductibles and covering such risks as are generally deemed adequate
and customary for their businesses including, but not limited to, policies
covering real and personal property owned or leased by Peritus and its
subsidiaries against theft, damage, destruction and acts of vandalism. Peritus
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither Peritus nor any subsidiary has
been denied any insurance coverage which it has sought or for which it has
applied.
4. Access to Information; Public Announcements
-------------------------------------------
4.1 Access to Management, Properties and Records.
--------------------------------------------
(a) From the date of this Agreement until the Closing Date, each of the
Seller Entities shall afford the officers, attorneys, accountants and other
-25-
authorized representatives of each of the Buyer Entities access upon reasonable
notice and during normal business hours to all management personnel, offices,
properties, books and records relating to the MDI Business, so that the Buyer
Entities may have full opportunity to make such investigation as they shall
desire to make of the management, business, properties and affairs of the Seller
Entities relating to the MDI Business, and the Buyer Entities shall be permitted
to make abstracts from, or copies of, all such books and records. The Seller
shall furnish to the Buyer Entities such financial and operating data and other
information as to the Assets and the MDI Business as the Buyer Entities shall
reasonably request.
(b) The Seller Entities shall authorize the release to the Buyer or to
Peritus of all files pertaining to the Assets or the MDI Business held by any
federal, state, county or local authorities, agencies or instrumentalities,
other than files with respect to which the Seller Entities are under a legal or
contractual obligation of confidentiality.
4.2 Confidentiality. Each and every one of the Parties agrees to be
---------------
bound by the terms of that certain Confidentiality Agreement dated August 11,
1997 by and between Peritus and MDI (the "CONFIDENTIALITY AGREEMENT") as if and
whether or not such Party is a signatory thereto.
4.3 Public Announcements. The parties agree that prior to the
--------------------
Closing Date, except as otherwise required by law, any and all public
announcements or other public communications concerning this Agreement and the
purchase of the Assets by the Buyer shall be subject to the approval of both
parties, which approval shall not be unreasonably withheld.
5. Pre-Closing Covenants of the Seller Entities
--------------------------------------------
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. The Seller Entities shall carry on the MDI
-------------------
Business substantially in the same manner as heretofore and shall not make or
institute any unusual or new methods of manufacture, purchase, sale, shipment or
delivery, lease, license management, accounting or operation, and shall not ship
or deliver any quantity of products in excess of normal shipment or delivery
levels, except as agreed to in writing by the Buyer or Peritus. All of the
Assets shall be used, operated, repaired and maintained in a normal business
manner consistent with past practice.
5.2 Absence of Material Changes. Without the prior written consent
---------------------------
of the Buyer or Peritus, and except as set forth in Subsection 1.1 hereof, the
Seller Entities shall not:
-26-
(a) take any action to amend MDI's Articles of Incorporation or Code
of Regulations;
(b) issue any stock, bonds or other corporate securities of MDI or
grant any option or issue any warrant to purchase or subscribe to any of such
securities or issue any securities convertible into such securities;
(c) incur any obligation or liability (absolute or contingent)
relating to the MDI Business, except current liabilities incurred and
obligations under contracts entered into in the ordinary course of business;
(d) declare or make any payment or distribution to MDI's shareholders
with respect to their stock or purchase or redeem any shares of MDI's capital
stock;
(e) mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the Assets;
(f) sell, assign, or transfer any of the Assets, except for products
sold or licensed in the ordinary course of business, at a normal profit margin,
and for not less than replacement cost;
(g) cancel any debts or claims relating to the MDI Business, except in
the ordinary course of business;
(h) merge or consolidate with or into any corporation or other entity;
(i) make, accrue or become liable for any bonus, profit sharing or
incentive payment relating to the MDI Business, except for accruals under
existing plans, if any, or increase the rate of compensation payable or to
become payable by either Seller Entity to any officers, directors or employees
engaged in the MDI Business, other than increases in the ordinary course of
business consistent with past practice;
(j) make any election or give any consent under the Code or the Tax
statutes of any state or other jurisdiction or make any termination, revocation
or cancellation of any such election or any consent or compromise or settle any
claim for past or present Tax due;
(k) waive any rights of material value relating to the MDI Business;
(l) modify, amend, alter or terminate any executory contracts of a
material value relating to the MDI Business or which are material in amount;
-27-
(m) take or permit any act or omission constituting a breach or default under
any contract, indenture or agreement relating to the MDI Business or by which
the Assets are bound;
(n) fail to use its best efforts to (i) preserve the possession and
control of the Assets and the MDI Business, (ii) keep in service the present
officers and key employees engaged in the MDI Business, (iii) preserve the
goodwill of the customers, suppliers, agents, brokers and others having business
relations with the MDI Business, and (iv) keep and preserve the MDI Business
existing on the date hereof until after the Closing Date;
(o) fail to operate the MDI Business and maintain the books, accounts
and records relating to the MDI Business in the customary manner and in the
ordinary or regular course of business and maintain in good repair the premises,
fixtures, machinery, furniture and equipment relating to the MDI Business;
(p) enter into any leases, contracts, agreements or understandings
relating to the MDI Business other than those entered into in the ordinary
course of business calling for payments which in the aggregate do not exceed
$10,000 for each such lease, contract, agreement or understanding;
(q) engage any employee in the MDI Business for a salary in excess of
$50,000 per annum;
(r) materially alter the terms, status or funding condition of any
employee plan relating to employees engaged in the MDI Business; or
(s) commit or agree to do any of the foregoing in the future.
5.3 Taxes. The Seller Entities will, on a timely basis, file all Tax
-----
Returns for and pay any and all Taxes which shall become due or shall have
accrued (a) on account of the operation of the MDI Business or the ownership of
the Assets on or prior to the Closing Date or (b) on account of the sale of the
Assets (including a pro-rata portion of all personal property and excise taxes
payable with respect to the Assets by either Seller Entity).
-28-
5.4 Communication with Customers and Suppliers.
------------------------------------------
(a) Unless instructed otherwise by the Buyer or by Peritus in writing,
the Seller Entities will accept customer orders with respect to the MDI Business
in the ordinary course of business and consistent with past practice.
