CONFORMED COPY
Exhibit 2.0
ASSET PURCHASE AGREEMENT
BY AND AMONG
PEGASYSTEMS INC.,
1MIND CORPORATION, 0XXXX.XXX, LLC
AND
ALL OF THE EQUITY HOLDERS OF
1MIND CORPORATION
JANUARY 29, 2002
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE; CLOSING .......................................1
1.1 Purchase and Sale of Purchased Assets ..............................1
1.2 Excluded Assets ....................................................2
1.3 Assumption of Liabilities ..........................................2
1.4 Reserved ...........................................................3
1.5 The Closing ........................................................3
1.6 Further Assurances .................................................3
1.7 Actions at the Closing .............................................3
1.8 Initial Shares, Warrants and Escrow Shares .........................4
1.9 Earnout ............................................................6
1.10 Backlog Margin Adjustment ..........................................9
1.11 Earnout and Backlog Margin Adjustment Procedures ..................10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS ...................11
2.1 Organization, Qualification and Power .............................11
2.2 Capitalization ....................................................12
2.3 Authorization of Transaction ......................................13
2.4 Noncontravention ..................................................13
2.5 Subsidiaries ......................................................13
2.6 Financial Statements ..............................................14
2.7 Absence of Certain Changes ........................................14
2.8 Undisclosed Liabilities ...........................................14
2.9 Tax Matters .......................................................14
2.10 Assets ............................................................15
2.11 Owned Real Property ...............................................16
2.12 Real Property Leases ..............................................16
2.13 Intellectual Property .............................................16
2.14 Contracts .........................................................18
2.15 Accounts Receivable ...............................................19
2.16 Powers of Attorney ................................................19
2.17 Insurance .........................................................19
2.18 Litigation ........................................................20
2.19 Warranties ........................................................20
2.20 Employees .........................................................20
2.21 Employee Benefits .................................................20
2.22 Environmental Matters .............................................22
2.23 Legal Compliance ..................................................23
2.24 Customers and Suppliers ...........................................23
2.25 Permits ...........................................................24
2.26 Certain Business Relationships With Affiliates ....................24
2.27 Brokers' Fees .....................................................24
2.28 Books and Records .................................................24
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2.29 Disclosure ........................................................24
2.30 Projections .......................................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER ....................25
3.1 Organization, Qualification and Corporate Power ...................25
3.2 Capitalization ....................................................25
3.3 Authorization of Transaction ......................................25
3.4 Noncontravention ..................................................26
3.5 Reports and Financial Statements; Backlog. ........................26
3.6 Absence of Material Adverse Change ................................27
3.7 Litigation ........................................................27
3.8 Tax Matters .......................................................27
3.9 Brokers' Fees .....................................................27
3.10 Disclosure ........................................................27
ARTICLE IV COVENANTS OF THE PARTIES ........................................27
4.1 Closing Efforts ...................................................27
4.2 Governmental and Third-Party Notices and Consents. ................27
4.3 Stockholder Approval ..............................................28
4.4 Operation of Business .............................................29
4.5 Access to Information .............................................31
4.6 Exclusivity .......................................................31
4.7 Expenses ..........................................................31
4.8 Use of Name; Dissolution ..........................................32
4.9 Endorsement of Checks, Etc ........................................32
4.10 Accounts Receivable ...............................................32
4.11 Employee Matters; Consulting Arrangement. .........................32
4.12 Bulk Sales ........................................................32
ARTICLE V CONDITIONS TO CONSUMMATION OF SALE ...............................32
5.1 Conditions to Obligations of the Buyer ............................32
5.2 Conditions to Obligations of the Sellers ..........................34
ARTICLE VI INDEMNIFICATION .................................................35
6.1 Indemnification by the Company Equity Holders .....................35
6.2 Indemnification by the Buyer ......................................36
6.3 Indemnification Claims ............................................36
6.4 Survival of Representations and Warranties ........................39
6.5 Limitations .......................................................40
ARTICLE VII MATTERS REGARDING COMPANY EQUITY HOLDER
REPRESENTATIVE, TRANSFERABILITY OF WARRANTS AND
PAYMENT SHARES, ETC. .......................................................40
7.1 Appointment and Powers of the Company
Equity Holder Representative ......................................40
7.2 Restrictions on Transferability of Warrants and
Payment Shares; Legend; Rule 144 ..................................42
7.3 Additional Investment Representations and
Warranties of the Company Equity Holders ..........................43
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ARTICLE VIII TERMINATION ...................................................43
8.1 Termination of Agreement ..........................................43
8.2 Effect of Termination .............................................44
ARTICLE IX DEFINITIONS .....................................................44
ARTICLE X MISCELLANEOUS ....................................................46
10.1 Press Releases and Announcements ..................................46
10.2 No Third Party Beneficiaries ......................................46
10.3 Entire Agreement ..................................................46
10.4 Succession and Assignment .........................................47
10.5 Counterparts and Facsimile Signature ..............................47
10.6 Headings ..........................................................47
10.7 Notices ...........................................................47
10.8 Governing Law .....................................................48
10.9 Amendments and Waivers ............................................48
10.10 Severability ......................................................48
10.11 Submission to Jurisdiction ........................................48
10.12 Construction ......................................................49
EXHIBITS:
Exhibit 1.2 Excluded Assets
Exhibit 1.3 Assumed Liabilities
Exhibit 1.7 Escrow Agreement
Exhibit 1.8(b)(ii) Form of Warrant
Exhibit 1.8(c)(i) Company Stockholders
Exhibit 1.8(c)(ii) Company Option Holders
Exhibit 1.9 Examples of Earnout Consideration Calculation
Exhibit 1.10 Sellers' Backlog Information
Exhibit 5.1(g) Form of Opinion of Counsel to the Sellers
Exhibit 5.1(i) Form of Noncompete, Nondisclosure and Developments Agreement
Exhibit 5.1(j) Form of Lock-Up Agreement
Exhibit 5.1(k) Form of Key Employee Lock-Up Agreement
Exhibit 5.2(f) Form of Opinion of Counsel to the Buyer
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ASSET PURCHASE AGREEMENT
Agreement entered into as of January 29, 2002 by and among Pegasystems
Inc., a Massachusetts corporation (the "Buyer"), 1Mind Corporation, a Delaware
corporation (the "Company"), 0Xxxx.xxx, LLC, a Delaware limited liability
company and a wholly owned subsidiary of the Company (the "Target Subsidiary",
and together with the Company, the "Sellers"), and the Company Equity Holders
(as hereinafter defined). The Buyer, the Company, the Target Subsidiary and the
Company Equity Holders are sometimes referred to collectively herein as the
"Parties" and each individually as a "Party."
The Sellers are engaged in the business of developing, marketing and
licensing customer relationship management software to health care insurance
providers, health care insurance re-insurers and health care insurance brokers
and providing services with respect thereto (the "Business").
This Agreement contemplates the sale by the Sellers, and the purchase
by the Buyer, of substantially all of the assets of the Sellers, and the
assumption by the Buyer, and the assignment by the Sellers, of specified
liabilities of the Sellers (the "Sale"). The Parties intend that the Sale shall
constitute a reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code").
An index of certain defined terms is set forth in Article IX hereof.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
PURCHASE AND SALE; CLOSING
1.1 Purchase and Sale of Purchased Assets. Subject to the terms and
conditions of this Agreement, the Sellers shall sell, convey, transfer, assign
and deliver to the Buyer at the Closing (as hereinafter defined), all of their
respective assets and properties of every kind, nature and description, except
as provided below, free and clear of all Security Interests (as hereinafter
defined) (all of such assets being referred to herein as the "Purchased
Assets"), including without limitation the following assets of the Sellers:
(a) all accounts receivable and deferred revenue;
(b) all cash on hand, if any;
(c) all tangible assets, including without limitation
machinery and equipment, office equipment, furniture, leasehold
improvements, fixtures and other improvements on real estate;
(d) all inventories, including without limitation
work-in-process, finished goods, raw materials, processing materials,
purchased parts and supplies;
(e) originals or duplicate copies of all financial, accounting
and operating data and records, including without limitation all books,
records, notes, sales and sales promotional and marketing data,
advertising materials, credit information, cost and pricing
information, business plans, projections, reference catalogs, payroll
and personnel records and other similar property, rights and
information;
(f) all Company Intellectual Property (as hereinafter
defined), including without limitation all rights in the Company's
products entitled SolutionIN (including but not limited to Sales and
Marketing Automation and Management, Intranet and Internet Automated
Quoting and Proposal Generation, Intranet and Internet Enabled Employer
Group and Member Enrollment, Broker/Distribution Channel Management,
Fulfillment and Materials Management, NCQA/HEDIS Database Management
and Report Preparation, LEGBase Lobbying Management and OpsCenter
Priority Management), SolutionAB (Complete Agency Management System)
and SolutionRE (CRM system for Reinsurance Carriers) (collectively, the
"Seller Products");
(g) all rights (including without limitation the right to
receive payment) under all agreements, contracts, licenses, leases,
sale orders, purchase orders, open bids and other commitments and
arrangements;
(h) all guaranties, indemnities, warranties and warranty
claims and awards, prepaid expenses, deposits and retentions; and
(i) all rights to causes of action, lawsuits, judgments,
claims and demands of any nature available to or being pursued by the
Sellers with respect to the Business or the Purchased Assets.
1.2 Excluded Assets. Notwithstanding the foregoing, the Sellers shall
not transfer to the Buyer, and the Purchased Assets shall not include the
following (collectively, the "Excluded Assets"): (i) the minute books and other
corporate or limited liability records of the Sellers, (ii) the Sellers' rights
under this Agreement, (iii) the Company's membership interest in the Target
Subsidiary or (iv) any of the assets listed on Exhibit 1.2 hereto.
1.3 Assumption of Liabilities. At the Closing, the Buyer shall assume
and agree to pay when due, perform and discharge in accordance with the terms
thereof, the following liabilities and obligations of the Company (the "Assumed
Liabilities"):
(a) all liabilities and obligations of the Sellers for future
performance as of the Closing under all leases, license agreements,
contracts and agreements listed on Section 2.14 of the Sellers'
Disclosure Schedule (as hereinafter defined) and marked with an
asterisk; and
(b) all accounts payable and accrued expenses of the Company
existing as of the Closing, but only to the extent specifically
identified on Exhibit 1.3 hereto.
Except with respect to the Assumed Liabilities, the Buyer shall not
assume and shall not in any way be responsible for any of the debts,
liabilities, or obligations of the Sellers. Without
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limiting the generality of the foregoing, the Buyer shall have no liability for
the following which shall not be included in "Assumed Liabilities": (i) the
outstanding amount of all principal, interest, fees and expenses in respect of
borrowed money, capital leases and installment purchases, (ii) obligations
relating to Taxes (as hereinafter defined), including but not limited to, Taxes
owed by the Sellers associated with the Sale as of the Closing, (iii)
obligations under this Agreement or any agreement entered into in connection
with the transactions contemplated hereby, (iv) liabilities to any Company
Equity Holders or any relative or Affiliate (as hereinafter defined) of any
Company Equity Holder, (v) liabilities with respect to payroll, bonus or
severance arrangements accrued prior to the Closing, or (vi) obligations with
respect to any pension, profit sharing, retirement, employee benefit or similar
plan, benefit or arrangement.
1.4 Reserved.
1.5 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxxxx, Xxxx &
Xxxxxxx in Boston, Massachusetts, commencing at 9:00 a.m. local time on February
8, 2002, or, if all of the conditions to the obligations of the Buyer and the
Sellers to consummate the transactions contemplated hereby have not been
satisfied or waived by such date, on such mutually agreeable later date as soon
as practicable (and in any event not later than three business days) after the
satisfaction or waiver of all conditions (excluding the delivery of any
documents to be delivered at the Closing by the Buyer or the Sellers) set forth
in Article V hereof (the "Closing Date").
1.6 Further Assurances.
(a) At any time and from time to time after the Closing, at
the Buyer's request and without further consideration, the Sellers
promptly shall execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as
the Buyer may reasonably request to more effectively transfer, convey
and assign to the Buyer, and to confirm the Buyer's title to, all of
the Purchased Assets, to put the Buyer in actual possession and
operating control thereof, to assist the Buyer in exercising all rights
transferred at the Closing with respect thereto and to carry out the
purpose and intent of this Agreement.
(b) At any time and from time to time after the Closing, at
the Company's request and without further consideration, the Buyer
promptly shall execute and deliver such instruments of assumption,
assignment and confirmation, and take such other action, as the Sellers
may reasonably request to more effectively transfer, convey and assign
to the Buyer, and to confirm the Buyer's assumption of, the Assumed
Liabilities and to carry out the purpose and intent of this Agreement.
1.7 Actions at the Closing. At the Closing:
(a) the Sellers shall deliver to the Buyer the various
certificates, instruments and documents referred to in Section 5.1;
(b) the Buyer shall deliver to the Sellers the various
certificates, instruments and documents referred to in Section 5.2;
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(c) the Buyer shall deliver a certificate for the Initial
Shares (as hereinafter defined) to the Company;
(d) the Buyer shall deliver the Warrants (as hereinafter
defined) to the Company; and
(e) the Buyer, the Sellers, the Company Equity Holder
Representative (as hereinafter defined) and United States Trust Company
(the "Escrow Agent") shall execute and deliver an escrow agreement in
substantially the form attached hereto as Exhibit 1.7 (the "Escrow
Agreement"), and the Buyer shall deliver to the Escrow Agent a
certificate for the Escrow Shares (as hereinafter defined) being placed
in escrow on the Closing Date in accordance with Section 1.8.
1.8 Initial Shares, Warrants and Escrow Shares.
(a) Certain Definitions.
"Closing Purchase Price" shall mean $3,601,174.
"Company Equity Holders" shall mean, collectively, the Company
Stockholders and the Company Option Holders.
"Company Option Holder" shall mean each Person (as hereinafter
defined) holding Company Options (as hereinafter defined) immediately
prior to the Closing.
"Company Options" shall mean any option to purchase shares of
Company Common Stock (as hereinafter defined).
"Company Stockholder" shall mean each Person holding shares of
Company Common Stock immediately prior to the Closing.
"Escrow Amount" shall mean an amount equal to twenty-five
percent (25%) of the Closing Purchase Price.