(b) The Seller Entities and the Buyer will cooperate in communication
with suppliers and customers to accomplish the transfer of the Assets to the
Buyer on the Closing Date.
5.5 Compliance with Laws. The Seller Entities will comply, in all
--------------------
material respects, with all laws and regulations which are applicable to the MDI
Business and the ownership of the Assets and will perform and comply with all
contracts, commitments and obligations relating to the MDI Business by which
each of them is bound.
5.6 Continued Truth of Representations and Warranties of the Seller
---------------------------------------------------------------
Entities. The Seller Entities, individually or collectively, will not take any
--------
actions which would result in any of the representations or warranties set forth
in Section 2 hereof being untrue.
5.7 Continuing Obligation to Inform. From time to time prior to the
-------------------------------
Closing, the Seller Entities will deliver or cause to be delivered to the Buyer
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
5.8 Exclusive Dealing. The Seller Entities, individually or
-----------------
collectively, will not, directly or indirectly, through any officer, director,
agent or otherwise, (a) solicit, initiate or encourage submission of proposals
or offers from any person relating to any acquisition or purchase of all or a
material portion of the Assets, or any equity interest in, MDI or any equity
investment, merger, consolidation or business combination with MDI, or (b)
participate in any discussions or negotiations regarding, or furnish to any
other person, any non-public information with respect to, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing. The
Seller Entities shall promptly notify the Buyer or Peritus if any such proposal
or offer, or any inquiry or contact with any person with respect thereto, is
made.
5.9 Collection of Receivables and Borrowings Under APU Credit
---------------------------------------------------------
Agreement. After the date of this Agreement, the Seller Entities shall continue
---------
to collect the Accounts Receivable in the ordinary course of business and use
the
-29-
proceeds therefrom to fund the operations of the MDI Business, including
employee compensation (but excluding payments under Section 20 hereof) and the
payment of trade payables. In the event that such collections are insufficient
to fund such operations, APU agrees to advance sufficient funds to continue such
operations and to comply with Section 7.12 hereof as of the Closing Date. In
the event that, at the time of the Closing, the Seller has any cash on hand
relating to the MDI Business, it shall be permitted to retain such cash to the
extent that the amount owed to APU by MDI under the APU Credit Agreement at the
time of the Merger exceeds $5.6 million, and any additional cash relating to the
MDI Business remaining after such repayment shall be transferred to the Buyer as
required by Section 1.2(a)(iii) hereof.
5.10 Merger of MDI and Seller. As a result of the Merger, the Seller
------------------------
will be directly responsible for the representations and warranties contained
herein relating to the MDI Business. Prior to the Closing, MDI shall be merged
with and into the Seller and, by operation of law, the MDI Business shall become
the property of the Seller. At the Closing, the Seller shall transfer the
Assets to the Buyer in accordance with Subsection 7.15(a) hereof and the Buyer
shall assume the Assumed Liabilities from the Seller in accordance with
Subsection 1.5 hereof.
6. Best Efforts to Obtain Satisfaction of Conditions
-------------------------------------------------
6.1 Satisfaction of Conditions. The Seller Entities and the Buyer
--------------------------
covenant and agree to use their best efforts to obtain the satisfaction of the
conditions specified in this Agreement. The Buyer agrees to cooperate with the
Seller Entities in efforts to obtain, or cause to be obtained, prior to the
Closing Date, consents to the assignment to and assumption by the Buyer of all
licenses, leases, and other contracts and instruments and rights set forth on
Schedule 2.16 attached hereto that require the consent of any third party by
-------------
reason of the transactions contemplated by this Agreement; provided, however,
that the Seller Entities shall be required to obtain the consents to the
contracts set forth on Schedule 6.1 attached hereto (the "MATERIAL CONSENTS")
------------
prior to Closing.
6.2 Xxxx-Xxxxx-Xxxxxx-Act. Each of the Parties shall promptly file
---------------------
any Notification and Report Forms and related material that it may be required
to file with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the Xxxx-Xxxxx-Xxxxxx Act ("HSR"),
shall use its best efforts to obtain an early termination of the applicable
waiting period, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable; provided, however,
that neither of the Buyer Entities shall be obligated to respond to formal
requests for additional information or documentary material pursuant to 16 C.F.
R. 803.20 under HSR except to the extent it elects to do so in its sole
discretion.
7. Conditions to Obligations of the Buyer Entities
-----------------------------------------------
-30-
The obligations of the Buyer Entities under this Agreement are subject
to the fulfillment, at the Closing Date, of the following conditions precedent,
each of which may be waived in writing in the sole discretion of either of the
Buyer Entities:
7.1 Continued Truth of Representations and Warranties of the Seller
---------------------------------------------------------------
Entities; Compliance with Covenants and Obligations. The representations and
---------------------------------------------------
warranties of the Seller Entities (other than the representations and warranties
in Sections 2.10 and 2.14) shall be true on and as of the Closing Date and the
representations and warranties of the Seller Entities in Sections 2.10 and 2.14
shall be true on and as of the Schedule Date, as though such representations and
warranties were made on and as of such respective dates, except for any changes
permitted by the terms hereof or consented to in writing by the Buyer or
Peritus. The Seller Entities shall have performed and complied with all terms,
conditions, covenants, obligations, agreements and restrictions required by this
Agreement to be performed or complied with by each of them, respectively, prior
to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of each of the Seller Entities to authorize or
carry out the Merger and this Agreement and to convey, assign, transfer and
deliver the Assets shall have been taken.
7.3 Governmental Approvals. All governmental agencies, departments,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation,
including without limitation the Xxxx-Xxxxx-Xxxxxx Act, for the consummation by
the Seller Entities of the Merger and the transactions contemplated by this
Agreement and the operation of the MDI Business by the Buyer shall have
consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Seller
----------------------------------------------------
shall have received the Material Consents and all consents necessary to effect
the Merger and transfer ownership of the Assets from MDI to the Seller
immediately prior to the Closing.
7.5 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the Merger or the transactions contemplated by this Agreement or
which might affect the right of the Buyer to own or use the Assets after the
Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of
------------------
Xxxxxxx, Muething & Xxxxxxx, P.L.L., counsel to the Seller Entities, dated as of
the Closing Date, in such form as the Buyer or its counsel shall reasonably
request,
-31-
including that the Merger does not affect the transfer of the Assets or the MDI
Business to the Buyer in accordance with this Agreement.
7.7 [Intentionally omitted].
-----------------------
7.8 The Assets. Except for the Permitted Encumbrances, at the
----------
Closing the Buyer shall receive good, clear, record and marketable title to the
Assets, free and clear of all liens, liabilities, security interests and
encumbrances of any nature whatsoever.
7.9 Update. The Seller Entities shall have provided the Buyer with a
------
true, correct and complete list and amount, as of the Schedule Date, of:
(a) the Fixed Assets;
(b) the Accounts Receivable, including an aging thereof;
(c) the trade accounts payable and accrued expenses assumed pursuant
to Subsection 1.5(a)(i) and (ii) hereof;
(d) all unfilled customer orders; and
(e) all shipments made during the period from October 1, 1997 through
the Schedule Date,
the nature of which information shall not be materially different from the
information supplied by the Seller Entities as of the date hereof on Schedules
---------
2.10 and 2.14 attached hereto.
---- ----
7.10 Assignment of Insurance Policies. On or prior to the Closing
--------------------------------
Date, the Seller Entities shall have assigned to the Buyer the insurance policy
with Lloyds of London (Policy No. MPL00673800).
7.11 [Intentionally omitted].
-----------------------
7.12 Trade Payables. On the Closing Date, there shall be no
--------------
obligations to suppliers and vendors of goods and services and other trade
creditors with respect to the MDI Business which have been outstanding for more
than three months.
7.13 Registration Rights Waivers. On or prior to the Closing Date,
---------------------------
Peritus shall have received from the necessary number of signatories to that
certain Registration Rights Agreement dated as of March 15, 1996, as amended, by
and among Peritus and the signatories thereto, a waiver of Section 15(i) of such
-32-
agreement prohibiting the grant by Peritus to any third party of any
registration rights more favorable than or inconsistent with those contained
within such agreement.
7.14 [Intentionally omitted].
-----------------------
7.15 Closing Deliveries. The Buyer shall have received at or prior to
------------------
the Closing each of the following documents:
(a) a xxxx of sale substantially in the form attached hereto as
Exhibit B;
---------
(b) such instruments of conveyance, assignment and transfer, in form
and substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good, clear, record and
marketable title to the Assets except for the Permitted Liens;
(c) all technical data, formulations, product literature and other
documentation relating to the MDI Business;
(d) such contracts, files and other data and documents pertaining to
the Assets or the MDI Business as the Buyer may reasonably request;
(e) copies of the general ledgers and books of account relating to the
MDI Business, and all federal, state and local income, franchise, property and
other Tax Returns, or relevant portions thereof, filed by the Seller Entities
with respect to the Assets since inception;
(f) such certificates of the Seller's officers and such other
documents evidencing satisfaction of the conditions specified in Section 7 as
the Buyer shall reasonably request;
(g) a certificate of the Secretary of State of the Commonwealth of
Pennsylvania as to the legal existence and good standing of the Seller and a
certificate of the Secretary of State of the State of Ohio as to the legal
existence and good standing of MDI immediately prior to the Merger;
(h) a certificate of the Secretary or Assistant Secretary of each
Seller Entity attesting to the incumbency of such Seller's Entity's officers,
the authenticity of the resolutions authorizing the transactions contemplated by
the Agreement, and the authenticity and continuing validity of the charter
documents delivered pursuant to Subsection 2.1;
-33-
(i) estoppel certificates from each lessor with respect to the Leases
consenting to the assumption of such Lease by the Buyer and representing that
there are no outstanding claims under any such Lease;
(j) the schedules listed in Subsection 7.9;
(k) evidence of compliance with all state and federal environmental,
occupational, work place disclosure and right to know laws with respect to the
MDI Business;
(l) the Registration Rights Agreement substantially in the form
attached hereto as Exhibit C;
---------
(m) cross receipt executed by the Buyer and the Seller;
(n) assignment of the corporate name Millennium Dynamics, Inc.;
(o) such other documents, instruments or certificates as the Buyer may
reasonably request;
(p) certificates of the Secretaries of State of the State of Ohio and
the Commonwealth of Pennsylvania as to the completion of the Merger; and
7.16 Financial Statements. Peritus shall have received from the
--------------------
Seller Entities on or prior to the Closing Date the financial statements of MDI
required by Item 7(a) of the Commission's Current Report on Form 8-K, which
financial statements will conform to the requirements of and for the periods
specified in Rule 3-05(b) of Regulation S-X of the Commission, including audited
financial statements of MDI for the three and nine months ended September 30,
1997.
7.17 Offer of Employment by Seller Entities. One or more Affiliates
--------------------------------------
of the Seller shall have offered the employees of MDI listed on Schedule 7.17
-------------
attached hereto positions of employment that are substantially equivalent in
terms of compensation and working conditions to their current positions with
MDI.
8. Conditions to Obligations of the Seller Entities
------------------------------------------------
The obligations of the Seller Entities under this Agreement are subject to
the fulfillment, at the Closing Date, of the following conditions precedent,
each of which may be waived in writing at the sole discretion of either of the
Seller Entities:
8.1 Continued Truth of Representations and Warranties of the Buyer
--------------------------------------------------------------
Entities; Compliance with Covenants and Obligations. The representations and
---------------------------------------------------
warranties of each of the Buyer Entities in this Agreement shall be true on and
as of
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the Closing Date as though such representations and warranties were made on and
as of such date, except for any changes consented to in writing by the Seller
Entities. The Buyer Entities shall have performed and complied with all terms,
conditions, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by any of them, respectively, prior to or at
the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of each of the Buyer Entities to authorize or
carry out this Agreement shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer
----------------------------------------------------
shall have received all requisite consents and approvals of all lenders, lessors
and other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement.
8.5 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Seller to transfer the Assets.
8.6 Opinion of Counsel. The Seller shall have received an opinion of
------------------
Xxxx and Xxxx LLP, counsel to the Buyer Entities, dated as of the Closing Date,
in such form as the Seller or its counsel shall reasonably request.