"Initial Amount" shall mean an amount equal to seventy-five
percent (75%) of the Closing Purchase Price.
"Payment Shares" shall mean, collectively, the Initial Shares,
the shares of Buyer Common Stock issuable upon exercise of the
Warrants, the Escrow Shares and the Earnout Shares (as hereinafter
defined).
"Person" shall mean any individual or partnership (general or
limited), corporation (including a business trust), limited liability
company, joint stock company, trust, unincorporated association, joint
venture or other entity.
For purposes of this Section 1.8 and Sections 1.10 and 6.3(c)
below, the "Value" of any shares of common stock of the Buyer, $0.01
par value per share ("Buyer Common
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Stock"), shall be the average of the last reported sale prices per
share of the Buyer Common Stock on the Nasdaq National Market over the
ten consecutive trading days ending on the third trading day prior to
the Closing Date (subject to equitable adjustment in the event of any
stock split, stock dividend, reverse stock split or similar event
affecting the Buyer Common Stock), multiplied by the number of such
shares of Buyer Common Stock.
(b) Delivery of Initial Shares, Warrants and Escrow Shares. In
consideration for the Purchased Assets, at the Closing, subject to the
terms and conditions set forth herein, the Buyer shall:
(i) deliver to the Company a stock certificate
representing that number of shares of Buyer Common Stock as
shall have a Value equal to 82.218% of the Initial Amount (the
"Initial Shares"), rounded up to the nearest whole share;
(ii) deliver to the Company a warrant certificate in
the form of Exhibit 1.8(b)(ii) hereto (together with any
substitutions therefor or replacements thereof, collectively,
the "Warrants"), exercisable for the number of shares of Buyer
Common Stock as provided for therein; and
(iii) deliver to the Escrow Agent a stock certificate
(issued in the name of the Escrow Agent or its nominee), to be
held and disbursed in accordance with the terms of the Escrow
Agreement, representing that number of shares of Buyer Common
Stock as shall have a Value equal to the Escrow Amount (the
"Escrow Shares"), rounded down to the nearest whole share. The
Escrow Shares shall be held as a trust fund to secure the
indemnification obligations of the Company Equity Holders set
forth in Article VI hereof and to facilitate the Buyer's
rights of set off under Section 1.10 hereof and shall not be
subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be
held and disbursed solely for the purposes and in accordance
with the terms of the Escrow Agreement.
(c) Distributions to Company Equity Holders.
(i) To Company Stockholders. Following the Closing,
the Company shall distribute to each Company Stockholder that
percentage of the Initial Shares as is set forth opposite such
Company Stockholder's name on Exhibit 1.8(c)(i) hereto, which
percentage represents such Company Stockholder's anticipated
proportionate ownership of the Company Common Stock
outstanding as of the Closing Date. Upon the surrender by the
Company to the Buyer of the certificate representing the
Initial Shares delivered pursuant to paragraph (b)(i) above,
together with a duly executed stock transfer power, the Buyer
shall, or shall cause its transfer agent to, issue stock
certificates to the Company Stockholders in accordance with
the immediately preceding sentence. No fractional Initial
Share shall be distributed to any Company Stockholder.
Instead, the Buyer, or its transfer agent, shall have the
authority to round such Initial Shares up or down to
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the nearest whole number in a manner such that the total
number of Initial Shares to be distributed to the Company
Stockholders equals the total number of Initial Shares.
(ii) To Company Option Holders. Following the
Closing, the Company shall transfer to each Company Option
Holder a portion of its interest in the Warrants in the
percentage set forth opposite such Company Option Holder's
name on Exhibit 1.8(c)(ii) hereto, which percentage represents
such Company Option Holder's anticipated proportionate
ownership of the vested Company Options outstanding as of the
Closing Date. Upon the surrender by the Company to the Buyer
of the warrant certificate delivered pursuant to paragraph
(b)(ii) above, properly executed for assignment, the Buyer
shall execute and deliver individual warrant certificates in
substantially the form of Exhibit 1.8(b)(ii) hereto to the
Company Option Holders in accordance with the immediately
preceding sentence.
1.9 Earnout. As additional consideration for the Purchased Assets,
within fifteen (15) days after the Earnout Payment Date (as hereinafter
defined), subject to the terms and conditions set forth herein, including
without limitation Sections 1.10 and 6.5(b) hereof, the Buyer shall pay, in the
manner described below, an additional amount (the "Stockholder Earnout
Consideration") equal to 82.218% of the Earnout Consideration (as hereinafter
defined).
(a) Certain Definitions.
"Backlog Revenue" shall mean amounts anticipated as of
December 31, 2002 to be recognized as Revenue by the Buyer during
calendar year 2003 from the licensing or servicing of Seller Products
and Buyer Products in respect of arrangements evidenced by executed,
definitive agreements under which the only contingency to such Revenue
being recognized by the Buyer is the performance by the Buyer of its
obligations under such agreements.
"Backlog Revenue Differential" shall mean the difference
obtained by subtracting the Backlog Revenue Threshold Amount from the
Backlog Revenue Target Amount.
"Backlog Revenue Index" shall mean the quotient obtained by
dividing (i) the positive or negative amount by which Backlog Revenue
is greater than or less than the Backlog Revenue Threshold Amount by
(ii) the Backlog Revenue Differential.
"Backlog Revenue Target Amount" shall mean [* - confidential
information filed separately with the SEC].
"Backlog Revenue Threshold Amount" shall mean [* -
confidential information filed separately with the SEC].
"Buyer Products" shall mean those products of the Buyer
targeted primarily to the health care market, including without
limitation those products of the Buyer known as
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PegaCRM Healthcare Claims Exceptions, PegaCRM Healthcare Member
Services (Web/Call Center) and PegaCRM Healthcare Provider Services
(Web/Call Center).
"Earnout Consideration" shall be an amount equal to the
product of $4,325,908 multiplied by the Index Average, subject to
adjustment in accordance with Sections 1.10 and 6.5(b) hereof;
provided, that in no event shall the Earnout Consideration be greater
than $6,008,206 or less than zero. By way of example only, set forth on
Exhibit 1.9 hereto are possible calculations of Earnout Consideration.
"Earnout Period" shall mean calendar year 2002.
"Gross Margin" shall mean the quotient obtained by dividing
Gross Profit by Services Revenue, described as a percentage.
"Gross Margin Differential" shall mean the difference obtained
by subtracting the Gross Margin Threshold Amount from the Gross Margin
Target Amount.
"Gross Margin Index" shall mean the quotient obtained by
dividing (i) the positive or negative amount by which Gross Margin is
greater than or less than the Gross Margin Threshold Amount by (ii) the
Gross Margin Differential.
"Gross Margin Target Amount" shall mean [* - confidential
information filed separately with the SEC].
"Gross Margin Threshold Amount" shall mean [* - confidential
information filed separately with the SEC].
"Gross Profit" shall mean the amount obtained by subtracting
Services Expenses from Services Revenue.
"Incremental Revenue" shall mean Revenue recognized by the
Buyer during the Earnout Period from the licensing or servicing of
Seller Products and Buyer Products, exclusive of Pipeline Revenue and
maintenance revenue.
"Incremental Revenue Differential" shall mean the difference
obtained by subtracting the Incremental Revenue Threshold Amount from
the Incremental Revenue Target Amount.
"Incremental Revenue Index" shall mean shall mean the quotient
obtained by dividing (i) the positive or negative amount by which
Incremental Revenue is greater than or less than the Incremental
Revenue Threshold Amount by (ii) the Incremental Revenue Differential.
"Incremental Revenue Target Amount" shall mean [* -
confidential information filed separately with the SEC].
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"Incremental Revenue Threshold Amount" shall mean [* -
confidential information filed separately with the SEC].
"Index Average" shall mean the amount obtained by dividing (i)
the sum of the Backlog Revenue Index, the Gross Margin Index, the
Incremental Revenue Index and the Pipeline Revenue Index by (ii) four
(4).
"Pipeline Revenue" shall mean Revenue recognized by the Buyer
during the period commencing on the Closing Date and ending on December
31, 2002 and Revenue recognized by the Sellers during the period
commencing on January 1, 2002 and ending on the Closing Date from the
licensing or servicing of Seller Products to those entities listed as
"Company Pipeline Customers" on Section 1.9 of the Sellers' Disclosure
Schedule.
"Pipeline Revenue Differential" shall mean the difference
obtained by subtracting the Pipeline Revenue Threshold Amount from the
Pipeline Revenue Target Amount.
"Pipeline Revenue Index" shall mean the quotient obtained by
dividing (i) the positive or negative amount by which Pipeline Revenue
is greater than or less than the Pipeline Revenue Threshold Amount by
(ii) the Pipeline Revenue Differential.
"Pipeline Revenue Target Amount" shall mean [* - confidential
information filed separately with the SEC].
"Pipeline Revenue Threshold Amount" shall mean [* -
confidential information filed separately with the SEC].
"Revenue" shall mean revenue, excluding revenues of an
extraordinary nature, determined in accordance with United States
generally accepted accounting principles ("GAAP") in a manner
consistent with the Buyer's past practices.
"Services Expense" shall mean (i) the Buyer's direct expenses
incurred or accrued during the Earnout Period associated with the
provision of services by the Buyer related to Seller Products and Buyer
Products, determined in accordance with the methodology used by the
Buyer on the date of this Agreement for purposes of its incentive
compensation plans, plus (ii) an amount equal to thirty-one percent
(31%) of the salary/labor costs included in clause (i) above.
"Services Revenue" shall mean the revenue of the Buyer during
the Earnout Period from the provision of services by the Buyer related
to Seller Products and Buyer Products, excluding maintenance revenue,
determined in accordance with the methodology used by the Buyer on the
date of this Agreement for purposes of its incentive compensation
plans.
(b) Distribution of Stockholder Earnout Consideration. The
Buyer shall distribute to the Company Stockholders (on behalf of the
Company) the Stockholder Earnout Consideration in shares of Buyer
Common Stock or cash, at its option, (after
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giving effect to any offsets or deductions therefrom pursuant to
Sections 1.10 or Section 6.5(b) hereof) in accordance with the
respective percentages set forth opposite the names of such Company
Stockholders on Exhibit 1.8(c)(i) hereto; provided, -----------------
-------- however, that the cash portion of the Stockholder Earnout
Consideration shall be limited to the extent necessary for the -------
Sale to be treated as a tax-free reorganization under Section
368(a)(1)(C) of the Code. To the extent that any Stockholder Earnout
Consideration is paid to the Company Stockholders in shares of Buyer
Common Stock (the "Earnout Shares"), the per share value of Buyer
Common Stock shall be deemed to be equal to the average of the last
reported sale prices per share of Buyer Common Stock on the Nasdaq
National Market over the ten consecutive trading days ending on the
third trading day prior to the Earnout Payment Date, subject to
equitable adjustment in the event of any stock split, stock dividend,
reverse stock split or similar event affecting the Buyer Common Stock.
No fractional share of Buyer Common Stock shall be distributed to any
Company Stockholder hereunder. Instead, the Buyer, or its transfer
agent, shall have the authority to round such shares of Buyer Common
Stock up or down to the nearest whole number in a manner such that the
total number of shares of Buyer Common Stock to be distributed to the
Company Stockholders under this Section 1.9 equals the total number of
Earnout Shares.
1.10 Backlog Margin Adjustment.
(a) Adjustment. In the event that the Company's Pro Forma
Backlog Margin (as hereinafter defined) is less than [* - confidential
information filed separately with the SEC], the Earnout Consideration
shall be reduced by an amount (the "Backlog Margin Adjustment Amount")
equal to the amount by which [* - confidential information filed
separately with the SEC] exceeds the Company's Pro Forma Backlog
Margin. To the extent the Backlog Margin Adjustment Amount exceeds the
Earnout Consideration, the Buyer shall be entitled to recover from the
escrow established pursuant to the Escrow Agreement up to that number
of Escrow Shares as shall have a Value (determined in accordance with
Section 1.8(a) hereof) equal to the amount of such excess, and the
Company Equity Holder Representative and the Buyer shall jointly
instruct the Escrow Agent to deliver those Escrow Shares to the Buyer.
(b) Certain Definitions.
The "Company's Backlog Margin" shall mean the amount obtained
by subtracting (i) the Buyer's direct expenses associated with the
Backlog Revenue (as hereinafter defined), plus an amount equal to
thirty-one percent (31%) of the salary/labor costs included in such
direct expenses from (ii) the Revenue recognized by the Buyer and the
Sellers in 2002, from the licensing or servicing of Seller Products
under the agreements listed on Exhibit 1.10 hereto, excluding (A)
maintenance revenue and (B) the revenue identified on Exhibit 1.10 as
having been recognized by the Company prior to January 1, 2002 (even if
such revenue is subsequently "debooked" and recognized by the Buyer)
(the revenue in this clause (ii) being herein referred to as the
"Company's Backlog Revenue").
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"Foregone Margin" shall mean the amount obtained by
subtracting (i) the direct expenses that could reasonably have been
expected to be incurred by the Buyer in generating the Foregone Revenue
(as defined below), plus an amount equal to thirty-one percent (31%) of
the salary/labor costs included in such direct expenses from (ii) the
Revenue which the Buyer would reasonably have been expected to
recognize in 2002, from the licensing or servicing of Seller Products
under the agreements listed on Exhibit 1.10 hereto, excluding
maintenance revenue, but which the Buyer did not recognize and it can
be reasonably demonstrated that such failure was solely the result of
(A) legal action brought by the Buyer against the customer with respect
to a matter unrelated to the agreement with such customer listed on
Exhibit 1.10 hereto or (B) the Buyer's termination or modification of
the scope of work under any of the agreements listed on Exhibit 1.10
hereto without the consent of the customer or without the customer
being in breach of its obligations under such agreement and such
termination or modification is approved by the President of the Buyer
(the revenue in this clause (ii) being herein referred to as the
"Foregone Revenue").
The "Company's Pro Forma Backlog Margin" shall mean the
Company's Backlog Margin plus the Foregone Margin.
1.11 Earnout and Backlog Margin Adjustment Procedures.
(a) Monthly Reports. Within fifteen (15) days after the last
day of each month during the Earnout Period (commencing with February
2002), the Buyer shall deliver to the Company Equity Holder
Representative a statement setting forth in reasonable detail the
calculation of the Gross Margin, Incremental Revenue, Pipeline Revenue
and the Company's Backlog Margin for the immediately preceding month.