8.7 Closing Deliveries. The Seller shall have received at or prior
------------------
to the Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 8 as the
Seller shall reasonably request;
(b) a certificate of the Secretary of State of the State of Delaware
as to the legal existence and good standing of the Buyer in Delaware;
(c) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the legal existence and good standing of Peritus in
Massachusetts;
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(d) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered pursuant
to Subsection 3.1;
(e) Instrument of Assumption of Liabilities executed by the Buyer and
accepted by the Seller;
(f) payment of the Purchase Price;
(g) the Registration Rights Agreement, substantially in the form
attached hereto as Exhibit C;
---------
(h) cross receipt executed by the Buyer and the Seller; and
(i) such other documents, instruments or certificates as the Seller
may reasonably request.
8.8 Update. The Buyer shall have provided the Seller Entities with a
------
true, correct and complete list, as of the date three business days prior to
Closing, of the disclosure schedules referred to in Section 3 of this Agreement,
the nature of the information on which schedules shall not be materially
different from the information supplied by the Buyer as of the date hereof.
8.9 Selection of Director. The Seller shall have received reasonably
---------------------
satisfactory evidence of the election of one director to the Board of Directors
of Peritus pursuant to Section 12 hereof.
8.10 Offer of Employment by Buyer Entities. The Buyer Entities shall
-------------------------------------
have offered to hire as employees at will those individuals employed by MDI and
listed on Schedule 8.10 attached hereto to positions of employment that are
-------------
substantially equivalent in terms of compensation and working conditions to
their current positions with MDI.
9. Indemnification
---------------
9.1 By the Buyer Entities and the Seller Entities. Each of the Buyer
---------------------------------------------
Entities and each of the Seller Entities, jointly and severally, hereby
indemnifies and holds harmless the other Parties against all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) reasonably incurred by either of
the Buyer Entities or either of the Seller Entities, as the case may be, in
connection with each and all of the following:
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(a) Any breach by the indemnifying party of any representation or
warranty in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement, certificate or
schedule furnished by the indemnifying party pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement.
9.2 By the Seller Entities. Each of the Seller Entities further
----------------------
agrees, jointly and severally, to indemnify and hold harmless each of the Buyer
Entities from any and all claims, damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by either of the Buyer Entities, in
connection with each and all of the following:
(a) Any claims against, or liabilities or obligations of, the Seller
Entities or against the Assets not specifically assumed by the Buyer pursuant
this Agreement;
(b) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales laws
in force in the jurisdictions in which such laws may be applicable to either the
Seller Entities or the transactions contemplated by this Agreement;
(c) Any violation by the Seller Entities of, or any failure by the
Seller Entities to comply with, any law, ruling, order, decree, regulation or
zoning, environmental or permit requirement applicable to the MDI Business or
the Assets, whether or not any such violation or failure to comply has been
disclosed to the Buyer or to Peritus, including any costs incurred by the Buyer
or Peritus (i) in order to bring the Assets into compliance with environmental
laws as a consequence of noncompliance with such laws on the Closing Date or
(ii) in connection with the transfer of the Assets; and
(d) Any Tax liabilities or obligations of the Seller Entities.
9.3 By the Buyer Entities. Each of the Buyer Entities further
---------------------
agrees, jointly and severally, to indemnify and hold harmless each of the Seller
Entities from any and all claims, damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by
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either of the Seller Entities, in connection with any failure by the Buyer to
pay, perform or discharge any Assumed Liabilities.
9.4 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification hereunder the Party seeking indemnification (the "INDEMNIFIED
PARTY"), shall promptly notify the Party from whom indemnification is sought
(the "INDEMNIFYING PARTY") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third-party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as provided
in Subsection 9.5 of this Agreement.
9.5 Defense by Indemnifying Party. In connection with any claim
-----------------------------
giving rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within one month after the date such claim is made, (a)
provided that counsel for the Indemnified Party shall have been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld, the
Indemnified Party may defend against such claim or litigation, in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the Indemnifying Party, on such
terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying
Party shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense. If the Indemnifying Party
thereafter seeks to question the manner in which the Indemnified Party defended
such third-party claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such third-party
claim in a reasonably prudent manner.
9.6 Payment of Indemnification Obligation. All indemnification by
-------------------------------------
the Buyer Entities or the Seller Entities hereunder (to the extent not satisfied
in the manner specified in the preceding sentence) shall be effected by payment
of cash or delivery of a cashier's or certified check in the amount of the
indemnification liability.
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In no event shall the amount of any recovery by the Buyer Entities or the Seller
Entities hereunder, after taking into consideration insurance proceeds, if any,
be more than 100% of any loss.
9.7 Survival of Representations; Claims for Indemnification. All
-------------------------------------------------------
representations and warranties made by the Parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the Parties. All such
representations and warranties shall expire on the first anniversary of the
Closing Date, except for claims, if any, asserted in writing prior to such first
anniversary, which shall survive until finally resolved and satisfied in full.
All claims and actions for indemnity pursuant to this Section 9 for breach of
any representation or warranty shall be asserted or maintained in writing by a
Party hereto on or prior to the expiration of such one-year period.
Notwithstanding anything to the contrary in this Section 9 (i) no Buyer Entity
shall be entitled to receive, and no Seller Entity shall be obligated to pay,
the first $250,000 in the aggregate of indemnity obligations otherwise payable
by a Seller Entity to a Buyer Entity pursuant to breaches of the joint and
several representations and warranties of each Seller Entity contained in
Section 2 of this Agreement and (ii) no Seller Entity shall be entitled to
receive, and no Buyer Entity shall be obligated to pay the first $250,000 in the
aggregate of indemnity obligations otherwise payable by a Buyer Entity to a
Seller Entity pursuant to breaches of the joint and several representations and
warranties of each Buyer Entity contained in Section 3 of this Agreement.
10. Restricted Stock
----------------
10.1 Restricted Shares. Because the Shares will not have been
-----------------
registered under the Securities Act, or applicable state securities laws as of
the Closing Date, the Seller is aware that any resale inconsistent with the
Securities Act may create liability on its part and/or the part of Peritus, and
agrees not to assign, sell, pledge, transfer or otherwise dispose of or transfer
any Shares unless registered under the Securities Act and applicable state
securities laws, or an opinion is given by counsel satisfactory to Peritus that
such registration is not required.
10.2 Share Legend. The Seller agrees that each certificate
------------
representing any of the Shares will bear a legend substantially as follows:
"These shares have not been registered under the Securities Act
of 1933, as amended. They may not be offered or transferred by
sale, assignment, pledge or otherwise unless (i) a registration
statement for the shares under the Securities Act of 1933, as
amended, is in effect or (ii) the corporation has received an
opinion of counsel, which opinion is satisfactory to the
-39-
corporation, to the effect that such registration is not required
under the Securities Act of 1933, as amended."
11. Post-Closing Agreements
-----------------------
Each of the Seller Entities agrees that from and after the Closing Date:
11.1 Proprietary Information.
-----------------------
(a) Each Seller Entity shall hold in confidence, and use its best efforts to
have all of its officers, directors and personnel hold in confidence, all
knowledge and information of a secret or confidential nature with respect to the
MDI Business and shall not disclose, publish or make use of the same without the
consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Seller
Entities.
(b) Each of the Seller Entities agrees that the remedy at law for any
breach of this Subsection 11.1 would be inadequate and that the Buyer shall be
entitled to injunctive relief in addition to any other remedy it may have upon
breach of any provision of this Subsection 11.1.
11.2 No Solicitation or Hiring of Certain Employees. Except as
-----------------------------------------------
provided by law or as set forth herein, for a period of three years after the
Closing Date, no Seller Entity shall solicit any person who was an employee
engaged in the MDI Business on the Closing Date and hired by the Buyer on the
Closing Date to terminate employment with the Buyer or to become an employee of
a Seller Entity, unless such employee is terminated by the Buyer. Except as
provided by law or as set forth herein, for a period of three years after the
Closing Date, no Buyer Entity shall solicit any person employed by APU or any
Affiliate of APU who, as of the Closing Date, was an employee (i) engaged in
the MDI Business or (ii) employed by APU or any of its Affiliates in an
executive capacity or in computer research and development, if such employee was
(a) employed by APU or any Affiliate of APU on the Closing Date or (b) hired by
APU or any Affiliate of APU on or within three days of the Closing Date, unless
such employee is terminated by APU or such Affiliate.
11.3 Non-Competition and Non-Solicitation.
------------------------------------
(a) In consideration of the Purchase Price, the Seller agrees that during the
three-year period beginning on the Closing Date (the "NON-COMPETITION PERIOD"),
it will not in any capacity, either separately, jointly, or in association with
others, directly or indirectly, as an officer, director, consultant, agent,
employee, owner, partner, joint venturer, distributor, dealer, representative,
stockholder, investor, lender or otherwise, engage or have a financial interest
in any business located anywhere in the Restricted Area (as herein defined)
which, as of the Closing
-40-
Date, competes with either Buyer Entity or with any affiliates thereof
(excepting only the ownership by the Seller Entities and their affiliates of the
outstanding securities of Peritus and the ownership of not more than 5% of the
outstanding securities of any class listed on an exchange or regularly traded in
the over-the-counter market). "RESTRICTED AREA" means the entire world. An
entity shall be deemed to compete with a Buyer Entity or an affiliate as of a
particular time if the entity then manufactures, produces or markets any product
or service which is competitive with, and may be purchased in replacement or
substitution of, any product or service which was being designed, manufactured,
produced, marketed or developed by MDI prior to the Merger, and which is then
being designed, manufactured, produced, marketed or developed by a Buyer Entity
or an affiliate. A product or service shall be deemed to be under development
by MDI, a Buyer Entity or an affiliate of a Buyer Entity, as the case may be, as
of a particular date only if MDI, such Buyer Entity or such affiliate, as the
case may be, have devoted significant resources to the development thereof and
intends to market such product or service within the next 365 days of such date.
(b) The Seller further agrees that during the Non-Competition Period it will
not in any capacity, either separately, jointly or in association with others,
directly or indirectly, solicit, divert or take away, attempt to take away or
otherwise contact any of the clients, customers, accounts, distributors, dealers
or representatives of either Buyer Entity as shown by the records of such Buyer
Entity, that were clients, customers, distributors, accounts, dealers or
representatives of the Seller at any time during the two years immediately
preceding the Closing Date if such solicitation or contact is for the specific
purpose of selling products or services that compete with any products or
services that either of the Buyer Entities had available for sale to its
clients, customers, accounts, distributors, dealers or representatives or
prospects on the Closing Date. The Seller further agrees that during the Non-
Competition Period it will not in any capacity, either separately, jointly or in
association with others, directly or indirectly, recruit, solicit or hire (other
than by means of general advertising) any employee or consultant of a Buyer
Entity or induce or attempt to induce any employee or consultant of a Buyer
Entity to terminate his or her employment or consultancy with, or otherwise
cease his or her relationship with, such Buyer Entity.
(c) The Parties agree that the duration and geographic scope of the
non-competition and non-solicitation provisions set forth in this Section 11.3
are reasonable. In the event that any court determines that the duration or the
geographic scope, or both, are unreasonable and that such provisions are to that
extent unenforceable, the parties hereto agree that the provisions shall remain
in full force and effect for the greatest time period and in the greatest area
that would not render them unenforceable. The parties intend that these non-
competition and non-solicitation provisions shall be deemed to be a series of
separate covenants, one for each and every county of each and every state of the
United States of America and
-41-
each and every political subdivision of each and every country outside the
United States of America where this provision is intended to be effective. The
Seller agrees that damages are an inadequate remedy for any breach of these
provisions and that each of the Buyer Entities shall, whether or not it is
pursuing any potential remedies at law, be entitled to equitable relief in the
form of preliminary and permanent injunctions without bond or other security
upon any actual or threatened breach of these non-competition and non-
solicitation provisions.
(d) The provisions of Sections 11.2 and 11.3 of this Agreement supersede the
non-competition and non-solicitation provisions in the Confidentiality
Agreement.