(b) Calculation of Earnout Consideration and Backlog Margin
Adjustment. On or prior to March 31, 2003 (the "Earnout Calculation
Date"), the Buyer shall determine the amount of the Earnout
Consideration, if any, and the Backlog Margin Adjustment Amount, if
any, in accordance with Sections 1.9 and 1.10, respectively, and shall
deliver to the Company Equity Holder Representative a statement setting
forth such amounts and the basis for its determination in reasonable
detail. If the Company Holder Representative does not object to such
statement within ten (10) business days after the delivery thereof (the
"Review Period"), it will be conclusively presumed to have been agreed
to by the Company Equity Holder Representative and shall be binding
upon the Parties. If the Company Equity Holder Representative disagrees
with such statement, the Company Equity Holder Representative shall
notify the Buyer of such disagreement within the Review Period, which
notice shall set forth the basis for such disagreement in reasonable
detail. The Company Equity Holder Representative and the Buyer shall
negotiate in good faith to resolve any such disagreement within ten
(10) business days after the end of the Review Period. Any resolution
agreed to in writing by the Company Equity Holders and the Buyer shall
be final and binding upon the Parties. If the Buyer believes that the
Backlog Margin Adjustment Amount exceeds the Earnout Consideration and
the Buyer seeks to recover such excess amount from the escrow
established pursuant
10
to the Escrow Agreement, the Buyer shall deliver a written notice to
the Escrow Agent (the "Backlog Margin Adjustment Notice") specifying
such excess amount.
(c) Arbitrator. If the Company Equity Holder Representative
and the Buyer are unable to resolve any disagreement as contemplated by
paragraph (b) above, then the Buyer and the Company Equity Holder
Representative shall engage Xxxxx Xxxxxxxx LLP or such other
independent accounting firm acceptable to both the Buyer and the
Company Equity Holder Representative (the "Arbitrator") to resolve such
disagreement. The parties shall instruct the Arbitrator to consider
only those items and amounts as to which the Company Equity Holder
Representative and the Buyer have not resolved their disagreement. The
Arbitrator shall deliver to the Buyer and the Company Equity Holder
Representative, as promptly as practicable, and in any event within
forty-five (45) days of being engaged as the Arbitrator, a written
report setting forth the resolution of such disagreement, determined in
accordance with the terms of this Agreement. Such report shall be final
and binding upon the Parties. The fees, costs and expenses of the
Arbitrator shall be borne one-half by the Company Equity Holder
Representative (on behalf of the Company Equity Holders) and one-half
by the Buyer; provided that if the Arbitrator determines that one
party's position generally prevailed in such determination, then such
party shall pay none of the fees, costs and expenses of the Arbitrator
and the other party shall pay all such fees, costs and expenses. The
date on which the Earnout Consideration, if any, and the Backlog Margin
Adjustment Amount, if any, is finally resolved in accordance with this
Section 1.11 is referred to herein as the "Earnout Payment Date." The
Buyer and the Company Equity Holder Representative shall promptly
deliver a written notice executed by both of them to the Escrow Agent
specifying the Earnout Payment Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers represents and warrants to the Buyer that the
statements contained in this Article II are true and correct, except as set
forth in the disclosure schedule provided by the Sellers to the Buyer on the
date hereof and accepted in writing by the Buyer (the "Sellers' Disclosure
Schedule"). The Sellers' Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II, and the disclosures in any paragraph of the Sellers' Disclosure Schedule
shall qualify only the corresponding paragraph in this Article II. For purposes
of this Article II, the phrase "to the knowledge of the Sellers" or any phrase
of similar import shall be deemed to refer to the actual knowledge of the
executive officers of the Sellers, as well as any other knowledge which such
executive officers would have possessed had they made reasonable inquiry of
appropriate employees and agents of the Sellers with respect to the matter in
question.
2.1 Organization, Qualification and Power. Each of the Sellers is a
corporation, or limited liability company, as the case may be, duly organized,
validly existing and in corporate, or limited liability company, as the case may
be, and tax good standing under the laws of the State of Delaware. Each of the
Sellers is duly qualified to conduct business and is in corporate, or limited
liability company, as the case may be, and tax good standing under the laws of
each
11
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Seller Material Adverse Effect (as
hereinafter defined). Each of the Sellers has all requisite power and authority
to carry on the business in which it is engaged and to own and use the
properties owned and used by it. Each of the Sellers has furnished to the Buyer
complete and accurate copies of its Organizational Documents (as hereinafter
defined), and neither of the Sellers is in default under or in violation of any
provision of such documents. For purposes of this Agreement, "Seller Material
Adverse Effect" means a material adverse effect on the assets, business,
condition (financial or otherwise), results of operations or future prospects of
the Company and the Target Subsidiary, taken as a whole. For purposes of this
Agreement, "Organizational Documents" shall mean, with respect to the Company,
its certificate of incorporation and by-laws, and with respect to the Target
Subsidiary, its certificate of formation and limited liability company
agreement.
2.2 Capitalization. The authorized capital stock of the Company
consists of (a) 50,000,000 shares of common stock, $0.001 par value per share
("Company Common Stock"), of which, as of the date of this Agreement, 10,913,279
shares were issued and outstanding and no shares were held in the treasury of
the Company and (b) 5,000,000 shares of preferred stock, $0.001 par value per
share, none of which were issued and outstanding as of the date of this
Agreement. Section 2.2 of the Sellers' Disclosure Schedule sets forth a complete
and accurate list of (i) all Company Stockholders, indicating the number of
shares of Company Common Stock held by each such Company Stockholder, (ii) all
outstanding Company Options, indicating (A) the holder thereof, (B) the number
of shares of Company Common Stock subject to each such option, (C) the exercise
price, date of grant, vesting schedule and expiration date for each such option
and (D) any terms regarding the acceleration of vesting, and (iii) all stock
option plans and other stock or equity-related plans of the Company. All of the
issued and outstanding shares of Company Common Stock are, and all shares of
Company Common Stock that may be issued upon exercise of Company Options will be
(upon issuance in accordance with their terms), duly authorized, validly issued,
fully paid, nonassessable and free of all preemptive rights. Other than the
options listed in Section 2.2 of the Sellers' Disclosure Schedule, there are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Company is a party or which are binding upon the Company providing
for the issuance or redemption of any of its capital stock. The authorized
capital of the Target Subsidiary consists of one (1) membership interest, of
which the Company owns one hundred percent (100%). There are no outstanding
options, warrants, rights agreements or commitments to which the Target
Subsidiary is a party or which are binding upon the Target Subsidiary providing
for the issuance or redemption of any of its membership interests. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to either of the Sellers. Except as set forth on Section 2.2 of the
Sellers' Disclosure Schedule, there are no agreements to which either of the
Sellers is a party or by which either of them are bound with respect to the
voting (including without limitation voting trusts or proxies), registration
under the Securities Act of 1933 (as amended, the "Securities Act"), or sale or
transfer (including without limitation agreements relating to pre-emptive
rights, rights of first refusal, co-sale rights or "drag-along" rights) of any
securities of the Sellers. To the knowledge of the Sellers, there are no
agreements among other parties, to which the Sellers are not a party and by
which they are
12
not bound, with respect to the voting (including without limitation voting
trusts or proxies) or sale or transfer (including without limitation agreements
relating to rights of first refusal, co-sale rights or "drag-along" rights) of
any securities of the Sellers. All of the issued and outstanding shares of
Company Common Stock of the Company were issued in compliance with applicable
federal and state securities laws. All of the issued and outstanding membership
interests in the Target Subsidiary were issued in compliance with all applicable
federal and state securities laws.
2.3 Authorization of Transaction. Each of the Sellers has all requisite
power and authority to execute and deliver this Agreement and the Escrow
Agreement and to perform its obligations hereunder. The execution and delivery
by the Sellers of this Agreement and the Escrow Agreement and, subject to the
approval of the Sale by the holders of a majority the outstanding shares of
Company Common Stock (the "Requisite Stockholder Approval"), the consummation by
the Sellers of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate, or limited liability company, as the case
may be, action on the part of each of the Sellers. This Agreement and the Escrow
Agreement have been duly and validly executed and delivered by each of the
Sellers and constitutes a valid and binding obligation of each of them,
enforceable against each of them in accordance with its terms.
2.4 Noncontravention. Except as set forth on Section 2.4 of the
Sellers' Disclosure Schedule, neither the execution and delivery by the Sellers
of this Agreement and the Escrow Agreement, nor the consummation by the Sellers
of the transactions contemplated hereby, will (a) conflict with or violate any
provision of the Organizational Documents of the Sellers, (b) require on the
part of the Sellers any filing with, or any permit, authorization, consent or
approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency (a
"Governmental Entity"), (c) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party the right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract or instrument to which either of the Sellers is a party or by which
either of them are bound or to which any of their assets are subject, (d) result
in the imposition of any Security Interest (as hereinafter defined) upon any
assets of either of the Sellers or (e) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to either of the Sellers or any
of their properties or assets. For purposes of this Agreement: "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge or
other lien (whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's, and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course of
Business (as hereinafter defined) of the Company and not material to the
Sellers; and "Ordinary Course of Business" means the ordinary course of the
Sellers' businesses, consistent with past custom and practice (including with
respect to frequency and amount).
2.5 Subsidiaries. Except for the Company's one hundred percent (100%)
ownership interest in the Target Subsidiary, neither of the Sellers has any
subsidiaries and neither of them control directly or indirectly or have any
direct or indirect equity participation or similar interest
13
in any corporation, partnership, limited liability company, joint venture, trust
or other business association.
2.6 Financial Statements. The Company has provided to the Buyer (a) the
unaudited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows of the Company as of and for the year ended
December 31, 2000; and (b) the unaudited consolidated balance sheet and
statements of income, changes in stockholders' equity and cash flows as of and
for the eleven months ended November 30, 2001 (the "Most Recent Balance Sheet
Date"). Such financial statements (collectively, the "Financial Statements")
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, fairly present the consolidated
financial condition, results of operations and cash flows of the Company as of
the respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company; provided, however, that
the Financial Statements do not include footnotes and the Financial Statements
referred to in clause (b) above are subject to normal recurring year-end
adjustments (which will not be material).
2.7 Absence of Certain Changes. Since the Most Recent Balance Sheet
Date, (a) there has occurred no event or development which has had, or could
reasonably be expected to have in the future, a Seller Material Adverse Effect,
and (b) neither the Company nor any Subsidiary has taken any of the actions set
forth in paragraphs (a) through (o) of Section 4.4.
2.8 Undisclosed Liabilities. Neither of the Sellers has any liability
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for (a) liabilities shown
on the balance sheet referred to in clause (b) of Section 2.6 (the "Most Recent
Balance Sheet"), (b) liabilities which have arisen since the Most Recent Balance
Sheet Date in the Ordinary Course of Business and which are similar in nature
and amount to the liabilities which arose during the comparable period of time
in the immediately preceding fiscal period and (c) contractual and other
liabilities incurred in the Ordinary Course of Business which are not required
by GAAP to be reflected on a balance sheet.
2.9 Tax Matters.
(a) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or
other similar assessments or liabilities, including without
limitation income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales,
use, transfer, withholding, employment, unemployment
insurance, social security, business license, business
organization, environmental, workers compensation, payroll,
profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties,
franchise and other taxes imposed by the United States of
America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines,
penalties, assessments or additions to tax
14
resulting from, attributable to or incurred in connection with
any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes.
(b) Each of the Sellers has filed on a timely basis all Tax
Returns that it was required to file, and all such Tax Returns were
complete and accurate in all material respects. Neither of the Sellers
is or has ever been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined or unitary
Tax Returns, other than a group of which only the Sellers are or were
members. Each of the Sellers has paid on a timely basis all Taxes that
were due and payable. The unpaid Taxes of the Sellers for tax periods
through the Most Recent Balance Sheet Date do not exceed the accruals
and reserves for Taxes (excluding accruals and reserves for deferred
Taxes established to reflect timing differences between book and Tax
income) set forth on the Most Recent Balance Sheet. Neither of the
Sellers has any actual or potential liability for any Tax obligation of
any taxpayer other than the Sellers. All Taxes that the Sellers are or
were required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Entity. There is no basis for any Governmental Entity to
assess against either of the Sellers any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax liability of the Sellers claimed or raised by
any Governmental Entity.
(c) The Sellers have delivered to the Buyer complete and
accurate copies of all federal income Tax Returns, examination reports
and statements of deficiencies assessed against or agreed to by the
Sellers since December 31, 2000. No examination or audit of any Tax
Return of the Sellers by any Governmental Entity is currently in
progress or, to the knowledge of the Sellers, threatened or
contemplated. Neither of the Sellers has been informed by any
jurisdiction that the jurisdiction believes that either of the Sellers
was required to file any Tax Return that was not filed. Neither of the
Sellers has waived any statute of limitations with respect to Taxes or
agreed to an extension of time with respect to a Tax assessment or
deficiency. Neither of the Sellers is party to any Tax sharing or Tax
allocation agreement.
2.10 Assets. Except as set forth on Section 2.10 of the Sellers'
Disclosure Schedule, the Sellers have good title to or a valid leasehold or
license interest in each material item of personal property (including without
limitation all Company Intellectual Property) used by them in the Business
(including good and marketable title to all assets reflected on the Most Recent
Balance Sheet, other than material assets disposed of since the date of such
balance sheet in the Ordinary Course of Business). Each of the Sellers owns or
leases all tangible assets necessary for the conduct of its businesses as
presently conducted and as presently proposed to be conducted. Each such
tangible asset is free from material defects, has been maintained in accordance
with normal industry practice, is in good operating condition and repair
(subject to normal wear and tear) and is suitable for the purposes for which it
presently is used. No asset of the Sellers (tangible or intangible) is subject
to any Security Interest.
15
2.11 Owned Real Property. Neither of the Sellers owns any real
property.