11.4 Sharing of Data.
---------------
(a) The Seller shall have the right for a period of five years following the
Closing Date to have reasonable access to such books, records and accounts,
including financial and tax information, correspondence, production records,
employment records and other similar information as are transferred to the Buyer
pursuant to the terms of this Agreement for the limited purposes of concluding
its involvement in the MDI Business prior to the Closing Date and for complying
with its obligations under applicable securities, tax, environmental, employment
or other laws and regulations. The Buyer shall have the right for a period of
five years following the Closing Date to have reasonable access to those books,
records and accounts, including financial and tax information, correspondence,
production records, employment records and other records which are retained by
the Seller pursuant to the terms of this Agreement to the extent that any of the
foregoing relates to the MDI Business transferred to the Buyer hereunder or is
otherwise needed by the Buyer in order to comply with its obligations under
applicable securities, tax, environmental, employment or other laws and
regulations.
(b) The Seller and the Buyer agree that from and after the Closing Date they
shall cooperate fully with each other to facilitate the transfer of the Assets
from the Seller Entities to the Buyer and the operation thereof by the Buyer.
11.5 Use of Name. The Seller agrees not to use the name "MILLENNIUM
-----------
DYNAMICS, INC." or any derivation thereof after the Closing Date in connection
with any business. Other than to comply with the provisions of the preceding
sentence, the Seller agrees not to use the name "MILLENNIUM DYNAMICS, INC." or
any derivations thereof after the Closing Date.
11.6 Cooperation in Litigation. Each Party will fully cooperate with
-------------------------
the other in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such Party
relating to or arising out of the conduct of the MDI Business prior to or after
the Closing Date
-42-
(other than litigation arising out the transactions contemplated by this
Agreement). The Party requesting such cooperation shall pay the out-of-pocket
expenses (including legal fees and disbursements) of the Party providing such
cooperation and of its officers, directors, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the Party providing such cooperation for such party's
time spent in such cooperation or the salaries or costs of fringe benefits or
similar expenses paid by the Party providing such cooperation to its officers,
directors, employees and agents while assisting in the defense or prosecution of
any such litigation or proceeding.
11.7 Repurchase of Accounts Receivable.
---------------------------------
(a) For a period of 90 days after the Closing Date (the "COLLECTION
PERIOD"), the Buyer shall use its reasonable efforts to collect the Accounts
Receivable. The Buyer may, but shall not be obligated to, use a collection
agency or commence legal actions in connection with such collection efforts. On
the Schedule Date, the Buyer shall give notice to the Seller Entities
designating those Accounts Receivable which the Buyer wishes the Seller to
purchase. Within ten days after receipt of such notice from the Buyer, the
Seller shall purchase (without recourse to the Buyer) such designated Accounts
Receivable then remaining unpaid for a purchase price equal to 90% of the face
amount thereof. Thirty days after the Schedule Date, the Buyer shall give
notice to the Seller designating those remaining Accounts Receivable which the
Buyer wishes the Seller to purchase. Within ten days after receipt of such
notice from the Buyer, the Seller shall purchase (without recourse to the Buyer)
such remaining designated Accounts Receivable for a purchase price equal to 80%
of the face amount thereof. Sixty days after the Schedule Date, the Buyer shall
give notice to the Seller designating those remaining Accounts Receivable which
the Buyer wishes the Seller to purchase. Within ten days after the receipt of
such notice from the Buyer, the Seller shall purchase such remaining designated
Accounts Receivable for a purchase price equal to 70% of the face amount
thereof. Ninety days after the Schedule Date, the Buyer shall give notice to
the Seller designating those remaining Accounts Receivable which the Buyer
wishes the Seller to purchase. Within ten days after the receipt of such notice
from the Buyer, the Seller shall purchase such remaining designated Accounts
Receivable for a purchase price equal to 60% of the face amount thereof.
(b) Upon the Seller's repurchase of any unpaid Account Receivable
pursuant to this Subsection 11.7, (i) the Buyer shall promptly deliver to the
Seller any tangible evidence of such Account Receivable then in the possession
of the Buyer or under its control, and (ii) the Seller shall be entitled to such
customary and reasonable actions as it deems necessary or desirable in order to
collect such unpaid Account Receivable; provided, that the Seller shall consult
with the Buyer prior to taking any collection action which might reasonably be
expected to jeopardize the Buyer's relationship with such customer. The Buyer
will, from time to time after
-43-
such repurchase, execute and deliver to the Seller such instruments and other
documents as the Seller may reasonably request to assist the Seller in its
collection efforts.
(c) In the event that any payment received by the Buyer during the
Collection Period is remitted by a customer which is indebted under both
Accounts Receivable and an account receivable arising out of the sale or license
of inventory, products or services in the ordinary course of business after the
Closing Date (a "NEW RECEIVABLE"), such payments shall first be applied to the
Accounts Receivable due from such customer and the balance remaining after
payment in full of all Accounts Receivable due from such customer shall be
applied to the New Receivable; provided, however, that (i) with respect to any
Account Receivable being contested or disputed by the payor thereof, no portion
of the amount in dispute shall be deemed to have been collected by the Buyer in
respect of the Account Receivable due from such customer (unless otherwise
directed by the customer) until all amounts owed by such customer to the Buyer
for New Receivables have been paid or such dispute has been resolved, whichever
occurs first (it being understood that undisputed amounts of Accounts Receivable
shall be applied in accordance with the priorities set forth above in this
Subsection 11.7) and (ii) the foregoing priorities shall not apply to sums
received by the Buyer which are specifically identified by the customer as being
tendered in payment of a New Receivable. The Buyer agrees not to induce any
customer to identify any payment as being in respect of a New Receivable, except
in the event the Buyer reasonably determines to sell to said customer on a
C.O.D. basis only.
(d) The Buyer will cooperate, at the Seller's expense, with the Seller
in collecting any Accounts Receivable which are repurchased by the Seller
pursuant to this Subsection 11.7; provided, however, that the foregoing shall
not require the Buyer to be a party to any action brought by the Seller to
collect such Accounts Receivable.
(e) The Buyer agrees to furnish to the Seller within 15 days after the
end of each month during the Collection Period a statement setting forth the
Accounts Receivable collected during such month and a trial balance of the
uncollected Accounts Receivable showing the aging thereof as of the end of such
month.
(f) The Seller hereby authorizes the Buyer to open any and all mail addressed
to either Seller Entity (if delivered to the Buyer) if received on or after the
Closing Date and hereby grants to the Buyer a power of attorney to endorse and
cash any checks or instruments made payable or endorsed to either Seller Entity
or its order and received by the Buyer with respect to the MDI Business.