2.12 Real Property Leases. Section 2.12 of the Sellers' Disclosure
Schedule lists all real property leased or subleased to or by the Sellers and
lists the term of such lease, any extension and expansion options, and the rent
payable thereunder. The Sellers have delivered to the Buyer complete and
accurate copies of the leases and subleases (as amended to date) listed in
Section 2.12 of the Sellers' Disclosure Schedule. With respect to each lease and
sublease listed in Section 2.12 of the Sellers' Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) neither of the Sellers nor, to the knowledge of the
Sellers, any other party, is in breach or violation of, or default
under, any such lease or sublease, and no event has occurred, is
pending or, to the knowledge of the Sellers, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would
constitute a breach or default by the Sellers or, to the knowledge of
the Sellers, any other party under such lease or sublease;
(c) neither of the Sellers has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold; and
(d) the Sellers are not aware of any Security Interest,
easement, covenant or other restriction applicable to the real property
subject to such lease, except for recorded easements, covenants and
other restrictions which do not materially impair the current uses or
the occupancy by the Sellers of the property subject thereto.
2.13 Intellectual Property.
(a) Each of the Sellers owns or has the right to use all
Intellectual Property (as hereinafter defined) necessary (i) to use,
manufacture, market and distribute the products manufactured, marketed,
sold or licensed, and to provide the services provided, by the Sellers
to other parties (together, the "Customer Deliverables") or (ii) to
operate the Seller's internal systems that are material to the business
or operations of the Sellers, including, without limitation, computer
hardware systems, software applications and embedded systems (the
"Internal Systems"; the Intellectual Property owned by or licensed to
the Sellers and incorporated in or underlying the Customer Deliverables
or the Internal Systems is referred to herein as the "Company
Intellectual Property"). The Company has taken all reasonable measures
to protect the proprietary nature of each item of Company Intellectual
Property. To the knowledge of the Company, (a) no other person or
entity has any rights to any of the Company Intellectual Property owned
by the Company (except pursuant to agreements or licenses specified in
Section 2.13(c) of the Sellers' Disclosure Schedule), and (b) no other
person or entity is infringing, violating or misappropriating any of
the Company Intellectual Property. For purposes of this Agreement,
"Intellectual Property" means all (i) patents and patent applications,
(ii) copyrights and registrations thereof, (iii) mask works and
registrations and applications for registration thereof, (iv) computer
software, data and documentation,
16
(v) 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, (vi)
trademarks, service marks, trade names, domain names and applications
and registrations therefor and (vii) other proprietary rights relating
to any of the foregoing. Section 2.13(a) of the Sellers' Disclosure
Schedule lists each patent, patent application, copyright registration
or application therefor, mask work registration or application
therefor, and trademark, service xxxx and domain name registration or
application therefor of either of the Sellers.
(b) None of the Customer Deliverables, or the marketing,
distribution, provision or use thereof, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of
any person or entity. None of the Internal Systems, or the use thereof,
infringes or violates, or constitutes a misappropriation of, any
Intellectual Property rights of any person or entity. Section 2.13(b)
of the Sellers' Disclosure Schedule lists any complaint, claim or
notice, or written threat thereof, received by the Sellers alleging any
such infringement, violation or misappropriation; and the Sellers have
provided to the Buyer complete and accurate copies of all written
documentation in the possession of the Sellers relating to any such
complaint, claim, notice or threat. The Sellers have provided to the
Buyer complete and accurate copies of all written documentation in the
Seller's possession relating to claims or disputes known to the Sellers
concerning any Company Intellectual Property.
(c) Section 2.13(c) of the Sellers' Disclosure Schedule
identifies each license or other agreement (or type of license or other
agreement) pursuant to which either of the Sellers has licensed,
distributed or otherwise granted any rights to any third party with
respect to, any Company Intellectual Property.
(d) Section 2.13(d) of the Sellers' Disclosure Schedule
identifies each item of Company Intellectual Property that is owned by
a party other than the Sellers, and the license or agreement pursuant
to which either of the Sellers uses it (excluding off-the-shelf
software programs licensed by the Sellers pursuant to "shrink wrap"
licenses).
(e) Except as disclosed in Section 2.13(e) of the Sellers'
Disclosure Schedule, neither of the Sellers has disclosed the source
code for any of the software owned by the Sellers (the "Software") or
other confidential information constituting, embodied in or pertaining
to the Software to any person or entity, and the Sellers have taken
reasonable measure to prevent disclosure of such source code.
(f) Except as described in Section 2.13(f) of the Sellers'
Disclosure Schedule, all of the copyrightable materials (including
Software) incorporated in or bundled with the Customer Deliverables
have been created by employees of the Sellers within the scope of their
employment by the Sellers or by independent contractors of the Company
or a Subsidiary in each case who have executed agreements expressly
assigning all right,
17
title and interest in such copyrightable materials to the Company. No
portion of such copyrightable materials was jointly developed with any
third party.
(g) To the knowledge of the Sellers, the Customer Deliverables
and the Internal Systems are free from significant defects or
programming errors and conform in all material respects to the written
documentation and specifications therefor.
2.14 Contracts.
(a) Section 2.14 of the Sellers' Disclosure Schedule lists the
following agreements, including all amendments and/or modifications
thereto, in each case whether written or oral, to which either of the
Sellers is a party as of the date of this Agreement:
(i) any agreement (or group of related agreements)
for the lease of real or personal property from or to third
parties providing for lease payments in excess of $10,000 per
annum or having a remaining term longer than twelve (12)
months;
(ii) any agreement (or group of related agreements)
for the purchase or sale of products or for the furnishing or
receipt of services (A) which calls for performance over a
period of more than one year, (B) which involves more than the
sum of $10,000, or (C) in which either of the Sellers is
granted "most favored nation" pricing provisions or marketing
or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or
services or has agreed to purchase goods or services
exclusively from a certain party;
(iii) any agreement establishing a partnership, joint
venture; strategic partner or similar arrangement;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed or guaranteed
(or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than
$10,000 or under which it has imposed (or may impose) a
Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or
noncompetition or which places a material limitation on the
method of conducting or the scope of the Sellers' businesses;
(vi) any employment, consulting, severance,
collective bargaining, deferred compensation, benefit or
similar agreement;
(vii) any agreement involving any officer, director
or stockholder of the Company or any affiliate (an
"Affiliate"), as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
thereof;
18
(viii) any agreement under which the consequences of
a default or termination would reasonably be expected to have
a Seller Material Adverse Effect;
(ix) any agreement which contains any provisions
requiring either of the Sellers to indemnify any other party
thereto (excluding indemnities contained in agreements for the
purchase, sale or license of products entered into in the
Ordinary Course of Business);
(x) any agreement under which the amount payable to
or by either of the Sellers is dependent on the revenue,
income or similar measure of the Sellers or any other person
or entity; and
(xi) any other material agreements, contracts,
instruments, commitments plans and arrangements of the
Sellers.
(b) The Sellers have delivered to the Buyer a complete and
accurate copy of each agreement listed in Sections 2.13, 2.14 or
2.21(c) of the Sellers' Disclosure Schedule. With respect to each
agreement so listed: (i) the agreement is legal, valid, binding and
enforceable and in full force and effect; and (ii) neither the Sellers
nor, to the knowledge of the Sellers, any other party, is in breach or
violation of, or default under, any such agreement, and no event has
occurred, is pending or, to the knowledge of the Sellers, is
threatened, which, after the giving of notice, with lapse of time, or
otherwise, would constitute a breach or default by the Sellers, or, to
the knowledge of the Sellers, any other party under such contract, or
would cause the acceleration of any obligation of any party or give
rise to a right of termination or cancellation thereof. The Sellers
have no reason to believe that any party to any agreement listed on
Sections 2.13, 2.14 or 2.21(c) of the Sellers' Disclosure Schedule will
not fulfill all of its obligations thereunder in all material respects.
2.15 Accounts Receivable. Except as disclosed in Section 2.15 of the
Sellers' Disclosure Schedule, all accounts receivable of the Sellers reflected
on the Most Recent Balance Sheet are valid receivables subject to no setoffs or
counterclaims and are current and collectible (within 90 days after the date on
which it first became due and payable). All accounts receivable reflected in the
financial or accounting records of the Sellers that have arisen since the Most
Recent Balance Sheet Date are valid receivables subject to no setoffs or
counterclaims and are collectible (within 90 days after the date on which it
first became due and payable).
2.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of either of the Sellers.
2.17 Insurance. Section 2.17 of the Sellers' Disclosure Schedule lists
each insurance policy (including fire, theft, casualty, general liability,
workers compensation, business interruption, environmental, product liability
and automobile insurance policies and bond and surety arrangements) to which
either of the Sellers is a party. Such insurance policies are of the type and in
amounts customarily carried by organizations conducting businesses or owning
assets similar to those of the Sellers. There is no material claim pending under
any such policy
19
as to which coverage has been questioned, denied or disputed by the underwriter
of such policy. All premiums due and payable under all such policies have been
paid, the Sellers shall not be liable for retroactive premiums or similar
payments, and the Sellers are otherwise in compliance in all material respects
with the terms of such policies. Neither of the Sellers has any knowledge of any
threatened termination of, or material premium increase with respect to or
proposed reduction in the scope of coverage of, any such policy.
2.18 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity or before any
arbitrator (a "Legal Proceeding") which is pending or, to the knowledge of the
Sellers, has been threatened against the Sellers or the Business (or any basis
therefor), or, to the knowledge of the Sellers, against any officer, director,
manager, employee or Affiliate of either of the Sellers in relation to the
affairs of the Sellers. After the Closing, to the knowledge of the Sellers,
there will be no Legal Proceeding (or any basis therefor) against the Buyer, the
Purchased Assets or the Business with respect to matters relating to the Sellers
prior to the Closing.
2.19 Warranties. No product or service manufactured, sold, leased,
licensed or delivered by the Sellers is subject to any guaranty, warranty, right
of return, right of credit or other indemnity other than the applicable standard
license terms and conditions of the Sellers, which are set forth in Section 2.19
of the Sellers' Disclosure Schedule. Section 2.19 of the Sellers' Disclosure
Schedule sets forth the aggregate expenses incurred by the Sellers in fulfilling
their obligations under their guaranty, warranty, right of return and indemnity
provisions during the year 2000 and the subsequent interim period covered by the
Financial Statements; and the Sellers do not know of any reason why such
expenses should significantly increase as a percentage of sales in the future.
2.20 Employees.
(a) Section 2.20 of the Sellers' Disclosure Schedule contains
a list of all employees of the Sellers, along with the position and the
annual rate of compensation of each such person. Each such employee has
entered into a confidentiality/assignment of inventions agreement with
the Company, a copy of each such agreement has previously been
delivered to the Buyer. Section 2.20 of the Sellers' Disclosure
Schedule contains a list of all employees of the Sellers who are a
party to a non-competition agreement with the Company; a copy of each
such agreement has previously been delivered to the Buyer.
(b) Neither of the Sellers is a party to or bound by any
collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. The Sellers have no knowledge of any
organizational effort made or threatened, either currently or within
the past two years, by or on behalf of any labor union with respect to
employees of the Sellers.
2.21 Employee Benefits.
(a) For purposes of this Agreement, the following terms shall
have the following meanings:
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(i) "Employee Benefit Plan" means any "employee
pension benefit plan" (as defined in Section 3(2) of ERISA),
any "employee welfare benefit plan" (as defined in Section
3(1) of ERISA), and any other written or oral plan, agreement
or arrangement involving direct or indirect compensation,
including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses,
stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or
post-retirement compensation.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or
at any applicable time was, a member of (1) a controlled group
of corporations (as defined in Section 414(b) of the Code),
(2) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (3) an affiliated
service group (as defined under Section 414(m) of the Code or
the regulations under Section 414(o) of the Code), any of
which includes or included the Company or a Subsidiary.
(b) Neither the Sellers nor any ERISA Affiliate has ever
maintained an Employee Benefit Plan.
(c) Section 2.21(c) of the Sellers' Disclosure Schedule
discloses each: (i) agreement with any stockholder, director, executive
officer or other key employee of the Sellers (A) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving either of the Sellers of the
nature of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee; (ii)
agreement, plan or arrangement under which any person may receive
payments from either of the Sellers that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the Code; (iii)
agreement or plan binding either of the Sellers, including without
limitation any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement; and
(iv) any contract or agreement pursuant to which any third party
administers any payroll, benefits or other human resources functions
for the Sellers.
(d) Section 2.21(d) of the Sellers' Disclosure Schedule sets
forth the policies of the Sellers with respect to accrued vacation,
accrued sick time and earned time-off and the amount of such
liabilities as of December 31, 2001.
21
(e) Sellers have delivered to Buyer a true and complete copy
of the Client Services Agreement between the Company and ADP
TotalSource, Inc. ("TotalSource") including all addendums, amendments,
supplements and schedules thereto as in effect on the date hereof (the
"TotalSource Agreement"). All contributions, deposits and other
payments required of the Sellers under the TotalSource Agreement have
been accrued on the financial statements of the Sellers in accordance
with GAAP and to the extent due have been made on a timely basis, in
all material respects. With respect to any payment of or provision for
any wages, payroll taxes, withheld taxes or employee benefits required
to be paid or provided with respect to any employees of the Sellers by
TotalSource pursuant to the TotalSource Agreement (the "TotalSource
Benefits"), (i) to the knowledge of the Sellers, all of the TotalSource
Benefits have been paid or provided by TotalSource; (ii) to the
knowledge of the Sellers, all TotalSource Benefits have been
administered substantially in compliance with all applicable laws;
(iii) to the knowledge of the Sellers, there are no actions, suits or
claims (under than routine claims for benefits) pending or threatened
with respect to any TotalSource Benefits; (iv) none of the TotalSource
Benefits provides for any medical or death benefits with respect to any
current or former employees of the Sellers beyond their termination of
employment other than coverage mandated by Sections 601-608 of ERISA
and 4980B of the Code; (v) none of the Sellers has any liability or
obligation with respect to the TotalSource Benefits; and (vi) the Buyer
will not assume or incur any liability or obligation with respect to
the TotalSource Benefits solely as the result of the transactions
contemplated by this Agreement.