-44-
(g) The Seller agrees that it will forward promptly to the Buyer any monies,
checks or instruments received by the Seller after the Closing Date with respect
to the Accounts Receivable, except with respect to those Accounts Receivable
which are repurchased by the Seller pursuant to this Subsection 11.7.
(h) Any sums received by the Buyer in respect of Accounts Receivable (and so
identified by the relevant account debtor) after their repurchase by the Seller
pursuant to Subsections 11.7(a) hereof shall be promptly transmitted by the
Buyer to the Seller. In addition, if receipt by the Buyer of unidentified sums
of money from an account debtor who owes any Account Receivable repurchased by
the Seller pursuant to Subsections 11.7(a) hereof results in such account debtor
having an aggregate credit balance with the Buyer, the Buyer shall promptly
transmit to the Seller an amount of money equal to the lesser of (a) such
aggregate credit balance or (b) the remaining unpaid balance of all Accounts
Receivable which have been repurchased by the Seller and are payable by such
account debtor to the Seller.
11.8 License. On or after the Closing Date, the Buyer shall grant to
-------
each of APU, American Annuity Group, Inc. and Great American Insurance Company
(collectively, the "USERS") a nonexclusive, perpetual license to use the current
version of Vantage Year 2000 and any other versions of such product subsequently
developed to operate on other operating platforms (the "PRODUCTS"). Each of the
Users shall pay for maintenance of the Products at Buyer's then current rates.
The Buyer shall enter into license agreements with each of the Users to license
such Products containing the Buyer's customary terms and conditions.
11.9 Affiliated Leases. Each of the Seller Entities agrees, and shall
-----------------
cause their Affiliates to agree, that the Lease to MDI with respect to the
property located in the Xxxxx Terminal Building, as in effect as of the date
hereof, shall, upon transfer to the Buyer pursuant to the terms of this
Agreement, remain in effect under the same material terms as in effect on the
date hereof for a period of at least 365 days subsequent to the Closing Date and
shall not be terminated, amended or otherwise materially modified without the
prior written consent of the Buyer.
11.10 Computer Access. Each of the Seller Entities agrees that
---------------
any and all access currently enjoyed by MDI from an Affiliate of the Seller,
pursuant to an oral or written agreement, customary practice or otherwise, to
the mainframe hardware and networks of such Affiliate, and, to the extent that
the Buyer is a tenant in the Xxxxx Terminal Building, telephone and voicemail
systems of such Affiliate, shall remain in effect and be enjoyed by the Buyer
under the same material terms as in effect on the date hereof for a period of at
least one year subsequent to the Closing Date and shall not be terminated,
amended or otherwise materially modified without the prior written consent of
the Buyer. Each of the Seller Entities will offer to extend the computer access
under this Subsection 11.10 for at least two additional years,
-45-
subject to available capacity for the Seller and its Affiliates, at then current
market rates not to exceed ten percent per year above the prior year's rate.
11.11 Benefit Plan Payments. All of the employees engaged in the
---------------------
MDI Business who are participants in the American Financial Group, Inc.
Retirement and Savings Plan (the "AFG PLAN") shall be entitled to the benefits
under the AFG Plan, which shall be paid by the Seller or its Affiliates, through
the Closing Date.
11.12 Bonus Payments. The Seller shall pay any bonuses due to the
--------------
employees engaged in the MDI Business for the year ending December 31, 1997
pursuant to any oral or written bonus plan, arrangement or agreement.
12. Election of Seller Director.
---------------------------
Peritus agrees that upon a written request by the Seller on or within 30
days subsequent to the Closing the Board of Directors of Peritus (the "PERITUS
BOARD") will vote to elect a nominee of the Seller designated in such notice as
a Class II director of the Peritus Board, provided that, such designated nominee
-------------
is approved by the Peritus Board in its reasonable discretion.
13. Termination of Agreement
------------------------
13.1 Termination by Lapse of Time. This Agreement shall terminate at
----------------------------
5:00 p.m., Boston time, on December 31, 1997, if the transactions contemplated
hereby have not been consummated, unless such date is extended by the written
consent of all of the parties hereto.
13.2 Termination by Agreement of the Parties. This Agreement may be
---------------------------------------
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Buyer Entities shall have no further
obligation or liability to the Seller Entities under this Agreement, and the
Seller Entities shall have no further obligation or liability to the Buyer
Entities under this Agreement.
13.3 Termination by Reason of Breach. This Agreement may be
-------------------------------
terminated by the Seller Entities, if at any time prior to the Closing there
shall occur a breach of any of the representations, warranties or covenants of
the Buyer Entities or the failure by the Buyer Entities to perform any condition
or obligation hereunder, and may be terminated by the Buyer Entities, if at any
time prior to the Closing there shall occur a breach of any of the
representations, warranties or covenants of the Seller Entities or the failure
of the Seller Entities to perform any condition or obligation hereunder.
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14. Transfer and Sales Tax
----------------------
Notwithstanding any provisions of law imposing the burden of such Taxes on
the Seller or the Buyer, as the case may be, the Seller shall be responsible for
and shall pay (a) all sales, use and transfer Taxes, and (b) all governmental
charges, if any, upon the sale or transfer of any of the Assets hereunder or
related to the Merger. If the Seller shall fail to pay such amounts on a timely
basis, the Buyer may pay such amounts to the appropriate governmental authority
or authorities, and the Seller shall promptly reimburse the Buyer for any
amounts so paid by the Buyer.
15. Brokers
-------
15.1 For the Seller. Each of the Seller Entities represents and
--------------
warrants that it has not engaged any broker or finder other than NationsBanc
Xxxxxxxxxx Securities, Inc. ("XXXXXXXXXX") or incurred any liability for
brokerage fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement other than to Xxxxxxxxxx. The Seller agrees to
pay all fees, expenses and other compensation owed to Xxxxxxxxxx. The Seller
agrees to indemnify and hold harmless the Buyer against any claims or
liabilities asserted against it by any person acting or claiming to act as a
broker or finder on behalf of the Seller Entities.