2.22 Environmental Matters.
(a) Each of the Sellers has complied with all applicable
Environmental Laws (as hereinafter defined). There is no pending or, to
the knowledge of the Sellers, threatened civil or criminal litigation,
written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving either of the
Sellers. For purposes of this Agreement, "Environmental Law" means any
federal, state or local law, statute, rule or regulation or the common
law relating to the environment or occupational health and safety,
including without limitation any statute, regulation, administrative
decision or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous
materials or substances or solid or hazardous waste; (ii) air, water
and noise pollution; (iii) groundwater and soil contamination; (iv) the
release or threatened release into the environment of industrial, toxic
or hazardous materials or substances, or solid or hazardous waste,
including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the
protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks,
vessels, containers, abandoned or discarded barrels, and other closed
receptacles; (vii) health and safety of employees and other persons;
and (viii) manufacturing, processing, using, distributing, treating,
storing, disposing, transporting or handling of materials regulated
under any law as pollutants, contaminants, toxic or hazardous materials
or substances or oil or petroleum products or solid or hazardous waste.
As used above, the terms "release" and
22
"environment" shall have the meaning set forth in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA").
(b) There have been no releases of any Materials of
Environmental Concern (as hereinafter defined) into the environment at
any parcel of real property or any facility formerly or currently
owned, operated or controlled by either of the Sellers. With respect to
any such releases of Materials of Environmental Concern, each of the
Sellers has given all required notices to Governmental Entities (copies
of which have been provided to the Buyer). Neither of the Sellers is
aware of any releases of Materials of Environmental Concern at parcels
of real property or facilities other than those owned, operated or
controlled by the Sellers that could reasonably be expected to have an
impact on the real property or facilities owned, operated or controlled
by the Sellers. For purposes of this Agreement, "Materials of
Environmental Concern" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid
wastes and hazardous wastes (as such terms are defined under the
Resource Conservation and Recovery Act), toxic materials, oil or
petroleum and petroleum products or any other material subject to
regulation under any Environmental Law.
(c) Set forth in Section 2.22(c) of the Sellers' Disclosure
Schedule is a list of all documents (whether in hard copy or electronic
form) that contain any environmental reports, investigations and audits
relating to premises currently or previously owned or operated by the
Sellers (whether conducted by or on behalf of the Sellers or a third
party, and whether done at the initiative of the Sellers or directed by
a Governmental Entity or other third party) which either of the Sellers
has possession of or access to. A complete and accurate copy of each
such document has been provided to the Buyer.
(d) Neither of the Sellers is aware of any material
environmental liability of any solid or hazardous waste transporter or
treatment, storage or disposal facility that has been used by the
Sellers.
2.23 Legal Compliance. Each of the Sellers, and the conduct and
operations of their respective businesses, are in compliance with each
applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for any
violations or defaults that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Seller Material Adverse Effect.
2.24 Customers and Suppliers. Section 2.24 of the Sellers' Disclosure
Schedule sets forth a list of (a) each customer that accounted for more than
five percent (5%) of the consolidated revenues of the Sellers during the last
full fiscal year or the interim period through the Most Recent Balance Sheet
Date and the amount of revenues accounted for by such customer during each such
period and (b) each supplier that is the sole supplier of any significant
product to either of the Sellers. No such customer or supplier has indicated
within the past year that it will stop, or decrease the rate of, buying products
or supplying products, as applicable, to the Sellers. To the knowledge of the
Sellers, no unfilled customer order or commitment obligating the Sellers to
process, manufacture or deliver products or perform services will result in a
loss to the Sellers upon completion of performance. No purchase order or
commitment of the Sellers is
23
in excess of normal requirements, nor are prices provided therein in excess of
current market prices for the products or services to be provided thereunder.
2.25 Permits. Section 2.25 of the Sellers' Disclosure Schedule sets
forth a list of all permits, licenses, registrations, certificates, orders or
approvals from any Governmental Entity (including without limitation those
issued or required under Environmental Laws and those relating to the occupancy
or use of owned or leased real property) ("Permits") issued to or held by the
Sellers. Such listed Permits are the only Permits that are required for the
Sellers to conduct their respective businesses as presently conducted or as
proposed to be conducted, except for those the absence of which, individually or
in the aggregate, have not had and would not reasonably be expected to have a
Seller Material Adverse Effect. Each such Permit is in full force and effect
and, to the knowledge of the Sellers, no suspension or cancellation of such
Permit is threatened and there is no basis for believing that such Permit will
not be renewable upon expiration.
2.26 Certain Business Relationships With Affiliates. No Affiliate of
the Sellers (a) owns any property or right, tangible or intangible, which is
used in the business of the Sellers, (b) has any claim or cause of action
against the Sellers, or (c) owes any money to, or, other than as disclosed in
Section 2.26 of the Sellers' Disclosure Schedule, is owed any money by, the
Sellers. Section 2.26 of the Sellers' Disclosure Schedule describes any
transactions or relationships between the Sellers and any Affiliate thereof
which have occurred or existed since January 1, 2000.
2.27 Brokers' Fees. Neither of the Sellers has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
2.28 Books and Records. The minute books and other similar records of
the Sellers contain complete and accurate records of all actions taken at any
meetings of the Sellers' stockholders, Board of Directors, managers,
stockholders, members, or any committee thereof and of all written consents
executed in lieu of the holding of any such meeting. The books and records of
the Sellers accurately reflect in all material respects the assets, liabilities,
business, financial condition and results of operations of the Sellers and have
been maintained in accordance with good business and bookkeeping practices.
2.29 Disclosure. No representation or warranty by the Sellers contained
in this Agreement, and no statement contained in the Sellers' Disclosure
Schedule or any other document, certificate or other instrument delivered or to
be delivered by or on behalf of the Sellers pursuant to this Agreement, contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which it
was or will be made, in order to make the statements herein or therein not
misleading. The Sellers have disclosed to the Buyer all material information
relating to the Business or the transactions contemplated by this Agreement.
2.30 Projections. The projections appended to Section 2.30 of the
Sellers' Disclosure Schedule were prepared by the Company in good faith using
the best information available to
24
management of the Company and represented and continue to represent the
Company's management's good faith estimates of the future performance of the
Sellers for the periods referred to therein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure schedule provided by the Buyer to the Sellers and the Company Equity
Holders on the date hereof and accepted in writing by the Sellers and the
Company Equity Holder Representative (the "Buyer Disclosure Schedule"). The
Buyer Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III, and the
disclosures in any paragraph of the Buyer Disclosure Schedule shall qualify only
the corresponding paragraph in this Article III:
3.1 Organization, Qualification and Corporate Power. The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts. The Buyer is duly qualified to conduct
business and is in corporate good standing under the laws of each jurisdiction
in which the nature of its businesses or the ownership or leasing of its
properties requires such qualification, except where the failure to be so
qualified or in good standing would not have a Buyer Material Adverse Effect (as
hereinafter defined). The Buyer has all requisite corporate power and authority
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. The Buyer has furnished or made available to
the Company complete and accurate copies of its Articles of Organization and
By-laws. For purposes of this Agreement, "Buyer Material Adverse Effect" means a
material adverse effect on the assets, business, condition (financial or
otherwise), results of operations or future prospects of the Buyer and its
subsidiaries, taken as a whole.
3.2 Capitalization. The authorized capital stock of the Buyer consists
of (a) 45,000,000 shares of Buyer Common Stock, of which 32,694,388 shares were
issued and outstanding as of October 15, 2001, and (b) 1,000,000 shares of
Preferred Stock, $.01 par value per share, of which no shares are issued or
outstanding. All of the issued and outstanding shares of Buyer Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. All of the Payment Shares will be, when issued in accordance
with this Agreement, duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights.
3.3 Authorization of Transaction. The Buyer has all requisite power and
authority to execute and deliver this Agreement and the Escrow Agreement and to
perform its obligations hereunder and thereunder. The execution and delivery by
the Buyer of this Agreement and the Escrow Agreement and the consummation by the
Buyer of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action on the part of the Buyer.
This Agreement has been duly and validly executed and delivered by the Buyer and
constitutes a valid and binding obligation of the Buyer, enforceable against the
Buyer in accordance with its terms.
25
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act, the Exchange Act and any applicable state
securities laws, neither the execution and delivery by the Buyer of this
Agreement or the Escrow Agreement, nor the consummation by the Buyer of the
transactions contemplated hereby or thereby, will (a) conflict with or violate
any provision of the Articles of Organization or By-laws of the Buyer, (b)
require on the part of the Buyer any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Buyer is a party or by
which it is bound or to which any of its assets are subject, or (d) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Buyer or any of its properties or assets.
3.5 Reports and Financial Statements; Backlog.
(a) The Buyer has previously furnished or made available to
the Company complete and accurate copies, as amended or supplemented,
of its (a) Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, as filed with the Securities and Exchange Commission
(the "SEC"), and (b) all other reports filed by the Buyer under Section
13 or subsections (a) or (c) of Section 14 of the Exchange Act with the
SEC since January 1, 2001 (such reports are collectively referred to
herein as the "Buyer Reports"). The Buyer Reports constitute all of the
documents required to be filed by the Buyer under Section 13 or
subsections (a) or (c) of Section 14 of the Exchange Act with the SEC
from January 1, 2001 through the date of this Agreement. The Buyer
Reports complied in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder when filed. As of
their respective dates, the Buyer Reports did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The audited financial statements and unaudited interim financial
statements of the Buyer included in the Buyer Reports (i) complied as
to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto when filed, (ii) were 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 the Buyer as of the
respective dates thereof and for the periods referred to therein, and
(iv) are consistent with the books and records of the Buyer.
(b) Set forth on Section 3.5 of the Buyer Disclosure Schedule
is the aggregate amount of all Revenue anticipated to be recognized by
the Buyer in calendar year 2002 under arrangements existing as of
December 31, 2001 relating to the licensing of Buyer Products evidenced
by executed, definitive written agreements under which the only
contingency to such Revenue being recognized by the Buyer is the
performance by the Buyer of its obligations under such agreements.
26
3.6 Absence of Material Adverse Change. Since September 30, 2001, there
has occurred no event or development which has had, or could reasonably be
expected to have in the future, a Buyer Material Adverse Effect.
3.7 Litigation. Except as described in Section 3.7 of the Buyer
Disclosure Schedule, as of the date of this Agreement, there is no Legal
Proceeding which is pending or, to the Buyer's knowledge, threatened against the
Buyer or any subsidiary of the Buyer which, if determined adversely to the Buyer
or such subsidiary, could have, individually or in the aggregate, a Buyer
Material Adverse Effect or which in any manner challenges or seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement.
3.8 Tax Matters. Neither the Buyer nor any of its Affiliates has
through the date of this Agreement taken or agreed to take any action that would
prevent the Sale from constituting a transaction qualifying as a reorganization
under Section 368(a)(1)(C) of the Code.
3.9 Brokers' Fees. Except as described in Section 3.9 of the Buyer
Disclosure Schedule, the Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
3.10 Disclosure. No representation or warranty by the Buyer contained
in this Agreement, and no statement contained in any document, certificate or
other instrument delivered or to be delivered by or on behalf of the Buyer
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omit or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
4.1 Closing Efforts. Each of the Parties shall use its best efforts, to
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Parties to
consummate the Sale are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to
obtain, at its expense, all waivers, permits, consents, approvals or
other authorizations from Governmental Entities, and to effect all
registrations, filings and notices with or to Governmental Entities, as
may be required for such Party to consummate the transactions
contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of
the transactions contemplated by this Agreement.
27
(b) The Sellers shall use their Reasonable Best Efforts to
obtain, at their expense, all such waivers, consents or approvals from
third parties, and to give all such notices to third parties, as are
required to be listed in Section 2.4 of the Sellers' Disclosure
Schedule.
4.3 Stockholder Approval.
(a) The Company shall use its Reasonable Best Efforts to
obtain, as promptly as practicable, the Requisite Stockholder Approval,
either at a special meeting of stockholders or pursuant to a written
stockholder consent, all in accordance with the applicable requirements
of the Delaware General Corporation Law. In connection with such
special meeting of stockholders or written stockholder consent, the
Company shall provide to its stockholders a written proxy or
information statement (the "Disclosure Statement") which includes (A) a
summary of the Sale and this Agreement (which summary shall include a
summary of the terms relating to the indemnification obligations of the
Company and the Company Equity Holders, the escrow arrangements, the
Earnout Consideration (including possible adjustments thereto pursuant
to Section 1.10) and the powers and authority of the Company Equity
Holder Representative), (B) all of the information required by Rule
502(b)(2) of Regulation D under the Securities Act and (C) a statement
that appraisal rights are available for the Company Common Stock
pursuant to Section 262 of the Delaware General Corporation Law and a
copy of such Section 262. The Buyer agrees to cooperate with the
Company in the preparation of the Disclosure Statement. The Company
agrees not to distribute the Disclosure Statement until the Buyer has
had a reasonable opportunity to review and comment on the Disclosure
Statement and the Disclosure Statement has been approved by the Buyer
(which approval may not be unreasonably withheld or delayed). If the
Requisite Stockholder Approval is obtained by means of a written
consent, the Company shall send, pursuant to Sections 228 and 262(d) of
the Delaware General Corporation Law, a written notice to all
stockholders of the Company that did not execute such written consent
informing them that the Sale was approved by the stockholders of the
Company and that appraisal rights are available for their shares of
Company Common Stock pursuant to Section 262 of the Delaware General
Corporation Law (which notice shall include a copy of such Section
262), and shall promptly inform the Buyer of the date on which such
notice was sent. The Company, acting through its Board of Directors,
shall include in the Disclosure Statement the unanimous recommendation
of its Board of Directors that the stockholders of the Company vote in
favor of the approval of the Sale.
(b) The Sellers shall ensure that the Disclosure Statement
does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not
misleading (provided that the Sellers shall not be responsible for the
accuracy or completeness of any information furnished by the Buyer in
writing for inclusion in the Disclosure Statement).
(c) The Buyer shall ensure that any information furnished by
the Buyer to the Company in writing for inclusion in the Disclosure
Statement does not contain any untrue
28
statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
(d) Each Company Stockholder shall vote all shares of Company
Common Stock that are beneficially owned by him in favor of the
approval of the Sale and in favor of the approval of the payment or
distribution to any Company Equity Holder of any consideration in
connection herewith to the extent that such payment or distribution
could constitute an "excess parachute payment," as defined in Section
280G(b)(1) of the Code (the "280G Vote"). No Company Stockholder shall
vote any shares of Company Common Stock in favor of any other
acquisition (whether by way of merger, consolidation, share exchange,
stock purchase or asset purchase) of all or a majority of the
outstanding capital stock or assets of the Company. Each Company
Stockholder shall use his, her or its Reasonable Best Efforts to obtain
the Requisite Stockholder Approval and the 280G Vote. No Company Option
Holder shall exercise any Company Options prior to the Closing.
4.4 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Closing Date, each of
the Sellers shall conduct its operations in the Ordinary Course of Business and
in compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Closing Date, neither of the Sellers shall, without the
written consent of the Buyer:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or the Target Subsidiary or any rights,
warrants or options to acquire any such stock or other securities;
(b) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock;
(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases); assume, guarantee, endorse
or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or
entity; or make any loans, advances or capital contributions to, or
investments in, any other person or entity;
(d) except as provided herein, enter into, adopt or amend any
Employee Benefit Plan or any employment or severance agreement or
arrangement of the type described in Section 2.21(c) or (except for
normal increases in the Ordinary Course of Business for employees who
are not Affiliates) increase in any manner the compensation, severance
or fringe benefits of, or materially modify the employment terms of,
its
29
directors, officers, employees or consultants, generally or
individually, or pay any bonus or other benefit to its directors,
officers, employees or consultants (except for existing payment
obligations listed in Section 2.20 of the Sellers' Disclosure
Schedule);
(e) acquire, sell, lease, license or dispose of any assets or
property, other than purchases and sales of assets in the Ordinary
Course of Business;
(f) mortgage or pledge any of its property or assets or
subject any such property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay or
prepay any obligation or liability other than in the Ordinary Course of
Business;
(h) pay any of the costs and expenses (including legal,
accounting and investment banking fees and expenses) incurred by the
Sellers in connection with the transactions contemplated hereby;
(i) amend its charter, by-laws, certificate of formation,
limited liability company agreement or other organizational documents;
(j) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a
generally applicable change in GAAP;
(k) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive
any rights under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess
of $10,000 per item or $50,000 in the aggregate;
(m) institute or settle any Legal Proceeding;
(n) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take
action would result in (i) any of the representations and warranties of
the Sellers set forth in this Agreement becoming untrue or (ii) any of
the conditions to the Sale set forth in Article V not being satisfied;
or
(o) agree in writing or otherwise to take any of the foregoing
actions.
30
4.5 Access to Information. Each of the Sellers shall permit
representatives of the Buyer to have full access (at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Sellers) to all premises, properties, financial, accounting and tax records
(including without limitation records and returns relating to all tax periods of
the Sellers prior to the Closing), contracts, other records and documents, and
personnel, of or pertaining to the Sellers, the Business or the Purchased
Assets. No investigation or findings of the Buyer shall affect the
representations and warranties of the Sellers hereunder.
4.6 Exclusivity.
(a) The Sellers and the Company Equity Holders shall not, and
the Sellers shall require each of their respective officers, directors,
managers, employees, representatives and agents not to, directly or
indirectly, (i) initiate, solicit, encourage or otherwise facilitate
any inquiry, proposal, offer or discussion with any party (other than
the Buyer) concerning any merger, reorganization, consolidation,
recapitalization, business combination, liquidation, dissolution, share
exchange, sale of stock, sale of material assets or similar business
transaction involving either of the Sellers or any division thereof,
(ii) furnish any non-public information concerning the business,
properties or assets of either of the Sellers or any division thereof
to any party (other than the Buyer) or (iii) engage in discussions or
negotiations with any party (other than the Buyer) concerning any such
transaction.
(b) The Sellers shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a)
above were pending that the Sellers are terminating such discussions or
negotiations. If the Sellers receive any inquiry, proposal or offer of
the nature described in paragraph (a) above, the Sellers shall, within
one business day after such receipt, notify the Buyer of such inquiry,
proposal or offer, including the identity of the other party and the
terms of such inquiry, proposal or offer.
(c) Each of the Sellers and the Company Equity Holders
acknowledge that any breach or threatened breach of the provisions of
this Section 4.6 will cause irreparable injury to the Buyer for which
an adequate monetary remedy does not exist. Accordingly, in the event
of any such breach or threatened breach, the Buyer shall be entitled,
in addition to the exercise of other remedies, to seek and obtain
injunctive relief, without necessity of posting a bond, restraining the
Seller and/or the Company Equity Holders from committing such breach or
threatened breach.
4.7 Expenses. Except as set forth in Article VI hereof and in the
Escrow Agreement, (a) the Buyer shall bear (i) all Transaction Costs (as
hereinafter defined) incurred by it and (ii) up to $30,000 of the Transaction
Costs incurred by the Sellers and (b) the Company Equity Holders shall bear (i)
all Transaction Costs incurred by them and (ii) all Transaction Costs incurred
by the Sellers in excess of $30,000. As used herein, "Transaction Costs" shall
mean all costs and expenses (including legal, accounting and investment banking
fees and expenses) incurred by a Party in connection with the transactions
contemplated hereby.
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4.8 Use of Name; Dissolution. Following the Closing, the Buyer shall
have the exclusive right to use the name "1mind" and any derivations thereof in
connection with its operation of the Business, and the Sellers agree to take all
necessary actions, including without limitation changing their names as of the
Closing Date to names that are not similar to such names, to allow the Buyer to
exercise such right. As soon as practicable following the Closing, each of the
Sellers shall liquidate its assets and dissolve its corporate or limited
liability company existence, as the case may be.
4.9 Endorsement of Checks, Etc. The Sellers hereby authorize the Buyer
following the Closing to endorse for deposit only their names on and collect for
the Buyer's account any checks received in payment of any accounts included in
the Purchased Assets, and any refunds of deposits, prepaid expenses and similar
amounts. In the event payment for any amounts due the Buyer are received by the
Sellers, the Sellers will hold the same in trust for the benefit of the Buyer
and promptly turn the same over to the Buyer.
4.10 Accounts Receivable. After the Closing, neither the Sellers nor
the Company Equity Holders will interfere with the collection of the accounts
receivable constituting part of the Purchased Assets.
4.11 Employee Matters; Consulting Arrangement.
(a) Immediately prior to the Closing, the Buyer shall offer
employment to all of the employees of the Sellers who are then employed
by the Sellers (the "Transferred Employees"), such employment to be
effective upon the Closing. Effective immediately prior to the Closing,
the Sellers shall terminate the employment of each of the Transferred
Employees. The Buyer shall credit each of the Transferred Employees
with all their time of service with the Sellers for purposes of the
Buyer's medical and other benefit plans and in computing the benefits
available to such Transferred Employees thereunder.
(b) The Buyer and the Sellers shall use their respective
Reasonable Best Efforts to ensure that the condition set forth in
Section 5.1(l) hereof is satisfied as soon as practicable.
4.12 Bulk Sales. The Buyer hereby waives compliance by the Sellers with
any applicable bulk sale or bulk transfer laws of any jurisdiction in connection
with the sale of the Purchased Assets to the Purchaser. The Sellers shall
indemnify and hold harmless the Buyer against any and all liabilities that may
be asserted by third parties against the Buyer as a result of noncompliance by
the Sellers with any such bulk transfer law.
ARTICLE V
CONDITIONS TO CONSUMMATION OF SALE
5.1 Conditions to Obligations of the Buyer. The obligation of the Buyer
to consummate the Sale is subject to the satisfaction (or waiver by the Buyer)
of the following conditions:
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(a) the Sellers shall have obtained the Requisite Stockholder
Approval and the 280G Vote, and no Company Equity Holder(s) holding, in
the aggregate, in excess of two percent (2%) of the outstanding Company
Common Stock shall have exercised appraisal rights under the applicable
provisions of the Delaware General Corporation Law in connection with
the Sale;
(b) the Sellers shall have obtained (and shall have provided
copies thereof to the Buyer) all of the waivers, permits, consents,
approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which
are required on the part of the Sellers;
(c) the representations and warranties of the Sellers set
forth in the first sentence of Section 2.1 and in Section 2.3 and any
representations and warranties of the Company set forth in this
Agreement that are qualified as to materiality shall be true and
correct in all respects, and all other representations and warranties
of the Company set forth in this Agreement shall be true and correct in
all material respects, in each case as of the date of this Agreement
and as of the Closing Date as though made as of the Closing Date,
except to the extent such representations and warranties are
specifically made as of a particular date or as of the date of this
Agreement (in which case such representations and warranties shall be
true and correct as of such date);
(d) the Sellers shall have performed or complied with their
respective agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Closing Date;
(e) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would
(i) prevent consummation of any of the transactions contemplated by
this Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (iii) have a Seller
Material Adverse Effect, and no such judgment, order, decree,
stipulation or injunction shall be in effect;
(f) the Sellers shall have delivered to the Buyer a
certificate (the "Sellers' Certificate") to the effect that each of the
conditions specified in clauses (a) through (e) (insofar as clause (e)
relates to Legal Proceedings involving the Sellers) of this Section 5.1
is satisfied in all respects;
(g) the Buyer shall have received from counsel to the Sellers
an opinion with respect to the matters set forth in Exhibit 5.1(g)
attached hereto, addressed to the Buyer and dated as of the Closing
Date;
(h) the Buyer shall have received from BancBoston Xxxxxxxxx
Xxxxxxxx an opinion as to the fairness of the Sale to the Buyer, such
opinion to be in form and substance satisfactory to the Buyer;
(i) Each of Xxxxxx Xxxxxxxx, Xxxxxxx Speaker, Xxxxxxx Xxxxxxx,
Xxxxxxxxxxx Xxxxxxxxx, Xxxxx Xxxxx, Xxxxx Xxxx and Xxxxxx Xxxxxxx shall
have (A) accepted
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employment with the Company upon terms satisfactory to the Buyer and
(B) entered into a Noncompete, Nondisclosure and Developments agreement
in substantially the form attached hereto as Exhibit 5.1(i);
(j) Each of Xxxxxxxxxxx Xxxxxxxxx, Xxxxx Xxxxx, Xxxxx Xxxx,
Xxxx Xxxxxx, Xxxxx Xxxxxx, Xxxxx X. Xxxxx, Xxxxxx Xxxx, Xxxx Xxxxx and
Xxxxxx Xxxxxxx shall have entered into a Lock-Up Agreement in
substantially the form attached hereto as Exhibit 5.1(j);
(k) each of Xxxxxx Xxxxxxxx and Xxxxxxx Speaker shall have
entered into a Key Employee Lock-Up Agreement in substantially the form
attached hereto as Exhibit 5.1(k);
(l) the Buyer shall have restructured its Independent
Consulting Agreement with Xxxx X. Xxxxx in a manner satisfactory to the
Buyer;
(m) the Sellers shall have delivered to the Buyer such bills
of sale, leases, assignments and other instruments of transfer as the
Buyer may reasonably require to transfer to it good and marketable
title to the Purchased Assets free and clear of all Security Interests;
(n) the Sellers shall have delivered to the Buyer a listing of
all of their accounts receivable outstanding as of the Closing Date,
together with appropriate supporting documentation;
(o) the Company Equity Holder Representative and the Escrow
Agent shall have entered into the Escrow Agreement;
(p) no Company Option Holder shall have exercised any Company
Options between the date of this Agreement and the Closing; and
(q) the Buyer shall have received such other certificates and
instruments (including without limitation certificates of good standing
of the Sellers in their jurisdiction of organization and the various
foreign jurisdictions in which they are qualified to do business,
certified charter documents, certificates as to the incumbency of
officers and the adoption of authorizing resolutions) as it shall
reasonably request in connection with the Closing.
5.2 Conditions to Obligations of the Sellers. The obligation of the
Sellers to consummate the Sale is subject to the satisfaction (or waiver by the
Sellers) of the following conditions:
(a) the representations and warranties of the Buyer set forth
in the first sentence of Section 3.1 and Section 3.3 and any
representations and warranties of the Buyer set forth in this Agreement
that are qualified as to materiality shall be true and correct, and the
representations and warranties of the Buyer set forth in this Agreement
that are not so qualified (other than those set forth in Section 3.1
and Section 3.3) shall be
34
true and correct in all material respects, in each case as of the date
of this Agreement and as of the Closing Date as though made as of the
Closing Date, except to the extent such representations and warranties
are specifically made as of a particular date or as of the date of this
Agreement (in which case such representations and warranties shall be
true and correct as of such date);
(b) the Buyer shall have performed or complied with its
agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Closing Date;
(c) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would
(i) prevent consummation of any of the transactions contemplated by
this Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (iii) have a Buyer
Material Adverse Effect, and no such judgment, order, decree,
stipulation or injunction shall be in effect;
(d) the Buyer shall have delivered to the Company a
certificate (the "Buyer Certificate") to the effect that each of the
conditions specified in clauses (a) through (c) (insofar as clause (c)
relates to Legal Proceedings involving the Buyer) of this Section 5.2
is satisfied in all respects;
(e) the Buyer shall have delivered to the Company (i) a
certificate representing the Initial Shares and (ii) the Warrants, and
shall have delivered to the Escrow Agent a certificate representing the
Escrow Shares;
(f) the Sellers shall have received from counsel to the Buyer
an opinion with respect to the matters set forth in Exhibit 5.2(f)
attached hereto, addressed to the Company and dated as of the Closing
Date;
(g) the Buyer shall have entered into the Escrow Agreement;
(h) the Buyer shall have delivered to the Sellers instruments
of assumption, in a form reasonably required by them, pursuant to which
the Buyer shall assume the Assumed Liabilities; and
(i) the Company shall have received such other certificates
and instruments (including without limitation certificates of good
standing of the Buyer in its jurisdiction of organization, certified
charter documents, certificates as to the incumbency of officers and
the adoption of authorizing resolutions) as it shall reasonably request
in connection with the Closing.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Equity Holders. The Company Equity
Holders shall indemnify the Buyer in respect of, and hold it harmless against,
any and all debts,
35
obligations and other liabilities (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) ("Damages") incurred or suffered by the Buyer or any Affiliate
thereof resulting from, relating to or constituting:
(a) any breach of the representations, warranties, covenants
or agreements of the Sellers or the Company Equity Holders set forth
herein or in the Sellers' Certificate;
(b) all liabilities relating to the Purchased Assets and the
Business other than the Assumed Liabilities (regardless of whether
information with respect thereto is set forth on the Sellers'
Disclosure Schedule); and
(c) any Security Interest on any of the Purchased Assets
arising after the Closing as a result of matters preceding the Closing.