15.2 For the Buyer. The Buyer and Peritus each represents and
-------------
warrants that it has not engaged any broker or finder other than X.X. Xxxxxxxxxx
& Co., Inc. ("XXXXXXXXXX") or incurred any liability for brokerage fees,
commission or finder's fees in connection with the transactions contemplated by
this Agreement. The Buyer or Peritus each agrees to pay all fees, expenses and
other compensation owed to Xxxxxxxxxx. The Buyer and Peritus each agrees to
indemnify and hold harmless the Seller against any claims or liabilities
asserted against it by any person acting or claiming to act as a broker or
finder on behalf of the Buyer or Peritus.
16. Notices
-------
Any notice, request, demand, claim, or other communication hereunder shall be
in writing. Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly delivered four business days after it is sent by United
States certified mail, return receipt requested, postage prepaid, or one
business day after it is sent via a reputable overnight courier service, in each
case to the intended recipient as set forth below:
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To MDI: Copy to:
Millennium Dynamics, Inc. Xxxxxxx, Muething & Xxxxxxx, P.L.L.
00 Xxxx Xxxxxx Xxxxxx 0000 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000 One East Fourth Street
Attention: Xxxxxxx X. Xxxx, Esq. Xxxxxxxxxx, Xxxx 00000
Vice President and General Counsel Attention: Xxxx X. Xxxxxxxx, Esq.
To the Seller: Copy to:
American Premier Underwriters, Inc. Xxxxxxx, Muething & Xxxxxxx, P.L.L.
Xxx Xxxx Xxxxxx Xxxxxx 0000 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000 Xxx Xxxx Xxxxxx Xxxxxx
Attention: Xxxxx X. Xxxxxxx, Esq. Xxxxxxxxxx, Xxxx 00000
Deputy General Counsel and Attention: Xxxx X. Xxxxxxxx, Esq.
Secretary
To the Buyer: Copy to:
Twoquay, Inc. Xxxx and Xxxx LLP
c/o Peritus Software Services, Inc. 00 Xxxxx Xxxxxx
000 Xxxxxxx Xxxx Xxxxxx, Xxxxxxxxxxxxx 00000
Xxxxxxxxx, Xxxxxxxxxxxxx 00000-0000 Attention: Xxxxx X. Xxxx, Esq.
Attention: Xxxxxx X. XxXxxxxx, Esq.
Vice President and General Counsel
To Peritus: Copy to:
Peritus Software Services, Inc. Xxxx and Xxxx LLP
000 Xxxxxxx Xxxx 00 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000-0000 Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X. XxXxxxxx, Esq. Attention: Xxxxx X. Xxxx, Esq.
Vice President and General Counsel
Either Party may give any notice, request, demand, claim or other communication
hereunder by personal delivery or telecopy, but no such notice, request, demand,
claim or other communication shall be deemed to have been duly given unless and
until it actually is received by the Party or individual for whom it is
intended. Any notice sent by telecopy shall be followed by a confirmation copy
sent by reputable overnight business courier service. Either Party may change
the address to which
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notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
17. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer and the Seller Entities may not assign their respective obligations
hereunder without the prior written consent of the other party; provided,
however, that the Buyer may assign this Agreement, and its rights and
obligations hereunder, to a subsidiary or Affiliate. Any assignment in
contravention of this provision shall be void. No assignment shall release the
Buyer or Peritus from any obligation or liability under this Agreement.
18. Entire Agreement; Amendments; Attachments
-----------------------------------------
(a) This Agreement, all Schedules and Exhibits hereto, the Confidentiality
Agreement and all agreements and instruments to be delivered by the parties
pursuant hereto represent the entire understanding and agreement between the
Parties with respect to the subject matter hereof and supersede all prior oral
and written and all contemporaneous oral negotiations, commitments and
understandings between such Parties. The Buyer Entities and the Seller Entities,
by the consent of their respective Boards of Directors, or officers authorized
by such Boards, may amend or modify this Agreement, in such manner as may be
agreed upon, by a written instrument executed by the Buyer Entities and the
Seller Entities.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
19. Expenses
--------
Except as otherwise expressly provided herein, the Buyer and the Seller shall
each pay their own expenses, including without limitation, legal, accounting,
HSR filing fees, investment banking and other professional fees, in connection
with this Agreement and the transactions contemplated hereby, including without
limitation the Merger.
20. Severance and Termination Payments.
----------------------------------
The Seller shall pay all severance, termination and other payments (whether
in the form of cash, securities or other consideration) pursuant to any written
or oral agreements of the Seller, MDI or their Affiliates and expenses
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applicable to those certain members of executive management listed on Schedule
--------
20 attached hereto, such members of executive management representing all of the
--
members of executive management to whom severance, termination and other
payments are due pursuant to such written or oral agreements, and provided the
Buyer complies with Section 8.10 of this Agreement, any other compensation
payable to employees engaged in the MDI Business under applicable plant closing
or similar laws. In addition to the foregoing, the Seller shall pay up to
$150,000 of severance costs (exclusive of payments under applicable plant
closing and similar laws and any other compensation payable to employees engaged
in the MDI Business) for other employees engaged in the MDI Business whose
employment is terminated during the three days prior to the date hereof or after
the date hereof up to and including the Closing Date. Provided the Seller
complies with Section 7.17 of this Agreement, the Buyer will assume all other
severance obligations (up to an aggregate of $300,000) relating to the employees
engaged in the MDI Business (other than to the extent that those obligations are
covered in the preceding two sentences) whose employment is terminated following
the date of this Agreement.
21. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts, without reference to its conflicts of laws
rules.
22. Section Headings
----------------
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
23. Severability
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
24. Counterparts
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
PERITUS SOFTWARE SERVICES, INC.
/s/ Xxxxx X. Xxxxx
------------------
By: Xxxxx X. Xxxxx
Title: Vice President, Finance
TWOQUAY, INC.
/s/ Xxxxx X. Xxxxx
------------------
By: Xxxxx X. Xxxxx
Title: Treasurer
AMERICAN PREMIER UNDERWRITERS, INC.
/s/ Xxxxx X. Xxxxx
------------------
By: Xxxxx X. Xxxxx
Title: Senior Vice President
MILLENNIUM DYNAMICS, INC.
/s/ Xxxx X. Xxxxxxx
-------------------
By: Xxxx X. Xxxxxxx
Title: President
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