6.2 Indemnification by the Buyer. The Buyer shall indemnify the Sellers
in respect of, and hold them harmless against, any and all Damages incurred or
suffered by the Sellers resulting from, relating to or constituting:
(a) any breach of the representations, warranties, covenants
or agreements of the Buyer set forth herein or in the Buyer
Certificate; and
(b) any failure of the Buyer to perform and discharge when due
the Assumed Liabilities, other than Assumed Liabilities that are being
contested by the Buyer in good faith.
6.3 Indemnification Claims.
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article VI (an "Indemnified Party") shall
give written notification to the party from whom indemnification is
sought (an "Indemnifying Party") of the commencement of any suit or
proceeding relating to a third party claim for which indemnification
pursuant to this Article VI may be sought. Such notification shall be
given within 20 business days after receipt by the Indemnified Party of
notice of such suit or proceeding, and shall describe in reasonable
detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such suit or proceeding and the amount of
the claimed damages; provided, however, that no delay on the part of
the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party of any liability or obligation hereunder except
to the extent of any damage or liability caused by or arising out of
such failure. Within 20 days after delivery of such notification, the
Indemnifying Party may, upon written notice thereof to the Indemnified
Party, assume control of the defense of such suit or proceeding with
counsel reasonably satisfactory to the Indemnified Party; provided that
(i) the Indemnifying Party may only assume control of such defense if
(A) it acknowledges in writing to the Indemnified Party that any
damages, fines, costs or
36
other liabilities that may be assessed against the Indemnified Party in
connection with such suit or proceeding constitute Damages for which
the Indemnified Party shall be indemnified pursuant to this Article VI
and (B) the ad damnum is less than or equal to the Value of the Escrow
Shares (as determined pursuant to Section 1.8(a)) not then subject to a
pending indemnity claim hereunder for which the Indemnifying Party is
liable under this Article VI and (ii) the Indemnifying Party may not
assume control of the defense of a suit or proceeding involving
criminal liability or in which equitable relief is sought against the
Indemnified Party. If the Indemnifying Party does not so assume control
of such defense, the Indemnified Party shall control such defense. The
party not controlling such defense (the "Non-controlling Party") may
participate therein at its own expense; provided that if the
Indemnifying Party assumes control of such defense and the Indemnified
Party reasonably concludes that the Indemnifying Party and the
Indemnified Party have conflicting interests or different defenses
available with respect to such suit or proceeding, the reasonable fees
and expenses of counsel to the Indemnified Party shall be considered
"Damages" for purposes of this Agreement. The party controlling such
defense (the "Controlling Party") shall keep the Non-controlling Party
advised of the status of such suit or proceeding and the defense
thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party
shall furnish the Controlling Party with such information as it may
have with respect to such suit or proceeding (including copies of any
summons, complaint or other pleading which may have been served on such
party and any written claim, demand, invoice, billing or other document
evidencing or asserting the same) and shall otherwise cooperate with
and assist the Controlling Party in the defense of such suit or
proceeding. The Indemnifying Party shall not agree to any settlement
of, or the entry of any judgment arising from, any such suit or
proceeding without the prior written consent of the Indemnified Party,
which shall not be unreasonably withheld or delayed. The Indemnified
Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior
written consent of the Indemnifying Party, which shall not be
unreasonably withheld or delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall give written notification (a "Claim Notice") to
the Indemnifying Party which contains (i) a description and the amount
(the "Claimed Amount") of any Damages incurred or reasonably expected
to be incurred by the Indemnified Party, (ii) a statement that the
Indemnified Party is entitled to indemnification under this Article VI
for such Damages and a reasonable explanation of the basis therefor,
and (iii) a demand for payment (in the manner provided in paragraph (c)
below) in the amount of such Damages. If the Indemnified Party is
seeking to enforce such claim pursuant to the Escrow Agreement, the
Indemnifying Party shall deliver a copy of the Claim Notice to the
Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written
response (the "Response") in which the Indemnifying Party shall: (i)
agree that the Indemnified Party is entitled to receive all of the
Claimed Amount (in which case the Response shall be accompanied by a
payment by the Indemnifying Party to the Indemnified Party of the
Claimed Amount, by check or by
37
wire transfer; provided that if the Indemnified Party is seeking to
enforce such claim pursuant to the Escrow Agreement, the Indemnifying
Party and the Indemnified Party shall deliver to the Escrow Agent,
within three days following the delivery of the Response, a written
notice executed by both parties instructing the Escrow Agent to
distribute to the Buyer such number of Escrow Shares as have an
aggregate Value equal to the Claimed Amount), (ii) agree that the
Indemnified Party is entitled to receive part, but not all, of the
Claimed Amount (the "Agreed Amount") (in which case the Response shall
be accompanied by a payment by the Indemnifying Party to the
Indemnified Party of the Agreed Amount, by check or by wire transfer;
provided that if the Indemnified Party is seeking to enforce such claim
pursuant to the Escrow Agreement, the Indemnifying Party and the
Indemnified Party shall deliver to the Escrow Agent, within three days
following the delivery of the Response, a written notice executed by
both parties instructing the Escrow Agent to distribute to the Buyer
such number of Escrow Shares as have an aggregate Value equal to the
Agreed Amount) or (iii) dispute that the Indemnified Party is entitled
to receive any of the Claimed Amount. If the Indemnifying Party in the
Response disputes its liability for all or part of the Claimed Amount,
the Indemnifying Party and the Indemnified Party shall follow the
procedures set forth in Section 6.3(d) for the resolution of such
dispute (a "Dispute").
(d) During the 60-day period following the delivery of a
Response that reflects a Dispute, the Indemnifying Party and the
Indemnified Party shall use good faith efforts to resolve the Dispute.
If the Dispute is not resolved within such 60-day period, the
Indemnifying Party and the Indemnified Party shall discuss in good
faith the submission of the Dispute to a mutually acceptable
alternative dispute resolution procedure (which may be non-binding or
binding upon the parties, as they agree in advance) (the "ADR
Procedure"). In the event the Indemnifying Party and the Indemnified
Party agree upon an ADR Procedure, such parties shall, in consultation
with the chosen dispute resolution service (the "ADR Service"),
promptly agree upon a format and timetable for the ADR Procedure, agree
upon the rules applicable to the ADR Procedure, and promptly undertake
the ADR Procedure. The provisions of this Section 6.3(d) shall not
obligate the Indemnifying Party and the Indemnified Party to pursue an
ADR Procedure or prevent either such party from pursuing the Dispute in
a court of competent jurisdiction; provided that, if the Indemnifying
Party and the Indemnified Party agree to pursue an ADR Procedure,
neither the Indemnifying Party nor the Indemnified Party may commence
litigation or seek other remedies with respect to the Dispute prior to
the completion of such ADR Procedure. Any ADR Procedure undertaken by
the Indemnifying Party and the Indemnified Party shall be considered a
compromise negotiation for purposes of federal and state rules of
evidence, and all statements, offers, opinions and disclosures (whether
written or oral) made in the course of the ADR Procedure by or on
behalf of the Indemnifying Party, the Indemnified Party or the ADR
Service shall be treated as confidential and, where appropriate, as
privileged work product. Such statements, offers, opinions and
disclosures shall not be discoverable or admissible for any purposes in
any litigation or other proceeding relating to the Dispute (provided
that this sentence shall not be construed to exclude from discovery or
admission any matter that is otherwise discoverable or admissible). The
fees and expenses of any ADR Service used by the Indemnifying Party and
the Indemnified Party
38
shall be shared equally by the Indemnifying Party and the Indemnified
Party. If the Indemnified Party is seeking to enforce the claim that is
the subject of the Dispute pursuant to the Escrow Agreement, the
Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, promptly following the resolution of the Dispute (whether
by mutual agreement, pursuant to an ADR Procedure, as a result of a
judicial decision or otherwise), a written notice executed by both
parties instructing the Escrow Agent as to what (if any) portion of the
Escrow Shares shall be distributed to the Buyer and/or the Company
Equity Holders (which notice shall be consistent with the terms of the
resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 6.3,
if a third party asserts (other than by means of a lawsuit) that an
Indemnified Party is liable to such third party for a monetary or other
obligation which may constitute or result in Damages for which such
Indemnified Party may be entitled to indemnification pursuant to this
Article VI, and such Indemnified Party reasonably determines that it
has a valid business reason to fulfill such obligation, then (i) such
Indemnified Party shall be entitled to satisfy such obligation, without
prior notice to or consent from the Indemnifying Party, (ii) such
Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VI, and (iii) such
Indemnified Party shall be reimbursed, in accordance with the
provisions of this Article VI, for any such Damages for which it is
entitled to indemnification pursuant to this Article VI (subject to the
right of the Indemnifying Party to dispute the Indemnified Party's
entitlement to indemnification, or the amount for which it is entitled
to indemnification, under the terms of this Article VI).
(f) For purposes of this Section 6.3 and the last two
sentences of Section 6.4, (i) if the Company Equity Holders comprise
the Indemnifying Party, any references to the Indemnifying Party
(except provisions relating to an obligation to make or a right to
receive any payments provided for in Section 6.3 or Section 6.4) shall
be deemed to refer to the Company Equity Holder Representative, and
(ii) if the Company Equity Holders comprise the Indemnified Party, any
references to the Indemnified Party (except provisions relating to an
obligation to make or a right to receive any payments provided for in
Section 6.3 or Section 6.4) shall be deemed to refer to the Company
Equity Holder Representative. The Company Equity Holder Representative
shall have full power and authority on behalf of each Company Equity
Holder to take any and all actions on behalf of, execute any and all
instruments on behalf of, and execute or waive any and all rights of,
the Company Equity Holders under this Article VI. The Company Equity
Holder Representative shall have no liability to any Company Equity
Holder for any action taken or omitted on behalf of the Company Equity
Holders pursuant to this Article VI.
6.4 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, the Sellers' Certificate or the Buyer
Certificate shall (a) survive the Closing and any investigation at any time made
by or on behalf of an Indemnified Party and (b) shall expire on the date
thirteen (13) months following the Closing Date, except that the representations
and warranties set forth in Sections 2.3, 2.10, 2.27, 3.3 and 3.9 (and the
portion of the Sellers' Certificate or the Buyer Certificate relating thereto)
shall survive the Closing
39
without limitation. If an Indemnified Party delivers to an Indemnifying Party,
before expiration of a representation or warranty, either a Claim Notice based
upon a breach of such representation or warranty, or a notice that, as a result
a legal proceeding instituted by or written claim made by a third party, the
Indemnified Party reasonably expects to incur Damages as a result of a breach of
such representation or warranty (an "Expected Claim Notice"), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice. If the legal proceeding or
written claim with respect to which an Expected Claim Notice has been given is
definitively withdrawn or resolved in favor of the Indemnified Party, the
Indemnified Party shall promptly so notify the Indemnifying Party; and if the
Indemnified Party has delivered a copy of the Expected Claim Notice to the
Escrow Agent and Escrow Shares have been retained in escrow after the
Termination Date (as defined in the Escrow Agreement) with respect to such
Expected Claim Notice, the Indemnifying Party and the Indemnified Party shall
promptly deliver to the Escrow Agent a written notice executed by both parties
instructing the Escrow Agent to distribute such retained Escrow Shares to the
Company Equity Holders in accordance with the terms of the Escrow Agreement.
6.5 Limitations.
(a) Notwithstanding anything to the contrary herein, the
aggregate liability of the Company Equity Holders, on the one hand, and
the Buyer, on the other hand, for Damages under this Article VI based
on a breach of any representation or warranty in Article II or Article
III hereof shall not exceed $6,908,500.
(b) Except for claims based on fraud and claims for
indemnification for a breach of the covenants contained in Sections
4.3(d), 4.6 or 4.7, after the Closing, the Escrow Agreement shall be
the exclusive means for the Buyer to collect any Damages for which it
is entitled to indemnification under this Article VI; provided,
however, that the Buyer may also elect to offset any Damages for which
it is entitled to indemnification under this Article VI by reducing the
Earnout Consideration by the amount of such Damages.
ARTICLE VII
MATTERS REGARDING COMPANY EQUITY HOLDER REPRESENTATIVE,
TRANSFERABILITY OF WARRANTS AND PAYMENT SHARES, ETC.
7.1 Appointment and Powers of the Company Equity Holder Representative.
(a) In order to efficiently administer the transactions
contemplated by this Agreement and the Escrow Agreement on behalf of
the Company Equity Holders, each Company Equity Holder hereby
designates and appoints Xxxxx X. Xxxxx as its representative (in such
capacity, the "Company Equity Holder Representative"), and Xxxxx X.
Xxxxx hereby accepts such designation and appointment. Each Company
Equity Holder authorizes the Company Equity Holder Representative to
(a) take all action necessary in connection with the defense and/or
settlement of any claims for which the Company Equity Holders may be
required to indemnify the Buyer pursuant to Article VI, (b) give and
receive all notices required to be given under this Agreement and
40
the Escrow Agreement and any agreement related hereto and thereto, (c)
resolve any disputes arising under Section 1.9 or 1.10 hereof, (d)
enter into any amendments to this Agreement and (e) take any and all
other actions as may be necessary or appropriate to be taken by or on
behalf of the Company Equity Holders in connection with this Agreement,
the Escrow Agreement, the Warrants and the transactions contemplated
hereby and thereby. In the event that Xxxxx X. Xxxxx dies or becomes
unable to perform his responsibilities hereunder or resigns as the
Company Equity Holder Representative, the Company Equity Holders who
received (or shall be entitled to receive) at least a majority of the
Payment Shares shall select another representative and such substituted
representative shall thereafter be deemed to be the Company Equity
Holder Representative for all purposes of this Agreement, the Escrow
Agreement and the transactions contemplated hereby and thereby. All
decisions of the Company Equity Holder Representative, including
without limitation any decision concerning the defense or settlement of
any claim for which the Company Equity Holders may be required to
indemnify the Buyer pursuant to Article VI, shall be binding on all of
the Company Equity Holders, and no Company Equity Holder shall have the
right to object, dissent, protest or otherwise contest the same.
(b) Each Company Equity Holder agrees that:
(i) the Buyer shall be entitled to rely conclusively
on the instructions and decisions of the Company Equity Holder
Representative given pursuant to its authority hereunder;
(ii) the provisions of this Section 7.1 are
independent and severable, are irrevocable and coupled with an
interest and shall be enforceable notwithstanding any rights
or remedies that any Company Equity Holder may have in
connection with the Sale or the other transactions
contemplated by this Agreement;
(iii) remedies available at law for any breach of the
provisions of this Section 7.1 are inadequate; therefore, the
Buyer shall be entitled to seek temporary and permanent
injunctive relief without the necessity of proving damages if
the Buyer brings an action to enforce the provisions of this
Section 7.1; and
(iv) the provisions of this Section 7.1 shall be
binding upon the executors, heirs, legal representatives,
personal representatives, successor trustees, and successors
of each Company Equity Holder and any references in this
Agreement to a Company Equity Holder shall mean and include
the successor to such Company Equity Holder's rights
hereunder, whether pursuant to testamentary disposition, the
laws of descent and distribution or otherwise.
41
7.2 Restrictions on Transferability of Warrants and Payment Shares;
Legend; Rule 144.
(a) The Sellers and each Company Equity Holder understands
that (i) the Warrants and the Payment Shares (collectively, the
"Securities") have not been registered under the Securities Act and,
therefore, cannot be resold unless they are subsequently registered
under the Securities Act and applicable state securities laws or unless
exception from such registration is available and (ii) the Buyer does
not have any intention of registering the Securities under the
Securities Act or applicable state securities laws and that Rule 144
under the Securities Act will not be available as a basis for exemption
from registration of any of the Securities under the Securities Act
until at least one year from the Closing Date.
(b) Neither the Sellers nor any Company Equity Holder shall
sell, assign, pledge, transfer or otherwise dispose of or encumber any
of the Securities received by it or him except pursuant to an exemption
from the registration requirements of the Securities Act and applicable
state securities laws. Any transfer or purported transfer in violation
of this Section 7.2(b) shall be voidable by the Buyer. The Buyer will
not be required or obligated to register any transfer of the Securities
in violation of this Section 7.2(b). The Buyer may, and may instruct
its transfer agent, to place such stop transfer orders as may be
required on the transfer books of the Buyer in order to ensure
compliance with this Section 7.2(b).
(c) Each Warrant and each certificate evidencing Payment
Shares shall be endorsed with a legend in substantially the form set
forth below:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(ii) PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (iii)
PURSUANT TO THE RESALE PROVISIONS OF RULE 144 PROMULGATED
THEREUNDER."
(d) The Buyer will comply with the requirements of Rule 144(c)
promulgated under the Securities Act regarding the availability of
current public information to the extent required to enable the Sellers
and each Company Equity Holder to sell the Securities without
registration under the Securities Act pursuant to the resale provisions
of Rule 144. Upon the request of the Sellers or a Company Equity
Holder, the Buyer will deliver to the Sellers or such Company Equity
Holder a written statement as to whether the Buyer has complied with
the requirements of Rule 144, and, upon the Buyer's compliance with
such requirements, will take such action as may be required (including
without limitation causing counsel for the Buyer to issue an
appropriate opinion) to cause its transfer agent to effectuate any
transfer of the Securities properly requested by the
42
Sellers or such Company Equity Holder, subject to and in accordance
with the terms and conditions of Rule 144.
7.3 Additional Investment Representations and Warranties of the Company
Equity Holders. In anticipation of the distribution of Securities to the Company
Equity Holders hereunder, each of the Company Equity Holders hereby severally
and not jointly represents and warrants to the Buyer as follows:
(a) such Company Equity Holder is acquiring such Securities
for its own account for investment only, and not with a view to, or for
sale in connection with, any distribution in violation of the
Securities Act or any rule or regulation promulgated thereunder;
(b) such Company Equity Holder understands the terms and
conditions of the Sale and is familiar with the business, affairs,
operations and finances of the Buyer;
(c) such Company Equity Holder has adequate means of providing
for his, her or its current needs and contingencies and has no need for
liquidity in connection with his, her or its acquisition of such
Securities; and
(d) such Company Equity Holder has such knowledge and
experience in financial, securities, investment and business matters
that he, she or it is capable of evaluating the merits and risks of
his, her or its acquisition of such securities hereunder.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. This Agreement may be terminated prior to
the Closing Date (whether before or after Requisite Stockholder Approval), as
provided below:
(a) the Buyer and the Sellers may terminate this Agreement by
mutual written consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Sellers in the event the Sellers are in breach of any
representation, warranty or covenant contained in this Agreement, and
such breach, individually or in combination with any other such breach,
(i) would cause the conditions set forth in clauses (c) or (d) of
Section 5.1 not to be satisfied and (ii) is not cured within 10 days
following delivery by the Buyer to the Sellers of written notice of
such breach;
(c) the Sellers may terminate this Agreement by giving written
notice to the Buyer in the event the Buyer is in breach of any
representation, warranty or covenant contained in this Agreement, and
such breach, individually or in combination with any other such breach,
(i) would cause the conditions set forth in clauses (a) or (b) of
Section 5.2 not to be satisfied and (ii) is not cured within 10 days
following delivery by the Sellers to the Buyer of written notice of
such breach;
43
(d) either the Buyer or the Sellers may terminate this
Agreement by giving written notice to the other at any time after the
Company Equity Holders have voted on whether to approve the Sale in the
event the Sale failed to receive the Requisite Stockholder Approval;
(e) the Buyer may terminate this Agreement by giving written
notice to the Sellers if the Closing shall not have occurred on or
before February 15, 2002 by reason of the failure of any condition
precedent under Section 5.1 hereof (unless the failure results
primarily from a breach by the Buyer of any representation, warranty or
covenant contained in this Agreement); or
(f) the Sellers may terminate this Agreement by giving written
notice to the Buyer if the Closing shall not have occurred on or before
February 15, 2002 by reason of the failure of any condition precedent
under Section 5.2 hereof (unless the failure results primarily from a
breach by the Sellers of any representation, warranty or covenant
contained in this Agreement).
8.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all obligations of the Parties hereunder shall terminate without
any liability of any Party to any other Party (except for any liability of any
Party for willful breaches of this Agreement).
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
280G Vote 4.3(d)
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.14(a)
Agreed Amount 6.3(c)
Assumed Liabilities 1.3
Backlog Margin Adjustment Amount 1.10(a)
Backlog Margin Adjustment Notice 1.11(b)
Backlog Revenue 1.9(a)
Business Introduction
Buyer Introduction
Buyer Certificate 5.3(e)
Buyer Common Stock 1.8(a)
Buyer Disclosure Schedule Article III
Buyer Material Adverse Effect 3.1
Buyer Products 1.9(a)
Buyer Reports 3.5
CERCLA 2.22(a)
44
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Closing 1.5
Closing Date 1.5
Closing Purchase Price 1.8(a)
Code Introduction
Company Introduction
Company Certificate 5.2(f)
Company Common Stock 2.2
Company Equity Holders 1.8(a)
Company Equity Holder Representative 7.1
Company Intellectual Property 2.13(a)
Company Option Holders 1.8(a)
Company's Backlog Margin 1.10(b)
Company Stockholders 1.8(a)
Controlling Party 6.3(a)
Customer Deliverables 2.13(a)
Damages 6.1
Disclosure Statement 4.3(a)
Dispute 6.3(c)
Earnout Consideration 1.9(a)
Earnout Calculation Date 1.11
Earnout Payment Date 1.11
Earnout Shares 1.9(b)
Employee Benefit Plan 2.21(a)
Environmental Law 2.22(a)
ERISA 2.21(a)
ERISA Affiliate 2.21(a)
Escrow Agreement 1.7
Escrow Agent 1.7
Escrow Shares 1.8(b)
Excluded Assets 1.2
Expected Claim Notice 6.4
Exchange Act 2.14
Financial Statements 2.6
GAAP 1.9(a)
Gross Margin 1.9(a)
Governmental Entity 2.4
Incremental Revenue 1.9(a)
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Initial Shares 1.8(b)
Intellectual Property 2.13(a)
Intended Uses 2.11(a)
Internal Systems 2.13(a)
Legal Proceeding 2.18
45
Materials of Environmental Concern 2.22(b)
Most Recent Balance Sheet 2.8
Most Recent Balance Sheet Date 2.6
Non-controlling Party 6.3(a)
Ordinary Course of Business 2.4
Organizational Documents 2.1
Parties, and Party Introduction
Payment Shares 1.8(a)
Permits 2.25
Pipeline Revenue 1.9(a)
Purchased Assets 1.1
Reasonable Best Efforts 4.1
Response 6.3(c)
Requisite Stockholder Approval 2.3
Revenue 1.9(a)
Sale Introduction
SEC 3.5
Securities 7.2
Securities Act 2.2
Security Interest 2.4
Sellers' Disclosure Schedule Article II
Seller Material Adverse Effect 2.1
Seller Products 1.1(a)
Software 2.13(e)
Stockholder Earnout Consideration 1.9
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Transferred Employees 4.11
Value 1.8(a)
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
the Buyer may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the Buyer
shall use its reasonable efforts to advise the Sellers and provide them with a
copy of the proposed disclosure prior to making the disclosure).
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
10.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings,
46
agreements or representations by or among the Parties, written or oral, with
respect to the subject matter hereof; provided that the Confidentiality and
Non-Disclosure Agreement dated February 5, 2001 between the Buyer and the
Company shall remain in effect in accordance with its terms.
10.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other Parties.
10.5 Counterparts and Facsimile Signature. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile signature.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications 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 registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Sellers: Copy to:
----------------- -------
1Mind Corporation Shaheen & Xxxxxx
00 Xxxxxxxxxx Xxxxxx Two Xxxxxxx Xxxxx
Xxxxxxx, XX 00000 X.X. Xxx 0000
Attention: Xxxxxx Xxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx Xx., Esq.
If to the Buyer: Copy to:
--------------- -------
Pegasystems Inc. Xxxxxx, Hall & Xxxxxxx
00 Xxxx Xxxxxx Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000 00 Xxxxx Xxxxxx
Xxxxxxxxx: Chief Financial Officer Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
47
If to the Company Equity Holders: Copy to:
-------------------------------- -------
c/o Xxxxx X. Xxxxx, Xxxxxx Xxxxxxxx
as Company Equity Holder Representative 000 Xxx Xxxxxx Xxxx
X.X. Xxx 000 Xxxxxxxxx, XX 00000
00 Xxxxxxxxx Xxxx
Xxxxxx, XX 00000
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of The Commonwealth of Massachusetts
without giving effect to any choice or conflict of law provision or rule that
would cause the application of laws of any jurisdictions other than those of The
Commonwealth of Massachusetts.
10.9 Amendments and Waivers. At any time prior to the Closing Date,
this Agreement may not be amended except by a written agreement signed by each
of the Buyer, the Sellers and the Company Equity Holder Representative. After
the Closing Date, this Agreement may not be amended except by a written
agreement signed by the Buyer and the Company Equity Holder Representative. No
waiver of any right or remedy hereunder shall be valid unless the same shall be
in writing and signed by the person or entity giving such waiver. No waiver by
any person or entity with respect to any default, misrepresentation or breach of
warranty or covenant hereunder shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
10.11 Submission to Jurisdiction. Each of the Parties (a) submits to
the jurisdiction of any state or federal court sitting in Boston, Massachusetts
in any action or proceeding arising out
48
of or relating to this Agreement, (b) agrees that all claims in respect of such
action or proceeding may be heard and determined in any such court, and (c)
agrees not to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety or other security that might be required of any other
Party with respect thereto. Any Party may make service on another Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 10.7.
Nothing in this Section 10.11, however, shall affect the right of any Party to
serve legal process in any other manner permitted by law.
10.12 Construction.
(a) The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and
no rule of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires
otherwise.
[Signature pages follow]
49
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
PEGASYSTEMS INC.
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
President
1MIND CORPORATION
By: /s/ Xxxxxx Xxxxxxxx
-------------------------------------
President
0XXXX.XXX, LLC
By: /s/ Xxxxxx Xxxxxxxx
-------------------------------------
President
COMPANY EQUITY HOLDERS:
/s/ Xxxxx X. Xxxxx
-------------------------------------
Xxxxx X. Xxxxx, individually and as
Company Equity Holder Representative
/s/ Xxxxxx Xxxxxxxx
-------------------------------------
/s/ Xxxxxxxx X. Speaker
-------------------------------------
/s/ Xxxxxx Xxxx
-------------------------------------
/s/ Xxxxx X. Xxxxxx
-------------------------------------
/s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------------
/s/ Xxxx Xxxxx
-------------------------------------
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/s/ Xxxxxx Xxxxx
-------------------------------------
/s/ Xxxxxx Xxxxx
-------------------------------------
/s/ Xxxxx X. XxXxxx
-------------------------------------
/s/ Xxxxx Xxxxx
-------------------------------------
/s/ Xxxxxxx X. Xxxxxx
-------------------------------------
MOONSTONE INVESTMENT INC.
By: Xxxxxx X. Xxxx
-------------------------------------
President
MAXOR NATIONAL PHARMACY SERVICES CORP.
By: /s/ Xxxxx X. Xxxxx
-------------------------------------
Chairman/Chief Executive Officer
THE XXXXX X. XXXXXXXX REVOCABLE
TRUST OF 2000
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------
Trustee
/s/ Xxxxxxx Xxxxxxx
-------------------------------------
/s/ Xxxxxxxxxxx Xxxxxxxxx
-------------------------------------
/s/ Xxxxx Xxxxx
-------------------------------------
51
/s/ Xxxxx Xxxx
-------------------------------------
/s/ Xxxxxx Xxxxxxx
-------------------------------------
/s/ Xxxx Xxxxxx
-------------------------------------
/s/ Xxxxxxx Xxxxxx
-------------------------------------
/s/ Xxxxxx Xxxxx
-------------------------------------
/s/ Xxxxxxxxxxx Xxxxxx
-------------------------------------
/s/ Xxxxx Xxxxxxxxx
-------------------------------------
/s/ Xxxxxxx Xxxxxx
-------------------------------------
/s/ Xxxxx Xxxxx
-------------------------------------
/s/ Xxxxx Xxxxx-Xxxxxxxx
-------------------------------------
/s/ Xxxxxxx Xxxxxxx
-------------------------------------
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